Committee Hearing, May 15, 2002

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Wednesday, 5/15/02 10:27 a.m. Room 696, City Hall Philadelphia, PA - - - BILL 020227 - Dissolving the Schmidts Plaza TIF and creating the Schmidts Plaza II TIF. BILL 020231 - Dissolving the Jump Street TIF and creating the 1600 North Broad TIF. BILL 020309 - Decreasing in stages the rates of the tax imposed upon certain low-income persons. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 WITNESS BILLS 020227, 202231 James Cuorato, Commerce Director.............. Robert C. Fina, Senior Vice President, PIDC 38 J. Robinson, North Phila. Homeowners Assoc. 67 Florence E. Mason, concerned citizen.......... 71 BILL 020309 Charles Pizzi, Phila. Chamber of Commerce..... 76 Councilman David Cohen........................ 90 S. Herzenberg, Keystone Research Center....... 107 Richard Weishaupt, Community Legal Services... 115 Hal Sawyer, Value Through Labor Project....... 120 Sam Katz, Greater Philadelphia First.......... 125 Robert Dubow, Budget Director................. 129 Nancy Kammerdeiner, Revenue Commissioner...... 139 3 5/15/02 WHOLE - BILLS 020227, 020231

Good morning, everyone. This is the public hearing of the Committee of the Whole regarding Bill No.'s 020227 and 020231. I would ask Mr. McPherson to please read the titles of the bills.

Bill No. 020227, an ordinance dissolving the Schmidts Plaza Tax Increment Financing District and creating the Schmidts Plaza II Tax Increment Financing District, being the area generally bounded by Girard Avenue on the north, Germantown Avenue and Second Street on the west, Wildey Street on the south, and Hancock Street on the east, and approving the project plan of the Philadelphia Authority for Industrial Development ("PAID") for the redevelopment of the Schmidts Plaza II Tax Increment Financing District and making certain findings and declarations, all in accordance with the Tax Increment Financing Act, being the act of July 11, 1990, P.L. 465, No. 113, as amended, and authorizing the Director of Finance and other offices of the City to execute documents and do all things necessary to carry out the intent of this 4 5/15/02 WHOLE - BILLS 020227, 020231 ordinance. Bill No. 020231, an ordinance 4 dissolving the Jump Street Tax Increment Financing District and creating the 1600 North Broad Tax Increment Financing District.

Mr. Cuorato? (Witness comes forward.)

Good morning.

Good morning. Please identify yourself for the record and proceed with your testimony.

Good morning, Council President Verna and members of City Council. My name is James Cuorato, and I am the City Representative and Director of Commerce for the City of Philadelphia, and I'm here to provide testimony in support of Bill No. 020227 and Bill 19 No. 020231. Bill No. 020227 will dissolve the former Schmidts Plaza Tax Increment Financing District created by Bill No. 000222 in the year 2000 and will create the Schmidts Plaza II TIF to assist in financing the development of an approximately 240,000 square foot retail center 5 5/15/02 WHOLE - BILLS 020227, 020231 that will likely include a supermarket, a drugstore, and several retail shops and restaurants. The center will be located on approximately nine acres generally bounded by Girard Avenue on the north, Wildey Street on the south, Second Street on the west, and Hancock Street on the east. The City and School District are being requested to approve an $8 million TIF loan for the $34 million project. The TIF note would be repaid from new real estate, City sales, and business- privilege taxes generated from this project. Additional revenues generated by U and O taxes will not be used to repay this TIF note. , an affiliate of Tower Investments Incorporated, purchased the property at sheriff's sale, and I would note that the principal for Tower Investments, Bart Blattstein (ph), is here this morning. Project benefits include approximately 200 construction jobs, 600 permanent jobs, and new tax revenues of $7 million to the School District 6 5/15/02 WHOLE - BILLS 020227, 020231 and $17 million to the City. Another benefit is the removal of the blighted vacant former Schmidts Brewery and the provision of new retail services to the community. A copy of PIDC's financing gap analysis has been submitted with my testimony. This analysis indicates that the gap is approximately $9 million. " The difference in the two districts is Schmidts Plaza II is smaller by two acres, and the effective date, or start date, of Schmidts Plaza II is July 1, 2002. I would note that the School Reform Commission voted unanimously to approve and participate in this TIF, as presented in Exhibit A to Bill No. " The second TIF bill before you today, Bill No. 020231, dissolves the former Jump Street TIF District created by Bill No. 980705 in 1998 and 7 5/15/02 WHOLE - BILLS 020227, 020231 creates the new 1600 North Broad TIF District. The 1600 North Broad TIF District will facilitate a neighborhood-based development on a five-acre parcel on the west side of North Broad Street between Cecil B. Moore Avenue and Oxford Street on the Avenue of the Arts North. The Philadelphia Redevelopment Authority has acquired the parcels comprising this currently-vacant site to convey or lease for the purpose of constructing a mixed-use residential and/or retail and entertainment center with related parking. The Redevelopment Authority is presently in the process of selecting a developer from responses to a request for proposals. Based on the three proposals received, the development costs will range from $42 million to $63 million, of which $24 million to $40 million will be financed by the developer and up to $23 million will be secured by incremental increases in real estate, City sales, business-privilege, and use-and-occupancy taxes pledged as repayment of the TIF note over a 20-year term. PIDC may provide a HUD 108 loan of up to $20 million to fund all or a portion of the TIF 8 5/15/02 WHOLE - BILLS 020227, 020231 note and/or developer's financing for this project. Other public funds may also be provided to the extent that the TIF loan is less than $23 million. A parking structure may also secure public financing beyond any TIF financing. As in the case of the Schmidts Plaza II TIF, the 1600 North Broad TIF is basically an amendment to the former Jump Street TIF.

The major differences between the earlier TIF and the 1600 North Broad TIF are the reduction in term of the TIF District from years to 20 years with an 13 effective date of January 1, 2003, an allowance for 14 a range of developers and development scenarios 15 within which project costs would range from 16 $42 million to $63 million, the amount originally 17 approved in the Jump Street TIF,District. The 1600 18 North Broad TIF would also permit residential and 19 parking structures. 20 The project benefits include 430 to 490 21 construction jobs and 500 to 800 permanent jobs. 22 Projections indicate that approximately $19 million 23 to $27 million will accrue to the City, $4 million 24 to $8 million to the School District, and 25 $32 million to $43 million to repay the TIF note 9 5/15/02 WHOLE - BILLS 020227, 020231 during the term of the district. Included with my testimony is a copy of PIDC's project financing gap analysis. The analysis indicates that the funding gap is between $18 million and $23 million. Once more, I would note that the School Reform Commission voted unanimously to approve and participate in this TIF, as presented in Exhibit A of the 1600 North Broad Project Plan. The City has provided $7 million in economic stimulus funding to acquire and clear the site. To assure that the public is fairly compensated for the acquisition, two creative repayment processes will be implemented. First, the developer will be required to provide an interest in the project for a community-based organization that will also receive a participation in the net cash flow from the project. Second, the developer will be required to repay the public from surplus net cash flow, as determined by an agreement to be negotiated with the selected developer. Project design for both 1600 North 10 5/15/02 WHOLE - BILLS 020227, 020231 Broad and Schmidts Plaza II have not been finalized, and the figures presented here are based on estimates. The total amount and line items may vary as product design for each TIF project is refined and are not intended as limitations. The initial project cost and/or size of the project, excluding provisions presented in each project plan, may increase or decrease by up to percent prior to settlement of the financing, 11 without amendment to the project plan. Additional 12 increases shall not be funded from any public 13 financing source, except as provided in the project 14 plan. After settlement of the financing, no 15 further amendment shall be required. All projections contained in the TIF project plans for tax revenues and jobs to be created are based on reasonable and approximate assumptions and methods of estimation. This information was reviewed by the City Finance Director and her staff as well as by representatives of the Pennsylvania Intergovernmental Cooperation Authority and the City Controller. I understand that this morning, a letter was distributed to members of City Council 11 5/15/02 WHOLE - BILLS 020227, 020231 from the Director of Finance indicating her concurrence with the projections for these two TIF project plans. Typographical errors contained in the Schmidts Plaza II TIF project plan and the North Broad TIF plan have been corrected, and copies were distributed to City Councilmembers. In closing, I would note for the record that today's hearing is required by the Pennsylvania Increment Financing Act and that the act requires Council to wait at least three weeks from this hearing for final consideration. Because of this State-imposed restriction, I would request that Council take final action on these bills at its meeting of June 6, 2002, but in any event, no 17 later than June 13, 2002. I respectfully request your favorable consideration of these two bills acting as Committee of the Whole with a recommendation for approval to the full City Council in accordance with these aforementioned timeframes.

Thank you for your consideration of this testimony, and we would be happy to answer any questions that you may have. 12 5/15/02 WHOLE - BILLS 020227, 020231

Thank you. Mr. Fina, are you testifying?

No. 5

Mr. Cuorato, you indicated that there were typographical errors contained in the Schmidts Plaza II TIF, and they were being corrected and copies were being distributed? Have they been distributed?

Yes, Madam President, they have been distributed.

Were they distributed this morning?

They were distributed yesterday, Madam President.

And there are only typographical errors -- do all Councilmembers have a copy?

Thank you. The testimony I have in front of me is dated May 15th; however, there is a stamped date marked May 2nd. Is this the corrected copy? Oh, I'm sorry, May 14th, I'm sorry. It's kind of blocked out. It's stamp-dated May 14th for testimony 13 5/15/02 WHOLE - BILLS 020227, 020231 that is given today, May 15th. Would this be the corrected copy?

Councilman, are you referring to my testimony?

Yes.

My testimony should have been distributed to City Council yesterday.

Okay.

So that would make sense. The date on the testimony was just for the date that the public hearing is being held, which is today.

Mr. Cuorato, is this what you're referring to (holding up document)?

Yes.

And it's dated 5/13?

Madam President, that is the document. And on the second page that contains the table of contents at the bottom, it should say, "Introduction Spring 2002 - Version 2."

Okay. I believe that's being circulated now, is it not? 14 5/15/02 WHOLE - BILLS 020227, 020231 Mr. Clark, are you circulating this to all Councilmembers? Okay, it's presently being circulated. While that's being circulated, Mr. Cuorato, can you tell us, what are the reasons that the Administration is asking to amend these two TIFs?

Yes, Madam President. These are two projects that have come before this Council recently, and they are two neighborhood projects that the Administration very much supports. The rationale behind seeking approval for new TIF districts remains the same, which is to say that they are neighborhood-based projects which we are supporting, which will create jobs and help to revitalize neighborhoods in which we are seriously interested in making progress. There have been some changes to each of the projects and each of the TIF districts since this Council's initial approval. For that reason, we have decided, rather than an amendment, to come back with new TIF proposals, but the projects are essentially the same. 15 5/15/02 WHOLE - BILLS 020227, 020231 For Schmidts Plaza, the project has been downsized somewhat and concentrates on the commercial portion of the project. The development in Northern Liberties around Schmidts Plaza is a three-phase project that would include residential and commercial. This TIF focuses on the commercial portion of that project, so it's a smaller area. For 1600 North Broad Street, we will be selecting a new developer. That's why the way the project plan is presented, it includes ranges. We have received three proposals. We are close to selecting a developer, but the ranges that are in this TIF project plan will cover us in the event that any of those three proposals are selected.

Can you tell us, are any additional public funds being committed for these projects? (Mr. Cuorato confers with colleague off record.)

Madam President, there is the possibility of additional public assistance. There may be a HUD 108 loan; there also may be separate public financing sought for a parking 16 5/15/02 WHOLE - BILLS 020227, 020231 structure in conjunction with the project. For Schmidts Plaza, we may be seeking state grants for infrastructure improvements. And the Empowerment Zone, the financial institution established by the American Street Empowerment Zone, is also working with the developer on a loan for the project.

In the 1600 North Broad TIF, why isn't there any project costs associated with the land? Is this consistent with the original TIF?

Madam President, I -- I believe you're referring to the project costs that are in the project plan that include a range. Right now, we're not certain of what the cost of the land will be to the developer. So in order to maintain maximum flexibility, we established this range with minimums and maximums for each of the capital costs. The maximum land cost that we've noted is $7.5 million. We're not sure if the land will ultimately be disposed of for an amount somewhat less than that. So we left -- in order to be conservative, we left the land cost at zero for the 17 5/15/02 WHOLE - BILLS 020227, 020231 minimum scenario. That is still to be negotiated with the developer. And I am certainly not here this morning saying that the land will be given away. That's still to be negotiated.

Thank you. Can you tell us, if the two TIFs are approved, are we assured that the projects will be built?

Point of information, Madam Chair.

Yes, the Chair recognizes Councilman Ortiz.

This seems strange because usually when somebody comes requesting a TIF, there's a developer in place, and this time around, you say the developer is still to be chosen in the near future for this. It seems to be putting the cart before the horse or -- I mean, it really makes me a little bit preoccupied about this process and the way we're doing this. Why?

Councilman, this is an extremely important project for the Administration and, again, one that -- 18 5/15/02 WHOLE - BILLS 020227, 020231

But if it's extremely important, why isn't there a developer? And, you know, and....

We --

And give me a description of the project.

Okay. The project is a mixed-use project that will include entertainment, retail, and possibly residential --

That takes a whole universe of things. What do you mean by "entertainment"? It could mean a multitude of things.

Well, it could include a movie complex with retail stores, it could include other types of attractions.

See, we have the Eighth Street and Market, and there we have some agreements already, and that didn't developed. Here, we're putting a whole series of things in which we don't have -- you don't sound very sure as to what it is that we have there. I mean, an entertainment center, it could mean anything. A cineplex, you know, is that the Magic Johnson thing 19 5/15/02 WHOLE - BILLS 020227, 020231 that he did in Harlem is coming here? You know, is it going to be competitive. You know, I know that there are a few cineplexes planned around the City. So how are we going to do this? And you're asking us to approve something really without -- again, on an conceptual basis, it seems to me.

Councilman, if I may, I'll bring you up to date on where the process is. Following the termination of discussions with the developer who had been designated previously for this site, the Redevelopment Authority issued a request for proposals for this site. We received three proposals and those proposals are being evaluated -- have been evaluated, and I would say we're near a recommendation. The three proposals were submitted by: Crafco (ph), which is a major retail developer in this area and one in which -- one who has done very good projects; the Goldenberg Group, a development team headed by the Goldenberg Group; and Grid Properties.

Mm-hmm. 20 5/15/02 WHOLE - BILLS 020227, 020231

So we received three quality proposals. We expect to recommend one of those three for selection. So they --

But why don't you wait until we have some sort of plan? Because we have a plan for Penn's Landing, and that's been in discussion now, and we almost got it there, and then all of a sudden, it sort of, like, got murky there, and my friend says it's going to happen, and I trust his word that it's going to happen.

When did I say that? (Laughter.)

But the issue is, there is a developer, there's a plan, there was a whole series of financing besides the TIF that was put into place. And here, you're asking us again to really approve something on a very conceptual basis; I mean, you know, with smoke and mirrors.

Councilman, I can tell you with assurance that one of the three developers who have submitted proposals will be designated --

But why don't you wait until you have a real plan in front of you and 21 5/15/02 WHOLE - BILLS 020227, 020231 say, Look, we need this TIF in order to accomplish this, this, this, that?

Well, based on the proposals that we have received, on all three proposals, one of which we will select. There is no question that a TIF district will be necessary in order to have the project move forward.

But I think this Council would like to -- at least at one point would like to know what we're voting on when you bring it here. I mean, we're going to be voting on something that we don't know anything about.

Madam President? I'm asking whether Councilman Ortiz would yield to me for one question.

The Chair recognizes Councilman Cohen.

If we have a developer before us, then questions can be asked of that developer with respect to his plans, and developers have testified before us, and we've brought about changes as a result of that testimony. It certainly doesn't seem to make very much sense for to us yield that right and that 22 5/15/02 WHOLE - BILLS 020227, 020231 power. What is the urgent rush to approve blind in the blind who the developer is? Is it to satisfy all three developers that they don't have to come before City Council, that you've done their work for them? I don't understand this procedure. This is May, Council will recess by June 13th -- and I assume that's for the summer -- until the early part of September, but I don't see any reason for the great rush on this. With that, I yield back to Councilman Ortiz, but I think you're asking us not only to approve somebody in the blind, but you're asking City Council to remove itself from being in a position to raise any questions that it may have with any developer.

Well --

And I deeply resent the effort of the City to do the hard work for the developer. A developer coming in asking for the City TIF ought to at least be prepared to face this legislative body; it really isn't such an ogre, and it really isn't such a difficult task. I think we've been reasonable on these 23 5/15/02 WHOLE - BILLS 020227, 020231 TIFs. Many of us who have strong questions about the whole concept of TIFs, nonetheless, have been voting together with all of our colleagues in generally unanimous support after we've had an opportunity to question a developer.

Madam Chair?

I yield back.

The Chair recognizes Councilman Nutter.

Councilman Ortiz, will you continue the yield and --

All right.

Thank you, Councilman. To a couple of my colleagues, and with the fullest disclosure, since I potentially anticipate being in this same position when we return in the fall, I think a part of what we're trying to accomplish here is, one, we are reaffirming something that the Council has done previously; both of these TIFs in front of us have been approved in the past. A lot of things, as they say, happen along the road to try and get a project done. 24 5/15/02 WHOLE - BILLS 020227, 020231 In my own situation out in West Philadelphia, we've been actively engaged now in a much too long discussion about trying to get a supermarket project done in West Parkside. That is a TIF. That TIF was approved before we had a developer lined up, and the purpose of that was, in the West Parkside industrial park, as we have desperately tried to encourage development out there, we thought it prudent to put every incentive we had available on the table, short of my writing the developer a personal check, to create an environment that would make development possible, the result of which is, we do now have a developer. Unfortunately, it has taken so long, we will have to come back in September, and I might have a bill in another week or two to do essentially what our two colleagues here in the 1st District and in the 5th district are now faced with, which is now the extending of the terms of the TIF because, all Councilmembers know, the TIFs have a 20-year life to them. These projects maybe did not get started as quickly as anybody would like; I don't know the details of either of them. But I would like to at least advocate 25 5/15/02 WHOLE - BILLS 020227, 020231 that we want to have development, and we need to have as many incentives and opportunity as possible. There have been other TIFs where, I think, with every respect to Mr. Cuorato and Mr. Fina and before Mr. Cuorato, I have raised concerns about the need for a particular TIF at a particular location. I am not left with the impression that either of these sites is of any question as to whether the TIF is needed or not, but I did want to disclose to colleagues that these things do happen. They're often not the prettiest, you can't always give all the explanation. I mean, I certainly plan to support them, but I thought that you should know that I'm going to be in this same situation in another couple of months not because of a change in developers but just because time has literally elapsed off the clock. And if we're going to give someone a TIF, they should get it for the full term of the TIF, and these are ones that we've already approved. I think in the 1600 Broad Street, as it's now called, there apparently is a change in the developer; I don't know the details of that. 5/15/02 WHOLE - BILLS 020227, 020231 And for the Schmidts Brewery, the developer is here and a person that we know. So, I mean, I just wanted to add that to the record. These things do happen. I don't necessarily know that Council's giving up any, quote/unquote, right. We have the right to approve these or not approve them. And in the case of the multiple-developer TIF, I guess you're going out for an RFP in trying to figure out who it's going to be. I think I'm left with the impression that these are recognizable names, and what we're doing is creating opportunity. We don't ever get to ultimately directly approve who the developer's going to be unless we turn the TIF down. So I just wanted to add that to the record. I mean, I'm certainly planning to support these, but I understand the difficulty that Commerce and PIDC is faced with and, as I said, we're going to have another one of these probably in September. Thank you, Madam Chair. And thank you, Councilman, for the yield.

You're 27 5/15/02 WHOLE - BILLS 020227, 020231 welcome. The Chair recognizes Councilman Clarke.

Thank you, Madam President. First I'd like to add to Councilman Nutter's reference to his particular TIF. It's my understanding, in doing some research on TIFs that were created not only in the City of Philadelphia but nationally, as an example, in the City of Atlanta, there was actually a TIF district created of some 1100 acres to encourage development both on the commercial and residential side, so this is not something that's abnormal. And, traditionally, my understanding is that TIFs were done for districts, not specific projects, but the City of Philadelphia, in its recent history, has designated TIFs for a particular project. So this is not an abnormal situation where you create an environment, as Councilman Nutter has indicated, to create incentive for development. This particular site has a history. There is a basis this particular process. As you recall, I guess, three years ago -- actually before 28 5/15/02 WHOLE - BILLS 020227, 020231 I was a Councilperson -- you guys came before this body and requested a TIF for the formerly-known-as- Jump Street development. In retrospect, we probably made a mistake in selecting one developer and continuing to negotiate with that developer for approximately four years, and at the end of the day, weren't able to do that development. We changed our strategy and we decided to put out a request for proposals to encourage additional developers to come to the table, but we knew, based on the prior discussions and negotiations with the former developer, that we would, in fact, need to have a TIF in order to develop this location. The basis for us coming back and not simply extending the TIF is because the TIF language in the title indicated that it was a Jump Street TIF. If that developer is not selected, we will not be able to use that name; therefore, we have come with the new legislation creating 1600 North Broad. Subsequently, whomever we select, I'm assuming, will have a name. It is my understanding that that process, in terms of selection, is winding down. I 29 5/15/02 WHOLE - BILLS 020227, 020231 fully anticipate that within the next week, the recommendation that was put forth by a committee of individuals both from PIDC, Commerce, I believe, and the Redevelopment Authority and possibly someone from Legal and the Planning Commission have reviewed all three proposals, have submitted their recommendation. It will be reviewed by the Administration, and I believe that that recommendation will be formalized within the next week -- it definitely will be formalized before the passage of this particular bill. So I can assure you, as the sponsor of the bill, that if I'm not comfortable with it and the developer and the process, you know, then there's a strong likelihood that that bill will not be passed at that time or not be asked to vote on final passage. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Ortiz.

I don't think the TIF is a controversy; we approved a TIF for this site already. 30 5/15/02 WHOLE - BILLS 020227, 020231 Like you said, this is just an amendment to the TIF. So we're not discussing whether this site needs a TIF to attract development. Obviously, that's why the TIFs were created: To be able to attract development and specifically development to areas where development usually doesn't go. And there is no problem with that. But because of the history that we've had with this site, it's one of the reasons why I think we should be incredibly cautious and have all the things start out, and, you know, I have no 14 problems. I think it's an important site to develop because of what is happening up there, and one needs to happen. But a TIF is already there; we're just amending it. We'd just like to get the information so that we have an understanding of what is going to transpire so we're not here three years from now or four years from now, saying, Well, you know, we did that decision but the plan really could not gel, could not come for this reason or that. And you know that we have -- in that Jump Street, we have some problems and some people 31 5/15/02 WHOLE - BILLS 020227, 020231 misuse money in terms of the development and so on. So we've got to be able to do it and, I think, approve it, and I have no problem with that but. But we'd like to see things in front of us that happen. I mean, like I said, we approved the Penn's Landing project, and we had all the hoopla. We approved the Eighth Street project and we had all the hoopla. And we approved TIFs for that and TIFs for this and that. And we're still waiting, you know. And the issue is, I'd like to see once we pass it, I'd like to see development happen and jobs created. But, you know, and it's all right. We'll vote this out, we'll get it out, but let's see some beef to the bone.

Councilman Ortiz, are you completed with your line of questioning or comments?

(Nods head.)

The Chair recognizes Councilman Cohen.

Thank you, Madam President. I think the question that I'm raising 32 5/15/02 WHOLE - BILLS 020227, 020231 reflects the concern that Councilmembers-at-large, or at least some of them, have. I think the criticism is not just of the Administration for not making more information available to us, but also it's aimed at our colleagues who occupy District Council positions, and I'm urging that the District Councilmembers be more forthcoming to all members of City Council during the process so we won't be getting our first understanding of these matters at the hearing. In view of the statements made earlier by Councilmember Clarke and Nutter, I'm going to be prepared to withdraw the objections I had, though I think it would be desirable if we could have the developers here if not now, maybe at a later time, because sometimes, certain developers are more prone or more able to grant certain concessions. But if the Councilmembers-at-large are more involved and kept more informed, then we'll be more ready to act when these strange things seem to occur when we learn they're really not so strange because of circumstances. So I'm going to be prepared to withdraw my objection at this point, with the hope that at 33 5/15/02 WHOLE - BILLS 020227, 020231 some point, we'll be able to talk to the developers. Thank you.

You're welcome. The Chair recognizes Councilman Nutter.

Thank you, Madam President. First, the record should note that when Councilman Cohen was mentioning the developers making further concessions, one of the developers who is here, Mr. Blattstein, indicated his willingness, I believe, to give back all benefits that may come from the TIF. He was smiling, so I took that to be his agreement. That is only -- I'm only playing on the record. Seriously, Councilman Cohen is right, and I think any of us could do a better job of sharing more information. I will only share with you, Councilman, that now, just speaking for myself, in some of these development projects, many of us would probably love to share more information, one, if we had it, because at times, these discussions take 34 5/15/02 WHOLE - BILLS 020227, 020231 place even away from us, between the developer and either a community organization or one of our economic-development agencies. The other reluctancy at times in sharing some of this information is it is either so stupid or so embarrassing for some of the stuff that goes on in development, that some of us, to retain any last shreds of dignity in these jobs, are probably reluctant to even talk to anyone about some of the stuff that goes on in development out in neighborhoods. But I'm just speaking for myself in that regard. I do want to put on the record that I'd be glad to share more information as long as -- whenever possible. Thank you, Councilman. Madam Chair, I'm going to yield 'cause I know some other members want to talk about this particular issue. I have some questions of my own with regard to the projects in front of us, and I'll come back on them.

Okay, thank you. At this time, the Chair recognizes Councilman Clarke. 35 5/15/02 WHOLE - BILLS 020227, 020231

Thank you, Madam Chair. First, Councilman, I'd like to apologize. I'm still relatively new around here; only been in office a couple of years, so I will share more information with respects to this particular TIF. But I also ask that if we don't meet our target date of a groundbreaking ceremony next year, I ask that you stand with me as we get criticized by the press inevitably. If we don't meet that target date, I ask that my at-large friends stand with me and take some of that heat that I know that's going to come.

(Inaudible/ off-mic.)

I can recall a particular site about two blocks from this particular location that we continue to get criticized. Frankie, you're not the only one with a hole in the ground. We continually to get criticized. So I only ask that my colleagues at-large stand with me if we don't meet this target 36 5/15/02 WHOLE - BILLS 020227, 020231 date, but I will be forthcoming with the information. As a matter of fact, I would like to ask for Mr. Cuorato and Mr. Fina to prepare a summary of all three development proposals and have them distributed, through the Chair, to the Councilmembers. Thank you, Madam President.

Thank you. The Chair recognizes Councilman Goode.

Thank you, Madam President. Good morning, Mr. Cuorato and Mr. Fina.

Good morning, Councilman.

First, I'd like to thank you for your support of the new-jobs tax credit bill. I look forward to that being the type of incentive I think that we need to use in Philadelphia. You know I'm not particularly in favor of TIFs or the way TIFs are done here. In our previous conversation the last time the TIF projects were considered by Council, we talked about the job-creation aspects of it and whether 37 5/15/02 WHOLE - BILLS 020227, 020231 those jobs were being monitored. At that point, I asked for a report from PIDC on what they were doing in terms of job-creation-monitoring. But I think the way we get around that is really what the Controller has suggested: Putting in strong claw-back conditions within the legislation and within the agreements. Does that exist within this legislation? And if not, why not?

The claw-back provisions, Councilman, will be in the development agreements with each of the respective developers.

And the claw-back provisions will be what specifically? 'Cause in the new-jobs tax-credit bill, essentially, if the companies do not create the jobs, they could give us our money back. Is that what the claw-back provisions within this agreement will say?

No, no, Councilman. It's -- the claw-back provisions are that if the project revenues exceed projections, that the City would be repaid more quickly than in our -- than in what our estimates show now.

So we're still using 38 5/15/02 WHOLE - BILLS 020227, 020231 a debt model, and essentially, we're claiming that it's creating jobs, but if people don't create the jobs, they just have to pay back the money. (Mr. Cuorato confers with colleagues off the record.)

Councilman, for the record, my name is Robert Fina, and I'm a senior vice president with PIDC. The claw-back provision that the Controller was referring to in his letter to members of City Council talked about the fact that if the City taxes are not generated, he would want dollars repaid. However, if the taxes are not generated, Councilman, it is the developer who is responsible to repay the TIF note, not the City.

But there is no 18 claw-back regarding job creation?

There is no claw-back regarding job creation, but if there is no job creation, then --

Are we going to a move to a point where we do claw-backs related to job creation? This is really not just related to these TIF projects; it's related to what our 39 5/15/02 WHOLE - BILLS 020227, 020231 economic development strategy is. And I support the work of the Commerce Director and PIDC in general. This particular strategy in terms of the way you do TIFs, you know I don't agree with, you know I'm voting against it. But beyond that, I wanted to appropriately have this discussion now in talking about, are we doing economic development to simply launch major projects; are we doing this to create business, attract business; or are we actually doing it as we say we are doing it, primarily to create jobs? If we're doing it primarily to create jobs, if that is the number-one priority of economic development, then if the jobs are not created, we should put claw-back provisions in both the legislation and in the agreements. And at what point are we going to do that?

Councilman, you raise a very good point and I know that you're aware that PIDC's mission is to create jobs and taxes in the City; that's our simple mission.

Is it the first priority?

Yes, it is. 40 5/15/02 WHOLE - BILLS 020227, 020231

If it is the first priority, as you come to this Council again to authorize spending taxpayers' money supposedly for the creation of jobs, will you include a claw-back provision that says if those businesses do not create the jobs, then essentially, you have to give the money back?

Councilman, as we've discussed before, every PIDC loan program has job creation as a requirement, and there are penalties for that. With these two particular TIFs, both are retail-based TIFs, and retail-based TIFs, to be successful, must create jobs. If those jobs are not created, there is no business done, and that would mean the developer would not be able to pay the TIFs.

Bob, actually, let me say this to you: I respect the work that Mr. Cuorato's doing, but I'm actually tired of the same song and dance here. I'm still waiting for the job-creation monitoring reports that I asked for the last time you came here asking for TIFs, and I'll just ask you to forward the same job- creation monitoring report on all the projects that 41 5/15/02 WHOLE - BILLS 020227, 020231 PIDC has funded particularly through TIFs. Simply show us the jobs that have actually been created. Thank you, Madam Chair.

Thank you. The Chair recognizes Councilwoman Brown.

Good morning. As a follow-up to my colleague's question, help us understand why you decided not to include this in the legislation. You made a tactical decision to include it only in the agreement. What is the rationale for not including it in the legislation, Mr. Fina?

The legislation that we proposed to City Council is legislation that we follow the direction of the State act that creates the TIFs, that we have to have a project plan that is an exhibit to the ordinance that you pass and as an exhibit to the resolution that the School Reform Commission passed. In that project plan, it gives projections and estimates of not only taxes but of jobs created. In both those project plans, there's 42 5/15/02 WHOLE - BILLS 020227, 020231 an enormous amount of jobs created, as was included in Mr. Cuorato's testimony. I have no problem requiring in the TIF agreement that is executed by the City, the developer, and PAID, PIDC and PAID, that there will be a job-creation requirement. All of these economic-development projects create jobs, and particularly retail, which these two jobs are about.

I believe, however, that part of the question is, a projection is made on the front end, but there is no assurance in the language that that projection is met on the back end. So the question becomes, what kind of contingency, what kind of condition is placed in the language that assures us on this side of the table that what you project to be done will be done?

Again, that's a fair question. And this Council, about a year ago, with some legislation introduced by Councilman Nutter, had certain job-reporting requirements. PIDC has been slow in gathering them, but we just recently have submitted them to the City Commerce Department 43 5/15/02 WHOLE - BILLS 020227, 020231 for him to submit through this Council. So we do have monitoring now of construction jobs and permanent jobs for the nine TIFs that have closed.

That's somewhat encouraging. The expectation remains on this side that legislation becomes an assurance for us as public policy-makers. Agreements happen on your side of the table and with your staff and excuses, for lack of a better word, become on why something does not happen.

Councilwoman, I would just say to your point and to Councilman Goode's point, they both are very well taken. We are looking to create neighborhood- based jobs with these projects, and we come here and ask you for approval for economic-development incentives in order to make these projects go forward and create these jobs. If the jobs are not created, we're not accomplishing one of the main objectives that we set out to do. So we will see if there are ways that we can strengthen the requirement that those jobs 44 5/15/02 WHOLE - BILLS 020227, 020231 be created. We have given you what we think are realistic projections for those jobs, which is to say, if the economic-development incentive is in place and the project gets built, we have reasonable expectations that this number of jobs will get created. But I assure you, we will see if we can't strengthen those requirements that that number of jobs be created. And on behalf of the Administration, I want to apologize to Councilman Goode that any information he has asked for on jobs data has not already been provided, and I will personally see to it that it's provided immediately.

Is there any penalty, Mr. Cuorato, if, in fact, there is a commitment that X-amount of jobs will be created and they're not created?

Madam President, for our traditional loan programs, our low-interest financing programs, there are penalties for are -- they are tied to job creation, and if jobs are not created over a certain period of time, we can call the financing or it can be revoked.

Well, this is 45 5/15/02 WHOLE - BILLS 020227, 020231 a TIF, the same thing.

For TIFs, there are no 4 penalties. We provide reasonable projections for what the jobs -- the number of jobs that will created; that's the information that we provide to Council. We stress to the developer that we will be monitoring each year the number of jobs that are there. But you are correct; there are no 11 specific penalties, and it's an issue the worth addressing.

I didn't mean to interrupt you, Councilwoman. Please proceed with your line of questioning.

It's not a problem at all, Madam President. So it begs the question, Mr. Fina, why are TIFs exempt?

That's a fair question again, Councilwoman. TIFs are not exempt, but the way they're structured and such, they are labor-intensive projects, such as, if I may, the Loews Hotel, a labor-intensive project. Without 46 5/15/02 WHOLE - BILLS 020227, 020231 that TIF, the project could not proceed, and in order for the project to stay open, it has 600-some permanent jobs.

That's a terrific success story.

For the Marriott Courtyard, the same thing. For the first TIF we did to support PNC Bank's operation center near the airport, the Bartram TIF, that has approximately 900 jobs there, and I'm probably being conservative in that number; I'll have to check the information that we've recently submitted.

So is that track record consistent across the line?

Yes, that's consistent with every TIF that has closed across the line with the jobs. So we're very proud of the jobs and very pleased that were created, and we'll be very pleased to provide that information to Council.

Thank you, Mr. Fina. Thank you, Madam President.

You're welcome. 47 5/15/02 WHOLE - BILLS 020227, 020231 Mr. Cuorato, how do you propose future reductions in the business-privilege tax impact with the TIFs? Base your calculations as well as the projected amount available to cover the project costs.

Madam President, we updated our projections based upon the reductions in the business-privilege tax, and so the projections that we have for repayment of the loans take into account those reductions.

Thank you. What are the MBE/WBE opportunities associated with these projects, and what is their status?

Madam President, for the Schmidts Plaza II TIF District, there is an economic-opportunity plan that has been negotiated with the developer that we believe is acceptable. For the 1600 North Broad district, when a developer is selected, there will be no final agreement with that developer unless, and until, an acceptable economic-opportunity plan is negotiated. For the Schmidts Plaza II TIF, it is the same developer, Tower Investments, and we have 48 5/15/02 WHOLE - BILLS 020227, 020231 negotiated with them an economic opportunity plan that provides MBE and WBE opportunities both for contracting and employment. We do have a negotiated agreement with that developer. On 1600 North Broad Street, because we will be selecting a new developer, we have yet to negotiate the economic-opportunity plan, but we will not complete an agreement with that developer unless, and until, an acceptable economic- opportunity plan is agreed to by all parties.

Thank you. The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Good morning, Mr. Cuorato.

Good morning, Councilman.

And Mr. Fina. I may have missed something that you were just talking about that I was interested in. Let me go back, though, for a second. We received a letter from the City Controller with regard to both of the TIF projects in front of us. Have you seen this letter dated May 13th from the City Controller to the Council President? 49 5/15/02 WHOLE - BILLS 020227, 020231

I -- yes, I -- yes, Councilman, yes.

The twoletter?

Yes, Councilman.

Okay. And that came in pretty much simultaneous with the package from Mr. Longstreth, which is dated, I guess, yesterday, the 14th, which mentioned some changes that have been made, many of which sound similar to what the Controller was raising. What I'm trying to understand, or at least reconcile, is: Have all of the issued that have been raised in both of these letters, which are pretty much virtually the same on the projects, have those corrections, most of which are related to wage-tax rates, school millage tax rates, things that have changed here in recent times because of legislation that probably happened subsequent to the advertising of these bills, have those changes that have been raised by the City Controller for both of these been made?

Yes.

Okay. Are there 50 5/15/02 WHOLE - BILLS 020227, 020231 any changes or concerns that were raised by the Controller that were not addressed?

No. 5

Okay, all right. That's that issue.

I'm sorry, Councilman, let me just amend that last statement. All of the changes that the Controller noted have been incorporated into our projections, with three minor exceptions, and I will go through those with you if you would like.

Which project are you talking about?

1600 North Broad.

Okay, hold on for one second. Are we looking at the Controller's letter now?

On 1600 North Broad, the only comment that the Controller made that has not been taken into account at this point is the transposition of the City and school benefits from the real-estate tax in the base year.

Which -- are we on 51 5/15/02 WHOLE - BILLS 020227, 020231 ?

This is on 1600 North Broad.

I understand that. Are you reading from his letter? Which bullet point are we talking about?

It's Pages 3-A and 3-B of the project plan for 1600 -- Pages 3-A and 3-C for the 1600 North Broad project plan. In the base year, the City and school benefits from the real-estate tax were transposed.

Are you talking about this bullet that says on -A, the City and school distribution of taxes in the base row is incorrect?

The column at the right that says "Use of Tax Revenue in Thousands," the columns that read "City" and "School" were just transposed, so that needs to be corrected.

Okay, I'm assuming we need to take care of that this morning? Are you going to have an amendment for that or --

That's an amendment to the project plan, which is on file with the Clerk's 52 5/15/02 WHOLE - BILLS 020227, 020231 Office, so we'll make sure that amended pages are submitted to the Clerk's Office today.

Do we need to make that amendment in the course of this hearing? Aren't we approving the project plan here?

Yes.

Okay, so you're going to -- at some point in time during this hearing, you're going to put forward amendments?

We can do that right now, Councilman.

Okay.

And indicate to you that we will submit a corrected page as part of the project plan that makes the proper calculations for city and schools.

Have you had an opportunity to talk to Councilman Clarke about that?

I have not personally talked to Councilman Clarke about that, but --

Let me at least recommend that before we try to make a proposed amendment to a project plan, that you have some 53 5/15/02 WHOLE - BILLS 020227, 020231 opportunity to talk to Councilman Clarke about that somewhere in the course of this hearing, unless he doesn't want to talk about it. (Addressing Councilman Clarke.) Councilman, the issues raised by the City Controller, the Commerce Director is saying that they addressed all of the issues raised by the City Controller having to do with tax rates and some calculations. There was one that they did not address that needs to be amended, and I asked, were they going to make that amendment today? because we're approving this project plan. The Commerce Director gave me the impression that they would just substitute the in the plan that goes to the Chief Clerk's Office. I asked him to be sure to talk to you before proposing any amendment even if it's just correcting literally the transposing of numbers, and that that could be done during the course of this hearing and wouldn't slow us down.

Okay, that's fine.

All right, so you guys will deal with that.

Yes, we'll take 54 5/15/02 WHOLE - BILLS 020227, 020231 care of it.

Okay.

Okay. And then, Councilman, with respect to Schmidts Plaza II, there were two comments. On the wage tax for 2004, there was a typo which results in the calculation being off by sixteen 100ths of a percent, resulting in an understatement of revenues to the City of $20,000, and a comment by the Controller that we conservatively did not inflate 2004 figures for real estate, U and O, sales, and business-privilege tax, which results in an understatement of $1.6 million. So, in effect, the first one being a very minimal amount, $20,000; the second one being up to $1.6 million. The Controller is saying that we are underestimating revenues. So --

Well, I mean, is this a material issue or is this just a difference of opinion between people making estimates?

It's a difference of opinion between people making estimates, and because the Controller is saying that we are underestimating, we're fine just leaving these 55 5/15/02 WHOLE - BILLS 020227, 020231 figures as they are.

I understand. With every respect to the Controller, I'm more interested in making sure that the right numbers are in the right column and that they actually add up. You guys can debate forever about who does better estimates. We have a letter from Secretary of Financial Oversight and Director of Finance, Miss Davis, called a "Statement of Review of Estimates." We've done -- what have we done, 32 TIFs?

25.

25? I thought we had done an additional group of 5 or so at the tail-end of last year. I could be wrong.

25.

25?

Yes.

I have not seen this kind of letter before, and this one that I have is specifically with regard to 1600 North Broad. 56 5/15/02 WHOLE - BILLS 020227, 020231 Two questions: One, is there a similar letter for the Schmidts site? Maybe it just didn't get into my package. Secondly, is this letter the result now of Bill 000355-A back from December of 2000?

Yes to both of your questions, Councilman.

Okay. One, thank you for following up on that. Now, along with that, there had been discussion at that time and a part of that legislation also talks about goals for youth employment contracting and employment opportunities for young people as well as minority, female, and disabled business enterprises. I wanted to ask -- and this is where I may have missed some of your exchange with either Councilman Goode or Councilwoman Reynolds Brown -- what's the status of those provisions of the bill 21 that I mentioned to you, 355-A, with regard to these two particular proposals?

Those provisions will be included in the economic-opportunity plan for both projects. 57 5/15/02 WHOLE - BILLS 020227, 020231

Okay. And are the economic opportunity plans completed for both at this time, or are you still working on them?

For Schmidts Plaza II, it is completed. For 1600 North Broad Street, it is to be negotiated. And the terms, the basic provisions of the economic-opportunity plan are included in the project plans for each bill before you today.

Okay. So is your testimony that with these two technically new but really old TIFs, that you've decided to go basically the new route. We are disbanding the old ones, creating new ones.

Yes.

Are both of these projects being put forward with 000355-A and its provisions in mind?

Yes.

Are you in compliance with those provisions?

Yes, Councilman.

All right, thank you very much. 58 5/15/02 WHOLE - BILLS 020227, 020231 Thank you, Madam Chair.

The Chair recognizes Councilman Cohen.

Thank you, Madam President. During your testimony, you referred, I think it was, to the Schmidts Brewery II TIF. You referred to a community-based organization. I didn't get what it was that you said. Are they participating in the development? and what is the significance of their involvement?

Councilman, I think what I said in response to a question from Councilman Goode is that these --

No, it was not; it was in your regular statement. It had nothing to do with what --

There is a community- based organization that will be participating in the 1600 North Broad Street project, not the Schmidts Plaza II project.

And does that participation aid in the grant of any financial benefits to the development? I'm wondering why you 59 5/15/02 WHOLE - BILLS 020227, 020231 mentioned that point.

It's an effort on our part to further assist the development in the North Broad Street area by providing funding to a community-based organization that can further the development of the area.

That's providing funding, did you say?

Funding as part of the proceeds of the project.

Well, how does that work? I'm interested in knowing how the involvement of the community-based organization assists in the funding.

No, they won't be assisting in the funding; they will be a beneficiary of a portion of the proceeds of the project in order to further the development of that area.

Point of order.

Isn't there a federal law that provides for --

Excuse me, Councilman, there's a point of order. 60 5/15/02 WHOLE - BILLS 020227, 020231 The Chair recognizes Councilman Clarke.

Excuse me, Councilman. I think the short answer is that it's the requirement of the District Councilperson that a community-based organization be a participant in this particular development.

Without any funding consequence?

There will be funding consequences with respects to the community organization sharing in certain proceeds not yet to be negotiated as a result --

Well, how about in obtaining proceeds for the development? I'm all for the second part.

Well, actually, I think the fact that there was a substantial commitment by the City to acquire the site requires that there be community participation. In my mind, the justification for that government acquisition is based on the community's participation; i.e., the community organization, as far as I'm concerned, that is in some parts their equity into the project, which is why I felt completely 61 5/15/02 WHOLE - BILLS 020227, 020231 justified in insisting that that community organization --

Well, I think it's fine that they're in there, but I thought that also as a result of being in, that there was a special funding stream being made available. Am I wrong as to that?

Point of order, Madam President.

Am I wrong as to that?

Excuse me, there's another councilman wants to be recognized for a point of order. Councilman Goode.

Thank you, Madam President. I think what Councilman Cohen is getting to is that if you're using a community- based organization as a nonprofit, it may add certain tax benefits to the project, and are you utilizing their nonprofit, charitable status to also raise money for the project? In other words, if you have a nonprofit 62 5/15/02 WHOLE - BILLS 020227, 020231 that brings you a vehicle for reinvestment by private companies, are you utilizing that nonprofit for financial participation as well as for community participation?

The answer is -- and I guess you all want to respond, you can respond. But insofar as I'm concerned, the basis for the government's acquisition of the site, which was substantial, was based on the fact that a community organization was going to be involved. Had it not been for the community organization --

I think Councilman Cohen is talking about private investment.

Private investment. Okay, I misunderstood.

You can attract private investment because there is a community- based nonprofit or a nonprofit that offers tax incentives by virtue of its nonprofit status. In other words, by having a nonprofit involved in the project, isn't there an opportunity to raise money for the project because of that nonprofit's participation? and are you utilizing that to raise 63 5/15/02 WHOLE - BILLS 020227, 020231 more private funds because CDCs are vehicles for community reinvestment?

Councilman, I don't believe that -- once we select a developer, we'll get further into the details of their financing, but I don't believe that is anticipated. I believe that the developer will be raising the debt and equity portion of the project on their own. And I will defer to Councilman Clarke on this point, but my understanding is that the community-based organization that is selected to be a part of this project and will receive proceeds will also be providing services as a part of the development process.

Well, I think the involvement is great, but I also think it provides an opportunity for an additional source of funding for the project.

I think that there is a possibility, given the status of that organization, that there will be some assistance -- and I'm not sure of what form -- that is in fact in the Empowerment Zone that is a community organization that has excess capital from numerous 64 5/15/02 WHOLE - BILLS 020227, 020231 locations. Actually, they're currently getting some funding from the City and from Temple University and other sources. So at this point, personally I'm not sure as to what it may ultimately be, but I think that there is a vehicle and an opportunity for that organization to access some additional revenue for their participation in the project.

Very good. My next question relates to the fact that I see the TIF includes a reduction in the income the School District would otherwise get, and it strikes me, if my memory's right, that this TIF was approved -- both of them were approved at a time when Council was not as sensitized to the needs of the School District for funding. Toward the end of the last few TIFs we've gotten, I think, in a number of cases, we were able to get developers to find other sources of funds so as to make it unnecessary to include in the TIF the income the School District is scheduled to lose; in this case, around 350,000, I think, in the Schmidts Brewery case. But is there any opportunity -- that 65 5/15/02 WHOLE - BILLS 020227, 020231 was one reason why I hoped the developer would appear, because different developers have different approaches to that. One developer seemed very anxious to make sure that he did not take any money away from the School District for his development and immediately agreed to find a source, a substitute for that. I was wondering if there would be any opportunity here, and at this point, would just like to sensitize these folks at PIDC that it would be good if, on one hand, the City was not furnishing bond money in additional appropriations and, on the other hand, reducing the income to the School District. It would be good if the TIF could be modified to exclude from its impact the income that the School District would receive in the years that the development was operating. So I just raise that issue with you in the hope that you might include it in discussions with the various developers. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Clarke. 66 5/15/02 WHOLE - BILLS 020227, 020231

Thank you, Madam President. Madam President, I just wanted to reference an earlier statement or question with respects to the equal opportunity plan for the 1600 Broad. There is, in fact, not one in place because we haven't selected a developer, but I'm pleased to say that two of three proposals included equity partners. I think that there was actually more than 50 percent equity participation on two of the three developments were minority partners, and I'm very encouraged to see that. And am I correct in that? I know one is definitely more than 50 percent. I think the other is --

Councilman, I do sit on the selection committee, but it would probably be inappropriate if I commented to that because I'm on the selection committee.

I'm not on the selection committee, so I may comment on that, but I do believe, Madam President, that two of the three developers do include equity investment of over 50 percent in minority participation. 67 5/15/02 WHOLE - BILLS 020227, 020231

Okay, thank you. Are there any other questions from members of the committee? (No further questions.)

Seeing none, our next witness is Judith Robinson. (Witness comes forward.)

Good morning. Please identify yourself for the record. and proceed with your testimony.

Yes, good morning, Madam President and to fellow Councilmembers. My name is Judith Robinson, and I'm here today representing the Homeowners Association of North Philadelphia regarding Ordinance 020231. And to be quite honest with you all, you asked such great questions this morning, it really has me changing my speech around quite a bit, and I thank you all very much. It's great to have the opportunity to speak to the Committee of the Whole regarding this ordinance. As we know, this is the second time around for this TIF. And I don't have any problems with the 68 5/15/02 WHOLE - BILLS 020227, 020231 amendments to this TIF in that we definitely need economic development truly in this district. However, I am quite concerned about the vagueness of the information given today, and I would hope that the public can have this information from the Chief Clerk's Office in a very timely manner and that we be able to review it. You all asked some of the same questions that I had, and I'll expound on a few of those. I am here today as an advocate for the betterment of the 5th District as it relates to housing and economic-development issues, so I'm also here to ask that there be a closer review of projects being developed in the 5th District. I understand the position of the District Councilpeople, but for the Councilpeople at-large, I am requesting they definitely view the projects that are being proposed in the 5th District very closely to monitor the process and the progress of the housing and economic- development projects that are being proposed, because after many years of the 5th District receiving a major portion of community and 69 5/15/02 WHOLE - BILLS 020227, 020231 economic-development funds, there continues to be a lot of disjointed projects, with no overall benefit to our district and little development on our commercial corridors. So I am asking definitely the Council people at-large to please give your attention to what's going on up on North Broad Street. I was concerned that there were no 10 documents to show the pointed proposed development at the Chief Clerk's Office, and now I understand why there was none there. And I just again will request that the information be put in a public area where we can all review it, because I was asking the same questions. After all of the demolition and relocation monies that were spent, what is the planned reuse for this area, this five acres? I ask the same question, Madam President, that you asked also. Like I said, this may be a little bit redundant because you all did such an excellent job of asking all of these questions, but will this project actually be completed? That concerns me. After going through all of this debate, 70 5/15/02 WHOLE - BILLS 020227, 020231 we find that oftentimes projects in the 5th District do not move forward to completion, and that leaves our community lacking, which we certainly cannot afford to have. I am concerned about neighborhood benefit strategy. I am concerned about a hearing to that executive order. I heard this morning that there is supposedly job creations of somewhere between 500 and 800 permanent jobs. Thank you, Councilman Goode, for asking that very poignant question about what happens if these jobs aren't created, and I will hope that you would follow up along with all of the other Councilpeople-at-large and Madam President to monitor what actually happens in that regard. And I also am interested in this community-based organization and what services they will provide to earn this funding that will be provided to them. I'm a little vague, you know, on what that actually entails, and I would like to get more information about that. I'm very much concerned that these projects that get so much in the way of public funding, I'm concerned that they actually give back 71 5/15/02 WHOLE - BILLS 020227, 020231 so little as it relates to true economic development for our community.

So I really appreciate you all asking the questions that you did, and I would just encourage you all and hope that you follow up in getting information that you request and also making certain that this project and others in the 5th District do truly in fact benefit our district. And I thank you very much for your attention and time.

Thank you very much, Miss Robinson. Are there any other witnesses to testify? (Witness comes forward.)

Did you want to testify?

Yes.

Please approach the witness table, identify yourself for the record, and proceed with your testimony.

Excuse me. Hello, Madam Councilman and to all the councils-at-large, I am just a concerned citizen. 72 5/15/02 WHOLE - BILLS 020227, 020231 I'm Florence E. Mason, citizen of the City of Philadelphia. This is my first Council meeting listening in, and I'm very pleased to know the process that goes on here. When I was listening to the testimony of the developer -- am I saying what you are correctly? PIDC and the city of commerce [sic], my question would be, when they were stating about their job placement and job creation, and it's not a part of the legislation process of them being able to get this TIF, why is it not put in there that when they -- again, the question of if they do not create this job, will they again be -- would they be penalized for it? And also in that process, would there be mandatory wages presented to the people who obtain these jobs for, like, the welfare-back-to-work program. If they do not have these things implemented in the legislation, then they can go and do below wages that will benefit the community at all to be able to sustain themselves. That's what it seemed like to me that it's a very big gap there. And inside these TIFs that are given to 73 5/15/02 WHOLE - BILLS 020227, 020231 them, why is it not mandatory that they produce these type of -- that these job requirements are produced and things like that before they able to get 'em? I mean, if these companies of development are to be able to get these large sum of TIFs, why aren't they not readily to homeowners in the community to be able to develop their own homes and things like that and have tax incentives to rehab the properties so that our area will not look so desecrated? Does that make sense? That's what I'm concerned with. I think those type of provisions should need to be put into the TIF program before certain developers have the opportunity to get them.

And may I say from your testimony, there are programs that are available to the area residents, and I see that Councilman Clarke just put his light on. I'm sure that if you speak to him or his office, they can inform you what programs are available that would be able to help people who reside in that area. The Chair recognizes Councilman Clarke.

Thank you, Madam President. I just wanted to respond to both of the 74 5/15/02 WHOLE - BILLS 020227, 020231 individuals testifying briefly. Prior to the finalization of any development initiative on that site, I will personally host a community meeting to talk about what's being proposed for that site. We will have all arms of government that have been involved in the process, which I always do. I believe that people in the community need to know what's being proposed for their particular community, and I'm going to continue to do that. The role of the community organization was insisted upon by myself and other individuals because I thought that potentially -- and we're not sure because we haven't negotiated the agreement with the community organization that the neighborhood's participation on the jobs, both from the construction side and on long-term identifying potential individuals from that community who are interested in opportunities both in terms of jobs and in terms of opening up stores in this particular development, would probably be something that a community organization may play more of a role in that we as government, because the community organization is based in that community 75 5/15/02 WHOLE - BILLS 020227, 020231 and they interact with that community on a daily basis. So that potentially will be the role that the community organization will play in assisting to making sure that people in that community have opportunities for advancement both in terms of jobs and in terms of entrepreneurial opportunities.

Okay.

But we will have a very detailed community meeting before we formalize this project.

Okay. Well, that's all my testimony.

Thank you. Are there any other questions or comments from members of the committee? I would just like the record to reflect that we have received two letters from the Controller, two letters from the Director of Finance, and a letter from the Executive Director of PICA; they have been given to the stenographer and they will be made a part of the record. Our next bill for consideration is Bill 76 5/15/02 WHOLE - BILL 020309 No. 020309, and I would ask Mr. McPherson to please read the title.

Bill No. 020309, an ordinance amending Chapter 19-1500 of the Philadelphia Code, entitled "Wage and Net-Profits Tax," by decreasing in stages the rates of the tax imposed upon certain low-income persons, all under certain terms and conditions.

Mr. Pizzi, I understand you have an engagement. (Witness comes forward.)

Please identify yourself for the record. and proceed with your testimony.

Madam President, my name is Charles Pizzi and I'm with Denise Erley, and we're both members of the staff of the Greater Philadelphia Chamber of Commerce, and we're here to testify on Bill No. 020309. Members of City Council, good morning.

Good morning.

I come before you today in support of this City Council bill, which would gradually reduce the City wage tax for persons of a 77 5/15/02 WHOLE - BILL 020309 certain low-income level. While the Chamber recognizes that this bill is unlikely to have any major economic impact on the City as it relates to job growth, it will provide an incentive for persons working at minimum-pay jobs in that it will provide them with more take-home pay. In addition, it may well prove helpful to our city and our suburban businesses in acquiring the help they so desperately need to fill these minimum-pay positions particularly in the hospitality industry. This bill creates additional incentives for low-skilled individuals to earn their livings without an inordinate sum being taken by City government. Forward-thinking legislation such as this will help people move more easily from dependency to self-sufficiency. Certainly, this bill does much to address the regressive tax structure of this city whereby those who can least afford to pay are hit the hardest by taxes. This bodes well for nonresidents as well as nonresidents, as a gradual elimination of the dreaded tax will entice people to cross the county line and come into this city to work when, 78 5/15/02 WHOLE - BILL 020309 previously, this was not an option for many due to the wage tax. This will also provide consistency with State law in the manner which people are taxed seems to be an equitable approach to take. The Commonwealth took the lead for a special tax provision for poverty-leveled income people, commonly referred to as "the working poor," back in the early '70s. Pennsylvania has increased income limits for state tax forgiveness over the last five years. Since 1995, income limits for complete tax forgiveness for families of four grows to 20,600 in 2002, and the income level is now $30,000. An estimated 1.2 million working families now qualify for the working family tax cut. In 2000, a study issue by the Center on Budget and Policy Priorities ranked Pennsylvania's tax forgiveness program second in the nation, after California. Governor Schweiker's 2002-'03 budget proposes expanding the working family tax cut for the sixth straight year, so a family of 4 earning up to $31,000 will pay zero taxes, a move that will safe that family $868 a year. Additionally, a 79 5/15/02 WHOLE - BILL 020309 family of can earn $49,000, pay no taxes, and save $1,372. The estimated fiscal impact of the tax cut is $12.4 million. The expanded tax forgiveness will benefit an estimated 56,000 families. If approved, the tax forgiveness for working families will have more than doubled since 1995. In his budget address, Governor Schweiker said, and I quote: "We could have kept the working family tax cut at current levels, but no amount of State spending can replace the power we give families when we help them spend their hard-earned dollars the way they want, not the way government wants to." The City would do well to follow the lead in providing tax relief for these poverty- leveled workers. Due to the incremental nature of the reduction contained in Bill 020309, it is estimated that it would cost the City approximately $110 million over the life of the Five-Year Plan. Based on data previously supplied by both the Controller's Office and the PICA Board, this should not present an undue financial burden on the City. 80 5/15/02 WHOLE - BILL 020309 Again, let us be clear that just as the Chamber supported the other tax bill, we support this one. And we thank you for the opportunity to speak today.

Thank you. The Chair recognizes Councilman O'Neill.

Mr. Pizzi? Hi, Charles.

Good morning, Mr. O'Neill.

I just wanted to -- if you could just tell me -- I know you said 110 over 5 years. Is that evenly spread over the 5 so that it would be, like 22, a year?

Yes. It is evenly spread.

Okay.

And I suspect, Councilman, that there can be different ways to figure out a formula, but I think it's a strong message to send to the working poor because the wage tax is such a regressive tax, that we give them the opportunity as well.

Okay. The State, because of the Constitution -- I think it's the 81 5/15/02 WHOLE - BILL 020309 uniformity clause in the Constitution, unlike the federal government, where you start paying taxes at a certain level when there's a provision that up to a certain income, you don't pay. For instance, if it were -- you don't pay federal income taxes on the first 20,000, but you start paying a very small amount after that. The State setup is because of the State Constitution. As soon as you hit that threshold -- like you said, the 31 this coming year if it passes the legislature, you pay the whole thing. So it penalizes somebody from making that extra dollar 'cause it kicks in all of the tax from the first dollar earned. Is it your understanding that the City provision would do the same thing?

Not as currently stated in this bill, but I do believe that there could be room to negotiate those kinds of formulas.

No, I'm talking about from a legal standpoint, 'cause I think the State has tried to not make it so burdensome for someone who goes a dollar beyond the --

And I think because, you 82 5/15/02 WHOLE - BILL 020309 know, we're a part of the State's constitution, we would have to do the same thing.

Okay.

But once again, Councilman, I'm not clear on the law.

Okay, thank you.

I think the point that I would make and I think the point that you raise, Councilman, is that we should do something where a formula is provided if we could legally, so that it's not burdensome to either city government and beneficial to the people in our neighborhoods.

I just asked you this question because it became a source of some newsworthiness on the last bill. Have you and the Mayor discussed this bill?

No, we have not.

Okay. How about you and any member of his cabinet?

Not to my knowledge, no. 22

Thank you.

Thank you very much. The Chair recognizes Councilman Clarke. 83 5/15/02 WHOLE - BILL 020309

Thank you, Madam President. Good afternoon. We recently passed ordinances that in the Five-Year Plan called for approximately $290 million in cuts in the City's budget. Has the Chamber done an analysis on where those cuts would potentially come from?

No, we have not.

Okay. Have you done an analysis on this particular bill in terms of where the potential additional, I think you said, $110 million would come from?

No, we have not. Where they would come from?

Yeah. I mean, we'd have to -- if we're reducing revenue, we're going to have to reduce expenditures to some degree. I mean, I understand this whole issue with respects to the growth of the City's economy as it relates to a reduction in taxes and, you know, some people can go either way on that. I think that that particular growth will not be as aggressive as probably you, but the reality is that there will have to be some levels of reductions in 84 5/15/02 WHOLE - BILL 020309 expenditures; we can disagree on the number. My concern is that -- 'cause I'm obviously for, you know, a reduction in taxes for low-income people because I think I have a substantial number of them in the 5th Councilmatic District. My concern is that on the heels of what some view as an aggressive tax cut in the Five-Year Plan, that we embark on an additional tax cut proposal without having an accurate analysis of the prior tax cuts, and I'm just concerned about its impact on the budget. And I'm wondering if the Chamber or anyone associated with the Chamber has done an analysis on that, on the impact of the first bill 16 in the Five-Year Plan prior to supporting an additional bill.

No, we -- well, I think where it comes from and where our support comes from is, we recognize we also have a surplus in the City budget of well over $200 million; I think it was like 230 million.

That I believe will have to go towards municipal raises, but that's another story. 85 5/15/02 WHOLE - BILL 020309

That's a lot of municipal raises.

Well, you know, if you do 3 percent, it's going to be upwards of $300 million if you do 3 percent across the board.

Well, I think, Councilman, that we come from the philosophical perspective that as you can operate more efficiently and give money back and make yourself competitive, we can get new opportunities. So to answer your question, we have not done an analysis of that, but we're talking about something that's less than about 1 percent of the City's overall budget, and we think that we should, you know, give as much money back to the people as we possibly can.

I feel that way too, but the reality is -- I mean, we have to be somewhat responsible 'cause at the end of the day, we do have things that we have to do in the City of Philadelphia in terms of service delivery. And I'm just concerned, without having done an analysis on the prior tax cuts, that we're embarking on an additional $110 million proposal to 86 5/15/02 WHOLE - BILL 020309 cut that out of the City's budget, and I don't understand how we do that.

Even though we haven't done the analysis ourselves, we did get the analysis from both the City Controller and the PICA Board.

But not from the Administration, the people who are ultimately responsible for making those decisions.

Yeah. I mean, I --

I mean, don't you think that you should have that kind of discussion with the people who are ultimately responsible for making some of the decisions on service delivery?

Well, I would hope that the members of the Administration have that kind of discussions with the members of the legislature. I'm just here as advocate for tax cuts and that philosophy.

Yeah, but, I mean, you have to look at both sides of the coin, I'm sure.

Absolutely.

You want to be an advocate for service delivery also. I mean, it's 87 5/15/02 WHOLE - BILL 020309 important to be able to deliver services to the constituency of the City of Philadelphia.

Yes.

So I think that you should take into account that there probably needs to be that discussion with the people who are ultimately responsible for that service delivery and get an accurate picture as to realistically what we can, in fact, cut out of our budget.

Communication would be good and so --

I mean, you've talked to the Controller, you said you've talked to PICA and --

We've gotten their reports, the PEL report. And so we're doing this based on the reports that we have from them.

For this proposal or the prior proposal?

Both.

Okay. So if you receive a report or a proposal or whatever from the Administration that differs from the Controller's report and the PEL's report, would it be possible 88 5/15/02 WHOLE - BILL 020309 that you may, in retrospect, change your testimony?

Yes.

Okay, thank you.

Thank you.

Thank you, Madam Chair.

Thank you. Are there any other questions from members of the committee? (No further questions.)

Councilman Cohen, do you have questions?

I just have one comment to make. I think it is a very fine thing to have the President of the Chamber of Commerce as a witness here in support of a bill that would raise the quality of life, that would strengthen the neighborhoods in the City of Philadelphia that, even by the most remote advantages, will have no 22 adverse effect on service delivery; in fact, will probably improve service delivery because I think it will strengthen our neighborhoods and make more jobs available to those who really need it. 89 5/15/02 WHOLE - BILL 020309 So I want to commend the Chamber of Commerce for their testimony here today. I did not think, despite my many years of activity in the City Council, that I would live to see this day, but it's been worth living a long time just to hear today's testimony. (Applause.)

That's what I thought a couple weeks ago, Councilman, so it's nice to know that people from diverse viewpoints can come together and we can demonstrate to all of the people of this region and this commonwealth that even though with different perspectives, we want what's best for the citizens of our beloved city.

I agree. Thank you very much. I'm limiting my comments to that because I'm going to be the witness following you on the witness stand.

Are there any other questions or comments from members of the committee? (No further questions.)

Mr. Pizzi, 90 5/15/02 WHOLE - BILL 020309 thank you very much. We appreciate you coming in to testify.

Thank you.

Thank you.

The next witness is Councilman Cohen. (Witness comes forward.)

Thank you, Madam President. My name is David Cohen and I'm a City Councilman at-large since 1968, with the exception of a period beginning in 1971, when I had resigned from my district position in City Council to run for mayor against Bill Green and Frank Rizzo and Hardy Williams. Since no history book records the fact that the City of Philadelphia has ever had a "Mayor Cohen," you know that I lost that race and did not return until 1979, getting elected at that point to Council-at-large, and have served continuously since then. It has been a deep concern of mine that Philadelphia, while a very progressive city, while a strong Democratic, prolabor city -- we brag everywhere that we're a labor town -- it has in fact not been that, that the federal government and 91 5/15/02 WHOLE - BILL 020309 the state government have actually treated, on an economic basis, the workers much better than the City government has; that, as Mr. Pizzi mentioned before, the City of Philadelphia has a regressive tax structure that unfairly hits low-income workers, hits women workers who, unfortunately, still rank at the lowest levels in pay income and hits minority workers the hardest and the worst. To take 5 percent roughly out of a worker's paycheck when the worker earns less than 30 or $32,000 a year in today's economy is literally taking bread off the table. Maybe it's making them fit into a smaller apartment or living in an apartment that's under the control of some landlord who is unscrupulous in that he doesn't maybe meet the technical requirements of the services that the rent ought to provide. Philadelphia's had a regressive tax structure, and only the recent debates about the wage tax cut has brought that to the attention of many people. And this is a great opportunity to do a number of things. This tax cut will reverse the trend at the federal level where the only tax cuts of significance have been to the very wealthy. 92 5/15/02 WHOLE - BILL 020309 Here in Philadelphia, by this bill, we're making a statement that we believe, yes, we're for tax cuts too, but we're for them being targeted to the people who need them the most -- the low-income people, the minorities, those struggling to move maybe from welfare into the working class. Many people who have moved from welfare into the working class have had to return welfare because as soon as they became workers, they actually earned less money, they lost their medical benefits. This bill will enable more Philadelphians to, when they join the working class, to remain part of it and begin the upward trend towards strength and economic freedom for their families and economic opportunity for their children. That's the reason I feel so strongly about this, and it's the reason I think it is truly a bipartisan or tripartisan party, 'cause I can't imagine any political party being in opposition to it, and it's a matter which strengthens those who most need it. Every dollar that a low-income family gets will go immediately into the neighborhood 93 5/15/02 WHOLE - BILL 020309 stores, and it will begin to reverse the trend of the supermarkets moving out of the neighborhoods, because in Philadelphia, we have very few supermarkets in neighborhoods because of the economic problems that may exist in the neighborhoods -- the low income which cuts down the buying power. Everybody knows that consumer demand has the strongest impact and is most influential on the economy of the nation. We keep getting reports, not only from CNN but all the radio stations carry the reports from consumer confidence. I submit to you that this bill will induce in Philadelphia great confidence not only in government but in economic power of the family. Every worker in Philadelphia of a low income will immediately receive, in effect, over the five years, the six years that that bill targets the reduction to take place will receive a very substantial wage increase. I have one disagreement with Mr. Pizzi on the technicalities.

The 110 million -- is Councilman O'Neill here? I wanted to, since he 94 5/15/02 WHOLE - BILL 020309 raised the question -- the $110 million, which is estimated to be the figure by which the revenue of the City will be reduced over the Five-Year Plan, is not equally effected each year; it's based upon the first year savings being $7 million, slightly over that, which would be the cost to the City in less revenue. The second year, it would be double that, say, a little bit over 14. The third would be a little bit over million and so on. 2 million to it so that at the end 12 of five years, the cost would be $110 million. 13 And if you lump it in one sum, it 14 doesn't sound like a good sum, but let me even put 15 that sum in perspective, because some people have a 16 way of emphasizing what it costs without telling 17 you in what context it exists. 18 Most people here will be stunned when I 19 say to you that in that five-year period, the City 20 of Philadelphia will have a budget, not only its 21 General Fund, but involving all of the authorities that the City controls: The School District, Redevelopment Authority, Philadelphia housing. The budget, the real budget of the City of Philadelphia over that five-year period, will be minimally 95 5/15/02 WHOLE - BILL 020309 $35 billion, and we're talking of a cost to the City, if it were a total cost, of $110 million. It's something like that 1/10th, maybe 1/100 of 1 percent of the budget. So don't let the five-year figure fool you. 5 billion. With the growth that's taking place year by year, over the five-year period, the General Fund will cover about $20 billion. And when you add the schools and the Redevelopment Authority and the other authorities that exist, the PHA and the others that are under the control of the City, I have to tell you, it's more likely $40 billion rather than 35 billion that will be the figure of City of Philadelphia-controlled expenditures over the next five years, and $120 million over that same period is like nothing. That's from the cost point of view. Let's now talk about the benefit. We all know our neighborhoods are struggling everywhere. What this does is to infuse income immediately into the neighborhood. Our neighborhood people can't afford to go to Las Vegas 96 5/15/02 WHOLE - BILL 020309 or to take a trip out of the country with their income. Every dollar they get goes right into the economy, and where does it go? Basically right into the neighborhoods -- retail businesses in the neighborhoods. The shoe stores, the grocery stores are going to have a tremendous impact. It is my view that, actually, this will not cost the City of Philadelphia a penny. What it will do is save the City lots of money because it's going to be the biggest single factor in the fight against blight and in the fight for the revitalization of our neighborhoods, and it helps most those who need it most. Thank you, Madam President. The reason I took this unusual step of appearing as a witness instead of just making comments from the chair is because I want to be available for questions, and I feel so strongly that this is the finest single piece of legislation related to the building of a strong revitalized Philadelphia that I think has been presented to City Council, and I'm honored to have had the opportunity to present it. Thank you, Madam President.

Thank you. 97 5/15/02 WHOLE - BILL 020309 Councilman DiCicco?

Thank you, Madam President. I just want to comment on my colleague, Councilman Cohen. Two comments. One, although you said earlier there has never been a Cohen elected mayor, there's some who would argue the point that even though Mayor Rendell was officially the mayor, that David L. Cohen was actually running the City so --

Another Cohen.

Another Cohen.

It was a David Cohen.

A David Cohen.

He was a little richer than I, and I don't mean just in dollars. He even had a middle initial. I don't have any. (Laughter.)

The army had to create the "NMI" for me, the "no middle initial" formula.

And just to comment briefly -- and thank you for the introduction of this bill. I was very pleased to 98 5/15/02 WHOLE - BILL 020309 be a cosponsor, along with a number of other members of City Council. And as a fiscally conservative person that you've reminded me for the last seven years that I have been, it is great to know that you are now supporting wage-tax reductions for all of the people of this city and encouraging economic development. So I just wanted to take this opportunity to thank you. And welcome to the conservative side of the aisle. Even if it's only for a brief moment, we do welcome you here.

Well, it's good to have each side welcoming the other into their own camps, because from my point of view, as I expressed when Mr. Pizzi was here, I thought the Chamber of Commerce was entering into the liberal camp by supporting the same goals as liberals have, but basically as Americans, there are times when we all come together, and I think this is that kind of an issue when everybody can come together.

Thank you.

Thank you. The Chair recognizes Councilman Goode.

Thank you, Madam 99 5/15/02 WHOLE - BILL 020309 President. I just have a couple of comments. Although my name was left off of the bill, I was a sponsor of the bill and am very supportive of this bill and am glad of the impact of having this Council -- and now it seems that everyone is going to be an economic-development candidate at-large next year. (Laughter.)

But this is a great bill and I think it will do exactly what you said. It puts money back in the hands of people, and that money will be infused into the neighborhood economy, and it really does contribute to a community economic-development agenda. Thank you.

Thank you.

Thank you. The Chair recognizes Councilman Clarke.

Councilman, I hate to do this, but I got to do it.

Do what you have to do. (Laughter.) 100 5/15/02 WHOLE - BILL 020309

Do you think it's more important to give people a minimal tax cut -- and I do mean minimal -- or do you think it's more important for us to be able to shut down drug operations in these neighborhoods? 'Cause you referenced quality of life in your speech, and I got to ask you that question.

There's no conflict at all. What this bill will do is enable the City to be more effective in its fight against drug houses. The decisions that are made with respect to cuts in services have nothing absolutely to do. They're made by people who will have the decision-making power and who will choose among the things that are available to them to spend, but there's absolutely no reason why the services to the neighborhoods should not be increased currently, and there's certainly no reason why, with the strengthened and revitalized neighborhood, that that blight-aided program of the wage-tax cut gives us, there's no reason at all for any cut in services. If anything, it's going to make the neighborhoods -- it's going to help them all 101 5/15/02 WHOLE - BILL 020309 blossom. There is no concern whatever on that score, Councilman, I assure you of that.

Councilman, you're telling me that if you cut $400 million out of the City's budget, right?

How much?

If you cut $400 million out of the City's budget, that it's not going to cut services; is that what you're telling me?

I think this kind of a cut strengthens the economy because it puts money in and it's going to circulate many times over. For every additional dollar you put in a low-income person's pocketbook, that money's going to be circulated three to four times, and it's actually going to save the City money by increasing the revenue. There's going to be many more workers.

So the answer is if you cut $400 million out of the City's budget, that it won't impact our services. That's what you're saying?

Well, if you talk 102 5/15/02 WHOLE - BILL 020309 about cutting 400 million out of $40 billion, it's like nothing. $400 million is a tiny fraction of the $40 billion that the City's going to be spending, so that cutting it out will have no 6 impact whatever. In fact, these wage-tax cuts will probably increase the revenue of the City over that whole five-year period. And we need -- look, there's been no 10 reason whatever on the lead-paint poisoning. I understand the Budget Director sent a letter out in connection with this bill, saying that it may cause us to not be able to carry through the total elimination of lead-point poisoning for a million and a half. I didn't want to raise this because I felt so badly. There's not been a single reason over the last years that that lead-paint poison program hasn't been carried through fully. An additional cost of a million and a half, when we have budgets of $3.5 billion? How could anybody seriously say that that kind of a cost is impacted by this wage tax? So I just say, Councilman Clarke -- I'm trying to keep my cool very hard -- that I think it 103 5/15/02 WHOLE - BILL 020309 is nonsensical really --

It's okay.

-- raise the issue of cuts in services in connection with this bill. The impact will be totally the reverse, but you did what you had to do and I appreciate that.

I respectfully disagree with you. I do not think that you could cut $400 million out of the City's budget, all right? 'Cause it's not PHA's budget and --

Well, I can't say this bill has nothing to do with the $400 million.

It's not the Parking Authority's budget, it's not the Redevelopment's; it's the City's budget, all right? The City's budget.

I think the Parking Authority --

It's the revenues associated with the City of Philadelphia; it's not all of these other agencies that you referenced in your testimony. That's coming out of the City's coffers. And I'm just saying on the record that 104 5/15/02 WHOLE - BILL 020309 I -- you know I respect you and I like you, all right? I respectfully say that I don't think there's any way that you can cut $400 million out of the City's budget over the next five years and not impact services.

Well, maybe it's going to affect the consultants' contracts, and that might be a good thing, but beyond the consultants' contracts, I know of nothing else that has been to be affected.

Okay, thank you, Councilman.

Thank you.

Thank you, Madam President.

The Chair recognizes Councilwoman Tasco.

Councilman Cohen, could you tell me again your assessment of the financial impact per-year cost for this?

The first-year cost will be $7.2 million. The second will be double that because we have the first and second year. The impact each year is 7.2 based upon current 105 5/15/02 WHOLE - BILL 020309 financial figures. It might have to be revised a little bit each year as the actual facts come in. And $110 million -- I'll read this statement. The first year, the cost is 7.2; the second year, it will rise to 14.8; the third year, it will rise to 22.3 million; the fourth year, it will rise to $30 million; the fifth year will be 45.4 million. Add the five years together, and it costs us 110 million. Mr. Kearney will make it available to all members of City Council. That's the same estimate that the City Controller has and that the PICA Board agrees with. The City Administration -- it's very hard because the Mayor is an executive person who has the right to make the decisions under the Home Rule Charter with respect to expenditure of funds for purposes. During the original wage-tax bill, you remember the Mayor talked first about how this is going to cost drug centers, hospitals, other places to close. He hasn't said that again because the facts don't bear it out. It will make it a little tighter perhaps in any given year the Mayor's area in which he can exercise his discretion. 106 5/15/02 WHOLE - BILL 020309 But the fact is that if you reduce the budget, it does not in any way whatever, not in the slightest way, threaten the cut of any particular service. What it does is, it limits the amount of money. I say that this bill that I've introduced won't even do that because it's going to increase the revenue that the City gets because of the helpful effect on the neighborhoods, on the fact that it's going to produce much more money for the local area and the economy, and that the City's economic health will actually be strengthened rather than any money being taken.

Thank you.

Thank you. Are there any other questions or comments from members of the committee? (No further questions.)

Councilman, thank you.

Thank you.

The next witness is Mr. Herzenberg. (Witness comes forward.) 107 5/15/02 WHOLE - BILL 020309

You should have my testimony.

Thank you. Good afternoon, sir. Please identify yourself for the record.

Madam Chairperson and members of the committee of the Whole, my name is Steven Herzenberg, and I'm the Director of the nonpartisan Keystone Research Center, a leading source of independent analysis of the Pennsylvania economy and labor market. D. , and I agree with the Chamber of Commerce and with Councilman Cohen. I very much appreciate the opportunity to join those two gentlemen in offering the Council a set of reasons that they should adopt the proposal to phase in wage tax relief for low-income families. The first reason that we need to do this is that this tax relief really would be targeted at people who need it. It would enable more Philadelphia families to afford a basic-needs or self-sufficiency budget. There is ample evidence that as it stands in Philadelphia, many 108 5/15/02 WHOLE - BILL 020309 families with children cannot afford the basics. They can't afford minimally adequate rent, transport, food, clothing, on down the list of basics. There was a study that was released last year, for example, that looks at families with one to three children between -- up to the age of 12, and that study found that in Pennsylvania as a whole, percent of families with to children up to the age of could not afford a basic-needs 12 budget in the state of Pennsylvania as a whole -- that's over 500,000 people that live in those families. Now, there's no equivalent figure for Philadelphia by itself. The Keystone Research Center has done prior work, which suggests very clearly that that percentage would be much higher in the City of Philadelphia. You can draw that inference from evidence we have on the share of jobs that pay enough to support a family in Philadelphia versus in the State as a whole. The share of jobs that support a family in the City is a lot lower. In addition, I think it's almost certainly true that you have more 109 5/15/02 WHOLE - BILL 020309 single-parent families in the City, and so -- I don't know what the exact number is but, again, it's almost certainly well above percent. 5 And this tax relief is really going to 6 be a meaningful tax relief for the folks that are 7 up near the upper end of the eligible thresholds at 8 the end of the phase-in. You're talking about the 9 $1200 for a family of 4. 10 A second reason to adopt this proposal 11 is that this tax relief would be targeted at 12 particular people who live in the City, even 13 spreading the benefit to commuters. The fact is 14 that the wages of people who live in the City are 15 lower than those who live in the suburbs, and 16 poverty rates are much higher in the City. So the 17 overwhelming fraction of the folks who benefit from 18 this relief actually live in the City. 19 A third reason that this kind of tax 20 relief is particularly beneficial relative to 21 across-the-board tax relief is that when you give 22 tax relief to low-income people, it doesn't lead to 23 an increase in federal income tax payments. One of 24 the things that happens when you have an across-the-board tax relief is that higher-income 110 5/15/02 WHOLE - BILL 020309 people who itemize their deductions on their federal income tax form now itemize a lower wage tax on that form; and, therefore, their total deductions go down and their federally taxable income goes up. Bottom line: Uncle Sam gets, roughly speaking, cents on the dollar of the tax 8 relief that goes to upper-income folks. 9 On the other hand, the folks who would 10 be eligible for this tax relief overwhelmingly 11 don't itemize their deductions, so a $1 tax relief 12 is $1 in the pockets of a Philadelphia family that 13 needs that money. 14 Another reason that this makes sense is 15 that the people who would get this relief partly 16 because they have lower incomes spend a very high 17 proportion of any relief they get. In addition, 18 they spend more of this money locally in the City 19 and neighborhood economies.

20 Higher-income people, by contrast, if 21 you give them relief, save more of that money; and, 22 in addition, will spend more of it on things like 23 manufactured consumer durables and travel out of 24 town. So there's more leakage out of the City. 25 With this kind of tax relief, you really do breathe 111 5/15/02 WHOLE - BILL 020309 life into the neighborhood economies, into the supermarkets that Councilman Cohen talked so eloquently about. Another reason that this relief makes sense, consistent with what we were told by the Chamber, is that the benefits of this tax relief actually go to low-wage employers, most of them small businesses, as well as to workers. That happens in a couple of different ways. I mean, one of the way it happens is through a demand side effects, so that the person who owns that local supermarket or other retail establishment in the neighborhoods, you know, they see people buying more things, and so those businesses can thrive. " Because workers are having less of their take-home pay taken out in taxes, the wage, the pre-tax wage that they're willing to work for will go down slightly. Again, and concretely one of the ways that would happen the Chamber again talked about: You're going to have some folks actually near the border of the City, low-income workers, who now suddenly will look at a job in the City; whereas, 112 5/15/02 WHOLE - BILL 020309 previously, because of the wage tax, they might not have. So the Chamber is, in addition to being on the right side on this issue, is also doing its job as a business association: It's representing the genuine business of its members. A final issue is that the City can afford it. Certainly based on all of the projections in the Controller's tax structure report, if you go back to last November when that came out, and if you look at the size of these cuts relative to the overall City budget that Councilman Cohen did, this is not -- you know, this is not an expensive proposal. There would, in addition -- I mean, there would be some economic gains and tax gains because you'd stimulate activity, so that would offset to some extent the direct cost of the tax reduction. And to the extent -- impossible to measure, but to the extent that you do really contribute to economic development and to the recovery and strengthening of neighborhood economies, that's going to have all kinds of larger-scale indirect effects. I mean, if you cut 113 5/15/02 WHOLE - BILL 020309 the crime rates, if you slow the departure of folks from the City, again, you can't measure that. It's very difficult to separate the impact of effects like that from other factors, but that is a reason to believe that the kinds of arguments that Councilman Cohen was making about this actually not costing the City -- I mean, there is a logic to that position. Okay, the final thing I want to say is that this really is an opportunity for you folks to make your mark. Perhaps I shouldn't admit it here, but I do work in the City of Harrisburg, within the borders of the City of Harrisburg, so that means that I've been looking at State policy for over the past five or six years. And when you look at Governor Ridge, what you realize is that the single most important legacy for folks outside -- the sort of business community folks who think -- you know, applaud Ridge for being business-friendly and various things on that front, but outside that particular interest, Governor Ridge will be most favorably remembered in Pennsylvania for his very substantial expansion of income tax forgiveness for the poor. 114 5/15/02 WHOLE - BILL 020309 That's put the compassion in Governor Ridge's conservatism. I think when you look at Philadelphia, in political circles, the chance to pass this bill 6 is a little like having the opportunity to watch Hank Aaron hit his 715th home run. You pass this bill and this is something you can tell your grandchildren. You pass this bill, and this is something you can tell your neighbors.

You pass this bill, and it will reinforce the sense among the people of this city that you are indeed public servants. Thank you very much.

Thank you very much, sir. Are there any questions or comments of this witness? (No questions.)

Thank you again for coming in to testify. Our next witness is...

Mr. Richard Weishaupt, Community Legal Services. (Witness comes forward.) 115 5/15/02 WHOLE - BILL 020309

Good afternoon.

Good afternoon, sir. Thank you very much for your patience. Please identify yourself for the record.

Thank you, Madam Chair. I'm Richard Weishaupt from Community Legal Services, and I'm a senior attorney at CLS. And I want to thank both the Chair and the Councilmembers for inviting us here to testify. We too wish to offer testimony in support of Councilman Cohen's revised Bill No. 13 020182, which would, for the first time, inject permissible progressivity into the wage-tax law by exempting low-income workers, similar to the exemptions in State law. As other witnesses have already pointed out, there are constraints imposed by the Pennsylvania Constitution which requires uniformity, but obviously a provision such as this that exempts low-income people from taxation has been found to be constitutional at the State level and would similarly be found to be acceptable at the local level. The wage tax currently hits the poor 116 5/15/02 WHOLE - BILL 020309 and low-income working families the worst. For one thing, it taxes only wages and not the other various other forms of income such as rents, interest dividends, and other sources, which are largely the province of the more well-to-do. With regard to the wage tax the more well-to-do pay, they, in fact, pay less in total than do lower-income people. The reason for this has to do with the federal taxation laws. The more well-to-do now pay 28 to 35 percent less in wage tax than low-income do effectively, as they can deduct their wage-tax payments when they file their federal income tax return. In other words, they can itemize their wage-tax payments, which low-income people cannot do since it is not beneficial for them to itemize. Lower-income people, who do not itemize, do not get this tax break and, in effect, pay more wage tax than do the more well-to-do. According to the Keystone Research Center in Harrisburg, which you've just heard from, only 44 percent of the jobs in Philadelphia pay enough to cover the cost of a basic-needs budget for a family of one adult and two children. Wages 117 5/15/02 WHOLE - BILL 020309 in Philadelphia are lower relative to living costs than in all other regions of the State, particularly for the people making the transition from welfare to work. Where typical wages run $6 to $7 an hour, families dependent upon those earnings find themselves well below the poverty level, and a wage tax on such struggling families is unconscionable. 66. This bill brings some parity back into the equation by helping those who need it most. Our city should no longer countenance taxing the wages below or near the poverty level. Their lives are hard enough as it is, often teetering on the brink of survival. They are playing by the rules, working hard to support their families, but the City wage tax still takes too big a chink from their pay. Philadelphia should embrace the principles of fairness and equity and 118 5/15/02 WHOLE - BILL 020309 provide for the exemptions proposed in this bill. Both the federal and state income taxes now provide such an exemption and our city should too. Councilman Cohen's bill would provide an exemption or tax forgiveness for lower-income wage-earners along the lines of the State's tax-back program. Currently, the State exempts approximately $30,000 for a family of 4, which is about 175 percent of the federal poverty level. As the Keystone Foundation has reported, tax forgiveness would effectively shift the burden of Philadelphia wage taxes away from lower-income people, who generally tend to live in the City. We don't get a lot of low-income commuters into the City, so we could really target a wage tax reduction on Philadelphians and not on suburban commuters, thus helping a higher proportion in getting more bang for our buck. In short, tax forgiveness for low-income people, though applying uniformly, will affect mostly City residents.

A wage tax forgiveness program for lower-income people will stimulate the Philadelphia economy more than other tax cuts since all of the money will be spent, and 119 5/15/02 WHOLE - BILL 020309 it will be spent locally. 5 percent. To reduce the fiscal impact further, the threshold for the exemptions could be set lower than the State's level if you so desired, but it would be preferable to adopt the state guidelines, as they are fair and realistic, and consistency in exemptions would make the law more understandable, easier to administer, and more favorable to do outreach. In short, we urge you to adopt this most needed tax reform. Thank you for the opportunity to testify, and I'd be more than happy to entertain any questions you may have.

Thank you, sir, very much. Are there any questions from members of the committee? (No questions.)

Thank you again. 120 5/15/02 WHOLE - BILL 020309 Our next witness is Greg Palmier. (Witness comes forward.)

Thank you, Madam President and City Council. I'm going to defer to good neighbor, Hal Sawyer, to testify at this time.

Hello. Thank you. Madam President, members of City Council and committee. My name is Hal Sawyer. I am a resident of Germantown and a coordinator for the Value Through Labor Project, which is a blight elimination and employment opportunity development project that has been operating there for several years. I have little to say to amplify the comments and testimony of those who have come before me. I strongly reiterate almost every point that has been made, and I would just briefly say bring this down to a fairly, you know, compelling, to me, example of how the wage tax functions in the neighborhood which I'm familiar with. At the minimum wage level, if you look at a worker with one dependent who earns minimum wage in the City of Philadelphia and pays all of the appropriate taxes, you do those calculations and you work out that that person will probably pay 121 5/15/02 WHOLE - BILL 020309 little or no federal income tax at all, probably about $150, perhaps $250 in Social Security taken out of his or her paycheck, and in State taxes, about $260. However, that person will owe the City of Philadelphia $500 or more. More money practically goes to the City of Philadelphia from that person's paycheck than to State and federal taxation combined. Now, that doesn't seem like a huge amount of money, of course, but when you realize that a person who is earning only $11,000 a year and has a child to support, as people have come before me have said, needs every single penny for literally for child care, for food, for clothing, for shelter, for transportation. It's an extremely punishing tax. It's almost bizarre that the City could do that when if that individual fails to maintain his or her position in the workforce and either returns or, you know, moves into poverty, if it's a person who's entering the workforce for the first time, then the City will bear the burden of that person's inability to work and pay taxes. And the social services provided by the City and such things as 122 5/15/02 WHOLE - BILL 020309 drug enforcement, as was cited by a member of Council a few minutes ago, those are astronomical costs, which the City shoulders all the time, compared to the fairly modest, easily budgetable costs. And this is completely disregarding the obvious fact that this can only promote economic development, it can only promote employment in the neighborhoods, and ultimately will raise tax revenues by providing more disposable income and a greater incentive for businesses to relocate into the City. And I just wanted to make that point because when you bring it down to that sort of concrete level, that minimum wage worker without -- or possibly a part-time worker with no benefits, who is raising a child -- only one child in the case I've cited, but certainly more are often the case -- pays more taxes to the City and to the State and federal government combined, then I think it behooves the City to examine the real meaning of the phrase what a "regressive" tax is. I mean, we've used the word "regressive" to describe this tax. 123 5/15/02 WHOLE - BILL 020309 But what does that actually mean? It means a tax that is more burdensome to those who are least able to pay it. It really means, in essence, a tax which is counterproductive to the primary aims of the City and the needs of the City to reduce poverty, to reduce the demand on City services, which is the pressing point in the budget, which has always in the past led to higher taxes. And so, you know, it hurts to break the cycle of budgetary dependency, but it has to be done in order to create economic growth, and economic growth is the only thing that will raise the quality of life of Philadelphians in our neighborhoods. And that is the substance of my testimony and I thank you very much.

Thank you very much, Mr. Sawyer. Are there any questions of Mr. Sawyer from members of City Council? (No questions.)

Mr. Palmier, thank you very much. 124 5/15/02 WHOLE - BILL 020309 Thank you, Mr. Sawyer. Are you going to testify, sir?

No, I'm not. I wanted to thank you for allowing us to testify.

You're welcome.

The next witness is Sam Katz. (Witnesses come forward.)

Mr. Katz is going to testify on this bill as well as the other bill.

Councilman Cohen, I'm sorry, did you say Mr. Katz is testifying on this bill?

Yes.

All right. Mr. Katz, do you want to take the witness table, please. (Witness comes forward.)

Good afternoon.

Thank you, Madam President and members of City Council. I actually prepared testimony in connection with the Tax Commission 125 5/15/02 WHOLE - BILL 020309 bill, but at the Councilman's request, I will make a couple of comments about this and then just leave my testimony in connection with the Commission behind. I'm Sam Katz with Greater Philadelphia First. We are a civic and business leadership organization within the region. First of all, I'd like to say congratulations to you, Madam President and to all of the members of City Council, for your unanimity in support of tax reduction, of continuing the tax reduction strategy that was put into place in 1995. And I don't think I could underestimate the positive impact both from a public relations as well as from an economic standpoint in the minds and hearts and minds and in the paychecks of a lot of Philadelphians that that tax reform, albeit small in this next year, it remains significant. GPF has not taken a position formally on Councilman Cohen's bill, but I could say without hesitation that we support legislation, including Councilman Cohen's legislation and Councilman Goode's legislation, that are efforts designed to reduce tax burdens particularly on Philadelphia's 126 5/15/02 WHOLE - BILL 020309 working families and the working poor, and I Councilmen you for it. Along with Mr. Pizzi, I think it's important that there's unanimity, and I think the fact that all members of City Council have recognized the significant impact from a development community-building and jobs-growth standpoint of high taxes on businesses, on middle-income people and on working-poor people is an important political consensus that we support. So in that context, I'm here to say that we think that this is an important piece of legislation. We're excited about the efforts that are underway to try to recover more of the income tax that people pay through the earned income tax credits, and in many ways, as others have spoken before me, the modeling of this legislation on State tax relief for working-poor families is a positive one.

Thank you, Mr. Katz. Are there any questions from members of the committee? The Chair recognizes Councilman Nutter. 127 5/15/02 WHOLE - BILL 020309

Thank you, Madam Chair. Mr. Katz, it's my understanding -- and I probably missed the beginning of your testimony -- that you may have to leave shortly. I know you were here also for the Law and Government Committee with regard to the proposed creation of the Tax Reform Commission. I know that you're going to leave your testimony, but it would certainly be helpful if you would like, in ten words or less or twenty-five words or less, to tell us your position and the position of Greater Philadelphia First on that particular matter. And I apologize to Councilman Cohen for injecting one bill into another bill's hearing.

Well, in three words or less, we support it. I think we feel that tax reform, tax reduction, tax relief are critical components of the jobs competitiveness strategy for Philadelphia and for the region. Unfortunately, we don't just lose businesses to the suburbs; we lose them to New Jersey. And while we're a part of that region, that, in fact, is a loss to the entire state. 128 5/15/02 WHOLE - BILL 020309 We might argue about the size and composition, but we're not going to do that. We just think that a thoughtful, independent assessment of tax reduction and a long-term tax strategy makes eminently good sense for the City of Philadelphia and for the region, and we commend you and your colleagues on Council for committing ourselves to it. And at the end of the day, I think what comes out of your proposal is a plan that people can debate, but that, like Charter reforms and other initiatives that get done in public hearings and away from the day-to-day business of this Council, represents a strategically good way to put on the agenda for the next part of this decade how Philadelphia can get itself out of a mess that no 18 one at this table is responsible for putting itself in.

Thank you. Thank you very much. Thank you, Madam Chair.

Thank you. Any further questions from members of City Council? 129 5/15/02 WHOLE - BILL 020309 (No further questions.)

Mr. Katz, thank you very much.

Thank you.

Mr. Dubow? (Witnesses come forward.)

Good afternoon.

Good afternoon, Council President Verna and members of City Council. I'm Rob Dubow, the City's Budget Director. With me is Nancy Kammerdeiner, the City's Revenue Commissioner. We're here today to present testimony on Bill No. 020309, which would decrease in stages the rates of the tax imposed on certain low-income people. The Administration understands and applauds the intent of the proposed ordinance, but for reasons I'll discuss in this testimony, we oppose the bill. By gradually decreasing the wage-tax rate for people who quality for a total refund or forgiveness of taxes under the special tax provisions for poverty under State law, the 130 5/15/02 WHOLE - BILL 020309 ordinance is likely to reduce the revenues that the City will receive over the next years by at least 4 $200 million. 5 The Revenue Department's calculations show that when the bill's provisions are fully phased in, the bill will cost the City at least $80 million annually. Taking that much revenue away from the City would undermine the work of the Tax Reform Commission that City Council is contemplating and increase the size of the hole that already exists in the FY '03 to FY '07 Five-Year Plan recently passed by City Council and now being considered by PICA. Let me first focus on how the ordinance 16 will impact the work that will be done by the proposed Tax Reform Commission's. The Commission's charge will be to study the City's tax structure and determine how it can be redesigned to make the City more competent in a fiscally responsible way. By passing an ordinance that will eventually cost the City $8 million annually in revenue, City Council would be reducing the Commission's options for restructuring the City's taxes while being fiscally 131 5/15/02 WHOLE - BILL 020309 responsible. We do believe, however, that this is a proposal that should remain on the table and that the Commission should consider. The legislation would also make the City's tenuous fiscal position even more fragile. To give you a sense of the fragility of the City's finances, let me quickly review some of the major items that the City's likely to fund over the next five years but that are not included in the FY '03-FY '07 plan: The cost of the collective bargaining agreement with the police and firefighters that is now the subject of Act 111 arbitration. The cost of the collective bargaining agreements with the police and firefighters that will likely be subject to Act 111 arbitration in two years. The cost of the City's next collective bargaining agreement with the City's nonuniformed employees. The current collective bargaining agreement covers only two of the five years that will be covered by the FY '03 to FY '07 plan. $170 million in unspecified cuts and revenue enhancements over the life of the FY '03 to 132 5/15/02 WHOLE - BILL 020309 FY '07 plan. The City's still attempting to develop initiatives to cover the $178 million in future government efficiencies that are included in the plan. No previous plan had more than 60 million in future government efficiencies. Increased pension contributions are likely to be required as the City's earnings on its pension fund lag behind the fund's assumed 9 percent earnings rate. So far this year, those earnings are below 1 percent. Unless those earnings increase, the City may have to put at least $100 million more into the pension fund in the next Five-Year Plan. Funding to eliminate the backlog of lead-contaminated houses. 5 million in FY '03 to ensure the backlog does not grow. The plan does not, however, include funding to eliminate that backlog. The items that I've discussed here are more than just risks; these are items that the City would like to be able to fund. An overly aggressive tax- reduction program will make it impossible for the City to fund those and other items. 133 5/15/02 WHOLE - BILL 020309 I hope these comments have been helpful, and Nancy and I would be happy to answer any questions that you may have.

The Chair recognizes Councilman DiCicco.

Thank you, Madam President. Good afternoon.

Good afternoon.

Mr. Dubow, it seems like we're revisiting some of the same arguments or discussions that we had a few weeks ago with when we talked about the continuation of the wage tax.

Right. About $120 million ago.

Okay. Since 1995, what is the percentage of the wage-tax reduction overall in the City of Philadelphia.

It's about 8 percent.

That was the reduction?

Yes. I think that's about the percent. 134 5/15/02 WHOLE - BILL 020309

During that same period of time, could you tell me what the growth revenues were?

The revenues have grown every year; I don't have the exact percent.

percent, does 8 that sound somewhat accurate? 9

That sounds about right. 10

They are what? 11

I will add that this year, 12 though, the revenues are growing much more slowly 13 than they have over the past few years. 14

They are what? 15

They're growing much more 16 slowly. In fact, the wage taxes have only grown 17 0.6 percent year-to-date, and the business- 18 privilege tax has actually decreased from last year.

But we haven't seen a decline. It's still growing, but not at the rate it grew --

Well, for the business-privilege tax, so far this year, we've actually seen a decline, and the wage tax has 135 5/15/02 WHOLE - BILL 020309 actually been flat.

Flat. But it's accurate to say that since 1995, over a seven-year period, while we enacted the wage-tax reductions, the incremental wage-tax reductions by percent or 7 so, we did see an actual increase in growth 8 revenues in the general vicinity of about 18 percent.

That's true. I should add, though, that that was during the longest economic expansion in the Country's history, and cities around the country had growth in revenue --

You don't think that in any way, shape, or form, the reduction in wage taxes had any bearing on the increase in revenue, in the perception at least that the City of Philadelphia is doing the right thing by getting its fiscal house in order, that it in any way it stimulated economic growth? You do not attribute any of that 18 percent to the wage-tax reduction?

No, I completely agree that the cuts in the wage tax has a positive impact on our economy, but I don't think that we can say that the whole increase can be tied to tax reductions. 136 5/15/02 WHOLE - BILL 020309 I think we have to look at a number of issues, and I think the key issue really was the performance of the national economy.

Okay. And I will agree with you that the national economy had some bearing on that, but you're also saying that wage-tax reductions did, in fact, have some influence on the revenue growth.

That's correct.

Why do you not think that that would not be the same thing going forward with this bill?

I don't think that the wage-tax reductions alone come close to making up the amount of revenue that we lose, and the problem that we create in the budget is that we have to find ways to fill that gap.

Are you suggesting, then, that we always look at the national trend and base our wage-tax projections or recommendations or our legislation based on what the national economy does?

No. What I'm saying is that I don't think you can say, Look, there was an 137 5/15/02 WHOLE - BILL 020309 percent reduction in the wage tax, a percent increase in tax revenues, and that means that the 8 percent tax reduction led to that. 5

I agree with you 6 there, but don't you think there's a portion of 7 that -- I mean, I hear you saying that you do 8 believe that the wage-tax reductions has, in 9 effect, been a positive influence on growth 10 revenues. 11

Yes, that's right. I mean, 12 I don't think it's -- I don't think that it covers 13 itself, I don't think it comes close to covering 14 itself. 15 And one of the things that economists 16 have told us when we talk about the supply-side 17 effect, which is what I think you're talking about, is that we should not budget any supply-side effect, that that would not be responsible budgeting.

I have another question, but I'm going to hold off for a moment, Madam President. Thank you.

Thank you. Are there any other questions from 138 5/15/02 WHOLE - BILL 020309 members of the committee? Mr. Dubow, what impact would this bill 4 have on the City's Five-Year Plan? And would we be required to amend it?

The Five-Year Plan that Council approved by resolution, I guess, two weeks ago, three weeks ago, is now in front of the PICA Board. This act would change our revenue projections, so we would have to go back and change that plan to reflect the lower amount of revenues.