COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, May 10, 2004 9:45 a.m. - - - BILLS - 04009, 040010, 040011, 040012, 040013, 040014, 040015, 040016, 040017, 040018, 040019, 040020, 040021, 040022, 404256, 040261, 040313, 040421, 040422, 040423 - Operating Budget and Tax Bills - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DAVID COHEN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILMAN JUAN F. RAMOS COUNCILMAN FRANK RIZZO COUNCILMAN FRANK DiCICCO COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILMAN DARRELL L. CLARKE COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN BRIAN J. O'NEILL V A R A L L O Incorporated Litigation Support Services 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 OPERATING BUDGET & TAX BILLS - 5/10/04
Please. Good morning, everyone. This is the Committee of the Whole Public Hearings. And I would ask Mr. McPherson to read the title and the contents of each bill, please. MR. McPHERSON: Bill No. 040261, an Ordinance amending Chapter 19-1500 of the Philadelphia Code entitled "Wage and Nets Profits Tax," by establishing certain tax rates, amending the effective date for various rate changes, and by amending the definition of Excess Growth Rate, all under certain terms and conditions. Bill No. 04313, an Ordinance 17 amending Chapter 19-2600 of the Philadelphia Code entitled "Business Privilege Taxes," by making permanent and clarifying the pilot program under which a Job Creation Tax Credit will be given to certain businesses that create new jobs within the City of Philadelphia, all under certain terms and conditions. Bill No. 040009, an Ordinance 3 OPERATING BUDGET & TAX BILLS - 5/10/04 amending Chapter 19-1500 of the Philadelphia code entitled "Wage and Net Profits Tax," by decreasing the rates of the tax, by making technical amendments changing the effective dates for the rate changes, and, repealing certain provisions, all under certain terms and conditions. Bill No. 040010, an Ordinance 10 amending Section 19-2604 of the Philadelphia Code relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates, all under certain terms and conditions. Bill No. 040011, an Ordinance 16 amending Title 2 of the Philadelphia Code entitled "City-County Consolidation," by removing the authority of the Board of Revision of Taxes to hear appeals and reassigning that authority, with the power, functions and duties of hearings and deciding appeals, from the Board of Revision of Taxes assessment, to a newly appointed independent city agency. Bill No. 040012, an Ordinance 4 OPERATING BUDGET & TAX BILLS - 5/10/04 amending Chapter 19-2600 of the Philadelphia Code, entitled "Business Privilege Taxes," by amending the definition of "Net Income" to determine the net income of unincorporated businesses by allowing deductions of payments to certain proprietors or partners. Bill No. 040013, an Ordinance 9 amending Chapter 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes," by specifying a rate for Tax Year 2004, specifying that rates thereafter be dependent on total taxable assessed values. Bill No. 040014, an Ordinance 15 amending Chapter 19-2600 of the Philadelphia code, entitled "Business Privilege Taxes," by providing a minimum number of estimated tax payments in the last six months of the city's fiscal year and authorizing additional estimated payments in the first six months of the subsequent fiscal year. Bill No. 040015, an Ordinance 23 amending Chapter 19-1300 of the Philadelphia code entitled "Real Estate Taxes," to mandate a phase-in of equal percentages of the target 5 OPERATING BUDGET & TAX BILLS - 5/10/04 Tax Billings to be imposed upon lands and buildings for real estate tax purposes. Bill No. " Bill No. 040017, an Ordinance 9 amending Chapter 19-2600 of the Philadelphia Code entitled "Business Privilege Taxes," by amending the definition of "Net Operating Loss" with respect to carryforward period for net operating losses. Bill No. " Bill No. 040019, an Ordinance 18 amending Chapter 19-1400 of the Philadelphia Code entitled "Realty Transfer Taxes," by amending the definition of "Value" to include deeds in lieu of foreclosure. Bill No. 040020, an Ordinance 23 amending Chapter 19-1300 of the Philadelphia Code entitled "Real Estate Taxes," by providing discounts and penalties related to 6 OPERATING BUDGET & TAX BILLS - 5/10/04 the installment payments and new fiscal year billing, and to guarantee that payments are applied to current year tax first to avoid accumulation of additions and penalties. Bill No.
040021, an Ordinance 7 amending Chapter 19-500 of the Philadelphia Code entitled "Taxes and Rents-General," by providing for uniform time limitations on collections, examinations and assessments, under certain terms and conditions. Bill No. 040022, an Ordinance 13 amending Chapter 19-1300 of the Philadelphia Code entitled "Real Estate Taxes," by providing that no change by the Board of Revision of Taxes to the ratios it uses to calculate assessed value shall be effective unless Council by Ordinance adjusts real estate tax rates so that such change is revenue neutral or else Council otherwise approves such change by Ordinance, all under certain terms and conditions. Bill No. 040256, an Ordinance 24 amending Chapter 19-1200 of the Philadelphia Code entitled "Parking Tax," by establishing a 7 OPERATING BUDGET & TAX BILLS - 5/10/04 rate of taxation on parking transactions for fiscal year 2005 and thereafter, under certain terms and conditions. Bill No. 040421, an Ordinance 6 amending Titles 3 and of the Philadelphia Code, the "Air Management Code" and "Health Code," respectively, by increasing the fees or establishing new fees for various health-related licenses, permits, certificates, approvals, and variances issued by the city. Bill No. 040422, an Ordinance 14 amending Title 9 of the Philadelphia Code, entitled "Regulation of Businesses, Trades and Professions," by adding a new Section 17 establishing a fee schedule for reinspections conducted by the Department of Licenses & Inspections. Bill No. 040423, an Ordinance 21 amending Section 11-203 of the Philadelphia Code entitled "Sewer and Water Pipe and other Underground Service," by increasing permit fee charges for breaking and excavating of any paved or macadamized street, under certain 8 OPERATING BUDGET & TAX BILLS - 5/10/04 terms and conditions.
Thank you. Our first witnesses will be from the Administration. Is Ms. Wilkerson here? Good morning.
Please identify yourself for the record and proceed with your testimony.
My name is Joyce Wilkerson. I am Chief of Staff to Mayor John F. Street. With me today is Janice Davis, the City's Finance Director; Phil Goldsmith, Managing Director; and Rob Dubow, Budget Director for the City of Philadelphia. I want to thank you for this opportunity to present testimony on FY '05 tax measures that are currently before City Council. Over the years, few people have done more in support of tax change and tax relief than Mayor John F. Street. As Council President, he joined with Mayor Rendell to initiate the city's unprecedented program of 9 OPERATING BUDGET & TAX BILLS - 5/10/04 tax cuts after a half century of steadily rising tax burdens. As Mayor, he has not only continued this program through a ninth consecutive year, returning $244 million in tax relief to taxpayers, he has proposed and implemented accelerated rate reductions. The $375 million in tax relief proposed in the FY '05, FY '09 five-year financial plan would extend the tax reduction program to a 14th year and provide the largest amount of tax relief in any Five-Year Plan. Although the Mayor has warned of the challenges and choices involved in making these changes, he has proposed tax relief in each of his budgets because it is one of the key investments that is necessary to our city's future. You have heard about a $270 million deficit that loomed when we began to prepare the plan. You have learned about the steps we propose to head off the deficit and avert another fiscal crisis. In spite of the palpable risk in our 10 OPERATING BUDGET & TAX BILLS - 5/10/04 future, this Administration maintained its commitment to tax reductions. And not only maintained the existing tax reduction program, but also provided another $65 million in tax relief proposed by the Tax Reform Commission. The annual reductions in the wage tax would leave the resident rate percent 9 lower in FY '05 than before the tax cuts 10 began. And annual reductions in the gross 11 receipt rate would cut the FY '09 rate to less 12 than half what the rate was when the cuts 13 began. , Atlanta, and Baltimore to raise taxes or halt tax reductions, we found a way to continue tax cuts. As you well know, our neighbors in Pittsburgh, on the brink of bankruptcy, sought and received the designation of a fiscal distress in order to obtain the authority to increase their taxes. 11 OPERATING BUDGET & TAX BILLS - 5/10/04 Here in Philadelphia, we are doing things differently. No other major city has continued to cut taxes every year, as we have. We are unique. We make tax relief a priority because it is one of our strategic investments. However, there is a limit. There is a limit to what is affordable and fiscally responsible. We are faced with the daunting task of balancing the many strategic investments that Philadelphia needs to grow in the midst of our most serious financial challenge in a decade. For the past month, you have been diligently learning about the difficult choices that must be made on the expenditure side of our budget. 4 percent. 12 OPERATING BUDGET & TAX BILLS - 5/10/04 You have heard about the impacts these cuts may have on services. Even though in our proposed budget we attempted to limit the impact on service as much as possible through innovation, restructuring, and productivity improvements, the proposed budget you are considering makes no allowance for wage increases or public emergencies. We have been cutting our expenditures in our greatest expense item, personnel costs, consistently for the past several years, until there is very little opportunity to reduce the size of our work force further without disrupting services. 5 percent. Prior to that date, the hiring freeze we implemented in 2001 had already resulted in the reduction of over 600 positions in departments that were not exempt from the freeze. The hiring freeze will remain in, and we will fill positions only when absolutely necessary.
We will continue to replace only 13 OPERATING BUDGET & TAX BILLS - 5/10/04 half the positions that leave through the DROP, as we budgeted for in this year's proposed plan and last year's. Further reductions in staffing will likely lead to service reductions. It will become more and more difficult to pick up the trash on time, replace and restore our roads on the proper cycle, keep libraries open, fight homelessness, child abuse, and the spread of disease, maintain our parks and recreation centers, and make Philadelphia a safer place with ever-dwindling staffing. Although the Mayor in his budget message signaled the willingness to compromise on his proposed budget, he was clear that for every recommended restoration there must be a correction through new and offsetting cuts. Similarly, for every dollar of revenue that we forego, there must be an adjustment in expenditures. We are not the federal government. We cannot print money or borrow against our future to avoid the difficult choices of today. Yet, we all agree that tax reductions are valuable and necessary 14 OPERATING BUDGET & TAX BILLS - 5/10/04 for our city to become more competitive and grow. Unfortunately, as we sit here today, we start from less than zero. Many of you would like to see funding restored to programs or departments you support. The reality is that we must first find the funding to make the plan balanced again. PICA sent a letter to the Mayor and City Council indicating that it would not approve certain revenue projections. Subsequent to that letter, the Administration determined that we would need to forgive the annual payment from the Philadelphia Gas Works in order to cease PGW's cash flow crisis and avoid a devastating ratings downgrade. 5 million in FY '09, we must now address a negative fund balance of almost $90 million before we can even think of restoring spending cuts or tax relief beyond the $440 million already in our proposed plan. The Philadelphia Tax Reform Commission was charged with studying our taxes 15 OPERATING BUDGET & TAX BILLS - 5/10/04 and making recommendations on how they would be reduced and simplified in a fiscally and socially responsible manner. I would like to take this opportunity to thank the members of the Tax Commission for their volunteer service and their contribution to the discussion of our tax structure. The report of the Commission brought many potentially fruitful ideas to light and provided informative data on which to base decisions, data which in part was developed in conjunction with members of city government. Our proposed Five-Year Plan endorsed and incorporated 15 of the Commission's recommendations. These recommendations are detailed in the plan. But the key changes the city is proposing for the next year, which were incorporated into the proposed five-year FY '05 budget, include, establishing accurate land and structure values for all parcels. This will provide more comprehensive and accurate data collection for the real estate tax assessment process. The FY '05 16 OPERATING BUDGET & TAX BILLS - 5/10/04 budget includes $5 million in funding for the Board of Revision of Taxes to carry out this recommendation. Next, eliminate fractional assessments. The BRT will attempt to value all properties at 100 percent of market value. The Administration supports the BRT's proposal to implement this recommendation in FY '06 following a pilot and the establishment of more accurate land and structure values. This proposal would entail adjusting real estate tax millage rates in the future. Phased-in land value taxation. 5 to 50 percent by 2014. This change would begin in FY '06 after the BRT has established accurate values. Single factor apportionment. Instead of basing the net income portion of the business privilege tax on property, payroll, and a double weighting of sales in Philadelphia, the city would base this tax 17 OPERATING BUDGET & TAX BILLS - 5/10/04 solely on sales in Philadelphia.
Although the change is projected to cost the city $13 million annually, it will eliminate the current penalty for businesses that operate and invest within Philadelphia. This change is proposed for our FY '05, in conjunction with the proposed increase in the parking tax from to percent to 10 help offset the cost. 11 Finally, a shift to January 12 implementation of changes in wage and earnings 13 tax rates. Changing the effective date of 14 reductions in the wage and earnings tax rates 15 from July 2 to January 1 beginning FY '05 16 would conform those changes to the federal tax 17 year and remove a compliance burden for 18 businesses so they need only adjust their 19 withholding rates once each year. 20 These recommendations will reduce 21 the city's revenue by approximately $65 22 million, and cost at least $5 million to 23 implement and administer over the life of the 24 plan, in addition to the $375 million in tax 25 relief from our proposed rate reductions. 18 1 OPERATING BUDGET & TAX BILLS - 5/10/04 The Tax Reform Commission made other recommendations that, unfortunately, we determined we could not responsibly adopt at this time. The recommendations that require your approval have been introduced as legislation. Exhibit A to my testimony indicates which bills we do not support because of the potential negative effects they would cause, including unavoidable revenue losses, changing in timing that would significantly impair our budget or cash flows or cause taxpayers to pay their bills twice in one year, or unduly restrictive legal constraints. The recommendations we do not support were projected by the commission to reduce the city' revenues by $285 million over the life of the FY '05-'09 plan, although this revenue projection has since increased to over $290 million due to increased growth assumptions in the plan. However, the loss of revenues resulting from the Commission's 19 OPERATING BUDGET & TAX BILLS - 5/10/04 recommendations did not end with this plan. The bills before you today include schedules for mandated wage tax reductions through 2014 and the elimination of the BPT by 2015. Yet, despite its charge to provide a fiscal impact statement along with any required ordinances, the Commission made no 9 estimate of the cost of its recommendations beyond FY '09, even as the magnitude of the wage tax reductions increased in FY '10 and the gross receipts reductions accelerated in FY '09. Put another way, in order to pay for the wage and business privilege tax reductions in changes proposed by the Tax Reform Commission in FY '09, the city would have to increase the real estate tax revenue collections by 37 percent or find alternative source for the $146 million cost in that single year. To pay for the elimination of the business privilege tax, whether by 2015 as recommended by the Tax Reform Commission, or by 2009 in an alternative bill, the city would 20 OPERATING BUDGET & TAX BILLS - 5/10/04 have to increase collections from real estate tax by 75 percent or find alternative sources to replace this funding. In addition, the recommendations we do not support would possibly even worsen the tax burden for a significant portion of our taxpayers, particularly our most vulnerable taxpayers. The Tax Reform Commission hired Econsult to produce an econometric model on tax rates and their effect in Philadelphia similar to the model they were hired to produce for the Pennsylvania Economy League in 2002. In their report, the Commission Econsult produced estimates of the supply side effects of tax reductions. The Econsult report estimates that by FY '09, the city's real estate tax revenue would increase by $92 million. 5 percent increase from our plan projection. 5 percent more real estate taxes due to the Tax 21 OPERATING BUDGET & TAX BILLS - 5/10/04 Reform Commission's package of recommendations.
The Econsult report also projects that by 2017 the median home value in Philadelphia would increase 29 percent in real or inflation-adjusted dollars, or 40 percent after inflation. To many this would be great news, to others it would represent a difficult burden and a damaging blow to one of Philadelphia's historic strengths, its relatively high home ownership rate among northeastern cities. To the Tax Reform Commission, the increased real estate taxes represent an opportunity for the city to replace some of the revenue lost by tax cuts. However, the Econsult itself addressed these concerns in its 2002 report to the Economy League. The increase in property tax revenue from the increased value of properties is unlikely to be politically feasible. It would imply large increases in property tax payments by Philadelphia property owners, many of whom have little ability to pay the increased 22 OPERATING BUDGET & TAX BILLS - 5/10/04 property taxes resulting from the higher value of their properties. You haven't heard much about this, but it is a critical issue. If real estate taxes did increase as much as the Econsult report estimates, many Philadelphians would suffer. If elected officials prevented real estate taxes from increasing as much as Econsult estimates, then the supply side effect touted by the Tax Reform Commission would be illusory. It is also important to point out what Econsult modeled. Econsult modeled the effects of the tax rate changes recommended by the Tax Reform Commission by comparing them to our current rates. In other words, the supply side effects they estimate include the effects of both tax reductions in our proposed plan and the Commission's additional reductions. Whenever you see the costs of Tax Reform Commission's proposals, however, they are always calculated by subtracting the cost of tax reductions included in the 23 OPERATING BUDGET & TAX BILLS - 5/10/04 Administration's proposed plan. If anyone shows you a comparison of Tax Reform Commission cuts and supply side benefits where the supply side benefits are greater than the costs between FY '05 and '09, they are comparing apples and oranges and they are wrong. Under the most optimistic supply side scenario, which is essentially what Econsult has given us, tax cuts would mean less revenue for the city during this plan. Since Econsult modeled the impact of both cuts proposed in the plan, as well as the additional cuts proposed by the Commission, we can identify the potential impact of the cuts proposed in our plan. The cuts proposed in the plan represent 66 percent of the value of the tax cuts modeled by Econsult through FY '09. Based on that proportion, their model indicates that the plan's tax cuts alone would result in an increase of over 31,000 jobs by 2010, although we do not have enough confidence in that figure to build it into our 24 OPERATING BUDGET & TAX BILLS - 5/10/04 budget. Supply side effects, or voodoo economics as they were once described by George Bush, have a very limited role in government forecasting. Some state governments, and very recently the federal government, look at supply side effects as part of their budget analysis, but they do not include them in the budget itself, despite years of pressure. As recently as 2002, the nonpartisan congressional Budget Office believed that using supply side effects in the budget process would pose intractable problems. We believe that the tax reductions have a beneficial effect on our economy, or we wouldn't be discussing these measures today. What we don't know with any certainty is how great these effects are and when they would take place. For this reason, in 1998 the District of Columbia Tax Reform Commission refused to recommend the use of supply side effects as a means of funding tax reductions 25 OPERATING BUDGET & TAX BILLS - 5/10/04 following their two-year-long study.
Consider that after years of pressure from Republican legislators, the State of California developed a supply side model with the assistance of the university of California Berkeley economics department. This model projected no more than a percent 9 supply side return to state tax cuts. 10 Other models, Connecticut and 11 Massachusetts state governments, have similar 12 returns, as did a study in New York City tax 13 cuts by a private think-tank. 14 The Conservative Heritage Foundation 15 projected no more than 50 percent supply side 16 returns to the federal cuts, although even the 17 Bush White House continues to avoid using 18 supply side to justify tax cuts. 19 The Econsult model projects far 20 higher returns than any of these models, more than five times as great as the model developed for the country's largest state by one of the leading economics departments in the world. To our knowledge, no other federal, OPERATING BUDGET & TAX BILLS - 5/10/04 state, or local government explicitly budgets for supply side effect, and this government does not intend for Philadelphia to be the first. Even though cities that have multi-year budgets have made tax reductions in the last five to ten years, like New York City and Washington, do not budget for supply side effect. We did not believe that being the first would be bold and innovative. We believe it would be unreasonably risky, desperate, and fiscally irresponsible. While we are discussing tax measures here today, it is appropriate to touch on the issue of tax collection rates and receivables. There has been some discussion recently of our outstanding tax receivables. The Tax Reform Commission recommended that the city could improve tax collection rates by percent, although it provided no benchmarking or other support for that contention. This Administration does agree that tax collections could improve and, accordingly, proposed a 27 OPERATING BUDGET & TAX BILLS - 5/10/04 small investment in staffing for FY '05 in expectation of generating additional revenue. Based on some preliminary analysis of other cities and the real estate tax collections, while there is room for improvement, it is not a dramatic amount of room. For FY '05 -- excuse me. , and only slightly lower than Pittsburgh, while a four-year average rate produced similar results. The majority of our tax revenues are, of course, from the wage tax. And due to state laws mandating employer filings, our improve database, and our cross-matching against IRS files, we are confident that our tax collections of this tax are strong. As City Solicitor Ramos detailed in his budget testimony, we can and will do better. But I assure you that this is not the magic wand and it will provide the funding for budget restorations -- that will provide the 28 OPERATING BUDGET & TAX BILLS - 5/10/04 funding for budget restorations and additional tax cuts. The Administration supports several bills that were not part of the Tax Reform Commission's package, including 040261 and 040256. Bill No. 040261 would allow for the adoption of the Tax Reform Commission's recommendation to shift effective date of future wage reductions from July 1 to January 1 to ease compliance burdens for businesses. This bill would also modify the trigger for reductions in wage taxes that by Bill No. 030073 must be implemented in response to real estate tax collection growth of more than percent per year. This bill would increase that threshold to percent, which will continue to provide residents relief and protection against surges in real estate values, while allowing the city to benefit from reasonable levels of inflationary growth in our second largest tax source. Bill No. 040256 would raise the 29 OPERATING BUDGET & TAX BILLS - 5/10/04 parking tax rate in order to provide additional revenue necessary to balance the plan. The Tax Reform Commission commented that, when compared to our Philadelphia taxes, the burden created by the parking tax is relatively small.
The Administration agrees. This change would provide much-needed revenue, while protecting Philadelphia residents. Just as we all believe the tax reductions provide an economic benefit or we wouldn't support them, we all recognize that maintaining our core public services is also necessary, or we would agree to the wage tax rate -- of reducing the wage tax rate to zero percent. Professor Robert Inman of Wharton has conducted ground-breaking an extensive work on the effect of taxes on our city. And while he was the first to estimate the negative effects of taxation, he has also always stressed the need to maintain public services in order to gain economic benefits 30 OPERATING BUDGET & TAX BILLS - 5/10/04 from taxes. 25 percent. The Commission then concluded these recommendations were fiscally and socially responsible. Each year this Administration and this Mayor applied decades of collective expertise in the city's finances in order to determine what tax reductions are affordable and to make them work within the city's budget by trimming expenditures. This year we are facing the biggest fiscal challenge in a decade. The tax reductions included in the proposed plan provide an investment in our future, while protecting our services and fiscal health. The cost of any tax reductions beyond those in the proposed plan must be paid for with offsetting revenue increases or 31 OPERATING BUDGET & TAX BILLS - 5/10/04 expenditure reductions. Those who support additional tax reductions should be prepared to identify the corresponding budget cuts. We have gone as far as we can. Thank you for the opportunity to present testimony regarding the FY '05 tax measures. We would be happy to answer any questions you have at this time.
Thank you. Are there any questions from members of the committee? Are there any questions? The Chair recognizes Councilwoman Tasco.
I just want to ask, you may have made an error in your discussion. I want the record to reflect the correct number. On of your testimony, the last paragraph, "In order to offset a $119 million increase in our pension and health benefits costs in Fiscal Year '05, as well as increases in our mandated subsidies to state authorities and key investments in a few 32 OPERATING BUDGET & TAX BILLS - 5/10/04 departments, we have proposed cutting a total of $107 million," I thought you said, "170." Did you just transpose? Did you mean 107?
You are welcome. Are there any other questions or comments of these witnesses? The Chair recognizes Councilman O'Neill.
Yes. Thank you, Madam President. Ms. Wilkerson -- and this is, really, for the other two witnesses, as well. I think everyone realizes that if there is tax reduction, it can put a hole in the budget. I mean, the idea of tax reduction, I believe, is to grow the economy so that we are doing something to increase revenues. Before asking a question that involves the Five-Year Plan and the impact, Tax Reform Commission has a chart that shows 33 OPERATING BUDGET & TAX BILLS - 5/10/04 the projected hits on the budget in the early and out years in the Five-Year Plan. Does the Administration agree with those numbers? This is if all the bills 6 are -- 7
-- that affect 9 our business privilege and our wage tax are 10 approved. 11
Rob Dubow, Budget 12 Director. We actually worked with the Tax Reform Commission in developing those numbers. So we, essentially, agree. There are minor differences here and there, but we essentially agree with those numbers, with the exception that one of the recommendations that went into their cost calculation, the single-factor apportionment, is in our plan. So, you need to back that out.
In looking at the chart, do we come out positive in the end?
No; we come out negative. 34 OPERATING BUDGET & TAX BILLS - 5/10/04
This doesn't result in additional revenues to the city?
The Econsult report identifies potential additional revenues that you could get based on growth in the economy. It is comprised of several things, including growth in the property tax. And I think the way the report was laid out there, it included both the city portion and the school district portion of the property tax. So if you believed in using a supply side effect, which we don't for the reasons that Ms. Wilkerson identified in her testimony, you would still have to adjust the numbers that were in the Econsult report.
So you disagree that we have a positive cash flow at the end of five years?
If this Council felt so strongly that we were willing to take the risk that they were right, you were wrong, and the PICA would do something that, in the 35 OPERATING BUDGET & TAX BILLS - 5/10/04 short history of PICA, I guess, would be unprecedented, and that would be to agree to this Five-Year Plan -- in other words, that we would have hits in the first few years, we would look at them each year to see if they were meeting our targets, this is a Tax Reform Commission and the Econsult targets that I am talking about -- and then would finish positive after five years, what would you say to that? If they would sit down at the table, PICA, that is, and agree to work with us on this.
We have had discussions with PICA because we tried to work through these numbers, even assuming a supply side effect. And even in assuming the supply side effect that is included in the Econsult report, we still didn't think that we came out ahead. And that was the last conversation we had with PICA.
Right. But what if PICA agreed to approve these numbers 36 OPERATING BUDGET & TAX BILLS - 5/10/04 in a Five-Year Plan with knowing there is an annual review where adjustments could be made?
We would still have a problem with rating agencies. I think that's what Ms. Davis wants to address.
Yes. I think while PICA might be willing -- and I am not certain that they would -- be willing to sign onto this, we would quickly find ourselves in trouble with the rating agencies who do not buy supply side as a way to balance a budget. Particularly from the standpoint that, if we were wrong, we would quickly face a cash-flow problem. The diminishment of our fund balance has removed a lot of the excess cash in this government. And we will quickly find ourselves with not enough cash to fund operations, if we are wrong by just the slightest bit. So while perhaps we could get PICA to sign on, I don't believe that the rating agencies would be as accepting of a plan that was built on hopes for a future. 37 OPERATING BUDGET & TAX BILLS - 5/10/04
Do you think the rating agencies would accept a plan that's built on more aggressive tax collection?
I don't believe that they would, especially since in the past they have been unwilling to sign on to anything that we didn't feel fairly certain was a positive and a definite. Rating agencies are in the business of protecting bondholders, and they are not into supply side or voodoo economics. They have to be certain that what they say goes to the real dollars that will come in. And there is -- there has been just recently a statement by the rating agencies that identified some of the political risks associated with credit analysis. And one of those is an unwillingness to do taxes and an unwillingness to tax to pay obligations. And, so, I viewed this as something that the rating agencies would picture as our supporting -- supplanting the need to generate true revenues with a wish for revenues to 38 OPERATING BUDGET & TAX BILLS - 5/10/04 grow.
Do you believe -- and I am talking about the Administration -- that your tax collection efforts are as good as they can get?
The Administration has, you know, as I mentioned in my testimony, increased funding for the law department because we do believe that there is additional dollars, there are additional dollars, out there. We have increased projected collections from the revenue department by about 10 or 11 million dollars. We have also increased -- or proposed to City Council that we increase a number of the fees and fines in order to increase revenue to the city. We have legislation that we have been working with the state legislators that would increase our capacity to raise the fines. And, so, we believe that there are additional revenues out there. We have not been as aggressive in 39 OPERATING BUDGET & TAX BILLS - 5/10/04 putting a dollar figure. We think what we have is what we can reasonably expect to collect. We have looked at the receipts out there, we have looked at what we have done in the past, and that's how we arrived at our $10 million figure.
Pretty aggressive. The question I have, Ms. Davis, I appreciate your candor about the rating agencies and the concern the Administration well should have for their concerns because of the negative impact rating agencies can have on the city. But does the city have the same discussions, and do the rating agencies have the same concerns, when we go on a spending spree with overtime, where we don't have the money in the budget, we are just spending done surpluses and bringing ourselves to the point 40 OPERATING BUDGET & TAX BILLS - 5/10/04 we are at today? It would seem to me that they wouldn't wait two years to tell you that we are on a downward spiral if we continue to spend money we don't have. Can you address that, please?
The rating agencies don't look into our expenditure side, and we don't have two-year discussions with the rating agencies. Whenever there is anything significant happening around our finances, we in fact contact the rating agencies and have the discussions. Rating agencies -- when the rating agencies know what's proposed, and there are no surprises to the rating agencies, you are least likely to face negative impacts. So we have discussions with the rating agencies whenever there is anything of a significant financial impact on the city. But, they don't monitor our expenditures.
So they are concerned if we do something that lowers our 41 OPERATING BUDGET & TAX BILLS - 5/10/04 revenues to the point where they may be below expenses, but they don't monitor if we increase our expenses to the level that they are beyond our revenues?
In the context of the budget, which is all that the rating agencies have to review, they are concerned if we include speculative revenues.
But I thought my question was, they don't seem to have the same concern when we are spending more than we are going to take in, but they are concerned if we take in less than we are going to be spending. (Applause.)
The rating agencies look at our budget as a balanced budget. Their concern doesn't weigh on those things, such as expenditures. 42 OPERATING BUDGET & TAX BILLS - 5/10/04 They look at the reasonableness of the revenues that we say will cover those expenditures. It is just not something that they review.
Well, it just seems to me from the Administration's standpoint, putting aside the rating agencies, that we are being contradictory because we are concerned now that lowering revenues, lowering taxes -- and this morning's Inquirer was shocking, even when you know you are uncompetitive, how uncompetitive you are when you go down to No. 3 below you on the taxation side. (Applause.)
I have trouble with the Administration that seems to be right now awfully concerned about a budget possibly being out of balance because of an attempt to bring some tax fairness to this city and some competitiveness and hopefully increase revenues in a few years, when there doesn't seem to be much concern in the last several years about spending money we didn't have. 43 OPERATING BUDGET & TAX BILLS - 5/10/04 (Applause.)
I mean, what kind of discussions did you have in the Administration at the top during the last two years when you saw this happening, when you saw us spending more than we were taking in?
The Administration has reduced the number of positions within government by over 800 positions. We imposed a tax freeze -- excuse me, a hiring freeze back in November 2001. We have been contracting our expenditures fairly aggressively. That's why we have presented the budget we have this year. Getting to the point of proposing the elimination of funding for the arts, proposing some of the other changes that we have proposed, did not come easy to the Administration. It came with an awareness that, if we were going to have a strategy that called for reducing our taxes, having the capacity to make targeted investments and maintaining high 44 OPERATING BUDGET & TAX BILLS - 5/10/04 services within our neighborhoods, we were going to have to make choices, difficult choices, in cuts elsewhere. I think it is important to note that throughout the Tax Reform Commission's proposal and all the other reports, tax reform is just one component of making the city grow. It is no less critical that we have adequate security. It is no less critical that we have neighborhoods in which people are willing to live, if Philadelphia is going to flourish. And I would like to have Mr. Goldsmith respond just briefly to some of the overtime questions.
Phil Goldsmith, Managing Director, City of Philadelphia. First of all, I would like to say I welcome this debate. I think it is a great debate for the City of Philadelphia because I think it really raises the issues we should be talking about. And I think this Administration has 45 OPERATING BUDGET & TAX BILLS - 5/10/04 found the right balance in trying to seek tax reduction and tax reform, while at the same time maintaining our core services and making some investments in our future. And I think we have a balanced approach which is important for those of us governing. We have been very aggressive in reducing overtime. And I would say that our overtime in '04 will probably be down a good 10, percent from what it was Fiscal Year 12 '03. So I think we have taken steps. 13 And I have said before in my own 14 budget testimony, I think that there is more 15 that we can do. But I think it is also important to understand that overtime is not totally dictated by this Administration. You have independent elected officials, particularly when it comes to court overtime, who have a large sway in the amount of overtime. We also have events that are beyond our control. I am sure we are all hoping we are going to have a Flyers parade and an Eagles parade and a Phillies parade. 46 OPERATING BUDGET & TAX BILLS - 5/10/04 We live in an age where we don't know when the next anthrax scare comes, the next orange alert comes from, or the next snow storm comes from. So while we can do a better job, and I think we are doing a better job, of ratcheting down overtime, we have to recognize that some of these are beyond our control. And some of the overtime, quite frankly, is a trade-off in not hiring people. So we can ratchet down overtime, but it means hiring people. I want to get to an issue, though, of core services. Because we can talk about expenditures. And I like to talk about not threatening people by layoffs or things like that. But I think it is really important for us to understand some of the things that are not being done in this city, which I think would have as much economic development impact as wholesale tax reform. We have a backlog of 30 streets in this city, blocks, that need street 47 OPERATING BUDGET & TAX BILLS - 5/10/04 reconstruction. We can only do blocks a year. We are far behind in maintaining and restoring ditches. We have 900 children who are sleeping in emergency shelters every night because we cannot provide them with shelters. We have to slow down the number of tours that we give in our Arts Murals Program because we can't staff it. If you wanted to talk about anything for economic development, is to take people in our neighborhoods and see the great mural arts works that have been done. We can't provide Saturday hours at all our libraries. We only inspect restaurants once every or months, as opposed to once every year. 60 percent of our city ladder companies are ten years or older. We need 150 field computers in our fire stations. Our police districts and our fire stations need improved maintenance. We don't get to truancy prevention until the kids are truant. We have to do a 48 OPERATING BUDGET & TAX BILLS - 5/10/04 better job of taking care of our park systems, starting with our sidewalks, starting with the greatest street we have, Ben Franklin Parkway, where all the sidewalks need to be repaired. So I just think it is important. And I could go on and on. But I want to make the point that we are not talking about tax reduction in a city that has our services where we want to be a world-class city. We still have a long ways to go. And I think that core services and enhancing these basic services not only has a social service impact, but also talk about the quality of city we have from an economic development point of view. And I don't want that point to be forgotten. Thank you.
Thank you. You paint a pretty good picture -- not a good picture, but an accurate picture -- I think, of what is out there. But it also is a fairly convincing argument that we have to try to be aggressive in trying to find a way to raise more 49 OPERATING BUDGET & TAX BILLS - 5/10/04 revenues. Thank you. (Applause.)
I didn't mention overtime. I wouldn't call it a spending spree.
I wouldn't go that far. But in the last couple of years we have had some pretty expensive programs, particularly Safe Streets. That, I believe, as good as they are, there is a whole lot of other things that are terrific too that we haven't had money to spend on. And we have been spending money we, basically, weren't taking in. We were drawing down on a surplus. Knowing that if we continued to spend at that level, we were going to get a deficit. And, guess what? We are here.
Talking about overtime, when we are spending almost $19 50 OPERATING BUDGET & TAX BILLS - 5/10/04 million in overtime at the prisons, I think that's an exorbitant of overtime, I really do.
Can anybody give an explanation as to why we should be spending that kind of money in overtime at the prisons?
Well, one of the things, number one, we are looking at that issue. And I have instituted a number of changes to make sure that our overtime is being spent better. In some cases, particularly with the prisons, that was an issue of spending overtime because we didn't hire. And, so, we have a trade-off. We can either hire the people and put them on the payroll, or we spend the overtime with the people that we have. That was a judgment that was made. I think in some cases we should have hired and had less overtime. But probably at the end of the day, there won't be a significant difference in the Class 100 expenditures. It is really a trade-off we 51 OPERATING BUDGET & TAX BILLS - 5/10/04 made between the hiring and the overtime. But I will grant you that there were cases that we were having people do work that probably we should not have done, so I am not going to defend it entirely.
Good morning, Madam President. Good morning, Chief of Staff and those from the Administration that have taken time out to, again, continue in this budget process. I learned last year, as I campaigned to seek this office, and I did successfully, obviously, that I was very encouraged by something that I referred to as the great tax debate in Philadelphia. And that it no longer was an issue of the affluent or the middle class of Philadelphia, but that I actually came across people playing dominos talking about taxes. I think that's a very positive 52 OPERATING BUDGET & TAX BILLS - 5/10/04 indication of the civic evolvement and concern of the people of Philadelphia that want to stay in Philadelphia. And I think that the Tax Reform Commission has done a very, very good job in continuing to encourage this great tax debate that we are in the middle of, that I suspect will go on for many years to come. I want to commend the Chief of Staff Wilkerson for a very good presentation, making a very clear argument of where the Administration stands. And there has been times that I have been frustrated coming here to chambers for these budget hearings where there were things that were not very clear to us and information not gotten to us. But today, after listening to you, I want to commend you for a presentation that is very clear, at least today, on where you stand, particularly on the issues at hand today on taxes.
Well, I would be remiss if I didn't point to Sean McNealy, who 53 OPERATING BUDGET & TAX BILLS - 5/10/04 is sitting back there in the corner, and Rob Dubow. They are supported by an entire department, you know. We come forward and give this testimony. It reflects an enormous amount of expertise developed over decades that's within city government. And, you know, we have people who are every day being solicited by the private sector. We hope, you know, they don't leave, Rob. And the hundreds and hundreds of hours of work that they do, they do it because they are concerned about the city's welfare and worry about tax reform and they worry about the budget and they worry about cash flows on and ongoing basis. And I don't want to take the credit. So much of it belongs to them.
And I commend them, as well. I just have a couple of questions for you. What is the hole in the budget created for Year 2005 by the passage of the entire tax reform package proposed in 54 OPERATING BUDGET & TAX BILLS - 5/10/04 Councilman Nutter's bill? And by "whole," I mean additional shortfall of revenues to expenses/liabilities.
And this figure is very important to us because we have to pass this budget for Fiscal Year 2005. And I needed to know what kind of an impact, if we pass all these tax reform bills, what kind of impact it would have.
I think that is a 55 OPERATING BUDGET & TAX BILLS - 5/10/04 critical figure. You know, million in the context 4 of a multi-billion dollars budget frequently 5 doesn't seem like much. But it is 15 million 6 on top of the millions of dollars we have to 7 find. There's $18 million because of PGW. 8 You know, there are other 9 recommendations made by PICA urging us to 10 reform our projected revenues. There are 11 items that we are currently struggling with 12 now that the Administration proposed that we 13 cut, that others would have replaced. 14 So I think when you say, "15 15 million," I think there is also a need to identify where is the $15 million going to come from, what is going to be cut that the city currently does that will fund the $15 million tax reduction.
What is the hole in the Five-Year Plan that would be created by Bill No. 040009? That's the wage tax reform bill. That alone, how much would that be?
Over the life of the 56 OPERATING BUDGET & TAX BILLS - 5/10/04 plan, that's about $98 million.
The Chair recognizes Councilman Goode for a point of information.
I think in '05 it is actually an increase in revenue. I think '06 is $2 million.
No. The increase that you are seeing there that was in the original Tax Reform Commission report was comparing against last year's plan. And the reason that went positive was because of the shift in the date of the change in the wage tax from July to January 1. But that shift is assumed in the plan. So comparing to this year's plan, you don't get that increase in revenue.
So what is it for 57 OPERATING BUDGET & TAX BILLS - 5/10/04 '06?
What's the basis 8 for the $275 million hole create in the Five-Year Plan that you say the tax reform package would create? Are you saying that if we go with the entire package of the Tax Reform Commission recommendation, that we will create, that a 275 million additional dollar deficit will be created. Can you take us through how you reach, you know, those numbers?
Yes. Most of the reduction is on the business tax side. And the places where there are differences between the Tax Reform Commission's report and the Five-Year Plan are on the gross receipts tax in the fifth year. So gross receipts rates are the same in the first four years. In the fifth year 58 OPERATING BUDGET & TAX BILLS - 5/10/04 the Tax Reform Commission would have a more aggressive reduction in the gross receipts tax than the Five-Year Plan has. On the net income side of the business privilege tax, the Tax Reform Commission would start reducing the net income rate in '06. The Administration Five-Year Plan doesn't have any reduction in the net income side. There are also changes in net operating loss carry-forward. The Tax Reform Commission had that go from three years to ten years, and the Five-Year Plan doesn't have that change in the definition of net income. So that payments to partners, for example, would be considered as a cost, so you would change the way that your tax rate is applied. So those are the major differences, and that's where the rest of the cost comes from.
Can we have a 59 OPERATING BUDGET & TAX BILLS - 5/10/04 second go-around, please. There are a number of Council Members that would like to be recognized. The Chair recognizes Councilman Clarke.
Thank you, Madam President. Good morning. A couple of questions. The Administration has indicated its willingness to support the land value tax and the repeal of the nonutilization tax. I am trying to get a sense, is that support for the repeal of the nonutilization tax solely based on their support for or your support for the land value tax, or is it based on other issues that were raised at an earlier hearing, I think maybe three years ago, three or four years ago, when I appealed the original nonutilization tax?
I think there have been legal questions about the nonutilization tax. But the Administration, after review of the Tax Reform Commission's proposal, 60 OPERATING BUDGET & TAX BILLS - 5/10/04 thought it made sense to adopt a land value tax approach. (Applause.)
I think this is -- you know, we in the Five-Year Plan discuss adopting it for FY '06. The Tax Reform Commission appropriately indicates that we need to fix the problems with our assessment system and go to, I think, 100 percent assessments before we go down that road. It is something that is proposed for a ten-year phase-in, so we will have the opportunity to evaluate it. But we support that approach, as opposed to the tax that I believe you sponsored.
I am trying to 61 OPERATING BUDGET & TAX BILLS - 5/10/04 make sense. Is it more your belief that there are some legal issues or is it more the need to merge it with the implementation of the land value tax?
All right. Do you agree that if the legal issues -- and I am not sure they are -- but if they are, if we can overcome those legal issues, our ability to implement such a tax could possibly increase a substantial number of revenue, amount of revenue, as a result of the vacant land throughout the City of Philadelphia, and possibly encourage people to do something with this underutilized land? Underutilized in every sense of the way, in that this focuses primarily on blighted property, not necessarily individuals who have a lot of land that they use, probably lawns, parking garages, things, parking lots, things of that nature.
I think it creates pressure for property owners to use their 62 OPERATING BUDGET & TAX BILLS - 5/10/04 land. I think we are seeing increased values in a number of areas of the city, areas that had for a long time, you know, been throw-away areas from a real estate value point of view. We are seeing increased interest in it. I think there remains the question of, can you find the property owners. They have to come forward before that tax has any real significance. But I think we might realize revenues that even five years ago, ten years ago, weren't going to be available.
Well, as it relates to finding property owners, I am assuming that we have run into that problem under the NTI program and our aggressive acquisition of land. Our ability to impose an additional lien or impose an additional penalty or tax on that land, I am assuming, would enhance our ability to acquire properties under NTI. I look at my friend Councilman 63 OPERATING BUDGET & TAX BILLS - 5/10/04 DiCicco over there. And I know he is thinking about that vacant window bill, and the ability to ratchet up the liens on blighted properties. I mean, we don't really concern ourselves when we are trying to acquire land under NTI as to whether or not we will find owners. Why would we concern ourselves about --
When it comes to acquiring land through NTI, you are right, the more liens we have, the less cash we have to outlay. I was thinking in terms of simply, you know, properties that are not going to be acquired through a condemnation strategy, but where you have abandoned property and you are just looking to collect revenues and make it expensive for somebody to support blight in our cities. You know, under the scenario where we are not going to a acquire it and you don't have the proper owner available, the tax doesn't make a big difference. 64 OPERATING BUDGET & TAX BILLS - 5/10/04
I don't understand that. If there is a property that's vacant now, right -- and I am assuming that we are taxing that property separate and aside from the nonutilization tax.
We do impose that tax. We don't simply say, because we can't find you, we are going to not impose that tax.
In terms of creating revenue for the city, you don't necessarily create revenue when you can't find the owner, that's the big difference.
Have we ever run into instances when people feel that the cost of land, and subsequently the imposition of a tax, is sometimes worth the cost of business, particularly when we have speculators who own properties in parts of the city where the taxes are relatively low, and they say, look, I am not going to worry about that, I am going to speculate and I will sit on it. The taxes are a hundred dollars a year, that's the cost 65 OPERATING BUDGET & TAX BILLS - 5/10/04 of doing business. At some point this property will be valuable, as we are seeing across the city.
If in fact there are people who are holding property for speculation, that would have an impact. But what we have seen historically is that these are not properties that are vacant because they are being held for speculation; they are simply properties that have been abandoned.
So the worst-case scenario, we would increase the lien on the property. And at some point we will probably get to that property, particularly in some of the areas, since you have indicated that there is a renewed interest in some of these areas. I can speak about my district in particular, because I happen to have a substantial amount of vacant properties and vacant land in my district. And, interestingly enough, people are now interested in the properties. And I am now 66 OPERATING BUDGET & TAX BILLS - 5/10/04 having to decide as to what strategy we use to dispose of this property to individuals.
You know, if it is legal, there is no down side to a tax like the one you proposed. It will mean additional revenues as property values strengthen, you know. It makes owners -- I think owners will make a different calculation. They will go on and pay the tax or develop the property, as opposed to risk losing it.
Ms. Davis, you had indicated a little earlier that the history has shown that these people cannot be found. What do you base that on? (Applause.)
Well, that wasn't my statement. I just said historically they were abandoned properties. I think a lot -- if one wants to look at the success in collection efforts, or even what liens in Philadelphia really mean, one needs only look at the tax lien sale that 67 OPERATING BUDGET & TAX BILLS - 5/10/04 was done in 1997. That securitization has been, by most accounts, a very unsuccessful adventure. We still at this point, with short maybe month left to go, have outstanding --
Not to cut you off. Wouldn't you agree that the land value has changed substantially from 1997 to 2004?
Land values have changed substantially. But the ability to collect on those liens has not. And, so, that, where you would have expected that there would have been a greater ease to collect on them because of the escalation in the values of properties, we have not seen that. There is, as of today, roughly $45 million that have been uncollected on. And, so, that you have a lien sale, a bind sale, that now stands at risk of being in default because those liens have not generated. And, so, to say that this escalation in values have impacted the liens is not true. And the ability to collect, when you 68 OPERATING BUDGET & TAX BILLS - 5/10/04 are looking at agencies whose livelihood depended on collecting, and for someone who has that risk, as the insurance companies have that risk, millions of dollars, they have done every effort they could to get those liens paid, to get those liens adequately serviced, and still they have not had the success. So I think what we are facing here is, yes, there are areas where there will be a positive impact of having a nonutilization tax. But then there are still areas that, because of the demographics, the properties involved, or whatever, where those won't be -- an encouragement where the tax won't be an encouragement for people to pay, but will simply mean that more liens build up on properties that don't have the underlying value to support the lien.
The Chair recognizes Councilwoman Blackwell for a point of information. 69 OPERATING BUDGET & TAX BILLS - 5/10/04
Thank you very much. Councilman Clarke is mentioning this tax that's up on or about June 16. And my question is, how does the lien sale affect the taxes on those properties? As Ms. Wilkerson knows, I have been very upset because we can't get any substitutions because we are out of properties, and we have been told the city has to put the whole value of the properties in. And we didn't know this was happening; otherwise, I would have been smart like my colleague, Councilman Clarke, and exempted my area. Having said that, we are stuck. But I have met with people who are interested in trying to work with the city to then buy back these liens. And I know we have the insurance company in the middle. But there are other people who are interested in working with the city to see if the city will enter into an agreement to get these properties back. 70 OPERATING BUDGET & TAX BILLS - 5/10/04 How would that affect taxes, and how does that affect the whole issue of being able to move those properties?
There are a lot of issues around those particular properties that are involved in the lien sale. Number one, in many of those properties, new liens have been established on those same properties. So you have properties now that did not have the underlying value to support the liens that were there in the initial sale, lien sale, that now have more liens layered on. As long as the insurance company is there and has the rights to those liens in order to satisfy what they are going to eventually have to pay out on behalf of the city, if the city does not in some way step up and make those payments, you have a complicated situation that probably, in a meeting, we could examine each individual property or examine properties that people may be interested in and see if there is not a way to negotiate something between the insurance 71 OPERATING BUDGET & TAX BILLS - 5/10/04 company, the servicer, and the parties who are interested in acquiring it.
My final, then I will wait my turn, Madam President, on this whole issue is, it is a really important issue. We have private business owners who want properties to expand their businesses. I have talked about it all the time, so my colleagues know I am talking about Bottom of the Sea in my area and other businesses -- I have been talking about them for the last year, year and a half -- who want to expand business, who want to pay taxes on that land that's tied up in lien sales. People want to invest in our city. Isn't that what we want? Don't we want to support minority businesses and businesses overall and investing? We say we do, and yet we don't have any way to transfer properties to them so that they can get a clear deed. I mean, when and how do we develop a process? I know I go through this all the 72 OPERATING BUDGET & TAX BILLS - 5/10/04 time under NTI and CDBG. When and how do we develop a process, or is there any need to, or do we just let areas, businesses, decide to move because they can't expand, they can't become further tax-producing entities because we won't find a way to get them a clear deed? Is there any move to have that done, that you are aware of?
Yes, I think we have discussed it, you know, in connection with NTI. We are moving thousands and thousands of properties through the condemnation process. We have, you know, 10, appraisers that are working almost full 17 time doing appraisals in support of our filing 18 declarations of taking. 19 We are putting systems in place, 20 IT-supported systems in place, so we will be able to monitor and do things more efficiently. The perfect system, though, is still 18 months out, something like that.
It never 73 OPERATING BUDGET & TAX BILLS - 5/10/04 comes. You know, it is very frustrating when the city says, get businesses to invest in neighborhoods. We have neighborhood businesses, we get them to invest, they want to pay taxes, the properties are either in this lien sale business or they have owners they can't find, and the city still can't find a way to work to get a clear deed. It is very frustrating and it makes businesses and neighborhood commercial corridors think we don't say what we mean; that we really are not committed to their expansion. Because no matter how long we talk about it, we don't come up with a plan. Thank you, Madam President. I will wait my turn.
Thank you. And I suggest that you put your light on again, because it went off. (Applause.)
Councilman Clarke, are you about finished? Because we have a number of Council Members that would like to 74 OPERATING BUDGET & TAX BILLS - 5/10/04 be recognized.
Yes. So your response is that, essentially, the ability to collect taxes on a substantial amount of vacant land and vacant property is iffy, at best. Do you or have you calculated in your equation for your support for the land value tax that, under that particular program, you won't be able to collect that revenue? Because I believe in some of the earlier testimony by some of the supporters of the land value tax, is that the imposition of that particular bill would in fact encourage individuals who currently have vacant land and vacant properties, because the shift of focus -- particularly on vacant land, and in some instances vacant property, because it was indicated that improvement on vacant property would be taxed at a lesser level now because the focus now has shifted to the vacant land in terms of increased penalties. So if you don't get it on nonutilization, you are not going to get it on 75 OPERATING BUDGET & TAX BILLS - 5/10/04 the land value
The rate of the land value tax is, the way we have costed it, to be cost neutral, is that you are spreading it over the same items. But the same -- same things that impact the nonutilization tax would also impact land value tax, if you had a vacant piece of property. Changing the proportion that's tied up in land, or the improvement, if you have something that's abandoned and not desired, is not going to change the dynamic.
So we are not going to get a response from the vacant land under either program is what --
Not if it is land that is not in demand. There are those areas that are hot where --
So the primary focus on the land value tax is, essentially, properties that first we can find the owner, there is a strong likelihood that the land is 76 OPERATING BUDGET & TAX BILLS - 5/10/04 being used for some reason or another, i.e., someone's lawn or parking lot or something that's being used, we can track the person down; but, essentially, the likelihood that it is going to encourage the development of vacant land is --
The land value tax is predicated on taking those properties that are under some lesser use and moving them up to a higher use; i.e., development. So that is exactly the predicate.
Okay. All right. I'm glad we cleared that up. I will come back for followup.
Thank you. I just have a question. From time to time City Council has to approve TIFs and/or KOIZs to attract or retain businesses. By giving our special tax breaks to a few, are you not giving them a competitive advantage over other businesses in the city? With that being said, don't you think that tax reform is a fairer means of 77 OPERATING BUDGET & TAX BILLS - 5/10/04 creating a tax-friendly atmosphere for the city than the other inducements that you have been using? (Applause.)
I will respond to the idea that TIFs and KOIZs and KOZs are of special benefit to a few. I think those are very needed economic development tools and they are used even in those cities that have booming, thriving economies. They are ways of targeting your tax benefit to an area or an industry that you hope to see develop and grow in your area. Tax reform is another way of accomplishing that on a broader base.
I think I found it interesting in the Tax Reform Commission's report that it did not propose the elimination of all the property or project-specific incentives, you know. It basically supported what Ms. Davis just testified to, that, particularly in the interim, these are the kinds of incentives 78 OPERATING BUDGET & TAX BILLS - 5/10/04 that the city needs to continue to utilize; that we may reach the point where we don't have to consider them anymore. Although, you know, Ms. Davis was showing me an article about what's going on in Denver. And even there you still, you know, from time to time find locales still using the incentives, particularly the TIF program.
But you didn't answer my question, in a way. Don't you think that tax reform is a more fair way of creating a tax-friendly atmosphere than the incentives such as TIF or KOIZs?
I think in the long run it may be. But in the short run, I think that there is still a need for the project-specific incentives.
All right. I would like to remind my colleagues that we do have a number of Council Members that want to be recognized. I did not time anyone in the beginning, only because there were very few 79 OPERATING BUDGET & TAX BILLS - 5/10/04 Council Members who had their lights on. However, the board is really full now, so I would ask my colleagues to please keep that in mind. We will start with the next go-around for five minutes per Council Member. Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. I want to take an opportunity to discuss something that the managing director said about core services. And I want to point out one particular core service that I think, if it diminishes anymore, we might just put the closed sign on the city, and that's the area of traffic control. I get letters, I get phone calls about the gridlock in Center City. And I think many of us have driven from one side of the city to the other during peak. And I look to see if I see police 80 OPERATING BUDGET & TAX BILLS - 5/10/04 officers, traffic officers, and I see very few, if any. But when we see special events, we see just overwhelming numbers of police officers. Mr. Managing Director, if you are suggesting that tax reform would cut any further into some of the core services, I think we would be in big trouble in this city. Because I think right now people that really depend on coming to the city, that can't use public transportation, absolutely have a right to complain because the gridlock that is occurring in Center City lately is beyond description.
Councilman, I am pleased to tell you that I actually have a meeting scheduled in my office some time later this week with the police, and traffic division in particular, to discuss this issue. And I hope you are there with us when we start giving tickets out. Because if I have anything to do with it, we are going to start getting tough on people blocking the 81 OPERATING BUDGET & TAX BILLS - 5/10/04 intersections, going through red lights. It is time that -- as far as I am concerned, it is as much a part of economic development and making this city a livable place and a place where people want to visit. So hopefully you will be there with me when some of your constituents start screaming when they get the tickets.
If they are breaking the law, they can scream as loudly as they like. But my point being that there is very little police presence, especially traffic police, that goes on right now. So, obviously, you have recognized that, and you plan to dispatch police officers to allow people that need to come into the city -- and I know that you are a big promoter on bicycles and alternate forms of transportation. But I can tell you this, that after hearing people at the Chamber of Commerce meeting recently talking about the fact that it is almost impossible to travel through 82 OPERATING BUDGET & TAX BILLS - 5/10/04 Center City either at the morning rush or the evening rush, is to the point where they hesitate to even want to come to the city any longer.
You are welcome. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President. And good morning to the panel. I believe I asked this question a couple of weeks ago. I'm not absolutely certain if I did, so I apologize if I am repeating it. When you do your budget and you take into account whatever those figures are going out over the Five-Year Plan, have you taken into account the buildings that were given the ten-year exemption back in 1997? I see Mr. Dubow shaking his head. And you are factoring in those numbers as 83 OPERATING BUDGET & TAX BILLS - 5/10/04 additional revenues?
Yes. You mean when the abatements expire? COUNCILMAN DiCICCO: Yes.
Yes. COUNCILMAN DiCICCO: I don't want to get away from the tax issue for a moment, but I think this kind of falls into where we are today, how we got here, and what we need to do going forward. And it picks up on Councilman O'Neill's question, which I believe the managing director responded to, about overtime and the way monies are being spent, and what we need to do about getting some of those controlled. So that at the end of the day, no 18 matter what of the bills, if not all of the tax reform bills are passed, or some of them are passed, changes need to be made. A couple of weeks ago I spoke to, when the Recreation Commissioner was in this Council for hearings, I brought up the issue of Camp William Penn, 671-acre facility in the Pocono Mountains. And I have done some 84 OPERATING BUDGET & TAX BILLS - 5/10/04 further investigation as a result of that discussion. My understanding is, it is being used 29 days a year, at an approximate cost of $500,000 per year. I have had some discussions with people in the casino industry, which I raised at the hearing, that it is very valuable land. Not certain if casinos would even be interested in it. But at the very least I am told that that land is probably worth today, non-casino-related purchaser -- and it wasn't done by a professional appraiser, but just kind of, like, off-the-cuff value -- it is worth about $10 million. So when we are sitting here talking about tax cuts possibly, if we pass any of the Tax Reform Commission recommendations, talk about city services, libraries possibly closing and not opening on Saturdays, pools not opening this season and maybe for the next few years, a half a million dollars a year annually over a Five-Year Plan is $2.5 85 OPERATING BUDGET & TAX BILLS - 5/10/04 million, notwithstanding any of the additional monies we may have to invest to keep that place up to the standards that it needs to be kept up to. What, if anything, is being done about that notion, suggestion, if you will, about selling that facility?
Councilman, we are expecting an appraisal on that land any day now, so that's something that we are looking at. I hope that you just didn't put a ceiling on what the value might be. But we do have -- we have contracted with an appraiser. They are going to come back to us with what they believe the value of that land is. And, given that, then we will find out what alternatives we have. COUNCILMAN DiCICCO: I mean, you are half a million dollars a year. I think it costs about $50,000, I am being told, to keep a pool open yearly, on a season. So that's ten pools we can keep open every year. And I understand that 500 children 86 OPERATING BUDGET & TAX BILLS - 5/10/04 get a great experience by going to the Poconos. But I think we can do the same thing in Fairmount Park, if we had to. So this all falls into the area of how do we -- (Applause.) COUNCILMAN DiCICCO: I don't know if that was an applause for the Poconos or whatever. But, in any event, I think those are the kinds of things that, during this whole tax debate, we need to be taking into consideration. Not only about reducing taxes, but on the supply side, as we talked about in Ms. Wilkerson's testimony, these are things that have to be addressed, I think, simultaneously.
Councilman, we are addressing that particular issue, as well as a lot of different issues at the same time. But that one we are looking at, what the value of the land is. Camp William Penn gives a great experience, you know, in the country for urban kids. So we don't want to 87 OPERATING BUDGET & TAX BILLS - 5/10/04 lose that. But we are also looking at ways, can we send them to another camp that someone else operates, and so forth. So those issues are legitimate issues that we are exploring. COUNCILMAN DiCICCO: I have some other questions, but it is really concerning the parking tax. And I will wait for people who are coming up from the Commission. Thank you.
Yes. Thank you, Madam President. In looking at the bills that you are not supporting, I would just like to have some discussion with you about why the Administration is not supporting some of those bills. The one bill, Bill 040012, phase-in over five years the ability for partnerships to fully deduct payments to partners against 88 OPERATING BUDGET & TAX BILLS - 5/10/04 their business privilege tax liability, so partnerships are no longer taxed higher than corporate competitors, what is wrong with that?
There is nothing wrong with the theory of it. It is the cost that concerned us. We didn't develop a hundred percent accurate cost, but we think it is probably in the neighborhood of $10 million a year. So that was, really, just a decision made on the basis of cost.
Could you just further, could you tell me what that bill 16 means, and how do you calculate the cost?
What that bill means is that, if you are a certain type of business, you can deduct payments to partners, basically, as a cost of doing business. And then instead of being taxed at the net income rate of 6 and a half percent, you wind up getting taxed at the net profits rate, which is lower. So it is a lower tax rate for 89 OPERATING BUDGET & TAX BILLS - 5/10/04 businesses. So it helps them and makes, you know, our tax rate more competitive for them. On the other hand, it costs us money.
So if they go from the 6.5 percent to the lower rate. The city loses money?
Right. So we lose on the business privilege tax and gain on the nets profits tax.
About 10 million a year, but we're not a hundred percent sure of that.
So how do you make a decision whether it is 10 or 4 or 3 or 2?
Well, one of the reasons that we haven't endorsed it is that we couldn't get an accurate cost. We know it is something that will be costly; we don't know exactly what the cost will be.
Okay. The next one, 13. Enact budget-based real estate 90 OPERATING BUDGET & TAX BILLS - 5/10/04 taxation so elected officials set tax rate after assessments are performed to create accountability in the real estate tax system. What is your position on that, and why?
We oppose that one, too. Our fear as to what would happen if that bill became law was that, in years when assessments were really strong, millage rates would go down and the budget would stay in balance. In years where assessments were weak and we needed additional revenue, we are worried that that millage rate wouldn't be increased, and it would just be a continuing downward spiral in our revenues, which would then lead to reductions in our services.
So the Council has to raise the assessment, and you have no 21 confidence --
The millage. And you have no confidence that they would do that? 91 OPERATING BUDGET & TAX BILLS - 5/10/04
I think the whole -- you know, a lot of the, you know, the Tax Reform Commission's work and ability to pull this off really does turn on a willingness to capture the increased growth in the real estate tax. And the real estate tax is the tax that, because we don't have a lot of flexibility with it, because of the uniformity provision and the state constitution, comes down hard on a lot of the senior citizens and low-income residents in the city. (Applause.)
You know, the Tax Reform Commission, you know, talks about the need for state reform in order to give us some flexibility. But until that happens, there is concern about the city's willingness to capture the growth in revenue from the real estate tax. We saw it last year, when the real estate tax overall did not increase, the 92 OPERATING BUDGET & TAX BILLS - 5/10/04 assessments didn't increase, in a way that was out of line with what it had done historically. It was not one of the highest growth rates in assessment. And, yet, we, you know, as a city, wrestled with and ultimately avoided realizing some of that increased revenue because of concerns for low-income and senior citizen taxpayers. You know, that's something that has to be dealt with. The Tax Reform Commission indicates -- or, the Econsult report indicates, that's one of the big risks in everything that's proposed, is that there will not be the resolve to actually go on and realize the revenue that would come from a growth of the real estate tax and property values.
Next go-around, please. The Chair recognizes Councilman Clarke.
That was quick. 93 OPERATING BUDGET & TAX BILLS - 5/10/04 Thank you, Madam President. Real briefly, I just want to touch base on the nonutilization tax issue. Ms. Wilkerson, you indicated that there was a legal challenge. And I am assuming that you are referencing John Anderson's original bill?
I don't know whether it was the original bill or -- I understand there was a subsequent amendment. My understanding is that what is currently on the books is not legal.
I can have the City Solicitor come and talk about that tax in more detail.
I would just like to get a history of the bill. Because it is my understanding that there is the possibility that the review of 94 OPERATING BUDGET & TAX BILLS - 5/10/04 that was based on the original bill. And I don't know if it was based on the original bill, the legal challenges associated with the original bill. And I am, actually, not even sure there was ultimately a ruling on the original bill. I am hearing different versions of what happened. That conceivably the city decided to drop its case, as opposed to seeing it through. So with respect to the ultimate legality of the bill, I am not really clear.
I will have somebody from the Law Department come prepared to answer your question.
With respect to, Ms. Davis, your comparison to the lien sale and the nonutilization tax issue. Correct me if I am wrong. Under the lien sale -- because, fortunately, I didn't have a substantial amount of properties in my district that was then Council Street's district, that was formerly Councilman Street's district -- my understanding, that 95 OPERATING BUDGET & TAX BILLS - 5/10/04 these liens were sold at a substantially reduced rate to individuals; right?
The liens were not sold; they were used as security for a bond deal. And they were at a discounted rate.
So conceivably the lien could have been $3,000, and that person was able to secure that lien for half of that, maybe?
Well, in order to generate, I believe it was, 75 million, thereabouts, in proceeds, the city put up in the neighborhood of 135, 140 million dollars in bonds. So, there was a deep discount. And most of our liens would be in that situation, deeply discounted lien.
And, so, that person, essentially, had to go out and find the owner of the property and threaten to take the person to sheriff's sale, and that was their only way of getting any revenue out of it?
They would have done exactly the process that the city pretty much 96 OPERATING BUDGET & TAX BILLS - 5/10/04 faces. And I believe maybe the discounting was at 70 percent.
And, so, but when the city takes the property to sheriff's sale, we essentially throw it out there and we start bidding at a certain level. And we, under our powers, must accept the highest bid; correct?
So we weren't looking at a number, necessarily the number, that the individual who purchased the lien was looking at when we go to sheriff's sale; we are looking for whatever we can get, in most instances?
By the time it gets to sheriff's sale, even for the people who are now the lien holders, when you go to sheriff's sale, at that point you are trying to get the best deal that you can and the best return that you can for those liens.
The city does the same 97 OPERATING BUDGET & TAX BILLS - 5/10/04 thing.
Do we turn down a bid at the sheriff's sale? I don't remember that happening.
I am not intimate with that process. But I believe that should a lien -- should there be no interest at all in liens, and you get one that is, like, bottom basement, on a property that it doesn't satisfy the outstanding liens, and the apparent value of the property would be well in excess of the amount bid, you may get a property pulled. But you would have to get the sheriff's office, who are more intimate with --
My limited knowledge of sheriff's sales, particularly when the city goes to sheriff's sales, is, we, essentially, take whatever we can get.
That's generally the process. But there are instances under which you would not want to.
All right. But 98 OPERATING BUDGET & TAX BILLS - 5/10/04 the ability -- would you agree that the ability, because the city has a lower level of acceptance, would you agree that the ability for the city to get some revenue out of that is probably a little better than a person who purchases a lien, because that person has an initial cash outlay and they are trying to get as much as they can get, if not more?
At this point their aim is exactly the same as the city's. So I don't think you would find -- because, in fact, their liens are going to the same sheriff's sales that ours are.
I understand that. But I think you really need to look at the history of the sheriff's sale. Is that when an individual has a lien sale, that individual wants to get more than they purchased that lien for. The City of Philadelphia historically, particularly in a substantial amount of the neighborhoods, frankly speaking, would be very happy if they can get the $800 minimum on a lot of these properties. 99 OPERATING BUDGET & TAX BILLS - 5/10/04 So our ability to collect under the traditional sheriff's sale, I have to say that it is much better than the process that was set in place in 1997, particularly given --
The liens that are in this lien sale from 1997 are in fact serviced through the same sheriff's sales. So properties that they have identified may go through the same sheriff's sale that something that is not subject to that property.
I understand that. But there is a different threshold established by virtue of that lien purchaser purchasing a lien for a set amount of dollars; right? The City of Philadelphia, we didn't purchase the lien; we own the lien. And what I am saying is that, you know, our ability to accept a lower amount, given the fact that in some instances we are not getting anything, you know, is more likely to happen. I understand you are not the 100 OPERATING BUDGET & TAX BILLS - 5/10/04 sheriff. And I understand you don't want to commit yourself
The lien servicers are in exactly the same situation that the City of Philadelphia is in. They are, at this point, taking whatever they get. Because they don't purchase individual liens; they use a portfolio of liens as security for a loan. They are now trying to recover as much as they can. So you would be surprised to find that they are in that same pool with the City of Philadelphia. And, in fact, if they got the $800 at this point, they would take the $800 because they are attempting to do exactly what we are attempting when we take them to sheriff's sale.
-- either make this your last question until the next go-around, please, or just wait until the next 101 OPERATING BUDGET & TAX BILLS - 5/10/04 go-around.
Thank you, Madam President. The Commission report says that by 2017, over 175,000 jobs will be created as a result of this recommendation. By our calculations, that would be about a percent growth in jobs. Is that a 15 reasonable conclusion? 16 It is my understanding that we would 17 need every job in Bucks and Chester Counties 18 to move into Philadelphia in order to increase 19 by that number. 20 Do you think that other cities like 21 New York, Detroit, or even D.C., can add 22 175,000 jobs in ten years? 23 And what was the impetus for making 24 this conclusion for our city? Do you think 25 this is a risky assumption, or is this one 102 OPERATING BUDGET & TAX BILLS - 5/10/04 that assumes that the national economy is going to help us?
I would rather -- I don't want to opine to the Tax Reform Commission number. I think that our expectation is that there will be an up side to all this tax reform. We are not -- you know, the city has not pursued tax reduction and tax reform without an expectation that it would have an impact on creating jobs. Whether it is 175,000, you know, something less, we don't know. That's in part why the Administration is not willing to adopt a supply side approach. We are not going to capture the revenue from those jobs before they actually occur. But I think the Tax Reform Commission people could probably respond to how they determined that number.
Thank you, Madam President. Also, again, I would really like to 103 OPERATING BUDGET & TAX BILLS - 5/10/04 deal with the whole issue of properties, since it is my area of interest, in terms of housing and properties, and how we get clear deeds, and how we raise money for businesses who are willing to pay. I would hope that it would be a real focus, so that we can do something in short order, and not have to wait months to move 10 the economy in neighborhoods forward. 11 Certainly NTI is an agenda who -- 12 that is supposed to spur economic growth. It 13 is supposed to be a leverage for neighborhood 14 development. And we hope that we can move 15 forward in that area. 16 And I'm sure that my colleagues 17 agree with me in that regard. 18 Thank you, Madam President.
You are welcome. The Chair recognizes Councilman Kenney.
Thank you, Madam President. Ms. Wilkerson, or anyone else at the table, my understanding, absent any tax 104 OPERATING BUDGET & TAX BILLS - 5/10/04 reform, that the Five-Year Plan as we speak today is at a balance relative to, I guess, the $18 million deferred payment over four years, and then the water sinking fund scoop issue, which I guess is around 95, 96 million over the Five-Year Plan? Or is there a number that you would -- what's the plan out of whack now, based on those two items?
We are considering a number of additional proposed cuts. We have not made final decision on what it is that we are going to propose to City Council. Some of the cuts are additional -- will probably end up being additional personnel cuts, but we don't have a final plan we propose yet. 105 OPERATING BUDGET & TAX BILLS - 5/10/04
Do you know when that is going to be coming to us? We are getting to get, as you know, into a time limitation issue on PICA requirements and our Charter-mandated responsibilities on passing the budget. Is there some idea when we may be seeing any of that?
I would, rather than throw out a guesstimate, we are sensitive to the fact that, you know, there are time limits, and are working now trying to identify exactly, you know, what it is that we are going to propose, what adjustments. But it will involve additional cuts.
Just to go talk philosophically a little bit about the tax reform effort and the Administration's opposition to various components of the tax reform plan. I agree with your comparison -- I agree with your analysis on the issue of federal tax cuts, which I believe were done more for conservative philosophical reasons of 106 OPERATING BUDGET & TAX BILLS - 5/10/04 the Republican party than for anything else. (Applause)
And I also believe that people generally will not -- generally, I don't think people at all will move out of the country, will change their citizenship, based on high taxes or not having tax cuts on a federal level. And I think the federal tax cuts not only have put us in a terrible deficit, but have really lost opportunities to fund things for education and other types of things, healthcare, that really the country needs. But I disagree with your comparison when it comes to supply side on the federal level and on a local level. Because, different than the United States, people may not move out, but people will move out of Philadelphia, and have moved out of Philadelphia, to a very, you know, close proximity to the city because of issues like taxes and schools. Do you really think it is a fair comparison to compare federal tax cuts with 107 OPERATING BUDGET & TAX BILLS - 5/10/04 the effort to reduce taxes here to put us in a more competitive position with our surrounding five-county or SMAS area in South Jersey? Isn't it a little bit of an apples and oranges comparison?
First let me say that this Administration embraces tax reduction and tax reform. I think that what we do differ on is the rate at which we can accomplish this in light of the city's financial resources. When we say that we are unwilling to capture supply side effect, it is because of our determination that the risk associated with that is so great. We don't have all the resources the federal government might. And I want to have Ms. Davis talk a little bit about just the cash-flow side of this, because that's some of what we look at when we decide that we are not going to recognize the supply side impact. I guess some folks said, well, put it in now. If it doesn't work out next year, you can always roll back the tax reductions. 108 OPERATING BUDGET & TAX BILLS - 5/10/04 And, Janice, if you would talk a little bit about the risks for the city.
As the city has depleted its fund balance, it has also depleted its cash reserves.
Excuse me, please. The noise level is much too high, and we are having difficulty hearing the witness. Please proceed.
As we depleted our fund balance, we have also depleted excess cash in the city's coffers. The use of speculative revenues are, the supply side impact, should it not materialize, will put tremendous strain on our ability to have cash flow. And that is a large part of our problem now, that we are at a situation where, including anything that's not a deficit, only puts additional strain on our ability to generate the cash.
I think that, just in closing with this particular comment, as we go forward with the loss of population 109 OPERATING BUDGET & TAX BILLS - 5/10/04 and the increasing numbers of problems that the city tries to deal with, and whatever happens in the national economy, it seems that at some point we may never get to a point where we could implement this kind of tax reform because things probably will not be getting better. And even though it may be difficult to do it now, I think it becomes increasingly more difficult to do it later, and, therefore -- (Applause.)
Kind of continues to send the city in the wrong direction. And while I recognize the pain associated with doing this, I think it is going to be more painful next year, the year after, the year after that, as people continue to leave, jobs continue to leave, and we still can never recoup the revenues that we need to take care of our problems. Thank you.
Thank you. 110 OPERATING BUDGET & TAX BILLS - 5/10/04 The Chair recognizes Councilman Ramos.
Thank you, Madam President. Ms. Davis or Rob, what do you say to the Tax Reform Commission's point that piecemealing the implementation or incremental implementation of their recommendations won't change the business-unfriendly regressive tax environment that exists in this city in a sufficient way to bring about positive economic results? You have proposed incremental reductions. The Commission has a more aggressive plan of doing this right now, and fairly fast.
What we would say is that, what we have proposed is what the city can afford without impacting core services. What the Tax Commission, Tax Reform Commission's programs, if taken as a whole, would do, would be, in the short run, force us to cut those essential and core services that get right to the quality of life. And that is 111 OPERATING BUDGET & TAX BILLS - 5/10/04 something, a trade-off, that we feel is dangerous. You cannot grow a city while you are taking essential services away. And full implementation, all at once, in a drastic form that's being indicated, would in fact have that impact.
You are telling the people of Philadelphia that if we are to do the recommendations per the bills that are presented here by my distinguished colleague from West Philadelphia, Michael Nutter, that you are telling the people of Philadelphia that if we dare to do this, that we are going to be seeing a decrease, a substantial decrease, and the elimination of basic city services because the city will not be able to afford these deep tax cuts; is that so?
Yes. We have already cut and cut and cut just to get this budget balanced. To layer on additional tax cuts would mean that we would go back to the drawing board to those areas that have already 112 OPERATING BUDGET & TAX BILLS - 5/10/04 been cut and demand that they give more. When we looked at just what the impact of losing PGW might mean to the Five-Year Plan, my friend and colleague Rob Dubow presented me with something that would amount to an $800,000 cut for my department alone. And that would have meant that I had to get rid of positions in order to provide 10 that 800,000. 11 16 positions in a department that is 12 all mandated services means that you then 13 start to pick away randomly at parts of the 14 service. 15 Because you can't eliminate payroll, 16 so maybe you take one or two people out of the department. And you can't eliminate the revenue department, and you can't eliminate the treasurer's office. So what you end up doing is cannibalizing every department to the point that it can't function. And what would happen in the service departments --
Point of 113 OPERATING BUDGET & TAX BILLS - 5/10/04 information.
Thank you, Madam President. Ms. Davis, isn't the cost of tax reform in the first year comparable to the cost of foregoing the PGW payment?
But you don't know what cuts you are going to make yet to forego the PGW payment. So is it the same doom and gloom for foregoing the PGW payment that it would be for tax reform in the first year?
Tax reform on top -- PGW is not -- at this point PGW is not an option. PGW is something that we have to do. It gets to the health and safety of the citizens of Philadelphia in providing heating.
I will be real brief. But the Mayor presented his budget 114 OPERATING BUDGET & TAX BILLS - 5/10/04 address to City Council, then went into a press conference and said that if Council would mess with any of those cuts, essentially, it might mean layoffs. The Mayor and the Administration are now saying that if we do tax reform, which is roughly $17 million in the first year, it might mean layoffs. But in between that time, the Administration decided to forego a PGW payment, but said nothing about layoffs. That's just not fair to this Council.
There are going to be restructurings, layoffs, or something to accommodate the full PGW impact. There is no 17 way that we walk away without an impact.
So the decision to forego the payment from PGW in and of itself is probably going to cause layoffs? That's a yes or no question.
Can you simplify that answer a bit? 115 OPERATING BUDGET & TAX BILLS - 5/10/04 The decision to forego the PGW payment in and of itself is going to force layoffs? That's a yes or no question.
I can't give a yes or no 6 answer, because there may not have to be layoffs; there just may be a reduction in the work force because we don't rehire.
So if you don't forego the PGW payment, but we do the tax reform, which costs less than foregoing the PGW payment, will there be layoffs?
If foregoing the PGW payment is not going to cause layoffs, then adopting the Tax Reform Commission's proposals in the first year will not force layoffs?
I think it may well require layoffs or we would have to adjust 116 OPERATING BUDGET & TAX BILLS - 5/10/04 what we plan to do --
It is a comparable amount of money. In the first year, tax reform costs million. The PGW payment is million. 7 Get your answer straight, then give me a yes 8 or no. 9
I think it would 14 inevitable involve a reduction in the work 15 force. 16 There are a couple of ways you can 17 accomplish a reduction in the work force. One 18 way is through layoffs. Another option that the city has is by simply not replacing as many employees who leave through the DROP program. So it may be layoffs, it may be increase in number. But at the end there will be fewer people in the work force.
I didn't ask how 117 OPERATING BUDGET & TAX BILLS - 5/10/04 you accomplish it. I asked is it a comparable amount. Is foregoing the PGW payment comparable to the cost of the first year of tax reform?
Thank you. Councilman Ramos. And we are giving you your time.
Thank you, Madam President. Concerning the wage tax, will you consider this wage tax being a regressive tax?
How much do folks working with incomes in the 14 to thousand 20 dollars per year pay each year in wage tax? Do we have a number for that, Mr. Dubow?
Can you get back to me before the day is out? We are running 118 OPERATING BUDGET & TAX BILLS - 5/10/04 out of time here in these budget hearings.
Individually. Yes, what does an individual paying wage tax, if they make anywhere between to 8 20 thousand dollars a year? 9
You are looking at the 10 high end pretty close to $1,000, the 20,000 11 person would be in that neighborhood. 12
And about how 13 many people -- do you know how many people are 14 in that wage tax bracket?
What would be the impact, you think, of eliminating the wage tax for such tax payers on the 2005 budget?
We would have to have someone do the research on that to come up with an answer. I don't have that answer.
I think we have, actually, done an analysis similar to that in 119 OPERATING BUDGET & TAX BILLS - 5/10/04 connection with a bill Councilman Cohen proposed a year ago. So I think we should be able to get that for you relatively quickly.
Would you be able to get that for me as it stretches out through the Five-Year Plan?
Can you get it to me before the day is out, let me know? We need this information right away.
The clock is ticking. (Councilwoman Blackwell assumes the Chair.)
Let's say that the hole in the budget for 2005 created by the full implementation of the tax reform is now anywhere between 242, 245 million dollars. Isn't the only way to fill that hole presently by increasing parking fees, amusement tax, and other related charges? 120 OPERATING BUDGET & TAX BILLS - 5/10/04
Well, I mean, the other option to fill that hole is to reduce costs. (Applause.)
There is a revenue side and expenditure side. But reducing costs will lead to a reduction in services.
This reference to the Tax Reform Commission, that there are no 10 problems, the recommendations are that there is nothing -- I'm not sure they are saying it verbatim in this way that I am expressing, but there is not something very, very wrong in increasing parking fees, amusement tax, and other related charges, would you go in that direction?
The Five-Year Plan recommends and includes revenue estimates for increasing fees and fines and the parking tax. So there is some of that that was discussed in the Tax Commission's report that is already included in the Five-Year Plan.
Doesn't this just shift the tax burden from, you know, relieving some taxes here, but putting the burden 121 OPERATING BUDGET & TAX BILLS - 5/10/04 somewhere else?
What it does is, it shifts the burden from the entire tax base, to focus it more specifically on the people who are using a specific service.
Are you for the Tax Reform Commission recommendation that essentially says, you can go tax these other things as a way of giving them full -- giving and implementing of the recommendations of the Tax Reform Commission?
We already include a lot of those things in the Five-Year Plan. So, yes, we endorse them, and we are already counting on them just to keep the plan where it is now.
But we are shifting tax burdens here; right? I mean, there is something -- I haven't been around here, I am not a tax expert, but I feel uncomfortable telling the people of Philadelphia that we are doing tax reductions; and what we are doing, what we could possibly be doing is reducing taxes in certain set 122 OPERATING BUDGET & TAX BILLS - 5/10/04 categories, and then increasing them somewhere else, where it still hits the pockets of the people.
In fairness to the Tax Commission, it does propose some additional revenue measures. It proposes some supply side. But at the end of the day, it acknowledges that you may be shifting the tax burden. And it tries to be strategic in recommending where the tax burden ought to end up. It would, you know -- it says you have to be willing, you know, to recognize more revenue coming off of your real estate taxes. It does propose increasing the parking tax, and we have captured that.
And the amusement taxes. And those tend to be taxes that are viewed as being paid also by people who don't live in Philadelphia, the amusement tax and the parking tax; that the preponderance of those taxes are paid by people external to the City of Philadelphia. 123 OPERATING BUDGET & TAX BILLS - 5/10/04 So it is a way of shifting the burden. Not only allowing real estate to pick up more of the burden, but also to shift more of the burden to nonPhiladelphians who use Philadelphia facilities.
I heard the clock. I will come around again another time, unless I will keep on going.
Thank you, Madam Chair. I just wanted to follow up on something that Councilman DiCicco mentioned, something about the selling of Camp William Penn. Very interested if you have any additional property or assets that you would think of selling off just to put -- get us out of this hole? For instance, the Councilman mentioned something about $10 million that that property might be worth. If we receive 124 OPERATING BUDGET & TAX BILLS - 5/10/04 $10 million, we could probably restore all the funding for our cultural and arts institutions of this city. We can also open our libraries on Saturday. We would also probably keep some recreation centers open. We could do a lot to make this city better, and, of course, to get people interested in coming into our city. Because right now I think all of us here, all of us here, are interested in one thing, and we should be interested in one thing, and that's the increased growth of our tax revenue or economic development, are the two things that are going to generate money and to put us and get us into, I think, a more stable economy
This five-year financial plan already includes over $30 million in revenue from sale of city assets. And, so, that is a part. But the Administration would caution against using the proceeds from a one-time sale in order to support ongoing expenses, like ongoing support that will be needed for 125 OPERATING BUDGET & TAX BILLS - 5/10/04 the Art Museum, like the ongoing annual support that will be needed for the recreation department. The question is, what are you going to sell next year? How are we going to fund these activities next year and Year of the plan and and 5?. COUNCILMAN DiCICCO: Point of information.
Yes. COUNCILMAN DiCICCO: I understand that selling an asset this year is not going to get you out of the hole. But my question or my comments were, in addition to the sale of it, we know that we are spending at least $500,000 a year for 500 people to go to that facility for 29 days of the year. So --
And your point is well taken. We are doing the appraisal. COUNCILMAN DiCICCO: I understand you can't sell a building this year, and eventually there won't be any buildings. 126 OPERATING BUDGET & TAX BILLS - 5/10/04
We appreciate when recommendations come forward. COUNCILMAN DiCICCO: I am looking to see how we can reduce some of our costs in order to get the budget to where it should be, but not necessarily for the sake of selling properties or buildings. (President Verna resumes the Chair.)
The point is well taken, And we are doing the appraisal. We had not considered the sale of William Penn. We are doing the appraisal on that. You are right. If we ended the camping experience outright, it is a $500,000 annual savings. And in the context of our financial situation, that's significant. COUNCILMAN DiCICCO: And I look at overall the recreation department's situation today. And you are talking about possibly closing pools. And I have about 10 or 12 rec centers in my district that are on that list. Where we wind up at the end of the day, I don't know. But in just simple terms, that would 127 OPERATING BUDGET & TAX BILLS - 5/10/04 keep ten pools open every year for the next five years. Thank you, Councilman Kelly.
Thank you, Councilman. I just want to follow up on that again. Because if we do sell some property or assets off, at least we can take some action on the recommendations of the Tax Commission. For instance, the most, probably, negative tax that we have today, there are two of them. One of them, of course, is the wage tax, and the other is the business privilege tax. (Applause.)
If we can reduce them in any way, in any way, I think it sends a signal out to everyone that we are going to be business friendly in this city and we are also going to get people who want to work in Philadelphia. And that's the growth. We have it really keep our eyes focused on the growth of this city. And I think that's one of the 128 OPERATING BUDGET & TAX BILLS - 5/10/04 things we have to do. Sometimes we do have to bite the bullet. And that would be maybe selling off an asset that we normally wouldn't think of. But I think if we do that, and if we send out the right signal to people that we are going to get serious about reducing our wage -- and a lot of these taxes to me are very regressive. The worst tax in the world, in my opinion, is the gross receipts tax. That's totally unacceptable.
I think it is important to keep in mind that, while the Administration is not doing everything that the Tax Reform Commission proposes, in very difficult times we are still virtually the only jurisdiction that is reducing the wage tax, reducing the business taxes. We have adopted the recommendation on single-factor apportionment. This is a city that has embraced the need for tax reform, and we are doing it at a substantial rate. 129 OPERATING BUDGET & TAX BILLS - 5/10/04
And I believe you are on the right track, at least in reducing that wage tax. It really is. And I want to commend the Tax Commission for giving us this report. I think it has a lot of room for thought, and I think that some of them absolutely have to be enacted.
I think it is important that the proposed state tax reform get the same kind of support. If what the Governor has proposed at the state level actually comes to pass, we will have a real opportunity to make major reductions in the wage tax.
Thank you very much. I just want to go back to your position on these various bills, because I 130 OPERATING BUDGET & TAX BILLS - 5/10/04 haven't had the benefit of the discussion to why you all are not supportive of the bills. There are three bills that are revenue neutral. No. 14, which is establish two estimated payment dates for paying the business privilege tax. Taxpayers no longer have to pay their full obligation in one day.
The reason the Administration is opposing that bill is that, in the initial year of implementation, it disrupts the cash flow because we would then be able to recognize only that revenue that had been recognized within the fiscal year, or within the 60 days immediately after the end of the fiscal year. So that one is a cash-flow impact, and that's why the city does that support the implementation of that bill, at least not at this point.
If the city were in a better financial state, implementing that bill 25 would not be as problematic. 131 OPERATING BUDGET & TAX BILLS - 5/10/04 It is that we can't take that cash flow and revenue hit at this point. Because it would be roughly half of the BPT for a year, about $50 million.
The phasing in, there is no way to phase in something that relies on a date-specific implementation. So we would have to take the full hit in whatever year we did it. So, that's our reason for opposing that one.
Okay. The next revenue neutral, establish discounts for early payers and penalties for late payers necessary to enact quarterly real estate tax payments.
That one also has the timing of revenue recognition as the issue. We would be foregoing roughly 50 percent of our real estate tax in the initial year of implementation. So your hit would be a cash flow, and also a fund balance hit, in the first year that it was implemented. 132 OPERATING BUDGET & TAX BILLS - 5/10/04
Apply tax payments to current year's liabilities so taxpayers who are making tax payments but may still owe some back taxes are no longer excluded from participating in the state's property tax rebate program. It is Bill 20.
That one is also -- we are opposed to that one because of the quarterly billing. The portion you recommended about applying it, the way it would be applied, the bill payment would be applied, is not problematic, as I understand. It is simply the quarterly installments that create the problem. And because they are part of one bill, we opposed it.
Okay. And another bill which you oppose that's not, probably, revenue neutral is Bill 17, extend net operating loss carry-forward so that the city's relatively short carry-forward period no longer makes Philadelphia an unattractive place to start a business that may begin with 133 OPERATING BUDGET & TAX BILLS - 5/10/04 years of losses before becoming profitable.
That one is just because it is not revenue neutral, because there is a cost to it.
I know. I said it wasn't. Okay. No. 18, establish quarterly real estate tax payments so that nonmortgage paying taxpayers no longer have to pay their full obligation on one day. That's Bill No. 18. It also requires, eliminate need for the city to borrow against future real estate taxes which would save the city money.
This one in its initial implementation would have a cash-flow impact. Because, again, you would get half of the year's revenue, and then you would go without it until the next year. You would be okay in subsequent years. But in your year of implementation, you suffer from the quarterly payment. You can't recognize it.
And I just have one more, then I will be finished with mine. 134 OPERATING BUDGET & TAX BILLS - 5/10/04 Bill 21, unify refund and assessment period so that the city and tax payers have equal rights for auditing and seeking refunds.
On the audit -- we are okay with the bill except for one section. So we are generally okay with it. We want it to be amended. So we don't oppose that bill.
Yes. There is a Section 14 19-501(A)(2)(b) which we would want to amend so that there would be a written statement that went with the form. That's how we would want it to be amended.
All right. I would like to remind my colleagues, we have approximately 69 witnesses. We will go on this round with the Administration. We can always call them back on Wednesday. But I think we have to move forward. At this time the Chair recognizes 135 OPERATING BUDGET & TAX BILLS - 5/10/04 Councilman Clarke.
I would ask you -- it is your turn. I would ask you to be brief.
I just want to get some clarity on what I had requested earlier. One was information on the legal aspects of the nonutilization tax. And the other, Madam President, I'm not sure if the sheriff is needed here, because I wanted to talk about the judicial sales, and essentially the success rate for lien sales versus traditional city judicial sales as it relates to the city implementing that process.
I will have the City Solicitor come back either later or Wednesday, if you prefer.
I think Wednesday would be fine. And, also, the sheriff.
He is an 136 OPERATING BUDGET & TAX BILLS - 5/10/04 independently elected official.
The sheriff or whoever runs the sheriff's sale program.
Thank you, Madam President. I just want to do a followup to Councilwoman Tasco's question regarding Bill 20 No. 18. And in that, you said that -- I have read that you have said you need to determine the impact that this will have on mortgage company escrow accounts and the way that those payments are handled. And at this time you 137 OPERATING BUDGET & TAX BILLS - 5/10/04 opposed the bill. But earlier, Ms. Davis, you did state that you needed to do further analysis. And I do understand that you said it impacts cash flow.
This bill impacts your cash flow because you would only -- in your first year, in the year that you implement it, you would only receive, roughly, 50 percent of your taxes, if it were done in two payments, depending on whether you scheduled them all within one Fiscal Year, which then would not give benefit of what you are attempting to accomplish. If we structured this bill in a way that would be beneficial to the taxpayer, the city would be foregoing roughly 50 percent of its revenue in the initial year of implementation. Subsequent to that, revenues would come in for payments, or two payments, whatever was decided, in a year. So you would be okay after the first year. But your initial year would be the year 138 OPERATING BUDGET & TAX BILLS - 5/10/04 where you took a significant hit.
Is there some way, or will you be actually analyzing a way to maybe implement this type of payment schedule without it being -- I know we are in a cash crunch at this point, but in some way that it would help? Particularly the future, if we are talking about raising real estate taxes.
We will look at ways to possibly soften the blow. But at this point it appears that any attempt to make it friendly to the real estate taxpayer puts an unacceptable burden on the city, especially from the cash-flow standpoint.
Okay. I just have one more question, Council President, then I can wait until Wednesday.
In your testimony at , under the single factor, single sales factor apportionment, there are comments about basing that income -- portion 139 OPERATING BUDGET & TAX BILLS - 5/10/04 of the business privilege tax on property, payroll and a double weighting. In that regard, can you explain how the increase in parking tax, in the parking tax, from percent to percent is going to 7 offset, or how much would it really make up of 8 the $13 million that you said you would lose 9 in revenue? 10
We project that our 11 parking tax revenues will increase by about 12 $11 million from '04 to '05. So, it would 13 make up most of that cost. 14
So just the 5 15 percent will make up 11 million? 16
You are welcome. The Chair recognizes Councilman 140 OPERATING BUDGET & TAX BILLS - 5/10/04 Nutter.
Madam President, point of information or request. That the bills where the Administration have cited that they would be -- the implementation of the bills would cause them a cash-flow problem, could we get that analysis of the cash-flow implications on the initial start-up, and then see what it does in the outer years?
Thank you. Councilman Nutter, I believe I recognized you.
Thank you, Madam President. Just two questions. I am reading from -- has the Administration produced a document on analysis of the various bills? 141 OPERATING BUDGET & TAX BILLS - 5/10/04
We have not disseminated it generally, no. We can supply that.
When we have been asked for it, we have given it out. If you would like it, we will give you a copy.
From time to time individuals asked us, individual Council Members or outside parties, will ask us for an analysis. If you would like a copy, we will give it to you.
Yes, that would be nice. Is this the document that has reference points for tax discussion, and then the tax bill summaries with more detailed 142 OPERATING BUDGET & TAX BILLS - 5/10/04 explanation of each of the bills?
Are there any provisions in any of the bills in front of us today that would result in an irrevocable decision or something that could not be changed later?
Well, there is a possibility that, yes, there are, at least on the local level. Because there is discussion in Harrisburg of amending the property tax reform legislation to lock the city into whatever tax reductions it has in place. So there is a possibility that anything we put in place here is something that we won't be able to change at the local level, depending on what happens in the discussions up in Harrisburg. 143 OPERATING BUDGET & TAX BILLS - 5/10/04
Are you suggesting that if the Governor's plan goes through, that we will never be able to change our wage tax rates again? Is that your testimony?
My testimony is that we wouldn't be able to deviate from the scheduled reductions without getting approval from Harrisburg, if the legislation, the way it is being discussed in Harrisburg now, passes.
Is it being discussed in such a way that the state legislature or the Governor is going to start setting the wage tax rate, or are they proposing to give us an amount of money such that it would require the rate go to a certain point to accommodate for that amount of money, and then we would go back to doing what we have been doing? Which is it?
It is being discussed in such a way that it would require that we not be able to change local tax law as it is in place as of a certain date. 144 OPERATING BUDGET & TAX BILLS - 5/10/04 So it is being discussed in such a way that we would not be able to change our tax laws without going back to Harrisburg.
There is another scenario where they talk -- where they would mention specific bills. But I think what they are telling us they are trying to do is, make sure that they don't give us funding, and then in later years we make other changes in our tax law that's backing off of reductions that are already in place. So if they do that, then, yes, we would be locking ourselves in.
I would like to add one other factor. It is not a legislatively mandated limitation. But from the beginning 145 OPERATING BUDGET & TAX BILLS - 5/10/04 of the city's tax reform program, back in the '90s, one of the hallmarks has been a consistent year-by-year decrease in the taxes. Philadelphia was going to be a place where businesses could rely on there being dependable tax reductions. It wasn't up one year, down the next year. And we have tried to continue that. Ms. Davis talked a little bit about how, depending, tax rates and structures matter to the rating agencies.
With every respect, and I am sure I would be pleased to hear from Ms. Davis, but the only time there was ever a guarantee of tax reduction in Philadelphia other than on a year-by-year basis was when Council passed Bill No. 020092. All the other rate reductions were on a year-by-year basis up until that time; isn't that correct?
The legislation, in fact, was year by year. However, the city's Five-Year Plan forecast what was --
I understand. 146 OPERATING BUDGET & TAX BILLS - 5/10/04 Ms. Wilkerson, but the Five-Year Plan does not set the tax rates. It does lay out a proposal for the tax rates, but it is true that the Five-Year Plan doesn't set the tax rates; is that correct?
No. I just wanted to say, in support of what Joyce said, that the rating agencies like the fact that there was a steadiness about our approach, and that there was a --
What is, I guess, in these times, a little disconcerting to the rating agencies, not only in relationship to Philadelphia, but in relationship to all municipalities and state governments -- and I think we saw it with Tennessee's downgrade -- is the unwillingness to face the economic factors that are impacting an area, and respond in a way that ensures that the municipality or state or local government will be able to meet its obligations. And that is the unwillingness to tax, even when taxes are what's called for. So on the one hand, where our steady approach was good, I think if we get into cutting taxes merely because it is the vogue of the moment, without regard to what it does with our ability to handle our obligations, we run a very real risk of a ratings downgrade.
Well, let me present a slightly different point of view. I hadn't planned to get into this. But if your argument on the one hand is that the rating agencies like a certain 148 OPERATING BUDGET & TAX BILLS - 5/10/04 stability in tax reduction, which in the past we would do tax reduction on an annual basis, as Ms. Wilkerson points out, we then have a Five-Year Plan which did not set rates but laid out what the rates should be, that gave us certain stability to what we anticipated doing. Then a couple of years ago this Council, along with the Mayor, put in place for the first time a guaranteed five-year reduction in both wage and business taxes. Now we have a proposal in front of us to put into effect at least a ten-year guaranteed rate reduction. I do find it interesting, though, that one of the bills in front of us would actually propose to interrupt the five-year guaranteed rate reduction, and for a moment, essentially, proposes a tax hike in the wage tax from the guaranteed cut that is supposed to take place on July 1, 2004, and extend the rate that is presently in place for the current Fiscal Year until January 1, 2005, which, at least by my mathematics, is a tax 149 OPERATING BUDGET & TAX BILLS - 5/10/04 increase. But you are, in fact, interrupting the five-year guaranteed laid out schedule of reductions. And, so, I mean, if one year with the Five-Year Plan was good, and if five years guaranteed was even better as it relates to the rating agencies, then I don't see how you then argue against longer-term guaranteed reductions. And, again, whether it is the Tax Reform Commission or the 21st Century Review Forum, both seem to have arrived at the same conclusion. Which is, yes, we have an obligation to pay our bills, yes, we have an obligation to provide certain services; but both seem to arrive at pretty much the same conclusion, that we also have an imperative to rye dues the onerous tax structure that is killing our ability to provide long-term the needed services that all of us want to provide. So, you know, but that's the challenge of leadership. 150 OPERATING BUDGET & TAX BILLS - 5/10/04
Yes. Ten years of tax reductions at a time, when the city is having difficulty meeting its basic obligations, is not something that the rating agencies would embrace. Ten years in time --
Ten years of cutting taxes, at a time when the city is having difficulty balancing its budget and meeting its basic obligations, would not be something that the rating agencies would embrace. Because it also then puts into question whether or not the city has a willingness to meet the obligations it has to bond holders.
Or maybe it just raises the whole challenge of how we managed not only our finances, but run the government.
There is also the question of, what would you cut? 151 OPERATING BUDGET & TAX BILLS - 5/10/04 The Administration has proposed cutting rec centers, changing deployment at fire companies, cutting funding for arts, for the art communities. But the question is, what would you cut? What expenses can we identify that allow the city to support the kind of reform --
The Chair recognizes Councilman Clarke for a point of order.
I am sorry. I may have missed it. We can conclude. I didn't hear the bell. I am sorry.
I am done. COUNCILMAN DiCICCO: Thank you, Madam President. The rating agencies -- I am going to 152 OPERATING BUDGET & TAX BILLS - 5/10/04 pick up on where Councilman Nutter just left off, and kind of include it in the comments and discussion that took place with Councilman Ramos. You say the bond rating companies would not look favorably on us if we did these tax cuts that would last ten years because of -- what was your statement, Ms. Davis, again?
I said cutting taxes for ten years, in a time where we are having difficulty, it is not the -- it is not the stability of the tax cut that creates the problem. COUNCILMAN DiCICCO: How would the rating agencies look at us if we don't do anything, status quo remains, we continue to lose jobs, and we continue to lose revenues? Would they look any more favorably upon us then?
The rating agencies have in fact looked at the city during a period when it was declining in revenues. As long as it was being fiscally responsible, the city 153 OPERATING BUDGET & TAX BILLS - 5/10/04 has maintained its credit rating. There has been no real negative impact during this period when the city continued to lose population and jobs while the economy was booming. They looked at our ability to pay our bills, and that is where their primary focus is. COUNCILMAN DiCICCO: I guess, then, for me, the concern is, in the simplest of terms, is that, we are a city that has been on life support for a very long time, and I think that we need to do something extremely bold. During the eight years or so that I have been in Council, I recognize that the only times that we ever were able to get something of any significant economic development going is when we came up with some creative idea, whether it was the KOIZ, whether it was the TIF, whether it was an abatement, some sort of a tax relief, if you will. You can call it a lot of different things. But were it in the for those 154 OPERATING BUDGET & TAX BILLS - 5/10/04 incentives, most of those projects, if not all of those projects, would never have occurred or taken place. So when we sit here and we talk about, if we continue to do the tax reductions that we are talking about, obviously there is less revenue coming in, we assume. Because of that, we recognize there would have to be cuts in services, et cetera. But we are still a city that is losing jobs. We are still losing jobs. So either we are going to slowly but surely eventually die, or we are going to do something that is bold to try to stop the bleeding and see if we can't save it. And I think that, for me -- although I still have a problem with one of the recommendations of the Tax Reform Commission, and that's the land tax, because I am still not perfectly clear on that -- but I am speaking overall, overall in general, if we do nothing but continue to do the small incremental cuts that we have done and all the things that have been in place for at least 155 OPERATING BUDGET & TAX BILLS - 5/10/04 the eight years that I have been here, and we are still losing jobs, what is the end result going to be? Additional loss of jobs, which translates into additional loss of revenues, which translates into additional costs, cuts in services, anyway. So my point is, you know, no one can predict the future. We can look at the numbers and say, if you cut X, you will have less coming in. That's a given. But no one is looking at the up side of that. Because if we cut and make it a more business-friendly city, in a dramatic way, will we continue to retain the jobs that we have and, quite possibly, will we increase jobs? I don't have the answer for that. But I think the one thing that we all know is consistent, is that everything we have done to date on a small scale hasn't produced the results that we need to continue to run this city and grow. So I think from a practical 156 OPERATING BUDGET & TAX BILLS - 5/10/04 standpoint, we either bite the bullet now and figure out and try to do something bold, or we just say, we will continue to go on and maybe by the grace of good somewhere down the line the national economy is going to do great and for some reason people are still going to want to come to the City of Philadelphia and do business, even though, even though the taxes are higher to do business here and the incentives aren't here that they may be in New Jersey, as an example. (Applause.)
If we are willing to say we will take cuts in services that could be extreme in order to fund those cuts in taxes, then it is a proposition that works. But, again, as Joyce said, what do we cut that's acceptable? COUNCILMAN DiCICCO: But, Ms. Davis, isn't that really an unknown? We are looking at the number. If you take in less revenue, therefore, you have less money to spend on services. But we are never looking at the 157 OPERATING BUDGET & TAX BILLS - 5/10/04 other side of this, that maybe by doing that we will increase jobs, maybe become a more attractive place to do business. We are always looking at it on the negative side. I mean, just last week -- and I am going to sound like I am patting myself on the back, but it really was the efforts of this City Council, this Mayor, and Mayor Rendell -- the housing project we just did in South Philadelphia. But for the fact we were able to create affordable housing with the ten-year tax break, those homes would never have been sold. 93 homes were sold in four days. And people from outside of Philadelphia bought those homes. So, I mean, that was a bold step that we took. And it cost some money on both the city side, the state side to invest into that, but it was something different that we tried. Just like when the Rendell Administration was in, we tried something different with the wage tax and the business 158 OPERATING BUDGET & TAX BILLS - 5/10/04 tax reductions. It set a tone. It started sending a message. And I think, though, that the message needs to be something more forceful. And I am not criticizing any of the panel people here or the Administration. We are never going to move from where we are. If anything, I think we are going to continue to slide backwards. We need to do something much more dramatic. Thank you. (Applause.)
Thank you. In light of all the proposed cuts, I just have a few questions regarding the noncollection of revenue due the city. We have heard about collection with PGW, the Water Department, but also in other areas. For example, what about real estate agents who live outside the city but sell 159 OPERATING BUDGET & TAX BILLS - 5/10/04 properties and earn their commission in the city? I understand that currently the city collects no tax revenue from these realtors.
Nancy Kammerdeiner, Revenue Commissioner. We are aware of the concern that's been raised about people like real estate agents who are outside the city. We have met with the representatives of the Board of Realtors. We work regularly with them providing seminars for new realtors in terms of their own personal tax obligations, as well as those of the clients they will be working with. And we also seek information through discovery projects in terms of identifying people who are in that situation. I know it is not perfect, we don't find them all. 160 OPERATING BUDGET & TAX BILLS - 5/10/04 To the extent that --
This has been going on for a long, long time. Just pick up the paper, and you can see it. What's it going to take the city to collect all this?
We do use that as a way of identifying discovery projects. We use newspaper listings. We particularly use listings from the Center City area, where we are talking about higher-dollar transactions. Again, we don't get them all. We do our best to identify them. The additional staff that was referenced earlier in terms of revenue enhancement projects for Fiscal '05 will be looking at some projects that will be heading in that direction, among others. To the extent that there are specific cases that you or others are aware of, we always welcome information that will enhance our discovery activities.
Excuse me. The Chair recognizes Councilman 161 OPERATING BUDGET & TAX BILLS - 5/10/04 Kelly for a point of order. COMMISSIONER KELLY: I just want to follow up on Councilwoman Krajewski's question. Do the realtors outside of Philadelphia, do they currently have a business privilege tax enabling them to do business in Philadelphia?
Most of the realtors, the individuals, would need to have a business privilege license and pay business privilege tax, because most of them are not employees. Most of them are independent contractors.
The realtors as individuals in many cases are independent contractors. They don't pay wage tax because they are not a full-time employee.
They don't pay wage tax, nor have a business privilege tax?
They are supposed to. 162 OPERATING BUDGET & TAX BILLS - 5/10/04
Would the Councilman please wait until I am finished my questions. Because I am not through yet, Mr. Kelly.
Thank you. I just wanted to know how many other nonresidents will see this loophole to do the same. Do you have any idea the amount of money that we are losing annually?
Councilwoman Krajewski, the stenographer cannot hear you. Pull the microphone closer, please. Thank you.
You said the city right now is in the process of 163 OPERATING BUDGET & TAX BILLS - 5/10/04 working on this; is that right?
And how long do you think this will take, because of the money we are losing?
We work on this very regularly. We use Internal Revenue Service data, we use newspaper advertisements for homes in terms of the real estate data. We pursue a number of different avenues.
You know, just looking at this -- I am sorry. Just looking at this, each week in the Philadelphia Inquirer I am looking, just looking at this, each week millions of dollars a year, I believe, that we are losing.
We do use that as a source. And I don't have a way of putting a dollar figure on what we don't know about.
I hope the next time when you come here in Council, that you will have that figure. Before we are talking about cuts, lack of collection. I 164 OPERATING BUDGET & TAX BILLS - 5/10/04 think we are very, very remiss in this. Thank you. COMMISSIONER KELLY: I don't have any followup questions. I think, Councilwoman, you asked the right questions.
He wouldn't dare. COMMISSIONER KELLY: I wouldn't dare intrude on your time.
Thank you, Madam President. I promise I will not ask about the nonutilization tax.
Although Mr. Faider from the law department is here, who can answer your question.
I understand the Administration will be called back, I have a request, at some point?
We are telling them to be here on Wednesday. As of now they are being told they should be back on Wednesday. Because we do have, as I said, any 165 OPERATING BUDGET & TAX BILLS - 5/10/04 number of witnesses today.
I did have a question. Actually, in preparation for that -- and I don't know how difficult this may be -- but I would like to, if at all possible, you do as best an analysis as possible -- and I am assuming you are able to get a dollar figure -- on what the proposed recommendations will be on the budget. The difficulty of what I am going to ask you to do would be possibilities of areas where the budget will be impacted; i.e., cuts or reduction in employees. And I know in two days it is difficult to pull that together. But prior to the ultimate passage of these bills, I think personally I would like to know what the potential impact will be on the budget and on service levels. And the reason why I ask that, I want to ask it in this context: Having represented a district that includes Center City, and parts of North Philadelphia over the last years or so, I have seen in the past 166 OPERATING BUDGET & TAX BILLS - 5/10/04 Administration a surplus that was substantial, and a lot of that, I believe, a substantial amount of that, was as a result of the boom in the national economy. But I also know that there was not a focus on certain parts of my district in terms of investments. And some those areas have been allowed to suffer for a long time. My concern, as we talk about supply side, as we talk about additional tax-reduction programs -- and remind you I haven't made up my mind what I am going to vote for yet -- I would like it know what impact of any supply side programs or any reduction in revenue will have on the people in the district that have been allowed to suffer for too long, and finally have some focus put on their neighborhoods. And they are, actually, turning around. And I am a little concerned that that debate, that part of the equation is, not being heard during this discussion. That, you know, people who have been allowed to live in conditions that, frankly speaking, nobody 167 OPERATING BUDGET & TAX BILLS - 5/10/04 should, are finally getting some focus. And when we talk about reducing revenue, and talk about the hope -- and I hope that, you know, some of the speculations are in fact true, the speculative nature of ultimate job creation and subsequent additional revenue that will flow into these neighborhoods, that people shouldn't have to wait for another ten years before we take advantage of what we hope will be a change in the economy. So I am extremely concerned that those neighborhoods who now have maybe three years of focus, now will be again put on the back burner. So I really would like you to give me a sense of where the likely cuts would have to come from across the board, Safe Streets, aggressive neighborhood programs, and things of the like, because I think that should be a part of the discussion.
Thank you, Madam President. 168 OPERATING BUDGET & TAX BILLS - 5/10/04
Thank you, Madam President. Good morning. The Administration opposes Bill 040020, which you acknowledge is a collection issue. When we factor in and consider what budget hearings have revealed with regards to how poorly our city is doing in the area of collections, and though you acknowledge on of your testimony that there is no 15 magic wand, should we not seize the moment to adopt all measures that are going to help the city do better with regards to collections at any level?
The particular bill you are referencing has a negative impact from a cash flow standpoint, in that it resorts to quarterly installment payments. In the initial year of this bill's implementation, the city would use -- would lose roughly 50 percent of its revenue for 169 OPERATING BUDGET & TAX BILLS - 5/10/04 that year and create a cash-flow situation, cash-flow problem, quite frankly. And that's the reason that we are opposed to that bill, because of its negative impact in the year of implementation.
Yes, in that first year, if you did quarterly installments. Only two of the installments would come due in that initial year of implementation.
Can you say what that dollar amount would be? Because my followup question becomes, would that not be offset in the out years by taking some of the pain early on?
You never, from an accounting fund balance standpoint, once you lose it, you never get it back. So you would take that hit. And then that hit, although in subsequent years you would collect a full year of revenue, in the first year of implementation, you would 170 OPERATING BUDGET & TAX BILLS - 5/10/04 only have a half year's revenue. There are -- we would be looking at, I guess, half of the real estate, and real estate is about 300 million. So you are looking at an impact of roughly $150 million.
And that is the principal reason for the lack of support?
You are welcome. The Chair recognizes Councilman DiCicco. Your light is on. Councilwoman Brown.
Quick followup question. Are not 18 and 20 related or tied 171 OPERATING BUDGET & TAX BILLS - 5/10/04 together?
and both call for 4 installments. And, in that sense, they have a 5 similar impact on the city. 6
So we would not 7 save any money? 8 Because it was reported, or maybe I 9 read, there is a potential to save 10 million 10 a year, with the support of 040018? 11
If you saved 10 million, 12 it would be after you took a hit of 150 plus. 13 I mean, I don't think you even save 14 that 10. I am assuming that the savings were 15 attributed to having a reduced borrowing. 16 But because you wouldn't get all of 17 the revenue in one fiscal year, that would be 18 eliminated; that savings benefit would be 19 eliminated. 20
Thank you. The Chair again recognizes Councilman Nutter.
I will be very 172 OPERATING BUDGET & TAX BILLS - 5/10/04 brief, Madam President. I guess either Ms. Wilkerson or Secretary Davis, in your testimony, as well as in the distributed or specific distribution piece, the analysis of the various bills, I noticed that while there was specific mention of the work of the Tax Reform Commission, that there was no mention of the work of the 21st Century Review Forum, which looked at a variety of tax issues based on the work of the Tax Reform Commission and other work that they may have reviewed. Why is that?
I think the request was a request to prepare responses to the specific bills. We will just use the Tax Reform Commission's recommendations as the point of reference. There was nothing.
I understand that. But didn't the 21st Century Review Forum agree with 27 out of the 28 recommendations of the Tax Reform Commission?
I think it was about that. 173 OPERATING BUDGET & TAX BILLS - 5/10/04
Didn't the Administration appoint the 21st Century Review Forum members?
Yes, the Administration appointed the 21st Century Review Forum.
We don't embrace all of the work of the 21st Century Review Forum, either.
From the report, the tax subcommittee was made up of Dr. Jeremy Nowag, Dr. David Crawford, Edward McBride, Joseph Kiniones, and Dr. Edward Schwartz. So it is now your testimony that their findings, or their analysis, is incorrect, as well?
No. I think what the Administration's position is, is this is 174 OPERATING BUDGET & TAX BILLS - 5/10/04 very valuable work that was done. The Administration has tried to integrate as much of the recommendations as we could, while at the same time being what we think is fiscally responsible.
Do you think they were being fiscally irresponsible in their recommendations?
We think that -- we differ with them on some specific recommendations. We don't agree with recognizing supply side effect. We don't agree with -- I mean, that's one of the largest. We think that tax reform is critical to the city. We also think that -- and perhaps place a larger emphasis on the service side of the equation. I think when we look at the magnitude of the cuts that would happen in services to the city were we to extract another several hundred million dollars out of the Five-Year Plan, we would find that the results were unacceptable. 175 OPERATING BUDGET & TAX BILLS - 5/10/04 You know, when we read through the Tax Reform Commission recommendations and some of the supporting information, when we look at some of the polling that was done, tax reform was not, in many instances, the most critical component. They talked about security in neighborhoods, people talked about the need to have high-quality code enforcement. Those are the kinds of things that people see as being critical to staying in the city and growing the city. And those are specifically the kinds of services that we would not be able to preserve at any kind of acceptable level. I think the Administration also has an obligation to try to project forward. We are currently in arbitration with the FOP. We know that there will be some cost associated with that. We have the AFSCME contracts expiring at the end of June. And there are going to be costs associated with those, as well. 176 OPERATING BUDGET & TAX BILLS - 5/10/04 And, so, when we tried to put together a Five-Year Plan, we did our best to anticipate some of the risks down the line. We didn't do a perfect job, and that's why we have had to -- we will have to recommend changes in the Five-Year Plan to take into account the loss of PGW revenue, the $18 million a year, and also moving back the timing of the $45 million repayment. So it is all those factors that underpin the city's decision not to embrace more comprehensively the changes recommended.
So what comes out of this -- and I will just kind of conclude with this -- is, I mean, two things become clear: That the Administration's position is that the Administration is right, the Tax Reform Commission is wrong, the 21st Century Review Forum is wrong, that's one. And, second, there is a statement here in the document that says, "Philadelphia has a fundamental choice to make. We can try to manage continued economic decline or we can seize the moment of opportunity to create 177 OPERATING BUDGET & TAX BILLS - 5/10/04 significant economic growth." That's from the 21st Century Review Forum. And I think what we have heard today, in essence, is that the city is, basically, going to try to manage continued economic decline; is that the position?
Okay. But there is no other proposal to deal with the second part of it, which is, seize the moment of opportunity to create significant economic growth?
Well, it is from the document that was from the committee appointed by the Mayor. I mean, it is, really, kind of one or the other at this point, isn't it?
I think that the Administration has put forward a proposal that 178 OPERATING BUDGET & TAX BILLS - 5/10/04 in fact puts adopts and embraces a number of the recommendations of the Tax Reform Commission. They are not recommendations that the Administration came up with. We respect the work that was done and have adopted some of the recommendations. For example, the land value tax is something that the Administration did not initiate; it is something that we have embraced from the Tax Reform Commission. We have embraced the single-factor apportionment. We have embraced the need for change at the BRT, the hundred percent assessment. So there are any number of changes. The Administration views this as not just an issue, though, about tax reform. That in order to grow this city's economy, we have to proceed along a number of fronts. And, so, we proposed strategic investments in order to develop assets, we propose continuing in investments in neighborhoods, in addition to tax reform.
Okay. All 179 OPERATING BUDGET & TAX BILLS - 5/10/04 right. I appreciate your response. Thank you. Thank you, Madam Chair.
Thank you. Are there any other questions from members of the committee? Seeing none, thank you. And we will see you on Wednesday. Our next witness? MR. McPHERSON: Jonathan Saidel.
Good afternoon. Identify yourself for the record and proceed with your testimony.
Jonathan Saidel, City Controller of the greatest city in the world, the City of Philadelphia. I am not going to read my statement because you can read it at your leisure. I am concerned that a number of the individuals that have taken off a day from work have already left, while listening to city employees ask other city employees questions. And I am a city employee. So rather 180 OPERATING BUDGET & TAX BILLS - 5/10/04 than me answering questions from respective Council people, I am more than happy to come back Friday, tonight, Tuesday morning, Thursday, whenever you need me to. But let me make a couple of statements for the record. I support Bill 040313. It was introduced March 25, 2004, signed by Council Members Goode, Miller, Ramos, and Blondell Reynolds Brown, which concerns the pilot program of the jobs credit and making it part of a permanent ordinance. It was originally prescribed by the tax analysis that my office did in 2001, in working with Councilman Goode and others. I think it is a step in the right direction. The other bill which I know is before you that I would like to make mention is, I am not in favor of increasing the parking taxes in the City of Philadelphia. And the reason is that I have lived my life in Northeast Philadelphia, and all four of my children think that the Willow Grove Mall is actually an extension of 181 OPERATING BUDGET & TAX BILLS - 5/10/04 Northeast Philadelphia. And the people where I live go to those malls because a dress at that mall that costs $70, they will pay $70 for in the suburban areas. But if they drive into Philadelphia, that dress ends up costing $95 because of the additional taxes and additional parking fees that are involved in coming into Center City. So I think there is a disadvantage and will effectively reduce the amount of transportation that is done from people living in the farther areas of the inner-city to Philadelphia to shop in our areas. We should look at San Francisco, which has a forgiveness program, and has worked with their parking lot owners to create an atmosphere upon which urban malls have an opportunity to compete with suburban malls. So it is not something I think that would help us beneficially. I know that there was a question, an analysis, that the parking tax in the City of Pittsburgh is 31 percent. Certainly using a 182 OPERATING BUDGET & TAX BILLS - 5/10/04 city as an analogy that's going down the toilet is not an analogy that I think would benefit the people of Philadelphia. Let me, before I make a general statement about the bills that have been introduced, let me try to answer some of the questions of the two Council people that are still here, three, four -- four Council people that are still here. When I start talking --
Oh, yes, I am sure they are. I am sure they are. Councilman O'Neill had asked about the rating agencies. As the only one testifying today who has been involved with rating agencies, I was asked, Councilman, in the latter part of the Goode Administration and the beginning of the Rendell Administration to go with the respective Mayors to talk with ratings agents about the budgets that were submitted. In the last two years of Mayor Goode and the beginning of, as you remember, the 183 OPERATING BUDGET & TAX BILLS - 5/10/04 PICA and a variety of other things that went on during the Rendell, they do look at expenses. How could they not look at expenses? You know, if your revenue doubles, but your expenses quadruple, you have no money to pay debt service. It is not a good thing, and it is something that they look at. And though they don't micro-manage any government's budget, they do look for trend lines and they do like to see are we meeting our obligations, are we showing that we have the leadership to move our city forward. So they do look at the expenses. And I didn't really understand the answer to the question that you asked three hours ago, but that's exactly how they asked me. In fact, they sit there with blue books. And as you speak, they actually write down a variety of information, not only written testimony, but oral testimony, as you speak on behalf of the people of Philadelphia. So I wanted you to know about that. My 184 OPERATING BUDGET & TAX BILLS - 5/10/04 pleasure. There was a question that was asked about the estimated payment schedules, which to me are revenue neutral. And the Administration mentioned twice that it has an impact upon the cash position of the City of Philadelphia. To me, the most, the biggest impact to our cash in the City of Philadelphia is that people that are leaving the City of Philadelphia, that people are not working in the City of Philadelphia, they are not buying homes in the City of Philadelphia and raising a family. So the major impact in the last number of years that I have been the controller of Philadelphia to our cash in bank has been the lack of taxpayers. So when the question came up, and I think the Finance Director mentioned, that there is an impact on estimated. We are the only major city in the country that, when you pay your current tax, you pay a hundred percent of your estimated. The state doesn't 185 OPERATING BUDGET & TAX BILLS - 5/10/04 do that, the federal government doesn't do that. So I think those recommendations are to lessen the impact of the tax schedule. And that is only if there is a cash problem at any given time. That only happens for the first year, because everything catches up for the year after that. A couple of things that the Mayor has put into his budget, which I have been in favor of. In 2001, as you remember, I came in with a tax analysis which included the single apportionment; that businesses that did a hundred percent of their sales outside the City of Philadelphia, those types of businesses, we would like to see stay in Philadelphia because they have portability and can move from city to city and even from nation to nation. That bill that was asked by Councilwoman Blondell Reynolds Brown is that bill, and it is incorporated into the Mayor's 2005. He still needs to resubmit a Five-Year 186 OPERATING BUDGET & TAX BILLS - 5/10/04 Plan. The other thing that was mentioned was the land tax. I have been a proponent of the land tax for a number of years. Every time someone fixes their home, why should we increase their real estate taxes, when the ability to pay is not a nexus with those people that are fixing their homes. Every time somebody fixes their home in the City of Philadelphia, it is less money we have to spend on NTI. And with the lack of uniformity in the real estate tax system, the lack of understanding as to the broad base for real estate tax system, I think that the land tax is something that everyone in this Council should look at. )
Anyone that has been involved in government and the City of Philadelphia for the last 50 years knows that our taxes are too high. They know that our real estate taxes are too high, that our business taxes are an impediment to bringing 187 OPERATING BUDGET & TAX BILLS - 5/10/04 businesses here, and the real estate taxes, which are not our primary way of funding government, the government function here in the City of Philadelphia, is in many respects inequitable in its application. Everyone knows that. Now, the choice, to me, is the choice between -- the Mayor says he is going to close a couple of pools today. Well, if we don't stop tinkering around the edges, we are going to have to close all the pools for the foreseeable future. I think the tax bills that are presented through Councilman Nutter and from the Tax Reform Commission -- which are not the first time they have ever been spoken about, nor will they be the last -- is a group of bills that have been addressed to over a long period of time by a divergent representative of our society at large, and was voted on overwhelmingly, 14 to 1, by the Tax Reform Commission. They deserve a lot of credit for that. But we also have a responsibility 188 OPERATING BUDGET & TAX BILLS - 5/10/04 not to tinker around the edges, but make the fundamental differences to move our city forward. The impact on our budget is almost minimal, as was the question asked by Councilman Goode in relationship to the $18 million a year that the Mayor says he is not going to take from PGW. It was miniscule in relationship to the total responsibilities of the City of Philadelphia. And budgets are not the Holy Grail, they are not the Bible. And taxes, once they are approved and become an Ordinance, can be changed if problems arise in the next few years. But I believe that we have to make the necessary steps so that this city can survive and be profitable and move forward. I don't want to be part of the last generation of Philadelphians that left the city to the next generation of Philadelphians in less shape than they were me growing up in the 1950s and the 1960s. And we all have our work cut out for 189 OPERATING BUDGET & TAX BILLS - 5/10/04 us. There isn't anyone here who doesn't know that we have a responsibility to the people of Philadelphia. A lot of the questions that have been asked this morning from the Administration officials have been asked and answered, and asked and answered, 700 times. And I have been asked the same number of questions over and over and over again for the last three years. I think it is important that we open up the process, that we see exactly what we can do, that we constrict the size of our government based upon the revenue that's collected in relation to the taxes that we have. For anyone to believe, and for the government to say, that it is voodoo economics to say that not even one job or one business will be created by changing our tax structure I think is irresponsible by the Administration. There will be an increase of employment. There will be an increase of 190 OPERATING BUDGET & TAX BILLS - 5/10/04 productivity in the City of Philadelphia. It is about jobs. You know, the president is looking for weapons of mass destruction in Iraq. We have a weapon of mass destruction in Philadelphia, and it is called poverty. And if we allow it to continue and allow the decay to continue in the City of Philadelphia, it will overcome us and overcome the state and overcome the United States of America. I think we have a responsibility to do what is necessary today. I thank you for this opportunity to be here for the last six hours. I am not going to take any questions. Let these people that have been waiting all day. I will come back Wednesday, Thursday morning. Whenever you want me, I am here for you. God bless. Thank you. (Applause.)
Thank you very much. MR. McPHERSON: Thomas O'Drain. Bill DiMascio. 191 OPERATING BUDGET & TAX BILLS - 5/10/04
I believe that witness was for Bill 313. He had to leave, but he did leave written testimony.
Do you have the written testimony? Do you know who he left it with?
Because we don't have it. MR. McPHERSON: Mr. Malik Aziz.
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Good afternoon, President Verna, Council Members. My name is Malik Aziz, and I am the Program Manager for the Philadelphia Ex-Offenders Task Force, and also the program director for the Safe School Safer Communities Program and the Mayor's Office of Community Service.
Please proceed 192 OPERATING BUDGET & TAX BILLS - 5/10/04 with your testimony, sir.
I am trying to focus. I am here for bill -- Council Wilson Goode's bill and Ramos and Councilwoman Brown, bill on tax rates for employers that hire ex-offenders. I would like to start to say that employment means freedom. Our mission is to enable ex-offenders to effectively re-enter society with the reasonable expectation of securing employment, housing, social services, job training, and minimal support. We need to assist and re-integrate offenders who have rekindled their sense of civic responsibility and want to be active, productive members of society. Employment in new businesses provide that incentive to be successful and responsible in society. There is a lot of people out of work. There is also a lot of people in Pennsylvania prisons. Most of those incarcerated in Pennsylvania prisons are from Philadelphia, in the state prisons. 193 OPERATING BUDGET & TAX BILLS - 5/10/04 As a matter of fact, out of the 42,000 currently residing in the Pennsylvania Department of Corrections prisons, 42 percent are from Philadelphia, or 16,800. In regards to re-entry or reintegration, the majority of those incarcerated in Pennsylvania prisons will return to society. In Pennsylvania, Philadelphia is the home address for more of them. Most important, if we do not address the needs of those returning citizens, many will return to the cycle of crime, most within 90 days after their release. A chance for an opportunity to have employment making a livable wage will enhance the odds that they will not return to the cycle of crime and return back to prison. Of 300 ex-offenders that were interviewed after their release from prison, 90 percent said that if they had a full-time job opportunity, they would not return back to prison. Having people gainfully employed 194 OPERATING BUDGET & TAX BILLS - 5/10/04 decreases crime in our neighborhoods and brings an influx of new stability to the tax base. Simply, Economics 101. The formula is simple. People released from prison works and earns a livable wage equals a stronger economy, safer community, and a more stable family, equals successful reintegration. Existing businesses and new start-up businesses need to be made aware that tax breaks and takes incentives will be made available to them if they hire an ex-offender. Most ex-offenders, having completed their sentence, may be on probation or parole, if given that chance to work a livable wage, prove to be a valuable and trustworthy employee. Many also hope to start small businesses and need start-up capital and technical assistance. Mostly all will continue to reside in Philadelphia, and work here. Bill No. 040313 will amend Chapter 25 19-2600 of the Philadelphia Code entitled 195 OPERATING BUDGET & TAX BILLS - 5/10/04 "Business Privilege Taxes," by making permanent and clarifying the pilot program under which a job creation tax credit will be given to certain businesses that create new jobs within the City of Philadelphia. We humbly ask that Philadelphia City Council will pass this ordinance as an investment in the quality of life and public safety of each and every citizen in the City of Philadelphia. Thank you.
Thank you very much. The Chair recognizes Councilman Goode.
Thank you, Madam President. I just wanted to thank Mr. Aziz for his testimony, for the work he has done in this area. He has often challenged me to look for ways to do some of my economic development work to benefit ex-offenders. I hope this will be a useful tool for him if this Council 196 OPERATING BUDGET & TAX BILLS - 5/10/04 passes it. But I want to thank him again for his work and for his testimony. I also want to say that the written testimony from the Prison Society has been submitted for the record.
A copy has been given to the stenographer and it will be transcribed in full. Thank you.
Thank you, Madam President. MR. McPHERSON: The next witness is Pete Matthews.
All right, Mr. Matthews, let's go. Please move forward, identify yourself for the record, and proceed with your testimony.
Pete Matthews, President District Council 33. Council President Verna, members of City Council, I want to thank you for the opportunity to offer comments and testimony on the proposed budget for the City of Philadelphia. My name is Pete Matthews, President 197 OPERATING BUDGET & TAX BILLS - 5/10/04 of District Council 33. The members and retirees of District Council 33 are the backbone of this city. And all of you know that this city works because the members of District Council 33 make it work. There is not a single function of city government that is not dependent in some way on the services provided by union members. Our diverse and dedicated memberships do their job so well, with little disruption of service, that we are almost invisible to the taxpayers and citizens of this city, and yet we are all taxpayers and citizens, too. We are invisible, that is, until there is a budget crisis. Then the members of District Council 33 are the first place the city Administration looks when they are attempting to make up for deficits by cutting costs. I realize that you are conducting hearings today on the packet of bills that have been introduced to reform the city's tax structure. Our District Council has no 198 OPERATING BUDGET & TAX BILLS - 5/10/04 problem with any reasonable forms of the city's tax structure. With that in mind, I am here today to set the record straight on the valuable and necessary services that are performed by the members of local unions that make up District Council 33 and to remind you, the members of Council, that the city Administration and the City Council both need to pay close attention to make sure that the basic services our members provide are recognized and adequately funded. As I already mentioned, our District Council 33 members are all residents of the city, and all of them are also taxpayers. Our members make their living serving the citizens of the city, and they recycle the money they make many times over in our local economy because they are residents of the city. Therefore, the members of District Council 33 recognize that they have a dual interest in seeing that our city survives and prospers. With that in mind, I have a simple 199 OPERATING BUDGET & TAX BILLS - 5/10/04 question to ask each of you as you consider the Mayor's proposed budget. How can you consider passing a budget that doesn't have any sufficient funding to cover the costs of contracts that covers the members of District Council 33 who deliver the city basic services? The Mayor's budget address before Philadelphia City Council on March appears 11 to our union to be an attempt to put our 12 District Council Members back to the wall and 13 make our members once again bear the costs of 14 balancing the city's budget. 15 We believe that it is unconscionable 16 to propose a budget for the City of 17 Philadelphia that has no money for any of the 18 four city unions. It is not good for our members and it is not good public policy for the city. By boldly stating that this budget contains no provisions for wage increases or health benefits, the Mayor has told the members of AFSCME District Council 33 that they do not matter, just when we are entering 200 OPERATING BUDGET & TAX BILLS - 5/10/04 into contract negotiations. In spite of the fact that health benefits costs are increasing at a rate of 5 to 20 percent per year, the Mayor has 6 expressed his feelings for city workers 7 seeking a fair contract by insisting any wage 8 improvements have to be financed by the 9 savings produced by health benefit cuts. 10 Now the Mayor is once again trying 11 to turn the clock back to 1992, with his 12 assertions that the fiscal crisis is due to 13 the financial burden of having to pay fair 14 wages and decent health and pension benefits 15 to city workers.
It is the position of AFSCME District Council 33 that the Mayor should have set aside sufficient funds for city workers' contract, as well as investing tax dollars in blight, safe streets, and building new sports stadiums. We contend that this Administration should have been making sure the basic city services are preserved and adequately funded, along with the city workers who deliver them. 201 OPERATING BUDGET & TAX BILLS - 5/10/04 When the Mayor talks about change in the structure of the city pension fund from a defined benefit plan to a defined contribution plan that would put the pensions of thousands of tax-paying city workers at risk in the stock market, he is showing us and every taxpayer in the city that he doesn't care about the long-term fiscal security of the city's work force. This kind of underhanded attempt to shred the safety net of a decent pension for District Council 33 members is something that we would expect from a President Bush, who is dedicated to destroying public sector unions, not from a Mayor that refers to himself as the labor Mayor. Instead of closing recreation centers, fire houses, and playgrounds, all of which will only serve to make living in the city more unsafe and unattractive, maybe this Administration, City Council should consider ways to fund programs and services that city residents and taxpayers can use to increase their quality of life. 202 OPERATING BUDGET & TAX BILLS - 5/10/04 Instead of continuing to cut business taxes and promote tax shelters for big companies and developers without studying the long-term consequences, the Administration and this City Council would be better served to use this budget to make sure that basic infrastructure of the city is able to support the increased demands for public services that large commercial developments will produce. )
By forcing the Mayor to change his priorities to reflect the real needs of the city residents and taxpayers, this City Council will easily improve the quality of life for all city residents, including city workers. As District Council 33 starts negotiations with this Administration for a new contract, I want City Council and all the citizens and taxpayers of Philadelphia to understand that this Administration wants to balance the budget on the backs of city workers, just like in 1992, and as the Mayor, 203 OPERATING BUDGET & TAX BILLS - 5/10/04 who should be held accountable for any disruption of services that could result from what could end up to be very contentious talks. The members of District Council 33 have sacrificed time and time again in the past and have shouldered the burden of the city's financial woes. District Council 33 members have been forced to give back holidays, sick days, management rights, work rules, and subject to the start of a two-tier pension system, to say nothing of millions of dollars -- hundreds of millions of dollars in healthcare benefits concessions in past contracts. These sacrifices were made in the past as our members' contributions to the overall financial health of the city, when forces beyond our control put the city into a city crisis. That time has passed. We have lived through wave after wave of job freezes and attrition and poorly planned attempts to contract out jobs that are vital to the city's operations. 204 OPERATING BUDGET & TAX BILLS - 5/10/04 We have fought as a union to protect the wages, benefits, and working conditions of our members because we believe that this city benefits from having a resident work force that is stable and fairly compensated. We have also done our part as a union to help keep healthcare costs in check by closing and selling JFK Hospital, for which years was a huge burden on our union's health and welfare, and by restructuring our health benefits plan and changing our health benefits provider, saving the city $6 million in healthcare costs this year alone. In addition, virtually every union in our District Council has proposed ways in which the city can save money by listening to the suggestions of the workers on the front line of service delivery. I have here today Charles Gaskin, the President, and Business Agent Sam Shelton of Local 403, as well as Fred Cummings and Ann Cohen, the President and Business Agent respectively, of Local 1637, who can detail for you in their own words what they have done 205 OPERATING BUDGET & TAX BILLS - 5/10/04 in their local unions to make the delivery of city services more efficient and, in the process, saved the city's millions of tax dollars. For example, Ann Cohen will present testimony among the longstanding problem of using police officers for civilian duties that can be performed more efficiently and less expensively by members of Local 1637. In face, Ann's research has detailed changes in civilization that could save the city close to $2 million, and at the same time put more cops on the street to make our neighborhoods safer. Charles Gaskin can detail for you the ways in which the members of Local 403 can perform the same city services better and cheaper than are currently being done by private contractors. These local union officers, along with other officers of local unions within District Council 33, who can and will be offering testimony before this body, represent city workers who are very experienced in doing 206 OPERATING BUDGET & TAX BILLS - 5/10/04 their jobs for the taxpayers and citizens of Philadelphia. The members of local unions and District Council 33 have been finding ways to do the job more efficiently and at a cheaper cost to taxpayers for many years, but their experience is always discounted or ignored.
The fact of the matter is that whenever the members of the local unions, District Council 33 come up with suggestions to improve city services or save tax dollars in delivering basic city services, our suggestions seem to fall on deaf ears. By taking the concessions in past contracts, which we have spent most of the 12 years recovering from, and by making suggestions to improve city services and save taxpayers millions of dollars, the members of District Council 33 have provided enough relief for the city. Our members are not responsible for the current budget situation, and we firmly believe that we should not be required to bear the brunt of solving any budget shortfalls. 207 OPERATING BUDGET & TAX BILLS - 5/10/04 The members of District Council 33 have earned the right to a fair contract, and we will not agree to a contract that calls for concessions in wages, health and pension benefits. It is the Mayor's responsibility to negotiate with this union and settle a fair contract. And we believe that it is the City Council's duty to make sure that the Mayor fulfills that responsibility. That is why AFSCME District Council 33 is asking you, the members of City Council, to postpone passing any budget for the City of Philadelphia until we have concluded negotiation for a contract covering city workers.
Thank you very much. We certainly appreciate, I know I do, for one -- (Applause.)
And we know the vital role that you play in our city and your commitment to making sure that we move forward in a positive direction. 208 OPERATING BUDGET & TAX BILLS - 5/10/04 And I am hopeful that, out of all of this, that you and -- I mean, this is a union city -- that all will be satisfied that you get a fair contract, and many of us are committed to that. Councilman Clarke. (Applause.)
As they say, District Council 33 is in the house for sure. Councilman Clarke.
First I would like to commend your workers for the wonderful work they do in the City of Philadelphia, and particularly in my district, as I see the trucks moving around the city and the work that's being done. One of the questions, and I understand it to some way this is your opening salvo to your negotiations for your contract, 209 OPERATING BUDGET & TAX BILLS - 5/10/04 I would like to ask you a question about the matter before us today, on tax reform. Have you had any conversations or any substantive conversations with members of the Tax Reform Commission?
Have they reached out to you during their deliberations --
-- about the potential impact on tax reform on the municipal workers?
All right. Has your union taken a position? I see you reference in your testimony to some --
Our reference is, we understand it, as far as some citizens of the tax reform, that taxes will be reduced. But our reference is, how do we get these services done without taxes? And, you know, I would be 210 OPERATING BUDGET & TAX BILLS - 5/10/04 open to that. But, quite frankly, as I was talking about, health costs go up, our members want raises. So, I mean -- and we pay taxes, also. So it is not a point of when we come here, or come to City Council, we come to negotiations with our hand out. All of our 10,000 members represent a part of the city and pay taxes, as well. And how are you going to --
You pay the resident tax, because I live in the city. It is a little higher than nonresident.
That's right. And how are you going to keep these services going without taxes?
Thank you. Good afternoon, everyone, and welcome to City Council. And I, too, would like to offer my appreciation for the hard 211 OPERATING BUDGET & TAX BILLS - 5/10/04 work of the employees of District Council 33, and all city employees who service the public in my district. (Applause.)
I get a lot of flak for that street cleaning program in Olney, but it works.
You said that Ann Cohen is going to testify about the efficiencies that you all have come up with. I know some time ago, when we were negotiating the trash collection contracts some time ago -- let me get this right in my head. Let me pull that back. Let me hear her first, because I have to go too far back and I can't remember.
I just wanted to know some of the efficiencies that you are talking about.
She is on our way, 212 OPERATING BUDGET & TAX BILLS - 5/10/04 but Charlie Gaskins, he can talk about the highway department.
Hello. My name is Charles Gaskins. I am the President of Local 403, that's the Highway Division of the City of Philadelphia Streets Department. We also represent the Traffic Engineering Division, the Survey Division, and we also represent employees who work for the Parking Authority who do your meter repairs and installing your meters. I am a 33-year city employee. And one of the things that I would like to say is, first of all, I am a taxpayer, city resident who must live here. I take great pride in the work our people do. The local that I represents, we represent a lot of trades people, carpenters, bridge painters, bridge workers, cement finishers, the whole nine yards. One of the sad things that I have to say here is that, a lot of times over the years we have come up with solutions that we think would help the city. 213 OPERATING BUDGET & TAX BILLS - 5/10/04 We change the specs, along with the city managers that we have worked with, changed the specs of some of our employees to help the city along. We have gotten different types of equipment that would help save money. And some of these programs that we had to save money are not in existence anymore. And I also represent workers who pave our streets. And let me just say that some years ago our employees were predominantly black. Years ago we weren't allowed to pave streets in certain neighborhoods in the City of Philadelphia. And that used to disturb me. It was almost like nobody thought our people could do a good enough job. Today I am very proud to say we pave all over the city and we get commended for that. We had a program out not too long ago called HIP, Hot In Place. And that was a program where you recycled the asphalt that was already there. That saved the City of Philadelphia 214 OPERATING BUDGET & TAX BILLS - 5/10/04 money from having to buy asphalt, from having to mill the streets, because it was all done right there and used right there. That program ended a couple of years ago primarily because of a certain contractor that cried the blues. He cried because he wasn't getting paid for milling the streets, he cried because he wasn't getting paid for selling the city asphalt. That's not my concern. Myself as the president of this local, I am here to represent our people, keep our people working. And I am also a taxpayer who thinks about how my tax dollars are spent, as well. I have worked with some Council people in this room. I don't want to put anybody on the spot, but Councilman Kenney some years ago came to the aid of our street lighting division, where he told the then Commissioner Larry Moy, who I have love and great respect for, that if our workers could do the work, let us do it. And it worked. Now that same department over the 215 OPERATING BUDGET & TAX BILLS - 5/10/04 years has been allowed to go down to nobody. And I don't understand that, when you go out and hire a contractor.
No, the work hasn't been contracted out. But the unit is so small that it is ridiculous. It was so small years ago that you had to get a contractor to put alley lights up. How do people maintain them? How do you continue to maintain them, when you don't continue to maintain the work force? We haven't been able to hire in over three and a half years. There are no layoffs there, you are just cutting people out. That's not right. The work is getting done, and there is a lot more work that our people can do that would save the city more money. But it seems like a lot of times that our people get caught in the middle because of the political ball. You have a lot of managers who, if 216 OPERATING BUDGET & TAX BILLS - 5/10/04 they weren't afraid of losing jobs, they would speak out. But they can't because they feel like they would be politically incorrect. You have commissioners that are appointed by the Mayor. They don't want to say anything. You have the Gas Works that's supposed to be in financial trouble. Well, our people do ditch repairs, we do plumber's ditches. I don't know why we can't do gas ditches. The Gas Works hire contractors to do that work at the cost of two and three times more. But nobody is listening to the union. And it is about time that somebody listens to our side of this thing. And I wish we would have a bigger format. Like you have all these hearings for everyone to speak on the budget, and you get all the department heads to come in. You should listen to every one of these union leaders. We have something to say. Our people come up with all kind of ideas. And sometimes nobody wants to listen 217 OPERATING BUDGET & TAX BILLS - 5/10/04 because, quite frankly, contractors donate funds to campaign coffers. Our employees cannot kick out $10,000 at a time for campaign coffers. But we are trying to protect our workers' jobs. You think that trickle-down effect doesn't affect our workers, it does. And when our guys are paving those streets, and the temperature is 95 degrees, and that truck backs up and dumps, and it pulls out, and another one backs right up, and you are working shorthanded, but you are still asked to do the same amount of work, it is not right. It is not right. You create an unsafe -- you create an unsafe environment. And all we are asking for is for fairness. We need some employees, and we need not to be used as a political ping-pong ball. And that's what I feel like we are being used as. (Applause.)
But the thing is -- you have, you know, when you reduce the wage taxes, for whatever reasons, it hurts us. And 218 OPERATING BUDGET & TAX BILLS - 5/10/04 then you say we have to raise taxes to pay our people, that hurts the public, or the public perceives that as being hurt. We know that our workers can do the work for cheaper, a lot of this work. I mean, there is enough work in this city to go around for everybody, building trades and everybody else. But the fact of the matter is, we seen, in my opinion, to be the ping-pong ball, the yo-yo, or whatever. And it is not fair. Because our people come to work every day, and then some of they don't want to come because that's all they hear about, what's going on wrong with us. Our departments constantly being cut back, cut back, cut back, and then you turn around and look at others flourishing, it doesn't make an employee feel good. And then the first thing that's said is, well, the attendance is low. Well, you have to ask why sometimes. It is not because everybody doesn't want to come to work. It is a lot of things that goes on. 219 OPERATING BUDGET & TAX BILLS - 5/10/04 And as we are here when storms happen, and you can't get ahold of those contractors who live across the bridge -- such as a few years ago, when we had that ice storm, and you couldn't even get nobody to cross the bridge. The city workers that live in this city were here to respond to that challenge. And that's the way it has been for years. I lost $4 dollars an hour when I first came to work for the city. I was working on the outside building trades as a carpenter apprentice. I came here because of the racism that went on then. Took the pay cut because I knew I would have a steady paycheck. There is no job security here like it used to be. Now it depends on what the political whims are. And I think as a person who has represented a local who two years ago won the Governor's Award for labor management cooperation, that had never been done before, the Streets Department won that award, we won 220 OPERATING BUDGET & TAX BILLS - 5/10/04 it with great pride, and now we are facing two years later the same old thing that, you know, we are looked upon as nothing. Just a political ball. And I think it is time for it to stop. Thank you. (Applause.)
Ann Cohen, President of Local 1637, she is here, and she is going to testify.
Thank you, Vice-Chairman Blackwell, distinguished members of City Council. Good afternoon. My name is Ann Cohen, and I am President of AFSCME Local 1637. Local 1637 represents civilian employees of the Police and Fire Departments, the Department of Public Property, the District Attorney's Office, the Philadelphia Parking Authority, and the Capital Program Office. We are here to comment on the Mayor's proposed budget and Five-Year Plan. 221 OPERATING BUDGET & TAX BILLS - 5/10/04 Today, however, the word "proposed" seems a little inadequate to us. Six weeks ago, when I first asked to testify about the Mayor's budget proposal, I planned to speak in defense of the mounted police unit and about the cost savings that could accrue to the city in a comprehensive civilianization plan. Unfortunately, today there is not a single horse left in the mounted police unit. After more than 30 years, no horses patrol the country's fifth-largest city. The world's largest park system is without mounted officers. The demise of the mounted unit is remarkable for the damage it has done to the quality of life for city residents and the speed with which the unit was disbanded. Every year Mayors propose new programs and initiatives in their budgets. In hard times, the city's leaders call for cuts in programs and services. The programs, initiatives, and cuts are debated by City Council. And, of course, the city's taxpayers get the opportunity to be heard in public 222 OPERATING BUDGET & TAX BILLS - 5/10/04 hearings like the one today. That's what the Democratic process is all about. In defense of the mounted unit, concerned citizens gathered thousands of signatures. District Council 33 members generated hundreds and hundreds of letters. But, it was a done deal before we started. The fact that the city will save less than $110,000 a year by shutting down the mounted unit will not be debated in these chambers. That the lives of the men and women who cared for the horses for decades have been thrown into turmoil won't even be a footnote in the budget process. Nor will the diminished police presence in the parks, on South Street, at the Greek Picnic, and every other place we come to expect mounted police officers. But I'm not here only to cry foul. The proposal to eliminate the mounted patrol unit appeared as a part of a paragraph in the Mayor's Five-Year Plan that touted savings of $50 million that could be gained by 223 OPERATING BUDGET & TAX BILLS - 5/10/04 transferring uniformed officers from administrative to street duty. This process is known as civilianization. Its premise is that it makes economic sense to have officers perform the law enforcement functions for which they are trained. It makes no sense economically or operationally to pay an officer to perform functions that could be more efficiently performed by civilian employees. AFSCME local 1637 and District Council 33 have long fought the civilianization battles. More than years 16 ago we first came before this body to make our 17 cost-savings proposals. 18 We won civilianization gains in 19 collective bargaining in 1982 and 1986. The 20 city last implemented comprehensive 21 civilianization initiatives 12 years ago. 22 And when the city violated our 23 contract by assigning uniformed officers to 24 perform civilian functions, we have gone to 25 arbitration and won. 224 OPERATING BUDGET & TAX BILLS - 5/10/04 Not surprisingly, the city was found to be in the wrong when it assigned police officers to mop floors, make building repairs, operate duplicating machines, and perform secretarial duties. We do not believe that it is coincidental that the union's most recent arbitration victory came in the mounted police unit. In that case, which the city has now appealed to Commonwealth Court, the arbitrator ruled that the city was wrong to assign a veteran police officer, whose salary is in excess of $47,000 a year, to a clerk/typist position.
We have seen the speed with which the city can act as it completely demolished a beloved institution in less than 45 days. The question now is, will the city act with similar decisiveness to save the real money, by actually civilianizing hundreds of police department jobs. We believe that civilian employees are an integral part of the police department 225 OPERATING BUDGET & TAX BILLS - 5/10/04 dedicated to the mission of that department. After all, we are all citizens of the city. We raise our children here. We need safe streets, secure schools, and the quality of life that is part of the ideal 21st Century city. We are proud of our role in law enforcement and stand in great appreciation and admiration of the work performed by the men and women represented by the FOP. But when the work can be better and more cost-effectively performed by civilians, that must be our goal. Our union long fought for cost-saving reforms in the mounted unit, as we have across the department. We have attached a chart of just a few of the additional cost savings civilianization suggestions. But our suggestions have largely gone unheeded. The city's failure to act costs taxpayers millions of dollars a year. This is not new news. In the 1980s Kevin Tucker's blue ribbon panel identified the problem. In the 1990s, City Controller 226 OPERATING BUDGET & TAX BILLS - 5/10/04 Jonathan Saidel pinpointed abuses and suggested solutions. Our chart is just a tip of the iceberg. We know that there are opportunities in virtually every unit and office in the police department for further civilianization. In the meantime, we want to highlight just a few of the suggestions contained in our chart. The last meaningful civilianization efforts occurred between 1992 and 1994. One of the department's successful initiatives at that time was the civilianization of the police detention unit. Police officers were transferred to street duty and were replaced by over 60 civilian correctional officers. This is the same Civil Service title and Civil Service job list used to staff the city's prisons. It is now time to take the next step and civilianize the supervision of that operation. We propose the use of correctional sergeants to replace both police corporals and police sergeants. 227 OPERATING BUDGET & TAX BILLS - 5/10/04 These civilian supervisors would still report to a uniformed police lieutenant and captain, but this change alone could save the city over $266,000 a year. Similarly, civilianizing the supervision of police radio and the DPR unit could save another $245,000 a year. Again, the Civil Service job title, police communications dispatcher supervisor, exists to make this replacement easy. More savings could come in other areas using existing city job titles. For example, when an attorney or legal services clerk in the District Attorney's Office has a problem with their PC, they call a help desk and a computer user support specialist responds. In the police department, however, an officer, a detective, or a sergeant answer the PC problems. We don't think that is the most effective way to ensure safe streets. Other examples like this abound, but we do not have the time today to focus on them all. We would like to point to one more huge 228 OPERATING BUDGET & TAX BILLS - 5/10/04 opportunity for cost savings. This opportunity exists on every shift, in every operations room, of every police district in the city. The operations rooms are staffed by both civilians and uniformed personnel working side by side and performing identical functions. Each uniformed officer receives between 10,000 and 20,000 dollars a year more than the civilians to answer the phone, complete paperwork, and maintain computer records. If the city is serious in its commitment to efficiently delivering services, it will move quickly to further civilianize operations rooms, easily saving the city more than a million dollars a year. Totally civilianizing the operations rooms would save even more.
We regret we could not be part of the public process on which we have relied in the discussion about mounted police, but we appreciate the opportunity to appear before 229 OPERATING BUDGET & TAX BILLS - 5/10/04 you today to further the dialogue on the Mayor's proposed budget. Thank you very much. )
Were these suggestions made part of any dialogue with regard to the budget before the mounted police was done away with?
Yes. We certainly made proposals in the 1990s. We made proposals throughout our arbitration and settlement process of the mounted police, of the mounted police arbitration. We have written repeatedly to the Police Commissioner. We have raised it in every arbitration that we have won. No later than April the 12th we wrote again to the Police Commissioner asking that he convene a meeting to talk about the cost savings that could accrue from further civilianization, to talk about the payments that are owed to the union for past violations.
So even 230 OPERATING BUDGET & TAX BILLS - 5/10/04 though you had these other recommendations that were also cost saving, and in fact which means that getting rid of the mounted police costs less than all of these things combined, and were all of these suggestions on the table?
I don't think that they were -- they certainly weren't in the form that you see them now. But we certainly raised them throughout Safe Streets, for example. We talked about further civilianization of the operations rooms. They have been -- the police department has been found guilty of violating the collective bargaining agreement many times by assigning police officers to make repairs at the Police Academy, but making repairs in the 14th District, by having officers mop floors. It is not new.
Yes. We regret to lose the mounted police, as well. Councilman DiCicco. COUNCILMAN DiCICCO: Point of order. 231 OPERATING BUDGET & TAX BILLS - 5/10/04 Good afternoon. Ms. Cohen, you mentioned that you have written to the Police Commissioner about some of these issues on proposing savings, proposed savings? I didn't hear what the response was to that.
We last wrote on April the 12th, and we have received no response. COUNCILMAN DiCICCO: No response. Thank you.
Thank you. Are there any other questions for these witnesses? Councilman Nutter.
Thank you, Madam Chair. I will be very brief. I just want to say to Mr. Matthews, Mr. Gaskins, and Ms. Cohen, that I deeply appreciate your testimony, your service and commitment to the city. Many of the union members are with us. Most of the others, the thousands of them, are at work, and so couldn't be with us. And we are the beneficiaries of that. I have received tremendous service 232 OPERATING BUDGET & TAX BILLS - 5/10/04 from all three of you and a number of others who are not at the table. And I wanted to thank you publicly for that and for the service that you provide. (Applause.)
I think any opportunity we have, those of us who have maybe a little more access to microphones and newspapers and the like, should always take the opportunity to recognize public employees. We are public servants. We have a certain job. But, you know, I try to remind my constituents when they call our offices in City Council that it is highly unlikely that whatever service it is that you are calling about, I mean, other than something that can be done over the phone, it is highly unlikely at, you know, midnight or, you know, 6 o'clock in the evening, or 2 o'clock in the afternoon, more than likely even myself or my staff are not the person who is going to go out and fix that particular problem. Not because we don't want to. But for many of the things people call for, you 233 OPERATING BUDGET & TAX BILLS - 5/10/04 probably would not want me to go out and do that. And, so, this notion that, you know, public employees, you know, do anything less than in 99.9 out to infinity percent of the time their best in their work and their effort, you are what make our offices go, you enable us to do the things that we do, and the partnership is critically important. I think that it is good for you to share with us not only the concerns, but also what you do. I do have some amount of regret, although I did not create this environment, I did introduce the bills, and they are the subject of testimony today. I think we have to reach a point in this city where we seek our best to stop trying to pit groups or sides against each other in an irrational dialogue about, if this group gets X, then the other group doesn't get Y. And I don't mean -- I am not being naive or Pollyanna-ish about it. We do have 234 OPERATING BUDGET & TAX BILLS - 5/10/04 some tough decisions to make. But I do think that the first course of business should not be trying to pit groups against each other. We are all public servants together. We are all trying to serve people in the ways we know best. (Applause.) (President Verna resumes the Chair.)
You have a unique situation because in many instances what we do does have a direct impact on you. But nonpublic servants are in the same situation. We are all Philadelphians first and foremost, whether you are on the public payroll or not. And you do deserve a fair contract because of the hard work. And the citizens of this city also deserve a government that can provide leadership, solve problems, generate jobs, new people to work here, to pay our taxes, hopefully in a reduced fashion, and so that we are not in a constant fight about an every-shrinking pot or pool of dollars; but 235 OPERATING BUDGET & TAX BILLS - 5/10/04 that we are actually moving in a direction where we have the luxury one day of talking about how to spend some additional dollars generated by making tough decisions and making investments in the future, and actually providing people with at least as good, if not better, quality of life in this city. And, so, I think that partnership is very important. I am glad that you are here today participating in this discussion and dialogue. I do, again, regret that it is being posed as one side against the other. We are all Philadelphians, and we care about this city, and we are all just trying to do our jobs. So I thank you very much. (Applause.)
Thank you, Councilman Nutter. And I have worked closely with you in the past and will work closely with in the future. But I think what we need to 236 OPERATING BUDGET & TAX BILLS - 5/10/04 understand, what we are really trying to say, is -- and you are right, we should be partners. But we should be real partners, and our input should not be taken for granted and should not fall on deaf ears. And I always refer back to 1992, when it was devastating for the union. From that point, if we worked closely together, we could have alleviated a lot of those problems in the past. But, that just doesn't happen. And that's what we are trying to do now, before we get to the point June 30. It seems like you don't think about contract negotiations until two or three months before the contract is about to end. So, I mean, it just repeatedly happens over and over again. And now what we are facing is 1992 all over again. So, you know, I appreciate your help. I appreciate all the Council person's help. But, I mean, we are in a dilemma. And I don't pit this as one group against another. I am willing to sit down and work with any group. 237 OPERATING BUDGET & TAX BILLS - 5/10/04
I know that. You have always been that way. Thank you. Thank you, Madam Chair.
Yes. Ms. Cohen, I have a question here. Did you ever have any discussions with the leadership of the FOP in regard to your recommendations of replacing police officers with civilians? I was just interested in that.
We have had discussions with the FOP over a number of years. Clearly their position is to defend the jobs of their officers at their staffing levels. And I am sure there are areas in which they would have fought us on some of its recommendations
I noticed that we have had, over years, I think we have been 25 discussing this. And I agree with you. 238 OPERATING BUDGET & TAX BILLS - 5/10/04 Another interesting thing in your testimony, on , you mention that the city will save less than $110,000 a year by shutting down the mounted unit. According to the Mayor's budget, it was over 400,000. Is there any reason for the discrepancy?
Yes. According to the Mayor's budget, it was $400,000. According to testimony given by Police Commissioner Johnson, it was 750,000. I can only assume that those higher figures represented personnel costs. Because the actual cost, the costs for feeding, housing, shoeing, and vetting the horses is less than $110,000 a year. And the reason that there will be no 20 savings is that the officers who have been assigned to -- any greater savings, is, the officers who were assigned to the mounted police unit will be assigned to other units, or to other districts. The civilians will be placed in other jobs. So the only real 239 OPERATING BUDGET & TAX BILLS - 5/10/04 savings are the savings of the actual cost to feed and house those horses.
Thank you. I just want to thank you for your testimony, all of you. I think there are some interesting things in here. And what we are trying to do is save as much money as we possibly can. And I thank you for your recommendations and your time.
Thank you. Are there any other questions from members of the committee? Thank you all so very much. (Applause.) MR. McPHERSON: Our next witness is Gabriel Bevilacqua.
Is Gabriel Bevilacqua here? Good afternoon. Welcome. Nice seeing you. We are going to ask that all of the witnesses be given five minutes for their testimony. I believe we have approximately 69 240 OPERATING BUDGET & TAX BILLS - 5/10/04 witnesses, and we would like to hear everybody by the end of the day. Please identify yourself for the record and proceed with your testimony.
My name is Gabriel Bevilacqua. I am Chancellor of the Philadelphia Bar Association. Good afternoon, Council President Verna and members of City Council.
Just a minute, please. The noise level is much too high. If you are having conversation, please do so in the corridor. Thank you.
On behalf of the 13,000 members of the Philadelphia Bar Association, I offer my thanks and appreciation for this opportunity to once again testify on tax reform. As you know, our Association is committed to this effort. And it is not just this one Chancellor that has spoken about this, but it is in fact the entire 241 OPERATING BUDGET & TAX BILLS - 5/10/04 Association, 13,000 members strong. They have joined me so that we may demonstrate the sustained commitment of our Association and its members to tax reform. Indeed, several Chancellors of the Bar Association have appeared before you in the past few years to speak on this topic. Our concern is real and it is ongoing. We understand that tax reform is a huge issue for this Council and this city government to confront. And, indeed, that is reflected by the fact that there are 13 pieces of legislation that you are considering. But I want to call your attention today to one particular inequity which we believe can and should be promptly addressed, especially if we are really serious about tax fairness and a pro-growth, pro-jobs economic policy in our city. Specifically, we urge the city to address the disproportionally high tax burden imposed by the business privilege tax and the net profits tax on service firms that are organized as partnerships. 5 percent for residents. 5 percent on their net income. In addition, the partnership would pay a net profits tax, but would be able to claim a credit of 60 percent of the net profits portion of the BPT. The effective rate of tax on partnership net income could in some cases exceed 7 percent. As you may know, the BPT applies to businesses conducted within the city regardless of form of organization; for example, corporation, partnerships, sole proprietorship, or LLC. The BPT consists of two tax bases, a tax on gross receipts and a tax on net income. 5 percent on income attributable to business 243 OPERATING BUDGET & TAX BILLS - 5/10/04 done within the city. By regulation, the city's Department of Revenue has directed that businesses conducted in partnership form may not deduct payments made to partners, even where partners perform a significant level of service on behalf of the partnership. Businesses formed as corporations, however, may deduct payments of compensation made to shareholders who provide services. As a result, service firms organized as corporations have little or no net income and pay little or no city taxes on their net income; instead, their shareholders pay city wage taxes at substantially lower rates. No apparent policy supports the discrimination against service firms organized as partnerships. For the reasons, we encourage the Council to consider the inequity presented in this situation. We are not asking for special treatment; we are only asking for a level playing field. Specifically we ask that the BPT be 244 OPERATING BUDGET & TAX BILLS - 5/10/04 amended to permit partnerships to deduct distributions made to partners who provide services to their partnerships. The effective this amendment is that service partnerships would pay tax on their net income at the rates imposed by NPT which are the same rates that are imposed under the city wage tax. We believe that the inequities which I have just enumerated are among the major factors in the relocation of professional firms from the city into the suburbs, that's why we care so deeply about this. Due in large part to the city's tax structure as it applies to partnerships, many firms have left the city either entirely or in part. Many professional service firms operate in partnership form for various reasons. Significant tax and nontax restrictions exist to limit their ability to convert to nonpartnership or corporate form. And, in many ways, this is really a small business issue.
Bear in mind that many small and mid-sized firms are organized as 245 OPERATING BUDGET & TAX BILLS - 5/10/04 partnerships and, consequently, suffer under this provision In fact, nearly two-thirds of the membership of the Bar Association is composed of small and mid-sized law firms, so this is a serious issue for us. A study released in January 2003 by the Center of Philadelphia Development Corporation explains that Pennsylvania suburbs have enjoyed a robust 34 percent rise in professional service jobs between 1990 and 2000. The study goes --
Thank you, Madam Chair. Chancellor Bevilacqua, tell us a little bit about your firm and its economic 246 OPERATING BUDGET & TAX BILLS - 5/10/04 impact on the city, and what your firm has been experiencing in terms of its own economic and needs of economic well-being in the City of Philadelphia.
I would be happy to do that. Our firm is located in five states. Our signature office is our office in Centre Square, right at 15th and Market Street. And our firm, like other large, multi-state firms, has really shrunk in terms of its presence here in Philadelphia, but has grown in terms of its presence in our other offices. And I can point to specific sections within the firm that have really moved to different offices in order to avoid this inequitable tax.
Tell us how the proposed legislation would amend the tax and equity that you say exists.
I think it would equalize it to require both corporations and unincorporated associations to pay tax at the same rate. 247 OPERATING BUDGET & TAX BILLS - 5/10/04
Do you have any other suggestions or any plans that you could offer to be helpful with what we are here to discuss today?
Councilman, we have strongly supported the recommendations of the Tax Reform Commission in the past, and continue to support those recommendations. But we wanted to single out this one, what we considered an inequity which impacts severely the unincorporated associations.
Thank you. Are there any other questions from members of the committee? The Chair recognizes Councilman Goode.
Thank you, Madam President. Good afternoon. I understand the issue of fairness should be one that is paramount, particularly if it makes us less 248 OPERATING BUDGET & TAX BILLS - 5/10/04 competitive. But I am wondering if you are familiar with any revenue implications with regard to next year over the Five-Year Plan? I just don't have those figures broken out from the other business tax figures.
We don't have a bottom-line figure. And we would like to -- we really don't know what the impact would be of equalizing this for corporations and unincorporated associations.
Thank you. Anyone else want to be recognized? Thank you very much.
Council President Verna, we have complete remarks, which I would like to hand up to be made part of the record.
We will give them to the stenographer, and they will be transcribed in whole. Our next witness, Thomas O'Drain. Mr. O'Drain, please identify yourself for the record and proceed with your testimony. 249 OPERATING BUDGET & TAX BILLS - 5/10/04
Good afternoon. My name is Tom O'Drain. I am the President of the Philadelphia Firefighters Union. I represent 2400 active firefighters and paramedics. I am a 19-year veteran of the Fire Department. I am also a lieutenant currently on leave of absence to serve as the President of Local 22. In March, just before the Street Administration released their budget for this year, the 21st Century Review Forum issued a report that suggested that city services in the Fire and Recreation Departments may need to be redistributed to match changes in the city's population. But the 21st Century Review Forum did not recommend any immediate cuts to the Fire Department be implemented. S. Navy when considering base closures. This process would attempt to 250 OPERATING BUDGET & TAX BILLS - 5/10/04 eliminate the politics from the closure or cut decisions. And while I disagree with some of the conclusions reached by the Forum, I agree that any review of public safety services must be conducted in a thorough, deliberate, and open manner. As president of Local and a 10 life-long citizen of this great city, I was 11 extremely disappointed the following week, 12 when the Street Administration released a 13 proposed budget that called for several cuts 14 discussed, but not recommended, by the Forum, 15 without the thorough, unbiased, detailed, and 16 open review that the Mayor's own Forum deemed 17 absolutely necessary. 18 In light of the severity of the cuts 19 proposed, this course of conduct is a recipe 20 for disaster. 21 Council Members, you have heard Fire 22 Commissioner Hairston attempt to sugar-coat the drastic and unnecessary cuts that the Street Administration plans to impose upon the Philadelphia Fire Department. But make no 251 OPERATING BUDGET & TAX BILLS - 5/10/04 mistake about it, the Mayor's plan will gut the Fire Department. It will result in 200 fewer firefighters on the streets of this city, a whopping percent cut. And all of this in a 7 year where fires and injuries are up and at a 8 time when public safety remains the number one 9 issue on our public discourse. 10 Despite Commissioner Hairston's charts, the city-proposed cuts will have a dire impact on public safety. There is no 13 doubt about it. It is just common sense. Fewer engine companies and fewer ladder companies means that the existing companies will have to cover greater distances. Increased distance means increased response time. In other words, under the Mayor's proposal, it will take longer for the Fire Department to respond to calls for emergency service. Every citizen can understand how critical response time is when you call 911 and you have a loved one in distress. Seconds 252 OPERATING BUDGET & TAX BILLS - 5/10/04 count, seconds are meaningful. But when it comes to fire, the average citizen may not know how important response time is. Simply put, fire grows exponentially. Each minute of uncontrolled fire growth results in a geometric increase in temperature and damage. This results in greater damage to the initial structure, to the adjoining structures, and to risk faced by occupants and by firefighters. So when it comes to fires, seconds are not merely important, they are absolutely critical. And no meaningful discussion of company closings can ignore the impact of those closings on response time. Unfortunately, Commissioner Hairston's testimony did not address the impact that the proposed Fire Department cuts will have on response time. This is troubling for several years. Two months ago when the news first broke of the Mayor's plan to close fire companies, our union asked the Fire Department 253 OPERATING BUDGET & TAX BILLS - 5/10/04 for information related to what we hoped was the detailed study of the issues that the department had performed seeking to close fire companies. To date we have received no 6 response.
In my book, that means either, A, there are no studies, which absolutely is inappropriate in light of significant health and safety risk associated with closing firehouses; or, B, the studies that have been performed do not support the attempt to close companies. Obviously, neither option is good. And, clearly, neither is appropriate in light of the seriousness of this issue. The citizens of this city deserve a full, fair, complete, and open discussion of the impact that proposed cuts at their neighborhood fire station may have on the safety of their families and their neighbors. I ask this Council this afternoon to conduct full and complete hearings and to require the Fire Department to justify its proposed cuts before Council approves any 254 OPERATING BUDGET & TAX BILLS - 5/10/04 budget that contains cuts to the fire service. A second point raised during Commissioner Hairston's testimony was the city's plan to increase the number of EMS units on the city's streets. I applaud this effort, which our union has been asking for for years, but I dispute the Commissioner's logic. The need for more medic units does not necessitate a cut in the fire service. In fact, the planned increase in medic units should eliminate the asserted need for cuts within the Fire Department. Commissioner Hairston testified concerning the millions upon millions of tax revenue that the department's EMS service generates for the city, but he ignored the fact that these increased revenues should eliminate the need for cuts elsewhere within the Fire Department. Essentially, adding more paramedics should fund the continuation of existing levels of fire protection. In addition, the Commissioner also 255 OPERATING BUDGET & TAX BILLS - 5/10/04 neglected to mention the significant savings that the city will experience as a result of the mass retirements of firefighters under the DROP program. Council will recall that one of the goals of the program was to replace older, higher-paid employees with younger, lower-paid employees in order to achieve savings for the city. But, instead of considering the savings that will be achieved by replacement of 200 firefighters, the city seeks to instead cut the positions altogether. It is a shortsighted, cost-cutting move that essentially implements back-door layoffs within the Fire Department.
Sorry. You are going to have to wrap it up. I know that we have been wanting to hear your testimony.
I am asking you to abbreviate whatever you have there, please.
Well, the point I want to make is that, cutting back that many 256 OPERATING BUDGET & TAX BILLS - 5/10/04 positions in the Fire Department will be a disaster for the people in this city. We do more than just fight fires. We respond to medical emergencies. We have all the fire prevention programs that we do. We put smoke detectors in people's houses. We go out to schools and we conduct fire safety programs for children. And there is many more items that we do that protect the people in this city. And I think that making cuts in the Fire Department is a bad thing.
I know that the fees have escalated for the emergency medical services.
I know that the fees have escalated for the emergency medical services.
Last year the medical -- the paramedics collected $21 257 OPERATING BUDGET & TAX BILLS - 5/10/04 million in revenue.
And it is anticipated that in '05 they will be collecting $25 million?
Yes. None of that money goes back to the Fire Department; it goes right back into the city's General Fund.
I know. It goes into the General Fund. You talked about the closure of some of the fire stations. Do you know if there are actually going to be closures, or is that something that we can simply assume by the Commissioner's testimony?
Well, the Mayor said there will be no firehouse closings. What they propose to do are close companies within those firehouses, which would reduce the number of people that we have to respond to emergencies. Last year we responded to 417,000 calls.
Thank you. 258 OPERATING BUDGET & TAX BILLS - 5/10/04 The Chair recognizes Councilwoman Brown.
Thank you, Madam President. Good afternoon. The fire safety program that you have in the public schools, is that citywide, with both Catholic schools and public schools?
That's citywide. All schools. We go out and cover all the schools. We put out forms in the schools for kids who may not have smoke detectors in their houses. And when they fill those forms out and send them back in, we will go out and install a smoke detector in each house.
Charter schools. Any school in the City of Philadelphia, we go out to and we conduct programs.
That eliminates my subsequent questions. 259 OPERATING BUDGET & TAX BILLS - 5/10/04 Thank you for your testimony.
Thank you, Madam President. Tom, I want to talk a little bit about the ladder companies and the elimination of the ladder companies. Certainly engine companies are also very important. But talk a little bit about the function of a ladder company, and what in fact its responsibilities are relative to search and rescue and relative to aerating the building, which is the major cause for most fire deaths, is smoke inhalation. Can you talk about what it is they do.
Mainly the reason of a ladder company is, they ventilate the building, let the super-heated gases out and the smoke out. That allows the engine companies to go in and make an attack on the base of the fire. 260 OPERATING BUDGET & TAX BILLS - 5/10/04 Ladder companies are responsible for rescuing anybody that may be overcome by smoke. Most times when they are, they are laying right inside of a window. And when they get their ladders up and they go to go in, nine times out of ten, if there is somebody in there, they are right there and they can grab them and get them out.
Right. They go in and they conduct a thorough search of the building.
So they are the members of the department that normally you see wearing the breathing apparatus.
Yes, they go in and immediately that's their top priority, are to make rescues.
And that 261 OPERATING BUDGET & TAX BILLS - 5/10/04 includes finding their own people, when they are trapped or lost inside.
When you respond to a large event, for example, the thing that comes to mind recently was the rescue, that dramatic rescue, of construction workers at the Kimmel Center. How many pieces of apparatus generally respond to something of that magnitude?
For that particular rescue, I believe there were about three alarms worth of companies. I think that was -- about 50 companies were down there that day.
And in the event that something like that happens -- and thank God it doesn't happen often, but it does happen maybe once, twice, three, or four times a year, there is something where there is a large number of people, personnel and apparatus, that need to respond -- hypothetically, what would that do to a dwelling fire response, when you have that 262 OPERATING BUDGET & TAX BILLS - 5/10/04 many companies engaged in one particular site, doing one particular rescue or group of rescues? What would that add on to the response time to a fully involved dwelling, you know, 20, blocks away? 8
Well, what we try to 9 do are spread the companies out when we have a 10 big incident going on. 11 The fire communications center will 12 send companies and spread them out around the 13 city, so that we can try to cut down on 14 response time. 15 But even then, during those times, a 16 dwelling fire can have a chance to get out of 17 control and maybe spread to the house 18 next-door. 19
What's the 20 percentage of ladder companies that are slated 21 to be closed? 22
We are -- they are 23 talking about closing 7 ladders. That's about 24 20 percent of the city's ladder companies. 25
And what about 263 OPERATING BUDGET & TAX BILLS - 5/10/04 the engine companies?
Four engine companies. I just wanted to make sure that's on the record clearly. That we are not talking about -- rec centers are important and pools are important, and those things are very important. We are not talking about those things. And we would like to see arts and culture and everything else put back. When you are talking about adding minutes to response time of engine ladder companies, and considering the fact that this department turns back to the city General Fund $21 million last year, as much as $25 million to come, I think it is very shortsighted and very foolish to put your people and our citizens in harm's way by that kind of reduction. And that's something I think should be at the forefront of our concern, be concerned about public safety of our citizens 264 OPERATING BUDGET & TAX BILLS - 5/10/04 and of our firefighters. Because, you know, if we have one of our people lost in there in a building, which has happened many times, we need as many people in there searching for them as possible. And God forbid that child gets overlooked in the closet because we don't have enough people on site or fast enough on site. Because I understand -- you can elaborate, if you like -- the number of minutes that follow how increasingly dangerous the fire becomes if there is any delay in getting on the scene.
Well, the average dwelling fire is only about ten minutes. And if we don't get there within the first three or four minutes, you are -- and if there are people in there, there will be people that will die.
Thank you. The Chair recognizes -- (Applause.) 265 OPERATING BUDGET & TAX BILLS - 5/10/04
Thank you. Tom, could you go over how many engine companies and how many ladder companies they are talking about closing?
They are talking about closing four engine companies and seven ladders.
If an engine company is closed, what is left at the site?
Well, some houses house engines and ladders in the same firehouse. I don't know how they plan to do this.
That was my understanding. So it would be a first, if an engine 266 OPERATING BUDGET & TAX BILLS - 5/10/04 company was cut with an engine/ladder --
Years ago they used to have single ladder companies, but they did away with them a long time ago.
So, based on tradition, if they cut four engine companies, they could be cutting four houses?
Well, they say they are not going to close any houses. So...
So you can surmise they are going to end up with just a ladder.
Staffing reductions. First of all, are there any staffing reductions on engines or ladders that are there going down, number of firefighters on an engine, number of firefighters on a ladder?
They are proposing to take a man off the back step of a ladder.
Could you explain. 267 OPERATING BUDGET & TAX BILLS - 5/10/04 As we went through this several years ago, the Council, the union, and everyone came to the conclusion that it was a bad idea. While it may work in some cities that have been built in the last 20, 30 years, a city like Philadelphia needs a full complement of firefighters. Could you explain what the loss of one firefighter on a ladder does both to the people who are in a burning building, but also to the firefighters themselves safetywise?
The best example I could give you is, the most commonly used ladder that we carry is a 35-foot ladder. These ladders are built very heavy because we anticipate that if we are going to make a rescue, there could be five or six people coming down out of a window at the same time. So the ladders are built very heavy. 35-foot ladder takes four men to carry it and to put it up. So you take one person off the back step of that ladder, you are going to have three guys trying to put 268 OPERATING BUDGET & TAX BILLS - 5/10/04 that ladder up, and there will be more injuries And just a few months ago we had guys trying to take a 35 down, they were electrocuted because, you know, a lack of manpower.
Thank you, Madam Chair. I will be brief. Mr. O'Drain, thank you for your testimony. As many members have expressed, when we were here for the Fire Department testimony, we asked a significant number of questions, I think, with regard to this 269 OPERATING BUDGET & TAX BILLS - 5/10/04 proposed, what amounts to, a reduction in service. I was perplexed to understand some of the proposal in the context that statistics would seem to indicate that structural fires -- and that seems to be the emphasis, structural fires -- are down, although they seem to have leveled off the last three or four years somewhere in about a to 11 hundred number range. They were obviously 12 much higher over the past year, but they seem 13 to have leveled off. 14 Is fighting structural fires the 15 only thing that firefighters do? 16
No. We fight 17 automobile fires, we respond to car accidents, 18 we respond to floods. 19 Any kind of emergency you could 20 possibly think of, we respond to it. 21
And are all of 22 those that you mentioned, or many others that 23 you respond to, are all of those services 24 going in a downward trend, or is there still a 25 significant need for those kinds of services 270 OPERATING BUDGET & TAX BILLS - 5/10/04 that are not related to structural fires?
Well, in 2002 we responded to 319,000 emergencies calls. 2003, we responded to 417,000. So that number went up, total number of emergencies.
And some of that increase, I am going to assume, was not just related to EMS service. These are responses by actual uniformed -- I mean, equipment-carrying firefighters to deal with fire, not the transportation for medical assistance immediately to people?
Is that correct? Given what the proposal is, the seven and four, at least, pieces of equipment, and then the way it is structured, such that there may not technically be a closing of a facility, but certainly an absolute reduction in the type of service out of that facility, have you given some thought to how we might, again, in some sense of partnership, work together to prevent these kinds of what I 271 OPERATING BUDGET & TAX BILLS - 5/10/04 would say are significant reductions in service?
I suggested to the Commissioner a number of times, and I know that some of the top people in EMS have suggested, that they put a paramedic on every truck, which would -- the trucks are responding to these medical calls anyway. If they put a paramedic on there, they could bill for the service and it would provide a better service for everybody because paramedics can -- once they contact base command, they can administer drugs or anything else that a doctor would be able to do in an emergency room.
I was told that that will never happen as long as Commissioner Hairston is around.
Well, I mean, is that because of a particular personal belief by the Commissioner?
I have no idea. He 272 OPERATING BUDGET & TAX BILLS - 5/10/04 told me that himself, that he would not do that as long as he is around.
Well, I think you have probably assessed either from the type of questions or other conversations that you have had that there is a great deal of concern about the removal, or proposed removal, of this equipment from a number of locations around the city. And I think just because structural fires may be down, it does not necessarily mean that we shouldn't establish a base or baseline of personnel and equipment that is available to us. Not just because we can't predict the future, but because we should have a certain amount of personnel and equipment available for all kinds of things that can happen throughout this city. And given that we are down in one area, I will say what I said at the testimony, it seems that if the firefighters are almost being penalized for, on the one hand, helping the citizens of this city better manage their affairs, if you will, provide education and 273 OPERATING BUDGET & TAX BILLS - 5/10/04 information to people, to cause structural fires go down, and on the other hand are being penalized for doing a good job, that doesn't seem to make a lot of sense. Thank you. (Applause.)
Getting back to the staffing of the ladder. Are there any other older northeastern large cities, Baltimore, New York, Boston, even Chicago, Cleveland, that run with a lieutenant and three?
No. New York City, especially in the Manhattan area, they run a lot heavier. They are running -- on engine companies they are running a lieutenant and four and on ladder companies they are running a lieutenant and five.
We used to run a lieutenant and five at one time; correct?
We ran a lieutenant 274 OPERATING BUDGET & TAX BILLS - 5/10/04 and six at one time.
The engine company, I didn't ask you about, what is the staffing of the engine company?
Actually having the same staffing on a ladder that you have on an engine, which is bare-bones for an engine.
We are bare-bones right now. We go any lower than that, we are in trouble.
Thank you. Are there any other questions? Thank you very much. (Applause.) MR. McPHERSON: The next witness is Tom Cronin.
Council President Verna, I would like to also introduce on my right Mike Walsh, who is President of Local 2186 and has as part of his responsibility the rec centers in the City of 275 OPERATING BUDGET & TAX BILLS - 5/10/04 Philadelphia, anticipating that there may be some questions about the proposed cutbacks. And also Bob McAllister, who is our health and welfare administrator for our fund.
That's fine. And before you identify yourself and start your testimony, your testimony, I see, is somewhat lengthy. You will be given five minutes. The stenographer will have a copy of your entire testimony. So if you can abbreviate your testimony, I would appreciate it.
I will do the best I can. In reviewing the Street Administration's proposed budget for next year, I am reminded of an old joke that went, there are several ways in which to apportion a family budget, all of them unsatisfactory. This budget has a lot of unsatisfactory parts, and you have heard or seen many of them. I am here today to point out a few items which are totally unsatisfactory to the 276 OPERATING BUDGET & TAX BILLS - 5/10/04 men and women who work at providing city services for all of our citizens. Let me begin by pointing out that, in this budget, there is not a single dollar earmarked for new contracts that must be negotiated for all of the city's nonuniformed employees. While I understand that this may be a negotiating ploy, it is disconcerting that the Administration has not even acknowledged that city workers should be given the wages and benefits that they deserve. With its announced cuts in various city agencies and departments which have produced outcries from people impacted in those proposals, this Administration appears to be setting up an adversarial environment in which one group will be fighting with another over scarce city dollars. This is not the best way to move our city forward. I want to address two items in the city's budget proposal which present significant problems to DC 47 members. The first is when the budget 277 OPERATING BUDGET & TAX BILLS - 5/10/04 document calls for a single, self-insured medical benefits plan for all city workers. This, in our opinion, is an absolute disaster for city employees. Throughout the last several contract negotiations, city employees have stepped up and shouldered a greater share of the cost of their healthcare costs. They have in some cases accepted benefits plans which, because they have provided less benefits, have cost the city less money. We recognize the impact of skyrocketing costs of healthcare and have worked with the city to address these costs. Our healthcare administrator is constantly working to improve services to our members within severe financial constraints. The city's proposal, which, by the way, has not yet been formally presented to us, is so vague that it is impossible to understand what the Administration is trying to accomplish. Is the city going to provide a 278 OPERATING BUDGET & TAX BILLS - 5/10/04 single level of benefits for all city employees? If so, what level are we looking at? As of July 1, 2004, the city will contribute $996 per member for each firefighter's healthcare benefits, while the city's current contribution to DC 47 is only $620 per member per month. Which benefit package will the city be offering? This question has not yet been answered by the Administration. Another unknown in this proposal is whether or not the level of benefits will change year to year based on the city's budget appropriation for these benefits. If this is the case, then the Administration is asking city employees to roll the dice every year to a level of benefits for which they and their families will be eligible. Such a proposal is now and forever totally and irrevocably unacceptable to the women and men of DC 47. The second proposal contained in this budget is a shift from what is called 279 OPERATING BUDGET & TAX BILLS - 5/10/04 defined benefits for retirement benefits to a defined contribution benefit. Simply put, this means that the city would make a specific dollar contribution to each employee, who would then be responsible for investing it in some type of account similar to a 401K plan. This means that city workers will no 10 longer have a secure and clear retirement package upon which they can plan for the future for themselves and their families. Historically public employees have received lower salaries than their counterparts in the private sector. This situation has been offset by the understanding that public employees' retirement benefits were secured by the full faith and credit of the city.
Thus, the city worker could take comfort in knowing that their pension benefits were not the subject to vagaries or machinations of the stock market. This was often what made public sector employment attractive to people. 280 OPERATING BUDGET & TAX BILLS - 5/10/04 This change would remove that last inducement for people to come and work for the city. Further, the savings supposedly generated by this proposal would not be seen for perhaps to years in the future. 8 Please remember that if this change 9 were to go into effect on July 1, 2004, all 10 those city employees hired up until June 30, 11 2004, would be qualified in the current 12 retirement plan. 13 Only, only those people hired after 14 the effective date of this proposal would be 15 participants in the new plan. Therefore, it would be many years before the bulk of the city workers would belong to a new retirement benefits program. Where would the city see its savings? Remember also that if the city were to try to move people covered by the current retirement plan into this new plan, it would surely result in immediate litigation by at least one, if not more, members of the group being moved. 281 OPERATING BUDGET & TAX BILLS - 5/10/04 And given the case law on this subject, plaintiffs would quite likely be successful. This means no savings, but, instead, additional costs. I just want to skip a little bit and let me address the whole notion of tax cuts which are being addressed in today's hearing. I want everyone to remember a simple statement, that there is no free lunch. I hear all types of plans for cutting taxes or giving tax breaks to businesses or individuals. Please understand the consequences of those actions. There will be fewer dollars to spend for running the city. That is why you are currently being asked to choose between closing recreation centers, reducing the hours that libraries are open, eliminating certain firefighting units, these are the consequences you must face for offering tax breaks to large for-profit corporations. There are ample economic studies which show that reducing local taxes on the hope of spurring economic development is poor 282 OPERATING BUDGET & TAX BILLS - 5/10/04 public policy. Many of those who complain that Philadelphia has acted too slowly to inaugurate these changes show -- know that the cities like New York, Chicago, and Los Angeles, which did succumb to tax fever, now acknowledge their mistakes and are trying to correct them. I will stop might presentation here, it goes on for another few minutes, in the hopes that people may have some questions.
Thank you. And a copy of your testimony will be given to the stenographer. Are there any questions of this witness? The Chair recognizes Councilman Ramos.
Thank you, Madam Chair. Thank you, Mr. Cronin for coming here and explaining your position so eloquently in this committee hearing on taxes. I am glad that you have stated for 283 OPERATING BUDGET & TAX BILLS - 5/10/04 the record the defined pension plan versus defined contribution. I think that we all needed to hear that and hear where you stood on this proposal of the Administration that caused me a great deal of consternation to see what this really meant. And I didn't think it was going to -- I didn't think it was going to go over well with your members, given how much they have given into looking at retirement and having a defined retirement plan for their retirement years. I also note in your presentation -- please clarify for me if I am mischaracterizing your statement -- are you opposed to this whole Tax Reform Commission proposals?
Well, let me try to answer it in this way: A little earlier this morning, there was a question, I believe, that Councilman -- I think it was this afternoon, excuse me, Councilman Clarke asked Pete Matthews of District Council 33.
I heard that. 284 OPERATING BUDGET & TAX BILLS - 5/10/04
About any outreach of any of these various tax commissions. There has been no outreach to District Council 47 by any of these commissions. And, to me, it is very interesting that we have city employees, such a large portion of the city's population, ourselves and our families, and no one has asked us to be included on any of these tax commissions for our own ideas, many of which are people do the work in terms of collecting taxes or figuring out about taxes, et cetera. So it is with this that I say, at the present time, with what information I do have, I would have to say that there should be a freeze on all taxes; that there shouldn't be any -- certainly there shouldn't be anymore tax breaks. And it irritates -- I would like to use another word -- the heck out of me when I hear about corporations like Comcast that already get a ten-year tax break, given the possibility of getting another five-year tax 285 OPERATING BUDGET & TAX BILLS - 5/10/04 break on top of the ten-year tax break, and my people can't even get decent wages or benefits. It just riles me up to hear about that. So ask me about that particular tax, I would have to say I am absolutely opposed to it.
I think you answered my question. Thank you. Are there any other questions of this witness? The Chair recognizes Councilman Clarke.
Thank you, Madam President. Madam President, Councilman Ramos, you asked the question about the tax reform proposal in its entirety. And, Mr. Cronin, your response was to the Comcast deal.
That was just one example. I mean, I could probably, given an amount of time, go through all of the 286 OPERATING BUDGET & TAX BILLS - 5/10/04 different tax proposals. But I would say right now that we are opposed to all of those tax proposals that we see at the present time. I would much rather see a tax freeze, more study. And I would certainly love to see some city employees from any of the city unions be called in at least to be part of this committee, rather than, I feel, excluded from these committees.
Thank you. Any other comments or questions from members of the committee? Seeing none. Thank you very much. Thank you for your patience. MR. McPHERSON: The next witness is Ed Schwartz. Good afternoon. Thank you so much for your patience. All of my colleagues are giving me the five-minute notice for testimony. So I am giving you the notice, five minutes for testimony. Thank you.
Good afternoon, Council President Verna. 287 OPERATING BUDGET & TAX BILLS - 5/10/04
Kindly identify yourself for the record and proceed with your testimony.
I am Ed Schwartz, and I am here from the Institute of Civic Values and as the former Chairman of the Tax Reform Commission. And I guess my testimony reflects both perspectives. I am here to address what I consider to be a strategic challenge in how we implement the tax reform agenda, which I clearly favor in its entirety, given the fiscal crisis that we now face. And as I have looked at the budget over the last five years, the fiscal crisis is real. And I find myself feeling very much as I did as the Goode Administration began its second term, with a fiscal crisis that no one fully anticipated. And sat there three years where a similar kind of conflict between the Mayor, the Council, within the Council developed, to the disaster of all. And I really think that whatever 288 OPERATING BUDGET & TAX BILLS - 5/10/04 else goes on, a starting point needs to be that we don't do that one again. Now, this Council, this government, has run an operational deficit, meaning an annual deficit, for the last four years. $65 million in '01, $91 million in '02, $48 million in '03, and $77 million in '04. And, yet, when we would come to these Council, dealing with tax reform or issues having to do with the police, there was always the argument that there was lots of money around. Well, there was. The reason there was lots of money around is that we started the Year 2000 with a $295 million surplus. And that now, over a five-year period, has been whittled down to $13 million. An, so, if we spend just as much next year as we spent this year, we would end up with an 80 or 90 million dollar deficit, and close to where we were in 1989, 1990. Furthermore, as you have heard, and as the material that I have done indicates, the city is now obliged to contribute $118 289 OPERATING BUDGET & TAX BILLS - 5/10/04 million more -- or $67 million more, rather, to our pension funds, another $20 million in health benefits just this coming year, and for a total of $288 million over the five years of the plan. That's equivalent, really, to our entire tax reform agenda. And, in a way, it attests to the socially and fiscally responsible nature of that proposal, that it could be trumped so easily by an area of city spending. But I can't sit back and say, well, we have this great agenda here, which we do, and then divorce ourselves from how we get there. If I were asked to vote on these bills, most of them I would support. But I do not support, for example, presetting the tax rates for the City of Philadelphia to a fixed level of reduction until 2010, 13, whatever it is. Because we rejected on the Commission deficit financing because we didn't want to put the Commission on the position, or 290 OPERATING BUDGET & TAX BILLS - 5/10/04 the city in the position, of having to pay something back where there was no ability to really handle the unexpected. And this year we already have seen a huge unexpected amount. The problem, though, is that right now there is no mechanism of accountability between today and next year at this time to hold the Mayor, basically, accountable, or the whole city accountable, to moving in the direction that we need to. And the starting point for that is a spending agenda that will parallel the tax cut agenda and make it possible. And I will list six areas that I think we need to be addressing. The first was recommended by the Commission, it's tax collections. The Commission recommended that we go an additional percent, we have there in the Mayor's proposal. We needed to broaden our crackdown of code violations. The CLIP program has shown us that if you really get serious, people will both pay up and do up. 291 OPERATING BUDGET & TAX BILLS - 5/10/04 And I just staggered. I still don't quite understand how we can have 117,000 code violations in a database and we are collecting a handful of dollars to do that. So, those are two in the Commission's report.
The third is that we really do need a thorough examination of our pension fund and how it is managed, comparable to the examinations that are going on with mutual funds and other investment vehicles. Few people know very much about it. I have given you a page that shows you what has happened in the last year and what is projected to happen on this. It is millions of millions of dollars. And I'm not saying that the union shouldn't have a pension; I am saying that however that fund is managed, I don't know what to make of it. But I think we need to, in fact, look at that really carefully to see if we can do a little better over the next four years than we did, admittedly, in a difficult stock 292 OPERATING BUDGET & TAX BILLS - 5/10/04 market over the last three. The same applies to the medical benefits. The Administration is proposing that we move towards self-insurance. Well, that's a matter that would be negotiated. My position before that is, the clout that this city has as an insurance handler ought to be used, it seems to me, more effectively with Blue Cross, which is being challenged in every direction in terms of the level of surplus and the rest, that, to deal with that. I have two more, and I will stop. There is PGW, which we all know. And the final one, which I have raised for the last three years, over which I do think we have some control, is the huge cost of crime. That we have in fact had a $182 million increase between 1998 and today, and the amount we are spending on police and prisons. The prison population has gone up from 6,500 to 8,000. The police have gone up from 6,100 to 6,900. I do not accept the premise that we 293 OPERATING BUDGET & TAX BILLS - 5/10/04 have to have the same number of committing -- people committing crimes every single year to justify that. And if we were to reduce the number of police officers because we could reduce the number of people in prison to the levels where they used to be, that would generate as much money as we needed to pay for the entire tax reform agenda. So having been Chairman of the commission, and backing its agenda strongly, but also a person who served here, and realize that there is a spending side to this, my commitment is to work on the spending side, to be able to implement this agenda without creating a fiscal crisis, which we have already had and which will destroy everything that we are trying to accomplish in those areas.
Thank you. Are there any questions from members of the committee? The Chair recognizes Councilman Ramos. 294 OPERATING BUDGET & TAX BILLS - 5/10/04
Thank you, Madam Chair. Thank you for your testimony, Councilman Schwartz. Are you saying that you have some reservations about implementing all of the Tax Reform Commission recommendations?
I have no 10 reservations about implementing the recommendations.
No. Let me give you one of the keys. We never discussed on the Commission whether or not the ten-year timetable for reducing taxes should be embodied in a kind of automatic trigger every year past today. We never had that discussion. The impression that I had, at least, as Chairman, was that our view was that each 295 OPERATING BUDGET & TAX BILLS - 5/10/04 year you would look at where the taxes were and attempt to reduce them. So we never had that discussion. Had we had it, I would have said, as Chairman of the Commission, I don't support that. So anybody can choose at this point to pick up what we have done and to advance it. But there is a big difference here between saying, I am going to set the tax rate in 2007 by law, and I am going to set a goal in the Five-Year Plan to do it. I think the exchange with Councilman Nutter is relevant to that. There are other things I favor and as a Councilman I would support, if in fact the means to pay for them existed. And I know where I would vote on some of this. I would vote to reduce the police department and others. And I challenge all of you that if you are in favor of some parts of this agenda -- I am in favor of all of it. But what I am not in favor of is a position that says we are going to reduce taxes but not take 296 OPERATING BUDGET & TAX BILLS - 5/10/04 responsibility for cutting the spending to go with it. That's where I am. I could pack a lot of things in here that the Administration is not backing because I am personally committed to certain kinds of spending cuts that are not reflected here. And, really, the only places that they are of any substantial nature that they are not reflected is in the size of the police force and, to a much lesser extent, but to some extent, the prisons. If you look at the material I have given you, it is there. So I could vote for two or three more things here than, you know, the Administration has already adopted. And I would vote, certainly, for procedural things. But my vote would reflect a commitment to reducing the spending. And what I am afraid of is what happened 12 years ago, and what's happened the last four or five years, voted for tax reduction and spending increases. And, so, you end up living beyond your means. We went bankrupt. It happened. I 297 OPERATING BUDGET & TAX BILLS - 5/10/04 lived through it. The city was a disaster after that. It took five or six years to come back. We don't want that to happen again. So there has got to be a strategy to fulfill this agenda within the context of a real budget, not just a projected budget that we happen to, you know -- as a Commission we weren't asked to look at the real budget; we were merely asked to produce a blueprint for what a decent tax system should look like. I think we have done that. I support it. But now there is a real budget here, and we have to be able to implement that without destroying the rest of that real budget.
What I am hearing now, Councilman, is that you, basically, are opposed to the core momentum of the Tax Reform Commission. I asked a question this morning concerning, you know, concerning if we -- if the Administration -- it is referred to that the Administration wants to piecemeal the implementation or incrementally implement some 298 OPERATING BUDGET & TAX BILLS - 5/10/04 of these tax reform recommendations. It seems to me by what you just said that you are more in line with the recommendation of the Administration. Because they are, basically, saying that they have no 7 problems with the Tax Reform Commission recommendations, but that -- and I believe Joyce Wilkerson answered this question this morning -- but that they were against saying that we have to eliminate the business privilege tax, it has to be done in a steadfast way; that they prefer to do it incrementally, see if the economy, see if what's going on in Harrisburg moves in the direction of economic stimulus for Philadelphia, then we can move on to take on the consideration some of the other recommendations of the TRC.
Well, actually, both programs -- our program is incremental, as well. We don't propose doing everything in a year. That's part of the -- I am sorry. Our program is incremental. It goes over a ten-year period. 299 OPERATING BUDGET & TAX BILLS - 5/10/04 In the business tax area, the rate of reduction for the gross receipts tax in our plan and the Administration's are identical for the next two or three years. It later goes into the net income tax, and that gets to be more expensive. A number of the real estate tax recommendations we agree on, including the land tax, which I noticed from today's Daily News has posed a lot of problems for a number of people here. And the wage tax reduction right now that we have is slightly short. The city's wage tax reduction in the current budget is slightly short of what ours would be, a fraction. I think it is about $1.5 million. And then there are a series of procedural things in the taxes, some of which you questioned today. Some they do, some they haven't done. The ones that I have heard of that weren't done that had to do with cash flow, it seems to me that over the next two years a commitment could be structured to deal with 300 OPERATING BUDGET & TAX BILLS - 5/10/04 the cash-flow issues. All I am saying is that both positions, wage, real estate, and business taxes, all need to be reduced. My position is that what the Administration is lacking is a clearly defined set of spending objectives that would provide the resources to deal with our entire program in the next several years. And that that's what I would like to see happen, and then the rest of the agenda could be structured accordingly.
Thank you, Mr. Schwartz. The Chair recognizes Councilman Clarke.
Thank you, Madam President. Good afternoon, Councilman. Actually, I was going to ask a similar question as to Councilman Ramos with respect to the fixed rate for ten years both for business and wage taxes. And you have responded to a portion of that. I want to reference in the executive 301 OPERATING BUDGET & TAX BILLS - 5/10/04 summary Recommendation that talks about implementing a system of budget-based property taxation that, essentially, gives you the flexibility to adjust the real estate tax aspect of this proposal to reflect our budget situation. I am assuming if we have a shortfall, we will, essentially, increase the ability to raise revenue off of real estate taxes.
If in fact we are doing well and have a surplus to some degree, we will reduce that, or we will not allow a windfall, as some people referenced earlier, and last year, as a result of the increase in values of properties. Do you have a sense of why the reform commission -- I know you are now saying that you believe that you should have that flexibility on both aspects. Why on the real estate side that there is a recommendation to have that level of flexibility to reflect the city's budget condition at that time, as 302 OPERATING BUDGET & TAX BILLS - 5/10/04 opposed to on the wage and the business tax?
Well, I think it reflected the different -- the specific dynamics of a real estate tax, which is, it is both the question of what the assessments should be and the question then of what the rate should be. And, so, people were angered, appropriately, a couple of years ago that assessments were raised geometrically to reflect rising property values, and suddenly they were stuck with huge increases in their tax bill. So that the position that Chairman Glancy actually advanced was a budget-based system would accommodate for that. If assessments went way up, you would ask what exactly do we need from the real estate tax, and you would reduce it accordingly. So that was the particular dynamic of the real estate tax that does not exist with the other two taxes, and why budget-based proposals were there. 303 OPERATING BUDGET & TAX BILLS - 5/10/04 Interestingly enough, I also served on the 21st Century Committee's tax group, and advanced our agenda pretty strongly. That was the only one I couldn't get through of the 6 or 15. 7
So, essentially, 8 the real estate aspect of these proposals 9 would supplement the potential or the lack of 10 growth on the business in terms of revenue on 11 the business end, the wage tax revenue? 12
Well, as I say, on 13 the revenue side, we were asked only to make 14 recommendations. And I Chaired a committee on that. There wasn't the same dynamic behind it, and we were enjoined from talking about spending. Clearly there is a strong view on the part of some members of the Commission that our real estate tax rate is much lower than it should be; that our real estate values are low enough that we could accommodate a hire real estate tax; and, if absolutely necessary, I believe it is the final thing in 304 OPERATING BUDGET & TAX BILLS - 5/10/04 the revenue supplement, we should raise the real estate tax to make up for revenue losses elsewhere. That was not put in and enshrined; it was a suggestion. But, that was there. My own view, though, is that I take very seriously what we said. I have got a very clear idea of what the Administration is proposing to do this year and what it is not proposing to do this year, and what I think of that. But in order to be able to deal with this problem, I don't see how you can deal now in the real world with a tax program without also looking at what the government spends. And that's where I have been spending a lot of my time and will continue to spend it, because I think both are necessary to the life of the city.
Thank you. The Chair recognizes Councilman Nutter. 305 OPERATING BUDGET & TAX BILLS - 5/10/04
Thank you, Madam Chair. I will try to be brief. Mr. Schwartz, why don't we just do some preliminary stuff. You served on the Tax Reform Commission; correct?
And you voted in favor of the findings of the Tax Reform Commission?
Okay. I am trying to understand your response, I believe, to Councilman Ramos' question that, notwithstanding the report and the documents that came over in Volume 2, which reflect the work of the Commission in its most technical aspects, the actual proposing of legislation, why did you respond that you thought that the Commission was proposing or you thought the 306 OPERATING BUDGET & TAX BILLS - 5/10/04 Commission was proposing one-year rates for the wage tax -- I'm not sure what you said about the business tax -- as opposed to a ten-year or so schedule? Why did you say that?
Well, if that's the way it sounded, that's not what I said, or meant to say. Clearly we proposed a ten-year structure. The question is whether or not for both. And that's what made it in fact both the ten years that made it socially and fiscally responsible, and the ten-year decline in the tax rate is what we favored. The issue here is whether we locked the city into that set of recommendations in the first year of the program. And we did not, in my judgment, have a serious discussion about that.
Well, I think you know, as a former member of this body, the simple answer is, no; right?
Well, not if you pass the bills. I think you made a very -- I think 307 OPERATING BUDGET & TAX BILLS - 5/10/04 the other side of it in your exchange --
Is there something that -- let me finish my question. Is there something in the bill that the Tax Reform Commission wrote such that, if the bill is passed, it can never be changed?
Yes, of course a bill 13 can always be changed. The question is, as a practical matter, do you put the city in future -- this group of elected officials or some future group of having to undo a tax reduction that existed by law.
That's what's in front of us right now, Mr. Schwartz. There is a bill in front of us right now that would interrupt the current five year wage tax reduction that is in place by pushing back the proposed reduction that is by law scheduled to take place on July 1, 2004, and 308 OPERATING BUDGET & TAX BILLS - 5/10/04 pushing that back to January 1, 2005. So, again, I think the very simple response is, is that you can have a one-year schedule, a five-year schedule, a ten-year schedule. If or people decide, based on 8 new information or circumstance or whatever 9 the case may be, that they want to interrupt 10 the schedule because things might not be going 11 in the direction that our good advisors, 12 including yourself, have advised us is the best course for this city, then there is nothing to stop us from taking a separate action; correct?
Councilman, it is a nice argument. I sat here on this Council --
We are having a factual discussion. This is not a theory.
There is no question at all that, as a fact, you can undo what you have done. None. 309 OPERATING BUDGET & TAX BILLS - 5/10/04
But I have seen this government go bankrupt, and that is an overriding consideration for me.
I don't think we actually technically went bankrupt. We certainly were on the edge. But we don't have to quibble about a couple hundred million dollars.
You were at the tail end of it. I was here when it actually happened; right?
Well, actually, I was in the Mayor's cabinet when it happened, over a three-year period.
Right. Okay. Well, I think we started to try to fix it in 1992.
Whatever "it" 310 OPERATING BUDGET & TAX BILLS - 5/10/04 may have been. Then we started reducing taxes in 1995, much to the amazement of people here in the city. All I am saying is, you were on the Commission. The Commission made a recommendation. You gave us a schedule. We introduced the bills as they were written. You signed off on them. And I was perplexed by the response. Maybe I heard something differently than what you said. That somehow by supporting the legislation, we were locking ourselves into an irrevocable situation.
Irrevocable definitely would be too strong, but a situation that would be difficult to reverse. And the tone of the discussion that we had about these rates was one that said, you could go year to year, take a look and see how you were doing. And, frankly, I wouldn't have even been as concerned about this as I became, as I looked at what's just happened with the rest 311 OPERATING BUDGET & TAX BILLS - 5/10/04 of the city budget over the last five years and what's gone on here.
Councilman Nutter, your time has been up. So if you don't mind holding your question for the next go-around. Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. My question in many ways is a followup to Councilman Clarke. So how or why did you arrive at ten years? How or why did you arrive at a fixed rate of 3.25?
I think we felt the rate, the end game, was what needed to be adopted, ultimately, to make the city competitive. The ten-year timetable was in order to make it socially and fiscally responsible, that you weren't trying to do it at all once. 312 OPERATING BUDGET & TAX BILLS - 5/10/04
And did that at the risk of not building in language that at least responds to the financial conditions of those times. I mean, yes, we can change a law after we put it in play. But is it not possible to put language in legislation that forces benchmark reviews over that ten-year period?
Well, as a legislative matter, that's something I don't know. I am merely saying that what we recommended, we were asked not, in effect, to look in any detail at the spending side of the budget; we were asked to produce a blueprint for what a decent tax system would look like and a plan to get there within the structure of taxes. We did that. And I support what we did. And I think that, apparently, so do a lot of other people. But now we are facing a real budget. And what is the impact of any of that on the 313 OPERATING BUDGET & TAX BILLS - 5/10/04 spending side? And, as I say, I'm not even walking away from that. I am saying I am prepared to spend a lot of time on the spending side of this to see what can be affordable. And the fact that we are spending $288 million more over the next five years just for pension contributions, or $173 million between 1998 and 2004 in police and prisons, suggests that our timetable is, you know, not crazy. We have done this before. But for me, at least, you have to deal with that side, and that's what I intend to try to do. Because I support everything here. And if I thought it wouldn't unbalance the budget, I would vote for every single thing here right now. But I think that you have to look at that and figure out between now and next year, see, what we can do to, you know, deal with some of these other things to get a spending plan that's parallel to the tax plan.
One final 314 OPERATING BUDGET & TAX BILLS - 5/10/04 question, just so that I am clear about this chart. And I will offer my editorial comment. I believe your testimony is well done with regards to the charts. The prison and -- prisons and -- you are putting that on the safety or services?
Thank you. Thank you for your testimony. Thank you, Madam Chair.
Thank you, Madam President. Madam President, I thought I was through, but I had to respond to the whole question about the fixed tax reduction in the ten-year. It reminds me of last year, when we had a similar discussion, when we were locking ourselves into tax reduction on wage. And, in all fairness, that people thought that if we 315 OPERATING BUDGET & TAX BILLS - 5/10/04 suspended the Five-Year Plan, early on we were talking about the Five-Year Plan in terms of the wage reduction, people thought that we were talking about raising their taxes. During the course of the debate, and I know we are not -- nobody in here is running for president, I hope not. During the course of that debate, there is this whole notion that somehow if President Bush's tax cuts are suspended, that that will in fact be a tax increase. I look back here, and the lady had the sign up a little earlier, "Don't Raise My Taxes." Where is that sign? (Applause.)
"No Tax Increase." And I didn't get the sense that we were here to raise anyone's taxes. My concern, that if we pass a bill 21 that locks ourselves into a five or ten or whatever, our ability to stop that reduction will require a bill, and that bill will be characterized as a tax increase. Technically it will not be. 316 OPERATING BUDGET & TAX BILLS - 5/10/04 But our understanding of the nature of the way things are around here, there is no 4 way in the world that you will tell me that that will not be characterized as a tax increase, because we have a person now in here with the sign asking us not to raise their taxes. And that, my understanding, is not what we are looking to do. So as we have this debate, I am just concerned that the characterization of the public will be such that, you know, we are attempting to cut the taxes. And subsequently, if we knock ourselves into -- and I know I am not asking a question. But, subsequently, if we lock ourselves into a ten-year fixed tax reduction program, that if in fact we try to alter that particular proposal, it will be characterized as a tax increase. So I am just speaking from experience in my limited time here in this Council, and my limited time in politics.
I assume that the woman that has the sign that you referred to 317 OPERATING BUDGET & TAX BILLS - 5/10/04 is regarding the parking tax increase, I would assume.
But in reality, when we talk about, you know, stopping reductions in taxes, you know, we do get that sentiment out in the communities. It is characterized that way. So I just want to say, with respect to Mr. Schwartz' responses, I agree with him that it will be characterized that way, if in fact down the line we stop that particular reduction program.
Thank you, Madam Chair. Councilman Clarke, I would also say I got one of those calls the other day. And it was from a constituent who was concerned that the proposal to take properties to 100 318 OPERATING BUDGET & TAX BILLS - 5/10/04 percent value would automatically result in a tax increase Because citizens, unfortunately, have not heard a word that the only way that we would do that, or the only way we should do that -- I won't predict what we are going to do -- but the only thing that really makes any sense, if we take properties a hundred percent of value, is to have an appropriate reduction in the millage rate that is comparable to taking properties a hundred percent of value, or the fact that you do have a parking tax proposed increase, which was sent up by the Administration, and at least one other measure, which is the intercept on the -- or, the interference with the current tax reduction schedule. So, I mean, a part of this is probably just a general lack of information that are causing people to appropriately, you know, look out for their best interests. Mr. Schwartz, let me just finally say, with regard to the concern with regard to the TRC's proposal of a ten-year schedule, and 319 OPERATING BUDGET & TAX BILLS - 5/10/04 the pressures that may come as a result of anything that might happen on a year-to-year basis, we are obviously going to continue to have annual budget hearings. We actually get updates on almost a monthly, if not a quarterly, basis from the city controller telling us what's going on with tax collections. The Administration I'm sure is not going to be shy to tell us what's going on in the course of a budget year, not just at budget time, with regard to what's happening with taxes. And I think we need to try to dispel at least some notion that we are just helpless elected officials who cannot make difficult decisions. And I guess notwithstanding what anybody might think about us, you know, it is not like we are lemons or that we are just completely stupid. If we put a plan in place and if for some reason things go awry and are not going in the right direction, I at least have enough 320 OPERATING BUDGET & TAX BILLS - 5/10/04 confidence that the members of this body, in conjunction with the Mayor, if we really needed to do something, we would do it. Now, many people were concerned when we put the first series of cuts in place over the years or even went to the five-year schedule. The fact of the matter is, in the Five-Year Plan or any other document that anybody else wants to produce, even with the incremental cuts in the wage tax, wage tax revenues have been up every year since we started the reductions. So we have had lower rates, continued exodus of people out of the city, loss of jobs, and everything else that goes with it, and at the same time wage tax revenues have continued to climb somehow, notwithstanding what's going on in Philadelphia. So I think that we have been very responsible. We will still look at this on a year-to-year basis. And if push came to shove and something was sending us into some kind of 321 OPERATING BUDGET & TAX BILLS - 5/10/04 tail spin, I don't think that the members 3 of this body are going to sit around and let 4 the whole thing come crashing down because we 5 are afraid to take a responsible or 6 appropriate action. 7 I just have more confidence in the 8 public officials of this city than to go with 9 the conventional wisdom, which is, we will 10 just sit here and let the place burn up 11 because we are afraid to make some tough 12 decision. 13 And if we need to explain something 14 to our constituents, I think all of us are men 15 and women enough to be able to do that. 16 So I do appreciate the work of the 17 TRC.
I think it should be noted for the record, the work that you are now trying to do on the spending side -- and I think that there is work to be done on the spending side -- if the Tax Reform Commission, which was initially empowered to look at those issues, if it had been able to look at those issues in the final legislation that was passed, maybe we wouldn't be having some of this theoretical discussion. 322 OPERATING BUDGET & TAX BILLS - 5/10/04 Because you had people who spent a whole lot of time, and a significant amount of taxpayers' dollars, who I think were willing to look at both sides of the financial ledger.
And now find 13 themselves placed in the position that they 14 were asked to do the job, they did the job 15 that they were asked to do; but since you didn't come up with the other answers to the other questions, somehow the credibility of the work is being questioned, when you were going to be empowered to do that in the first place and the Administration requested and demanded that you not be able to look at the same information. So, I mean, you can't, again, have it both ways.
All I am saying -- 323 OPERATING BUDGET & TAX BILLS - 5/10/04
I'm here, we were given the card that we were -- we were dealt the card.
And we played them. And I managed to get a revenue committee together that was a little beyond where we were supposed to be. We would have done that. I certainly would have taken great interest in it. And I have had -- I have been speaking out on some aspects of it. I will merely say this again, in terms of facing up to difficult decisions. This year is the year that you have really first time for a long time have to do that. The fact is that whoever is to blame -- and it was not the revenue, it was the spending side -- the city has run an operational deficit every single year since 2001. In 2000 we had a surplus of $295 324 OPERATING BUDGET & TAX BILLS - 5/10/04 million, and now we have a surplus of $13 million. So for five years we have been living off our inheritance, and we have spent it all out. And that is, frankly, not an argument for, you know, being able to come to control. Now, this is the moment where that happens. And my only -- very first economic premise that was advanced to us, that if the city's budget becomes unbalanced and we decimate it and/or we decimate city services, then all of the economic projections that go to tax reform will be thrown out the window. I have no problem. I would love to see, wake up in the morning and see in fact that this Commission has accepted every single one of our recommendations, at least in relation to this year. But if you have done it without taking the money out where it needs to be, then we are in serious trouble. And that's my only goal.
The Chair 325 OPERATING BUDGET & TAX BILLS - 5/10/04 recognizes Councilman Goode for a point of information.
Thank you, Madam President. Mr. Schwartz, just following up on what Councilman Nutter was talking to you about. You were the former Chair of the Tax Reform Commission; is that correct?
And you served in a similar capacity with the 21st Century Review Forum on the tax review committee?
What do you view as the intended outcomes of those two processes?
To create a blueprint for what a decent tax system should look like. I parallel it to --
To reform the tax structure, but to reform the tax structure for what outcome?
Oh, to make the city 326 OPERATING BUDGET & TAX BILLS - 5/10/04 economically competitive.
Well, by reducing the cost of doing business to make this competitive with other counties and other parts of the businesses --
I guess my question is, that my assumption was, we were looking to reform a tax structure to retain the residents we have, and to retain the businesses that we have, and to attract new residents, and to attract new businesses.
Therefore, we are asking businesses and residents to make long-term decisions; is that correct?
So how can we ask businesses and residents, those that are here, those that we want to come here, to make long-term decisions, if we are not willing to make long-term decisions?
I think we should. 327 OPERATING BUDGET & TAX BILLS - 5/10/04 All I am saying is that there are two sides of the ledger. There is one that has to do with taxes, and the other has to do with spending. The long-term decisions have to be made in those directions.
Allow me to change the use of terminology and not use the word "decisions." How can we ask businesses and residents to make long-term commitments, if we are not willing to make long-term commitments?
Well, but then the long-term commitment, I come back, has to be done on the tax and spending side. I am perfectly willing to say -- in fact, I got through the 21st Century committee, beyond the tax group, a specific statement that we should set a goal of reducing the number of people in the Philadelphia prison from about 7,800 now down to 6,500, I would say within the next four years. I would like to see us make a commitment to reduce the number of people in 328 OPERATING BUDGET & TAX BILLS - 5/10/04 the police department from 6,900 down to 6,100, where it was in 1992, by developing a strategy that reduces crime. Now, I am prepared to set that up as a parallel to tax commitments. And if you come out with that, I mean, Administration may not agree with it, but maybe there is some other way of doing this. I am saying, you can't make a long-range tax commitment without some mechanism to discuss how you deal with the spending side of the government.
I understand the point you might be making that says that we should do tax reform, but we should also make sure that we are enacting budgets that allow us to do it in a responsible way. But I am very concerned with the fact that, at the same time, you seem to be watering down your commitment to long-term tax reform; when at the same time the purpose of it, the outcomes I believe that we are trying to achieve, is to ask other people, those businesses and residents that are here and 329 OPERATING BUDGET & TAX BILLS - 5/10/04 those businesses and residents we want to come, to make a long-term commitment. And worst-case scenario, we make a long term commitment to try to keep businesses and residents here, to try to attract new businesses and residents. At some later point we have to change that commitment. Worst-case scenario is, we have already attracted businesses and residents here and kept businesses here by making the right long-term commitment.
Well, I think the core long-term commitment that a government needs to make is that it will be a good government and beneficial for the city, and the services this it provides will be seen to be worth the money that it is paid on it. That's the core commitment. And taxes is one part of that, yes. But the real commitment needs to be that we are going to have a good government that works over a period of time; that is affordable and competitive, but also delivers the services. 330 OPERATING BUDGET & TAX BILLS - 5/10/04 So you can't isolate it, even in the question of a commitment, even from the question of a commitment. And this government has been voting deficit budgets for five years. That's the bottom line here. We have gone from $230 million to $13 million. And if any family's finances were analyzed that I had $135,000 inheritance in 2000, and I am down to $8,000, and I still have a retirement fund, they might question whether or not you've got it together and under control. So I am for the whole Tax Reform Commission agenda. I am for implementing it. However, but then I am also for being disciplined about the spending side. And this Council, by the way -- I mean, the problem is that Council does not have operational authority over departments. I understand that.
Let me end with this. Let me say that in terms of economic 331 OPERATING BUDGET & TAX BILLS - 5/10/04 vision for the city, I believe it does begin with keeping your fiscal house in order. But there has to be an economic vision beyond just the public sector.
And what we are talking about is how we get the private sector businesses and residents to invest.
And this is really about investment and growth. It is not just about government budget priorities.
I agree. And all I am saying is that the very first argument that others on the economic side --
Mr. Schwartz, you are going to have a little more concise with your responses. We have had people waiting since early this morning, and I would really like to go forward. 332 OPERATING BUDGET & TAX BILLS - 5/10/04 Councilman Nutter, are you completed with your questioning?
Thank you. Thank you very much. Are there any other questions or comments of this witness? Thank you all very much. Thank you, Mr. Schwartz. - - - 333 Whole - 5/10/04 - Bill 040313
Please identify yourself for the record. REV. EDWARDS: I am Reverend Bruce Edwards, and I am the President of the Urban Leadership Council.
Please proceed with your testimony. REV. EDWARDS: Yes, ma'am. Good afternoon. Again, it is always a pleasure to come before you.
Reverend, just a moment, please. The noise level is really much too high. Let's give the witnesses respect, please. Thank you. REV. EDWARDS: It's always a pleasure to come before you to add our voice to what we believe to be critical issues facing our City. In that we did submit our testimony, I will try to jump around, and at least make some of the key points that we feel should be made. First of all, we testified several 334 Whole - 5/10/04 - Bill 040313 times on this issue, one being February the 24th, 2004. And in that testimony we talked about the number of organizations and businesses that had come together in 2002 and began to work on this entire matter of tax reform. This was a diverse constituency and forged a bond that has remained strong and committed to achieving in a very real way tax reform for our City. I am one who always has a problem when history is ignored, and when those persons who sacrificed time and energy and resources are not given credit and respect for the roles that they have played. Let us also be reminded that the Mayor signed the Wage Tax legislation, after we won that victory, with great fanfare, and then took credit for lowering taxes that next election cycle. On May 15, 2002, the ULC submitted and provided oral testimony at hearings called by this body in reference to the establishment of the Tax Reform Commission. 335 Whole - 5/10/04 - Bill 040313 Although at that time we had some reservations about the Commission, and we stated our reservations, we didn't want to see a commission established that just would be a commission whose work was done and then was put on a shelf. Well, thank God, that did not happen. The Commission was a good one. It was a responsive one. It produced three documents that made a whole lot of sense to a whole lot of people. It then became 13 Bills that you are considering now. I had an occasion to speak to some citizens in your caucus room earlier in the day while we waited to get an opportunity to speak to you. And they said to me, would I do something for them in my testimony today. First of all, would I tell you the truth? And I told them, I always try do that. But they wanted you to know that 336 Whole - 5/10/04 - Bill 040313 they as the citizens were fully aware of what this whole thing of tax reform was all about. It wasn't too big for them. It wasn't too complicated for them. They pay the taxes. They're fully aware of the Business Privilege Taxes, in the way that impacts their City. They are aware of the Gross Receipts Taxes and what that does to our City. They're aware of the Wage Taxes that are far too high. We are, in fact, besides New York, the highest taxed city in the country. The time has come to do something about it. We can study it some more, quibble about it some more, play politics with it some more. I asked you the last time I was here, don't play politics with it. I even suggested to you that if you did, consequences would come to bear. Now, sometimes people look at me as if I'm crazy. I might be. But I think I'm just a passionate citizen who has some understanding of what leadership is all 337 Whole - 5/10/04 - Bill 040313 about. And what we're really talking about here is leadership, leadership from the Mayor and leadership from this legislative body. I understand one minute the Mayor's for a land value tax; the next minute he isn't for a land value tax. I don't know what the Mayor's for. He's going to close some recreation centers over here, and then he changed his mind and he's going to close them over there. I mean, let's get real. You have a budget to pass. That budget has to deal with the 13 bills that represent the work of the Tax Reform Commission and the will of the citizens of Philadelphia. That's what the citizens are asking for. They support tax reform in its entirety. They don't want it picked apart. I'm incensed.
I can't even believe that there are some people who were on the Tax Reform Commission who now come before you 338 Whole - 5/10/04 - Bill 040313 and almost tear the thing apart. That's sabotage. That's the kind of thing that we say we weren't going to do. We weren't going to play politics with this. And that's the worst kind of politics I've seen in a long time. ) REV. EDWARDS: The land value tax is very important to us. Land value tax isn't that hard to understand. It's being used all over the world. You tax not what's on the land. You tax the land. It will give an impetus for us to get some real economic juice flowing in this City. The slumlords are winning now. They have buildings that sit there and deteriorate and deteriorate and deteriorate, and they're the ones getting the tax benefits for ruining the City. ) REV. EDWARDS: Then why don't we change that formula? And why don't we give the tax breaks to the hard-working people in the community who paint their homes and 339 Whole - 5/10/04 - Bill 040313 need new chimneys, and the other kinds of things to make the City the kind of City that we want. Land value tax would lower their taxes. Give the citizens a break for a change. ) REV. EDWARDS: You guys... Recently you guys gave yourselves a raise. You work hard. We didn't quibble too much about it. We didn't like it, but we didn't quibble too much about it. You got your raise. But what I'm sitting here saying to you, give the citizens of the City a tax break through the Tax Reform package. ) REV. EDWARDS: That's what we're asking for. Not asking; we are demanding it. We're telling you that if you don't do it, we're going to do something about you. ) REV. EDWARDS: That's what we're saying. If you don't do it... We are a city of citizens who are no longer afraid of controversy. We're no longer afraid to 340 Whole - 5/10/04 - Bill 040313 come back here and tell you like it is. VOICE IN THE AUDIENCE: That's right. ) REV. EDWARDS: Because that's how we feel. That's how we feel. We're not new people here. This is our City, born here. 5 million people. We now have half that many. VOICE IN THE AUDIENCE: Yeah. REV. EDWARDS: We ought to be ashamed of some of the things that we've done to let our City get in the condition that it is. Now, you know I get taxed. And I heard the bell. I want to be... you know, follow the rules. But we really should get past playing politics with this tax reform issue. And ya'll ought to have the guts enough to pass it in its entirety. And if the Mayor vetoes it, you ought to have the guts enough to override the damn veto. Thank you very much. ) 341 Whole - 5/10/04 - Bill 040313
Thank you. Are there any questions of the Reverend? (No response.)
Reverend, thank you so much. REV. EDWARDS: Thank you. (Applause.)
Our next witness. MR. McPHERSON: The next witness is a panel. Bill Miller, Brett Mandel, David Thornburgh, Sharmain Matlock-Turner and Bruce Crawley.
Okay. Mr. Miller, please identify yourself for the record and proceed with your testimony.
Good afternoon, Madam President, and good afternoon members of Council. My name is Bill Miller. I'm Chairman of Philadelphia Forward. And along with me this afternoon is 342 Whole - 5/10/04 - Bill 040313 our treasurer, my executive committee -- our treasurer Sharmain Matlock-Turner; the President of the Greater Philadelphia Urban Affairs Council. UNIDENTIFIED VOICE: The Coalition.
And the Coalition. I'm very sorry. And our Secretary, David Thornburgh, Executive Director of the Pennsylvania Economy League, and our Executive Director for Philadelphia Forward, Brett Mandel, who I'm sure many of you have heard from recently... (Laughter.)
Via e-mail. And we have many of our research members with us, in particular... Is it Jodi Bagwell is here. And we have Kevin Gillen whose mother came down from Boston for Mother's Day, and understood that she had this great opportunity of watching our form of tea party. So, she decided to stay over a day with Kevin, and to see that Kevin's here to answer any of our questions 343 Whole - 5/10/04 - Bill 040313 with regard to real estate tax.
Where's Kevin's mother? Maybe we can recognize her?
There she is. Okay. We come before you to support the bills 04009 through 04021 which would implement the recommendations of the Tax Reform Commission. And I imagine I have a lot to say, but I've never stuck to a script. And since time is short, I'll abandon it, by simply saying that we put tireless hours. And this is the essence of what I consider to be a democracy, citizens giving of themselves for something that they believe in the City that we love, and doing it at our own expense. And this is the actual sum total of that endeavor. 344 Whole - 5/10/04 - Bill 040313 And I can simply say to all the members of Philadelphia Forward, as well as our Advisory Committee, of which, quite frankly, AFSCME, Philadelphia Council, was, in fact, a member. And we held countless hearings, and any of them could have attended. So, we were certainly inclusive and not exclusionary. But I want to thank all of them for their work to get to this day. And I thank you for giving us an opportunity to speak to you about this critical issue of tax reform. Moving quickly to the issue, we have brought before you... We have two posters. And they say to you what we think is the essence of our problem. Those posters represent a study done by the Cosemont Institute. And what they in essence talk about is the cost of doing business. They surveyed 315 cities in the United States. They extracted 20 cities, 345 Whole - 5/10/04 - Bill 040313 the top 10 cities which are the most costly to do business and the 10 cities which are the least costly to do business. And regrettably I report to you -- And this is a national publication. Philadelphia has distinguished itself again. We are number one in red the most costly city in the United States to do business, as it relates to taxes, fees, and other areas which I find almost incomprehensible, is how we have spent money. And our business leaders are out promoting -- I think it's called Select Philadelphia around the country -- with advertising dollars to tell people Philadelphia is a good place to do business. Well, we simply think -- And the Administration, I think, gave a million dollars or so, which is a pittance in advertising dollars, but did in fact do that, to Select Philadelphia to convince people that Philadelphia is a good place to 346 Whole - 5/10/04 - Bill 040313 do business. Well, if you invested that money, time, energy and leadership in tax reform, Philadelphia would be a good place to do business. So, quite frankly, as I read that article -- and we present you with that publication -- it simply says to me that, as I think one of the members of the Administration said about PGW to Councilman Goode, dealing with PGW in terms of its finances, we had to do it. It was not an option. And I'm suggesting to you today: Not to do tax reform for this City to move forward is simply not an option.
David Thornburgh, Executive Director, Pennsylvania Economy League. It's my pleasure to be with you again today as well. Also in the interests of time, I'm going to depart from my prepared remarks. But I did want to say just a few things, to support again the notion of why we're here 347 Whole - 5/10/04 - Bill 040313 and what consequences I think passing the Tax Reform Commission's recommendations can mean to this City. Just, again, as a reminder about where we are as a City, Philadelphia has a very unusual and unfortunate place in the realm of tax structure and tax burdens. We have high burdens. And they're very different, in the way they're constructed, from other cities. For a resident of Philadelphia at the median income of $47,000 a year, you pay $2,400 a year more in state and local taxes in Philadelphia than you do in our suburbs. And if you think about what $2,400 buys, in terms of SEPTA, car insurance, community college education, it's just a huge number. And that, I think, in and of itself explains much of the choices that people have made over time. From a business standpoint, Bill 24 pointed out some of the national press that we're now receiving. We've known for some 348 Whole - 5/10/04 - Bill 040313 time -- I can find you studies from the early 1980s that pointed out, depending on the business, that a business located in Philadelphia would pay anywhere from 6 percent to sometimes 120 percent more in 7 Philadelphia than in the median suburb. 8 As long as that continues, I would 9 suggest -- And I think it reflects the 10 conversation here today. As long as that 11 continues, we are going to have a very, 12 very difficult time selling the charms and 13 the assets of this City. 14 Point's been made that no amount of 15 marketing dollars can sell an inferior 16 product. And I think it's to improve that 17 product that this tax reform proposal is 18 all about. 19 And to bring it back to its 20 essence -- This point was made earlier. This is about jobs. This is about a city that has desperately struggled to hold on to and to create new jobs. This is a proposal that, far more than anything that I've seen in any 349 Whole - 5/10/04 - Bill 040313 five-year plan, far more than in any of the hundreds of millions of dollars of targeted investments that we think we've made over time, this is a set of proposals that promises to create jobs, by influencing not one big choice that some developer's going to make or some sports team, but by influencing literally millions of decisions that small businesses and investors and big companies can make over time. And I think, when all is said and done, that's the only and also the best hope for creating jobs in this City. And again, I would refer you back in the Commission's work to simply the magnitude, the promise of jobs that these proposals hold. This is not in the hundreds or the tens, but in the thousands in the even tens of thousands over time. So, again, I'm glad to be here with my colleagues from Philadelphia Forward. This is a new organization, set up by two former members of the commission with the help of Sharmain and myself, to advance 350 Whole - 5/10/04 - Bill 040313 this agenda, and we hope other agendas in the future. Thank you very much.
Madam President, Brett Mandel, Executive Director of Philadelphia Forward. I, too, will go off script because Lord knows, you don't need to hear more from me because you've heard a lot from me in the past few years. In fact, I wish I could say that I knew what exactly would be to sway the members of this elected body because I have come before you before and produced reports. I have worked with the Tax Reform Commission. I have produced lots and lots of things to say that I hope would have been convincing. Frankly, I will stop speaking because the organization Philadelphia Forward was created to create a new voice in the system, and I hope you have seen 351 Whole - 5/10/04 - Bill 040313 that new voice. I brought my own collection of the e-mails that have been printed out. There's about a thousand e-mails in that box. They came from folks all across the City of Philadelphia, from every Zip Code across Philadelphia. And believe me I know that because I logged in every single one of them, and can give you a breakdown of the Zip Code any time you'd like it. You've gotten phone calls, you've gotten post cards, you've gotten letters. These are letters and post cards and faxes and e-mails from real people. Earlier today the chamber was packed with real people. Philadelphia Forward was created so that you will know that there are real people behind these issues who care about these issues, who write these e-mails, who take a few moments of their time to say: This is who I am, this is where I live, this is what I feel, and press a button. Yes, their tax reform is a very, 352 Whole - 5/10/04 - Bill 040313 very serious issue. And I can walk you through the nuances of our plan. Obviously, I'm here to answer any of your questions. But again, if I knew the words to say that was going to convince you, I would have already said them over the last five years. I will continue to provide the voice for these people, and provide the voice for the people who showed up this morning and stayed as long as they could, and answer any of the questions you have today.
Thank you very much. It's a pleasure to be here today. And again, I will certainly have, as a part of my written testimony -- I'm sure you'll have an opportunity to take a look at it. But I really am here as a citizen of Philadelphia, to lend my voice to the support of the Tax Reform Commission, and to lend voice to those who I think are the ones who are really suffering the most in 353 Whole - 5/10/04 - Bill 040313 the economy that doesn't create opportunity. And those are people at the lowest end of the economic stream in our City. Those are the people who cannot leave. These are the people who are here looking for opportunities, looking for jobs, and can't find them because we are not a competitive environment bringing more opportunity in. Quite often we see people having to go hours outside of Philadelphia in order to be able to find jobs because the jobs aren't right here. Yet we look at those same people. We wonder how are they going to be able to take care of their children? How are they going to be able to show up at our schools? How are they going to be able to really play a part in civic life in Philadelphia, if, in order for them to be able to work, they really cannot find opportunities. And yes, these people clearly need expanded City services. But how is that 354 Whole - 5/10/04 - Bill 040313 going to happen if we aren't figuring out a way to expand our tax base, to bring more people in and to bring more businesses in, in order to be able to create the kind of dollars that are needed in this town so that we aren't every year talking about what is it that we have to cut and what is it that we have to cut. I say that tax reform is about creating jobs. And we need to be able to create jobs for those who are most in need. And those are people in our communities who really cannot afford to or cannot find some other place to go to and leave our City. Thank you.
Thank you. A number of Council people want to be recognized. Again, I would like to remind you all about the amount of people that are waiting to testify. So if you could be as brief as possible, I think we'd all appreciate it. At this time the Chair recognizes Councilman Goode. 355 Whole - 5/10/04 - Bill 040313
Thank you, Madam President. Good afternoon. You state in your testimony and even report today that there's a need to pass all this as a package. And I might be inclined to do that, even with my own votes. But within the Tax Reform Commission reports and within some of the tables assembled and support documents, you loop together some of the revenue loss. And I'm particularly interested in, though I might support all the business tax proposals, how you break down that revenue loss, $236 million figure over five years, with regard to Bill Number 10, Bill Number 12, and Bill Number 17.
We talk about the package as a complementary package, as you mentioned, because we do think that it's three-legged stool. You need to dramatically reduce the Wage Tax, incrementally eliminate the 356 Whole - 5/10/04 - Bill 040313 Business Tax, make the real Estate taxes fair. The recommendations work with each other, and they also have a dynamic effect against each other.
And inclined to support the Business Tax proposals. But there are, I believe, separate costs, in terms of Bill Number 10, Bill Number 12 and Bill Number 17. I'm interested in knowing specifically what those costs are.
There are different costs for each of those bills, and then there's an additional different cost when all of those bills are together. Our staff can help you out with some of the different costs; but, for example, if you allow partnerships to deduct payments to partners against the BPT liability but don't cut the wage tax? It actually costs more, because when you're 357 Whole - 5/10/04 - Bill 040313 cutting the Wage Tax, you are reducing the Net Profits Tax that gets cut --
Mr. Mandel, I'm not asking for the philosophy behind how they work together.
I have a pen in hand actually looking for answers, in terms of what the bills cost separately and/or cost together. I just want to know the costs.
Jodi, do you happen to have the numbers with you? (Unidentified woman speaking privately to Mr. Mandel.)
Off the top of my head, the single sales factor, as I recall, is about $10, $13 million. The net --
I don't believe I was dealing with single sales factor. I was dealing with the elimination of the Business Privilege Tax, dealing with the partnership bill, and dealing with the carry forward bill. 358 Whole - 5/10/04 - Bill 040313
The BPT bill has no 3 cost in the first year because we mirror the Administration's --
We have... While she looks... Because we designed it as a package, we also costed it out as a package. The spreadsheets that went behind it, in terms of this bill, would cost this --
Are you trying to tell me you can't break out the costs?
I'm actually stalling -- I'm actually stalling for time while she looks for it.
I'll be happy to sit quietly while she looks for it, too. I can sing very low.
Why don't you 359 Whole - 5/10/04 - Bill 040313 recite one of the tax reform limericks?
While she's looking for that, we'll get that information for you.
The best one that was played out on the air today was: There once was a man from Nantucket who never was taxed on his bucket. Then he came to Philly where he was taxed willy-nilly. And he decided to move home and say... I'll let you fill in the... (Laughter.) (Applause.)
Maybe someone else. I'm sorry. 360 Whole - 5/10/04 - Bill 040313
Madam President, I have a point of information to the Councilman to discuss, regarding Bill 5 12, if I may.
Point of information with regards to Bill 12 while we wait for the information. Can you just tell us why or how the City ended up at a place where small businesses and law firms, the disparity with regards to the taxing of the small businesses and law firms, and why we want this bill to sort of even out the treatment of small businesses? Because on its face it appears to favor law firms.
Well, it favors... sole proprietorships and partnerships. In addition to law firms, of course, it favors the corner grocer who is a sole proprietor. 361 Whole - 5/10/04 - Bill 040313 God, I wish I knew why it was that our tax structure is like this. In my office I have clippings from 1939 when we put in place the Wage Tax. And you can read the arguments: This makes sense; this doesn't make sense. It's hard to imagine a tax structure that would be designed like this to chase away businesses and residents from the City. I wish I had more institutional memory. David, I would defer to you. Any institutional memory of why it is that we have chosen a tax structure like this?
Councilwoman Brown, if I may respond simply, that your question, as it relates to this tax package, is more than appropriate, particularly as it relates to small businesses. What I was -- The reason I was motivated to join the Tax Reform Commission was precisely that. It was a tax structure that was not only insensitive and inflexible, as it related to small business. 362 Whole - 5/10/04 - Bill 040313 I happened to be reading some national publications. And what they did was, they projected into the foreseeable future in this country the greatest growth area in business where it was small businesses. So, by looking in this City -- And we have small businesses. And let's put a face on it. The mom and pop stores, the grocery stores, our small consulting firms, all the other entities that are small business, it seems to me that the thinking in this and previous administrations were to discount those where your greatest areas of growth happened to be. So as a result of that, if nothing else, we fought diligently to eliminate the Business Privilege Tax. If you indulge me just for a second, we have a practice in Philadelphia, and we have a practice where the Administration in fact employed... It was the Business Privilege Tax over your gross receipts. You paid a double payment, the actual 363 Whole - 5/10/04 - Bill 040313 payment for one year, and then a -- the second payment was projected for the second year. What they did not tell these small business people who are all probably umbrellaed [sic] by accounting firms, who just do their tax -- you know, tax reform -- their taxes each year was that there was a potential waiver that one could get, where you didn't necessarily have to pay the second payment. That was sort of obscure. Stu admonishes me that that was not, in fact, an insidious plot. But the end result was, since you didn't know that you had to pay it, these poor people simply paid whatever their accountant told them to pay. Well, the fact of the matter is, the City ended up garnering $90 million in over payments, $90 million that they could invest, that they could get interest from. Now, I happen to have an accountant, and I didn't pay the second payment. I was 364 Whole - 5/10/04 - Bill 040313 still overcharged close to $15,000 on that simple payment. These are small businesses. And the fact that we are insensitive, inflexible to the fact that we only have a growth area, I'm very glad you asked that question because somebody needs to start thinking about small businesses.
Thank you for your testimony. One more follow up. This Bill says over five years, whereas Bill 10 is over ten years. The reasoning behind the different treatment when they both deal with BPT.
As you heard from Gay Bevilaqua, the Chancellor of the Bar Association, of course lawyers and sole proprietors would love to have this phased in immediately. The cost to do it immediately struck us as excessive. We could do it over five years. That seemed not as excessive. But we would certainly try to do this before we 365 Whole - 5/10/04 - Bill 040313 phase out the entire BPT because this is such a necessary component of it.
Okay, then. Thank you for your testimony. Thank you, Madam President.
Thank you. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Good afternoon, everyone. I believe that all four of you were here earlier this morning when I made a statement and a comment; and a question, I believe, was thrown in to the Administration about basically the negative philosophy that we have in this City and have had for a number of years, where you understand the Administration's concern is less revenues, less money to provide City services. 366 Whole - 5/10/04 - Bill 040313 Well, no one looks at the other side of the equation to say, what if we made it a more attractable [sic] City to do business in? Would that create jobs? I happen to think it would. I'm curious, though -- and not to contradict what I was saying this morning -- curious as to how do you come to the number which you come to in your report, 40 something -- 47,000 jobs over a 10- or 15-year period? I'm interested to know how you came about getting that number. Is it by some sort of a formula that you used, based on comparing to other cities? Just explain to us how you got to that number.
Councilman, I won't speak for the firm, but I'll give you some background. The firm E-Consult was retained to provide some insight into that question. We at the Economy League had worked with E-Consult a few years ago on a similar sort of project. 367 Whole - 5/10/04 - Bill 040313 The way the estimate was arrived at is essentially looking in a very, very detailed way at the last 50 years, give or take, of Philadelphia's history, and looking what happened when various changes to the tax structure and tax rates were made, and what effect that had on wages and real estate values in the City. And that information was the same, conceptually the same look that Professor Inman had used to document in his estimate about 210,000 jobs lost to the City of Philadelphia in that time period. So, we simply or E-Consult simply used that as a basis to sort of roll forward into the future. I think that approach has the benefit of kind of the lessens of history. It's also, I think they would say, used sort of the accepted tools of the trade. But it was really... It's really ultimately about how much Philadelphia can compete for growth that's occurring throughout the nation. 368 Whole - 5/10/04 - Bill 040313 Think of it as sort of market share. Are we grabbing more jobs, higher property values or are we losing that to other parts of the country? That's the sort of the top level sense of where that came from. COUNCILMAN DiCICCO: Is there anything in the report that speaks to if we do not do any of the bills that have been recommended, what the continual job loss will be going forward? Can anyone speak to that?
Well, again, I... Again, the easiest way to predict the future is essentially to keep rolling forward the recent past. And I think that's what the analysis shows, is that absent changes, I think as you suggested, sort of a fresh look, a new approach to this kind of policy, that we certainly shouldn't expect anything different than we received over the last few decades. COUNCILMAN DiCICCO: But that's basically -- 369 Whole - 5/10/04 - Bill 040313
That not only makes common sense, but I think that plays out in the analysis. COUNCILMAN DiCICCO: Yeah, I thought so, too. I just wanted that for the record. I just can't imagine for what reason we would see any increase in job creation if we continue to do business as usual. Just don't understand any reason why. And aside from a lot of the great things that the City has to offer, and the cultural institutions, and all those other things which has kept people here -- And we've seen some modest increase in populations, but only in certain sections of the City. My concern is, if we want to continue to see that growth in residential population, which I think we can, the question then becomes: Will there be jobs for those people when they finally move here? And they're not going to move if there isn't a job. 370 Whole - 5/10/04 - Bill 040313 But maybe some of the younger folks think that there's a possibility going forward, but if we don't create the environment to promote people relocating here, to reside here because there's job opportunities, we'll never get to where we all want to be in the future. Thank you. I want to commend all of you for the hard work you've done. And I'm pretty sure I'm there for all, but still I'm not sure on that last one, that land tax. Thank you. Thank you, Madam Chair.
Councilman, I also wanted to add, for those of us who are also concerned about small business development and micro business development, that we also see it's about trying to keep some of the people we have here who are coming here to colleges and universities, to not only make sure that there are jobs here for them, that hopefully what they're learning, they're also going to be creating and growing businesses here and helping to 371 Whole - 5/10/04 - Bill 040313 create opportunities for people already living here. So, it's about trying to create jobs, but also an economic climate so that people will start to develop and grow businesses here, both larger businesses, medium size business. But we're also looking for people in our neighborhoods who are going to be able to grow micro and small businesses there as well, to make sure the climate is there for them. COUNCILMAN DiCICCO: Thank you. Thank you again.
Thank you. Miss Matlock-Turner, is that your role in all of this or GPUAC's role?
I'm just questioning your role. Everyone knows of your reputation, certainly.
And in terms of this whole Philadelphia Forward... 372 Whole - 5/10/04 - Bill 040313
...will GPUAC play a role? Is it another hat you're wearing a part of what you just said to the Councilman?
Yes. Well, certainly we've been doing a lot of work with working families, as you know, the Campaign for Working Families.
Which is a tax effort in trying to draw down federal and state taxes to make sure that low and moderate income people get all of the tax credits that they deserve. I've also been recently appointed by the Governor to a working families task force for the state to, again, look at the high cost of working families, not only here in Philadelphia but across the state. So it's an effort that we've been involved in for the last several years, to really try to make sure that we're looking at every opportunity to make life better 373 Whole - 5/10/04 - Bill 040313 and to really drive down the high cost of being poor in many of our cities, to make sure people get access to as many goods and services and opportunities as can exist.
Thank you. Councilwoman Miller. We'll come back to her.
Are any of you prepared to respond to questions about the proposed budget? Not the tax bills but the budget and some of the budget cuts that have been requested? And I understand if you're not. I mean, that's not your mission here.
We're prepared to talk, Councilman Clarke, with regard to the tax bills that are listed. And we certainly can engage in that dialogue, relative to 374 Whole - 5/10/04 - Bill 040313 their impact. But we were not -- In fact, we were...
Okay. No; I wanted to... And I understand, you know, that's not why you're here. But it will impact the tax bills, in one way impact the budget. One of the questions I wanted to ask you -- And trust me; I understand if you don't answer this one. Do you support the current budget cuts?
Personally, speaking from a -- Philadelphia Forward has not taken a position on the current budget cuts. And I understand that you are 375 Whole - 5/10/04 - Bill 040313 engaged in a budget process which is really a set of assumptions. So I am not hard and fast upon what the outcomes are going to be, because I'm not so sure what the budget cuts are. There are proposed budget cuts that are out there, and so I'm not -- I mean, I don't know what the budget cuts are.
All right. Do you agree with the need that there need to be budget cuts to deal with the existing deficit? And they're -- I know they're moving numbers, but...
And it really depends on whether you're looking at City Controller Saidel's numbers or the Administration's numbers. I heard --
Yeah. I heard some reports from the Administration where numbers are changing even this morning.
You agree that the numbers are large, regardless of who's --
I mean, I think there's a potential deficit. But what I agree more with is that... Two things: I think one, that this government can be more efficient; and, two, I believe that if we don't do something about the environment and climate to bring more business here --
All right. You're not going to answer the question. I'm okay with that.
You're not here for that. Rather than... You know, I'll just go to what you're talking about.
In references in the executive summary, and with respects to recommendation seven also, I get a sense 377 Whole - 5/10/04 - Bill 040313 that a substantial amount of the burden -- and maybe I shouldn't characterize it as burden -- but the revenue that needs to be generated to support some of the recommendations will come from the real estate side. Am I misreading that?
No. Absolutely. There's the suggestion: What happens if we cut taxes? What happens if we make this a more hospitable environment? We grow jobs. More people want to be here. More people want to be here, values rise. If the opposite happens, more people don't want to be here; values fall. We don't want that. We want the other side. We want values to rise.
So the answer is, yes, that a large part of this is contingent upon a substantial increase in revenue from real estate.
There was something passed around today -- I think it came from the Administration -- indicating that the 378 Whole - 5/10/04 - Bill 040313 costs, certain costs of tax proposals would result in that. I mean, we want to be very clear.
If you look at where revenue would come from, in terms of growth in the City, some would come from new jobs. We get taxes from jobs. Some would come from new businesses. We still get taxes from businesses while we phase out the BPT. Some would come from new taxes from increased values on real estate.
All right. Well, can we agree that the increased value in real estate and the changing of the way the real estate assessments will come to fore as a result of the land value tax will be probably the short-term increase in revenue that will help --
-- I mean, I think everybody has to agree that the ability to raise revenue from the jobs is not going to happen tomorrow.
The two shifts that the Tax Reform Commission proposed: One, the change to value of properties at 100 percent, is truly that, just a shift. It would not result in any extra revenue to the Administration, to the City --
The two shifts that the Administration or that the Tax Reform Commission proposes: One, the shift to land value taxation; two, the shift to a hundred percent valuation.
Can you pull your mike a little closer? Because you're talking fast and you're talking low.
We have two shifts 380 Whole - 5/10/04 - Bill 040313 proposed. One would do a hundred percent property valuation which would mean that everybody would be asked to pay a hundred percent of what their property is worth. We would lower the taxes so that the City doesn't bring in any extra money. The other shift would be land value taxation. Some people would be asked to pay more; some people would be asked to pay less. Again, the City wouldn't bring in any additional revenues. So those two shifts --
An individual taxpayer may see taxes go up or down. Another reason why we say these proposals are knitted together because we recognize that some people who maybe have been getting a break on their taxes, if we 381 Whole - 5/10/04 - Bill 040313 go to a hundred percent valuation, might be asked to pay more. Those people would be awfully upset if we weren't dramatically reducing the Business Tax, dramatically reducing the Wage Tax. David.
Councilman, my, I guess, thought on your question is, I wouldn't take it as a foregone conclusion that the property tax would be used to sort of fill that short-term gap. I think -- and again, you can direct this question to them yourselves -- but the E-Consult research on Philadelphia's history suggested that there was a fairly quick response to tax changes coming from the local economy, that in terms of new jobs, and therefore tax revenues. The response was fairly quick. It didn't need to kind of gather steam for 10 or 12 years.
Well, their analysis had taken into account the last 50 years of tax changes, and --
So I'm assuming that you're talking about some time ago because you yourself had indicated in the last several years you have not had any substantive job growth. So utilizing that 50-year period, I'm assuming you're talking about years ago --
Although we have seen revenue growth, Wage Tax revenue growth, even with Wage Tax cuts, since the cuts were first enacted.
As David had suggested earlier, all the E-Consult numbers are in relation to what's happening in national economy. 383 Whole - 5/10/04 - Bill 040313 And one thing that's very instructive, if you've looked at recent five-year plans, they used to include a chart in the five-year plan that showed, as we have reduced our Wage Tax, as we have reduced our Gross Receipts Tax, even though they're small reductions, the gap between national employment and local employment has been narrowed significantly. Now, clearly, if the nation loses 50 million jobs, it's hard for the City of Philadelphia to --
What do you attribute that to? You've said that we lost jobs, but yet there's an increase in revenue associated with the Wage Tax. Is it higher jobs? I mean --
So it's salaries. So it has nothing to do with job growth. 384 Whole - 5/10/04 - Bill 040313
But again, there's also... We didn't lose as many jobs as maybe we would have predicted, had we not made the changes in the Wage Tax and the Gross Receipts Tax.
Well, what is it? I mean, you know, is it... You referenced the fact that we had increased revenues in Wage Tax and tried to imply that it had something to do with the Wage Tax being cut; therefore there were additional jobs created. But then on the other hand, you're saying there were not additional jobs created; there were jobs lost. So, I mean, are you saying here that the incremental Wage Tax, small be it, have encouraged increases in the revenue?
If your job prospects are better, if the job market is better, even if you're losing jobs, if the job market in relative terms is better, then you should have wage inflation. You should have salary growth. 385 Whole - 5/10/04 - Bill 040313 If there is nobody to demand my services in the marketplace, well, there's no pressure on my salary to increase.
But the median income in the City has dropped. Can you agree with that?
Well, that's... Household income and households are... have changed, in terms of composition over time. So, it's not a parallel kind of number, household income and wages. But again, I think we... The value... And I think David Crawford is here from E-Consult. and I don't know if he wants to speak to this, but the value of the E-Consult work is, it looks at the lessons over a long period of time which are going to hold up, I think, better than any sort of two- or three-year period, even though I think the recent experience has been positive, does suggest that there's been a positive benefit to Wage Tax 386 Whole - 5/10/04 - Bill 040313 reductions.
And I'm not disagreeing with that. I agree with you. But you implied... I asked the question about the short-term issue, with respects to revenue reduction on the City's end. That has to come from somewhere.
There's more of a likelihood that that's going to come from the real estate side, if you -- if you -- based on this recommendation, that you have the flexibility to increase revenues on real estate. Right? It's your recommendation. So that increase could potentially offset any reduction in revenue as a result of the cuts, the tax cuts, right, on the business -- on the wage side?
If you're saying that an actual increase in rates, that's 387 Whole - 5/10/04 - Bill 040313 certainly not what's being proposed. The increase in rates is a choice that City Council and the Mayor would have to make itself.
Do you mind? We have a number of Council members.
Thank you. We'll do the next go-around. The Chair recognizes Councilwoman Miller.
Yes, ma'am. Actually, Council President, my light was on by mistake. But I do have a question. 388 Whole - 5/10/04 - Bill 040313
Okay. I heard someone mention that David Crawford is in the room?
I just have a question regarding the property tax increases. And that's a part of one of the tax --
Mr. Crawford, do you mind coming to the witness table, please.
Madam President, we were including Mr. Crawford in our next panel.
I can ask Mr. Miller, no relation to Donna Miller, but a 389 Whole - 5/10/04 - Bill 040313 friend. I guess... Actually, I'm just a little bit uncomfortable. Just need more information about the... I was just sitting here thinking about the projection of the increase in property taxes. And the reason I asked for Mr. Crawford, I know that in 2002 he did a report; just felt that increase in property taxes wasn't feasible. And now it's 2004. And what is the difference? I don't know that they're any more feasible now than they were two years ago. And also, when you take a look at the percentage points that the property taxes will go up versus the percentage points of a wage tax, et cetera, are just for the everyday citizen and not a business, then I don't know how the citizen, everyday citizen, would make out, just in terms of the increase because I think the property tax percentage increase is higher than the Wage Tax. 390 Whole - 5/10/04 - Bill 040313 And could someone explain that to me, if in fact that's not the case?
First of all, I think there might be a misconception. The idea is not to increase the rates of real estate taxes. There's fundamental fairness issues with --
-- real estate tax that we'd like to address, that might result in one person's real estate tax burden going up; one person's real estate tax burden going down. Is that what we're trying to get at?
Well, I think that that is part of it, Brett. I know that the taxation of the land and the one hundred percent -- The one hundred percent assessment, that way.
If I could throw it to Kevin Gillen, who did the research for our real estate panel, to give you an idea very quickly of why that's necessary, I'd be thrilled if you'd find that helpful, and 391 Whole - 5/10/04 - Bill 040313 give an example.
As I understand the question, you're asking whether it's -- why it's necessary to go to the hundred percent assessed value.
What is the... Right now most of the properties are not assessed at a hundred percent value.
Correct. But we pay property tax, we pay Wage Tax. Some of the business people pay Business Privilege Taxes. But right now I'm just looking at plain old ordinary citizen that doesn't have to pay any Business Privilege Tax. So, we pay a three point whatever Wage Tax, and... at least those of us that are working. But we also pay... Is it 50 percent of the property, of the assessment? Or it fluctuates? 392 Whole - 5/10/04 - Bill 040313 UNIDENTIFIED VOICE: It varies.
If we go to a hundred percent assessment of the -- one hundred percent assessment of the value of our property, then that will be for some people a substantial increase, correct?
Not quite. The purpose of going to a hundred percent assessment isn't necessarily to make more accurate per se as it is to remove another layer of complexity of the real estate tax process. Currently, if you want to figure out whether or not you're paying too much or too little in real estate taxes, you take the value of your property, multiply that times point 7, multiply that number times point 32 to get your assessment, and then multiply that number times 8.264 which is the property tax rate. So removing the point 7 step makes it a two-step process.
So why don't 393 Whole - 5/10/04 - Bill 040313 you just take --
Excuse me. Why don't you explain about the millage rate going down?
Well, if you go to full assessment and you want that to remain revenue neutral, then you would presumably have to lower either the mill rate or the property tax rate to compensate.
The Chair recognizes Councilman Nutter for a point of 394 Whole - 5/10/04 - Bill 040313 order.
I'd like to amend that. It's actually a point of information, Madam Chair.
I want to ask for the right thing. Thank you, Councilwoman. Mr. Gillen, this may seem like semantics; but I think, you know, words have meaning. Aren't we really talking about going to one hundred percent of market value?
And you're going to now then be assessed on the true market value --
-- of their home? I want to make sure that we're using the correct terminology. And you're also familiar that if we moved away from the artificial 70 percent 395 Whole - 5/10/04 - Bill 040313 number, which God only knows why we have that number -- but we can put that argument aside -- isn't it, in fact, true that if the BRT could actually figure out what the true market value of a home is, and then we'd have all the other numbers that you just ran through -- Don't take me back through that. One of the immediate results is that the citizen would actually have some reason to believe the numbers on the notice that they get, traditionally now during the summer, that the market value of their home was correct. It will be the responsibility of this City Council -- And there's a piece of legislation in front of us to try to deal with this. We would under any scheme, wouldn't we, in order to have, from a revenue standpoint, revenue neutrality on what's actually raised by the real estate tax. Wouldn't we have to then commensurately lower the present millage rate to match up 396 Whole - 5/10/04 - Bill 040313 with whatever the new assessments are? Isn't that correct?
Okay. So, for the moment -- and I'm sorry, Councilman. It was a long point of information. For the moment we have only half of the information out to the public. If we tell someone that the City is going to go to a hundred percent market value, and all they know is the .824 or the .3125 or whatever that other... .32, rather, those numbers, all they can do presently is take those numbers and multiply them by whatever they believe a hundred percent of market value is, which would then give you an astronomical potential increase in your real estate taxes.
And the reason we can't give people the other half of the question is is because we've not done a 397 Whole - 5/10/04 - Bill 040313 full City-wide assessment. We do not know what one hundred percent market value means City-wide, let alone for the 500,000 some-odd residential properties in the City, and we have not figured out what the appropriate millage rate is, based on the new total assessment for the City, and which would result in a revenue neutral millage rate. Isn't that correct?
So we have one piece of information. We propose to go to a hundred percent market value. And we can not tell people any of the other significant three or other four critical pieces of information that would tell you what your new tax bill is going to be. Right.
Well, that's actually the answer I was looking for. I felt like it would cost people more money. 398 Whole - 5/10/04 - Bill 040313 I thought it would cost our citizens more money. And I just wanted to know if it would or if it wouldn't; and if it would, how much more it might. So, thank you, Councilman Nutter, for answering my question.
Thank you. The Chair recognizes Councilman Ramos.
Thank you, Madam Chair. I have a few questions, but I'm only going to attempt this one on this round here. Again, if you -- I believe all of you were here this morning. I am very pleased with the work of the Tax Reform Commission, that you have taken now an activist role engaging the City, the people of Philadelphia in the great tax debate. I think that's a very 399 Whole - 5/10/04 - Bill 040313 positive thing. I'd like to refer to a group of men that I saw last summer playing dominoes up in North Philadelphia. And when I came up to them, they wanted to talk taxes. And I said, well, that's fine. Because for many years the tax issue of the City seems to have been just discussions that we would have here in Center City, and it was more of the affluent and certain stratas of the middle class, but never -- And I didn't hear people in our poorer communities talking about taxes. So I think it's a good thing. I think that this tax debate is not going to stop on May the 30th, that this tax debate is going to be an ongoing healthy talk among all Philadelphians. The renowned bond rating company, Moody's Investors Services, just put out a special report last week which described Philadelphia's fiscal financial outlook as negative. This is after being on the stable 400 Whole - 5/10/04 - Bill 040313 category, and also that most major cities are on the stable category. Philadelphia again has now shown up as a negative. And we saw that in the early '90s. Now, why is that, in your opinion? Is this because we haven't approved your tax reform package this budget? Or I mean, what do you make of it as tax reformers?
Well, I have not read the Moody's report. But knowing a bit about financial analysis, there are many variables that they take in consideration when they measure the health of the City. They take... One of the intangibles happens to be leadership over time. They evaluate what direction that leadership is taking the City itself. I think they look, obviously, at the charts we brought there. And the City that has the... is the costliest city to do business in. And they look at its potential, in terms of how we generate and attract new business. They look at the business 401 Whole - 5/10/04 - Bill 040313 environment that exists, labor relationships, and others. And that there's many, many, many factors to come to the conclusion of how they project the future health of the City. We look at it a little more myopically. We look simply at it -- And I don't mean simply at all, but we look at it from a tax perspective. We believe very clearly that if we don't do something, and to show others outside of Philadelphia, even the financial institutions, that we are making an attempt to make Philadelphia more competitive and to retain its business, then we think that that outcome that you have just talked to us about becomes more dire.
They state in this article that there are two factors that have given Philadelphia a negative outlook. It says, one, our currently strained financial position; and, two, declining reserve levels. 402 Whole - 5/10/04 - Bill 040313 So let me just ask you this: Isn't it fair to say that enacting the full tax reform package, without figuring out how to pay for it, is just the kind of thing that could negatively affect the City's bond rating?
Because they will want to see, you know, where is revenue going to come from so that we can -- And this process -- I'm not a financial expert like you guys are. But for us to go back to stable, that's a steep climb. And what I am concerned about is, if all these tax reform bills are passed -- again, I've looked at them very favorably -- are we then going to be in a position where we're going to be affected negatively with our City's bond rating?
The credit rating agencies care about one thing primarily: Will we be able to pay our bills.
What they see in the foreseeable future is that we're a City that is declining, and we are trying to spend still a lot of money. If we try to spend a lot of money in decline, it makes it difficult for to us pay our bills.
Are you saying that if we enact all the tax reform bills, that this would not impact negatively on the City's bond rating.
Could you speak into the microphone, please, so I could hear it.
Certainly. The credit rating agencies will certainly have their say, but what we suggest is that with tax reform we have a chance to grow. Short of tax reform, nothing in the City's recent history, nothing in the City's prior history suggests that we are going to grow.
But in the 404 Whole - 5/10/04 - Bill 040313 equation -- And you've made this very clear, that you depend on other factors to make that happen. Let's say that those factors -- Let's say slot machines never -- slots never come to be or they'll come to be maybe later on. And you have taken that under consideration. Doesn't that -- And if that doesn't happen, doesn't that impact negatively on our bond rating?
It could, certainly. There's no mystery to our problem. Right now we're trying to spend a lot of money that perhaps we don't have. We're not growing enough to spend the revenues that we would like to. We can either grow and spend that money into the future or continually find ways to cut and cut and cut as we decline. If we are disciplined right now, we believe the tax reform will allow to us grow into the future. If we are not disciplined to do tax cuts, then we'll have to continue to be disciplined every year 405 Whole - 5/10/04 - Bill 040313 and look at new things to cut.
Yeah, but there's no assurances of that in the bonding, and our bond rating is going to depend a lot on assurances on real dollars that they can pin that and say, well, this City is now moving out of this hole. And that's -- You know, that's -- that's a concern, after taking a look at this report, that I -- that I -- that I -- that I read this weekend, that I didn't see how you took any of this -- You didn't take this scenario, with our bond rating, into consideration. I think maybe this should be something that you guys can take a look at, and see if, in fact, you know, there's a positive out of this. Right now what it seems like to me is that if we do these tax reform bills, according to this report in Moody's, that our bond rating will continue to be considered negative, unless -- you know, unless all these other, you know, factors come about. 406 Whole - 5/10/04 - Bill 040313 And there's no... you know, you have not made the case enough and... or any of us here that all these things will happen. I think we will need to take a look and see hypothetically if any of the support from Harrisburg will actually come to a fact, and there we'll be able to see if we can, again, bring up our bond rating.
Councilman, let me just, if I might, respond to your question. I think it's very important to go back to the sort of the size or the magnitude, the fiscal magnitude of the Tax Reform Commission proposals in the first couple years, and I think ballpark the net difference between the Administration's proposal and the Tax Reform Commission proposal is about $7 million in the first year. Okay? And it plays out in the next couple years. And I'm sure Brett knows the number. I would suggest that these are manageable numbers in the short term. I would also reflect back to an 407 Whole - 5/10/04 - Bill 040313 earlier conversation that says, while this is a long-term strategy in investment in growth, that there is nothing -- I think the Tax Reform Commission understood well that mid course corrections or a correction after two years or after three years, depending on how the balance of revenues and expenditures looks at that time, is absolutely a possibility and certainly well within your powers in working with the Mayor. So, my take on the Tax Commission proposal is, it is a long-term plan that suggests that in order to be competitive, we have to follow the long term, but there are multiple opportunities for corrections and changes. And if the bond -- My understanding -- And I'm... My understanding is that rating agencies are very short-term focused on, essentially, the question that Brett raised: Can you pay your bills today, tomorrow or the next week, and in the short-term. 408 Whole - 5/10/04 - Bill 040313 So, I think that there's a manageable impact right now on the budget, and I think that we anticipate that those jobs and property values will rise in the short term. If those don't come as fast as the proposal estimates, I think that there's also room for mid course corrections.
Councilman Ramos, your time has been up. So, if you don't mind.
Thank you. Mr. Mandel, I believe Councilman Goode asked you some time ago about what the impact be on the three bills. Do you have that information now?
I think we're going to have to get that information to you as soon 409 Whole - 5/10/04 - Bill 040313 as we can.
I think we're going to have to get that information to you at a future date. We've already discussed with staff. They don't seem to have it on them. We'll make sure we get that as soon as we can.
Is it possible that Bill 12 will cost a hundred million dollars?
Again, I don't have any 410 Whole - 5/10/04 - Bill 040313 of the numbers in front of me. If I can recall correctly, I think that, forgetting any dynamic effect, the first-year impact was about million. That's my number. 6
I wouldn't doubt these 9 numbers. Again, I would say that they are 10 affected dynamically -- 11
That's not my 15 question. My question is, if over five 16 years it costs in revenue maybe $236 17 million, and maybe I can accept the package 18 of business tax proposal bills. 19 All I asked you to do was break it 20 out, in terms of Bill 10, Bill 12, Bill 17. If you have Bill 10 or have Bill 12, Bill 22 17, in terms of individual information, you can offer me that information. But it seems that you don't want to offer me that information. 411 Whole - 5/10/04 - Bill 040313 If you have partial information, give me partial information. I want to know the cost of those three bills. Separately; not just as a package. I play vote for them as a package. But you at least owe us that type of information of giving us the cost of those bills. And if you don't have one or two of the bills until tomorrow or Wednesday, that's fine. But if you do have the cost of Bill 12, tell me how much Bill 12 costs.
I will sick Jodi Bradwell on you, and hopefully she can give you a better answer than I can.
And I actually can't give you a direct answer right now for that information, Councilman, but I'll...
I'm sorry. You're going to have to speak into the microphone. 412 Whole - 5/10/04 - Bill 040313
I'm sorry. My name is Jodi Bradwell. I'm a former staff member of the Tax Reform Commission. And I am going to attempt to respond to Council member Goode's question, but I cannot give you the information today. The reason is that we have a lot of spreadsheets. I did not prepare them. And I'm sitting here trying to dig through them, trying to figure what the difference ones are because we have the basic spreadsheet that puts them all together. And when you do these calculations in Excel, what we had to do was, we -- we... To get you the -- To get the figure -- Now, I'm not going to dance around it. I'm going to explain to you why I can't just, like, come and look at this and give you an answer. But we had to take the revenue projections...
If it would be all right with you, can we simply respond to 413 Whole - 5/10/04 - Bill 040313 you in kind, say by Wednesday, to give you that information, rather than sort through it? I think we understand specifically what you asked, the breakdown of the cost of the individual bills.
The additional question was whether you can break down any cost of any bill, not just whether you can break down 10, and 17. 11 But if can you only break down 12 or 12 you can only break down 10, you can give me that. Can you break down anything?
Can I... Yeah, by Wednesday I can give you certain... I'll give you every blessed thing I can get you by Wednesday. I can assure you I... You know, it's...
Did you not know that I was going to ask you the cost of Bill Number 12?
I'll be honest with you. This is a conversation that we've been having since the Commission worked on these numbers: Can we break them down specifically, individually. And we have been working on them. Jodi and I have been trading e-mails. I put poor Judy through heck trying to dig through all the spreadsheets that she has. So, we've been working on it. I was crossing my fingers that we would have you an answer today.
Jodi can tell you we've been back and forth on this in e-mail form. Yes. Yes.
And you will have that breakdown for us by 415 Whole - 5/10/04 - Bill 040313 Wednesday?
Thank you. The Chair recognizes Councilman Cohen.
I just wanted to piggyback on the request of Councilman Goode because I would want to get that information as well, to see how, in fact, this impacts on our bond rating, given that Moody has classified us as negative. Thank you, Madam President.
Excuse me. Madam President, in response to your request, 416 Whole - 5/10/04 - Bill 040313 Councilman Ramos, we'll do our best as it relates to Councilman Goode. But I must add that the Tax Reform Commission has been disbanded and its staff has been released. And never at any point during our relationship was the Tax Reform Commission responsible for financial analysis, as it relates to those issues. We will certainly endeavor to make those queries. As far as Councilman Goode's question with regard to specifics in our tax reform package, we will do it as volunteers. We'll work diligently to get you that information on Wednesday.
Madam President, point of order. I understand the dilemma of the group forward. But if they're engaging us to approve all these tax reform bills and their recommendations, we need to know how much all of this is going to cost. I think it's only fair. We've pressured the Administration to give us more information. 417 Whole - 5/10/04 - Bill 040313 They finally, at least in my view, gave us a little bit more information this morning. At least I was able to understand and get a clearer sense, I think, at least for today, where they're at. I don't know. If you cannot -- If the forward group cannot provide us with that, maybe this is a point where we engage the consultant, Crawford & Company, to assist us in getting those numbers because how can we -- how can we entertain the possibility of voting on all these bills if we don't know how much it's going to cost us? I mean, the two that Councilman Goode has asked for is fine. And that will give us some kind of idea. But there's a whole lot more than two.
Yes, Madam President. We understand that, Councilman Ramos. We have a second panel that will follow us. We will then confer afterwards 418 Whole - 5/10/04 - Bill 040313 to see, to the best of our ability, that we can get your information.
Well, I wanted to say the most sense I've heard in these discussions so far has come from Councilman Rojas and Councilman Goode.
Rojas is a great ballplayer. And you are, too. Mr. Mandel, why are you called the Tax Reform Commission? What's so wonderful about the word reform? See, when you say reform, you already color your -- You want to improve something, people think. And yet I have not heard a single word as to why you would consider yourself reform. I don't know who's going to be 419 Whole - 5/10/04 - Bill 040313 benefiting and who's going to get hurt. I don't know what rich man is going to start crying in his beer because you're imposing a bigger tax on him, and what rich man may be cheering. Do we know who's going to be benefiting by these various proposals? Seems to me, from the small amount I know, is that there seems to be a shuffling of the chairs. Some people are going to benefit, but I don't see -- and some people are going to get hurt. But I don't see any gains. For example, I thought to improve housing, that would invite more people into Philadelphia, we were thinking of how do we build homes a little more like suburban homes. How do we get a little more ground around our homes so people don't feel they're living just in row houses. And then you come along with, let's have a land use tax and make land so expensive that we can't do that. So you 420 Whole - 5/10/04 - Bill 040313 upset that proposal. I don't know -- (Applause.)
I just don't know where you're going or what you hope to achieve. And I don't know what your qualifications are. And I know Councilman... I said Rojas.
You know, my children know me well enough to know if I miscall them by name one day, I'm going to call them that forever. So you're going to be Councilman Rojas forever, probably, in my memory. (Laughter.)
But tell us about who we're going to benefit, who we're going to get hurt. Where do these ideas come from? Tell us... For example, I understand that on land use tax -- Maybe I'm wrong, but I haven't heard anybody 421 Whole - 5/10/04 - Bill 040313 explain enough so I have any answers. I understand that if the land plot downtown in a giant 50-story building, if the land plot or the footprints or whatever you call it in the real estate market, are no bigger than, say, a normal house, the taxes are going to be about the same. Now, if you use land value, and you don't consider anything else important, you use the same amount of land that might be used for an ordinary home, it can be used for a skyscraper building. And your taxes, as I understand it, are going to be pretty much the same. Now, is that true or isn't it true? And if they're going to be different, how are they going to be different? What's the basis for the difference, and so forth? We're being asked to pass all kinds of things we have no understanding of. And basically I start with the first thing. I don't know why you people should be benefited by starting out by being called reformers. I don't think you're reformers. 422 Whole - 5/10/04 - Bill 040313 I think I'm a reformer. Maybe I'm a strong reformer. Maybe I'm too strong for most people. But I want to change things. And if we're going to -- If you're proposing changes, I'd like to know what the changes are and how they're going to impact on us before we vote. It's too late after we vote these bills in, and people start crying to us. We can't say in Council, gee, we didn't understand it. We were told this wasn't going to be true. Because then they'd say, well, you ought to all quit. Why didn't you find out first before you voted? That's the situation we're in. We're trying to get information and we don't have it. So first I'd like to ask any one of you to say why you think you're tax reformers. What are you reforming? What do you hope to achieve as a result of all of your proposals? And let's begin testing it. And then secondly I'd like to know 423 Whole - 5/10/04 - Bill 040313 what group of businesses are going to be helped or is it just businesses or are residences also going to be helped? And if so, I'd like to know who. And I'd like to know... Give me reasons why, the example I gave you about the bank building paying the same taxes as an ordinary residence is not true. Give us some facts so we know what we're dealing with.
I can briefly walk through the major recommendations, and who they benefit and how they would help the City. Overall the basic mission of the Tax Reform Commission was to improve the City's competitiveness, in terms of retaining and attracting jobs and residents, in a fiscally and socially responsible manner. And that's certainly the charge that we found ourselves with, and certainly the 424 Whole - 5/10/04 - Bill 040313 charge we think we accomplished.
Don't go too fast, now, because that's also the mark of, you know, people who want to cover things quickly without getting questioned too hard. You said businesses. Is there anything for people who are not businesses?
Well, let's go through the recommendations theme by theme. We talk about it being a three-legged stool. Leg one, dramatic cuts in the Wage Tax. So right now, anybody who pays the Wage Tax would see their taxes reduced as part of the material --
Wage Tax would start being reduced this year and would be cut all the way down to 3.25 percent for residents and non-residents by 20 -- 425 Whole - 5/10/04 - Bill 040313
And would rich people and poor people be treated the same way or would there be differentials? Is there any interest by your Commission in that?
As you know, due to the Uniformity Clause in the Pennsylvania Constitution, it's a proportional tax. Everybody would be cut the same rate. The Wage Tax reduction would --
So you're saying that, for example, the tax cuts by President Bush are fair because everybody gets them? Is that what you're saying?
The rich people get more benefits by tax cuts than poor people but everybody gets something. Tell me how residents get helped.
Residents of Philadelphia who pay the Wage Tax cut would see their taxes decreased dramatically. We have a little check in the materials that 426 Whole - 5/10/04 - Bill 040313 we gave you. The average working in Philadelphia would, over the next decade, save more than $3,000 in wage taxes.
Mm-hmm. Can you tell us how much he'd save each year? When you say the average wage earner, could you give us the average wage that you're computing from.
Right now the average wager earner in Philadelphia earns about $40,000.
Mm-hmm. Is there anybody here from the Revenue Department of the City? I'd like to know where you get that figure from.
It's actually the State Department of Labor and Industry number.
And you feel that it's fair that the people who are at the upper levels of income get the same kind of cuts as the lower income people?
I don't know that we debated that as a question or whether we thought that was fair or not. Legality... Or the law in Pennsylvania, by the Uniformity Clause of the Constitution, says that we can't charge a higher tax rate. We can't have a progressive tax rate in Philadelphia. So we have no choice but to be proportional.
Well, then how does the government at the federal and state level justify having these refunds of people with lower income?
The state has a program and the Federal Government has a program for tax forgiveness. One of the major recommendations of the Tax Reform Commission is that we expand funding to the 428 Whole - 5/10/04 - Bill 040313 Campaign for Working Families so that people can access --
You do what? You expand... And then I lost everything after that word.
Expand funding for the Campaign for Working Families which would help people access this tax credit money. Right now about $150 million of tax credits due to low income Philadelphians are left on the table because people don't access that money.
But that's to help get back taxes paid at the state or Federal level.
And you think it fair at the local level that we give them no refunds at all?
The suggestion was that right now because so many people are leaving this money on the table, rather than to create an additional local program to complement the state and Federal 429 Whole - 5/10/04 - Bill 040313 program, we should invest locally to go after the revenues at the federal and state level. If we invest $1 million a year locally to support the Campaign for Working Families, we have a chance to access as much as $150 million that's currently left on the table by low income Philadelphians.
What's happened to the concept of fairness and equity in taxes? Does that no longer apply? Are we agreed that the sales tax is a fair tax, a tax built on sales tax principles, like the Wage Tax is a fair tax? Because it taxes rich and poor at the same rate?
You're way 430 Whole - 5/10/04 - Bill 040313 over your time, so would you --
Madam President, I must say I think I'm much shorter than any of the time spent by any of the Council members --
Councilman, according to our chart here, you have been on for 12 minutes and 56 431 Whole - 5/10/04 - Bill 040313 seconds.
That may be, but I can say I was on maybe a third or a tenth of what Councilman Nutter has been on. (Laughter.)
I think as soon as my voice comes on, you're ready to say I spoke too much.
Come on. Councilman, seriously, you're going to have to wait for the next go-around. We have a screen full.
Well, I'd like you to just use one time limit for everybody. And then keep going around until we get a chance. I'm not --
I'm going to have to put the bell right up to the mike. I mean, you've been on for --
But I object to disproportionate uses. 432 Whole - 5/10/04 - Bill 040313
Yes. COUNCILAN KENNEY: Stop my clock. Time's running.
Madam President, I'll yield my time to my good Councilman Shapiro. (Laughter.) (Applause.)
Councilman Kenney. We have so many people that have been waiting. I think this is very unfair. Councilman Kenney.
Thank you, Madam President. 433 Whole - 5/10/04 - Bill 040313 Can we just go back a moment. Maybe Mr. Thornburgh or someone else at the table could kind of talk a little bit about what happens if we stayed the course we're on now. If we continue to spend the way we spend, if we continue to incrementally reduce the tax structure rates in the City, Wage Tax and Business Taxes, what do you project in the way of slow, bleeding death of jobs and citizens? And if that's the case, into the future, without some bold step, it's never going to be the right time to do this because we're going to continually have less and less money, and less and less people, and less jobs with which to have a tax base at all. Could you kind of like talk about the scenario of just staying the steady course and doing what we've been doing and spending the way we're spending.
Councilman Kenney, I think I would agree with your ominous 434 Whole - 5/10/04 - Bill 040313 sense of the future, absent the kind of change that we're talking about. I would remind you that, you know, through the first five or six five-year plans... actually, seven or eight five-year plans in the Rendell Administration, the numbers from Professor Inman were quoted often and prominently about the damaging impact that Philadelphia taxes had had on jobs in the City. And I think his last number was that it's cost us about 210,000 jobs. I have never seen anything singled out as being a big -- for such a big loss of jobs in the City than that. And I think this chart, as of April 2004, suggests that the world knows that. And the world's going to continue to react accordingly. And what that means is that we will continue to lose opportunities for investment, for growth. Our commercial property base will stagnate, as it has since the late '80s, absent kind of quick-fix, one-off, big-ticket subsidy 435 Whole - 5/10/04 - Bill 040313 kinds of deals. I think our property values will continue to stagnate, recognize that at about $60,000, our median property values are about a quarter of what they are in the City of Boston. I think that, as someone suggested, that what we have had in this City is not blight as a once and done condition, but we've had a blight machine. And that's what's spewed out 60,000 abandoned lots and abandoned structures in the City. In fact, I remember the Reinvestment Fund as part of the planning for NTI did a roll forward of what the City would look like in the year 2020, in terms of blight and abandonment. And when we give that presentation, and when they did it, it is always the slide that causes people to gasp because you can see in the City of Philadelphia almost no contiguous census tracts that aren't marked by heavy levels of blight and abandonment. 436 Whole - 5/10/04 - Bill 040313
Yeah. We've had a pretty bad economy recently. And a lot of what is being credited with this deficit, although I don't agree with it, is the economy. And it's certainly probably not going to get as strong as it was during the dot com craze. So even projecting with a relatively stable economy, do you still believe that those factors are, in fact, true and we'll continue that downward slide, even if the economy is a little bit better?
There's a simple kind of a supply and demand observation at work here. If you're going to be a high cost environment, you have to be able to deliver extraordinary value. And I would suggest there are places like that in the world.
New York City, for example. 437 Whole - 5/10/04 - Bill 040313
New York City. New York City for some businesses, you have to be in New York. If you're going to be by and large in the financial services business, you have to have a footprint in New York. And that shows up in the high property values. That shows up in the rents for commercial space. And it hasn't shown up in Philadelphia.
Taking all those factors into consideration and extrapolating forward, loss of population, loss of jobs, you would also agree that we are not going to lose our need for services to be provided for people who are increasingly older increasingly poorer and increasingly more in need. So those service requirements are going to continue to grow at the same time our jobs and our tax base shrinks, correct?
I think it has been pointed out today, if that's the future, if we continue to roll forward, the choices 438 Whole - 5/10/04 - Bill 040313 get tougher and tougher and tougher. We're simply not --
So my ending point, because my time is up, is that the more you put it off, the harder it's going to be to do, and the probability that it's never ever going to get done, then fulfilling this prophecy of ultimate death.
Thank you. The Chair recognizes Councilman Clarke.
Thank you, Madam President. Briefly, getting back to this whole real estate issue, maybe you can explain it to me. Recommendation seven. Do you have that before you? In the executive summary?
It's about the budget-based property taxation. Explain that to me. I mean, I know in the document 439 Whole - 5/10/04 - Bill 040313 it talks about being able to ensure that there's no drastic windfall, in terms of the City's ability to get revenue as a result of... It also works the other way. If there's a substantial gap in the budget that, based on what I'm reading, it also gives us the ability to increase revenue from real estate to fill that budget gap. Is that your...
Currently in Philadelphia, we set the tax rate for the year before July 1st. And then we complete our reassessment of properties. If that reassessment says that the value of the City has increased, then the City generates more money from real estate taxes, even though Council and the Mayor have not increased the taxes on real estate.
That's the way it works in Philadelphia. In most other jurisdictions, 440 Whole - 5/10/04 - Bill 040313 locally, around the country, around the world, it's the opposite. First, the assessments are done. And then the elected officials set the rate. So, the elected officials, knowing full well what it is that the assessments should bring in, then say, this is the tax rate to bring in however much money we want to bring in. When the Tax Reform Commission looked at that issue, of budget-based real estate tax, what we suggested is that right now because Council says, this is the rate that we think is appropriate, if assessments dramatically increased, we may be bringing in more money than Council would have otherwise chosen to bring in from the real estate tax. Similarly, as you suggest, the other way around --
-- if there is a fall or a decrease in real estate values, and 441 Whole - 5/10/04 - Bill 040313 you thought 8.264 percent, this should bring us $350 million, but assessments have fallen, we might bring in less money than Council needs and desires to serve the citizens. By flipping the situation --
If there's a gap in the budget beyond what we anticipated in the overall budget, then you can also increase the assessments, to ensure that you can fill that gap.
But it's not solely based on -- You say budget based. It's not just dealing with real estate. It's dealing with the entire budget. Am I wrong or --
No; this is just dealing with real estate. Real estate is the only tax that behaves that way. Wage Tax... 442 Whole - 5/10/04 - Bill 040313
I understand that. Right. Does this have any relationship to the City's overall budget?
To the extent that we say right now you as Council people don't set --
Brett, Brett, does this have anything to do with the City's overall budget, this proposal?
All right. That's all I asked you. So, therefore, if there's a substantial gap in the budget, there's the ability to massage this to fill that gap with increasing assessments.
Right now assessments are performed. Assessments, at least in 443 Whole - 5/10/04 - Bill 040313 theory, are performed as a science.
Excuse me a minute. I'm not talking about right now. I'm saying if this is implemented.
Yes. If you're -- The assessment then would be set. You, Council, get a chance to then set the rate. Assessments say that the City is worth this. We say --
Whatever. To fill the budget gap. 444 Whole - 5/10/04 - Bill 040313
Right. I just want to make sure that I'm understanding that because this is a budget based system, if there's a substantial gap in the budget, some of the projections don't work. And I'm still not clear, particularly about this job creation issue, that it will, in fact, work. And then we subsequently will have to increase the rate of real estate to fill that budget hole.
Right. That's the... Depending on what happens with assessments. In theory, assessments could go up so much that you could actually decrease the rate and still increase the amount of money the City brings in, in terms of real estate year over year.
Right. But I want to talk in terms of revenue. Because 445 Whole - 5/10/04 - Bill 040313 we're talking about the overall budget.
Regardless of how you get to increasing the real estate with the assessments or with the rate, at the end of the day you're increasing revenue to fill the budget gap. Because from what I said earlier, when I look at these -- when I look at some of the recommendations and there appears to be a shift to make sure -- to -- a shift in increase in real estate revenues to offset some of the reductions in the Wage and the Business Tax, I just want that to be clear, that that's what we're talking about.
Well, I would say that the most attractive thing from a Councilmanic perspective on this change is that right now you are powerless to change the tax burden on people once the assessment is set.
Under the budget based system, the assessment is set, and then you 446 Whole - 5/10/04 - Bill 040313 have all the power in the world to increase the rate, decrease the rate or maintain it the same.
Thank you. The Chair recognizes Councilman Nutter. And I want you to know, Councilman Nutter, that Councilman Cohen is paying very close attention to your five minutes. (Laughter.)
Thank you, Madam President. Recognizing that, and to give some sense of the ability to think on my 447 Whole - 5/10/04 - Bill 040313 feet, actually I'd like to yield my time to Councilman Cohen.
Well, I'm interested solely in the answers to the question about fairness and equity. I've heard nothing from the Tax Commission as to their belief as to the role of fairness and equity in the tax reform system.
Perhaps I can instruct you to look at the chart that was put up right over there in front of you. The fairness issue, I think we addressed mainly in terms of the real estate tax in Philadelphia. And what you can see in that chart in front of you is that the purple neighborhoods are disproportionately under assessed in Philadelphia. They are paying a lower percentage of their property's worth, in terms of property tax, than the orange neighborhoods. 448 Whole - 5/10/04 - Bill 040313
The purple neighborhoods, as you can see: Chestnut Hill, Center City, Northeast, Overbrook. Right now those houses, mine among them -- I live in Center City -- are under assessed. The orange properties are over assessed. They are paying, in some cases more than -- paying taxes on more than a hundred percent of the worth of their property. If we go to one hundred percent valuation, we will make that fairer, so that everybody will be paying an appropriate amount. For good or for bad, that means that, just looking at property taxes, the properties in the purple neighborhoods would be asked to pay more, in terms of property tax; the properties in the orange neighborhoods would be asked to pay less, in terms of property tax. 449 Whole - 5/10/04 - Bill 040313 Again, putting this in perspective about the three-legged stool, that's one of the reasons why we would say dramatically reduce the Wage Tax, dramatically reduce the Business Tax, because certain people in the City who have been getting a break on their real estate taxes because of the way we assess properties wouldn't benefit so much from this particular recommendation. The other real estate tax recommendation that benefits, in terms of fairness and equity, we absolutely believe that land value taxation would shift the values appropriately. Under land value taxation, 80 percent of residents across the City would actually see their bills on real estate tax decrease. You would take the shift from productive property owners who are making good use of their properties, maintaining and improving their properties, and you would shift it onto property owners who are not maintaining their properties or who are 450 Whole - 5/10/04 - Bill 040313 speculating on properties. That's absolutely a fairness issue that we thought was very important. There's some fairness aspects in the Business Tax as well. Right now, as we suggested before, sole proprietors and partnerships pay a higher Business Privilege Tax burden or higher tax burden overall than their corporate competitors. That means that mom and pop stores, sole proprietorships, actually pay more, in terms of taxes, Business Tax, than, say, Wal-Mart or any of their corporate competitors. By allowing partnerships to deduct their payments to partner against their Business Privilege Tax burden, that reduces their burden and puts them on a fairer standing with their corporate competitors.
Yes. The Chair recognizes Councilman Nutter for a point of information. 451 Whole - 5/10/04 - Bill 040313
Thank you, Madam Chair. And let me assure you I'm not trying to reclaim the time. Mr. Mandel, why don't you try to do your best to put some of us out of the collective misery. You are not being responsive to what Councilman Cohen is talking about. And the particular population that his earlier question was about when he had the floor had to do with primarily low income taxpayers, the working poor. Having a discussion with him about tax fairness, in the context of what partners are doing in terms of deductions, is a disconnected discussion. It has nothing to do with the real issue. The issue that Councilman Cohen is raising is that people who happen to be lower income, who also happen to work, who make less than a certain amount of money, don't have to pay the state income tax which is presently, what? Two one, two eight? 452 Whole - 5/10/04 - Bill 040313
Went to 307, as a result of the other thing. I mean, you know, they just take it out of the check. Kind of doesn't matter. And are able to claim earned income tax credited. At the same time, the same group of people have to pay a City Wage Tax which is actually higher than the state income tax. What Councilman Cohen is chasing you around about -- and you just need to confront the issue directly -- is, the Tax Reform Commission initially did not look at this particular issue, I think. You'll correct me if I'm wrong. Subsequently there was discussion about this issue. You looked at the issue, and decided for whatever reason -- and just put on the record what the reason was -- that of all the other things you were looking at, this one did not qualify for your recommendation because you have other things that you're looking at, whether it's 453 Whole - 5/10/04 - Bill 040313 your earlier response that the same group of people are leaving earned income tax credit dollars on the table, and that you want to continue to chase after those; you didn't want to set up a new program at the City level, where the same thing might happen, although in that case, actually the people are working, the employer could not take it out of their pay, they'd have it in their pocketbook in the first place, and just tell the Councilman why the Tax Reform Commission did or did not do or recommended or did not recommend whatever it recommended or didn't recommend, with regard to his issue on low income working people, and not having the same deductibility, with regard to the Wage Tax that the same population has with regard to state or federal taxes. Just answer the question; please.
They won't answer it because they're ashamed of the fact that they gave no relief to working poor and the ordinary poor. They're not interested. 454 Whole - 5/10/04 - Bill 040313 They're only interested in dividing up taxes --
Well, I don't know what their motivation is, but I tried to tee it up. Maybe we'll actually get an answer, and then, you know...
Councilman Nutter, thank you for the clarity. And Councilman Cohen, we did have extensive discussion about that issue. The conclusion of at least 14 members of the Tax Reform Commission was in the overall package, relative to cost, that we thought that it would not be a proposal that we could put forth and become fiscally responsible. And what we did decide as a body because we are sensitive, obviously, to low and poor income people, we thought that the unearned tax credit and investment in going 455 Whole - 5/10/04 - Bill 040313 after money that was being left on the table would probably be more feasible. And we thought overall what is important for lower income people is to create an opportunity for jobs.
Mr. Miller, you put it very nicely. But in my judgment, the reason you didn't mention it is because you never are concerned. By you, I'm not talking to you personally. I'm talking about tax reformers, who are only interested in dividing up profits. They could care less if the poor starve or don't have enough to live on. And yet I'd say if you want to include the poor and the working poor in the tax structure, your first concern has to be for their welfare. And I think it's shameful that in the City of Philadelphia you in your original report paid no attention whatever to this question, and then just gave it bare routine and attention in the form of an appendix as to why you don't think poor 456 Whole - 5/10/04 - Bill 040313 people deserve to have any relief. That's ridiculous, that you think that it's too expensive for poor people to get some basic wage tax relief but not for rich people. You're ready to turn the world upside down on behalf of doing something that you think seems fair or I assume you think it's fair for the rich people. Why isn't your first concern to prove that Philadelphia is a City that has a heart that cares about people, that is concerned about the fact that in this strong Democratic stronghold -- and you see me wearing the Democratic tie. I thought it might change somebody into understanding that Democrats ought to be Democrats. And if they don't believe in the principles of the Democratic party, let them all on the block resign and join the Republican party. But it's the Democratic party that talks about targeted tax cuts for working poor, not the Republican party. 457 Whole - 5/10/04 - Bill 040313 Yet here we're shameful. Here we're a strong Democratic City that gives overwhelming votes to Democrats, yet we act as Democratic legislators in the worst way, the same way a Republican group would act, but not as good as the Republicans would act, at the state or federal level. Aren't you ashamed by that fact, that in the United States, in the U.S. Congress and in the State of Pennsylvania, working poor people are able to file and get back income tax refunds but in the City of Philadelphia the harder the Democratic party -- the Democratic party thinks so little about people that they insist that the working poor pay constantly at the same level that rich people pay? I think it's a shameful thing. Why do we want to pose as being the Democratic party, when we're not? We're carrying out the same principles that the Republicans, who at least they're honest -- and they seem to be in this area. In this area they certainly seem much fairer than 458 Whole - 5/10/04 - Bill 040313 we do as Democrats. And I'm ashamed that the Democratic party takes that position, and that people who represent the Democratic party seem to feel no obligation to working poor or poor people. And that's my concern. That's why I raised the question, Councilman Nutter. And thank you. If you're a tax reformer, it seems to me you've got to reform a tax structure. And your first responsibilities are to the working people in the City and the poor people. When you take care of them, then you can deal with the rest. But you weren't even going to answer until Councilman Nutter raised the question. I felt for a long time, Councilman, that you were the only one that's ever going to get the Tax Commission to even acknowledge there is such a question in the air because, otherwise, if it weren't for you, they would have paid no 24 attention at all to the subject.
Councilman Cohen, I'd 459 Whole - 5/10/04 - Bill 040313 simply say to you that we're here before you, as we are before the citizens of Philadelphia and City Council, to give you answers to the best of our ability. It may not be the answer you want. But we gave you the answer. Also, if there's shame, as it relates to insensitivity toward poor people, then that is a historic shame that should go around. We simply are here as citizens. You are the government. (Applause.)
I accept that. I feel that Philadelphia is in a shameful position on the tax structure, and that if there's to be any element of fairness, the number one step, the very first step that has to be taken is to correct this inequity about the working poor. Then we can deal with all the other aspects. But then we will have shown our belief in the principles which we enunciate as members of political parties. 460 Whole - 5/10/04 - Bill 040313
Oh. Okay. Thank you. Thank you. Real briefly, earlier in testimony from the Mayor's Chief of Staff, she referenced other cities, particularly New York, Los Angeles, Detroit, Washington, Atlanta and Baltimore, and cities of size that... in the declining or actually in a 461 Whole - 5/10/04 - Bill 040313 prolonged national slump, that these governments have either reduced their revenue reduction programs, i.e., tax cuts, or increased taxes. Can you respond to that? And I guess -- I'm assuming -- Well, her reference was that in spite of that the City of Philadelphia continued, which is one of the reasons why we found ourselves in somewhat of a dilemma, as it relates to our deficit.
The problem we confront in Philadelphia, unfortunately, is a problem of magnitude that these other cities don't confront. We are, as you can see on that chart, the heaviest taxed City in terms of business, the heaviest taxed City in terms of wages. The problems that we confront the necessity to do something dramatic about our tax structure is not the same problem as the other cities have. When we looked at the tax structure 462 Whole - 5/10/04 - Bill 040313 in Philadelphia, we certainly concluded three fundamental things. One, we tax where other places don't tax. That sets us apart in a bad way. Two, our taxes are too high. Three, our taxes are unfair. Our imperative is to make sure that we are becoming competitive so that we can get taxes down to their level. Every one of these other cities have their own different challenges. Philadelphia's primary challenge is that we can't put ourselves out as a welcoming place to start a family, start a business because of the these taxes. It's a prerequisite for us to confront anything else we do to deal with those problems.
So, with respects to their needs to reduce or delay or increase taxes, you do equate -- you know, you do, in fact, agree that that was as a result of the slump in the economy on a national level?
I'm certainly not 463 Whole - 5/10/04 - Bill 040313 intimately familiar with each of those cities, although I can tell you this, that if any of those cities asked Philadelphia to trade its tax structure with ours, we'd do it in a second.
Oh, Okay. So, our willingness to continue to decrease our taxes... (Bell rings.) That bell is rigged. (Laughter.)
I just started. You didn't reset. I was talking on Councilman Cohen's time? Councilman, did you hear that? I was on your time. So, in spite of that, the City of Philadelphia continued to reduce its taxes. I mean, is that a good thing or a bad thing?
I would say it's good. In fact, played out over the chart that used to be in that five-year plan, we have continually narrowed the gap between employment growth at the national level and employment growth at the local level. 464 Whole - 5/10/04 - Bill 040313 That's good. The fact that we've been able to continue this tax reduction during these trying economic times is great. The fact remains, though, that our taxes are still higher than other places. Our tax structure is still onerous.
And sometimes during this debate, I get the impression that we haven't done anything.
I give my three-year-old one treat. She asked for another one.
That's kind of where I think you guys are. Okay. All right. I'm going to leave that one alone for now. Thank you. Thank you, Madam President.
Thank you, Madam 465 Whole - 5/10/04 - Bill 040313 Chair. Actually, I want to go back to where Councilman Clarke was when he finished on the last go-round prior to this one. Councilman, I'm going to assume that when you were asked some questions about recommendation number seven, that that is probably embodied in Bill Number 13; is that correct?
We're beyond the... We've moved from the recommendation phase to the bill phase. So I need to talk to you in the context of a bill.
If I'm reading this bill correctly, I'm left with the impression and from the discussion that Councilman Clarke was having with you earlier that the real estate tax rates under this particular proposed bill would 466 Whole - 5/10/04 - Bill 040313 be set and would be a function of... After the City Administration has figured out all the other tax revenues for all of the other taxes, tax and non-tax revenues coming into the City, that whatever that number is, the rates would be set to fill the gap. Is that accurate?
It's certainly one way you could approach it. As you know, during the budget process, the Mayor is empowered with the right to set the revenue estimate the City receives. So to the extent that Council agrees with that revenue estimate and doesn't demand any change to that, the only option that you would have under your powers would be the real estate tax rate.
I understand that. I'm trying to understand... The way the bill is written, it sounds like there is virtually an automatic setting of tax rates which is just dependent upon, if not totally independent of anything else going 467 Whole - 5/10/04 - Bill 040313 on, it is just a function of tax and non-tax revenues for all the other taxes that we have. And whatever the remaining gap is between expected revenues and the expenses would then determine what the tax rate is against the total assessed value, in order to generate that amount of money. Is that correct?
Well, generally you only want to have a tax bill read one way by anyone that's involved in the process. You don't want multiple interpretations. So, which is it?
Okay. That seems to create a certain element of mystery, if that's the way it's to be done, in what the rates are going to be, as opposed to an affirmative decision, in 468 Whole - 5/10/04 - Bill 040313 terms off setting the rates. And I think I've heard of at least one other way of doing budget-based tax rates which is just that in the alternative the Administration would determine, as they do every year, how much money we want to generate from real estate taxes, that the entire schedule of the assessment process is completely -- This is now my editorializing; it's my perspective -- is completely backwards which results in what the Councilman talked about earlier which I certainly call -- he may not call -- does result in a windfall because if the Administration is left to estimate what the real estate taxes should be in the next fiscal year, in January, when the normal budget comes in...
With respects to the terminology of windfall, I was reading 469 Whole - 5/10/04 - Bill 040313 the document. It wasn't my turn. I just wanted to clear that up.
In the context of determining how much you're going to raise, putting that in the budget... We haven't changed the rates since '91. We then approve that budget. The assessments are not done until six months later which over the past 30 years have almost always been higher than the year before. The rate doesn't change because we're now in the new fiscal year. And so, above and beyond what we thought we were going to get is what is often referred to as the windfall, as opposed to an assessment process that would be completed toward the tail end of the calendar year which is actually the middle of the fiscal year, you'd know what your total assessed value was before you put your budget 470 Whole - 5/10/04 - Bill 040313 together, determine how much you think you want to raise from real estate taxes, and you can set your rates at that time and know that that was what it was going to be. You then have no mystery in the summer because you already know what all the numbers are, going into it. Now, that is also a way of establishing what your real estate taxes are, without the mystery of trying to fill some gap to the side of what all your other revenues are. So I guess at the end... Or I'll wait until you...
There certainly are different mechanisms anyone can employ to achieve that same goal. I think in the end, based on conversations with the BRT, and our staff, and the City's legal folks, this is the mechanism that implemented the intent of the recommendation. I know at one point you had advanced an idea to create a formula system that would establish the take that the City endeavors to generate, and then there would 471 Whole - 5/10/04 - Bill 040313 be a formula that would go in place.
Well, that's nothing new. That's what the City does every year. The City determines in the budget that gets -- I mean the budget in front of us.
You would actually propose legislation that would say the City will set $800 million of what it wants total real estate. Then the assessment would kick in. Automatically you would then determine the rate. I personally tried to advance that as part of our discussions. The mechanism that you see before you is the mechanism we ended up with.
All right. I understand. Again, my concern would be that there is this end of the process filling of a hole as opposed to an actual 472 Whole - 5/10/04 - Bill 040313 determination as to what you want to raise from that particular tax which is very familiar to us on the front end. But it is virtually impossible for this Administration or any administration to know what the true real estate tax revenues are going to be in January when the assessment is not done until the summer in the course of another fiscal year, at which point you can't make any changes because you crossed over July 1. All of that calculation and information, from my perspective at least, should all be done within the same fiscal year, so that when the budget is completed, you actually know what your rates are, you know what you're going to generate, and you set a rate to measure it with that, as opposed to all this extra that gets generated because we never changed the tax rates.
The mechanism, obviously, is just something that we ended up with --
All right. So that those are the issues with Bill 13. I hear bells. I haven't been hit in the head yet, so I assume that it's the timer. Thank you, Madam President.
Thank you. The Chair recognizes Councilman O'Neill.
Thank you, Madam President. Gentlemen, if you could just address one area for me initially, dealing with the statement of the Finance Director today, that this is going to result in a downgrade of our bond rating; that the rating agencies, I understand, have just recently lowered us, lowered our bond rating because 474 Whole - 5/10/04 - Bill 040313 of our spending habits, spending without sufficient revenues, I mean. How would you react to that troubling scenario?
Something we need to fix, if we're going to improve our bond rating.
I mean, you basically said if this tax reform package passes, and even if PICA approves the five-year plan impact, with hits in the first couple years and then revenues at the end, and we reviewed it every year to see if we had to make adjustments, that that would not satisfy the rating agencies and they would... they'd be inclined to downgrade us. We're at just a state -- I think one notch above investment -- one notch above investment grade right now, I believe. Go ahead.
Well, Councilman O'Neill, my response to that, I guess, is to keep the near-term magnitude, the fiscal impact, of the proposals in mind, 475 Whole - 5/10/04 - Bill 040313 recognizing that, as was pointed out earlier, the Administration's made other choices about revenue, PGW, or other choices about expenditures of the same magnitude, maybe without the same level of consternation. So it seems to me that this is, again, in year one a sub $10 million number difference between these proposals and the Administration's proposal.
And that that would seem like a manageable number to work out --
Maybe I should rephrase the question. Have you... Have you, the Commission, had any, either directly or through a consultant indirectly, in that way, had any conversations about this with any of our rating -- I guess it's either of our rating agencies?
We did have some discussions under the topic of could we do 476 Whole - 5/10/04 - Bill 040313 some kind of debt officers or debt financing of tax cuts. And there was some suggestions that the rating agencies might not look kindly upon that. That was one of the reasons why we were a little bit shy to continue research down there. But we did note that Philadelphia has a relatively low bond rating, period. Our bond rating is be the lowest of any of the ten cities. And in any examination of all the largest cities, we tend to be in the lowest cluster. That's not because we are anticipating tax reform. It's because we are having trouble achieving structural balance, bringing in enough money to cover our needs every year.
I have a second unrelated question. In talking to people who are generally supportive of the tax reform package, maybe with one exception that's not in our discussion right now, there seems to be only one caveat that 477 Whole - 5/10/04 - Bill 040313 comes up fairly consistently as sort of a warning cry. And that is, that the Commission -- Again, I'm quoting several people who seem to have the same -- I'm trying to paraphrase them -- that the Commission seems to rely in some measure on the real estate tax picking up whatever shortfall there is that may come from this. And I don't know if that's what Councilman Nutter was... one of the areas he was alluding to. But the one thing I know is, there's really a lot of people for this tax reform who don't live in the City. In other words, they don't pay real estate tax. And I would hate to see us do something for a very good purpose that is long overdue if there is a sort of a back door swing going into the real estate tax area to sort of shift burdens. Was there discussion about that? Can you comment on how much of this is moving in that direction?
I certainly wouldn't 478 Whole - 5/10/04 - Bill 040313 refer to anything as a back-door swing. Certainly it was everything we discussed. One of the things that was -- we acutely focused on was the notion that Philadelphia's real estate median house value in Philadelphia is about $60,000. That's lower than Trenton, that's lower than Newark, that's lower than New Haven, that's lower than Baltimore, that's lower than Hartford. The fact that we aspire to achieve a median real estate value with these cities is a joke. Median house value in Boston is about $200,000, adding up to the notion that Philadelphia is not desirable as a location to live or to do business. If we change the taxes --
What were some of the other cities you mentioned, Brett? I'm sorry.
Newark, Trenton, Hartford, New Haven, Baltimore. These are not cities.
Any cities that 479 Whole - 5/10/04 - Bill 040313 are more comparable to us, in terms of... Well, they're above -- Size. I mean, there's all kind of.
No. They're above... above those. Philadelphia and then the next tier are those loser cities. We understand that if we make Philadelphia a more desirable place, that's going to be reflected in property value. David can quote you the figure, but in his fight or flight publication, there was the notion that if you bought a similar house in Philadelphia or Boston, and then sold it years later, you could send a 16 kid to college on the extra money that you 17 would have earned by selling it in Boston. 18
I'm not 19 thinking of natural growth in real estate 20 values. What I'm referring to is things that are going to be done to... not as an indirect result of what we're doing our real estate is going to go up. But we could always hit the real estate tax, you know, because it's low, 480 Whole - 5/10/04 - Bill 040313 because there's other ways of skinning the cat off of real estate. And that, in part, we talked about a shift. And I just want you all to comment. Does the Commission foresee part of the burden of this reduction package, primarily in the Wage and Business Taxes, fall into real estate; not because, you know, the City gets better, and more attractive, and eventually your house goes up in value.
Let me comment on that. I think, in terms of the logic of the report, first in line is anticipated growth in values, and in jobs and wages, brought on by the changes in taxes. Second in line is more... If that -- To the extent that's not sufficient to keep the budget whole and stable, next in line is expenditure reduction. Next in line after that, I would suggest, is the focus on real estate.
But I think that's a fair statement or sort of the order of 481 Whole - 5/10/04 - Bill 040313 priority, that the report --
I mean, we still have control; but I understand that.
And nobody raises the real estate tax without nine or votes, depending on whether the Mayor 9 supports it. Hasn't been raised in 20 10 years or so. It's been a long, long time, 11 the rate. 12 But if there's any legislation in here that is intended to increase the real estate pot where it's not what it's called, it's not -- you know, it's sort of a wolf in sheep's clothing, I guess --
-- only because I want to make sure I don't do -- I like this tax reform package you have.
The specific recommendations on real estate tax, 482 Whole - 5/10/04 - Bill 040313 designed as shifts, not to bring in any extra revenue, although certainly one could have either the shift to a hundred percent valuation or land value taxation bring in extra money. That's not our approach. We would make those revenue neutral.
As David said, growth. I would add one more. Increased collections, more aggressive fines fees, expenditure reductions. And then if and only if, you could actually go after increased tax rates, including the parking lot tax, including the amusement tax, including the real estate tax.
I just wanted to get that on the record. Thank you very much.
Thank you. Do you have any figures on the number of Philadelphians that live in 483 Whole - 5/10/04 - Bill 040313 poverty? Does anybody have?
I'm sorry, Councilman. You asked for, again, the number of citizens that are living in poverty in Philadelphia. I don't know the exact number, but I believe it's about 30 percent, depending on whether or not where you're cutting off income. If you're looking around to 13 $18,000, that's the number. 14
Well, in 15 determining a responsibility of a government for taxes, doesn't one have to consider what obligations a City has?
In determining what a City ought to do on the matter of taxes, doesn't one first have to consider what obligations a government has to its people?
Yes, I think all those things need to be considered, 484 Whole - 5/10/04 - Bill 040313 yes.
And what I gather from the Tax Commission is that the Tax Commission believes that the only obligation that exists is the obligation to increase property values, to increase incentives for business, but that there is no obligation that exists for the life of people in the City, of residents.
Councilman Cohen, I believe that the obligation that's there or the reason that I am supportive of the package is that ultimately for Philadelphians, especially those at the lower end, and with our real push to make sure that everybody has to work, there's no 18 more opportunity now for people to not have to work, that if you don't create opportunities for people to work and increase the number of jobs in Philadelphia, that there is just not enough money that is left in the coffers here to be able to support all the needs. Clearly, services... There's always 485 Whole - 5/10/04 - Bill 040313 a need for continued service and expansion of services. Without more people here being able to pay into the tax pot, then I'm concerned that those dollars will not be available for services. So I definitely understand your concern and share your concern for those who are at the lowest end of the economic ladder. But I believe that this package gives some opportunities for an increase in economic growth in Philadelphia that means jobs for low and moderate income workers. And also there is an opportunity to increase the number of people that we actually have paying taxes in Philadelphia, so that it can support the services that those who are at the lower end of the economic ladder really need.
And whose fault is it in your judgment, that there is so much unemployment? Is it the fault of the people who are poor?
No, I don't 486 Whole - 5/10/04 - Bill 040313 think it's the fault of people who are poor that there are not jobs that are available, no. 5
Well, I'm not quite sure that I know the answer to that question. I wish I did. I do know that when I worked in a company that was outside of the City of Philadelphia and I tried to convince them to come into Philadelphia, one of the big issues that they kept sharing with me was the whole issue about the high cost of the Wage Tax; and that ultimately what happens is that they end up subsidizing and sort of paying another tax for those who are at the upper end, what we call these higher-paid professionals, those that they definitely don't want to lose. And ultimately it's the low income workers who end up having to cover the costs themselves because there are more people who are able to take those jobs. 487 Whole - 5/10/04 - Bill 040313
Well, if that were really a concern, wouldn't the Wage Tax cut bill that I've sponsored and proposed which would exempt the working poor from having to pay the Wage Tax, in the sense that they would be entitled to a refund at the end of the year, wouldn't that make it much easier for companies to come into the City without feeling that the workers are going to pay a five percent or four percent, whatever the Wage Tax rate is, as a penalty?
Well, it depends on the individual business. If the business is a business that is supporting -- and most of the jobs are low wage jobs -- that could be a scenario that I could see. But if with, most businesses, where you're talking about a mix of incomes and income-based jobs there, then not necessarily. I think clearly, I understand -- I definitely understand the question that 488 Whole - 5/10/04 - Bill 040313 you're asking. And there is a tradeoff here. There's no question about that. I am just still convinced that the more we can do about supporting folks, and getting them into work, and hopefully creating opportunities for them to grow at work, and for their incomes to grow, the better opportunity they have of taking care of themselves and taking care of their families.
But you're indicating that until -- until people, not the working poor, if they are not responsible for their condition, they're not going to be able to create jobs for themselves until others do things that enable there to be jobs for everybody who wants one. Until that time, the working poor got to pay taxes just like everybody else, no matter what the impact is.
Well, I think in the interim, while we are deciding that question, there are some opportunities for 489 Whole - 5/10/04 - Bill 040313 us to continue to draw down more money from the state and Federal Government for the working poor there. We have not yet been able to capture a hundred percent of the dollars from the Earned Income Tax Credit or the State Tax Forgiveness Program. And certainly --
But the reason that you haven't gotten compliance from working poor people is that most of them don't know about it. Secondly, most of them believe that government is aimed not at their interest but at the interest of others; and therefore, they're fearful of getting involved with government for fear government is going to come around later and punish them for doing something wrong because nobody in government takes the time or devotes enough interests so that people learn of their rights, and then you use that against them.
I think that certainly some of those things are true. 490 Whole - 5/10/04 - Bill 040313 And that's why this year we had over 500 volunteers who are not associated with government, who were out in neighborhoods and communities, reaching out to low-wage workers to say, we're not a part of the government. We're here to try to help you to understand how the system works. And here's the information. And yes, ultimately people do have a right to choose whether or not they want to participate.
But it seems to me as a Tax Reform Commission or a tax commission of any kind, you were carrying out a government responsibility. And forgive me. And if Councilman Nutter is in the room, I ask him to forgive me, but I think you are a very poor example of government. You're a part of the reason why people are so cynical about government, because government never shows any interest in people who are poor. And if they're working poor, that's just too bad. 491 Whole - 5/10/04 - Bill 040313 And we don't want to make the background and the community so friendly to poor people that they may come and live. What we'd like to do is make the City very friendly for rich people to come and live because they pay high taxes. But poor people will use services. Therefore, we're going to try to keep Philadelphia as unfriendly as possible for poor people and for minorities of every kind because we don't want them. They use up services. They don't make contributions. And I think that when findings of your commission come out, that's what you helped create, and you helped develop those ideas; whereas, if you start on the basis of what's needed is fairness to show that government is interested in everybody, that we finally learn that the number of people who live in the City is itself an index of how big or important or unimportant the City is. For years, you know, in my earlier days in Council, we never talked about 492 Whole - 5/10/04 - Bill 040313 population because Philadelphia wasn't concerned. They were only concerned about losing business. Suddenly, a couple of years ago, people became aware of the fact of losing population also affected the stature of the City. And suddenly people have become interested in that. And that is moving in the right direction. But government has a responsibility to people. It's not just in the Bible that we're said to be our brothers' keepers. But a principle of government is government has to give people a helping hand so they can lift themselves up. But we're not doing that in Philadelphia, despite the fact that the whole service groups of senior citizens, there are women, there are minorities, all of whom earn very small sums that would fit within the exemption set by federal and state government. Here in Philadelphia, we're so anxious to get rid of working people or 493 Whole - 5/10/04 - Bill 040313 working poor people and poor people that we hope to make life so tough for them that we try to cut down on their income, by not recognizing the fact that a tax system has to be fair and has to make room for exemptions for people that don't earn much money, so they'll have enough money not to have to choose between medicine and food or food and heat, and that kind of thing. And that's the reason I'm so critical. How can I equate anything you offered as having anything to do with elements of fairness, when in the very first instance you indicate you're not interested in people. Oh, you're interested in people if they have money, but not if they don't have money. And I think that is why your plan is going to be going down to defeat because you, instead of inspiring confidence that what you've come up with is good for the people, you're convincing everybody that they ought to... that their cynicism about government is really justified; 494 Whole - 5/10/04 - Bill 040313 government's only interested in making rich people richer. Thank you, Madam President. MR. McPHERSON: Any other questions? (No response.) MR. McPHERSON: Thank you. The next group will be the second reform panel, Stewart Weintraub.
Thank you very much, Council, for the opportunity to testify today.
Madam President, members of Council, my name is Stewart Weintraub, and I was a member of the Tax Reform Commission. As a member of the Commission, I chaired the business tax working group, and I participated in the other three working groups: The Wage Tax, the real estate tax, and the revenue and spending working groups. I'd like to address my comments this afternoon -- I guess I can say this evening at this point, to some of -- to respond to 495 Whole - 5/10/04 - Bill 040313 some of the questions that have been raised by some of the members of Council, and to respond to some of the comments that were made by the Administration this morning. First, I believe, notwithstanding the testimony that has been received by this Council, that at least the first year of this tax reform package can be funded without affecting any government spending. Specifically, Bill Number which 12 is the bill that addresses quarterly real 13 estate tax payments that the Commission 14 recommended be made, Finance Director Davis 15 suggested that in the first year there 16 would be a cash flow problem. 17 I respectfully disagree with her. 18 The cash flow problem does not exist, when all four quarters of the tax are paid during the fiscal year. And when you look at Bill 18, the first quarterly payment is due in August and each quarter thereafter. So the City in the first year would collect all four quarters, and there would be no cash flow 496 Whole - 5/10/04 - Bill 040313 problem. As a result of that, the City would save $10 million a year in the debt service on tax anticipation notes. $10 million is equal to or greater than the cost of the tax package that was not adopted by the Mayor in his budget. So I submit that just by adopting the package, it is self-sustaining, without affecting jobs, without affecting any of the other cost factors within the budget. First item. Second item, with respect to the Business Privilege Tax, I think it's Bill 16 Number 14, again, Finance Director Davis suggested there is a cash flow problem on that one. Again, I respectfully disagree. The cash flow problem there does not exist because one hundred percent of the tax would be paid on an estimated basis within the fiscal year. It would be broken down in two installments: One in April, one in June. 497 Whole - 5/10/04 - Bill 040313 Instead of a hundred percent being paid in April, it would be 50 percent in April and 50 percent in June, both within the fiscal year. The City would not have the cash flow shortfall that I believe she suggested. During the questioning of our prior panel by Council Member Goode -- unfortunately he's not here -- he asked for some revenue projections -- revenue loss projections on Bills 10, 12 and 17. While I can not give him a response to that as to Bill 10 and 12, I can give him a response on Bill 17. And again, I'd have to disagree somewhat with Budget Director Dubow in his projections on Bill 17 which is the net operating loss bill. In that bill -- In his testimony, Mr. Dubow suggested there was a revenue cost to the City by enacting Bill 17. Bill 17 has zero dollars of revenue cost to the City until the year 2009. The way the bill is currently structured -- The 498 Whole - 5/10/04 - Bill 040313 way the law is currently structured, the City currently allows three-year net operating loss carry forwards. That's what the law is right now. All losses previously incurred by businesses would still be limited to three years. Only a loss incurred in year 2004 which would be the first year of losses which could be carried forward for 10 years. Well, that loss wouldn't be reflected until 2005. Under current law, that loss would be allowed in 2006, 2007, and 2008. So the first year of any revenue impact on the net operating loss Bill 17, is the year 2009. Why don't I give the rest of my time at the moment to the rest of my panel members. And if I have any time remaining, I'd like to pick up on some of the other points that I have.
I spent a 499 Whole - 5/10/04 - Bill 040313 wonderful day in Philadelphia. I did not have a chance to spend any money except for a little bit of lunch. And I apologize for that. Had I known I had a little more time, I probably would have included some shopping and made my wife happy. Al Tauenberger is my name. I served as Vice Chairman of the Tax Reform Commission. I also serve as President of Northeast Chamber of Commerce. And I think one just needs to take a look at our report that we put countless hours in, to see where the difficulty is, where the fairness is, and where the real strong need to pass this legislation is. All you need to do is... mentions survey after survey from 2001 which was conducted by the Department of Commerce, to where they asked a number of businesses, and particularly in Northeast Philadelphia because we helped with the survey, 60 percent of businesses are screaming for the fact that they're taxed 500 Whole - 5/10/04 - Bill 040313 unfairly and excessively. And it really shows by really -- if you take a look at the statistics on how many businesses have left the City in -- just in the near time, the thing that we have -- the problem is not that we have lack of spirit of entrepreneurship. What really saddens me is the fact that once a business gets to a certain level, they see the handwriting on the wall and they leave the City. In Northeast Philadelphia we have a number of companies that have done this, one of which started in someone's basement, probably not a proper zoning, but they took a chance and they started a business. But once it was really up and running -- And they could have easily moved into a location in Northeast Philadelphia -- because of tax disadvantages, they moved to Bensalem. And Bensalem is happy to have them. And they employ today about 20 people, most of which are making minimum 501 Whole - 5/10/04 - Bill 040313 wage. Maybe talk about the working poor. They're there and they're working in Bensalem. And I think that's very sad. Another example that I want to speak of is a company not in Northeast Philadelphia, but started in Center City Philadelphia by four hospitals: Jefferson, University of Pennsylvania, Einstein and Hahnemann. They started in 1980 what was called the Philadelphia Association of Clinical Trials. And what their goal was -- and they were a nonprofit -- was to obtain research grant money to study various drugs before they went on the market. Well, they became exceptionally successful. And the various hospitals, the four that I mentioned, and I think some others, then in 1985 turned this into a for-profit. Then they realized by 1989 that they really could not make money in Philadelphia, and they left. Yet the idea was to be in Philadelphia, started by 502 Whole - 5/10/04 - Bill 040313 hospitals that still are. Today the name of the company is Covance. They are in Radnor. They employ over 200 people. And quite frankly, when they look at the Wage Tax, and the Gross Receipts Tax, and the other business taxes that they had to pay, they found that they had to leave. And I find this exceptionally unfortunate. I think this package has to be looked at seriously. The facts speak for themselves in our three-volume report, and I would urge the adoption of the various ordinances that make up this package, to get some real meaningful tax reform out there, and so businesses know that Philadelphia is serious about doing business, and not just placating to some political causes and such, but that there is a seriousness of reducing of taxes. And the way this was structured was very incremental, and a very slow incremental, as well, and I think this plan makes sense, and I urge for its adoption. 503 Whole - 5/10/04 - Bill 040313 Thank you very much.
Good evening. My name is Andrew Vanenbrul. I'm a former member of the Tax Reform Commission, acknowledging the fine job that our fellow Commissioners have done, in talking about the broad aspects of the proposal. I'm going to focus specifically on the business tax piece, although I'd be willing to answer questions on any of the items. Certainly I'd like to start out by recommending the adoption of the complete package of the Tax Reform Commission's proposals. Focusing on the Business Tax, however, it's undeniable that the City of Philadelphia has the assets necessary to attract businesses to locate here. Without going into the whole list, we know about the cultural and transportation, colleges and universities. It just begs the question with all these 504 Whole - 5/10/04 - Bill 040313 assets, why aren't businesses coming to Philadelphia? Why aren't they investing here and creating new jobs? And I think that the clearest answer to this -- And we found this out, as Al had mentioned, through survey after survey and directly from the companies -- is that it's the City's tax structure that's keeping the businesses from coming here and from creating jobs. We know this from the research. We know this from the consulting that was done for the Commission by E-Consult. And I'd just like to point out that businesses make their location decisions based on a number of factors, you know, one of which is taxes. The... What we're... Let me skip ahead here to save some time. What the City needs to do to achieve sustainable long-term growth is to have a comprehensive plan, as we've proposed, to address all these issues. 505 Whole - 5/10/04 - Bill 040313 This plan sends a message to businesses which is very important. This would be the first broadly positive message that businesses have received from Philadelphia on taxes in decades, to be honest. We need to show that there's a commitment in knocking down this barrier to growing jobs in Philadelphia. We know that business owners value the Philadelphia region and what the City itself has to offer. You don't have to look any farther than City Avenue, the 202 corridor, South Jersey, North Wilmington, the whole perimeter of the City, to see that companies want to be in this area. And you can be sure that they're taking advantage of what the City has to offer. It just doesn't make economic sense for them to not -- or to be in the City, because of the Business Privilege Tax, because of the one percent sales tax that they have to pay, in addition to the state tax, and also because most businesses pick 506 Whole - 5/10/04 - Bill 040313 up the tab for the Wage Tax. I think what's most telling is the fact that when the City has attracted businesses recently, it hasn't done so by spending on specific programs. What really closed the deal on these projects is lowering the tax burden, whether that's Keystone Opportunity Zones, tax increment financing grants, other financing, all these are aimed at offsetting the tax burden that exists in Philadelphia. While it's great to see T.J. Maxx and Vanguard up in the Northeast, Abtech down at the Navy Yard, Ace and ABFS in Center City, what they have in common is that they were presented with something that offsets the imposition of the City's onerous taxes. Why, then, if reducing the tax burden on these companies, to bring them into the City, why not increase that and make it available to all companies who want to come into the City? 507 Whole - 5/10/04 - Bill 040313 If we can attract them, why can't we have more success by just taking away the burden completely? If Council will vote to implement the Tax Reform recommendations, I think we can stop hiding from the tax structure, stop compensating for it through programs, and wholeheartedly declare that Philadelphia does value the creation of jobs and investment in the City. And I'll pass the rest of my time over to my colleague, Tom Forkin.
Thanks, Drew. Members of City Council, Madam Chair, good evening. My name is Tom Forkin. I wholeheartedly support the package of legislation now before this Council Committee, reflecting the recommendations adopted by the TRC last November. As a former TRC Commissioner, the current President of the 120-company, several-thousand-employee American Street Erie Avenue Business Association, a small 508 Whole - 5/10/04 - Bill 040313 business owner and City resident, I believe these recommendations are fiscally responsible, progressive, and clearly meet the mandate given to the TRC by nearly 170,000 citizen voters, City Council, and the Mayor. Without reiterating the obvious, Philadelphia's tax mix and high rates of taxation are a significant impediment to economic growth and long-term prosperity for the City. Consequently, any effort at legitimate tax reform must be systemic, comprehensive, and substantial. Juxtaposed with this reality of true tax reform are the ongoing demands open of adequate City funding for public education, the criminal justice system, and municipal services. Therefore, bona fide tax reform also needs to be balanced, responsible, and incremental. This package of TRC recommendations successfully meets both tests, and establishes honest dialogue on a 509 Whole - 5/10/04 - Bill 040313 public policy issue that too often invites either empty rhetoric or inflammatory posturing. I strongly encourage City Council to review and ultimately adopt the TRC recommendations as a comprehensive and complete package of reform measures. The recommendations are meant to be considered as complementary and inclusive within each broad tax category. Parsing out specific tax proposals or promoting single recommendations will only weaken the overall reform impact, and in some instances may create unintended adverse public consequences. The depth and breath of the research effort put forth by the TRC is a testament to the rigorous analysis and due diligence that went into this package of recommendations. On behalf of business owners facing on a daily basis on onerous BPT tax formula, employees compensating for one of the highest Wage Taxes in the nation, and 510 Whole - 5/10/04 - Bill 040313 property owners puzzling over an arcane real estate tax assessment process, the time for a meaningful, once-in-a-generation overhaul of the City tax structure has definitely arrived. The blueprint for tax reform has been developed, the intrinsic budget safeguard or circuit breaker of incremental yearly tax reduction has been championed. The policy climate is reflected in our charter and widespread public support. We can not allow political differences, bureaucratic obstacles, or mere reliance on the budget status quo to blunt the momentum established by the TRC and so many others over the past months. 18 I encourage each City Council member to review the proposals, perform the necessary due diligence, and ultimately adopt the comprehensive TRC package of tax reform recommendations, as critical to our City's continued vitality and economic growth over the next decade and beyond. Let's ensure that Philadelphia moves 511 Whole - 5/10/04 - Bill 040313 forward, and not backward. Thank you for the opportunity to testify.
My name is David Crawford, and I can at least answer the question how does one pronounce E-Consult. It's easy enough to remember. We'd like to tell people the accent's on the con. We've been working on City tax policy for sometime. Today I want to just talk a little bit about the review of the Tax Reform Commission's work by the Tax Subcommittee of the 21st Century Renew Forum. And I want -- That report is publicly available. So I just wanted to emphasize several themes. First of all, the tax subcommittee strongly endorsed all but one of the specific recommendations of the Tax Reform Commission, and assigned the highest priority to the reduction of business taxes. The recommendation we rejected was 512 Whole - 5/10/04 - Bill 040313 one of the more technical, number seven, about which there has been some discussion already today. Second, at the heart of the Tax Reform Commission's recommendations and the endorsement by the tax subcommittee is the idea that while lower tax rates will produce lower tax revenue for several years, they should produce higher tax revenue in the long run, a claim that seems nonsensical to many people. We heard the voodoo word this morning. As Councilman Kenney pointed out, before you associate voodoo with supply side, you need to ask the important question of who do the voodoo? At the national level, there really is an argument. And many economists, including myself, do not believe in the supply side arguments, do not believe that tax reductions will lead to increased tax revenue. But I think it's fair to say that the widespread majority of economists do 513 Whole - 5/10/04 - Bill 040313 believe that at the local level the supply side effects are real and very powerful. The resolution of that seeming paradox is really quite simple. It's much easier for employers and residents to leave or avoid a city than it is to leave or avoid an entire country. Anyone who has doubts about the reality of supply side effects of local taxes needs only to drive down City Line Avenue and look which side of the road the buildings are on. Third, the vision of the Philadelphia Tax Reform Commission is for the City to rely less on wage and business taxes and more on property taxes in the future. This is consistent with the pattern in most other cities, and it's consistent with the conventional economic argument that it makes sense to shift the base of taxes away from jobs which can leave the City relatively easily, toward property which is much less mobile. This shift is 514 Whole - 5/10/04 - Bill 040313 going to require strong political will. As we said in our report to the Tax Reform Commission, our greatest concern regarding the revenue impacts of reducing tax rates, is whether the City can increase its property tax revenues in proportion to the predicted rise in property values associated with the tax reductions. The question is whether the City will resist the inevitable pressure to slow the growth of assessments and/or lower the affected property tax rate as property values rise This is a very important warning for City Council. You should not -- repeat, should not initiate a series of significant cuts in wage and business taxes, unless you intend to maintain property tax rates, effective property tax rates. Now, in order to maintain the effective tax rate, remember, that as you move to one hundred percent assessment, you're going to have to drop the millage rate to keep the current tax revenue -- 515 Whole - 5/10/04 - Bill 040313 keep the tax revenue at its current level. But once you do that, my suggestion is leave the millage rate alone. You need to capture the additional property tax revenue that will be generated by increases in property value going forward. Otherwise, you're just not going to be able to afford the reductions in wage and business taxes.
Fourth, if Philadelphia is going to cut its taxes, it's going to have to cut its expenditures in the short run, but it should be able to increase its expenditures in the long run. Higher future tax revenues will allow the City to provide more services to enhance residents' quality of lie. If the City cuts some services now to fund tax reform, it will be making an investment that will allow it to provide more services in the future. If the City does not cut services now to fund tax cuts, it will be forced to make even larger service cuts in the 516 Whole - 5/10/04 - Bill 040313 future, as the Philadelphia economy continues its decline. The choice facing the City is between significant service cuts now and larger service cuts later. It's a choice between trying to turn the City around and managing its continued decline. Fifth and finally, the City does not have to go alone. The tax committee strongly urged the City to reinforce its own efforts at tax reform by vigorously supporting Governor Rendell's efforts to reform state taxes.
Madam President, there are two other points I wished to make from my original testimony, dealing with... Well, I think one's Bill Number 12, the bill dealing with the unincorporated deduction for the Business Privilege Tax. This bill has been characterized as a boon for, you know, big law firms. I'm not going to suggest to you that big law firms are not going to benefit from it because I'm sure -- They will. 517 Whole - 5/10/04 - Bill 040313 But -- And there's a very big but here -- the overwhelming benefit of this is going to be received by small businesses. Small businesses are overwhelmingly you're unincorporated business, your sole proprietorship and your small partnerships, husband and wife partnerships. They will benefit from this. And whether it's the corner grocery store, a beauty parlor, a barbershop, a pharmacy, whatever, this is not just a big law-firm proposal. This benefits all unincorporated businesses in the City which overwhelmingly are small. Last point I wanted to make... And Mr. Crawford's testimony reminded me of it. That's a question of supply side. We heard extensive testimony this morning from Chief of Staff Wilkerson that the City refuses to get into that business of supply side. Well, I would suggest to you that every time the Administration puts a revenue estimate before this Council, it is 518 Whole - 5/10/04 - Bill 040313 in reality doing some -- to some degree supply side evaluations. They are looking at the economy, they are looking at the proposals in the tax bills that are in the budget for that year, and projecting what kind of revenue will be yielded from those bills. That is supply side, almost by definition. So maybe not to the magnitude of the proposals that are before you now in the question of the extent to which supply side may have an impact. The City does, on an annual basis, a supply side analysis, I would submit. And for that I also urge the endorsement of the entire package and the passage of the entire package. And I think we're all available for any questions from Council.
Thank you very much. The Chair recognizes Councilman Nutter.
Thank you, Madam 519 Whole - 5/10/04 - Bill 040313 Chair. Mr. Weintraub, earlier there was discussion about Bills and 20, and there 5 seemed to be a fairly significant amount of 6 disagreement by many of you who are at the 7 table right now, when you were on the other 8 side of the rail, in terms of when the 9 Administration was expressing its 10 opposition and the reasons therefor, 11 especially, with regard to Bill 20, which 12 has to do with real estate tax billing, and 13 quarterly payments, and the like. 14 Can you give us your perspective on 15 the bill and clear up any confusion about 16 whether it costs real dollars or is it a 17 paper transaction. 18
Well, even -- I think it was Finance Director Davis in her testimony said the only real cost was, in her opinion, in which I respectfully disagree with, was in the first year; that 520 Whole - 5/10/04 - Bill 040313 after the first year everything is on cycle to be collected on an annual basis. When you look at Bill 18 in particular, the payment dates in the bill 6 are July 15th, October 15th, January 31st, and April 15th. All four quarterly payments fall within the City's fiscal year. In reality, the City is going to be collecting the money sooner than later.
Well, the bill is written as if it's FY '06, and I... which is not the budget that this City Council is presently hearing. I would urge this bill be amended to be for FY '05. And that, I believe, is what the intent of the Commission was when we made the recommendation, that it be for FY '05.
Right. Well, could you possibly render any kind of explanation? 521 Whole - 5/10/04 - Bill 040313 I mean, let's for argument's sake say that it was amended to capture FY '05. Now, the FY '05 taxes, if we're talking about the same thing, the real estate taxes are not due or would not be due until March 31, 2005.
And under this proposal, and if the bill were amended as you indicated, you would have a real estate tax payment due, actually, as you laid out, July 15th, October 15th of '04.
Did I say July? I'm sorry. January 31st, '05. So at that point you have collected, depending on what the collection rates are, but at least by the payment schedule, you've collected 75 percent of your real 522 Whole - 5/10/04 - Bill 040313 estate tax by the end of January which under the present system you would have -- unless you have the real early filers or whatever, you would have collected zero percent of any of the real estate tax. And putting aside assessment appeals and everything else that goes on, what you're really now talking about is, rather than collecting all of it by March 31, 2005, again, assuming that this were amended, you're getting your last payment on April 15th, which is just days later 14 than when you would normally get it all. 15 But under this, you will have already collected 75 percent of it.
That's my question, what's the issue? To me, when we did this -- When the Commission debated this recommendation, to us it was a no-brainer because right now 523 Whole - 5/10/04 - Bill 040313 the City has to go out because they don't collect the taxes until March, to cover the cash flow problems from July 1 to March, they go into the financial markets and borrow under the -- using the tax anticipation notes, and it costs the City $10 million in debt service each year for that. By doing this kind of a payment plan, you save the $10 million. And that... And I'm just talking, now, for the first year of the tax package... would pay for all of the tax reductions that the Mayor has not endorsed.
All right. Okay. So, your testimony is that Bill 18 should be amended to reflect FY '05?
Okay. You don't 524 Whole - 5/10/04 - Bill 040313 have to do it now.
Thank you. Any other questions from the members of the committee? (No response.)
Seeing none, thank you very much, gentleman. You've been extremely, extremely patient. Thank you for all your hard work.
Thank you, Madam President. MR. McPHERSON: The next panel is Peggy Amsterdam, Nancy Goldenberg, Merrill Levitz, Laura Marmar.
Thank you very much. Good afternoon or, rather, good evening. President Verna and members of City 525 Whole - 5/10/04 - Bill 040313 Council, my name is Peggy Amsterdam, and I'm the President of the Greater Philadelphia Cultural Alliance which represents over 270 arts and cultural organizations in the region. And I want to thank you for giving us the opportunity to testify in support of the restoration of funding for arts and culture in the City's FY '05 operating budget and five-year plan. The cultural community is very sympathetic to this difficult task that you have. Nonetheless, a $4 million public investment in arts and culture is an economic strategy that produces positive, long-term results and benefits, all at a minimal cost to the City. Public dollars enable community organizations to operate fund raising through foundations, private donors, ticket prices and fees alone does not generate the money needed to pay for fundamental necessities such as utilities and security. Yet, organizations cannot provide services 526 Whole - 5/10/04 - Bill 040313 without these things. The ability to operate is a base criteria in attracting foundation and private dollars. Yet, it is an area that is rarely funded by these sources. Philadelphia has a long history of investing in arts and culture, for the same than many other cities and countries do. Their missions are essentially the same. Cultural organization, just like municipal governments, are constantly seeking ways to make their City the best possible place to live, work and visit. It makes sense, then, for cities to support the work of their local cultural organizations. Here, cultural organizations are the very definition of Philadelphia. Think of the Art Museum, the Village of Arts and Humanities, the Mural Arts Program, the Kimmel Center, and the Constitution Center. Cultural organizations are our City's heart, soul and identity, and we cannot thrive without them. 527 Whole - 5/10/04 - Bill 040313 Public support for cultural organizations ensures that Philadelphia remains a location of choice. Without public dollars as a leveraging tool, it will be difficult for arts and cultural institution to secure the funding needed for the excellent level of programming we need and deserve. In Mayor Street's budget address, he mentioned working with the corporate and foundation community to fill in the gap. After speaking with leaders of the City's corporation and foundations, it's apparent that this is not a viable solution. 25 million dollars in grants above and beyond the City's investment in the Office of Arts and Culture during the Street Administration. Unrestricted public support also supports jobs. A decline in cultural 528 Whole - 5/10/04 - Bill 040313 funding means an immediate loss of jobs in the sector and the subsequent decline City Wage Tax support. The loss of jobs in the field is also a deterrent to students looking to attend colleges and work in Philadelphia after graduation. Businesses cite art and culture as a defining criteria in their choice to locate in Philadelphia. Many of you have seen firsthand the impact of cultural organizations on the citizens and neighborhoods of Philadelphia. I've attached some data to my testimony today that quantifies those experiences. I trust you'll consult it, and that you'll be reminded of the economic, educational, and community building returns generated by this City's cultural investments. Let's not forget that arts organizations annually provide thousands of free tickets to Philadelphia citizens, hundreds of programs in our City's schools, 529 Whole - 5/10/04 - Bill 040313 and countless neighborhood beautification projects. All of these are at risk with the loss of this funding, and the loss of programming has a drastic effect on the Philadelphia it serves. The public has voiced its support for cultural funding very strongly.
When these cuts were announced in March, we offered people an opportunity to speak out, and the response has been tremendous. On Friday, hundreds of Philadelphians braved a thunderstorm in Love Park to celebrate our cultural assets and affirm their belief that culture is a sound economic investment for the City. You've also received more than 300 letters and faxes from Philadelphians in your offices, and we have here in these boxes, we've collected more than 6,000 signed postcards. I'm not going to dump them out. I want to be careful that they don't spill. But there are over 6,000 signed postcards 530 Whole - 5/10/04 - Bill 040313 here, protesting the cuts. They include many from other states across this country, Hawaii, California and Nevada among them. And a dozen from other countries, like Italy and Thailand. All of these cards were signed by people who came to cultural events in this City in the past month, a true testament to the power of the arts as an economic engine for residents and visitors alike. Other cities, Los Angeles, have considered similar drastic cuts in cultural support this year. A. the public spoke out and the cuts were restored. 's lead. On behalf of all of the cultural representatives here today, and many more who could not join us, I thank Council for its fast support, and ask that you continue your commitment by working to restore cultural funding. 531 Whole - 5/10/04 - Bill 040313 I understand that many of you are supportive of an amendment. And I thank you for speaking out in support of restoring this critical funding. Thank you again for the opportunity to appear before you today. And I hope that your completed budget includes restoration of these funds. Thank you.
Thank you. Thank you. Is Miss Goldenberg going to testify? Good evening.
Good evening. I do have copies of my testimony for everyone. My name is Nancy Goldenberg. I have the honor of serving as the President of the Philadelphia Cultural Fund, the nonprofit corporation established by City Council in 1991 for the purpose of providing general operating grants to Philadelphia based arts and cultural organizations. 4 million cut to our FY '05 appropriation, as well as to underscore the importance of maintaining funding levels to other arts and cultural organizations facing similar cuts. 4 million. We were able to expand the number of grants awarded and increase the amounts of those awards, without increasing our administrative cap of three percent. This year we received 229 applications, more than ever. And we awarded 220 grants, also the most ever awarded. Since we began, the number of grants has grown by 62 percent, and our average grant amount has increased from approximately $3900 to $10,400. 4 million take us back a decade to 1995 533 Whole - 5/10/04 - Bill 040313 funding levels, it would inevitably result in our ever-growing pool of awardees receiving less than half of what they get today. We were able to process our grant applications, hold our peer review panels, award our grants on time this year. And that was a small miracle, given that we were significantly handicapped by the resignation of our long-time manager and only employee, Ann Edmonds, who left at the end of September, the height of our season. But our board stepped up to the plate, took on added responsibilities, as did the staffs of the Office of Arts and Culture and the Greater Philadelphia Cultural Alliance which pitched in with an extraordinary amount of administrative help, for which I am personally grateful. We retained the Stockton, Rush, Bartol Foundation to manage our peer review process, and their assistance was God-send and flawless. And best of all, we conducted a search for a new manager, that 534 Whole - 5/10/04 - Bill 040313 has resulted in our selection of June Washekita O'Neil, who begins Monday. And we couldn't wait for that day to happen. Our growth also reflects the need in all the neighborhoods of the City for services of arts and culture. While the Administration may not consider arts and culture a core City service, I am sure the more than 11,000 residents throughout the region who earn their living in the arts would disagree, as would the hundreds of thousands of tourists who visit our great museums, theaters and galleries, and as would the thousands of parents whose children attend high quality, safe, out of school arts programs, instead of roaming our streets with nothing to do. Our benefits provided include the employment of thousands offer people. The President of the Historical Society of Pennsylvania said it best when she reminded us that they paid $60,000 in wage taxes this year, and that half of their 42 employees come to the City each day from 535 Whole - 5/10/04 - Bill 040313 the suburbs, and spend money on public transportation, at restaurants, and in retail stores. Our grantees help improve the tourist experience, attracting millions of visitors to Philadelphia each year. We foster the development of commercial corridors, bring to life historic buildings, and help increase property values in and around neighborhoods in which they are located. Our grantees help attract and retain businesses and encourage young knowledge workers to make Philadelphia their home, at a time when competition for both is fierce. Our grantees enrich and empower immigrants to Philadelphia, and help them form a sense of belonging to a diverse community. And finally, our grantees create the quality of life that we all want. Catherine Ramey of Glenn Ford Conservation Corporation said it best when she noted that the Cultural Fund supports, 536 Whole - 5/10/04 - Bill 040313 quote, fosters a quality of life in our community that is essential to positive development.
The City will always operate under financial constraints, but as the number of cultural grant recipients continues to grow, so too must the level of City support to the cultural fund. We fully recognize there is never a good time to propose a budget cut, but doing so now is counter intuitive to everything we believe City Council and the Administration supports. Investing in arts and cultural organizations and continuing your generous support of the Philadelphia Cultural Fund is an investment in economic development of our City, in the safety of our neighborhoods, and education of our children, in the diversity of our citizens, and in the future of the City. Investing in the Philadelphia Cultural Fund will help keep Philadelphia competitive, and take us from being simply 537 Whole - 5/10/04 - Bill 040313 a good City to being truly a great one. Thank you.
Thank you very much. MERRILL LEVITZ: Thank you, Council President Verna and members of City Council. I'm here today to support my friends in arts and culture, and --
Yes. Merrill Levitz. Can you hear me? Okay. O. of the Greater Philadelphia Tourism Marketing Corporation here to support my friends in arts and culture because there's such a relationship between arts and culture and tourism. We were created in 1996 as a three-year experiment by the Pugh Charitable Trust, the City, and the Commonwealth. But after just one year, the first year that Philadelphia was ever advertised 538 Whole - 5/10/04 - Bill 040313 nationally, the hotels saw such an increase in room nights attributable to tourism -- it was about percent -- that they 5 championed a one percent addition to the 6 hotel tax. 7 And currently we are a 501 C-3 with 8 funding from the hotel tax, the 9 Commonwealth, the DRPA, the William Penn 10 Foundation, and Independence Foundation. 11 City Council has been very 12 supportive of us, and we thank you. You 13 helped with the formation, you passed the 14 hotel tax increase, and your post 9/11 15 funding enabled us to design and produce 16 the most successful recovery initiative in 17 the country: Philly's More Fun When You 18 Sleep Over. 19 At the same time you were investing 20 in us, you were investing in the 21 infrastructure and buildings and 22 attractions that have made it possible for 23 us to shine a consistent light on Philadelphia as an accessible, affordable, incredible, and desirable destination. 539 Whole - 5/10/04 - Bill 040313 We don't over promise and under deliver with this advertising. We are accurately presenting Philadelphia as the beautiful, diverse, unique, and historic place that it is, and that it has increasingly become over the last decades. Much of this investment has been in arts and culture, which is what we sell, as well as in hotels, sites and marketing. All of these investments go hand in hand and build on each other. They've paid off well, and with continued investment they can continue to do so. I know you've heard a lot of impressive numbers, but I have more for you because this is National Tourism Week, and we present our annual report to the industry this Wednesday, an event to which you've all been invited. You have all the backup for the figures I'm going to give you in the packet that I handed out. Visitors spend 14 and a half million dollars a day in our region on food, 540 Whole - 5/10/04 - Bill 040313 lodging, attractions, and purchases. 3 bill in direct visitor spending a year. 1 million hotel room nights or 41 percent of all room nights in the region were taken up by leisure travelers in 2002. Just to compare, in the late '80s this number was only to percent. 8 13 million overnight visitors. 14 In addition to rising numbers of 15 visitors, these visitors are staying longer 16 and spending more. 6 days in 2002. Why? Because they're finding more reasons to stay longer. And many of these reasons have directly to do with our arts and culture events, including programs, museums, theaters, galleries and performances. The longer these people stay, the 541 Whole - 5/10/04 - Bill 040313 more they do, and the more they spend. And their spending has gone steadily up, too. From 2001 to 2002, the average daily trip expenditure went up percent, from $78 a 6 day to $98 a day. 7 The best part of this spending is 8 that because tourism is by definition an 9 export industry, these dollars are largely 10 drawn from the outside. That includes the 11 suburbs. 12 At the same time, these dollars 13 impose very few costs within the City 14 because rarely do visitors require the 15 expensive services that residents require. 16 So, tourism dollars are good economic 17 policy. 18 Residents benefit directly from 19 these outside dollars, and from the 20 amenities that the visitors are coming here 21 to enjoy. All these numbers plus more are 22 documented here. 23 One of the documents in the package 24 is our marketing plan for the coming fiscal 25 year which begins in July.
542 Whole - 5/10/04 - Bill 040313 A key strategy within it is to advertise and promote our emerging and established destination definer, attractions and events, in order to encourage overnight and multi-night stays. Some of these things that we're promoting include such cultural attractions as the Titanic Exhibit at the Franklin Institute, the opening of the World Cafe Live, the Philadelphia Fringe Festival, the Salvador Dali Exhibit at the Philadelphia Museum of Art, the Lewis and Clark Exhibition at the Academy of Natural Sciences, the Black History Showcase at the Independence Visitor Center, the 150th Anniversary of the Academy of Music, and the opening of the new space at the Pennsylvania Academy of the Fine Arts. And that's just to name a few. We'll also be promoting our own successful neighborhood tourism and network tours, bringing visitors in by trolley, to experience the heart and soul of Philadelphia in nine of our City's 543 Whole - 5/10/04 - Bill 040313 neighborhoods, ranging from Fishtown and Kensington for the Traditions of Industry Tour, to West Philadelphia for the Urban Oasis Garden Tour. The season kicked off Saturday with the Latin Soul, Latin Flavor Tour of El Centro De Oro. And this Thursday at Girard College, with many partners, we'll be honoring the opening of the Exhibit of the Integration of Girard College, which will be a primary focus of the tours centering in North Philly, on Philadelphia civil rights struggle. A brochure on all these tours is in your packet, and we thank City Council for supporting their development. The arts and culture scene in our City has never been better, and neither has the state and quality of tourism. All have benefited from private and public investment. All have flourished. Our City, however, as Peggy said, is not alone in realizing the power of arts and culture to enhance the quality of life 544 Whole - 5/10/04 - Bill 040313 for residents, to encourage business development, and to attract and retain students. We're in a very competitive environment. C. We cannot afford to lose any of the momentum that we have all established together. And that's why I thank you again for considering, in this very, very tough job that you have, maintaining your investment in our City's arts and culture. Thank you very much.
Thank you. Is there anyone else on the panel that wants to be recognized?
Yes. My name is Laura Marmar, and I'm sitting here with Cindy Blake next to me. I'm very honored to speak with the three very articulate women who we have just heard. My position is slightly different. 545 Whole - 5/10/04 - Bill 040313 I am a guide at the Philadelphia Museum of Art, a volunteer guide, as are several dozen of us who give collectively thousands of hours of our volunteer time to the Philadelphia Museum of Art every year. Cindy and I are representing not only several guides behind us, but several guides who had to leave because of the lateness of the hour, and several more who could not come, you know, because of the inconvenience of this particular date for them. So, we're representing a lot of people. And I was myself very enthusiastic about coming today, when I heard the citizens would be speaking out about cultural and art funding in the City because I'm a citizen of this area. And the arts are very important to me. And what I have, as I hope a viewpoint to share with you, is the fact that every day, like my fellow guides, when we go out there into the museum to give our tours, we present tours to people from all 546 Whole - 5/10/04 - Bill 040313 walks of life, from every neighborhood of this City. And what I wanted to share with the Council today is the fact that just as the Council is very conscious of this being a City of neighborhoods, we at the Museum serve people from every one of those neighborhoods. And one of the things that we do, among many, is that we provide a tour called a Highlights Tour of sort of the highlights of the collection of the Philadelphia Museum of Art. You know, the Van Gogh Sunflowers, whatever, are on our highlight tour. so what I wanted to do today just briefly is present verbally sort of a highlight of our tours themselves, highlights of our tours. Let me put it that way. And so, I want to just give you a sense of some of the people that I personally have had the privilege and honor to serve in this City and community just within the past half year. And from that, 547 Whole - 5/10/04 - Bill 040313 you can extrapolate what we all do every day. Some of the tours that I have been, as I said, privileged to give include because this is the season of Manet, Manet and the Sea Exhibition, tours to not only residents of the City, but for example, a group who came all the way from Southern Maryland to very much enjoy the works on display in the Museum right now. In addition, I was honored to give a tour in which I gave verbal descriptions of the paintings in the Manet Exhibit to blind or rather visually impaired visitors who could not clearly see the paintings, and were, I have to tell you, just so thrilled to have someone go along with them and explain what was in those paintings, helping the blurry images to become ones that they could understand and be excited about. Another tour that I was honored to give was an outreach talk in Northeast Philadelphia to a group of Russian-speaking 548 Whole - 5/10/04 - Bill 040313 individuals in a housing facility up there, who, with a translator, were able to enjoy a talk about the Manet Exhibit in Russian, translated from my English, along with the slides I was presenting. Another tour that I gave just in the last couple weeks was a tour of the Rodan Museum to an elder hostel group who were absolutely charmed by all that Rodan had to offer them as to what they were so -- you know, excited to find out that day. Another tour also in the Rodan Museum, that I was again privileged to be part of was allowing blind individuals from this City to touch certain sculptures in the Rodan Museum because their way of seeing them is to touch them.
And another tour that I gave or actually a talk just last Wednesday that will be continued this coming Wednesday, which is why I was very keen on talking today instead of your next session, and the following Wednesday is a talk over the telephone with individuals from this City 549 Whole - 5/10/04 - Bill 040313 who are homebound with multiple sclerosis issues. And over the telephone the ten of them and I discussed the Manet Exhibit, aided by booklets, with color reproductions of the paintings which were sent to them by the Philadelphia Museum of Art. So, that is my highlight tour of what some of the highlights are of tours and talks I have just personally given. So you must multiply those by all of us that do this work. And I will just close by saying two things. I want to say that I know that these are difficult times. And it might seem that the arts are something not as serious as other things in our world. But I have to say -- And this is a personal thing. I'm not speaking for the museum here. But driving in today, I thought about the world that we do live in and how everything is so connected. And I think that, in fact, in these times that are so dispiriting, art is one 550 Whole - 5/10/04 - Bill 040313 thing that lifts us up and is needed so much, that if anything we should be looking for ways to further fund the arts, instead of decrease the funding. And in a time when we have seen humanity displayed, the humanity that is on display in the Art Museum is more necessary than ever. And in the time when intolerance is forever on display right now, I have to say that the museum houses work from all cultures, from all peoples. In order to understand the work from other cultures, we need to understand those cultures, and the Museum certainly builds something very necessary, which is tolerance. And last of all, in a democracy, the work in the Museum, the work of artists builds our understanding of the individual voice in this world. And so, just in order to close this little talk that I've been privileged to give you today, I just want to say that I 551 Whole - 5/10/04 - Bill 040313 would sincerely like to invite every member of Council to take a tour with us. And as one of the guides behind me suggested, if you prefer to take a tour with the blind individuals who are doing touch tours or the children who are on the school tours, I'm sure that we could accommodate you and would love to do it. Thank you.
Thank you very much. It's quite apparent that you truly, truly love what you're doing.
We do indeed love our work. I'm Cindy Blank, another of the guides. And just briefly... Laura might have said it, not quite as clearly, but there are about 250 volunteer guides. Each of us commit at lease a hundred hours a year to meeting, greeting and teaching the public. Now, Laura covered very eloquently the accessible programs. That is, those 552 Whole - 5/10/04 - Bill 040313 are the programs designed to make art accessible to everyone, whether they be handicapped, sight impaired, or physically challenged in any way. And we certainly have a widely developed diverse program in that regard. I would like to address, in addition to that, our school programs. I don't know how many of you are aware of the number, but I think it's really important to know that we see 80,000 school children in the Museum every year. We as guides supplement some staff, the staff teachers who also teach those students, but many of us are volunteer guides who do the teaching. These kids come from every District in the City. As well, we draw heavily from the suburban areas. They come from every type of school, and every age group. They come from the private sector and the public sector. So, you need to understand that these 80,000 kids are the hope of the 553 Whole - 5/10/04 - Bill 040313 future. There's -- There are -- That's an enormous number. The Education Department prepares those kids. There's a number of posters being held up behind us. These are just some of the materials that are prepared by our Department of Education. These go into the schools. These particular posters go into the schools, into the classrooms ahead of time so that the children can come to the Museum prepared. And therefore, it kind of enhances their Museum experience. And the small amount of time that we do have with them is, you know, much more intense because of their having been pre-prepared with this kind of information. And this is a very small part of what is prepared by the Department of Education. Also, I think Laura, again, emphasized accessible programs, but we do see the public. And I guess Laura did cover that pretty well. Of the people that 554 Whole - 5/10/04 - Bill 040313 pull in on the buses from, again, the larger metropolitan area, the City itself, and around the country. And this is important. It's a showcase spot. Our Philadelphia Museum of Art and the arts in Philadelphia are a strong pull to the region. I think that's been presented really well by the three women that preceded us. And I guess on behalf of the volunteers of the Philadelphia Museum of Art, I'd like to thank you all for giving us a chance to speak with you today.
Can we just have a show of the hands as to how many of you are volunteers. (Indicating.)
There are 500 volunteers, about which half of them are guides. They volunteer in other areas of 555 Whole - 5/10/04 - Bill 040313 the Museum, in tutorial departments, you know, in other spaces. The guides are about 250 or so.
Thank you very much. The Chair recognizes Councilwoman Brown.
Thank you, Madam President. Good afternoon, arts world. Let me first commend both the leadership, the membership, and all of us who are art enthusiasts, for the way you have mobilized and galvanized everyone in the City who cares about the arts, and in many ways have pumped up the volume, if you will, and reminding us of the domino effect that will come with this proposed budgets cuts to the arts. I'm persuaded to add a bit of levity to this, in a way to assure you that we do get it. And you know, if I was a choreographer of this group of 17, I would say that we're getting all of our 556 Whole - 5/10/04 - Bill 040313 arabesques in the same direction, and we're all kicking in the same direction. And first a music director, I would say we're all singing the same chorus. We do get the fact that arts are a core service of our City. So you should be assured of that. There are discussions that continue, with regards to restoring and in an extremely substantial way, the funding to all of those organizations and departments that have been unfairly... unfairly hit by this budget deficit. Thank you for your testimony and for your enthusiasm. Keep it going.
Thank you. The Chair recognizes Councilman Cohen.
Thank you, Madam President. I want to echo the comments made by Councilwoman Brown. We think you've done a great job. You enliven the City, and you enrich it at the same time. And we thank 557 Whole - 5/10/04 - Bill 040313 you and hope you continue to work. But I did want to say to the Cultural Fund, I hope there will be a reconsideration of the item concerning the amount of support you can give these small local groups, the very small groups that have very small budgets. I understand Councilman Rizzo and I have raised at the last meeting, I believe it was, the question of changing the cap of percent to 50 percent, the amount of 13 support you can give to these small local 14 groups. 15 I think you will hear probably 16 further, from some of us at least, because 17 we think it very important that you 18 encourage these very small groups because I 19 think that's from what -- from those small 20 groups grow these kind of groups, this interest. And we're hoping you're going to be able to maybe reconsider this at a next board meeting, to give the small neighborhood people the support that they 558 Whole - 5/10/04 - Bill 040313 need. And the amount of money is so small, I understand it's probably not involved more than about $25,000 over a year, to give small groups the encouragement, that if they score high by your rating system on how they perform, they can get up to 50 percent of their budget from the Cultural Fund. So, we hope you'll consider that. Do I speak correctly, Councilman Rizzo?
On your interest in the matter? Because it was expressed at the last meeting. I just think it's so important to encourage art and culture at the very minimal levels, as well as the larger levels. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Rizzo. 559 Whole - 5/10/04 - Bill 040313
Thank you, Madam President. I've had the pleasure, and I've truly enjoyed being the Vice President of the Cultural Fund. And I've learned so much about how such a little bit can make so many people so happy and do so much good. It is obvious I'm ending my term, with after two terms there's a limit. I thank God there's not term limits in Council. But after two term limits, after two terms serving, again, I've seen so much good and happiness created. And as Councilman Cohen just said, that we're going to do whatever we can do here. And I think there's a lot we can do. I think this is the time when the strategy of a budget is obvious. And we're going to make sure... At least I'm going to do all I can do, and I know my colleagues here that spoke are going to do what they can do. But we really, truly need to get 560 Whole - 5/10/04 - Bill 040313 this fixed because, you know, the strategy of a budget, for all these years that I've been around this stuff, either directly or indirectly involved, you hear about firehouses being closed. You hear about police officers being let go, firefighters, et cetera. But never in my life have I heard about anybody suggest to cut a cultural budget. You know, I don't want to use the word stupid, but it... I can't think of another word, that anyone would really consider cutting into such a very, very small piece, like, one tenth of one percent of the entire budget. Just seems to me to maybe be more of a strategy than a real sincerity. So, I hope that's the case. We're going to fight to make sure that that gets restored. Thanks. Thank you, Madam Chair.
Thank you. The Chair recognizes Councilman Kelly.
Thank you, Madam 561 Whole - 5/10/04 - Bill 040313 Chair. I just want to say that I want to -- I agree with comments made from Councilman Cohen and Councilwoman Brown. I want to thank you for your excellent testimony today. One of the points I'd like to... I'm glad that you brought out was that by helping the cultural institutions in our City, we also will be helping the hospitality industry. And they're intertwined. And I think that by helping one, we're absolutely going to be helping the other. They're the vehicles that are going to generate some tax revenue growth in this City. And this is very, very important. I also am delighted to know that there's so many volunteers out there that are helping in these institutions. I think it's a feather in your cap. And I think, as expressed today, I think that you have a lot of support on this Council. I know there are many other members that are going to do everything they can to make sure that 562 Whole - 5/10/04 - Bill 040313 those cuts are restored or that the proposed cuts are eliminated. All right. Thank you again for your excellent testimony.
Thank you. Any other comments or questions from members of the Committee? (No response.)
Seeing none, thank you very much. You've been very patient. Thank you. (Applause.)
Do we have someone to testify from the Mural Arts? Do we have someone to testify? Please identify yourself for the record.
My name is Maria Pandolfi, and I teach for the Mural Arts Program. I'd like to thank you because your office got rid of the drug dealers on my block in three weeks. So, thank you very much for that. I've been an art educator for 17 563 Whole - 5/10/04 - Bill 040313 years. I taught for the School District of Philadelphia for many years. Now I'm teaching for the Mural Arts Program. A few years ago there was a study done, and they found that students got much higher scores on their S.A.T. tests and other tests with a good art education. So it's great to see a beautiful picture. It's great to have tourists come and look at the beautiful art. It is entertaining, but art education is extremely important for other reasons. I am severely learning disabled. I'm dyslexic and I have ADHD. I grew up in Philadelphia and South Philadelphia. And if it wasn't for an art education, I would not have a master's degree from the University of Pennsylvania, a bachelors degree from the University of the Arts, because I needed to learn everything: Math, English, history, every subject, through the arts. And there are so many children in this City that also have learning 564 Whole - 5/10/04 - Bill 040313 disabilities. Learning disabilities are on a rise. And to educate these students, our program is extremely important. Dawn, would you like to say something?
Hello. My name is Dawn Flowers. I'm also a teacher in the Mural Arts Program. And what I wanted to say is I started as a volunteer. Everybody, I'm sure, here knows where Logan is. I'm a resident of Logan. Mural Arts came into our neighborhood to prepare a mural with several children. And through volunteering, I became an employee. By working with Mural Arts, I've learned a lot about children and their development, and different things that they need, as a tool, like she said, to succeed in school. We crammed them with math, English, but we don't give them anything to -- as an incentive to... We basically just don't 565 Whole - 5/10/04 - Bill 040313 give them anything. And the Mural Arts program is very important program. And I think that if we can keep this program alive and keep supporting our children, I think the least that we could do is support them with an artistic venue of some type. And Mural Arts is very important. I just want to say for the neighborhoods of Logan, Kensington or wherever, if we could just keep them open. Thank you.
Thank you. Thank you all very much. Thank you. Do you wish to testify?
My name is Paul Santaleri. I thank you very much for listening to my testimony. I have done a number of murals with the City with hundreds of kids. I've 566 Whole - 5/10/04 - Bill 040313 worked... I've done a number of projects in all different neighborhoods of the City, every neighborhood from Logan, from the area, from all different sections of the City, Fairmount, North Philadelphia. And I'm amazed at how, with so very little money, how far you can go with the arts with just a tiny bit of money that goes to the Mural Arts Project that creates such an amazing effect on the kids. I got to say that each time I work with kids in the City, that I'm just amazed at how they change after a tiny, after a tiny bit of time working with me. Like I said, I've worked with hundreds of kids, and it just is amazing. I've done murals in Mexico and Dominican Republic and Spain and all over the world. And I've done some here. And the fact is, this is a place where people really recognize the arts that are booming here, and the murals that are all over the City. I mean, if we look up, and we see 567 Whole - 5/10/04 - Bill 040313 the stuff that's all over this beautiful room here, this is what we're doing to our City, is we're giving a little bit of life to the City. And that's why this is such an amazing room, because the arts were put into it. And it's the same with the arts and culture, that if we can keep putting a little tiny bit of money, it goes so far. That's all I want to say. Thank you so much.
Hi. My name is Carl Yoder. I'm a mural painter. I've been painting murals for the past three years with the Mural Arts Program. I'm currently working on my 11th mural in the City. I'm speaking here today because I'm concerned that I may no longer be able to continue earning a living as a mural painter. The budget cuts to the Mural Arts Program that have been proposed would seriously jeopardize the careers of many 568 Whole - 5/10/04 - Bill 040313 artists living and working in the City. I along with at least 40 other artists work full-time as mural painters. The career path of the artist is not nearly as linear or secure as many other occupations. The majority of students who are going to school in hopes of some day being able to support themselves with their craft end up having to work in menial labor, doing the work they love in their free time, if at all. Eventually the struggle to pay the bills, and try to paint and promote their work, becomes too much. The vast majority of painters will give up. Despite this, I spent seven years in higher education being trained as a painter, with the hope that some day I would be able to support myself doing what I loved. For the past few years I have been living my dream, supporting myself with the craft that I love and have been trained to 569 Whole - 5/10/04 - Bill 040313 do. I'm sure everyone in this room 4 understands the importance of one's occupation to their happiness and well-being. There's an entire community of artists who owe a great debt to the City and the Mural Arts Program for their continued livelihood. Philadelphia is renown as the mural capital of the United States. It is a distinguishing quality of this City. If the program is crippled by these budget cuts, then Philadelphia will lose this distinction, and consequently the tourism that is a result. Northern Liberties and Fishtown are examples of how a flourishing art community has generated business and development in the City. The daily experience of the mural painter is a testament to the positive influence of his or her work to the community. 570 Whole - 5/10/04 - Bill 040313 Every day people come up to me while I am working and express their gratitude and appreciation for the mural. Especially in poorer neighborhoods, you can see and hear the joy that is brought to people as they pass by the mural. Just the other day I was stopped by someone while I was working at my mural at 52nd and Rodman. I was a little nervous because they were so serious. I thought he might be angry. But it turned out he was just very intent on telling me how grateful he was for the mural. The guy is a custodian at the building across from the mural, and had been watching its progress. He talked at some length about the positive influence the mural has had on his neighborhood. I feel that the murals have had a significant impact on these neighborhoods, and are such a positive part of Philadelphia's image. The murals function as 571 Whole - 5/10/04 - Bill 040313 advertisements for the City, tourist destinations, and keystones for the beautification and improvement of neighborhoods. I hope that these facets will be seriously considered by the Council. Thank you.
Thank you. Kindly identify yourself for the record.
Hi. My name is Michelle Wilson, and I'm hopefully not going to read. Too much has already been said. But I work in two programs with Mural Arts, the Big Picture and the Art Works which is the anti-truancy program. And I really wanted to talk about the effects that the anti-truancy program has had on the youth that I've worked with. One of the things that I've really seen, is that these kids come in, and they have this identity that they are a screw-up and they don't have a future. And through mural arts we really 572 Whole - 5/10/04 - Bill 040313 changed that. I mean, with -- I mean, the sense of accomplishment they see, they really learn that they can make -- they have a future, and they have talent, and they have opportunities. And I think that the money that is invested in mural arts in truancy prevention and delinquency prevention has really probably done a lot to also save money in the long run, through probably long-term crime prevention. And I think that's a really important thing that should be remembered here today. And thank you.
Thank you. Any questions or comments by members of the economy? (No response.0
Thank you all so very much. Thank you for your patience. I know you've been sitting here all day. Thank you. (Applause.) MR. McPHERSON: The next witness is 573 Whole - 5/10/04 - Bill 040313 Jack Hunter.
Good evening, Mr. Hunter. You are extremely, extremely patient. Thank you.
Well, I am too passionate about tax reform. And thank you for hearing these last words on tax reform. My name is Jack Hunter. I'm a Certified Public Accountant, with a practice in Center City. I'm also a resident of Center City for the last 43 years. I represented the Philadelphia Chapter, the Pennsylvania Institute of C.P.A.s, as an advisory committee member to the Tax Reform Commission. I'm here today to ask that you, as you consider the budget, support the pending legislation, to enact the recommendations of the Tax Reform Commission. We need tax reform now, which I believe would help change the business climate in the City, and encourage new 574 Whole - 5/10/04 - Bill 040313 business activity, and improve fairness of all taxes to all taxpayers. All too often my clients discuss with me the burden of Philadelphia taxes. I have been telling them that we're working on it. It's now time to complete the working-on aspect of this effort and enact the recommendations of the Tax Reform Commission. Thank you for providing this time for this public input.
Thank you, Mr. Hunter. Are there any questions from members of the committee? (No response.)
Seeing none, again I thank you for your patience. You've been very patient. MR. McPHERSON: The next witness is Sherry Williams Riles.
Good 575 Whole - 5/10/04 - Bill 040313 evening. Please identify yourself for the record.
My name is Sherry Williams Riles, and I am the Vice President of Up Again Incorporated. I'm here today to represent Baker Playground at 55th and Lansdowne Avenue. Madam President, Council-at-Large, City Council, and to all the people that have been just patiently waiting with me to fight for our children, I would like to first say thank you for allowing me the opportunity to speak on behalf of the families surrounding Baker Playground at 55th and Lansdowne Avenue. I would also like to apologize beforehand if I say anything that's not politically correct because I don't know a whole lot about this politics.
Okay. But based on... With all due respect, and the decisions of possibly closing the playgrounds, I can see 576 Whole - 5/10/04 - Bill 040313 how one could look on a map where Baker is located, and adjacent to Tustin and Shepherd, and think that this is one of the once that can be closed. But because there's so much going on at Baker, and because the need for this playground to exist in this community is so desperate, I'm here to beg you: Please, do everything possible not to close this. At a time when our children are being -- being forced to grow up beyond their years because of increased influence of the television, the internet, the movie industry, kidnappings, drug dealings, school violence, to include weapons and beatings, once begin, our children are being put at risk for possibly destroying what they consider a safe haven, and as well as part of their family. Many of these children come to this playground because they feel safe and loved. You may be saying to yourself, well, how does that, you know, help balance the budget. But where there is no love, 577 Whole - 5/10/04 - Bill 040313 there is no hope. For our children or for that matter adults feel not wanted or displaced, they go to where they do feel wanted. That's where the gangs come about. That's when the drug dealers surface boldly, crime increases, and prison walls expand. Our taxes, insurance and additional money is spent on police protection. Some of the reasons why Safe Streets is working is because these children do have these playgrounds, even if some of them are in bad conditions, to go to. Something to them is better than nothing. It begins with giving a child a chance, giving him an environment where he can play, where they can play, just play. I realize that might be a word that sounds foreign, but that is the reason why many of our children are bucking up against authorities and adults in general, because they don't know how to be children. We won't allow them to be children. We force them to grow up before their minds have 578 Whole - 5/10/04 - Bill 040313 time to develop basic reasoning skills. And most of these reasoning skills are developed in playgrounds such as Baker. The City has recently spent millions of dollars in giving us two great stadiums. Unfortunately, many of these children I'm representing will never see inside of these stadiums. The cost is exorbitant to enter for the majority of these children's families. And one hot dog or soda and some popcorn is what some of these mothers spend to feed four and five of them. Once again, our children are being derived. How can they become our future when the things that help build their future are being constantly taken away? There are two day care centers which are less than one block from Baker, three schools which are within a six-block radius. The decision to close playgrounds, especially this one, increases the chance of the children standing on corners selling 579 Whole - 5/10/04 - Bill 040313 drugs, selling their bodies, selling their souls to the enemy. A. to teach them how to swim. I personally raised my sister's three children. And one of them trained to become a lifeguard at Baker at age 16, and became the head lifeguard for several years afterwards. Now, she's married and working in child care because of the experience. Something as simple as an after school program is a great asset to a single mom, who must try to work effectively and efficiently, while trusting someone for the safety of their children. Some of our parents don't feel comfortable for their children to have keys to their home yet, and they tell them, well, go to baker until I can pick you up from work. Baker is a playground that was in 580 Whole - 5/10/04 - Bill 040313 ruins up till 1990. It was a playground that was overrun by drug dealers, drug users, and prostitution, filth and glass. And even then, the children were entering the grounds because there is no 7 other place close by for them to go.
The child -- The child from ages five to seven cannot walk to Shepherd or Tustin Recreation Center. It's just too far. And even through the older children can walk to them, their pools always look like sardine cans with the children from their own areas. Baker Playground means a great deal to this community. They may not be astute individuals when it comes to the political process, and they may not all be homeowners. But they are still people, and they still pay taxes toward the day-to-day operations of the City. Please, I beg you, do not close the door on this community. We have worked 581 Whole - 5/10/04 - Bill 040313 very hard to bring Baker Playground back to a place where families can come with their children, and even a place where children feel safe enough to come alone. We have an after school program. The soccer team utilizes the neighborhood school that operates out of it. Because we have been neglected for a long time. Instead of closing Baker, this is a site that really should be built up. Our building is small. If it were expanded, much more could take place. We have a karate class, a community choir, and drill team that practices at the school because of Baker. Mr. Mayor said at the City-wide prayer in November that he would promise that the children would not be hurt. If this isn't hurt, I don't know what is. I personally worked with these children since 1991 as a volunteer. I do not receive a dime for my efforts. But the reward I see and the fruit that comes from 582 Whole - 5/10/04 - Bill 040313 this facility is remarkable. Since I began as a volunteer, I have seen individuals, six individuals, go to college, one received a full scholarship for basketball because of Baker Playground. One is married now and is giving back, helping the drill team. One was a lifeguard and two are training for lifeguard right now. We have witnessed many honor students. And Baker has won several prizes after their -- from their after school program and their summer camp. Although we are small, great things are happening at Baker Playground. And our community incorporated feeds once a month, and the community looks forward to this meal. With welfare cuts and food stamps limited, these families need what Baker has to offer. Please, please, please do not close Baker playground.
Thank you. Thank you. 583 Whole - 5/10/04 - Bill 040313 The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Good evening, Sherry, and the many supporters that you have brought. I really do appreciate you coming in this evening. Sorry it took so long. I can only echo the comments that you've made. And we've had an opportunity to work together over many years. My colleagues, some of them who have the photos that you left, expressed their surprise that there would be a proposal to close Baker. And whether they've visited the facility or not, they can certainly see from the pictures that it is active, that it is alive, that there's a lot of stuff going on at Baker. As I shared with you, I did discuss this matter with the Managing Director and the Recreation Commissioner and others who came to see me. What you did not mention, but that I 584 Whole - 5/10/04 - Bill 040313 did share with them is that, you know, Baker was not always what it is today. And it was only because of the community, yourself, Gerald, and many others. And Baker had either been officially closed or essentially closed when the drug dealers and other elements in the community took over the center away from the children, the City Recreation Department at that time, not under this Administration but in the past, had essentially abandoned this small center, at 54th and Lansdowne, and you and Gerald and many others in the early '90s literally took the place back. There was no programming. There was no activity. There was nothing. Community people decided to take a center back over the course of a year, over the course of a winter, literally sleeping in the building to make sure that the criminal element was out. Under the Rendell Administration, programming and staff was put into place. 585 Whole - 5/10/04 - Bill 040313 We had that wonderful... And we still have pictures of the pool being reopened, Mayor Rendell, former Phillie Terry Mulholland, Councilman Kenney, myself and others, out there that day. And I shared all of that information with the Managing Director and the Recreation Commissioner, who knew nothing of the history of this center. And all I could say to them was of the, at the time, three facilities that were on the list then -- now I have seven in my District -- this is one of the worst examples of a proposed closure. The facility is not near any other facility. Kids in that neighborhood are not going to Shepherd. They're not going to Tustin. They're not going anywhere else. They will be left without any facility themselves. And so, I've obviously shared with you and I've shared with others, I'm opposed to this proposed closure not only of Baker but the other six that have 586 Whole - 5/10/04 - Bill 040313 somehow miraculously ended up on a list. If we need anything in this City, we have presentation by the folks in arts and culture, but if we certainly need anything else in this great City of ours, it's certainly more recreation, not less. So, you have, I think, significant support here in the Council not only for Baker, but many other facilities across the City. And what we should be talking about is how we're going to enhance the services that are available to keep our kids out of trouble, to keep them occupied, to keep them learning, and to keep them focused in their own neighborhood. So, I appreciate you coming in. I'm sorry you have to come in under these circumstances. But I do greatly appreciate your presence, and your testimony, and your continued commitment to the children out in West Philadelphia. Thank you, Madam Chair.
Thank you. 587 Whole - 5/10/04 - Bill 040313 Are there any other -- any other questions or comments from members of the Committee? (No response.)
I'd just like to say one more thing. I just would like you to understand I do have a new-found respect for what you guys do. I don't think I could do it. I mean, your tenacity, your long suffering. Gallatians 5:22 is definitely operating in this place.
You're volunteering all of your time, and you probably are very responsible for saving Baker.
All right. I also would 588 Whole - 5/10/04 - Bill 040313 like to submit that I have 526 names on the petition as well.
Thank you so much. There were quite a number of people that were here and left. I really don't want to call out all of the names. Do we have anyone here that would like to testify? (Hands raised.)
Please come up to the witness table. Good evening. Please identify yourself for the record.
Okay. I do have written testimony for the Clerk. So if the sergeant-at-arms could pick it up. My name is Fred Mauer, and I want to testify on the operations budget in the Streets Department, and it's Traffic Control Unit. I think every mother, worried about their child's safe crossing, who must try to deal with the Streets Department before 589 Whole - 5/10/04 - Bill 040313 we repeat the same frustrations that we all get from the Streets Department's attitude of indifference. I want to describe some problems that I encountered and suggest solutions. One major problem is the intersection of Rising Sun and Adams Avenue, near Tacony Creek Park. After years of dealing with the 11 Streets Department and PENNDOT, they did a 12 project. But they made it worse in many ways. For one worse example, Streets Department told us that they would install a dedicated left-turn signal. But after the project was done, there was no 18 left-turn signal. The entire project actually resulted with making more pedestrian harm instead of safety to park and street users. The missing left-turn signal was addressed by a special City Council ordinance to the Streets Department, but the ordinance was not fulfilled. 590 Whole - 5/10/04 - Bill 040313 I was present when Councilman Nutter and Rizzo questioned the Streets Department official if the light signal would be installed. The Streets Department Traffic Manager Denny refused to answer. I do not understand how the Streets Department can willfully disobey that ordinance. It seems to me that someone there should pay for such refusals. The whole Adams Avenue project and pedestrian safety issues was referred to the Governor's Office. Rendell's written reply to me gave the City an obligation that the Streets Department would take the matter and set meetings. The Streets Department has refused to meet or to hear complaints that are now two years old. I wonder: Does City Council want this misbehavior to continue and pay for this traffic unit malfeasance in the Streets Department? A second major issue is the closing 591 Whole - 5/10/04 - Bill 040313 of 20th Street. Because the Streets Department made a deal to give LaSalle University superior rights to the public right of way on 20th street, which was opened 81 years ago as two ways, the Streets Department Control Unit took a recent action to close it down halfway. And that has inflamed the residents, who are actually losing full access to their homes, and the free travel that existed when they made their homes here. I think it its outrageous that the Streets Department Traffic Control will now do a traffic study after the facts when they distorted the existing traffic. The Traffic Control Unit promise really just a pablum excuse. And who will ever trust this Traffic Control Unit again? They won't even dignify their actions with us -- to us with relevant facts or to show their motive, records. And they've even refused to meet with the affected community, after they made requests. 592 Whole - 5/10/04 - Bill 040313 I think the Streets Department Control Unit is dishonest in dealing with our local public issues. We need a balance against the Streets Department's ingrained habit to favor cars and higher-speed highways on City streets, rather than to consider the effects on pedestrian and residential life. I think one solution is to have the Streets Department create a special traffic control complaints agency, where all public complaints will be heard timely and investigated fairly, with the effort of resolving public welfare conflicts and in favor of the residential public first. This may actually need a judicial arm or a public ombudsman approach in the Streets Department. I think another solution is to split the Traffic Control Unit out of the Streets Department and contract it out. The work of the Traffic Control Unit can actually be done by traffic consultants.
And I think a private company 593 Whole - 5/10/04 - Bill 040313 with consumers' interest may give us more satisfaction with public hearings and by public actions on public complaints than our Traffic Control Unit's current arrogance and holier-than-thou attitude toward us. I request City Council to amend the operations budget in the Streets Department with special conditions provisos for its Traffic Control Unit. And I think it's time for City Council to use the powers of the budget more efficiently than just a rubber stamp.
Thank you. The Chair recognizes Councilman Cohen. Your light is on. Did you want to be recognized?
Well, it was on here. Okay. Any questions from members of the Committee? Councilwoman Tasco.
No. I'd just 594 Whole - 5/10/04 - Bill 040313 like to say that I thank Mr. Mauer for coming in to testify. That traffic light is in my District, and we have had an awful time with the Streets Department. Even had the state say that it's okay to install the light. So the next option we have, Madam President, is to go to court.
Thank you very much. Please approach the witness table. JUDGE DEMBY: I'm Pamela Demby.
So nice seeing you. And thank you. I know you've been sitting there for quite a while. JUDGE DEMBY: Oh, well, so have you. And thank you, President, and members of Council. You have, all of you, been good friends for my adult life. So let me start, as my mother would want me to, by thanking you all for not only listening to 595 Whole - 5/10/04 - Bill 040313 all of us, but for undergoing what you are undergoing right now. You don't have enough resources. You have so many demands, all of them valuable, all of them worthy. You are also required to make choices for which you cannot see the end results, and we all thank you for doing your best. I'm here to make a small pitch on behalf of the library. As you know, I'm the President of the Friends of the Free Library right now. And you have stepped up to the plate time after time and done so well for us. Because of the state cuts that we suffered last year, we have had, since the beginning of this past July, which is ten months, 436 full day closings of branches. And the days when we could open a branch with a real thin staff, say, just a librarian, have disappeared forever since that terrible incident at the Independence Branch where that child was assaulted. We need security, plain and simple. 596 Whole - 5/10/04 - Bill 040313 In addition to these random closings, which mean children come to do their homework or to appear at what is the largest after school care program in the City, the library branches, they arrive to find nobody there and the door closed, and you don't need much imagination to see what that can lead to. What I can add, that the staff of the library, I think probably couldn't tell you is that what's happening to the Saturday and weekend -- and week night closings. Ordinarily, as you know, beginning in September, we keep the libraries open on Saturdays and a couple of evenings a week for children to do homework, for people to look for jobs, to learn English, all the things that our libraries do. Last week 17 branches were without Saturday service. This week the number is 19. And by the next week or so, we'll be up to 21 or 22. And all I'm going to do, if you'll 597 Whole - 5/10/04 - Bill 040313 just indulge me, is just read the names of the branches because I think it will hit you all. Fishtown, which is 1200 East Montgomery Avenue. Frankford, in the 4600 block of Frankford Avenue. Fumo in 2400 South Broad. Greater Olney, 5500 North 5th. Haddington, on North 65th Street. Haverford, 5500 Haverford Avenue. Holmesburg, up at 78th and Frankford. Kensington, down on Dauphin Street. Lehigh at 6th and Lehigh. Logan, on Wagner Street. McPherson Square which is 6th and Indiana. Nicetown Tioga, 3700 North Broad. Passyunk, 19th and Shunk Streets. Queen Memorial, 1200 South 23rd. Rodriguez, 600 West Girard. Richmond on Almond Street. Santora which used to be the 598 Whole - 5/10/04 - Bill 040313 Southwark at 900 South 7th. Wadsworth, 1500 Wadsworth Avenue in West Oak Lane. Anybody here I've missed? Anybody here whose constituents aren't going to be affected? And with that in mind, I'll just ask you to do your best to find that little bit of extra money to help us out. I, you know, had prepared testimony to give you all sorts of reasons to do it. But you've all been so good to the library over the years, especially at this late hour, I won't do it. I think about $2 million would probably at least deal with the Saturday closings. And beyond that, it's... I don't know where we will find money to start buying books and materials again. We've bought nothing since December. And, of course, a library pretty quickly becomes pointless without new materials. And I know that you will do your best. And 599 Whole - 5/10/04 - Bill 040313 I thank you for what you have done and for you will do.
Your Honor, you mentioned the emergency closings. Is that because of the lack of staff? JUDGE DEMBY: Yes.
I think when Mr. Shellcott was in, that was one question that was asked of him. And he indicated that there were approximately a hundred, was it not, Charley? MR. McPHERSON: A month.
A month, because of the lack of staff and consequently there were emergency closings.
I think what happens is, when my number, which is 436 full days, if you take a half day here and a half day there, that's how it adds up to about the same number. It has obviously accelerated as staff have been let off, and as we've had to increase our security requirements since 600 Whole - 5/10/04 - Bill 040313 the tragedy at Independence Branch.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. I'll be brief. Your honor, I heard what you said with regard to the $2 million. Is the bulk of that money to resolve the issue of... It's either or is it... Did I read in 11 your letter it might be upwards of 19 12 branches now that are closed on Saturdays? 13 JUDGE DEMBY: Yes. That is the 14 first crisis that we think we need to 15 resolve. 16
Does any of the 17 $2 million help get to the issue of whether it's a hundred a month or, you know, four hundred some odd full and/or half day closings that have taken place over the past couple months? Does it help to address that issue as well? JUDGE DEMBY: Yes, it will. You know, the more staff you have, the more flexibility that you have to run people 601 Whole - 5/10/04 - Bill 040313 around to try to stave that off.
Okay. Right. All right. So, two million is at least a figure that directly addresses the Saturday closings and helps to reduce the emergency closings. JUDGE DEMBY: Yes, sir.
Thank you. Any other questions? The Chair recognizes Councilman Cohen.
When was the last time library was in these desperate straits? JUDGE DEMBY: I don't know, sir. I think it's been quite a while. Over the last several years the libraries, I think, have been on an upswing. Until the latest crash at the state level, the state was finally coming up with 602 Whole - 5/10/04 - Bill 040313 some money for the libraries. And by the way, if you'll keep leaning on your colleagues in the state, that will be wonderful. And with money from the state and with the help of you folks here, as you know, we renovated all of the branches before we even thought about doing anything to Central. So that now people can go to libraries that have computers, that the ceilings don't leak, and things like that. So, until fairly recently, we had been looking at --
-- in the amount of money that was cut out by Governor Rendell when he submitted that first budget? JUDGE DEMBY: Yes.
How much of that has been restored; do we know? JUDGE DEMBY: We don't know. I mean, I hear numbers but... COUNCILMAN DiCICCO: 350, 400,000. 603 Whole - 5/10/04 - Bill 040313 JUDGE DEMBY: Okay. Is that what you heard? COUNCILMAN DiCICCO: Not that much. JUDGE DEMBY: Maybe we could do bingo at the library branches.
Rendell did it to us at the state level, and apparently the Mayor is really going to do it to us at the City level. No further questions.
Thank you very much. Your Honor, thank you. JUDGE DEMBY: Thank you.
You've been extremely patient. JUDGE DEMBY: Thank you very much.
Anyone else to testify, please approach the witness table. Good evening. Kindly identify yourself for the record.
Good evening, Madam President. My name is Joshua Vincent. I 604 Whole - 5/10/04 - Bill 040313 am the Director of the Center for the Study of Economics. Today I'm wearing a hat also as President of the Henry George Foundation of America. Some of you might have received some information in mailings from the homeowners. I'm here and I'm alone. Nobody will know what happened, Counselor. And essentially, the Henry George Foundation of America, after having served for several years as providing information about land value taxation, the City of Philadelphia joined with the Tax Reform Commission, and we hope that the entire package will pass. Interestingly, I feel sort of like the orphan stepchild of the Tax Reform Commission. This morning I arrived at about 8:30 with hundreds upon hundreds upon hundreds of homeowners who brought the letter that we had sent them, telling what would happen to their taxes if a land value tax was implemented. 605 Whole - 5/10/04 - Bill 040313 They stayed for many, many, many hours. But they're not as organized as, I guess, other people are. They're just regular people. They didn't get sent down by their union. Their boss didn't give them a day off with pay to show up. We would like to have taught them a chant, but they don't chant very well. And I think they're too polite and considerate of you to do such a thing. So they stuck around for a long time, and I think essentially I'm the last one. I don't want to pretend to be a representative of them but last man standing. I would remind Council of what we've said over the years, that the land value tax is the part of tax reform that will address neighborhood issues. It is the part of tax reform that does address the little guy, regular people. You asked about the land value tax, Councilman. 78 percent of all homeowners will see some reduction. 606 Whole - 5/10/04 - Bill 040313 (Councilman Cohen said something, away from the microphone, not reportable.)
It's in the numbers. It's been in the same numbers over and over. I've provided them over the years to Tim Kearney, your -- (Councilman Cohen said something, away from the microphone, not reportable.)
Well, they're in your files, because I spoke to Tim Kearney over many days over several years about how the land value tax will reward the most at-risk neighborhoods. We're talking about the River Districts, Olney, East Oak Lane, Holmesburg, Kensington. These are the neighborhoods where the highest percentage of savers under a land value tax will be. In Juniata Park, for example, 90 percent of homeowners see a tax cut. But again, it has to be balanced with the rest of the tax reform program. I believe the land value tax is a stand-alone program, and it's a good 607 Whole - 5/10/04 - Bill 040313 program, to reward the people that don't have anything that exists for them as far as programs go. It's a tax cut for people that generally don't have a voice in our City. I think it's a shame. Now, on Wednesday many of the people that we sent the letters to will be here. And I'm sure they'll be grateful to give their views to you, the Council. And considering the huge numbers of people that reacted and responded to the issue of land value tax, I'm sure that they'll all look forward to your affirmative vote, the land value taxation. Thank you.
Thank you very much. Any questions or comments from members of the Committee? (No response.)
Our next 608 Whole - 5/10/04 - Bill 040313 witness. Good evening. Kindly identify yourself for the record.
Good evening. My name is Jamie Bischoff. I've been a resident of Center City for the last 7 years. 8 I'm a partner at Ballard Spahr 9 Andrews and Ingersoll, and I'm also on the 10 Board of Directors of the Mural Arts 11 Advocates. 12 And I'm here to say something about 13 the mural program, in all of those 14 capacities, but primarily as someone who's 15 been living in Philadelphia for 22 years. 16 I understand that the Mural 17 Program's budget is potentially going to be 18 cut. And I can understand why people think 19 we already have enough murals in 20 Philadelphia. 21 But I think when they say that, 22 they're focusing primarily on Center City. And I think they may not realize how many people there are in so many other neighborhoods in Philadelphia who want 609 Whole - 5/10/04 - Bill 040313 murals and have gone to the mural program asking to have a mural in their neighborhood. I also think people may not realize the process that the program goes through when it creates a mural. It doesn't just take an artist and plunk a mural down in the middle of a neighborhood. The mural program people, and significantly Jane Golden, go into the neighborhood and attend community meetings, and meet all the people in the neighborhood, and start a whole dialogue about what the mural -- what the people would like to see on the wall in their neighborhood. And that's one of the reasons why so few of our murals have been marred by graffiti. The other point I wanted to make about the mural program, and the thing that I think a lot of people don't realize, is that they have all these art education workshops for kids after schools, in neighborhoods where kids go to schools that 610 Whole - 5/10/04 - Bill 040313 don't have art on the curriculum. And I really believe that the need -- there is a very deep human need to express yourself, to find a way to make sense of your experience. And when I visited these art education workshops over the last five years and talked to the kids, and looked at their artwork, and saw how proud they were of these things they were learning to make, I was very impressed by how valuable this is, especially in neighborhoods where kids don't have any other way to make art and to learn about art. These kids go to these workshops day after day. They're never absent. They love it. They seem to love learning how to create things. And I think that's a wonderful outlet for them. And I would hate to see the mural program have to shut down any of those art education workshops. Thank you.
There are any questions or comments from members of the Committee? (No response.)
Thank you so much for your testimony. And we did have a group from the Mural Arts Program testifying earlier. Were you here? Were you here when they testified?
Oh. Okay. They did present very good testimony. Thank you.
Thank you. Please approach the witness table and identify yourself for the record. SISTER MUHAMMED: Good evening. I thank you for the late hour and taking the time. I am Sister Muhammed, Chairwoman and CEO of the Lancaster Avenue Business Association CDC in West Philadelphia. I thought I had lost that opportunity also to speak on behalf of the 612 Whole - 5/10/04 - Bill 040313 Mural Arts Program. We certainly embrace the Mural Arts Program, as the previous lady indicated. And I was here during the testimony of the group. Again, I'm not familiar with the parliamentary procedures and did not know I should have stepped up to the mike at that time. However, the Mural Arts Program do provide an opportunity for collaboration. That is certainly something that we support in the Lancaster Avenue Business Association, and in our immediate community, and throughout the communities of Philadelphia. Not only do the art provide beautification to our blighted areas and our housings and examination our properties that have been so downtrodden for a long time, and brought communities together and children to be a part of that process, but for our business association and for our business corridor, it is embracing the revitalization process that is going on in 613 Whole - 5/10/04 - Bill 040313 our area as well. We in our collaboration connect with the Mural Arts Program. And not only do they provide scenery, different artistic expressions, but they also provide portraits, portraits of pioneers, and those who have come from a long time and been active in the communities throughout the years, to bring them alive again in our communities. We embrace that primarily because we were blessed with being able to provide a mural of my late husband, who was one of the long-time pioneers of the West Philadelphia area. With respect to that, I hope that you do take into consideration the need for this Mural Arts Program. It is a good thing. It provides collaborative effort. It pulls communities together, working together to build murals, structures, that introduces communities. Currently we are at Lancaster Avenue. On Lancaster Avenue we have 614 Whole - 5/10/04 - Bill 040313 several murals beautifying our corridor, as well as working currently on one specific one at 40th and Lancaster Avenue. Visit our community. Come out and see the direction that we are utilizing these art performances in. I'd like to thank you for allowing me that opportunity. And have a good evening. Thank you.
Thank you. I think we all agree it's a wonderful program, and we thank you for coming in to testify. SISTER MUHAMMED: Thank you.
Thank you. Anyone else to testify? (No response.)
Seeing no 20 one, this Committee will stand in recess until Wednesday, May the 12th, at 9:30. And I would like to remind my colleagues that tomorrow morning at 9:30 we do have the School District budget. (Hearing concluded at 7:45 p.m.) 615 CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing of The Philadelphia City Council, taken on May 10, 2004, and that this is a true and correct transcript of same. _____________________________ DEBRA D. WHITEHEAD _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)