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.