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.