COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Weds., December 16, 1998 11:15 a.m. - - - Bill 980845 - Creating Pavilion Market East TIF, approving the project plan of the PAID for the redevelopment of the Pavilion Market East TIF being the area generally bounded by Ninth St. on the west, Market St. on the north, Chestnut St. on the south, and Eighth St. on the east; making certain findings and declarations, all in accordance with the TIF Act, being the act of 7/11/90, P.L. 465, No. 113, as amended; and authorizing the Dir. of Finance and other officers of the City to execute documents and do all things necessary to carry out intent of this ordinance. PRESENT: COUNCIL PRESIDENT JOHN F. STREET COUNCILWOMAN AUGUSTA A. CLARK COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILWOMAN ANNA CIBOTTA VERNA COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 I N D E X William Hankowsky, President. . . . . . . . . 3 Philadelphia Industrial Development Corporation Ken Goldenberg, Goldenberg Group. . . . . . . 56 Clinton Connors, Chairman . . . . . . . . . . 60 Economic Development Committee Philadelphia Chapter of the NAACP Jerry Mondesire, President. . . . . . . . . . 63 Philadelphia Chapter, NAACP Steve Leshinski, Organizer. . . . . . . . . . 66 Jobs and Living Wage Campaign 3 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 P R O C E E D I N G S
Good morning, everyone. I'm sorry that you've been kept waiting. However, we're going to have to call a recess on the Committee of the Whole until 10:30 this morning. Thank you. - - -
Good morning, ladies and gentlemen. This is the public hearing and public meeting on Bill No. 980845, creating Tax Increment Financing District. I see Mr. Hankowsky is in the room at the table. The Chair recognizes him for remarks at this time.
Thank you. Good morning, Council President Street and members of City Council, and Committee of the Whole. My name is William Hankowsky. I'm the President of the Philadelphia Industrial Development Corporation. And I'm appearing today on behalf of the Philadelphia Authority for Industrial Development. I'm here today to testify in support of Bill No. 25 980845, which will create the Pavilion Market East 4 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 Tax Increment Financing District. As you know, this hearing is required pursuant to the state statute. Given Council's current schedule, presuming that the committee would want to approve the bill today, it would have to wait over the winter recess for the required three-week period before final consideration by City Council. Since the introduction of the bill, we've met with Council, Council staff, and representatives of the School District to review the project plan on Monday, November 23, 1998. The School District agreed by resolution to participate in the district before you today, should it be created by City Council. Approval of this TIF will enable the construction of a 985,000-square-foot retail and commercial center at Eighth and Market. The project will include 430,000 square feet of retail and entertainment space in a 7-story structure, which will include, as we all now know, after last week's announcement, the unique DisneyQuest family entertainment venue of approximately 100,000 square feet. 5 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 I should point out that this TIF is going to the overall project and not directly to Disney, and that Disney will be spending, in addition to what the developer will be spending, somewhere in the neighborhood of 80 to 90 million of their own funds for their facility. The project will include a 1200-car parking garage and a 450,000-square-foot 8-story structure, which will be at Eighth and Chestnut, and about 115,000 square feet of service and common areas. This project is estimated to create, when it opens, approximately 1100 permanent jobs and will create 750 construction jobs during its development. It should generate $55 million in tax revenue to the City over the 20-year TIF period, and $60 million to the School District. And I would like to note that we have excluded in this TIF any use of the use-and-occupancy tax. The taxes being TIFed here are real estate and sales. Therefore, this provides the School District, which receives the U&O tax revenue, with approximately $3 million over 20 years in new, 6 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 unanticipated tax revenue directly as a result of the development of the project. 5 million in incremental tax revenues. 9 These incremental tax revenues will be funded by 10 about $45 million in real estate taxes and 11 approximately $31 million in the City's 1 percent 12 sales tax. 13 We are proposing one amendment this 14 morning to the project plan, Section 1 of the 15 bill, to slightly change the boundaries of the district. The amendment is here, and that is all we're changing, is the physical description of the project area. The project plan has been restated to reflect this change made since introduction and is on file with the chief clerk for public comment. Let me also note that representatives of the Goldenberg Group, who are the developers, are here this morning should Council have any questions for them. I should also note that over 7 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 the last several weeks, they have developed and prepared an economic opportunity plan for this project, which either myself or they would be prepared to comment on during the question period. In closing, I would ask again for your approval of Bill No. 980845 creating the Pavilion Market East Tax Increment Financing District, and remind Council that we will wait until the winter recess for final consideration. Mr. President, I'd like to make one final comment to you directly.
I'm reminded this morning that this will probably be the last time that I will appear with you in this chamber as president and chairman. And it has been 14 years this morning -- I counted this morning -- that I've been in this chamber, and I'd just like to thank you for your support and your leadership over all those years, and wish you well.
Thank you. The Chair recognizes Councilwoman Verna. 8 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
Thank you, Mr. President. Mr. Hankowsky, according to your testimony, Disney is receiving no direct TIF revenues. Can you explain that statement more fully, please.
Yes. Disney, in this project, will be a tenant of the Goldenberg Group, so that the Goldenberg Group will own the -- will build the project, own the project, operate the retail complex. Disney will be one of their tenants, will pay rent. You know, there will an economic relationship between Disney and Goldenberg. The TIF money is going to offset $25 million of the overall construction costs. These are costs that are generated for a variety of reasons. There are extraordinary site conditions at this property. I think we all know this site fairly well. It's what most people call the "undulating" or "falling" parking lot. That parking lot is falling because there's demolition debris in the site. The developer's going to be required to come in and actually excavate all of 9 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 that out, which is an extraordinary cost. They're building a park garage in order to service the complex. And a portion of the TIF, in effect, offsets the difference between having to build a parking garage and being able to have just surface spaces, which you might do if you did this at a suburban location. So the TIF is really setting off extraordinary expenses related to the project. It isn't actually going -- you know, the cash isn't directly going to a particular tenant, Disney or any other.
Thank you. Can you tell us what percentage of the contracts is being set aside for minority and disabled and women-owned businesses?
Yes. As I indicated in my testimony, the Goldenberg Group has prepared an economic opportunity plan for the project. They currently propose percentages dealing, one, with the construction of the workforce so the workers who will work during that construction phase, that 30 percent be minority -- these are obviously the goals, that 30 percent be minority and 5 percent 10 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 be female. That during the construction, in terms of subcontracting activity, that percent would 4 go to minority disadvantaged businesses, 12 5 percent to women, and 2 percent to disabled. 6 They are also proposing that, in terms 7 of the operation, the service contracts to operate 8 the facility, goals of 22 percent MBE, and 12 to 9 WBE, and 2 percent to disabled. 10 And they're also projecting employment 11 goals for the permanent jobs. Obviously, those 12 are somewhat preconditioned on the tenants and 13 their participation. 14
The Minority Business 17 Enterprise Council of City Council's technical 18 staff, Miss Hamilton, and the Greater Philadelphia 19 Urban Affairs Coalition have all participated with 20 Goldenberg on that, and I think it's fair to say 21 that they have signed off. 22
Can you tell us when Disney anticipates construction on this site?
Well, Goldenberg would 11 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 anticipate beginning construction in January or February. I mean, this is going to happen very quickly because the -- sort of the back-end consideration is -- the goal is to have Disney be up and operating by early July 2,000. Some of the other tenants may be moving in somewhat after that. So from the standpoint of meeting that deadline, construction needs to begin almost immediately.
Thank you very much. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Mr. Hankowsky, I have, as you can imagine, a few questions. But I'd like to state 12 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 for the record that notwithstanding some of the questions that I may ask, I have no bias against Disney. I have numerous Disney products in my home. A recent count shows that I have 35 Disney videos.
And potentially will be a major customer at this operation. So I want that clear for the record. The TIF is being funded, is it my understanding, through a HUD 108 loan?
Yes. We would anticipate that a significant portion of the TIF notes -- in other words, the cash going in, then the TIF revenue is supporting would come from the 108 program.
And have we used that process before in the previous 13 TIFs?
We have used it -- we have used HUD 108 in conjunction with TIF dollars in the Reading Head House project. We have a somewhat different scenario in the Loew's project, where we have both a TIF, which is funded privately, and a 108 on top of it. So they're 13 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 both in, though the 108 is not funding the note per se. And those are the two examples. And we're also --
Mr. President, when you turn in that direction, we don't hear your voice.
I'm sorry, Councilman sure. So I'll repeat the answer. We have used 108 and TIF in conjunction in the Reading Head House project. We've used them in parallel in the Loew's Hotel project. We've used 'em in this manner in conjunction in the Kvaerner project. And we anticipate using them together in the Jump Street TIF, the Cecil B. Moore TIF, the Brewery Town TIF. And in West Parkside, we're not sure yet, it may happen that way. As you know, we have yet to have the final financing structure there.
Right. And when you use the HUD 108 loan, is there any requirement that the project or area where the HUD 108 loan is being used, that it be CDBG-eligible?
You need to pass -- yeah, you need to pass tests that HUD has as 14 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 standards. You either need to pass a test of removal of slum and blight and/or the employment of low- and moderate-income individuals. So you have to pass one of those tests.
And which tests did this one -- which of those criteria were applied to this particular project?
I think, in this particular project, we actually don't have an approved HUD application, so I can't say it passed the test. But we would propose to attempt to pass the test on the basis of low- and moderate-income employment. And I think that actually works in conjunction withe the economic opportunity plan.
What do you anticipate the employment to be? How does it qualify as low- and moderate-income? What kind of dollars are you talking about?
Your response was that it's going to low- and moderate-income employment, the criteria.
The individuals who are 15 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 hired need to, prior to the employment, based on their family income levels, be defined as low or moderate. Hopefully, subsequent to their employment, they may not be, but that they were prior to. So you keep track of the employee's incoming income situation, and then the goal is such that 51 percent of the jobs would go to individuals who would meet those tests.
So roughly 500 of the 1100 jobs, 550 or something like that would be --
So you show up to get work and, through the application process, you're asked, What were you doing before you got here? Were you working, were you not working? If you were working, how much were you making? And, theoretically, it could happen that someone who had been working, if the project, I guess, reaches the 51 percent threshold, is told that we can't hire you because you either used to make too much, or we've hired our capacity of poor people? 16 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
You need to -- there's sort of two parts to that question. There would be a need to reach the goals of at least 51 percent. You don't have to stop at that goal.
So I don't think you would necessarily turn away someone if you would reach 52 percent.
If I may, I'd like to follow on because I thought it was interesting that you don't see this project as removing or eliminating blight but, rather, improving the situation of low- and moderate-income.
I think, quite 17 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 candidly, Councilwoman, it could pass either test, but I think that we would seek to pass the job test.
How about and? Would you ever premise your proposal on both, both to remove blight and offer an opportunity to --
I don't want to be particularly bureaucratic, I try not to be, but I'll have to be honest with you, when I'm dealing with HUD, I need to be. It is generally easier, from a HUD perspective, to pass the job test than the slum-and-blight test. We would probably actually tell them it's both, but I'm most comfortable that I can pass the one.
Okay. Well, we certainly do have ample opportunities to offer employment to low- and moderate-income people, if that definition is broad enough to include people who do not now have employment. But will you also see it as a welfare-to-work initiative? People who have not had jobs for whatever reason.
Right. 18 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
I think, given the nature of the jobs that will be created here, I think there's a very high probability that that can occur here, I would agree with that.
Would you, then, tell us something about the kinds of jobs that you envision being developed just so that this record is clear?
Yeah, I'll do the best I can. Again, we're talking about a project that will include a large parking garage, a movie complex, we know the DisneyQuest project, and other retail opportunities. So the kinds of jobs that will be created are people working in retail stores, working in restaurants, working at DisneyQuest. So there will be people, I presume, will be taking tickets, people who will operate facilities, maintain those facilities, keep them up. So that -- so it will be that range of kinds of jobs. I don't want to call this a mall, but I 19 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 would analogize it to the kinds of jobs you would find at a particular retail operation. Those are the kind of -- you know, the high-end retail kinds of jobs, salespeople, etc.
In the TIF, you are bargaining the permanent jobs or the construction jobs when you say, We're going to do 51 percent of the jobs?
This is for the use of 108 funds, in response to Councilman Nutter.
So that the people who end up operating these commercial institutions, in exchange for accepting the benefits of the TIF, accept as conditions that they must employ these classes of people, is that how you --
They must employ people of these prior income levels before they're employed, that is correct.
Who is going to monitor that? 20 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
It would be monitored by the Office of Housing and Community Development, OHCD, that does the monitoring for --
Generally, it's a three-year period, as the project opens and people are hired as it opens and it begins to operate.
No, that's the requirement for the use of the 108 funds, is the three-year monitoring --
Yes. I want to make it clear: it's not three years from today because you have to build it first.
That's right, that's right. It opens roughly three years from July 2,000.
And the monitors 21 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 are OHCD?
Okay. I yield back, Mr. Chairman, but I wish to be considered in my rotation.
I'm sorry. Thank you. The TIF is for $25 million, and this is a $167.5 million project; is correct?
Right. The 167, I just want to be clear, is the dollars being expended by the Goldenberg Group to design, construct, you know, financing costs, etc. As an example, if you would add in the money that Disney will spend on top of this, you know, you'd be at 240 million, and other tenants may spend additional money on their own behalf.
Okay. And you may 24 have answered this when Councilwoman Verna asked 25 some questions, but if you wouldn't mind indulging 22 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 me, just why is the TIF needed as a part of what is seemingly a fairly large project and one that has, obviously, at least one significant and major tenant? I think we don't know who all the other tenants are.
But a little bit of research seems to indicate that Disney's revenues last year were in the neighborhood last year of $22 billion. So what's the need for a $25 million TIF in this project?
The need is generated for a variety of reasons, and you're correct that I mentioned a couple in response to Councilwoman Verna, but I'll take this opportunity to somewhat elaborate. And maybe the way to think about this is, if you would compare doing this project -- I'll use the term on "a green field," a big 20-acre site where you could build 400,000 square feet on story, have a surface apartment, and it was a site that had no extraordinary cost considerations, and the tenants would pay X 23 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 dollars in rent, and so the tenants look at it like, That's what we'll pay to be there and we'll pay that to be here, but we're not paying anything different. So then what are the issues that impact that cost at this site? The issues are, one, the site condition. This is a site, I think we all know, that previously had been the home of the Gimbel's department store. And for whatever reason, which I don't know 'cause I wasn't around at the time, when it was demolished, instead of doing what I would call "a typical demolition," which is take it all away, backfill it, level it, compact it, and put in a surface parking lot, they basically took some of it away, left some of it there, covered it over, and put in a parking lot over it. And we all know that if go there today, your cars tend to be roughly 45-degree angle up or down as you park them.
Right. And the reason is, the site has had significant settlement -- 24 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 "settlement" being that it has settled down. The only way to now come back in here and build a new facility will be to go back in and excavate out all of that debris, generally called "organic material," so that this project will be -- we don't want to have "The Leaning Tower of Disney" down the road.
And, as an example, that differential of cost consideration is somewhere in the neighborhood of over $6 million just to do that. Then if you looked at the fact that this has to be built vertically, so you're going to stack this activity versus spread it out, you're going to have to build -- I think there are like seven escalator systems that. . .
I'm sorry, keep talking, I'm trying to get Councilman DiCicco's attention.
It's something like 16 escalators, elevators, all of which, again, you wouldn't spend if you were doing this in a typical 25 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 fashion, and that's in the neighborhood of several million dollars. If you look at the parking garage, the difference between building a parking space on an asphalt parking lot, which is about $1500 and building a parking garage where each space is about $15,000, so the difference is about, you know, over $10,000 per space. We've got 1200 spaces here, so there's, you know, a more than $10 million differential. So it's these series of extraordinary costs to do this project at this site in this way for tenants who are going to pay what they'd pay given other options. So the economics don't pay off those differential costs.
I'm listening. And I appreciate that answer. The reason I raised the question is, I guess the first, or maybe it's the second one, I guess there's an existing one of these in Florida. That's the one that may be in the newspaper today, in the magazine section?
That's right, that's right. 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
There is one under construction in Chicago, that is correct.
Okay. A recent review of some stories out of The Chicago Tribune back from last year indicates that the DisneyQuest in Chicago is a part of a larger project. It's about a $500 million project involving a Nordstrom's, a DisneyQuest, three hotels, and a rehab of their downtown Marriott. And in that particular project, the city of Chicago provided no financial assistance at all. What they did was help the developer get a zoning variance. And so when I look at the two projects, that's why I asked what the nature was of our reason to do one here when, apparently, one was not needed somewhere else. This is -- it's stretching the term. But I mean, this is a flat site, and you're talking about putting up a 7-story building and an 8-story parking garage. How much parking goes into an 8-story garage? 27 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
Okay. Is that just for what's going on with this particular project or is it to deal with some other parking issues down at that end of town?
Well, it is sized, so to speak, to respond to the anticipated clientele for the project, that it will be a public garage in the sense that you could park there, go into this project; or you could park there and shop at Strawbridge's.
The Goldenberg Group is developing it. I'm not sure whether they're going to retain long-term ownership. I'm sure they'll be a parking operator, and whether the parking operator will have some interest, I --
They go in, quote/unquote into the project, as part of the proforma. So part of the revenue stream that offsets the cost is from that. 28 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
Excuse me, Councilman, can I just ask him one thing on the parking revenues? Will the parking revenues pay for the cost of developing the garage?
No. That's part of what the TIF is doing here. It's analogous to the fact that we supported a garage at 12th and Filbert via a TIF, and we supported via a TIF the garage at Penn's Landing.
On , you have your feasibility analysis of at least a document that I got back on November 12th. This is the November 12th package with a cover letter to the Council President and the President of the School Board. And your feasibility says -- which is relatively short, that it's based on the fact that the developer, quote, has extensive experience and successful large commercial and retail development projects in the Philadelphia region and nationally. For the record, and at least at this 29 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 public hearing, could you possibly respond a little bit now on the feasibility analysis and what exactly have you based this on?
The Goldenberg Group owns and manages about 3 million square feet of retail space in the region. They have projects --
In the City, they operate Snyder Plaza. They operate the Court at Oxford Valley. They operate a project, I think, across from the Deptford Mall. I'm not sure what the label name is.
Yeah, nor do I. We could provide you with a full list, but those are the ones that I know off the top of my head.
Okay. And are those projects -- I mean, you're considering them for feasibility analysis purposes similar to this, 30 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 or are they very different than this?
Well, I think that they are different to the extent that this is, you know, what is generally now called in the industry "an urban retail project." They're analogous in the sense that the developer has successfully built, financed, and not defaulted on, and operated facilities such as this, has worked with tenants. That, you know, so whether they're restaurants or Zany Brainy or Barns and Noble, or who may be analogous tenants who would fill in the additional space in this project not occupied by DisneyQuest or by the movie theaters. So that, you know, this is -- not that you're implying this, but this is not a, you know, first-time party trying to do a very big, complicated project. This is somebody that has done, you know, large retail projects, and they're building off of that experience in this situation.
Okay. When you TIF sales taxes, who is not paying the sales taxes? Is it the people --
You pay the sales tax; 31 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 everyone will pay it. The tax situation for the consumer will be exactly analogous to what would happen, you know, in another part of Philadelphia. What then happens is that the one --
And is there full roll-out on -- again, you responded to a question asked by Councilwoman Verna, but is it a part of the project plan in the various documents floating around that nail down what the terms are regarding 32 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 MBE/WBE/DBE participation and goals? Is that within any of the materials that we've received recently?
I do not believe that the members of City Council have directly received the economic opportunity plan. There have been --
No. Well, there have been drafts that have been worked on by the developer, Council's technical staff, and others that I mentioned earlier. It would then be finalized and would become a part of the final documentation for the project.
Is it possible to get copies of what is preliminarily floating around?
Yes. I just want to make sure that there's a draft that I can say yes do.
You don't mean, it though? 33 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
Thank you, Mr. President. I'll make the same kind of excusatory statements that Councilman Nutter made. I'm wearing my Disney tie. It came from the Children's Fund of the United Nations, but it has laughing children. And I put it on today because we're having this hearing. And to me the, main goal of Disneyland Quest is to make children smile in what we hope will be a happy world.
I am saying that to begin because then when I ask other kinds of questions, you will know that I still hope we can do something that produces happy children.
Councilman, this is the first time that my own children have ever thought 34 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 that I could do anything that was interesting. (Laughter.)
Just first, some facts. I have two different memoranda; one talks of a 10-story building, and one talks of a 7-story structure. I'm not talking about the parking lot. Both statements I have, both were prepared by the Administration -- one in November, and one given out at a briefing that we had. Can you tell me, has there been a switch from 7 to 10 and back again to 7? Or is it an error? I have something -- you talked about a 7-story structure and an 8-story structure for the garage. The 8 stories is the same. But in a memorandum of November 12th, we talk of a 7-story structure; in a paper given out by the Administration at the briefing entitled "Pavilion at Market East TIF," it talks about a 10-story structure.
I think what happened, Councilman, is, it is a 7-story structure. What I put on the record today is the accurate information. I think what happened is that 35 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 between the briefing piece which, I believe -- I'm not sure of the date of it, but I think the design moved along from that point to what is now the firm design for the project.
All right. Is it going to be firmly seven, or is it still --
I think it's fair to say that it's firmly seven. The project has been reviewed, for example, by the Art Commission. It has applied for the appropriate zoning permits, etc., so this is pretty -- in the design approval process pursuant to the various City requirements, it's fairly now far along.
All right. Now, let me ask some questions about how the TIF works. And in the explanation you gave when Councilman 36 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 Nutter was talking you said, you know, the ordinary buyer will pay the sales tax. Now, tell me what happens? How does the TIF -- at some point, there's going to be a TIF note issued in advance? Who's going to issue that TIF note?
Technically, what happens, Councilman, is that the Philadelphia Authority for Industrial Development, PAID, issues a note. A funding source is put in place to fund the note. The commitment is --
This obviously assumes that Council would favorably approve this. But how it would work, then, is that -- and I'll use the sales tax. You would buy something, you would pay percent, it would get collected by the store, it would get remitted to the Commonwealth, which is what happens today. It would then get remitted to 37 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 the City Finance Department, which is how that 1 percent is done today. There would be a calculation that that 1 percent came from this project. It would be remitted to PAID, and PAID would pay the debt service on the loan.
Now, that would be -- people all over the city that pay the sales tax, wherever the sales tax was collected, that extra 1 percent, that would go into the --
No, no, no. Only the sales tax if they buy or consume something at this site, only at this site. It's only the 1 percent collected inside this footprint. It's not citywide, absolutely not.
And there's a way the State has and the City has of segregating that amount?
All right. Now, we have that segregated grade percent. Then what happens to that?
That's the segregated amount that gets remitted from the City to PAID, and PAID uses it to pay the note, the loan. 38 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
Well, the -- is the 1 percent sales tax going to be the only thing that is used?
No. In this TIF, we are using two taxes, we are using the increase in the real estate tax, the basic real estate tax, and we're using the 1 percent sales tax. We are --
The same way. The developer will annually pay his real estate taxes, as he would normally. They get remitted to the City. The City will then cut a check for that amount for the increase on the real estate tax amount to PAID, and PAID will use it to pay the loan.
Well, say the loan comes to a payment of $1,000 a month. I know we're -- I'm only mentioning maybe one-thousandth of what it will be or one-hundredth. But suppose the amount collected is more or less than what's needed to pay the notes; is it done monthly, is it done yearly? I'm just 39 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 interested in the mechanism.
Right. It is done annually, so there's an annual reconciliation of the amount of the taxes and the amount paid on the loan. The loan would probably be like any mortgage. It would be -- you'd know every month what you're paying. It would be what's generally called "a standard flat amortization." And if there is a deficiency, not enough money to pay it, the developer would be responsible. There's no liability to the City or to the General Fund to come up with the missing money, so to speak. If there were more taxes than were needed to pay it, it would stay in a fund so that, in effect, actually, if in the next year there weren't enough taxes, you could use the fund to make up the difference. So those real estate and sales taxes, again, just from the project, if there's excess there available in a year, would there be not enough. But if that's not sufficient, then the developer's responsible. We have no 25 responsibility. 40 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
It would be maintained by PAID. And at the end of the years of the 6 TIF, if there's a positive dollar value in the 7 fund, it's remitted back to the City; it doesn't 8 stay with us or with the developer. 9 So the net effect is that the developer 10 only gets the payment necessary to pay off the 11 $25 million loan. 12
Well, I'm troubled 13 when I see something, say, on this Pavilion at 14 Market East TIF. The very last paragraph says 15 "Tax Benefits 20-year Sum." It inflates every, 16 say, tax benefit which the City receives. 17 Wouldn't it be more accurate to do it on a yearly 18 basis? 19
That is in the project plan, which were also transmitted. I have a copy here if you'd like to look at it, which is -- which does it year by year. 41 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
But it seems to me that the impact would be more accurately stated if you said that the City is going to receive a little less than a $3 million increase per year. Because what we have to consider is that number in relationship to the annual budget. Or if you do it on a 20-year basis, it would be my best estimate that the General Fund, during that 20-year period, may very well cost $80 billion. And if you use the figure of 3 million against, the $2.5 billion General fund now, you get a more accurate picture, or you have to say the City is going to gain $55 million toward an $80 billion budget. Now, that's not an exact figure -- it could be under, it could be over.
But over a 20-year period based historically, $80 billion would be about what we'd expect the accumulation of General Fund budgets in that period. As against $80 billion, the $55 million is not a very great figure. It's considerably 42 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 less, it's about a half of 1 percent or maybe even less than that. I'm pretty good at mathematics, but that defines me. I mean, 8 billion would be 10 percent; 800 million would be a 1 percent. It looks like it might be one-tenth of 1 percent. I'm just indicating that I think that it --
But I believe right there, you have the project plan note, and it does do it year by year.
But, actually, it's going to be a relatively minor revenue creator for the City. If it's an average of $3 million to the City, to the City Fund, considering everything that's being done to make this project a real thing, it seems to me that it doesn't play a very significant factor in the City's economic development program.
I'm not saying that, therefore, let's not have it; I'm just trying to get a clear picture of it.
Right. The estimated 43 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 -- I mean, I think you have to look at both. You are providing -- if this project happens, there will be new taxes to the City, and there will also new taxes to the School District.
So in combination, there are about 110 million over the years. 9 And you also have the 1100 jobs, which 10 we don't have today. And you have the activity 11 generated by the project. 12 We never -- years ago, we used to have 13 discussions about this, so I stopped doing it, but 14 we never talk about the multiplier. I mean, the 15 fact that somebody may go here and then also go 16 across the street and do something else. So we 17 think this is a very meritorious project with 18 worthy benefits worth investing in it. 19
What does the figure 20 next to TIF in that tax benefits 20-year sum mean? What does that figure next to TIF mean? It says 76,500,000.
What that represents is, over the 20 years, the interest and principal on the loan. 44 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845
No, it's just showing that that part of the tax stream that's being paid is that part that I talked about earlier that's going to pay the loan. I'm just showing you where all the taxes that are created, this is where they go. Some portion goes to the City, some portion goes to the School District, and some portion goes to pay off the loan.
You're saying that over the 20-year life -- correct me if I'm wrong on this; I just want to make sure I understand. Over the 20-year life of the TIF, the City will receive an additional $55 million, say, from the real estate tax, the School District will receive an additional 65 million, and 76.5 million will have been used up to pay off the loan.
That 60 million that 45 12/09/98 COMMITTEE OF THE WHOLE - Bill No. 980845 the City gets is not from the real estate taxes; it's from the other taxes we're not using to pay the loan. The City gets that money, none of that money is used to pay off -- goes into this project.
Is this an estimate of tax revenues that will result from the project?