Committee Hearing, February 23, 2010

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, February 23, 2010 2:30 p.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN B. TASCO RESOLUTION 090894 - Resolution authorizing City Council's Committee of the Whole to hold public hearings on the procedures that the City currently employs to collect delinquent taxes, the effectiveness or shortcomings of those procedures, and the additional measures and resources required to improve the system for collecting delinquent taxes. - - - 2

Good afternoon, everyone. This is a public hearing of the Committee of the Whole regarding Resolution No. 090894. I would ask Mr. McPherson to please read the title of the resolution. MR. McPHERSON: Resolution 9 authorizing City Council's Committee of the Whole to hold public hearings on the procedures that the City currently employs to collect delinquent taxes, the effectiveness or shortcomings of those procedures, and the additional measures and resources required to improve the system for collecting delinquent taxes. Our first witnesses are Rob Dubow, Keith Richardson, Shelley Smith and Seth Williams. (Witnesses approached witness table.)

Good afternoon, everyone. SOLICITOR SMITH: Good afternoon. 3 2/23/10 - WHOLE - RESOLUTION 090894

Who is going to be testifying first? Mr. Dubow?

Good afternoon, Council President Verna and members of the Committee of the Whole. I'm Finance Director Rob Dubow, and thank you for the opportunity to offer testimony on this resolution regarding the City's current and planned tax collection efforts. I'm joined here by the District Attorney, Seth Williams; the City Solicitor, Shelley Smith; and the Revenue Commissioner, Keith Richardson. With us in the audience and available to answer questions are the Chair of the Corporate Tax Group, Dan Cantu-Hertzler; Cindy White, the Chief Deputy for Tax Enforcement; and Frank Breslin, the Deputy in Revenue. And what we'd like to do today is talk you through the amount that's outstanding, what we're doing to try to collect it, some of the hurdles we face in trying to do that. 4 2/23/10 - WHOLE - RESOLUTION 090894 We recognize the essential importance of what we're talking about today, because effective tax collections are key to the operations of City government since taxes fund the vast majority of our services. Most Philadelphians do pay their taxes in full and on time. Unfortunately, some scofflaws are unwilling, unaware or unable to meet their obligations to the City. Particularly in this challenging economic environment, those delinquencies deprive the City of the resources that it needs to provide services and also they create a heavier burden for Philadelphia's compliant taxpayers. While we have implemented initiatives to improve collections, and we'll discuss those initiatives today, we know that we need to do more, and we will. Over the past year, the Law and Revenue Departments have worked to make it easier for taxpayers who want to pay to do so and have expanded initiatives to 5 2/23/10 - WHOLE - RESOLUTION 090894 identify and collect from taxpayers who fail to pay. As we enter into this year's budget process, we are here to share information about Philadelphia's tax delinquency, the nature and impact of initiatives we have undertaken in the past year to reduce that delinquency and our plans for future efforts. As of December 31st, 2009, various funds of the City of Philadelphia and the School District were owed about $600 million in outstanding tax principal from over 200,000 accounts. On top of that outstanding principal, there was almost $130 million in interest and almost $230 million in penalties, for a total of about $955 million. We'll give you more detail on that later about what part of that is not collectible, what the universe really looks like. Unfortunately, while we want to collect every dollar owed, the City can't expect to collect the entire amount. Older debts are more difficult to collect 6 2/23/10 - WHOLE - RESOLUTION 090894 as taxpayers pass away or become impossible to locate and as businesses cease operations. The difficulty in collecting is illustrated by the challenges faced by the law firms, collection agencies employed by the City and purchasers of City tax liens in the late 1990s. Despite having a private profit motivation, full recovery has not been possible for them either. The situation is exacerbated by the poor economy, making it harder to collect from existing delinquents and making it more likely that others will fall behind. The City has taken more innovative and aggressive steps in the past year to shrink the City's delinquency. I'd like to now turn the testimony over to Revenue Commissioner Keith Richardson to provide additional details. Thank you. COMMISSIONER RICHARDSON: Good afternoon, Council President Verna and 7 2/23/10 - WHOLE - RESOLUTION 090894 members of City Council Committee of the Whole. I am Revenue Commissioner Keith J. Richardson. The mission of the Department of Revenue is to account for and collect certain other due -- collect tax and certain other revenues due to the City and the School District of Philadelphia and to do so promptly, courteously and in a manner that inspires public confidence in the integrity and fairness of the Department.

Today our presentation addresses tax collections, which constitute the bulk of our work. I would like to provide you with more detail regarding the delinquent taxes and the Department of Revenue's role in collecting them. 7 million in outstanding tax principal from over 200,000 accounts. 7 million in penalties are due, for a total of 955 million. 8 million in principal; and 131,698 is owed to the Vehicle Rental Tax Fund, including 120,000 in principal. Over 40 percent of the 400 million of the delinquency is no longer considered active because they are either property tax debts that are over 30 years old or non-profit tax debts that are over six years old. Real estate liabilities are considered active for far longer, as the possibility of recovery when a property is sold remains. The City can and does continue to attempt to collect this older debt, but the age makes it significantly less likely that the City will recover the funds. 9 2/23/10 - WHOLE - RESOLUTION 090894 Of the total General Fund delinquency, the largest share of the dollars, 46 percent or 329 million, is attributable to the business privilege tax. Of the approximately 200,000 delinquent tax accounts, more than half, 116,955, are real estate tax accounts. 5 percent of the amount due to the General Fund. The vast majority of those, more than 100,000, owe less than $5,000. As of December of 2009, there were 74 accounts that owed more than 100,000 in real estate tax, interest and penalty. 6 million and total receivable of 178 million from 18,485 accounts. I'm circulating a report on the tax receivables as of December 31 of 2009 to provide additional details. 10 2/23/10 - WHOLE - RESOLUTION 090894 The Department of Revenue has two primary roles in the City's tax collection enforcement efforts. First, the Department works to collect on newly delinquent accounts. In the first 90 days after a payment becomes overdue, the Department contacts the taxpayer via mail to make them aware of the delinquency and the consequences of continued failure to pay. If the tax bill remains unpaid after 90 days, the account is transferred to the Law Department for further collection activities. My colleagues from Law will provide information on collection efforts after 90 days in their portion of the testimony. The second major component to Revenue's enforcement program is its compliance activities, which fall under two major categories: Audit, where we review existing taxpayers to ensure that they are making the correct payments, and Discovery, where we identify entities that are not currently registered for or 11 2/23/10 - WHOLE - RESOLUTION 090894 paying City of Philadelphia taxes. Although we certainly do not want to publicly share the tactics that the Department uses to select candidates for audit or to identify entities that should be paying but are not, I can tell you that we utilize data from the Commonwealth of Pennsylvania and the Internal Revenue Service, as well as private information providers to inform our efforts. It is the areas of Discovery and Audit that expanded and new programs have been introduced over the past year or so to improve revenue collections. The Department of Revenue has enhanced audit functions, including providing resources to allow auditors to travel to taxpayer locations, identification of Pennsylvania firms outside the City that did not have wage tax accounts but should have, and expanded audits related to the liquor-by-the-drink tax. 6 million in Fiscal Year 2010. We've also been able to increase our audit staff. 3 million in new revenues over the months through December of 2009; and 13 collections from utilizing IRS audits, 14 which contributed more than 50,000 to the 15 City's coffers so far this fiscal year.

16 The Department, in a valuable 17 partnership with the Office of the City 18 Controller, has also overseen a program to bring City employees into compliance, initially through voluntary payment plans and eventually withholding from employees' paychecks. 3 million. In a joint effort with the Law Department, the Department of Revenue has 13 2/23/10 - WHOLE - RESOLUTION 090894 begun publicizing the names and balances owed by the City's biggest tax scofflaws. This effort has netted nearly $3 million over months and has likely encouraged 6 other delinquents and potential 7 delinquents to come into compliance. 8 The Department of Revenue is 9 working with a number of other government 10 and quasi-government agencies to 11 encourage tax compliance. The City of 12 Philadelphia has long checked a vendor's 13 tax status before issuing payments for 14 goods or services rendered. Simply put, if you haven't paid us, we aren't going to pay you. Over the past several months, we have been in discussions with quasi-governmental agencies to create a system for them to check their vendors. To make the process easier to administer, the Department is working with the Division of Technology to develop an automated web-based system to quickly check a firm's compliance. This new 14 2/23/10 - WHOLE - RESOLUTION 090894 system will also support the City's initiative to check the tax status of new employees prior to hiring and the status of zoning variance applicants, should the bill currently before Council require tax compliance as a condition of the granting of a variance become law. To prevent delinquency before it happens, the Department of Revenue is working to make Philadelphia's taxes easier to understand and pay. In November, the Department, with assistance from the Mayor's Commission on Literacy, released a new, more user-friendly guide to the City's taxes. We have collaborated with the Department of Commerce to make tax information more accessible through the new Business Portal. The Department of Revenue continues to roll out additional electronic payment and filing options. Most recently, in November we added the capability for online filing for zero balance wage tax reconciliations. 15 2/23/10 - WHOLE - RESOLUTION 090894 In the coming year, the Department will continue these successful initiatives and introduce new ones to encourage and compel compliance. We will expand our e-filing options and hope to expand e-payments for credit cards and ACH debits and credits to include e-checks. This will allow quicker posting and application to taxpayers' accounts, eliminating confusion from bills sent after payments are remitted but not yet posted, as is now sometimes the case. The Department intends to move toward mandatory e-payment and e-filing over the next few years and is working with the Law Department to draft legislation to that effect. This will eventually, after an initial start-up investment, reduce costs and improve processing times. In the past, there were concerns that this might be burdensome for small businesses. However, the Commonwealth of Pennsylvania 16 2/23/10 - WHOLE - RESOLUTION 090894 has had mandated e-filing and payment through its e-Tides system for several years, so all Philadelphia businesses already have experience with non-paper returns and the electronic payment requirement. We will be looking at both online and tele-filing options to serve our taxpayers in the format that works best for them. We plan to require e-payment for certain taxpayers in 2010 and e-filing in 2011. We are still working out the details of this initiative, but we anticipate starting with our largest business taxpayers. Another technology improvement that the Department is planning on adopting in conjunction with the Law Department is a single, unified database for two departments to track enforcement activities.

This will improve internal government efficiency, leading to increased collections and will reduce the potential for taxpayer confusion. A further tool to collect 17 2/23/10 - WHOLE - RESOLUTION 090894 unpaid taxes that the Department will be employing is a temporary one-time tax amnesty. As a result of Council legislation, the City will be offering taxpayers the opportunity to get back on track and become current by waiving 100 percent of penalties and 50 percent of interest due on past due taxes, within certain eligibility guidelines. This effort is anticipated to net to 30 12 million for the City. 13 With these programs, the 14 Department of Revenue will continue its 15 efforts to collect all taxes due to the 16 City and School District. 17 I would like to turn the 18 presentation over to City Solicitor 19 Shelley Smith to discuss the Law 20 Department's collection efforts and 21 activities. Thank you. 22 SOLICITOR SMITH: Thank you, 23 Commissioner Richardson. 24 I am City Solicitor Shelley 25 Smith and I am here today to discuss the 18 2/23/10 - WHOLE - RESOLUTION 090894 Law Department's role in the tax collection process. The Law Department, like Revenue, collects on many accounts itself, but also files suit in an effort to collect taxes. Once a tax debt is delinquent, typically 90 days past due, it is usually transferred to Law for legal enforcement. Within the Law Department, collection efforts are separated by dollar amount and tax type. Small claims, those less than $10,000, are routed through our mass litigation program in Municipal Court. This program is automated by computer, with pre-determined selection criteria, providing uniformity and fairness to the collection process. Larger dollar cases may only be filed in Common Pleas Court. In recent years, we have improved the process by targeting new delinquencies more quickly and by sending a demand letter from a lawyer before filing lawsuit, because we have found that that letter will often generate attention from 19 2/23/10 - WHOLE - RESOLUTION 090894 the taxpayer. We also use private lawyers and collection agencies at various stages of the collection process. Collection firms have additional resources to track down taxpayers we cannot find and to follow up on more accounts more quickly than existing staff within the City. When possible, we implement competition among our collectors, and we also monitor complaints very carefully. We also retain a "discovery" contractor, supplementing similar work done in the Revenue Department, to discover and track down people that should be registered as taxpayers but are not. This effort has proven successful with $32 million collected over the last three full fiscal years. All collectors operate under contract and are subject to the same standard settlement protocols that operate for collections made within the Law Department. In recent years, we have 20 2/23/10 - WHOLE - RESOLUTION 090894 implemented hardship guidelines that afford low-to-moderate-income taxpayers the opportunity for individualized assessments and extended payout terms. Collection agencies and law firms are paid through contingency fees. For real estate taxes, it is permissible under law to pass on those costs to delinquent taxpayers of law firm fees, generally ranging from to percent, 12 but not collection agencies, which in the 13 past have proposed to charge 12 to 16 14 percent for similar work. For other 15 taxes, we have to pay the cost out of 16 General Fund or School District dollars. 17 Council's Committee on Finance held a 18 hearing earlier this afternoon immediately prior to this hearing on Bill 20 No. 090833, which would allow us to pass more of the costs onto the delinquent taxpayers and thereby assist the City in realizing more of the collections, beginning at the close of the amnesty period. 21 2/23/10 - WHOLE - RESOLUTION 090894 We continue collection efforts after we get judgments against taxpayers.

For real estate taxes and water and sewer bills, we take select properties to Sheriff's sale. For other taxes, such as delinquent business privilege and net profits taxes, our judgment execution division looks for property to attach to satisfy the debts. In the case of trust taxes, we will identify the property of responsible officers in an effort to collect the delinquent tax. We also bring suit against those who do not file required returns. We secure judgments for $5,000, but we are willing to significantly compromise the fine judgment in return for taxpayers' full compliance, which requires the filing of all missing returns, along with payment or satisfactory payment arrangements. Other internal Law Department enforcement tools include self-assessed tax liens, which afford the City of 22 2/23/10 - WHOLE - RESOLUTION 090894 Philadelphia a pre-litigation statutory remedy to secure its delinquent tax claim by encumbering property owned by the taxpayers within Philadelphia. We also sequester the accounts of landlords who refuse to collect or turn over use and occupancy tax. This program has been quite successful. Currently, as Commissioner Richardson explained, 40 percent or $400 million of the delinquent taxes owed to the City and School District is considered inactive based on the age of the debt. Older debts, as both he and Finance Director Dubow explained, are more difficult to collect and may fall outside the statute of limitations period and thereby may not be subject to legal action. Additional debts that can be considered harder to collect or uncollectible are those that are discharged in bankruptcy, those that are assessed to defunct businesses and, in most cases, those relating to deceased 23 2/23/10 - WHOLE - RESOLUTION 090894 taxpayers. The Law Department is more successful with taxes that are secured by liens and trust taxes; for example, wage and liquor taxes that impose personal liability upon responsible officers of the delinquent entity. We fully support the upcoming tax amnesty program and hope that it will increase the number of people on the City's tax rolls, clean up many delinquent accounts, give people a fresh start and hopefully bring in more money overall than we would have collected without the program. We will be working with the Department of Revenue to maximize total delinquent collections this year through amnesty and through our normal mechanism. The announcement of the amnesty months in advance has presented a collections challenge to the Department, as some delinquents put off payment until they can take advantage of amnesty, but we have not reduced our efforts. 24 2/23/10 - WHOLE - RESOLUTION 090894 There is a concern that amnesty will reduce future collections in favor of more immediate payments. Amnesty will reduce interest and penalty to some who otherwise would have paid both. It will disrupt our regular collections to some extent, because accounts will need to be transferred to the tax amnesty administrator temporarily. It may also enable some people to escape attorneys' fees, meaning that the City will have to bear the cost of the contingency fee. We hope to offset those numbers by getting payment from many taxpayers who would not have paid at all, especially including those who are not even on our books right now. I think it's important for the public to understand that amnesty has a real cost, and we will need to work hard to make it a success overall. We are also very encouraged by discussions with the new District Attorney, Seth Williams, who is seated to my left, whose office has just announced 25 2/23/10 - WHOLE - RESOLUTION 090894 that it will be pursuing economic crimes and tax fraud beginning at the close of tax amnesty. In particular, the District Attorney expects to prosecute those businesses and officers that take trust tax money, which already belongs to the City, and utilize it for the business or for personal interests.

Law and Revenue have already been cooperating with the District Attorney on this and look forward to continued cooperation in this effort. We are continuing to work closely with Revenue, as mentioned in Commissioner Richardson's testimony, on a number of initiatives, including updating regulations to improve taxpayer understanding and enforcement; creating a unified database for shared tax information with the Department of Revenue and the Division of Technology; drafting legislation for mandatory e-payment and e-filing, which will lead to more timely posting and application of 2/23/10 - WHOLE - RESOLUTION 090894 tax payments, putting money into the City's coffers more quickly and reducing confusion for taxpayers related to delays; improving our ability to determine when City contractors and subcontractors are tax compliant so that we can bring them into compliance if they are willing, and if they refuse, we can collect from them, terminate their contracts or both. The Law, Revenue and Finance Departments have worked hard to improve collections, and we know there is more work to be done. We would like to ask for your assistance to help us do more. We would greatly appreciate your support on Bill No. 090833, which would place the financial burden of collecting delinquent real estate taxes more squarely on the shoulders of the delinquents as opposed to being borne by the taxpayers that have paid on time and in full. As we move forward with legislation for mandatory e-payment and 27 2/23/10 - WHOLE - RESOLUTION 090894 e-filing, we hope you will agree that moving toward more automated tax administration will have positive impacts on government efficiency and on taxpayer convenience. Finally, please help us spread the message that paying City taxes is not optional. Everyone must contribute his or her fair share. In this fiscal environment, it continues to be a challenge to provide the City services that Philadelphians rely on, and thus it essential that no one shirks their tax responsibilities. In these tight financial times, we understand that Philadelphians are struggling, and we are happy to work with your offices to raise awareness of our payment plans in cases of hardship and the voluntary disclosure program, which eases the process for entities to come forward to right past omissions in their taxes. By working together and pursuing new strategies for enforcement, 28 2/23/10 - WHOLE - RESOLUTION 090894 I am confident that we can continue reducing the amount of delinquent taxes owed to the City and School District. I now turn it over to the District Attorney, Seth Williams.

Good afternoon, Madam President and members of Council. For the record, my name is Seth Williams, District Attorney of the City of Philadelphia. Just as a Philadelphian, I am staggered by the amount of money that is owed to the City in delinquent taxes. As the District Attorney, I hope business owners and those tax delinquents will avail themselves of this tax amnesty program, but I also understand that the City of Philadelphia, like its residents, can be a victim of crime, and I have directed Curtis Douglas, the Deputy of my Investigations Division, to cooperate, to collaborate, to work with the Law Department so that after this amnesty time has ended, if the City Solicitor 29 2/23/10 - WHOLE - RESOLUTION 090894 believes that there are business owners or tax delinquents that are intentionally attempting to deprive the City of finances, they will forward those cases to us, and on a case-by-case basis, we intend to prosecute them. So, again, my testimony is very brief.

Thank you very much. The Chair recognizes Councilman Greenlee.

Thank you, Madam President. Good afternoon, everybody. (Good afternoon.)

Right at the end of the Solicitor's testimony, you talk about payment plans, and I just had a couple of quick questions on that. Is there any record or do you keep any record of how many payment agreements are broken during the time, that you know of? 30 2/23/10 - WHOLE - RESOLUTION 090894 SOLICITOR SMITH: No. We don't keep an overall record of the number of payment agreements that are broken. Certainly we identify those on a case-by-case basis, and we're certainly aware of particular taxpayers who have repeatedly broken payment agreements, but we don't keep records, broadly, records of how many payment agreements are made and then violated.

The reason I ask that, and I'm sure we all get these sometimes, people come to our offices and say, Look, I'm trying to pay the taxes. Sometimes they're telling the truth; sometimes they're not. But they just can't either make the initial down payment that is asked either by Revenue or later by the Law Department or they can't keep up the monthly payments, and sometimes they enter into these agreements just to buy time or they think they might be able to do it, that kind of thing. And the reason I bring all that 31 2/23/10 - WHOLE - RESOLUTION 090894 up, I just wonder what flexibility, either initially with Revenue in those first 90 days or later with the Law Department, are the people in your offices given to try to work out agreements with taxpayers? I know if somebody owes $300,000, you can't take $3 down and $5 a month. I understand that, but in order to try to find some middle ground and work with people and get money into the City coffers. COMMISSIONER RICHARDSON: Within the Revenue Department, we are flexible to work with the taxpayers. We understand today's economic times, and even in good times, sometimes people may fall on hard times. So we're flexible to work with them, but the key is that they need to come and talk to us and not hide and think we're not going to come after them. So we're flexible.

Okay. Because I know a lot of times we hear people say, Well, I went in there, but 32 2/23/10 - WHOLE - RESOLUTION 090894 they said they had to have percent down or they had to have 20 percent down and I just didn't have it. I had 15 percent, but I was basically told no. So then you didn't get anything. COMMISSIONER RICHARDSON: Well, again, if that is happening, we don't want that to happen. Then the Director or the Manager within Taxpayer Services has a right to make that change. Again, we try to make our payment plans at 13 percent down, but, again, if it's a 14 situation that if we need to work with 15 somebody, we can do that. 16

So you do 17 do that? Okay. 18 SOLICITOR SMITH: Yeah. I 19 think the same thing is true within the 20 Law Department. We do have standard 21 guidelines, but I think Commissioner 22 Richardson's point cannot really be 23 overemphasized, and, that is, that people 24 have to recognize that their tax 25 liabilities, once they have accrued, 33 2/23/10 - WHOLE - RESOLUTION 090894 continue to accrue and continue to trigger the enhancement by interest and penalties, and so it's incumbent upon them to come forward as quickly as they can, as soon as they recognize they have a problem, so that at the point when they enter into a discussion to try to make a payment arrangement, it's a payment arrangement that they can afford.

And I understand that, and sometimes those people that come in are coming in when you're about to drag them into court. I understand that. Some may come in a little earlier, but it's just a general point, if there's a way -- if they're actually going to give a reasonable amount of money, again, not maybe exactly to your guidelines and/or maybe it takes them longer than your guidelines say they can pay, if they're bringing in money and it looks like they're showing some kind of reasonable responsibility, that maybe it works for everybody, they don't lose 34 2/23/10 - WHOLE - RESOLUTION 090894 their property or get dragged into court and the City gets money. Because it does seem like there are some people who just when they don't think they can make those payments, just -- and it's not the proper way to do it, but they just go away and they try to duck it for a long time. One last question on that. On waiving of interest and penalties, not with the amnesty program, just generally, is that one of the incentives that's kind of offered? Like if they come up with a bulk payment, can you waive a certain amount of interest and penalty, or do you? SOLICITOR SMITH: I actually think rather than expose publicly -- we are always receptive to payment arrangements, to reasonable payment arrangements based on the debt that's owed and the circumstances. We're always willing to consider a variety of constructions of those agreements. Rather than us exposing here what they 35 2/23/10 - WHOLE - RESOLUTION 090894 are and giving people a roadmap to sort of evading their full responsibility, I'd rather --

Nobody would do that. SOLICITOR SMITH: -- I'd rather that we talk about that privately with you.

All right. That's fine. Thank you, Madam President.

You're welcome. I just have a couple questions, if I may. You know, I guess I, along with many of our citizens, get extremely upset when we read in the newspapers that hundreds of millions of dollars go uncollected year after year. That certainly is extremely unfair, and you know this issue comes up in Council every budget season, and every budget season we're told, Well, improvements will be made, and I hope that's true this year. 36 2/23/10 - WHOLE - RESOLUTION 090894 Are these reports accurate, and why is the amount of uncollected past due taxes so hard to define? Mr. Dubow?

Yeah. There are a couple of ways to answer that question, so I'm going to walk you through. The total number is accurate. If you look at everything that's outstanding, that's owed the City, it's that enormous amount that, as the District Attorney said, is staggering. Of that amount, some of it is very, very old and some of it is uncollectible for a variety of reasons. In the packet that you were given, there's a page that looks at what's due from what we call active periods. That's property tax within 30 years and other taxes, I think, within six years, and in it shows that for the General Fund, the principal that's owed is about $257 million, which is still a very, very large number, much larger than it should be, but it's not the 955, which 37 2/23/10 - WHOLE - RESOLUTION 090894 is a compilation of funds and includes principal -- I mean penalty and interest. So the number is very big. There are different ways to look at it. I think it's also important to say -- and this was in the testimony -- that most people do pay on time. For most of our taxes, we're at or about 90 percent collected each year, but because we collect a large amount of taxes, even a small percent of people not paying adds up very quickly. So, yes, it's a staggering number. There are kind of different ways to cut it to get kind of a fair look at what's collectible. Even within that number, since, for example, for property we keep it on the books for 30 years, there are some very old amounts in there that will be very hard to collect, not impossible, but very hard to collect. There are also taxes owed by people who have a very hard time paying taxes because of their economic conditions, and 38 2/23/10 - WHOLE - RESOLUTION 090894 that's exacerbated in the kind of times we're going through now. There are also people who have fled -- not fled, have left the jurisdiction. So they're hard to find. There are a number of reasons that it can be hard to collect taxes.

Rob, while you're on that vein, we have been told year after year that there are perhaps 30,000, 30,000 uncollectible taxes that people owe. Why do we keep them on the books for so long? Are there accounting rules or other conditions preventing you from declaring certain past due taxes uncollectible and removing them from the books?

We do every year remove some uncollected taxes from the books. So, for example, any property tax that's over 30 years old, we remove. Other taxes we remove after six years. So we do that every year. I think I'll let the Revenue Commissioner and the City Solicitor give more detail on that. 39 2/23/10 - WHOLE - RESOLUTION 090894 COMMISSIONER RICHARDSON: As Mr. Dubow was saying, again, every year for any business taxes after six years of being uncollectible, we do remove them off the books. Any real property, for 30 years. That is done every -- in September with the write-off committee that does that.

I thought you were going to say we do that every 30 years. COMMISSIONER RICHARDSON: No. 14 I haven't been here for 30 years. Every year that is done.

For each of the major General Fund revenue-producing taxes - wage tax, the BPT, real property tax, realty tax, transfers, state tax - what is your estimate, Rob, of the amount of unpaid delinquent taxes that are legitimately collectible from currently known taxpayers given the current resources available to you and to the Revenue 40 2/23/10 - WHOLE - RESOLUTION 090894 Department, I would assume?

I guess the best place to look at kind of the universe that you could even consider is on Table 6 of the document that was distributed. That gives you for each tax the amount --

I'm sorry. It gives you what?

For Table 6, it gives you for each tax the amount that is outstanding from what we call the active periods. But even within those active periods, there are amounts that probably aren't collectible, and in saying what that amount is is probably more of an art than a science, because some of it is real estate tax that's 28 years old. It's not really collectible. It depends on a number of factors. So I don't think we can give you an exact number without really essentially kind of making it up based on a whole variety of assumptions. We can say that this is the universe of active 41 2/23/10 - WHOLE - RESOLUTION 090894 periods and that the number you can actually collect is smaller than this. I don't know whether anybody wants to add anything to that. I think they don't.

Okay. What can we expect to be collected during FY 2011? COMMISSIONER RICHARDSON: I think, again, right now we're doing about $110 to $135 million every fiscal year in collections. I would probably say, one, between both departments, we will continue to collect that. Again, taking into account once amnesty is over, you may see a decrease in collections. Hopefully during the amnesty a lot of businesses will come and get into compliance, as will the individuals who owe for real estate taxes as well. But, again, I right now will tell you the universe will be between 110 to 135 million.

Of 42 2/23/10 - WHOLE - RESOLUTION 090894 the 135 million, how much of that is General Fund?

In the 2010 budget, we were showing about 80 million. From what the Revenue Commissioner is saying, he thinks it's probably a little less next year, because that included the amounts from the amnesty. So probably slightly lower than that.

Thank you. The Chair recognizes Councilman Jones.

Thank you, Madam President. I was wondering to what degree do we use audits, particularly in certain retail areas. It was brought to my attention when we were talking about recently possible revenue enhancements, particularly taxes, and one of the merchant associations said to me point blank that if we just enforced the taxes that are already on the books, we would 43 2/23/10 - WHOLE - RESOLUTION 090894 be just fine and cited the fact that often it is better for them to be assessed and get caught than actually put down what they honestly earned, and that the probability of an audit was so slim that they could do so without any fear of probable apprehension. And I just wanted to know, is the effort to collect, does it outweigh the effort to kind of put that notion in their mind to be honest about what they do? And I do not speak that that's the majority of people, but there are groups that have figured this thing out, and I wanted to know if we are applying those resources there to make sure that what we are entitled to we actually get. COMMISSIONER RICHARDSON: First, with regard to merchants and a lot of businesses in the City here, all the taxes are self-assessed, as you have to self-report them yourself. Secondly, with a lot of the merchants, it might be a sales tax that 44 2/23/10 - WHOLE - RESOLUTION 090894 they're trying to get around. We don't do the enforcement for the sales tax in Philadelphia. That's done by the Commonwealth. Again, they probably recognize at the state level as well they're not coming out, knocking on your doors, whether it be an enforcement officer or an auditor potentially. So, again, they're self-reporting until potentially they may get caught down the road from a correspondence audit.

Their direct -- and that was a part of the dialogue that I had with them. Their direct point was -- and I think you addressed it in your testimony -- was that the little fib that they tell the federal government and the fib that they tell maybe even the state government gets cross-referenced and, therefore, they have to be consistent with that fib until it gets to us, and then we are not cross-checking them to make sure there is a level of consistency there. And they 45 2/23/10 - WHOLE - RESOLUTION 090894 pointed it out to me and said, you know -- and this was in response to us increasing taxes. The logical ask of them was, Why don't you do more audits and you would bring in more revenue, because the word would go out that you are checking these things. And I understand the self-assessment process, but maybe we might want to change that policy a bit. COMMISSIONER RICHARDSON: Well, I agree with what you're saying. Again, as a department, we've been more proactive on doing audits, whether in travel or in the City here. We've been more proactive on the liquor-by-the-drink tax audits, for example. We've added several staff members last year, in the fiscal year, to come on board to help out the audit group. We've been more proactive out with the parking facilities here in the City of Philadelphia. So once we continue to have more of a presence with those various associations, 46 2/23/10 - WHOLE - RESOLUTION 090894 the word will start getting out. Again, we have been more proactive working with the state and them providing us data now on a quarterly basis on the sales tax cases that they have done audits or appeals on. We're getting that data as well now and we're starting to populate it and looking at scoring in various different cases or retailers, so we know do we deem to go out there and look at an audit. Again, we may see Mr. Jones has a business and we may look at your business privilege tax, are you paying. We sometimes get calls from individuals and saying, Mr. Jones is employing three or four people. We may notice you're not paying a wage tax. So we're starting to be more proactive.

That would be Mr. Green. COMMISSIONER RICHARDSON: Mr. Green. Mr. Jones is incorporated, you know. 47 2/23/10 - WHOLE - RESOLUTION 090894

I just wanted to say that I agree with the fact that when it's time to work out something, you guys have been more than helpful to respond and to be in fact cooperative, and I found you and as well as people that you're subcontracting with extremely helpful. It just seems to me that as we start to analyze the best deployment of our resources and whether that is in a commission or whether that is in a hiring, we have to track it in a way to see what yield we're getting from what effort, and I just want to encourage that part of it. And when the gentleman looked me in the face without blinking and told me that this is common knowledge, common practice, it sent shivers when I start thinking on the other end should we raise taxes or should we enforce what we have, collect what we have on the books and do more audits. And I just want to -- if you would provide the Chair where we've been on 48 2/23/10 - WHOLE - RESOLUTION 090894 audits, the amount, what year, and then correlating those audits to did we get a spike in revenue. COMMISSIONER RICHARDSON: Generally when you do create more audits, it does increase a spike in revenue, but also would increase a spike in your receivables that may become uncollectible, because a business may decide to say, I'm not going to pay it, and we continue to try to go after them. So it has a correlation at times, but, again, we have been more proactive. It seems that we have been going out, doing audits now. And, again, as you've said, Oh, well, we didn't think you were coming. Now people are giving us a check on the spot after we've done audits. We've done several travel audits for almost a quarter of a million dollars or three-quarters of a million dollars and getting checks on the spot, so that's a plus also.

One of the things 49 2/23/10 - WHOLE - RESOLUTION 090894 that we did, just as you're suggesting, is when we hired new auditors, we started tracking what they brought in. So for 2010, for example, we know that our travel audits brought in about $900,000. So there's been --

Based on what expenditure by way of staff, rough estimate? COMMISSIONER RICHARDSON: We got six new positions.

So that might be for 200,000, 300,000 worth of staff costs, you brought -- COMMISSIONER RICHARDSON: Each auditor will create about a million dollars or more in assessments. But, again, you got to understand, if you're creating a receivable, it doesn't mean you're going to always collect that receivable. So new auditors will come in and maybe $200,000, $225,000, but each auditor, once they get over the curve, is going to potentially create a million 50 2/23/10 - WHOLE - RESOLUTION 090894 dollars or more in assessments.

If we hypothetically collect half of that, it more than pays for the effort and puts money on our books that we currently don't have. So, I mean, it's something to think about. And not micromanaging, don't intend to do that, didn't like it when it was done to me when I sat on the other end of the table, but it is food for thought.

Point of information.

The Chair recognizes Councilman Green.

Thank you, Madam Chair. This point of information is for Councilman Jones. Councilman Jones, can you recall any group of Councilpeople suggesting that hiring more people in the Revenue Department would result in additional revenue? And could you regale us with the story of who that was, what 51 2/23/10 - WHOLE - RESOLUTION 090894 we suggested it would bring in and what the response was?

That would be those bratty freshmen that brought that up, and I won't go into elaborating on the other stuff. But I just would like to reiterate that that might be mathematically something that we might look at. Thank you.

Thank you. In your testimony, you did touch on the non-filers. Can you tell us what procedures do you currently use to identify and pursue non-filers and what additional initiatives are planned, if any? (Witness approached witness table.)

Good afternoon.

Hi. I'm Dan Cantu-Hertzler, Chair of the 52 2/23/10 - WHOLE - RESOLUTION 090894 Corporate and Tax Group. We currently take non-filers to Municipal Court seeking fines and orders compelling them to file their missing returns. That is quite a successful effort. I don't have the numbers off the top of my head, but we collect millions of dollars every year of various types of taxes in that way. We assess very substantial fines. I think it's $5,000, although we compromise those substantially if people are willing to come into compliance. So that's what we are currently doing. I think the amnesty program is written very well in that it requires people not only to pay their taxes, but to identify all of the taxes that they owe, including filing any missing returns in order to qualify, and we think that that's going to --

Would you mind walking us through the steps as to how you identify a non-filer? 53 2/23/10 - WHOLE - RESOLUTION 090894

Well, the non-filers are already on the system. So they have at some point gotten a business privilege license or filed a return or paid a tax, and then in subsequent periods they do not. Now, sometimes that's because they've gone out of business and just neglected to tell us, but many times it's just that they've neglected or intentionally decided not to file. And if it turns out that it's just a mistake, we can correct that, but we do pursue them that way.

I guess this may be a mundane question, but I think it goes to the heart of the matter. How accurate are your records and do you believe you are doing everything possible to maintain their accuracy over time? Do your records accurately reflect what your taxpayers are actually reporting and paying? COMMISSIONER RICHARDSON: The Department of Revenue's tax system are 54 2/23/10 - WHOLE - RESOLUTION 090894 the actual official records for the City. So the numbers that we have in our system are very accurate in regard to what taxpayers may owe the City of Philadelphia.

We have a number of Councilmembers that want to be recognized and I have a couple questions that I would also like to ask, so I think we're going to go back to the five-minute rule. At this time, the Chair recognizes Councilman Green. I know that's going to be difficult.

Madam Chair, I'll just wait until the end, until everybody has had their questions, because I can't take five minutes and I don't want to interrupt my question asking.

Okay.

Thank you.

Come on, proceed. 55 2/23/10 - WHOLE - RESOLUTION 090894

All right. First of all, I'd like to follow up on what Councilman Greenlee said and suggest that a pilot might be in order with respect to a blind pool of how you choose these people, but taking what people offer in terms of when they come in with or or 12 percent down or 10 whatever they can scrape up. My office 11 has had much less involvement with this 12 issue than most people, but there was a 13 small businessman who owed a significant 14 amount of liquor-by-the-drink tax. It 15 was a neighborhood bar. There was no way they could meet the obligations that was asked of them. The amount of money they were requested to put up, they simply did not have, and we were able to work something out that I ultimately don't think that they can afford, but they were just trying to buy themselves some time, because they were making less every month than the amount that they were required to sign up to pay. And it just seems to 56 2/23/10 - WHOLE - RESOLUTION 090894 me that there really is something to what Councilman Greenlee says. If someone comes in with percent, let's take the 5 15 percent. If they can demonstrate that 6 they only make a thousand dollars a month 7 in their business, let's take 200 of it. 8 Let's really work with the reality that's 9 in place. By signing the agreement, they 10 in fact have to admit the liability and 11 you avoid all those costs. I don't know 12 why when someone -- it just seems to me 13 that we ought to seriously consider some 14 sort of pilot where we just accept 15 payments from people and allow them to pay what they can demonstrate they can afford. You don't have to comment on that. I just -- SOLICITOR SMITH: May I?

Yes, please. SOLICITOR SMITH: I think as I said in response to Councilman Greenlee's question, certainly we are receptive to people's efforts to make payment 57 2/23/10 - WHOLE - RESOLUTION 090894 arrangements and we try to consider all the circumstances. Bear in mind that the situation that you -- the hypothetical situation that you just described, or actual, whichever it is, is a situation in which the tax that was owed was a trust fund tax, which means that the money had already been collected from the purchasers of the liquor-by-the-drink, and so technically under the law, that operator had already acquired the money -- obtained the money from the purchaser. And so in that circumstance, it's sort of hard -- it seems to me it's sort of hard to comprehend how that businessowner would not have the money that he's taken in trust on the liquor-by-the-drink. So just keep that in mind, that while we are certainly receptive to people's efforts to make payment arrangements, we also have to consider their obligation under the law in having collected the tax in the first place. 58 2/23/10 - WHOLE - RESOLUTION 090894

I appreciate that comment, Solicitor. Really rather than getting into challenging the premise of the hypothetical, I'm really looking for a potential of a pilot program or some other program where you change the rules and see how we can collect tax over time for some small percentage of people so that there is some actual data which demonstrates whether or not it would be more effective to take the 10 or 13 percent and put in place payment plans. 14 In this particular not 15 hypothetical, I actually think they didn't know about the liquor-by-the-drink tax and that was part of their problem. But at any rate, I just throw that out there as something you may want to look at. And, of course, we can always, I guess, require a pilot by ordinance if you're not willing to. The questions I have -- really I want to go back to Mr. Dubow, because we hear this billion-dollar figure 59 2/23/10 - WHOLE - RESOLUTION 090894 everybody talk about, about what's realistic, and I just for the record want to make it clear to the citizens what is actually realistic. And I know you don't want to say what the number is that's collectible because we don't know that, we haven't matched records with people's FICO scores or other things, but I'd like to get a realistic sense of what we can expect and make it clear to the public that you're doing everything you can to collect this outstanding tax. So is there like some realistic number that we can expect that is different than has sort of historically been in the Five-Year Plans on an annual basis?

I think --

As a practical matter.

Well, our projection from the various initiatives that we put into place for '09 -- and then '10 would be the first full year -- 60 2/23/10 - WHOLE - RESOLUTION 090894 was about an $8 million increase. It's hard to see those -- above the kind of 80 million that you normally -- 70 to 80 you'd normally see. It's hard to see those for a couple of reasons in what actually happened. One is because of what happened with the economy, which winds up driving delinquents up, and two is because of the amnesty and what -- the ultimate hope for the amnesty, you have an influx of money this year of delinquencies and then you'd have more people coming onto the rolls and they would actually be paying currently. So you would see -- you wouldn't see the growth in delinquents in the future, and we would continue our aggressive initiatives to try to pump up that 70 million to get it closer to 80. So by the two things, you'd wind up pulling down the delinquencies from the past and not seeing expansion going forward.

But there's sort of a perception out there that we're 61 2/23/10 - WHOLE - RESOLUTION 090894 not -- if all we have to do is collect this billion dollars, then we don't have to make any other hard choices, and I'd just like you to respond to that.

Right. If it were that simple, we would have done it. The billion includes what's owed from every time period. So in the first cut, you can take a look at what we call the active periods, which is 30 years for property and six years for the other taxes. That takes it down to about 555 million, but that includes interest and penalties. If you look at the principal amount owed to the General Fund from that, it's about $260 million. Still a very high number, but still a lot of that is also over years old and just the 20 property tax. So there are big numbers, but you're right in what you're pointing out, that what we can actually collect in taxes owed is much, much smaller. Unfortunately, because there are so many 62 2/23/10 - WHOLE - RESOLUTION 090894 factors with each different type of tax, it's hard to put an exact number on it. It is important for us to say that we are very aggressive in going after that money, that we're continuing to look for new initiatives with things like enhancing our audit capability, enhancing our matching of IRS returns, publicizing the names of all the BPT -- largest BPT delinquents. So, I mean, we're doing what we can. We'll continue to do more. And you're right, it's important for us to say that. SOLICITOR SMITH: Can I just add one thing about that just to clarify what's shown in terms of what's owed. Even though we consider to be collectible real estate taxes that are within 30 years, we don't ever write off the real estate taxes, because they are attached to a property. So those numbers always appear on the books even though we internally know that they're minimally collectible. So that should be borne in 63 2/23/10 - WHOLE - RESOLUTION 090894 mind as well.

Thank you. I'd like to take this opportunity to actually say I was very excited by Commissioner Richardson's testimony. It looks like we're moving to a paperless tax collection system over the next few years, and I want to offer whatever I can do to help you get there with that effort. I think the matching of databases and the use of technology to make this system more effective and efficient is something I'd like to see in every department. So it looks like you have a really great plan here over the next few years. I want to thank you for that.

Thank you.

And I would like somebody -- I was hoping Seth Williams would still be here, but I'd like an explanation for the record of exactly what we're talking about with respect to what's prosecutable by the DA. 64 2/23/10 - WHOLE - RESOLUTION 090894 I assume it would be like a liquor-by-the-drink tax. SOLICITOR SMITH: Curtis Douglas is here from the DA's Office and he can answer those questions.

Okay. (Witness approached witness table.)

Good afternoon, Madam President. Good afternoon, Councilmembers. Basically what we're speaking here is violations of Title 18, Section 15 3927, and basically that's theft by failure to make required dispositions of funds received. So there is a Code section that we think is appropriate for this kind of failure to pay taxes.

And this would be trust fund type taxes?

That's correct.

So it's liquor-by-the-drink tax, the hotel tax? SOLICITOR SMITH: Wage tax. 65 2/23/10 - WHOLE - RESOLUTION 090894

That's correct. And at this point, I think we're -- initially we're talking more about the liquor tax, because that is something that's actually -- that we've actually had discussions and is within our contemplation. So at this point, yes.

Thank you. I will just conclude with I'd like to say I note none of your testimony mentioned Councilwoman Krajewski or her efforts in this regard. Councilwoman Krajewski introduced a bill that created the tax amnesty program. About nine or ten of us co-sponsored it, including myself. This is an issue that was raised by the Freshmen 15, Freshmen 30 about six months into 2008, and I'm glad to see us cooperating on this issue going forward. Thank you.

Thank you. The Chair recognizes Councilman Clarke. 66 2/23/10 - WHOLE - RESOLUTION 090894

Thank you, Madam President. Good afternoon. SOLICITOR SMITH: Good afternoon.

I want to go related but unrelated, Sheriff's sales. If you can kind of walk me through the limitations or the prohibitions on Sheriff's sales. A couple reasons I say that. One is because there's obviously a substantial amount of real estate taxes due, both short and long term, and I'm trying to get a sense as to -- is it simply a thousand dollars now, is the minimal amount to be --

There's no 20 statutory minimum, but we do not pursue properties generally at that level unless it's like a multiple landlord perhaps.

What are the thresholds? Because I've seen in different areas -- because, 67 2/23/10 - WHOLE - RESOLUTION 090894 unfortunately, I have a lot of tax-delinquent property in my district, but you see these varying numbers, and one block you could see somebody owes $15,000 in tax delinquency on real estate and they're gone, and another you might see 1,200 and the person actually lives there and they'll get a notice that their property is going to go on Sheriff's sale because the person is there, but the $15,000, $30,000 lot, no notice is sent out to that. What's the process? How do we decide where to send them? And then I'll kind of tell you where I'm going with this.

Generally, factors that would be considered would be the age and size of the delinquency and the value of the property, whether it's likely to sell at Sheriff's sale, as well as certain other factors. There can be hardships. Now, also getting a decree ordering that a property be sold at 68 2/23/10 - WHOLE - RESOLUTION 090894 Sheriff's sale does not necessarily mean that that will happen, because people still have the opportunity for a financial hardship agreement, for example. Anyone up to approximately 46,000, a little more than that, for a family of four can pay based on ten percent of their monthly income. People even that make more than that, if they have extraordinary expenses, they can apply for --

Let me focus on vacant properties, because that's really my interest.

Okay. How would we choose a vacant property?

Yeah. Let me tell you where I'm going. And I told you earlier, I can see this discrepancy in numbers as it relates to properties that are authorized for judicial sales for delinquent taxes, and what I don't understand is that how do we -- I mean, do we say everything that's over $10,000 69 2/23/10 - WHOLE - RESOLUTION 090894 put it up for Sheriff's sale or do we geographically look at an area and say that everything that's in Northern Liberties because that's now the hot area? How do we do that?

We've taken care to make sure that these are spread around, that they're not all focused in one neighborhood. We've tried to take care to do that.

How do you do that or who does that?

The initial list that we authorized Linebarger to start pursuing in the summer of '07, which is the first time we had had outside Sheriff's sales, we took the top, I forget, the top X number in each ward, I believe, and then -- let me see. No. We took the top 20,000 properties and then, in addition, the top maybe another 50 in each ward or something like that just to make sure that the eligible properties -- now, not 70 2/23/10 - WHOLE - RESOLUTION 090894 all of those went to Sheriff's sale either, and from that, they proposed particular ones that would be appropriate.

"They" meaning Linebarger?

Yeah. And we also do some in-house. Linebarger does about 100 a month setting. Now, that doesn't mean there are that many Sheriff's sales, but that's a petition in rules. And we do about in-house. 14

Let me cut 15 to the chase. We need revenue, right? 16 And we have areas in the City and we have 17 people within the government that have a 18 keen sense of where is the most likely 19 opportunity that these properties will be 20 sold at Sheriff's sale, sometimes 21 potentially higher than the municipal 22 lien, although I understand we can only 23 max out at the lien in terms of us trying 24 to pick it up. Why don't we look at 25 those areas as opposed to what you said, 71 2/23/10 - WHOLE - RESOLUTION 090894 spreading it around evenly? Like I live in a particular neighborhood. It may not be as lucrative to purchase a property at Sheriff's sale for speculative persons as it would in another neighborhood. So why don't when we look at this process strategically look at areas where the likelihood that we're going to get a significant amount of revenue for vacant property sold --

Well, I think we are. For the ones that are taken to Sheriff's sale, those have been the ones that we do expect to sell.

Earlier you said that you spread them out all over the City evenly. That doesn't sound like a strategic focus on areas where there's a strong likelihood that these properties are going to sell. You got a vacant lot in Northern Liberties -- and I hate to keep picking on Northern Liberties, but I'm familiar with it because I represent half of it -- versus one in Strawberry 72 2/23/10 - WHOLE - RESOLUTION 090894 Mansion, that's going to be quite a difference in terms of the dollars we capture on the sale. So what I'm saying, why don't we strategically look for those areas -- because we do understand the trends in communities -- to focus on our Sheriff's sales? Does that make sense to you?

It does.

I mean, is that something that -- because normally if we were fiscally sound, you can just kind of like do it across the City.

Yeah. We are doing some of that in-house also, and we have a second outside vendor that has promised a more strategic look. It's been a little bit delayed because of the amnesty, and we'll --

Who is that?

That's Goehring, Rutter and Boehm.

Is there a 73 2/23/10 - WHOLE - RESOLUTION 090894 reason why we can't do it in-house?

Well, the problem is if you start -- I'm sorry. What was the question?

Is there a reason why we can't do that in-house?

Do it in-house?

The problem is, once you farm that out to an external source, you got to pay a fee for their work.

We pay a fee only to the extent they collect, but, yes. The idea is that they have more resources. They may be able to do 100 a month, like Linebarger is, whereas we can only do about 25.

Why is that?

Staff, I guess. Capacity, yeah.

I mean, why is it that they can do 100 and we -- I 74 2/23/10 - WHOLE - RESOLUTION 090894 don't understand. Is it easier for them to certify and list properties for Sheriff's sale than it is the City?

Collections firms are organized a little better for volume in that way.

Why? SOLICITOR SMITH: Well, because our tax collection staff works on -- I mean, if you think about the thousands of cases that just exist, we send some out, we keep some in-house. Our collections staff works on -- any individual attorney or tax analyst is working on a variety of cases and it has the limitations of whatever our internal capacity is to get communications out and that kind of thing. We're just not structured -- our offices are just not structured for that volume of work. Collection agencies are designed to do work at a much higher volume than -- it's just the nature of the way our office is structured to handle. And with -- I mean, with the 75 2/23/10 - WHOLE - RESOLUTION 090894 real estate collections, remember that the fee, that we're able to pass that along to the delinquent taxpayer to a certain degree. So, I mean, when you say we have to pay them a fee, we do, but it comes off the collections and it's tacked onto the collections.

One hundred percent? SOLICITOR SMITH: Whatever the fee is for real estate taxes, which is what you're talking about, it's tacked onto the collections themselves.

Okay. Getting back to the issue of strategically -- and I hear what you're saying. I mean, I would like to see -- I mean, not that I -- SOLICITOR SMITH: Can I just say we don't disagree with you. It's a good idea. It's a good idea, and we are looking at ways to try to -- we are looking at ways to try to pair up economic development, is basically what 76 2/23/10 - WHOLE - RESOLUTION 090894 you're talking about, real estate economic development, with our --

That's the second part of our question where we can enhance neighborhoods that need enhancement, and the likelihood that somebody is actually going to buy it and build it, I would think that we will focus --

It's also a balance. We can't just pick one or two neighborhoods. We need to have some uniformity just under law. We'd get challenges saying, You're picking on me because I live in this neighborhood.

That's not law. That's policy. That's not law. SOLICITOR SMITH: Well, no. 20 State law has uniformity in tax collections, and so we have to adhere to that law when we engage in tax collection efforts. So we have to be mindful of those uniformity considerations when we are figuring out how we're going to 77 2/23/10 - WHOLE - RESOLUTION 090894 deploy our resources in collections, and we can't set ourselves up for a situation that allows people to say, You've targeted this area because these people are -- because these -- these people are more disadvantaged, or whatever the factors are. We have to apply our efforts uniformly, but within that --

Understand I'm talking about vacant property. I'm not talking about occupied structures. SOLICITOR SMITH: Sure, but it's also about the ownership of the properties and it's about a lot of those things. And so, yes, within those uniformity considerations, yes, we agree that it is entirely reasonable and we are trying to look at ways to do that to engage in these efforts strategically so that they work hand in hand with economic development.

Would you accept help from Councilmembers on that? SOLICITOR SMITH: Sure. 78 2/23/10 - WHOLE - RESOLUTION 090894

All right. One last question. Earlier in your testimony you talked about making it easier for taxpayers to pay their taxes, make agreements. Right now do we have satellite offices that collect taxes? SOLICITOR SMITH: Law does not.

One or two or three? COMMISSIONER RICHARDSON: The North Philadelphia and Northeast office they do accept payments there by check or money order. There is one staff member in North Philadelphia at 22nd Street that does real estate agreements, and in the Northeast, we have one gentleman that does agreements there and we also have water agreements set up there.

Have they been pretty successful? COMMISSIONER RICHARDSON: Pretty much so, yes, they've been pretty good.

So that's a 79 2/23/10 - WHOLE - RESOLUTION 090894 practice that we would like to continue? COMMISSIONER RICHARDSON: Yeah. For right now, yeah. So far it's been good.

You hesitated, Commissioner. COMMISSIONER RICHARDSON: Well, I guess I believe I could have everybody in-house. I'd rather have everybody in-house instead of spreading my staff thin. So I think we can do more internally with the customers, because you got to understand, downstairs we get an awful lot of customers compared to in the two district offices. For example, yesterday they probably had 568 in the Northeast and about close to that much in North Philadelphia. They're coming primarily to pay their bills, not doing payment agreements.

Okay. I mean, I've heard that probably from people in North Philly and Northeast say that the collections are substantial up 80 2/23/10 - WHOLE - RESOLUTION 090894 in those areas and they do quite well, and it is obviously something that the people in those areas are comfortable with, predominantly senior citizens and -- COMMISSIONER RICHARDSON: They're probably talking about collections and making their payments there, not setting up payment agreements, though.

But collections generally? COMMISSIONER RICHARDSON: People go there.

Because it's convenient? COMMISSIONER RICHARDSON: It's convenient, I mean, for that North Philadelphia community. It's convenient for the Northeast. For the folks that can't get downtown, it's really convenient, and we do get a lot of money from those two offices.

Okay. 81 2/23/10 - WHOLE - RESOLUTION 090894 Thank you. Thank you, Madam President.

You're welcome. The Chair recognizes Councilwoman Tasco.

Thank you very much. I'm looking at Table 10. I think Councilman Green may have asked this question. There are tax accounts that go back to '72. Has there been any survey done of these properties, let's say, for the last -- from, say, like 2000 on -- well, from '72 to 1990 what those -- are they properties that someone owns, are they vacant, or just what's the status? Have you done any analysis of those properties to see if there's any effort at all to collect those? COMMISSIONER RICHARDSON: This is credit balances that are owed to the customers. You probably want to look more at Table -- 82 2/23/10 - WHOLE - RESOLUTION 090894

That's what's I'm saying. I'm looking at the wrong table. I can't see. COMMISSIONER RICHARDSON: You want to look at Table 6. Actually, Table 7 will give you what are balances due for the business privilege tax, real estate and the wage tax. Can you repeat your question, please?

I guess my question is, what is the likelihood of collecting these taxes from years back, and if they are real estate taxes, have you done a survey to see if those -- the status of those properties, especially real estate taxes. '78 to '90, 1990, you had 10,000 accounts. How many of them are real? SOLICITOR SMITH: Well, remember that the real estate taxes are attached to properties. So those are 10,000 properties that have real estate taxes owed attached to them. That's the 83 2/23/10 - WHOLE - RESOLUTION 090894 first thing. As long as the properties are still there, the taxes are still owed on them and the challenge is finding a responsible person connected to the property to collect the taxes.

And you know for a fact that those 10,000 properties are still physically there? SOLICITOR SMITH: Well, yes.

I mean -- SOLICITOR SMITH: It's real estate, so it's --

Well, the building may not be there, but the person -- the building may be gone and the land may be vacant and you may need to -- you're trying to collect back taxes and the building may not be there. SOLICITOR SMITH: Well, right. I mean, we don't spend, as we're explaining earlier, if the tax -- after a certain point, we don't spend a lot of energy trying to collect those taxes because they are so old, that we try to 84 2/23/10 - WHOLE - RESOLUTION 090894 focus our attention on the more recent, more reasonably collectible property taxes. So going back to '78, that's 33 years. We're looking at like real collectability being no more than 30 years. So that's at least three years right there where we would not be considering them to be reasonable, and then within that old -- within the time frame of the 30 years, then we'd be looking to see.

Well, what would have prevented you from taking those properties to Sheriff's sale so the City would own those?

Well, we still can, but now we don't automatically get the property if we take it to Sheriff's sale. We have the right to bid up to the amount owed, but other people can bid, and we also don't have to bid it if we don't want the property. But until the last few years, we could only take maybe, at most, 300 properties a year to 85 2/23/10 - WHOLE - RESOLUTION 090894 Sheriff's sale. With the outside firms, now we have greater capacity. But that's been the problem, there's so many properties here and we've only taken a handful to Sheriff's sale. SOLICITOR SMITH: And, again, remember that we have to -- with real estate, Sheriff's sales, we have to consider the likelihood that the property will sell, whether or not the City is willing to become the property owner. I mean, we don't want to get -- we've actually talked to New York City about this very issue, and we don't want to get into a situation where the City itself owns all these properties that it can't dispose of either. So we have to balance a number of factors in making those determinations. COMMISSIONER RICHARDSON: Keep in mind also, Councilwoman, that when you see that number, it's not 116,000 properties, because for each tax year, you may be delinquent from 2009 to 2001. 86 2/23/10 - WHOLE - RESOLUTION 090894 So for each year you have an account on, there's a property.

I was going to say the opposite. I'm sorry. I don't want to contradict my colleague here. I think the numbers for the individual year is how many accounts are delinquent for that year, but the total number that are delinquent in all is 116,000. If you look at the numbers from '78 to '90, there's 10,000 owed and then the total due is only 13 million. So it's like $1,300 per property from one to 13 years. So those are relatively small debts. Now, most of those will also be delinquent in the more recent years too, and some of those are being taken to Sheriff's sale now, but, again, we haven't been able to get so many of them.

And in terms of -- and I think the Solicitor was talking about this. In terms of where we put our resources, it's clear that the more 87 2/23/10 - WHOLE - RESOLUTION 090894 recent years are a better way to go in terms of generating revenue. So the further back -- it drops off actually fairly quickly. So if you look at something that's over five or six years old, the likelihood that we'll get much out of going after it diminishes substantially. So in terms of dedicating resources, we like to put them to the more recent years.

Okay. Let me ask you one other question. There are a number of businesses that call and ask to get an agreement to pay their back taxes. Have you done any analysis of how many of the people in some of these back years who made agreements didn't keep the agreements and continue to make the agreements? SOLICITOR SMITH: Did continue to? You're saying the opposite of what Councilman Greenlee asked. So you're asking the opposite of what he asked, which is you want to know how many people 88 2/23/10 - WHOLE - RESOLUTION 090894 have kept their agreements?

Who have not kept their agreements, but they keep --

Oh, and then enter into a new agreement later?

And they renew the agreement. How many agreements do you agree to for one person? SOLICITOR SMITH: You mean how many times do we let people come back and take another bite at the apple?

Right. Right. SOLICITOR SMITH: We try to give people two or three chances, and then after that, after two or three instances of them breaching the agreement and trying to restart it, then we have to -- then at some point we have to conclude that it's an exercise in futility and we have to be more aggressive about it.

Okay. 89 2/23/10 - WHOLE - RESOLUTION 090894 SOLICITOR SMITH: I should say or resume our collection efforts once the agreements have become futile.

Thank you. Madam President, I'm done.

Thank you. The Chair recognizes Councilwoman Miller.

Thank you. Thank you, Madam President. Good afternoon to the panel. (Good afternoon.)

I just want to ask a couple questions regarding the bulk payment amount and the flexibility with that. Over the years we've had constituents call and they are behind in taxes, whatever kind of taxes, maybe a water bill, maybe real estate, whatever, and they've had problems being able to afford to make the bulk payment dollar amount, and I was wondering if you have more flexibility. 90 2/23/10 - WHOLE - RESOLUTION 090894 I know of a constituent that actually could not afford the bulk payment, could not get any entity within the City to agree that he can pay a smaller dollar amount, so for four years he just ignored the payment, and then during the course of the four years, he saved up money and was able to finally pay the bulk payment dollar amount that was due four years ago. And I guess if there was more flexibility, he would have been able to make a bulk payment, but not the $12,000 that the City insisted he have. Is there any way that you can be more flexible with bulk payments? Because he was a delinquent taxpayer for four years. He purchased a property, and when he purchased the property, he inherited the water bill. That's how all this started. SOLICITOR SMITH: Again, I think we are certainly willing to consider requests for payment 91 2/23/10 - WHOLE - RESOLUTION 090894 arrangements, considering all of the relevant circumstances. I think as Commissioner Richardson said earlier, it's really important that people become aware of -- people have a recognition of their tax liability as it comes due, because the penalties and interest begin to accrue very quickly, and that people come forward as soon as they realize that they're unable to pay what's due so that they can make payment arrangements at a point where those arrangements are affordable to them. Also, with respect to real estate taxes, we do have various hardship programs that are available to people who qualify for them. Mr. Cantu-Hertzler described the basics of a couple of them, but we do have those available. And so, again, particularly with real estate taxes where people meet the income guidelines, there are additional hardship opportunities available for those property owners as well. So we, again, 92 2/23/10 - WHOLE - RESOLUTION 090894 encourage people to recognize their liability quickly and come forward early.

Well, with him I don't think he understood that if he bought the building, he inherited an old water bill, $20,000 water bill, which I find very frequently people don't realize that when they're buying building, they're buying the taxes and everything that's due on that property. But once he did realize that, he did try to make a payment arrangement, a payment agreement, but the bulk payment was just too much, and that's really what I'm asking the question about. If a person cannot find flexibility in the bulk payment dollar amount, who should they call or who should we call? Should we call you, Shelley? Should we call the Revenue Commissioner? Who should we call if there's flexibility there? I'm just trying to find out who is more flexible, I guess. COMMISSIONER RICHARDSON: I 93 2/23/10 - WHOLE - RESOLUTION 090894 think we're both flexible to work with the taxpayer or water customer here in the City, and I think you will find that, again, the case-by-case situation as talking to Councilman Greenlee's question about it, we're amenable to working with the taxpayers. A bulk of that kind of -- that's an enormous amount of money to ask somebody to have. However, we don't know if they brought their financial statements with them for us to review as well. But, again, if you're not getting the satisfaction for your constituent from our folks, please let me know or Shelley.

Oh, good. I'll give you a call.

Councilwoman, if I might add, as you mentioned, people should but don't always realize that when they buy a property, they are buying whatever liens are already there, and that's why a title 94 2/23/10 - WHOLE - RESOLUTION 090894 company will say, You got to pay this off at the closing. People should calculate that in the purchase price they're paying. But we have to be careful we don't make it too easy for people or else people will just ignore that and try to get a better deal from us instead of from others.

Yes. I do understand that. Unfortunately, a lot of constituents don't understand when they buy vacant properties or a vacant commercial building that there is normally bills that go along with that. I was reading -- I really didn't get a chance to read all of your testimony, but I was kind of surprised at the taxpayers who owe the hotel tax and the vehicle rental tax. Now, those are, what, hotels here in the City? SOLICITOR SMITH: Yes.

That's not paying their tax bill? SOLICITOR SMITH: Right. 95 2/23/10 - WHOLE - RESOLUTION 090894

And rent-a-car agencies, I guess? SOLICITOR SMITH: Right.

Or is that -- SOLICITOR SMITH: That's right.

Rent-a-car? SOLICITOR SMITH: Yes.

All right. I just wanted to know. So are you going to list those in the newspaper? I know you have a program where you do list the top businesses -- SOLICITOR SMITH: Top taxpayers with judgments. COMMISSIONER RICHARDSON: We can't list those businesses unless they have a lien against them, but --

Unless they have what? COMMISSIONER RICHARDSON: A lien, a public lien, a public document 96 2/23/10 - WHOLE - RESOLUTION 090894 that gives us the authority to publicize someone's name. However, we will work on trying to reach these businesses and get them into compliance.

Is this delinquency mainly due to the economic hardship that's happening right now? COMMISSIONER RICHARDSON: I don't know, to be honest with you. It could be the economic hardships. It could be a situation that they're not paying attention to their responsibilities. I can't answer that really.

Okay. And with the economic hardship programs, what are we doing to understand what's happening to folk that no longer have jobs that's due to the economic recession? SOLICITOR SMITH: Well, again, I think to the extent that people who incur tax liabilities are unable to meet their full obligations because of some 97 2/23/10 - WHOLE - RESOLUTION 090894 circumstance related to their employment or unemployment or other particular economic hardship, again, just to go back to what we've said, we're receptive to -- we encourage people to come forward. We want people to come forward to try to make arrangements rather than wait until it has snowballed to the point where they're completely unable to pay anything remotely close to what's owed. I mean, I think one of the overriding messages here is that people really need to come forward early, as soon as they realize there's a problem, so that we can work with them to try to make some arrangement that they can meet until they get back on their feet, or whatever the situation is.

Okay. COMMISSIONER RICHARDSON: I would also say, Councilwoman, that as everyone knows, amnesty is coming May 3rd of this fiscal year. If you're willing to have a town hall meeting with your constituents in your district, we'll be 98 2/23/10 - WHOLE - RESOLUTION 090894 more than happy to come out and talk to folks, because, again, there's an opportunity now with amnesty for them to come clean, because after July, you don't know what the potential enforcement ramifications could be. Again, as a department, I think we both want the taxpayer to call us. If we don't know what's going on, we can't stop the enforcement wheels that are spinning, but if they come to us and talk, we're more than willing to listen to them.

Okay. That's great. And I just have one other comment, Council President. I do think that -- this morning when I was riding in and I saw the sign near the MSB building that says parking is available -- I can't remember the actual words verbatim, but it's allowing people to park to go into the MSB or take care of City business. 99 2/23/10 - WHOLE - RESOLUTION 090894 SOLICITOR SMITH: For customers of the City, right.

I think that it's been very, very helpful to have these neighborhood centers. It does make it easier for our citizens to be able to pay their taxes out in the community where they don't have to drive to Center City or take the subway to Center City to pay their bills, and I just know of two of the centers. I know it's one in the Northeast and it's one in North Philadelphia in my district, and I just again want to say how useful those neighborhood centers are. We call them mini city halls, but it's great that people can go there and pay their water bills and pay other bills, other obligations that they have to the City. So I hope you guys aren't thinking about shutting any of those down. COMMISSIONER RICHARDSON: Not in control, ma'am. Not our control. Again, the offices do create a lot of 100 2/23/10 - WHOLE - RESOLUTION 090894 revenue, so we like them there.

Okay. Great. Thank you. Thank you, Madam President.

You're welcome. I would just like to ask the City Solicitor a question, please. What is the return on investment in those City employees who were charged with collecting taxes for the City? For example, for each dollar collected by the Law Department, how much does it cost to collect that dollar? SOLICITOR SMITH: I think our return is, we collect $11 for every $1 we spend on an employee who does the collection. That's for taxes and water combined. I'm not sure we have a breakdown for water specifically. That was your question.

Let me ask a question to just follow that up. How many employees do you have who are 101 2/23/10 - WHOLE - RESOLUTION 090894 charged with collecting taxes? SOLICITOR SMITH: About between 55 and 60 tax analysts and lawyers.

Fifty-five and 60 what? SOLICITOR SMITH: Tax analysts and lawyers combined, and that includes all support staff as well -- tax analysts and lawyers, between 55 and 60.

I'm sorry. There's much talking going on around me, I can't hear you. SOLICITOR SMITH: Between 55 and 60 tax analysts and lawyers.

So in fact if the Law Department's budget for tax collection staff were increased, say, by percent, how much more do you think 20 the Law Department would collect annually? SOLICITOR SMITH: I think if the Law Department's budget for tax collection were increased by 20 percent, we would probably increase tax collection 102 2/23/10 - WHOLE - RESOLUTION 090894 maybe in the neighborhood of to percent. It's sort of a situation where you bring on more people and then you kind of have to bring them on to the point where the diminishing returns become apparent. So certainly there would be an increase in at some point. At some point those returns would diminish, and we just kind of don't know what that breaking point would be. But certainly at that level, there certainly would be an increase of something somewhat less than the amount added.

Commissioner, how many employees do you have whose responsibility it is to collect delinquent taxes or taxes? COMMISSIONER RICHARDSON: Within the Department on the tax side, we have about 248 employees. Of that, about 90 employees work in Taxpayer Services, which is providing the service to the taxpayers, say, the payment plans. Within our Discovery and Audit 103 2/23/10 - WHOLE - RESOLUTION 090894 Unit, we have about 48 employees in that unit. Again, that unit does the assessments after audits, and our Discovery Unit creates assessments and discover taxpayers who haven't been registered with the City of Philadelphia.

I know that the City Controller has been sitting back there very patiently, and I guess I could ask him this question, but perhaps one of you may know the answer. What is the City doing with respect to collecting taxes from visiting sports teams? COMMISSIONER RICHARDSON: We currently collect wage taxes from the visiting sports teams that come into the City of Philadelphia. We looked at a mini audit last year of several of the sports teams that came into town, but they are all paying wage taxes right now that are owed to the City.

How about the broadcasting? 104 2/23/10 - WHOLE - RESOLUTION 090894 COMMISSIONER RICHARDSON: We are currently looking at tangible receipts of all of the various sports leagues in the City of Philadelphia. Again, we're going to continue to work with our tech staff support as we look at creating some kind of -- not resolutions, but regulations towards that area as well, and we have to have a conversation again with the Law Department about that.

Thank you. I understand that Mr. Dubow and the City Solicitor have to be at PIDC for a vote. SOLICITOR SMITH: Correct.

How long do you think that will take you?

Apparently we can vote by phone and they're going to e-mail us when they need us.

Oh, so we can continue on?

Yes. Just at some 105 2/23/10 - WHOLE - RESOLUTION 090894 point we may have to step away from the table for a few minutes.

That's fine. Councilman Kenney.

Thank you. Thank you, Madam President. I'm sorry I wasn't here earlier, but I was listening on the TV broadcast, and I know the Council President asked this question and I know Councilwoman Tasco asked this question and I asked this question in the Finance Committee, and I still -- either I'm thick or I have not gotten an answer that makes any sense. No business carries receivables for 30 years. I mean, at some point in time debt -- I mean, a bank will wipe debt out. A company will say, We're never collecting this money. I know there's a portion of that, a pretty sizable portion, of those dollars that we list as delinquent taxes 106 2/23/10 - WHOLE - RESOLUTION 090894 that are never, ever, ever going to be collected. In addition, we keep racking up interest and penalties on 20, and 5 30-year-old-debt. 6 You set yourself up to fail 7 when you need to raise revenue either by 8 increasing taxes or enhancing fees, 9 raising fees, when the public out there 10 believes there's 700 million, 900 11 million, a billion dollars in 12 uncollectible taxes that we are just 13 incompetent to collect. 14 When are we going to have an 15 accounting system that takes into account 16 that that is not a real number? Because, 17 again, I'll say what I said in the 18 Finance Committee hearing. It is totally 19 frustrating to explain to a constituent 20 that this money is not collectible. Some 21 of it is, and that's what the collection 22 agencies and your people will continue 23 doing, and we will get what we can get, 24 but when does that number get real? 25 SOLICITOR SMITH: Right. I 107 2/23/10 - WHOLE - RESOLUTION 090894 agree with you that it's terribly frustrating to hear about and to have to explain the difference between what's on our books and what is collectible, in quotes. I think as the Finance Director testified, we have been making efforts to try to write off what is truly non-collectible, business tax where the business is defunct, for example, and we don't have any way of identifying anybody connected with the business and there's no trust tax that we can attach to the individual officers, for example. With real estate taxes, though, which are the oldest taxes on our books, remember that even if a tax debt on a real estate property is 30 years old, if that property is sold tomorrow, our tax lien is on it and so we will get that --

Unless the tax lien is more than the sale of the property. SOLICITOR SMITH: Unless the tax lien -- right. 108 2/23/10 - WHOLE - RESOLUTION 090894

Which means that who would buy a property that's worth $50,000 that has $150,000 worth of taxes on it? So you're expecting that person to pay a $200,000 sale price to pay us back our taxes? It will lay empty for another 50 years. SOLICITOR SMITH: I think that's true as an anecdotal example, but as Mr. Cantu-Hertzler described with the Table 7, if you looked at the real estate taxes that are aged from 1978 to 1990 and divide the total liability into the number of accounts, it's only about $1,300 a property. So probably the situation that you describe is the exception rather than the rule and -- so, again, where the property is sold. I agree it's very frustrating, and we are working on ways to try to --

With the exception of residents, homeowners, who have fallen on hard times and lost their jobs and have had catastrophic illnesses 109 2/23/10 - WHOLE - RESOLUTION 090894 or sickness, with the exception of those, why don't we speed up the Sheriff's sale process on vacant lots, on empty buildings that no one is living in, or can we just take it for the taxes owed? Is there a legal process that we can take title to it for the taxes that are owed and then give it away to a developer or a person that wants to build a house or renovate it? It's like it's this vicious cycle of increasing penalties and interest, not collecting taxes, because it could go to Mars and you're never going to collect it, and then we wring our hands about all this stuff that we didn't collect and we have no money. I'd rather give the property away and put it back on the tax rolls.

We do not have the right just to take the property because it's tax delinquent. We have to take it to Sheriff's sale and give the person the right perhaps to have it sold 110 2/23/10 - WHOLE - RESOLUTION 090894 for more than that and get --

Is there some legislative relief we could get from another government that would give us -- I mean --

I guess I was going to say is, we can bid our amount and we would probably get a lot of this property if we wanted it. We could also take a lot more properties to Sheriff's sale. We've been -- we've tried to be a little bit cautious about that, because there are so many properties here, and there have been studies -- I think the Reinvestment Fund did a study of Baltimore a couple years ago on how mass foreclosures on mortgage foreclosures -- but this could have somewhat similar effect -- how it could affect certain neighborhoods. And so we want to be --

If we take vacant property --

Vacant 111 2/23/10 - WHOLE - RESOLUTION 090894 properties are generally --

I'm not talking about a house a person is living in.

But just --

I'm talking about an empty building that no one is in, hasn't been in for years, a vacant 11 lot that no structure has been on for 30. 12 How is that going to negatively affect 13 the neighborhood? 14

I believe 15 it is under consideration for a 16 possibility, but you have to remember, if 17 the City owns it, then the City is also 18 responsible for it, and a slip and 19 fall -- 20

We have 21 property that the City owns now that we 22 don't have the capacity or the money to 23 maintain. 24

I know. 25

The issue 112 2/23/10 - WHOLE - RESOLUTION 090894 for me, whether it's City-owned property that's dilapidated and in disuse or whether it's privately owned property that's got the taxes so high that it's worthless, it benefits the City in no way to maintain the status quo. I would rather give away City property that we're not using for any usable purpose so someone can build something on it and create a couple jobs and a tax ratable. SOLICITOR SMITH: I want to just say that we are looking -- we are looking at whatever methods we can apply to trying to figure out what to do about some of these -- about these real estate tax debts, because the points you make are very good ones, and certainly it's just a difficult position to explain, both from the perspective of the existence of the properties and the perspective of the tax debts that are owed on them. So we are absolutely looking at all sorts of -- I mean, we're looking at 113 2/23/10 - WHOLE - RESOLUTION 090894 different ways to approach the problem.

I'll go a step further - RDA, PHDC, Public Property. We're sitting on real estate that there seems to be really no plan to do -- it was supposed to happen during NTI and it didn't happen because we were going to land bank the stuff and get it out in developers' hands, and I guess the Administration ran out of time and it never happened. I would rather give away that property to a developer with a cogent plan of development, maybe even wipe out the tax abatement, have the value of what we're coming to the table with be the value of the land to get something built on it. I'm just -- I'm befuddled, because I have to explain this to people all the time. "Don't raise my taxes or any fees until you collect that $700 million in real estate." Well, it's not happening. So I guess I can never do anything because it's in people's minds 114 2/23/10 - WHOLE - RESOLUTION 090894 that this is out there and the only reason we haven't collected it is because we're incompetent or we don't care. Can I just go one other area?

Certainly, if Councilman Goode doesn't mind.

Is that okay?

Yes.

Has there been any progress on the conversations we've had relative to the investigation of folks that are coming over here from other counties or in the City or from New Jersey with a panel truck and a ladder and a home repair business or a roofing business or an electrical business or a plumbing business that come here, buy at Home Depot and Lowe's, go out and do work in the neighborhoods, have no insurance, no ID, no license? I mean, we have, as I've told you before, Commissioner Richardson, you have a captive audience 115 2/23/10 - WHOLE - RESOLUTION 090894 of folks from 5:30 in the morning to 7:00 buying equipment to go put into people's homes and getting around our taxes and licenses and making fools basically out of the folks that follow the rules. I mean, we have legitimate licensed businesses that pay taxes and the wage taxes and their business taxes, and I got some person who decides they want to be a home repair contractor one day and doesn't file with us with anything, comes over here, uses our resources, which is our residential homeowners, and do work and don't pay nothing. And the other thing I wanted to raise with you is that I mentioned before that the most relentless enforcement agency in the history of man is the Philadelphia Parking Authority. They are just the most relentless crew ever, God bless them. They're out there every day on the street. When they're walking down the street in a business district and they're looking for tags or meters that 116 2/23/10 - WHOLE - RESOLUTION 090894 have gone over and there's a truck with a ladder up, say, Excuse me, can I see your business privilege license? Oh, I don't have one? Well, let's write you up. And then we'll have a whole list of people who do this that we can go after. COMMISSIONER RICHARDSON: Again, as we conversated, I agree with you and I've talked to the L&I Commissioner. We understand, there are a lot of businesses that are coming into the City like that. Again, you have to understand unfortunately from my environment, I have seven enforcement agents that go out in the street. So, yes, we can canvas business districts as we go. We hit various construction sites. We pay attention to a lot of things that are going on. We have caught a lot of businesses that are not registered. We are working with the Parking Authority to look at their vendors license. So for individuals, for every six months when they go to the 117 2/23/10 - WHOLE - RESOLUTION 090894 Parking Authority to get the placard to put in their car to park on the streets, now we're getting a list of those individuals, and hopefully starting in the next month or so, they'll be able to know if they're non-compliant or not.

And I think that's a wonderful idea. The problem is, as you know, the people who go get the placards are the ones that probably pay their taxes and fees, and the guy who just parks in the neighborhood and does work with a panel truck with no name on the side are the ones that aren't following any rules. COMMISSIONER RICHARDSON: Surprisingly, some of the folks that are getting the placards are not compliant with the City. The ones that are in the communities that are going and working, again, we can try to get to them. We can't be on every block enforcing --

Because you know what happens in the suburbs, don't 118 2/23/10 - WHOLE - RESOLUTION 090894 you? I take a panel truck and set up a kettle and go up on a roof and I don't have a license and they come out and check me, they impound my stuff. They take my tools, they take my equipment, and they hold it in the warehouse until I come back and pay the fees and stuff that I owe. And unless we get that reputation, which we do not have, they're going to continue to take advantage of us. COMMISSIONER RICHARDSON: Again, I understand what you're trying to say and what you are commenting on. Again, I have a tag team of seven individuals to cover the whole County of Philadelphia.

We should contract with someone or we should -- COMMISSIONER RICHARDSON: We can contract with them. Again, we have to look at the cost effectiveness of using a potential agency that may cost about $72 an hour. So if they go out to 119 2/23/10 - WHOLE - RESOLUTION 090894 the Northeast at one location, that may cost us $140 or $150 and then they find out they are compliant, then we lost money on a taxpayer that's compliant. But, again, I understand what you're saying and we're trying to get the word out there and we're trying to have our forces out there in the Home Depots early in the morning.

Those Home Depots and Lowe's parking lots are big ponds with a lot of fish in them, and you can get them all at once. So I would urge you to try to approach it that way. COMMISSIONER RICHARDSON: We are trying to work on that.

And, Councilman Goode, I'm sorry for taking the time. SOLICITOR SMITH: Can I just say one other thing with respect to the vacant property acquisition issue. In working with one of our new vendors, we have realized that we have the ability to 120 2/23/10 - WHOLE - RESOLUTION 090894 take properties to sale in bulk. And it might be easier if we do that to ensure that we don't get outbid for the property. So if we were to identify a set of properties that we wanted to acquire for that purpose, we could look at doing that. And so if you or anyone else on Council identifies any set of properties that you think might be appropriate for that sort of an initiative, we're happy to discuss that with you also.

Just one other comment relative to that. I agree with you that we need to look at that, but if we look at the property that we have clear title to now and are doing nothing with, that's the asset that you come to the table with. That's what we bring to the table. We bring land to the table. We bring a delipidated building to the table, and you bring your financing and your development ideas. All right. Thanks. 121 2/23/10 - WHOLE - RESOLUTION 090894

The Chair recognizes Councilman Goode.

Thank you, Madam Chair. I want to go back to the issue of hotel tax delinquents. Do we know how many hotels are delinquent in their taxes? COMMISSIONER RICHARDSON: Do I or do we -- say the question again.

Do we know how many hotels are delinquent in their taxes? COMMISSIONER RICHARDSON: As of January, about -- I'm sorry; 46 17 accounts are delinquent right now. 18

Forty-six 19 different hotels? 20 COMMISSIONER RICHARDSON: It 21 could be different hotels. It could be 22 the Marriott with many. I don't know. 23

Do we know how many were possibly publicly financed or were built with public incentives? 122 2/23/10 - WHOLE - RESOLUTION 090894 COMMISSIONER RICHARDSON: We can find out. I don't know.

You don't know? COMMISSIONER RICHARDSON: Off the top of my head, I don't.

Mr. Cantu-Hertzler, earlier Councilman Jones was discussing the tax lien sales of the 1990s and he talked about the money that was split between the City and the School District.

Yes.

And the money that went to the City created an economic stimulus fund; is that correct?

I don't recall what it was used for.

It went to an economic stimulus fund. A lot of that money actually went into hotel development.

Okay.

So we 123 2/23/10 - WHOLE - RESOLUTION 090894 actually placed liens on people's homes and raised money to give to hotels who may possibly be delinquent now. In addition to that, we may have given them tax incentives on top of that. So if we actually have hotels that are tax delinquent who received money from a tax lien sale to build, that's a problem we probably have to deal with more immediately if we can. Thank you, Madam Chair.

Are there any more questions? (No response.)

Is there anyone else here to testify? Oh, the Controller. All right. Thank you very much.

Thank you.

You'll stay around. (Witnesses approached witness table.)

Good 124 2/23/10 - WHOLE - RESOLUTION 090894 afternoon.

Good afternoon, Madam Chair.

Would you please state your name for the record and proceed with your testimony.

Thank you. I am City Controller Alan Butkovitz. I'm accompanied here today with Brian Dries from the City Controller's Office. I'd like to thank you for inviting me to speak today on behalf of this important issue. Unpaid taxes have become a fiscally dangerous trend in Philadelphia. They are an unfortunate reality that must be addressed, especially as we anticipate another budget shortfall this year. The City of Philadelphia currently is owed approximately a billion dollars in back taxes. Last year it was approximately $900 million. According to the TIPS consolidated accounting system, the City's receivable balance stood at 125 2/23/10 - WHOLE - RESOLUTION 090894 only $366 million as recently as 2003. That's a 173 percent increase in uncollected taxes since 2003. As this figure continues to climb year after year, the City must take all necessary steps to collect this outstanding balance. We know who owes this money. It's now time to aggressively collect it. My office has been engaged in taking every opportunity to have the City collect delinquent taxes. A 1937 state law provides the Philadelphia City Controller with the authority to withhold up to percent of a City employee's pay 17 to offset delinquent taxes. 18 For the first time in more than 19 70 years, we've utilized this law to 20 force hundreds of delinquent City employees to pay their back taxes. 2 million in delinquent taxes. Since then, approximately half have cleared their 126 2/23/10 - WHOLE - RESOLUTION 090894 delinquent balances or entered into payment agreements. 6 million, approximately 60 percent will clear up their outstanding delinquencies over the next months. 8 The employee withholding 9 program is the type of aggressive tax 10 collection effort that the City must take 11 in order to address its large base of tax 12 delinquents. In addition to the employee withholding program, I would like to mention other tax collection recommendations our office has made to the Administration. Last May, we released a report that outlined ten action steps the City should take in order to collect outstanding revenue. We recommended and join in supporting the tax amnesty program which Councilwoman Krajewski successfully shepherded through this Council, with the support of, I believe, a unanimous Council. 127 2/23/10 - WHOLE - RESOLUTION 090894 Tax amnesty programs have been highly successful. It will allow the City to collect millions of dollars in unpaid taxes. With a successful marketing and outreach campaign targeted at tax delinquents, the City has the potential to collect at least ten percent of the billion dollars it is owed. This is an opportunity that does not come along often. In fact, the City's last tax amnesty was 1986. The Administration must be 100 percent committed to ensure that maximum tax collections are achieved. Since a successful tax amnesty program relies so much on an aggressive, effective outreach campaign, I again recommend that the City form a tax amnesty committee to provide direction and ideas on how to maximize collections. This committee should be comprised of a representative from each of the following City departments: 128 2/23/10 - WHOLE - RESOLUTION 090894 Revenue, Finance, Law, City Representative, City Council, the Mayor's Office and the Controller's Office. The committee must work together if the City is to be successful in generating the millions needed to help us fill our anticipated budget gap for next year. In addition to the employee withholding and tax amnesty initiatives, the City should be proactive in other revenue-generating efforts. In our ten action steps report, our office recommended the following: Data mining in order to examine companies advertising in Philadelphia and find out if they have all appropriate licenses for doing business in Philadelphia.

Two, institute a tax clearance system that will extend the current tax delinquent status for contractors and investigate subcontractors that might owe the City for unpaid taxes. 129 2/23/10 - WHOLE - RESOLUTION 090894 Three, conduct street-level observations and combine efforts by the Revenue Department with other agencies such as L&I to work together on unannounced inspections to uncover illegal business activity. Four, all City departments should work together to ensure that all people who are licensed and doing business with the City of Philadelphia file and pay their taxes. Just yesterday our office received an allegation of an illegal towing in the City by a tow truck operator based in the City. In investigating this matter, we discovered that while the towing operator was current in his business privilege license filings, he has not filed or paid City business taxes since 1997. Five, develop a documented data analysis to develop a strategic plan and drive decision-making about tax discovery efforts; for example, spend more time looking at corporations, partnerships and 130 2/23/10 - WHOLE - RESOLUTION 090894 other pass-through entities for possible owed taxes. Six, build a data warehouse that compiles information from federal, state and other local agencies so the Department of Revenue can enhance its existing sources of data. Seven, create a fraud hotline, which I commend the Administration for implementing. Eight, encourage voluntary compliance through educational programs that expand the current program to encompass more proactive community outreach efforts; for example, send letters to targeted potential taxpayers, regional contractors and other service providers situated outside the City. Nine, develop leads for non-filers, which I again commend the Department of Revenue for its routine search for unlicensed subcontractors as part of the tax compliance audit function. I would recommend that this be 131 2/23/10 - WHOLE - RESOLUTION 090894 expanded to third-party relationships. A combination of current practices along with new innovative collection efforts will help the City collect outstanding debts, as well as uncover money that is currently not on the books. Thank you very much.

You're welcome. Are there any questions from members of the Committee? (No response.)

I think they asked so many questions that -- you heard many of the questions that were asked of our former members of the committee. Do you have any suggestions as to what or should be done?

Yeah. The responses from the Administration seemed to be going well to a point, and then I have to admit, I got a little depressed at the end in hearing Commissioner 132 2/23/10 - WHOLE - RESOLUTION 090894 Richardson's responses to Councilman Kenney, because I thought that the Councilman's concerns were really very much on target, and what we heard at the end were excuses for not being proactive. This idea that they don't have anybody to send out and it's going to cost them $72 an hour so, therefore, let's not do anything, along with several of the other statements made by the Administration witnesses basically announcing to people that if you can go for six years without paying your taxes, you are home free, actually floored me. I am impressed that the Council is staying here at this late hour and the amount of intensity and energy and thought that has gone into the questions, and I think that the Administration really should be bringing the same level of enthusiasm and can-do spirit to this project. I thought Councilman Kenney was very, very specific about this remedy of 133 2/23/10 - WHOLE - RESOLUTION 090894 impoundment of tools and equipment in the suburbs, and instead of that idea being embraced and explored, it was rejected out of hand as if it was inevitable that any enforcement effort would not find anybody non-compliant. In fact, it has been -- we have worked in numerous instances in an undercover capacity and in response to tips from some of the unions in uncovering a lot of undocumented, under-the-table work in the City. Usually when we get a tip, it usually turns out to be founded. There is a lot of underground economy in Philadelphia, and for the chief enforcement people to take the position that there's such a small percentage of non-compliance going on, that if we send out any enforcement effort, we would be throwing good money after bad is not what we want to hear.

What is your thought of the properties that are 30 years delinquent being put up for 134 2/23/10 - WHOLE - RESOLUTION 090894 Sheriff's sale?

Well, first of all, why do they stay delinquent for 30 years? You have a very valuable asset there.

Is there a standard that the Law Department has to follow on that?

Well, I believe the Solicitor talked about the $42,000 household income standard, which I believe is predicated on federal consumer law protections for low-income individuals. But within that parameter, there was no -- they gave you a lot of summarized data without a detailed analysis that would demonstrate that their conclusions were founded. We don't know what the income categories, for example, of the people who are 30-year delinquent on real estate taxes. There's no real forwarding to the Council of data that indicates the value of those properties. There's just 135 2/23/10 - WHOLE - RESOLUTION 090894 general conclusions, general conclusions that if the property were foreclosed, that they would all be non-sellable, that they're not worth anything. I believe one of the Councilmen -- I think it was Councilman Kenney again -- who raised the question of someone purchasing a property that was worth $50,000 and had a $150,000 tax lien on it, and my first response to that is that the City should be in the position to execute on its lien, and if it's worth $50,000, the third-party purchaser should be paying that money in the end to the City of Philadelphia. Why is it enunciated as if it's an absurdity? Like, wow, we can't sell a $50,000 property for $200,000, so why don't we do nothing, you know. I grew up -- I was in high school when President Nixon was in office, and he was a past master at that kind of reasoning. There was always one ridiculous absurd extreme or a completely 136 2/23/10 - WHOLE - RESOLUTION 090894 opposite extreme. Either he had to consider nuking Hanoi or we had to withdraw from Vietnam in disgrace. I mean, in reality, in real life, we know that we can get -- there's a lot of money to be mined out of a billion dollars in accounts receivable. The City reports about $560 million on its financial statement as an asset. It borrows against that. The City recognizes that and considers it a good receivable. They just don't like it when you try to hold them accountable to do something about it.

I would think in all likelihood most of those properties that are delinquent for 30 years or more undoubtedly have been demolished at this point in time.

I don't know. I don't know. Some of the areas at 30 years ago --

That's the information that should be 137 2/23/10 - WHOLE - RESOLUTION 090894 produced.

Some of the areas that were considered very low cost 30 years ago are in prime redevelopable areas right now. I mean, some of these areas are worth a lot more than they were 30 years ago.

We totally agree with you. That's true.

So why should the information -- when you ask detailed, intelligent questions, why should you be met with summary answers rather than data? I think that they simply deflected a lot of these points, and I think Commissioner Richardson at the end showed what his intent was, which is basically he wants to be left alone to do what he's doing.

Okay. Any questions or comments from members of the Committee? (No response.) 138 2/23/10 - WHOLE - RESOLUTION 090894

Seeing none, thank you very much.

All right. Thank you.

This Committee will recess until the call of the Chair. Thank you. (Committee of the Whole recessed at 4:35 p.m.) - - - 139 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on February 23, 2010, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)