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
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.
And the money that went to the City created an economic stimulus fund; is that correct?
It went to an economic stimulus fund. A lot of that money actually went into hotel development.
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.
Is there anyone else here to testify? Oh, the Controller. All right. Thank you very much.
You'll stay around. (Witnesses approached witness table.)
Good 124 2/23/10 - WHOLE - RESOLUTION 090894 afternoon.
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.
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
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.)