I have written testimony. If you'd like, I have copies. 78 12/12/01 FINANCE COMMITTEE - BILL 010694 (Testimony attached to transcript.)
Thank you. In your testimony, you itemize a number of issues that seem to me have nothing to do with money. Let me try to characterize what you said and talk about some of those issues. Streamlining codes. The code issue, so people can read and more understand the City codes. Streamling licensing and zoning processes. Changing state law to expedite property acquisition processes. Collapsing housing agencies into one governance body so we don't have all these agencies running around. Change the issues around the cost of construction. It delineates a few others. You've been working on this program for about two years?
The Administration ran on -- one of the primary components of the election campaign was NTI, because it's gotten so much attention. 79 12/12/01 FINANCE COMMITTEE - BILL 010694 What kept any of this from happening already? There's no need for a $250 million or $300 million bond ordinance to streamline our codes in the building section of our code, City Codes. There's no need for 200, 300 million bond ordinance 7 to streamline licenses and zoning processes. These are things that we're involved in. We have control over them. We could have these expedited in any way. This Council would have been happy to get legislation that would begin to start that process or change the process from the cumbersome it is now to something that would attract people to want to invest and not go through a terrible process. Changing state law to expedite property acquisition. Is there a legislation that's been drafted, that's been asked to be introduced in the state legislature? Is the chairman of the Community Affairs Committee have legislation that the City drafted for him to introduce? Has John Perzel been talked to as far as putting forth legislation? Collapsing housing agencies into one. It's been two years. I don't remember anybody in this Council ever saying, "Please don't collapse 80 12/12/01 FINANCE COMMITTEE - BILL 010694 those housing agencies. We need to keep it the way it is." Change the issues around the cost of construction. $300 million bond ordinance is not necessarily going to change the wage rates in Philadelphia vis-a-vis Conshohocken and West Chester as the Reverend told us. I guess part of the problem here is while we're grappling with all these issues, over the last two years if the attention had been made not just to the money but to the other processes that needed to be changed, we could have been doing this thing all along. All of a sudden, all of it needs to be done at once. I understand there's work going on. It all centers around the money. I guess the frustration here is, no one in this Council ever said from the L&I Committee, Streets and Services, Hey, don't change those rules. We like them the way they are. We received no 21 legislation from the Administration to do one of these things to change the way of climate in this City, except for the money. It comes back to the money. It's an important element. It does allow for property 81 12/12/01 FINANCE COMMITTEE - BILL 010694 acquisition, land-bank accumulation. All these other areas we have not done yet that are not working its way through the legislature in Harrisburg, that's not working its way through the Council in the City of Philadelphia are still not done. I guess the frustration the community has and we have, because we're being characterized as someone being an obstacle because we won't just cut the strings on the money, none of this other stuff has been given to us to do. I guess that's the frustration I would like to echo to you. You're a good guy, a competent guy. You've been very open and honest with us. This is all about the money. If it's all about money, fine. I can deal with that too. All those other things you ran down could have been done or be in the process of being done as we sit here today against another deadline of December 20. This is the Administration of deadlines. This Council should not be saddled with a list of undone things that need to be accomplished in order to make this City a more developable place. That's just my opinion, for the record. 82 12/12/01 FINANCE COMMITTEE - BILL 010694 I'm not looking for you to respond on behalf of the Administration. I'm just curious as to the number of things you listed in addition to the money could have been done or should have done in the last two years.
When we first worked with the Administration to help think through an NTI strategy we said, and I think the Administration agreed and encouraged us, that money is a piece. Again, it's one of the necessary but not sufficient conditions for getting this moving. You need money because no 13 developer is going to pay the cost of making this land into an asset because the value is not there yet. In order to do it, to be competitive many of these other things have to be done. The Administration -- including the cost of housing production. The Administration said to us, We agree. And then asked us -- we've only been one part of this -- to look at and work with them on several of these issues. Let me talk about two of them. I'll tell you where we are.
This is nothing new. Our zoning codes, housing codes, licensing process 83 12/12/01 FINANCE COMMITTEE - BILL 010694 property acquisition problems all have been in existence for decades.
Somebody said yesterday the City has been in population decline for 50 years. The problem is we have systems of doing business that reflect 50 years of decline. This is the problem. The broad problem is to survive, cities have to be competitive. In the first 50 years of the 20th Century, cities had a jurisdictional monopoly. That jurisdictional monopoly went away. Some cities figured it out; some didn't. This one didn't figure it out, unfortunately, I think until recently. Therefore, it's now saying, What do I have to do to be competitive? To be competitive, the City has to be competitive as a real estate market, as a labor market and as a site for business location.
That's what I meant by labor market: The business's taxes. Although, one thing I would say about taxes, I think at the end of the day it's what some economists refer to as "devalue 84 12/12/01 FINANCE COMMITTEE - BILL 010694 proposition." At the end of the day, what do I get for the goods you give me? In some instances, I'd be willing to be in a City and pay more if I get greater goods. Or if there's something about the place that gives me a premium. I can't reproduce Rittenhouse Square in -- I'm willing to do that.
Right. The problem for the City is in many of its neighborhoods, what's its real locational benefit and what's its competitive advantage? NTI works with just a piece of this broader competitiveness problem. I think on the Housing Agency issue from everything I've been a part of, the administration is doing the most serious work that has been done on this issue. I mean this. I also was a part of what the Rendell Administration did in the early '90s. I mean that they're the first one to seriously say, Let's figure out can you streamline this. And then look at all the regulatory, legal, all the muck of 30 or 40 years to try to figure this out. It's gone through an extensive law review. 85 12/12/01 FINANCE COMMITTEE - BILL 010694 Before they want to go anywhere too far with this, I think they want to do what Joyce Wilkerson said: Sit down with the labor unions, talk to the workers, work these things through.
Any day now. In all fairness, the only thing before us Is a request for the authorization to borrow $250 million. Other than that, none of this is before us now or has been before us in the past. Had it been before us in the past, I assure you we would have passed it. We would have analyzed it, reviewed it, discussed it and passed it. The only thing before us that came from the second floor was request for authorization to borrow money. That's it.
On the housing cost issue, what the Administration asked me was to look at what the cost drivers are. I can talk about some of those, if you'd like. I'm not done the research, even though it's overdo. That's my fault. To look at that research and say what are some recommendations that were doable, that make sense, that get the cost going down. The major problem for housing costs for the City is at the 86 12/12/01 FINANCE COMMITTEE - BILL 010694 level of the production of new middle-class housing. It's a problem for all. We irrationally subsidize high cost at the low end. We use subsidy to make up for irrational costs. It's what we do. We're all part of the problem. I financed a lot of the projects. At the highest end, particularly where there are high-end rentals, people are willing to pay the premium to make the numbers work. The problem is the $120,000 to $150,000 townhouse that we can't be competitive with.
Right. There what I think is important to do is to lay out what are the costs -- understand very clearly what are the cost drivers. You need to say where can you make change in those cost drivers. It's complicated. Some cost drivers are things like environmental remediation. We've got 150 years of industrial history. Some cost drivers might be a labor cost. Maybe we can get a better residential rate. Maybe we ought to think about a better residential rate. Maybe there's an opportunity to 87 12/12/01 FINANCE COMMITTEE - BILL 010694 do that if you expand the supply of development. Some cost drivers are the social convenants that are built into federal, state and local and regulatory processes. You name it. Some of those are good things that are important things. The question is, is there a way to do it where it doesn't drive up cost too high? If it takes six or eight weeks or more or several months to get City subsidy, I'm going to structure in the line of credit cost to you that I wouldn't somewhere else. Some of it is if I'm going to do five or ten houses at a time, the economy of scale doesn't let me do that. There's a variety of different things. At the end of the day, as a community, we have to look at those cost drivers, decide which one of those we can take on and take them on, or it will be very difficult to get this thing moving. This is the risk that I think is inherent in all of us. I think it's easier to avoid these issues when you've got low levels of residential development. It's interesting. If you look at the building permit numbers in Philadelphia in the 1990s for a City of 1.5 million, it's spooky. This is the 88 12/12/01 FINANCE COMMITTEE - BILL 010694 time of robust economy. It is spooky how low those numbers are. We need to use demand to some extent, use increased demand, increased opportunity to drive some of the systems change. Because you've got other voices talking. Home builders we talk to -- and this is for other work we do -- say that there is a real window of opportunity right now. The climate around suburban sprawl really has made it tough for lots of -- the Washington Townships are filled up. This is a region that doesn't grow; it just spreads out. It's like my hair line. It just thins and doesn't have a lot of growth. The question is, can we take that window of opportunity and push it in? We've got two risks: We've got the risk of doing nothing, which is continue to decline, or we've got the risk of trying to move on this and not making enough systems change or burdening that 250 or 290 million bond with the same processes which would also be problematic. I'm convinced that the Administration wants to change their systems. If they don't, fair game would be my view. You've got to change a lot of those systems. That's what we've got in front of 89 12/12/01 FINANCE COMMITTEE - BILL 010694 us. We've let them atrophy for 50 years, not just the two years of this Administration.
Understand from my perspective, as a member of the Board of Directors of this $3 billion company, beginning to engage in a process that is a one-shot deal for us we need to have the information, the knowledge that we're making a decision that makes sense, and the ability as some point in time if the project goes off, to bring it back on track. That's what those amendments in my view do. They don't hamper. They don't obstruct. They don't compartmentalize. What they do is give this Board of Directors, who has the fiduciary responsibility and elective responsibility to help lead this City forward, the tools to make sure that happens. Once it's out of the barn on the current plan without amendments, none of us on this Board of Directors will be able to pull it back. That's our concern. That's what this discussion is all about. It's not about squabbles, personalities. It's about the one last shot the City has to make a difference. We're not going to let it just be 90 12/12/01 FINANCE COMMITTEE - BILL 010694 frittered away without some controls and input. That's where this discussion goes. Part of my (indiscernible) with my initial question to you was a lot of these things, with the exception of the things that cost money to accumulated and other things, could have been done or at least have been discussed by now in Harrisburg and in this body. They're not being discussed. It's all tied to "Give me the money. We'll take care of it and see you in a couple years." We have responsibility to do better.
Let me note we received this information. The letter reads, "Documents requested at hearing on Bill 010694. Dear Councilwoman, I'm pleased to provide you with additional information that was requested on December 11. The following information is being supplied at this time: A, Briefing materials supplied to district Councilmembers. Councilman Kenney's request. B, NTI housing investment strategy working groups. Councilman Kenney's request. Overview, affordable housing working groups, chairs and members. New urban communities working groups, 91 12/12/01 FINANCE COMMITTEE - BILL 010694 chairs and members. Process at a glance. Examples of issues being addressed. C, Pending unfunded real estate acquisition. Councilman Nutter's request. D, Memo from Licenses and Inspections regarding daily fines for code violators. Councilman DiCicco's request. As additional information is copied, it will be provided." We have this information.
Can I make a comment? It was related to a question you had before about the multiplier of return on investment. The one that I focused on wasn't the -- just in the work we did was not what happens over the 30-year period. I think, frankly, it's is a tough one to figure out. The one that I focused on was what's the multiplier of the housing development in the original plan. That was for the kind of housing, the average-cost housing and the type of housing we would do, all the multiplier data that I looked at got us at about two and a half dollars to one on the housing investment side. You could take the number. 92 12/12/01 FINANCE COMMITTEE - BILL 010694
The Washington Township syndrome issue -- and these are my peers. These are the 12, people I grew up with. Nine or 5 ten are gone. These are the people who didn't want 6 to leave the City, but their wife wanted a house 7 with a deck, garage, family room. They looked 8 around and found it in Washington Township. 9
The other issues that 11 drive a resident to stay or to come home is not just 12 this. You've said that. There's no discussion. I 13 started out my questioning yesterday with issues surrounding both education and tax structure. When those people who are my peers figured out that they could take their kids out of parochial schools and move to New Jersey and save 3200, 4000 a year per child on their educational expenses, pick up more in real estate taxes, buy another car, save on auto insurance, at the end of that legal pad, we've got to go. It makes sense financially. The other stuff isn't being addressed. When you want to do this analysis down the road, 30 years out, unless the tax structures are fixed and schools are fixed -- a big "if" -- I don't 93 12/12/01 FINANCE COMMITTEE - BILL 010694 know whether this retains or attracts the people that we're looking to multiply the investment on.
One thing that's useful, and I don't think any of us did a careful analysis on it, from what kinds of people in what kinds of circumstances is there demand for urban housing? That's the broad question. For example, we've recently looked in one of these committees who is renting over the new development over there? What was interesting and surprising was how many of them came from outside the City. Clearly largely single without kids. Many of them attached at the university, many not. If you look at the Westrum (ph) Development, the single-family home ownership development in Councilman Nutter's district, ask yourself what percentage of them are City workers. It's a reasonable question to ask because they have to be there. I think part of the question becomes is there -- there's a market for whom? To survive, the City can't just be a market for those who don't have choice. We're dead. It's got to be a market for those who have choice. There's some people that want to live -- I mean, University City 94 12/12/01 FINANCE COMMITTEE - BILL 010694 in Councilwoman Blackwell's district is a hot area for all kinds of people right now. You can build off of it in different ways. These are some of the segments that want -- that might be different than the friends you talked about. It may be for a different segment. The question is, can we build enough product? Can we get the tax structure moving in the right direction to get those decisions your friends made reversed?
What we struggle with is the investment we're being asked to make prior to our involvement pretty much in the dark, from my standpoint, other than our deliberations and amendments, prior to that, pretty much in the dark is a big investment to make when you counter-balance it against the financial needs of both the schools and the tax. We've done incremental tax reductions. They haven't worked. They need to be sped up. There's a cost associated with that. There's a cost associated with borrowing money for blight. There's a cost associated with all those things. We have to have the information and the input necessary to make 95 12/12/01 FINANCE COMMITTEE - BILL 010694 those ideological philosophical decisions on when we spend this money, are we going to get the return. Somehow the spin, the spin in the media, the spin in the community is that this Council is an obstructionist Council. It's not. What it is are people who think. They think about things and care about things. They know they make a decision -- when I say aye or nay, it's a decision I have to live with. And when we make this decision -- I think we'll get there. There's got to be enough protection and enough involvement that we can, again as the Board of Directors of this company, keep this program on track without all the other extraneous pressures on it. Whenever you put $300 million in a pot, there's a lot of extraneous pressures to do certain things with it. We want to make sure that all the things you're talking about, that money gets used for.
Thank you very much. It's my understanding that you're familiar with Controller Seidel's land tax proposal. What is 96 12/12/01 FINANCE COMMITTEE - BILL 010694 your opinion of it and how it relates to NTI?
After that we'll entertain a question from Councilman Goode.
I think land tax -- I did look at it. I think land tax proposal -- you know, there's the land tax proposal and then the broad Saidel package. I think the broad Saidel package -- and, again, I'm not -- I think it probably doesn't concentrate enough on the wage tax, in my view. I think the land tax, under certain circumstances, for some neighborhoods works; some it doesn't move the incentives in the right direction. There have been some very good experiments in Pennsylvania with that kind of land tax. Probably the best has been in Harrisburg. At least the one closest in size has been in Harrisburg. I think it's actually helped with vacancy removal. I think land tax has got some possibilities, although I think you've got to be careful about where it puts the incentives and doesn't put them.
We had Mr. Saidel 97 12/12/01 FINANCE COMMITTEE - BILL 010694 out in my area that is directly affected, and this is in University City. The Realtors and the community groups all were supportive, even though they understand that they would be the ones primarily affected by it. Their taxes would go up.
I do think, and this is just my view, that the issue of tax structure and whether the -- I know this is a hard issue to take up now because of the recessionary climate and all the fears. I understand when the City says this. I think they're being appropriately cautious about the climate we're in in terms of the revenues. But the issue long term for the City, and this would be a critique I'd have going back to the Rendell Administration, as to whether those incremental tax cuts were really enough. My view is the first one was the most effective because it was symbolic. Then afterwards, it really had lost its impact. It had the imagine of moving in the right direction. It certainly was the right direction. This is a broader, more complicated issue. We are not for many people and many businesses tax competitive. There's no doubt it is an issue.
Thank you. 98 12/12/01 FINANCE COMMITTEE - BILL 010694 Councilman Goode.
I have a series of questions to try to move through quickly. First, I'll make brief comments. I have a tremendous amount of respect for the nationally recognized, if not internationally recognized, institutions you've built. There's some concerns about what it means related to NTI -- actually, the Reinvestment Fund's involvement. When we talk about market-driven approaches, to a lot of people, that means making government more efficient. I hear certain people talk about market-driven approaches related to NTI. My question is: Driven by who? Obviously it's not driven by the people who were not investing in these areas before. Obviously it's not driven by banks that have redlined our neighborhoods. It's driven by intermediaries and driven by public, private community partnerships that want to not so much drive a market, but develop a market. I have a list of quick questions. I appreciate quick responses. What is or was Community Development Institute? 99 12/12/01 FINANCE COMMITTEE - BILL 010694
A subsidiary of ours that did training for community development corporations in the region.
I don't know. It was in the seventy-five or hundred thousand range.
What else did you receive from the City? Did you receive access to the databases?
We received access to City data when we were hired to do the NTI analysis.
At the beginning of CDI's relationship with the City, what was the size of your portfolio of investments. Say ten years ago. 100 12/12/01 FINANCE COMMITTEE - BILL 010694
Ten years ago? I'd say we were probably a $10 million institution.
I would think we'd be managing in the $160, $170 million level. We're trying to do less on our balance sheet and more through affiliate or through just-in-time financing.
What opportunities do you envision for other community development institutions in Philadelphia?
I think it's an open, competitive field. I think what you need to do --
I think at the end of the day 101 12/12/01 FINANCE COMMITTEE - BILL 010694 what you want is to create more demand and more product and have people compete in that field.
Have you been approached by the Administration to play a role in the Philadelphia CD Fire Fund?
That was my understanding from John Kromer. How much NTI-related investments do you expect to come from banks?
I don't think anyone thought that through. You're saying -- NTI investments mean a lot of different things.
If you're saying of the 16,000 housing units that are being built, what percentage comes from banks? I'd have to go back and look at that private sector money. Then I'd have to decide how much -- what proportion of that do I think banks 102 12/12/01 FINANCE COMMITTEE - BILL 010694 would do versus mortgage companies versus -- we could play it out.
There was a $47 billion multiplier thrown out there. Of that 47 billion, or anything you might want to use, what portion of private investment would flow through banks?
What percentage of that would flow through the Reinvestment Fund? You're saying only 40 million or so?
No. You're confusing the growth of the Reinvestment Fund, which is regional and does things that has nothing to do with NTI, with the growth of NTI.
Are you anticipating any growth of the Reinvestment Fund on the basis of NTI?
The only growth of the Reinvestment Fund that would relate to NTI is if NTI helps create housing development products that way. And if we're competitive as a construction lender and people want our construction loans, like any other bank or any other investor, we would make money. 103 12/12/01 FINANCE COMMITTEE - BILL 010694
I'm confused. We're talking about how this massive investment of public money is going to do such great things across the City, change the City of Philadelphia in the future. You are the major financial intermediary in markets where people don't go into, and definitely don't go into the level you go into. You're saying --
There's no way to know. You can even argue it would be affected in the other way. You could argue that you would create so much of a competitive dynamic, that -- in fact, what you want in those markets --
A developer can still go to whoever he wants. Universal Community is behind me, or Mazo and Levine, because they do development in 104 12/12/01 FINANCE COMMITTEE - BILL 010694 Councilwoman Blackwell's area, if they want to go to me, they can go to me; if they want somebody else, they can go to somebody else.
Let me finish. They do what developers ought to do, which is go with the best deal they can get. What you want to create with NTI is a marketplace where there's more opportunity for more developers and for more investors. The more competition, the better.
More opportunity for community development financial institutions. Yet, you're the one talking to the banking community on behalf of the Administration?
Pat Smith said she went to one bank: Fleet. You said you went to all six on behalf of the Administration.
We went to tell them what NTI is. All we did is explain NTI. We didn't ask for anything. We said that if NTI gets off the ground, it will create more opportunities. As those opportunities emerge, there will be particular 105 12/12/01 FINANCE COMMITTEE - BILL 010694 products we've got to figure out how to get at.
Discussing product development with the banking community on the basis of a $250 million public investment, knowing that you're going to pattern your products after those products the banking community is going to use --
You've got a pretty fancy conspiracy here, but there's nothing to it. It's not what is happening here. The Administration -- let me finish. You're making serious acquisitions here. The Administration, as part of what I've done in my contract with them has asked me, along with -- and sometimes there have been meetings Pat was at, there's meetings Joyce was at with foundations, meetings the Mayor has been at, and asked me in various instances to go to private sector actors to help explain what NTI is, to build private sector investment support. We went to and talked to Dean Adler, who runs a big real estate and business investment company, to say this is what it is. When NTI gets off the ground, here is the kinds of opportunities we think will be there. What do you think the gaps 106 12/12/01 FINANCE COMMITTEE - BILL 010694 are? We did as much listening as talking. That's it.
My vested interest is significant in the following way: All of us do better. Whether it's a community development corporation that somebody here runs, whether a lender like me, all of us do better if there's more product, more opportunity and more competition. I believe in --
Which is why I've always supported NTI. My issue is very serious though. In Philadelphia, you have the Financial Services Center, SABA, Community Capital works, Economic Opportunity Fund, Impact Loan Fund, NCCA, New Horizons, Philadelphia Neighbor Housing Services, et cetera. I do not believe they all have the same opportunity here in terms of community development finance because of your role in this case. You say that is false?
You'd have to talk to the Administration. All I can tell you -- 107 12/12/01 FINANCE COMMITTEE - BILL 010694
All I can tell you is, our approach to this has been to be in an honest, hard-working way, a consultant for the Administration to help where we think can we add value, whether it was on data development or help thinking about the role -- a variety of roles for the private sector. We have not taken that on with the idea that we're trying to monopolize anybody's business.
You don't remember what years the community development institute had a relationship with OHCD?
Why did you close down the Community Development Institute?
We made a decision in our organization that we were better at lending and 108 12/12/01 FINANCE COMMITTEE - BILL 010694 investing than technical assistance. That was a business decision around our core competency. And, frankly --
Did you change your lending and investment strategy, too?
I think we got more aggressive. I think we diversified more into facilities like daycare and charter schools and independent schools. We began to do a lot more small business lending.
I remember you discussing how we needed to do market-driven things rather than play space strategies. I remember talking about building affordable housing in the suburbs.
I remember a lot of different things you said related to why you change your business. You seem to be back in business again. I'm trying to figure out why.
Why you're back in business with the City if it didn't work during the '90s. 109 12/12/01 FINANCE COMMITTEE - BILL 010694
I want to explain. We never left the City. In fact, we were more of a lender in the City when we were saying those things. What we were saying, and continue to say, is that it's an important conversation to regionalize affordable housing. The hardest place to create affordable housing in this region is in job-rich suburban counties. We fight that fight. That is a tough zoning fight. It's got lots of tough subtext in there. It's just as important to have affordable housing in Bryn Mawr as it is in North Philadelphia. At the same time, we're probably the biggest financier of construction lending anyway for community development corporations doing affordable housing. We do both. That's our view. We think there's something about housing policy, and the study we did recently says this, that has gotten us to think about the City is only the place for affordable housing, and the region is only the place for markets. I think that that is, long term, a problem for all of us. We will have a city that is just the place of concentrated poverty where low-income people will 110 12/12/01 FINANCE COMMITTEE - BILL 010694 not have the opportunity to build asset value. We'll have the suburban places who don't have to incur the cost of services and all the rest that the City incurs.
My last question is: Is the NTI a market-driven or a play-space strategy. And if it's a market-driven strategy, is it a regional market or a Philadelphia market?
NTI takes advantage of a certain regional dynamic by trying to create market value in vacant land and playing off the strengths of particular places to create value in that land. So it's got elements of all three of what you asked. It's got regional elements. There's an opportunity for it play now --
Are you trying to jump-start a regional housing market or a Philadelphia housing market?
I'm talking about Philadelphia markets as it relates to NTI. If you ask me as 111 12/12/01 FINANCE COMMITTEE - BILL 010694 somebody who invests in housing all over the region, I care broadly about regional housing.
Thank you. Good morning. I'm obviously a strong supporter of NTI. One of the things that piqued my interest was the thought that the process would be streamlined to a large degree. Having had opportunities to work with community groups, CDCs and continuing to hear about the difficulties associated with their ability to do business, working with for-profit developers, commercial entities, their difficulties associated with having to deal with government made we really want to do it in addition to some other things. I actually agree with Councilman Kenney, in that we probably need to expedite that process. We probably should have started that sometime ago. I agree with that. I have some potential concerns. Even if we, in fact, expedite the process, remove some of the existing impediments, that there's the potential to create some new impediments 112 12/12/01 FINANCE COMMITTEE - BILL 010694 to replace the ones we currently have. I'd like for you to give me a sense of how important do you think it would be to send the appropriate signal as we move ahead to get that for-profit developer or get that individual to move back into the City and invest in the City as it relates to the NTI program and the new process that we could create, that it wouldn't simply replace the old burdensome process and add a new burdensome process under another name.
Well, I think there are some -- I think that developers are, in some ways, pretty simple. When you talk to developers, suburban developers, for example, they talk about community development corporation in a separate -- suburban developers are pretty simple. What they've gotten used to is they've gotten used to a licensing process which is much easier, much more transparent than what we have, buildable green space they can pick up without a lot of environmental problems. They know that municipalities and civic groups are going to ask them for certain things. But it's usually pretty transparent. The cost of doing business is predictable enough and profitable enough, that if they've got to build something or 113 12/12/01 FINANCE COMMITTEE - BILL 010694 put in sewer lines, it's not a big deal. When they come into the City or think about coming into the City, the hardest thing for them is the lack of transparency and lack of buildable sites. It's the lack of being able to understand the system, not knowing why there isn't just a quick way to go through the licensing system. They don't understand the -- they sometimes feel like, through the zoning process, through conversation with Council people, that they're being hit from so many directions they're not sure about what they're supposed to do, how they're supposed to -- you know, they feel beset on a bit. What's got to happen there is that process has got to be managed. Communities, Councilpeople, others make legitimate requests, try to build legitimate relationships with developers. But the transaction cost of that and the transparency of that has got to be something that's more approximate to their way of doing business. If they have other opportunities, they'll go in other places. What community development corporations have done, which is really remarkable and to some 114 12/12/01 FINANCE COMMITTEE - BILL 010694 extent sad, I've got to say, what they've done is figured out how to do business in an irrational environment. They figured out how to do business with all of the -- I think about what Councilman DiCicco is trying to do, what Jefferson Square has been doing for how many years. If you went to a for-profit developer and said, Would you do 80 units if it took you 4 years to go through that process? they'd say no. 11 We've created an infrastructure of community development groups -- and I applaud the five, ten extraordinary community development groups that have figured out how to do this. We've created an infrastructure to accommodate irrationality and high transaction cost. Given the fact we're an older city, given the fact there's all sorts of issues around environment, you know it's not just green space and the way it is in the suburbs, we'll never get it to be the way it is in the suburbs. We've got to get it closer to the way it is in the suburbs. I guess at the end of the day, I'd say we've got to start to judge ourselves or benchmark ourselves against those other kinds of processes that are better. 115 12/12/01 FINANCE COMMITTEE - BILL 010694 For example, the conversation I think the City has to have is how many months should it take to get through this licensing process. How many months should it take to get a piece of land acquired by the City. We need to have a system of benchmarking against that. What Pat Smith was saying yesterday is -- first, there are no clear benchmarks in the City. This isn't a thing of two years. This is 30 or 40 years. She's trying the figure out, first, how do we do it now? What is irrational about that? What do we've got to do to change that? How can we benchmark against that? My sense is that you can get developers to do some things within irrationality if the return looks good enough and they can incur the transaction cost. The more you can do to peel away those layers, the more demand you'll get from investors, from developers and from ordinary residents who want to buy a lot or buy a second house, something like that.
Someone used the term "iterative" yesterday. It's an iterative process. It's not like you do one thing before you do the other. 116 12/12/01 FINANCE COMMITTEE - BILL 010694 You've got to do many of these things simultaneously and one forces the other would be my sense.
Thank you very much. Do we have more questions for Mr. Nowak so we can move forward? Councilman Nutter, did you have a question?
Thank you, Madam Chair. One of the things I wanted to ask you about was in your testimony on . If you covered this already or if you responded to this already, just tell me that and I'll move on. I may have missed it. You've been asked a lot of questions. On of the testimony it talks about NTI has much more to do with lowering all of the barriers to development and investment, modernizing licensing processes, modernizing codes and zoning practices, making the production of housing more cost competitive and re-engineering the process of land acquisition and disposition. One, I would agree. Two, does the bill 117 12/12/01 FINANCE COMMITTEE - BILL 010694 before us, from your perspective, address any of those particular issues? How do those things happen in an NTI context, either with the bill in front of us, or are there other issues that have to be addressed to make those things happen?
I think there are some other issues here. I think when the Administration unveiled NTI in April, they said they wanted to do all these things and that the new success was part of that. Money was a piece, but systems changed. I think they used -- the term was to reform delivery systems. It was about rehabilitating government as much as it was about rehabilitating houses. Reorganizing the agencies, which eventually saves us some money and gets better processes going. I think that gets us in the right place. I don't have everything in front of you on this. I think in the original Administration submission -- again, you'd have to ask the Administration people again -- there's a reference to all these issues. What of that is legislative and what of that is an executive -- you know, what you can do in terms of some of those agencies that's executive 118 12/12/01 FINANCE COMMITTEE - BILL 010694 versus legislation? I just don't know that.
Do you know if a matrix or plan, if you will, has been put together to accomplish those items? And what needs to be done to make those things happen?
I know a tremendous amount of research and analysis, including legal analysis that has been done. What the time line for all that is, you'd have to go to the Administration.
To your knowledge, none of those things exist in a ready-to-change fashion? I'm trying to understand where we are in the whole scheme of things.
Where I think we are on agencies is a well -- a good vision, a well-researched legal analysis. And all of the complexity for the Administration for the people who work in those agencies is about implementation.
I don't know that. I've been doing some research around the labor cost issue.
On of the testimony you talk about four investment strategies. 119 12/12/01 FINANCE COMMITTEE - BILL 010694 The four investment strategies will be operating departments in a new consolidated agency. I think we've heard about a new -- is it office of housing and neighborhood preservation?
That agency would have most of the functions around housing that you currently have in OHCD, PHCD, and the Redevelopment Authority. So that, I think -- so it's largely a consolidation of existing functions. Except, I think you're moving in a programmatic direction where the programs would support for goals of NTI. One would be an ombudsman for market-rate investment. One would be preservation investments on stable blocks. One would be affordable housing where the low-income housing tax credit work was done.
In the sense that they are not ready to go at this moment? 120 12/12/01 FINANCE COMMITTEE - BILL 010694
Right. There's the "what is the best way to use existing resources to accomplish those goals," and then there's the operationalizing that in a department. I have to say as somebody that runs a large company, at the end of the day, no 7 matter what you do theoretically, somebody on the ground running the office of Housing and Neighborhood Preservation has to figure out how to put that together.
The legality of merging these different agencies RDA, PHDC, has there ever been a City solicitor's opinion gotten as to the legality of merging? We're putting in agencies that control federal dollars that are targeted to certain specific areas. RDA is an agency that, I believe, is created within the charter. PHDC is sort of an authority that has its own legal creation to it. So how do you go about really dissolving many of these agencies and instituting a supreme commander and a new agency?
It's not dissolving all the agencies. It's consolidating the housing functions. RDA does much more than housing. So it's 121 12/12/01 FINANCE COMMITTEE - BILL 010694 consolidating housing-related functions.
You still need some sort of legal situation, ordinance, some authority to be able to do certain of these transfers of duties.
The Office of Housing and Community Development is part of the executive branch, the Mayor's Office. The Redevelopment Authority is a State chartered agency.
We have a legal opinion on the legal issues that are involved in here. We have issues that have come up in terms of the union contract, in terms of job description, a whole series of things that may evolve and emanate from this.
I think on these issues, I would just defer to the administration. It's not -- I've been part of a process. My role has been to construct a vision. The Administration needs to move that.
Thank you. 122 12/12/01 FINANCE COMMITTEE - BILL 010694 - - - 123 12/12/01 FINANCE COMMITTEE - BILL 010694 - - - (Proceedings now being stenographically recorded by Josephine Cardillo, RPR.) - - -
I had a question of the witness from Philadelphia Interfaith Action who gave his testimony. I think he has possibly left, but I did want to ask questions of any Philadelphia Interfaith Action person based on the testimony. I had a couple questions. Is there anyone else from, do we know, from Philadelphia Interfaith Action?
Councilman, if you would like, would you like for us to try to reach out to them and ask them to come back this afternoon? Oh, no, I think there are some members of PIA still here.
Can someone from PIA come forward. Is there anyone in the room from PIA? Would they please come forward. 124 12/12/01 FINANCE COMMITTEE - BILL 010694 (No response.)
Obviously, there isn't. Councilman, would you like us to try to reach out to them?
That would be helpful, Madam Chair. The question revolves around the testimony on . It says that PIA tried to build 1,000 Nehemiah homes; they built successfully 135, they didn't build the entire 1,000. My question was: Where is the land they wanted to build the homes on and what actually stopped the production? They make reference to Mayor Rendell, but other than that, there's no 17 additional information. I don't know whether any of our various housing agencies may have any information about that, but it would be helpful to try to better understand that situation. Thank you, Madam Chair. That's all I have for this particular panel.
Thank you very much. 125 12/12/01 FINANCE COMMITTEE - BILL 010694 I believe Rick Sauer and my friend Steve Culbertson, Philadelphia Association of CDCs are next. (Witness comes forward.)
Please identify yourself and proceed with your testimony. Thank you for your patience.
Members of Council, My name is Rick Sauer, and I'm the Executive Director of the Philadelphia Association of Community Development Corporations, which is a citywide association of 78 CDCs and other organizations that are actively involved in rebuilding communities and revising Philadelphia's neighborhoods. I believe I had submitted a copy of my testimony yesterday; I don't know if that was circulated or not, but I have additional copies, if needed, right here.
Could we have a Sergeant-at-Arms, please. (Councilman Nutter picks up copies of Mr. Sauer's testimony.) 126 12/12/01 FINANCE COMMITTEE - BILL 010694
Thank you, Councilman Nutter. Thank you. Please begin.
The Neighborhood Transformation Initiative provides an opportunity, I thin, to build on what has been accomplished to date and implement a more comprehensive and coordinated strategy to address the housing and community development needs of our residents and neighborhoods. And I think what we've heard from a number of people is that if Philadelphia's going to be successful in revitalizing its neighborhoods and in spurring population growth, it's critical that the City implement changes to its development process to facilitate increased housing production and attract private investment. And in the previous comments right before I testified, there's a couple things I just wanted to quickly respond to. Given sort of the irrational development process that we have right now, yes, more for-profit developers are not coming in Philadelphia; they would much rather look at development opportunities elsewhere that are less problematic to carry out and 127 12/12/01 FINANCE COMMITTEE - BILL 010694 more lucrative to them. The CDCs that are based in our neighborhoods focussed on revitalizing a specific area of the City have been grappling with this process for quite some time. And I think it's important to note that they spend significant amount of times to maneuver in the system that we do have in place, and that if we are able to streamline the process, their production and their capacity would be significantly increased. And so, in certain ways, while CDCs have been able to create thousands of units in the last decade as well as a number of other community development activities, they've been very constrained by the current system to do more. And so by correcting that system, we could really ratchet up the capacity of the CDCs as well. Key among the issues that need to be addressed are the re-engineering of the City's land acquisition system, ensuring more competitive production costs, and creating a streamlined and customer-oriented delivery system. We do believe that NTI seems to address these tough obstacles. Whether we'll be successful in how long it will take 128 12/12/01 FINANCE COMMITTEE - BILL 010694 is going to be an important factor, but I think the goal there and the intention there is to address those obstacles. And I think the other critical thing about NTI is that it also provides critical resources needed for property acquisition and site preparation to support redevelopment efforts as well as preservation of our existing housing in neighborhoods. Both issues are critical: The streamlining of development processes as well as new resources. I wanted to focus my comments on just three areas. What is the overall acquisition disposition system? We strongly support the goal to streamline that process and to expedite property disposition through the creation of a land bank. We believe that the land bank needs to have clear criteria for how it will dispose of the property to end users, though. There's also currently a critical need for new funding to support acquisition for development projects that are currently in the pipeline. The current lack of funding for assisted condemnation is 129 12/12/01 FINANCE COMMITTEE - BILL 010694 not only stalling the creation of housing opportunities that respond to needs of residents our neighborhoods and future residents and spur revitalization, it's risking a significant loss in CDCs development capacity as well as opportunities to leverage millions of dollars in resources from non-City sources. To address this problem, we think two problems need to be done: First, that in the NTI bond ordinance that is approved, there needs to be a significant amount of private-activity bonds in Year 1 to support assisted condemnation; and secondly, we need an interim strategy to be in place until those bond funds are available to facilitate property acquisition for projects that are ready to proceed right now and may be lost if funds aren't made available in the short term.
I know there's been some amendments proposed, which I haven't seen. One of the amendments we also wanted to encourage the committee to act on is that right now in the ordinance, I believe it requires Council approval of the land bank management plan prior to any NTI bonds being spent for acquisition. And while we certainly 130 12/12/01 FINANCE COMMITTEE - BILL 010694 understand the need to make sure that there's a plan in place for properties that are to be land-banked for future unknown development opportunities, our concern is that requirement may constrain the ability to acquire properties that are needed for projects that are currently in the pipeline and are ready to proceed. So if that amendment has not been made, we certainly encourage the committee to address that issue. The second area that I wanted to touch on is housing and economic development. We know that most of the NTI bond funds are geared towards demolition or property acquisition sort of setting the stage towards future development. I think we need to look at the whole NTI process as being more than just the NTI bonds themselves. There are other funds out there, community development resources, whether they be Community Development Block Grants, etc. And historically, the City has spent a fair amount of its Community Development Block Grant funds to support acquisition of properties for development, for site preparation, to do preservation activities in the neighborhood. And I would hope that by making these bond funds available 131 12/12/01 FINANCE COMMITTEE - BILL 010694 for those specific purposes, it will help free up some of the block grant funds and other resources that could then go directly into housing and economic development activities. So we have the need to do sort of the predevelopment work, free up the dollars that are currently used for those purposes to spur additional housing unit creation and support economic development in our commercial corridors. I think it's a particularly important issue right now in that for the next fiscal year, I think the City's anticipating actually receiving a slight reduction in Community Development Block Grant funds, and so we need to look at how we can stretch those resources even further. Certainly if we can implement a housing reorganization strategy that would reduce administrative costs and also free up more block grand funds, that would be an important step as well. The third area I wanted to touch on is the role of CDCs in the overall process. We believe that a strong partnership between the City and CDCs is critical to ensuring successful neighborhood transformation. CDCs have built their capacity to 132 12/12/01 FINANCE COMMITTEE - BILL 010694 undertake a comprehensive approach to neighborhood revitalization, and they are grounded in these communities, they are interested. In some cases, they've already begun undertaking new or expanded roles to transform neighborhoods. And so while CDCs may traditionally be known for doing affordable housing development and economic development to spur commercial-corridor revitalization, groups are looking at what involvement they can have in more market-oriented developments as well as broader neighborhood preservation activities and vacant-land management. CDCs are also uniquely positioned to partner with and leverage resources from the public, private, and philanthropic sectors, and they're looking to work with the residents to bring about long-term revitalization not only in the physical environment but also to build the social fabric of the neighborhoods. We're certainly supportive of NTI, and we urge the City Council and the Administration to resolve any outstanding issues and provide maximum funding for the bonds so that implementation can proceed as soon as possible. 133 12/12/01 FINANCE COMMITTEE - BILL 010694 Thank you for the opportunity to testify.
Thank you very much. I hope there are no questions because we really have to -- we're going to have to end up recessing and letting Streets and Services come on. All right, Councilman Nutter.
Thank you, Madam Chair. Mr. Sauer, I read through your testimony, and I just wanted to ask you one question. As you've read through the materials, whether it's the ordinance or the backup materials, what do you envision as the role of CDCs in the NTI program? And what is it in any of the legislation floating around that are ensures the activity of CDCs in this program?
I think what NTI does is provide an overall framework for the strategies the City wants to pursue. I think you're right in the written documents that we, and I assume everyone else, have seen, it does not specify specific roles for individual actors, whether they're for-profit developers or community development corporations or 134 12/12/01 FINANCE COMMITTEE - BILL 010694 other entities.
Historically, CDCs have played a critical role in many of these neighborhoods. They're the only actors that are there that are doing redevelopment activities. We certainly are trying to work with the Administration to ensure that CDCs will have a prominent role in the process, whether that's things they've done historically -- as I mentioned, affordable housing development and other activities, and economic development, but also looking at what new opportunities are out there. And frankly, groups have realized that in order to revitalize the neighborhood, a comprehensive approach needs to be taken. We need to both address the needs of lower-income residents who have been there for a long time, who don't have the choice to move away elsewhere, but we need to try to attract new residents as well that will strengthen the income mix. I think you're right: There's no 24 guarantees that CDCs are going to get a certain amount of funding or anything like that. Hopefully, 135 12/12/01 FINANCE COMMITTEE - BILL 010694 there will be RFPs issued for access to development funds; I think that's critical. And we're currently -- another key issue in the bond ordinance itself is funding for acquisition. That's the main obstacle right now faced by many of our members. Their projects cannot proceed until acquisition funds are made available.
Right. And you're saying that you have some projects that are, quote/unquote, in the pipeline that you haven't received acquisition bonds for?
To my knowledge, there have been very few new acquisition dollars made available in the past half-year-plus. And so, yes, there are many projects that are sort of stalled in the development pipeline right now. Either they already have a significant amount of project funding in place or, for whatever other reason, they can't proceed until properties have been acquired until those projects can move forward. So until we address that key stumbling block, the backlog of projects ready to go forward is just increasing.
What are your 136 12/12/01 FINANCE COMMITTEE - BILL 010694 recommendations for changes in the acquisition disposition process?
Well, I think from my understanding of sort of talking to the RDA and the Neighborhood Transformation Office, they're looking at some things that would try to expedite to a certain extent the current system. When you have a broken system, there's only so much you can improve it, but if they put a more --
-- computer MIS system in place so they know what properties, where they're at in the process, so they can hopefully provide some accountability so that as a property goes from City agency to City agency, we know if it's been sitting there for a week or two weeks, that it should actually have been moved on by that point so that research is not being -- so that the same research is not being conducted at every stage of the process, creating additional time barriers. I think that's something that needs to be addressed. The larger issue, though, which I think Herb Wetzel alluded to earlier today, is if you have 137 12/12/01 FINANCE COMMITTEE - BILL 010694 to wait for a developer, whether it's for profit or not-for-profit, comes to the City and says, I want to do this project, and you have to wait a couple years before you get those properties, it's just a major impediment for a for-profit to walk away and CDCs, it just adds to the cost.
So if we can acquire those properties up, have developable sites within a land bank so that when a project's ready to go, it can be transmitted quickly, that would significantly address that obstacle.
Right. When do you anticipate that the land bank will be created?
That answer the Administration has to address. I don't know their exact timeline. That's an important issue to address for both longer-term opportunities. We also, as I mentioned, have a number of projects in the pipeline that we know what properties that need to be acquired, and we want to see that move forward as soon as possible.
Last question. Tell us about the role that the CDCs have played in the 138 12/12/01 FINANCE COMMITTEE - BILL 010694 development of NTI.
I would not say that we've had much formal involvement. There were many CDCs involved in the early transition efforts that made recommendations of what the blight elimination strategy plan should look like. There are some CDCs that are active on these, four various housing committees right now --
Well, then if the CDC community -- I mean, in your words, was --
So there are some -- there is limited CDC representation on these four housing committees that are giving input around affordable housing and preservation and market development, whatever. And then we have had a number of meetings with various Administration officials, whether it's people from the NTI Office, from the RDA, from the Planning Commission, to provide our input into the process. Now, I would certainly not say that all of our issues have been addressed. It's an ongoing process and -- 139 12/12/01 FINANCE COMMITTEE - BILL 010694
-- there needs to be public discussion and dialogue and input into that process.
It's a continuous process. I don't think that all the decisions have made, and I think that it's important to have not just involvement and oversight by City Council or the Administration, by I think there's a role for the community and community groups to play in both the development as well as the implementation of NTI.
Thank you very much, Councilman. Mr. Culbertson, please identify yourself for the record.
Good afternoon. My name is Steve Culbertson, and I'm the Executive Director of the Frankford Community Development Corporation. I have written comments. I'll bring them up -- Councilman Nutter, you don't need to come up and get them. And I will, you know, just summarize 140 12/12/01 FINANCE COMMITTEE - BILL 010694 what I was going to say.
Clearly we're in support of NTI. And the main point that I wanted to make is that we're really ready to move forward, that CDCs are the instruments that have learned how to deal with the system as it is. And whatever happens in terms of the system, whether it stays the same or changes, we're ready to revitalize our neighborhoods. And Frankford is actually a test case, I think. We've had a plan since 1993, and we have been proceeding along the guidelines of plan to bring about change in Frankford, and we've seen property values increase, occupancy on Frankford Avenue increase, and we want to continue with that program, and we think NTI is the best way to accomplish that. Thank you.
Thank you very much. Councilman Goode, can we keep it short, because we want to allow the last three speakers, then we're going to, unfortunately, have to recess 141 12/12/01 FINANCE COMMITTEE - BILL 010694 until 2:30 to allow for the Streets and Services Committee, which was due to convene at 12, and Public Property, which is due to convene at 2:30, and we'll have to allow room for those at 2. So Since Streets and Services was due to start at 12, Public Property at 2, we're going to have to, as soon as this panel is over, recess until 2:30. (Responding to off-mic. speaker) I know, I know. As long as Councilman DiCicco is okay with us, then we will allow at least to get to the end of this committee hearing. We have David Thornburgh, Pennsylvania Economy League; Carlos Peraza, LISC, Local Initiative Support Corporation; and EPOP, Gordon Whitman. And we would like to hear from the rest of the members of the committee. If my colleagues will work with me, after Councilman Goode's question, if we could keep the questions short or hold them, we could get through the panels a little quicker. Thank you. Councilman Goode.
Thank you. 142 12/12/01 FINANCE COMMITTEE - BILL 010694
Mr. Culbertson, you're not only a CDC director but you're also the former director of PACDC, the citywide association. I know for a fact that five or six years ago -- I believe it was '94, '95 -- you engaged the last mayor, Mayor Rendell, on what needed to be done in terms of impacted communities citywide. Can you recall for the record what that response was?
Yes, from the meeting that took place in '94, '95 about what needed to be done in terms of community development citywide.
It was an ongoing conversation with the Administration at that time. There were many meetings about acquisition and many meetings about various aspects of community development. I guess what came out of that was --
I'm talking about a specific meeting that took place where PACDC told the prior administration what needed to happen citywide in terms of investment. And what was the response from the Rendell Administration?
There was limited 143 12/12/01 FINANCE COMMITTEE - BILL 010694 response, there was very limited response to what we did. I mean, the response was to work with us on a deal-by-deal basis, as they had always done.