There are a lot of interacting factors here, as you can imagine. There's growth in wage tax. There is the loss of revenue from taxes that are exempted during the time that the Keystone Opportunity Zone exists. And there are so many interrelated factors here that it really is best handled through the computer model. One of the things that I have with me -- and it's not an exact piece, but we some time ago, in the early part of this process, looked at what the impact would be on a per square foot basis with each tax, and looked at what would be foregone and what would be paid under a number of different scenarios: With partnerships, with corporations, whether they were in the 172 Whole (Hearing) - 040640, 040642 - 6/9/04 top ten or the next tier of corporations or partnerships. And we looked at this, as I said, on a per square foot basis, and have a summary here that represents a hundred thousand square feet of office space. And with that, we would be foregoing a different amount, depending upon the kind of business you are. I'd be happy to share this with you, and then we can try and provide something in more detail. My problem here is that it is a complex formula. And it has a lot of interacting parts, with various assumptions. And to try and lay it out simply is very, very difficult. That's why in trying to display something --
I understand that, Commissioner Kammerdeiner. I guess I am just asking what is the 173 Whole (Hearing) - 040640, 040642 - 6/9/04 value that is placed on this particular designation? Is it true that it's 1.7 million square feet of office space?
1.5? So I guess all I'm really asking is, what value has the City placed on, in your words, the taxes that are being exempted? What's the number?
Looking at it... And -- And there is no certain number. That's part of what I'm trying to say. There's no certainty here with any of this. It's based on a whole series of assumptions. But using the assumptions we were looking at about four months ago when we first did this on a per square foot basis and looked at it as 100,000 square feet, we were looking at -- And both with the current KOIZ rules, with the net profits tax exempt, and with the proposal that the net profits tax be removed from the KOIZ abatement, and therefore be taxable. 174 Whole (Hearing) - 040640, 040642 - 6/9/04 And we looked at what are termed in the Center City District study as A-1 tenants, a top ten partnership, a second ten partnership, a top ten corporation, and a second ten corporation. With the scenario that we're looking at today with the net profits tax taxable, an A-1 tenant would -- The City would forego from A-1 tenants $798,000 in 100,000 square feet.
I know it's complicated, and it probably doesn't make sense. And I'm trying to do it orally.
No. I heard everything you said. I'm actually rather alert, even at this point in the day. And I think that I can, you know, comprehend relatively large numbers. The fact that I have no idea what you're talking about is no reflection on whether I can understand anything. I'm asking you, what is the value of creating a KOIZ at 17th and JFK? Someone 175 Whole (Hearing) - 040640, 040642 - 6/9/04 must know that there is a value to this. The company would not be trying to do it if they couldn't calculate a value. I mean, this is not like an erector set situation here. I mean, they're going to build the tallest building in the City. Some smart person somewhere has figured out that there is a value to this. And if they figured it out, then I assumed that the smart people in the government would figure out, you know, what it's costing us or what we're getting out of it.
The best way I can -- can try to display this, using the average numbers, because as you can appreciate, I cannot provide any information on a particular taxpayer and what that taxpayer may be paying us today. But using the numbers that -- that were developed for this analysis, with -- I'll round it. $800,000 for 100,000 square feet, we're looking at a building with a little over a million square feet -- 176 Whole (Hearing) - 040640, 040642 - 6/9/04
-- what did that translate into for a million and a half square feet.
I was about to say, a million square feet would be ten times that or $8 million. And you can add another half million square feet to that would be another $400,000 or a million two. Excuse me. A million two. 12 million. I'm sorry. It's getting late.
I'm looking to see whether that was annual or if that was over the life of the zone. I believe it's annual.
I would think. 177 Whole (Hearing) - 040640, 040642 - 6/9/04 Life of the zone is 15?
And you also have 14 to realize that some of the time that the 15 zone exists is construction, when the 16 tenants would not be in the building. And 17 we wouldn't be looking at the impact that 18 we've been discussing during those first 19 two-and-a-half to three years. During that 20 time the City will have a net gain in wax tax from the additional construction activity.
I understand. So answer the statement that you made earlier. What's the total value of the 178 Whole (Hearing) - 040640, 040642 - 6/9/04 loss of exempted taxes for this project?
I think then we would be using about ten years, in terms of the loss, at $800,000 a year, for --
During... During 13 the first three years, you're talking about 14 construction. We're not losing... 15
...the taxes from the occupants of the building during that time period.
The Chair recognizes Councilman Kenney for a point of information. 179 Whole (Hearing) - 040640, 040642 - 6/9/04
Thank you, Madam President, and thank you, Councilman, for allowing me a point of information. I was just curious as to whether anyone on the panel would deem any of the projections on both the impact of the City and the School District as potential supply side advantage or would you term that a supply side effect on the increase in tax revenues?
You know what? You know what? You're such a nice person --
-- I'll withdraw the question. You don't have to answer it. (Laughter.)
I don't want to get you in trouble. I'm sorry, Councilman.
That's okay. (Laughter.) 180 Whole (Hearing) - 040640, 040642 - 6/9/04
I thought we were at, like, last week or something. Commissioner, can you provide to us prior to any final action, not -- not this sheet, the one that I can't understand, but some other analysis that lays out in a schedule that shows the array of taxes that are being exempted here and what your projections are for each of those taxes, and then a total on what those the total exempted taxes would be?
Okay. Could you also tell me why this particular project, unlike many other projects, especially the Tax Increment Financing Districts that we get and some of the others, there does not appear to be one official piece of paperwork on the financials of this?
Have you been to any of the wonderful TIF hearings that we've had? There's usually a project 181 Whole (Hearing) - 040640, 040642 - 6/9/04 statement. It usually comes with an array of sources --
-- and uses and schedules that tell us everything we want to know and more about the project.
They're prepared by PIDC, with all the particulars of a project, where you can predict who's going to be, a lot more than we know in this instance about who's going to be there and what's going to be happening. So, we did not prepare anything in that level of detail.
Okay. Mr. Feder, can you tell me what the purpose is of sub 4 on in the legislation in front of us, before we get to the proposed amendment by the administration?
This is the provision 182 Whole (Hearing) - 040640, 040642 - 6/9/04 that begins "subject to the conditions set forth"?
That is the provision that... We call it repeals the net profits tax exemption. But more precisely, what it does is it says that no longer will you be entitled to a net profits tax exemption merely for working in a KOZ. The only way you would be entitled to a net profits tax exception is if you live in a KOZ. So, effectively, we are eliminating the net profits tax exemption because, as I mentioned before, there probably is nobody who lives in a KOZ.
We would hope. Now, how long has that provision been in existence?
The present 183 Whole (Hearing) - 040640, 040642 - 6/9/04 provision...
You're obviously deleting taxpayer and replacing it with resident of the zone. And the provision that allows, apparently, the net profits tax eligibility that you are now trying to rescind, how long has that provision been in the Code?
Okay. And when was the last time we approved the Keystone Opportunity Zone?
How about maybe 2003? Didn't we approve the West Philadelphia Zone for the Cira Center and a bunch of others just last year? I think it was last either April or May? 184 Whole (Hearing) - 040640, 040642 - 6/9/04
I don't recall the specific dates, Councilman. I'm sure you're correct.
Well, I think the state approved it in December of 2002. And I believe we had to approve our application by the spring. And I think it was May 1 of 2003; isn't that correct?
Dwayne Bum, Deputy Commerce Director. My recollection is the legislation was required to be submitted, I believe it was, in June 1st of 2003. The state approved it in the fall of 2003. It became effective -- This is the KOIZ legislation became effective as of January 1st, 2004.
Would do we do -- What did the state do in December of 2002?
Which we did not consider in the City. 185 Whole (Hearing) - 040640, 040642 - 6/9/04
Okay. This issue, has it ever been raised in any of the prior KOZ or KOIZ legislations --
Because it is only the recent actions by large professional associations or partnerships that caused us to realize the actual tax impact of including net profits tax. Before that we only saw small organizations, generally manufacturers, sole proprietors. It was nominal impact to the tax base. This is a much more significant impact.
So you're saying that the opportunity was always there and we just didn't notice it. Is that what happened?
Because of the type of 186 Whole (Hearing) - 040640, 040642 - 6/9/04 product that was on the market which was commercial office building --
With the introduction of the KOIZ, it was the first opportunity that we saw any real office... commercial tenant movement as a result of the KOIZ legislation.
No; I understand that. But this provision exists for some time.
We approved a new KOIZ. No one raised the issue at the time? Is that your testimony?
Okay. And now that something has happened in the marketplace, we have now decided that we're going to take it away? Is that what's going on here?
Well, I'm not sure... I 187 Whole (Hearing) - 040640, 040642 - 6/9/04 don't think we would characterize it as taking away. I think we want to at least prospectively about it is not available in the future.
Councilman, this bill 10 does not take a position on that. That's going to be decided either in Harrisburg or I understand Councilwoman Blackwell has introduced an amendment which would address at least the particular --
I'm talking about what's in front of us right now. What is the effect of this language?
It is silent. It will depend on what Harrisburg authorizes the City to do. But what this language says is, it is effective to the extent authorized by the General Assembly. If, indeed, the General Assembly allows it, this would apply to existing tenants and existing 188 Whole (Hearing) - 040640, 040642 - 6/9/04 buildings, to the extent they exist. We've heard from a couple today who do exist. I understand that there's going to be an amendment that's going to address their particular concerns.
I don't believe the City is taking a position on that amendment, Councilman.
Well, I'm asking you now what the City's position is on it.
Well, Miss Naidoff, as the Commerce Director, do you have a position on it? You've written a brand new amendment and you put it in, so you must have a position on the amendment. You submitted this legislation. You must have a position on it.
Let me -- Before Miss Naidoff answers, let me just clarify the 189 Whole (Hearing) - 040640, 040642 - 6/9/04 question. No position was on Councilwoman Blackwell's amendment. The amendment that we've been discussing for the last 6 minutes the City certainly supports. I 7 apologize if I misunderstood your question. 8
And what does 9 the City anticipate the net effect of the 10 amendment to be? What is it that you're 11 trying to accomplish with this language? 12 You wouldn't put it in if it had no 13 meaning. So what, in your world view, 14 depending on what Harrisburg does, what 15 would you like this to accomplish?
At an absolute minimum what it will accomplish is that any new tenants in new zones, for example, the Liberty Property Zone, the Food Distribution Zone, they would not be exempt from net profits tax.
For any existing zones, if -- if -- if -- if written as this way, 190 Whole (Hearing) - 040640, 040642 - 6/9/04 and there are no changes, it would apply in existing zones also, the rules that I just described.
Right. And so, is it the City's intention to have it implemented in that fashion?
We were trying to address what we perceived to be a fundamental fairness, that people who are wage earners --
That people who are wage earners in these zones are paying wage tax and highly compensated partners of partnerships and professional service firms will not be paying the equivalent which is the net profits tax. And we believe that 191 Whole (Hearing) - 040640, 040642 - 6/9/04 in an attempt to address that, we would like to remove that exemption.
Well, I guess I would only have to respond back, Madam Commerce Director, do you think it is fair that once the provision has been granted, and just because the City didn't notice it before, and this Council has approved it, and it was signed by the Mayor, that you should subsequently take it away? Is that fair?
I understand the concern. And we certainly have considered it. But the fact is that the people that we're talking about are not currently in those buildings yet. This issue has not affected their individual situations, and --
Well, I think the people who are building the building or selling the building made a sale based on certain representations and certain expectations. If someone gives you a benefit, and 192 Whole (Hearing) - 040640, 040642 - 6/9/04 you go out and make a sale on it, and subsequently the government changes it, what does that do to the sale that was made?
I understand that that is the argument that has been raised, and it was raised yesterday in Harrisburg as well. And that's why, as Mr. Feder said, we're waiting to see what the response is in Harrisburg.
Well, I understand that. I'm not just raising an argument for the sake of having an argument. What I'm also raising is the integrity of our actions as public officials. And if people come here and get a particular benefit in good faith, approved by this particular body, and less or about a year or so later it is taken away, I think it raises a credibility issue about what we do and how we conduct ourselves. So I'm actually concerned a little 193 Whole (Hearing) - 040640, 040642 - 6/9/04 more about that at the moment than I am about someone who has never moved into a particular building, although their company was sold on an idea that certain things would happen. I'm actually more interested in the integrity of our actions.
I understand that concern, and I think we did consider that when we were drafting this. The issue that we had as a counterbalancing factor was our concern about the fairness to employees who were paying the wage tax. And this was, in our view, an unintended consequence that we were trying to address.
I think there is no 19 absolute certainty of anybody putting up a building that all circumstances will always remain the same. Tax rates may change. Other regulations may change.
If this Council chose 194 Whole (Hearing) - 040640, 040642 - 6/9/04 to address that fairness question, I think it would be on pretty sold ground, in terms of the disparity between wage-earning employees and partners who are subject to the net profits tax.
And when you were taking into consideration your concern about the Council's integrity of this or the integrity of the Council's actions, who did you talk to at City Council about that?
We did not talk to members of City Council. We were considering this within the administration, and we are proposing it to City Council for its consideration.
All right. So in developing your position on the concern about Council's actions, you only talked within yourselves and the administration, did not talk with anyone at City Council, and then gave us a bill with a provision in it that is, at least from my own personal perspective, patently unfair and impugns the integrity of the body, in terms of 195 Whole (Hearing) - 040640, 040642 - 6/9/04 previous actions taken because we now rip out a benefit that we granted in good faith.
And in that context, you took into consideration the integrity of our actions but never talked to us about them.
I do believe that we're talking about the City as a whole. And I understand your concern about the perception about integrity. But I think there's also a body of thought that there is a perception of fairness here.
All right. We don't have to debate that any longer. Let's talk about and this issue of an equity ownership interest in an improvement to real property. What exactly does that mean? And that's a new provision as well; is that correct.
Dwayne Bum. Yes, Councilman, that's a new provision. Again, it is an attempt to address sort of the 196 Whole (Hearing) - 040640, 040642 - 6/9/04 changing circumstance with a multi-tenant office construction, when in previous KOZ developments we were dealing primarily with single tenant or whether when they were multi-tenant buildings, they were industrial or manufacturing in nature.
And to meet a capital test, someone actually has to have something that they can capitalize or depreciate over time. They have to have some evidence of ownership. They should either have taken out a loan or a mortgage against it. Generally, that's easy for a building owner to do. It is much more difficult -- It should be much more difficult for a tenant. A tenant that needs lots of data equipment, one could sort of see that tenant meeting this test. If it is sort of a vanilla office tenant, I think what we're trying to sort of eliminate here is building out walls and putting carpeting down. These are typical 197 Whole (Hearing) - 040640, 040642 - 6/9/04 tenant fit-out issues. They are not capital eligible, sort of, improvements on a tenant's behalf and they should be not be allowed for a capital investment test. Again, what we're really trying to do is focus on companies' job growth which is one of the other tests that has always existed as well, the percent job growth 11 test. 12
Two last 13 questions. I read a story some time ago in 14 the news that the Mayor, I think, was at a 15 level of grave concerns. Seem to recall 16 those words, the Mayor had grave concerns 17 about this proposal some number of months 18 ago. What changed? 19
I can't respond to 20 that, Councilman. It's before the time I entered City service, and I don't know what exactly you're referring to.
I'm referring to a news account about this particular proposal. And it was stated that the Mayor 198 Whole (Hearing) - 040640, 040642 - 6/9/04 had grave concerns about it. Is there anyone else on the team of slightly longer tenure who may have a recollection of that and tell us what happened between then and now.
I'm going to hazard a guess. I think we're referring to the period after the state legislature passed House Bill 521 which added the long-term lease test that we've talked about wanting to eliminate here, which the City and City Council has never considered but which were sort of imposed by the state upon us. And the fact that we saw the effect of that being large organizations moving without job growth, and getting what appeared to be windfall benefits, especially those that pay -- would otherwise be paying net profits tax. I think that was the concern the Mayor was speaking of. And again, I think that our proposed changes here are addressing that, and that is why the administration would be supporting it. 199 Whole (Hearing) - 040640, 040642 - 6/9/04 The whole sort of concern that was out there, and you hear building owners still talk about the vacuuming effect, that one building's going to empty out and they're just going to move into another building. Again, that's the whole idea that there's a... you're in a taxable zone right now, and the only thing that changed the next day was that you moved... you didn't necessarily invest in anything more, you didn't add any jobs --
No; I understand. So let's address the grave concern issue.
The legislation that the -- the amendments that we've proposed in the Harrisburg legislation, and the corresponding legislation in front of you today addresses all three tests that are there: The net profits or the long-term least test we are asking for it to be eliminated. We've never seen it before and never approved it. 200 Whole (Hearing) - 040640, 040642 - 6/9/04 The job growth test obviously is the one that we've always wanted to sort of see happen. We want job growth. the second test being the capital investment test, where we're looking to tighten it so there are no loopholes there. And then finally this one tax bill -- tax which is the net profits tax.
Last question. In Exhibit A, how is the that you guys somehow figured out that 17th and JFK could be in the West Philadelphia Zone?
Do you guys work on Congressional District maps also in your spare time?
Yeah. It was four-and-a-half months with no pay, but that's okay. 201 Whole (Hearing) - 040640, 040642 - 6/9/04
Two answers to your question, Councilman. First of all, in our amendment -- This will not satisfy you, but the second half, I think, will. In our amendment we proposed changing that to the Naval Business Center subzone.
Oh, okay. That's much closer to South Philly than it is to West Philly. Absolutely.
The answer to your question is, it is not clear to us yet whether HB 1321 will require that the new designated areas be attached to an existing subzone or whether they will be created as new subzones. As amended, you'll see it -- it -- the legislation would allow for either one. If it requires attachment to a preexisting subzone, we had to pick a subzone.
Thank you. 202 Whole (Hearing) - 040640, 040642 - 6/9/04 The Chair recognizes Councilman Cohen.
Council members have suggested cuts in wage taxes. The Mayor has somehow been able to furnish us with a loss to the City that would result -- In fact, you could do it precisely year by year, even up to 2020, I saw once. Could the same standards be used in this case? What would the City lose from normal taxation, if the building were rented in the normal way and KOZ did not apply? Is that the figures that you were working toward, Miss Kammerdeiner?
What we've provided so far is the net result counting those losses and gains. And what we've agreed to do is to look at it and separate out the losses and the gains so that you 203 Whole (Hearing) - 040640, 040642 - 6/9/04 can see them discretely.
Now, with respect to one word that appears -- maybe it's two words that appear -- pretty frequently in your message, and I'm suggesting that to the Director of Commerce, you were saying that this is going to be the tallest building. Now, I have a kind of half institutional memory because of my years of service. And I remember when Willard Rouse built Liberty Place. It divided the City greatly because of building bigger. It was the biggest in the City, and it dwarfed City Hall and interfered with the view of City Hall of many people. Now, why do we still have that inferiority complex in Philadelphia, if we have to prove that something is the biggest because we're still competing somehow with New York and we feel very inferior. Because I never felt that way, and I fought against that extension of the 204 Whole (Hearing) - 040640, 040642 - 6/9/04 limitation on the ability of people to see City Hall. I think City Hall is a beautiful building, even though sometimes those of us who pass laws may foul its reputation. But I think in general to people in Philadelphia City Hall represents a great idea. We try hard to keep it that way. Why does there building have to again create an obstacle to the sight of City Hall, and why do you have to boast that this is going to be the tallest building? What does that have to do with its merit?
Your view is admirable, Councilman Cohen, and particularly the part that talks about the fact not having an inferiority complex. I wish we could say that everybody in the City shared that. I think the important thing to note about this is that it's not just that it would be the tallest building in our skyline; but it would be, first of all, 205 Whole (Hearing) - 040640, 040642 - 6/9/04 along with the Cira Center, the first time we've had new construction in Philadelphia in Philadelphia in the last or years. 5 And that is a sign of a growing, 6 vital City. And we believe that it sends a 7 very strong message to people, not only in 8 this City but around the country, in fact 9 around the world, that this City has the 10 vitality and the dynamism to continue to 11 grow. 12 I think it's not just that it's the tallest, but that it will be a brand new, wonderfully designed building, and it will be the headquarters of a market leader, a company that is a market leader and dominant in its industry. And Philadelphia will be seen in the same way that Atlanta is seen with regard to Coca-Cola, and Seattle is seen with respect to Microsoft. That's a wonderful message and a wonderful image of a growing, vital, dynamic city, that will carry us a long way to achieving the kind of economic development goals that we've all aspired 206 Whole (Hearing) - 040640, 040642 - 6/9/04 to.
And, therefore, it's necessary to have this building taller than everything else? You know, I think you're renewing an old slight that's going to hurt rather than help because I believe it does show people still have an inferiority complex. They think bigger is better. And it may be sometimes and it may not be on other occasions. And in Philadelphia we've prided ourselves on our uniqueness as a City, not on our being able to grow as tall as New York and competing with New York. Most of us don't want that, except New Yorkers, who are making the mistake of coming to live in Philadelphia and then get that.
Not a mistake at all. We want them all to come and live here.
I would just like to suggest that that matter might be worthy of being reconsidered. The other questions that Councilman Nutter raised are equally disturbing. I 207 Whole (Hearing) - 040640, 040642 - 6/9/04 think we've got to get as much information. I've always assumed that the reason why you were moving ahead in Philadelphia was that probably you had a signal from Harrisburg that didn't look too good, and you wanted to show people in Harrisburg that Philadelphia really was serious about wanting this building; and therefore, you would change the schedule. You would reverse the schedule so that Philadelphia would vote its approval first, instead of being the ones to express their approval after Harrisburg authorized it.
No, not at all. That is not the truth. No. In fact, I would say that the sense we all had yesterday is that it looks very good, in terms of Harrisburg voting this legislation out. It was simply a matter of timing. This bill got tied up in Harrisburg for other reasons, other legislative priorities 208 Whole (Hearing) - 040640, 040642 - 6/9/04 that were being advanced, and it simply got delayed. And so, we got caught up in a timetable problem.
Has there been any study made in any city of the consequence of new building on space of old buildings? For example, I was told that the reason we haven't built anything in the last ten or more years is that we over built originally, but the result would create enormous amount of empty space in the City. And despite the passage of time, I'm told that the empty space is still very large in the City. I'm talking about buildings that existed for a while. And I'd like to know: Are there any studies on that kind of an impact? Is there anything we could lay our teeth into and see what really has happened somewhere else?
I'm sure there are. I think there are a couple of facts that I 209 Whole (Hearing) - 040640, 040642 - 6/9/04 would point out, though, just in direct reference to your question. One is that there are a variety of studies about our vacancy rate, a variety of opinions about what the vacancy rate is now. But by any indication, it is lower than the national average. So, in many sense -- In some sense, I would say that some of the discussion has been overstated. The other thing to keep in mind is that the Comcast, Liberty Trust building will add only three percent to our existing capacity. So we're now talking about a tremendous risk of over supply, when you have a building that will only add three percent and has a major tenant already committed to occupying most of that space, much of that space.
Welcome. Are there any other questions of 210 Whole (Hearing) - 040640, 040642 - 6/9/04 these witnesses? (No response.)
I don't know if my colleagues received a copy of the letter that I received from the School District signed by Mr. Nevels and Mr. Vallas, supporting the Keystone Opportunity Improvement Zone legislation. I think everybody must have gotten a copy. At this time I call Peter Longstreth, PIDC. Good evening.
Good evening, Council President Verna and members of the Committee. My name is Peter Longstreth, and I'm the President of Philadelphia Industrial Development Corporation, PIDC. And I'm here today to testify regarding Bill Number 040642. This bill 25 authorizes the expansion of the existing 211 Whole (Hearing) - 040640, 040642 - 6/9/04 Keystone Opportunity Improvement Zone to include a 63 acre site at the Southwest corner of Oregon Avenue and Christopher Columbus Boulevard.
This site is proposed as the new location for two of the largest employers in the Food Distribution Center, the Produce Terminal, and the Seafood Market. The Philadelphia Regional Port Authority, PRPA, is assembling the site, and will be the developer and landlord of two new facilities. The first of these will be a new state-of-the-art produce terminal, funded through the state capital budget and private investment. This will be leased to the Philadelphia Fresh Food Terminal Corporation, which is a cooperative of 40 produce businesses with 1100 employees. These businesses currently generate about a billion dollars of annual sales, and they 212 Whole (Hearing) - 040640, 040642 - 6/9/04 pay $2 million of annual wage taxes and $1.5 million of annual businesses taxes to the City of Philadelphia. The second will be a smaller facility for the Seafood Market which is a cooperative of 6 businesses employing 275 people. The existing Seafood Market generates $150 million of annual sales and pays $600,000 dollars of annual wage taxes and $220,000 of annual business taxes. The existing produce and seafood markets were, of course, built when the City relocated these merchants from the old Dock Street Market in Society Hill in the late 1950's. And although PIDC, as owner of the buildings, and manager of the Food Distribution Center itself have upgraded the facilities over the years, we now face the urgent need to provide significantly expanded modern buildings to keep the markets in Philadelphia, and to maintain their competitiveness in a fast-changing 213 Whole (Hearing) - 040640, 040642 - 6/9/04 business and regulatory environment. I'm sure the committee is, of course, aware of the immediate challenge, the fact that New Jersey has made a very attractive offer to the produce merchants to build a new market in Camden. PIDC has been working with the City's Commerce Department and the Commonwealth to respond to this offer with competitive financial terms and an attractive site, and the creation of this KOZ on the PRPA site at Columbus Boulevard and Oregon Avenue is a critical component in our counteroffer to the merchants. As already stated, these businesses now pay a total of $4.3 million annually to the City in wage and business taxes. If they relocate to New Jersey, the entire amount will, of course, be lost. If the businesses remain in Philadelphia at a KOIZ, $2.6 million in annual wage taxes will be retained, with obviously additional growth in employment, generating additional taxes, as well. 214 Whole (Hearing) - 040640, 040642 - 6/9/04 This is an excellent location for the new facilities. The proposed site is mostly publicly owned, is minutes away from the existing Food Distribution Center, and provides the rail, highway, and port access needed by this industry. This location also will prevent the disruption of the existing center, where many of the produce and seafood merchants own other buildings and conduct a significant amount of their activity. Overall, the businesses in the Food Distribution Center as a whole employ 5,000. Moving the two anchors out of the City could jeopardize the retention of many of the jobs not directly housed in the markets themselves. So as a result, PIDC strongly believes that the KOIZ incentives, combined with an attractive site, close to the existing Food Center and capital funding from the state will keep these 1,375 jobs in Philadelphia and provide for the future growth of the food industry in the City. 215 Whole (Hearing) - 040640, 040642 - 6/9/04 Thank you for the opportunity to testify, and I'm happy to answer any questions.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. Good afternoon, Mr. Longstreth. Again, this testimony, like the testimony of the administration, gives extended discussion around the number one test which is job creation. However, in this testimony there is no mention of the impact on the School District. Is that a part of the discussions? And respecting the mission of PIDC which is principally economic development and job creation, when we're talking about KOZ's there is an impact on the School District. So, can you speak to that at all?
I'm really probably not the right person to talk about that. 216 Whole (Hearing) - 040640, 040642 - 6/9/04 The Revenue Commissioner, obviously, gave her opinion which includes the input from us.
Okay. That's what I was not aware of. So that answers that question.
I would emphasize that the KOIZ business taxes that would be abated total $1.7 million a year, and the net wage taxes retained are $2.6 million, as I indicated. So it's a net retention. And that's, of course, a very important thing, given the alternative of losing all $4.3 million.
You're welcome. The Chair recognizes Councilwoman Tasco.
And I guess I should have asked this of the Commerce -- Revenue Commissioner. 217 Whole (Hearing) - 040640, 040642 - 6/9/04 Would the Food Distribution Center be afforded the use of other tax credits that's given by the City, such as in relationship to job creation? I know Councilman Goode has introduced several bills that provide some credits, tax credits, to businesses if they create so many jobs. Would you...
I believe that job creation tax credit program relates to the business privilege tax. And in a KOIZ that would be fully abated, so I don't think the credit would apply.
I think you're right. Mr. Longstreth, is it anticipated that with the new facility and the certainly the chance for expansion, that at the Distribution Center that they will be hiring more employees? 218 Whole (Hearing) - 040640, 040642 - 6/9/04
That's certainly implicit in the fact that there will be a substantial growth in the facility. It will be state of the art. It will be extremely well located, will be well financed, and it's certainly something we're encouraging them to focus on.
And I know that you will agree with me, particularly with the Seafood Market, there have been so many different regulations from the Federal Government that they have to abide by, and they are not equipped to do that in the space that they're in now.
No, no. That's absolutely one of the driving elements in this whole project.
Fine. Thank you. The Chair recognizes Councilwoman Brown again.
Clarity, Madam Chair. The grid that the Revenue 219 Whole (Hearing) - 040640, 040642 - 6/9/04 Commissioner distributed, what I hear you saying is that these numbers include all two, all three KOIZ projects that we're discussing this evening. Is that not so?
Is the Revenue Commissioner here? Please come to the witness stable.
Madam Chair, Councilwoman Tasco has a point of information.
Excuse me. I was just catching up on what happened. I was out. I didn't hear the full question. The calculations that I shared with you earlier were only for the One Pennsylvania Plaza. They did not include the Food Distribution Center. But the same kind of situation will occur with the Food Distribution Center as with One Pennsylvania Plaza, in that the School District will have some time where there is a loss of use and occupancy tax. 220 Whole (Hearing) - 040640, 040642 - 6/9/04 And because they don't have the benefit of the wage tax or growth in wage tax to overcome that, there will be some period of time where they would have a decline in taxes. And I'm not as conversant with the situation on the Food Distribution Center. We have not reviewed those figures in as much detail as PIDC has.