Just so we can get a clear picture if we're going to discuss land tax versus property taxes and so on down the line. Thank you, Madam Chair.
Thank you. I had one quick follow-up. I was struck by the mention that several departments are now trying to work smarter 00348 with regards to the use of technology and the initiative that is underway. When did it start and when did you see whatever is on paper actually becoming real?
Well, I got involved in the initiative -- I guess it had to be about two or three months ago. And it's an initiative out of the Mayor's Office of Information System, and I believe the CIO, Diana Neff, testified somewhat on that effort.
Right now, we're in the process -- the process involved defining departmental requirements and looking at those across the departments to determine where we had similarities and where we had differences and being able to come up with what was called general requirements that we would use to then construct the request for proposals, which is on the street at this moment. And the objective is to consolidate information in a centralized database so that we can begin planning initiatives such as the one that Councilman Rizzo described where if a permit is 00349 issued for a particular department, that information can be tracked through the various departments, and not only by the employees, but also by the citizens, and also tied to our cost-accounting system to ensure that people aren't getting paid for services where they owe us delinquencies and that they aren't -- that we can consolidate their accounts, for example, that the, president gave where she said five or six people may be delinquent. Well, we can pursue them as a group in different situations like that.
Sure, sure. So following that through, the RFP is currently on the street and the deadline for that is about when?
Yes. The departments are all participating in the selection of a vendor, as well as something called a "conference room pilot," which is the successful vendor's thorough analysis of the software that we are being provided. 00350
Thank you. Councilman Nutter, do you have questions?
Yes, Madam Chair. Good morning, Miss Kammerdeiner and Miss Garrett.
Yes, I know him from the phone. Yes, pleasure to meet you Let me ask you a question about of your testimony. It talks about notwithstanding gradual decreases in the rates for the wage tax and the gross-receipts portion of the 00351 business-privilege tax, the City has realized net annual increases in tax collections in recent years as it has benefitted from the longest economic expansion in U.S. history. I think I heard President Clinton say that at the Democratic National Convention. How does that happen? The rate goes down but the revenues go up; how does that work?
In part, it works because people have higher salaries, there are maybe more people who are employed who are working in Philadelphia. It's a combination of things. People may be working longer hours, getting more overtime pay. All of the things that go into earning an income within Philadelphia would be affected by that. And in the earlier testimony from Finance, there was reference to an increase in jobs in Philadelphia over the last three years. Certainly that plays into an increase in the amount of wage tax that we collect as well.
Do you believe generally that some of these taxes, given the 00352 nature of them, that to the extent that they decrease, you can still get increased collections?
I think you can see that happening in some places if there's more activity, but there are other factors that affect the activity than just the taxes. The economic conditions in general probably have a higher impact on the amount that we collect than the reduction in the tax rate. As you know, the tax-rate reduction on wage tax was a very small one in each year, and so other factors had to be at play there than just that in order to see the increases in collection we had.
What factors do you think were at play during the time prior to the longest economic expansion when we were not cutting the taxes? And, I guess, some years ago, we actually started increasing them, and then the City lost more jobs and population than any other county in the United States of America. What do you think was contributing to that?
A combination of factors: The tax rates themselves that made people 00353 make a decision to go somewhere else. The level of economic activity in general would have that impact. During that same time period, we had some very large increases in costs of goods and some reductions in -- or holding the line on salaries that were evident.
Given where we are today -- and you heard some of the discussion with myself and Mr. Dubow -- we are either coming out of the recession, the recession is over, or it's soon to be over. Do you think there's any other factor greater than taxes that will affect the immediate and longer-term future of the City?
That's a very broad question. There are lots of factors that affect the City's future: The economy in general, nationally and state. There are other things in the environment that -- all of the things that we talk about in here in terms of schools, safety, blight. All of those things play together in terms of the decisions people make about where they live and where they work. 00354 And so I think it's an interplay of all of those things together; it's not one of them in isolation
I think the economy in general has the bigger impact in terms of what's going to happen.
And do you generally agree that we are either about to come out of the recession, we've come out of the recession, or it's soon to happen in the second quarter of this year?
Every report I've heard has had a different conclusion on that, and I haven't studied them closely enough to have my own conclusion on that. I would stay with what Mr. Dubow testified on earlier, because he spent some time with the economists looking at that.
Okay. Well, I think his testimony was the expectation is sometime in the second quarter
Okay. So as the economy gets better, what do you think we should be doing with our tax rates; leaving them the same or decreasing them?
I guess really at this point, I would say that we need to study the issues more closely, and I will be prepared, and my department will be prepared, to collect whatever is determined as being the appropriate way to go. I would not want to try to influence that at this point in time.
Okay. Let me ask you about a couple other things. Where are we on the issue of -- I don't know what you guys call it, but it's generally referred for the businesspeople as this issue of the double filing in the second year of the business --
Yeah, you're referring to the new-start situation as created by --
New start. As a 00356 result of the business-privilege tax --
As a result of the business-privilege tax being a prospective tax, and to highlight that, the tax that will be paid on April 15th of this year is for 2002. And so a new business coming into business in 2002 doesn't have a business record on which to base the computation of the tax.
And so in that first year in business, they don't pay, and then by the second year in business, they can pay for that year based on their activity in the prior year. It's a very complicated process made even more complicated by the timing on this for business. We have suggested that we go back to the State and the State enabling legislation be changed to let this be a retrospective tax like virtually every other tax is, and --
The State has to 00357 identify those areas that we can tax. We are restricted in what we as a city can tax.
And go to the State for enabling legislation in order to levy taxes.
The business-privilege tax enabling legislation specifies that it is a prospective tax.
And, therefore, in order to change that, we would have to go back to the State and have the State legislature approve a change in the language that would let us then consider this to be a retrospective tax.
Only with that happening can we change the provisions for someone who's in a new business.
Right, right, I understand that part. Take me back through the beginning part. You're saying that when you pay your tax on, 00358 what, April 15th as a business person?
If you're paying your business-privilege tax on April 15th of this year, you'll be paying for the year 2002. Should you go out of business during 2002, you may in fact be eligible for --
At that point in 2002, it's only three and a half months old.
You're paying tax for the privilege of doing business in 2002. So if you go out of business during 2002, you may in fact be owed a refund for a portion of the year.
Although I guess, as you said, most other taxes are for the year that you actually did business, I mean --
Your taxes to the State or the federal government on April 15th, you're paying for the activity that took place in 2001.
And paying your taxes for 2001. That's not the case with the business-privilege tax. It's one reason that that tax is so confusing and has been so misunderstood by taxpayers and by tax practitioners who assist in the preparation of those returns.
That is one of the proposals for tax reform that is being considered.
Which administration, the Street Administration or the --
That's correct, the Street Administration or the Schweiker Administration?
Okay. Hasn't this been under consideration for a long time? I mean, we've known about this problem for a long time, right?
Is this an initiative that you're directly working on, or are there other parties involved in this?
I've worked on it in the past in the sense of being able to put together some information about the impact of it.
It's being considered by the legislative process. And when I say "the legislative process," that's incorrectly stated. It's being considered by the Mayor's Office and others who make determinations about the legislation that the Administration might put forth.
Well, let me ask this question: How long have you been working on this issue? 00361
It's one that's been around for several years, and there are many people who are interested in seeing --
Give me a quantification of "several." Is it more than three, less than five, more than ten?
I believe there are some people who felt that it should have been changed at the outset, but in terms of seriously looking at it, I would say it's been three or four years.
Okay. And to your knowledge, has there ever been a bill proposed in Harrisburg from either the last administration or the current administration to make this change?
Okay. Do you know who in the legislative unit is working on this?
Janice Davis, Finance Director. It's been forwarded to the group that looks at what legislation we will propose in Harrisburg for the spring legislative session. 00362 It's going forward to the Mayor's Office.
We do know what would need to go into that bill, but it hasn't been officially drafted.
It's a very minor wording change, and the Law Department has looked at it in terms of identifying what would have to go into it, but it hasn't been put into final form.
Concurrence that we want it to go forward as an administration.
There are potential cost implications in terms of the timing, and that's one of the things that we have looked and have shared in terms of the way this works. We're 00363 trying to keep it as a revenue-neutral situation in any budget year. It could be neutral in a tax year, but not necessarily in a budget year because the tax year's calendar and the budget year's fiscal. And so one of the issues that we have looked at over this several-year period is how we can stage the implementation of this so that we don't adversely affect any budget year.
Okay, and how do we deal with the fairness issue? Isn't there a fairness issue, especially for the startup businesses and the general impact on public policy as well as your own testimony is that the tax is tremendously confusing? I mean, it seems like the right thing to do, right?
Okay. And I'm sorry, take me -- just the short version. Tell me again what happens to the new business. Let's say I started a business today, got my business-privilege license, and I'm doing whatever I'm doing -- not that anybody would buy 00364 anything from me, but I'm in business. Tell me what happens.
Okay. You would not yet have any data in this year in order to pay a 2002 business-privilege tax, and so your first time to pay would be in April of 2003 based on your activity in 2002.
We could at that point in time basically ask you to do catchup and ask you to pay for 2002 as well as 2003, but when the regulations were developed back in the '80s to implement this, everyone thought that that would be extremely onerous on a business that was just getting underway.
And, therefore, instead of requiring the catchup to take place in that year --
The second year in business is the first year you're actually paying.
The decision was made that you would file a new-start return in that year.
Then in 2004, you would file a new-start return that would, in essence, cover your activity in 2003, but you would also be responsible for paying your 2004 business-privilege tax. So in 2004, in that hypothetical, you would be paying for 2003 and 2004.
Well, what happens when I file on April 15, 2003; what am I paying then?
You're filing a new-start return for 2003, but it really is as though you were paying your 2002. That's why it gets very confusing, and I -- in trying to do it in a summary way, am probably overstating something here.
It's very confusing, and it's particularly confusing in recent years when we've been reducing the rate at which you pay, because you find yourself in that third year in which you're paying making two payments -- actually, it's the second year you're paying and the third year you're in business -- you're making two payments against the same base revenue and expense information, but with two different rates. That only heightens the confusion that's there.
Well, I'll come back to that issue. Madam Chair, do you need me to relinquish?
Thank you, Madam Chair. 00367 Commissioner Kammerdeiner, can you please bring us current on the personal-property tax, and could you tell us about some taxpayers that paid their personal-property tax in protest. They paid it and sent a letter saying that they were paying it under protest. Bring us current on that and how we're going to deal with people that paid the tax.
As you probably know, there was a second lawsuit in Montgomery County filed by Walter Annenberg after the Montgomery County solution, which was somewhat different from Philadelphia's solution on how to handle the tax was implemented. That case went to, or was going to, the Pennsylvania Supreme Court, and so we put on hold what we were doing with our solution to see what the court's decision was. As you may know, Walter Annenberg reached a settlement with Montgomery County in December, and the Supreme Court case, I believe, has been withdrawn, or at least is not going forward. And so our Law Department, since then, 00368 has been looking at the Montgomery County solution and how that could affect the way we proposed to handle the solution in Philadelphia. And we're waiting for some legal advice on how to move forward. So we're basically, at this point in time, on hold.
So the normal, I believe -- correct me if I'm wrong. The normal February 28th deadline to file personal-property tax is not required this year?
Personal-property tax is not active in Philadelphia and hasn't been since 1996. In 1997, we did collect the tax, and then as a result of a decision of this Council, the tax for that year was refunded. So 1996 is the last year that we actually collected. And all of the things that we've been doing with regard to the personal-property tax are in terms of a reassessment for 1996 and possibly earlier years as a result of the Supreme Court decision in June of 2000.
There were no tax 00369 bills for personal property sent out since 1996?
In 1997, taxpayers filed a return, and many of them paid, but everything that was paid in 1997 was refunded to them in early 1998. What we did in -- I have to get my years straight -- in November of 2000 and during the course of 2001 was ask people to refile for 1996, and we sent out bills based on those reassessments for 1996. And we had a number of payments that came in during the course of 2001, but those were payments for 1996 tax.
Well, are those folks going to be reimbursed that payment?
No final determination has been made. As of now, we have reassessed and asked people to pay for 1996 based on their entire holding, without any tax exemption for any portion of those holdings. You may recall that the personal-property tax originally had exemptions for the holdings of companies that did business in Pennsylvania, were registered as paying certain taxes in Pennsylvania. As a result, the Supreme 00370 Court case that I referenced earlier concluded that that tax itself was not unconstitutional, but the provision for those exemptions was, and they remanded it back to the counties to determine whether they would tax in full without any exemptions or refunds anything that had been paid. Philadelphia determined that we would tax for '96 but would refund for the earlier years that may have been protected with refund petitions; in other words, '93, '94, and '95. We're on hold for the implementation of that until we see whether the solution that was crafted in Montgomery County and was upheld by the lower court in Montgomery County should, instead, be implemented here. We're studying that, it's not been finally determined. Under that solution, we would tax for all four years -- '93, 4, 5, and 6. But then if you said you wouldn't pursue a refund for any of those years, we would basically consider it a wash, and we wouldn't collect and they wouldn't get a refund.
Well, let's talk about fairness now. Many people, because of the 00371 pending Montgomery County decision, didn't file the tax, many people. What have you done with the people that haven't versus the citizens that paid but paid under protest and may have even sent a letter along? I think that people that ignored shouldn't, you know, they're off the hook and --
When we went back out and reassessed for 1996, we contacted, or attempted to contact, everyone who was on the Board of Revision of Taxes' mailing list, whether they filed in 1996 or not. And we did get filings from a number of people who had not filed originally in 1996 and --
What's the ramification of the people -- again, some paid and some didn't. What happens to the ones that did not; are they being pursued, are liens going to be placed against them? Because, again, you have people that were cooperative, that wrote their check to pay a tax that they weren't sure that they should pay, but in their decision, they did, and they indicated that they were paying a tax but paying it under 00372 protest rather than just ignoring the request. What are we doing to the folks that ignored it?
We attempted in 2001 to get filings from them and to assess them. We've not taken active enforcement measures at this juncture. For one thing, we don't know what they might have held or what they might have owed; this is a self-assessed tax from the standpoint of being able to identify what their holdings were. We don't know what their holdings were.
So there is no 14 reward for paying your tax and there's no problem in not paying it. So all of these folks that paid it, they're just out money, and the people that didn't pay it are just off the hook totally.
I wouldn't want to characterize it that way, at least not until we see what the final resolution is going to be on how that tax is going to be handled. There may still be some enforcement action that will take place; I can't tell you that right now.
All right, here's 00373 what I'd like: Based on history, just how many people filed in previous years, could you provide to the Chair how many people filed and paid the tax versus the people that ignored that -- just based on history, not -- you know, no crystal ball here. You don't know if they're dead or alive or they sold their portfolio, but I'd be curious to see how many people just ignored based on the pending Annenberg decision.
We'll go back and look at how many people paid over several years and give you that.
You're welcome. Councilman Nutter, do you still want to be recognized?
Yes, Madam Chair. Thank you. Miss Kammerdeiner, the other two items have to do with the single-factor apportionment formula and generally business tax forms and 00374 licensing and the like, and I'll explain more about that. We've had some conversations and some correspondence back and forth, and also some of the folks from the Pennsylvania Public Accountants Association. I know the Pennsylvania Institute of Public Accountants has had interest in this particular issue for sometime, which has to do with the single-factor apportionment. Can you tell us also what's going on with that? And can we anticipate any change in that formula or calculation?
Are you referring to the business-privilege tax in this case or the net profits? The business privilege?
That is one of the recommendations that I know was also included in the City Controller's report, and I believe they acknowledged in there, and this is part of what you're referring to with earlier correspondence, that we estimated -- I believe it was $11 million that it would cost if the single-factor formula had been in effect in, I believe it was, fiscal year -- 00375 or Tax Year 2000. I don't have that in front of me to remember which year we used at the time to determine that if a single-factor formula had been in place instead of our three-factor formula, with double waiting for sales, that our tax collections would have been lower by about million. 8 So that's part of what has been -- 9
Well, is there a 10 benefit to the business community to calculate it 11 that way? I mean, who ultimately benefits and who doesn't benefit?
I'm trying to remember on that particular one. I'm not sure -- I don't recall off the top, and I'll have to get for you which business sectors we thought would be affected most directly by a change from three-factor to single-factor.
Well, why don't I then make this request: If you can get the information to us through the Chair, why don't you do a comparative analysis between single-factor and three-factor impact on business community by the change either way or maintenance of the same versus switching to single-factor, the impact on the City 00376 both by maintaining the same as well as the switch, and why don't we just get a full detailed analysis of that.
Let me ask this question: Is it within the realm of your department to seek to the greatest extent possible both tax-form simplicity as well as the education of the various taxpayers as to which taxes they owe? And does Revenue get involved with the -- kind of the 8 million different licenses that you may need to run a business in Philadelphia and which ones certain businesses need?
We do get involved very definitely in terms of the design of the forms and education of the public. We don't get involved in the licensing side of things -- with one exception, and that's the business-privilege license. With that one, we do have a combined form that's used by both Revenue and L&I for the issuance the business-privilege license and the initiation of a business-tax account. So we work cooperatively with L&I on that one. 00377 We're not involved in any of the other licensing or permit requirements for a business.
With regard to the forms and the various taxes that people pay, is there any effort presently being conducted to simplify to the greatest extent possible either the forms themselves or the various explanations of what different people owe and how they owe it and how they file their taxes? What are we doing to make it easier for people to operate a business? Some may not buy into the notion that it's a privilege; if anything, the privilege is ours that they're here, so you might want to think about changing the name of that. But for the moment, I mean, whose responsibility is it to try to make doing business in Philadelphia as easy as possible?
With regard to the tax forms, that's our responsibility and the Department of Revenue. On an annual basis, we review all of the forms, we take information that we've gotten from individual taxpayers and from tax practitioners who prepare forms and identify areas 00378 where there has been confusion or where there are problems in an effort to update and change those forms, to change the explanations that go with those forms. I think with the exception of the business-privilege tax, which is so complicated in the way the tax itself is crafted, and that comes back in large measure to the enabling legislation and the exceptions and issues that are established under the law. We have streamlined those forms as much as we can. I have put them into formats that allow us to scan those forms so that -- and we take images of those forms so that we can provide and prove taxpayer service. Our feedback from the practitioners who we work with -- and they are both lawyers and accountants representing large and small firms as well as those who attend sessions that we hold on an annual basis to provide education on the taxes -- is that we've come a long way. There is still a way we can go and we can always improve on the forms, but we've done an awful lot in the last years to streamline and make 00379 them more efficient.
You can get copies of those returns on line. One of the things that we're working with the Mayor's Office of Information Services on right now is to improve the e-government capabilities, and one of the earlier places that they want to work is on the filing on line.
That's correct. But the federal taxes that you can file on line are the personal income taxes. I don't believe you can file your corporate taxes online yet, and most of our taxes are corporate taxes that have those levels of complication for taking the information from the form and putting it into the system, the 00380 legacy system that you use. So I don't think we're that far behind them in that regard.
I don't have an exact time on it yet. The very first thing that we'll be getting people to file online will be their business-tax accountant application and that business-privilege license form. That one should be available sometime within the next several months. The others, I don't have a timeline yet, but we do have some people who are looking at that to see exactly how long it will take. We hope to have a timeline in terms of the order that they would be produced sometime in the next few months.
With regard to the business-privilege tax, you've made reference on a number of occasions to the enabling legislation. What happens in the other counties or cities or townships in the Commonwealth of Pennsylvania? Do they have a similar prospective payment of taxes?
I don't believe they 00381 have anything that's prospective. For one thing, we're a city and county of the first class, so what we're entitled to tax is different from what they're allowed to tax, and so they're bound by a whole series of rules and regulations.
Well, I understand the who-can-tax-what issue, but if you're in business in Montgomery County, do you pay on the activity that you actually did last year, or do you pay for activity that you have not done in the current year?
I don't know. We can check and see, I don't know. My staff might know but I don't.
Okay. Thank you. I have one question for -- unless there are other questions for Miss Kammerdeiner -- I'm not going to try to figure out between the two of them who the ranking officials are from the Administration, so if I could have Miss Davis and Mr. Dubow back for a second, I'd appreciate it. (Ms.Davis and Mr. Dubow return to the witness table.)
And all things universal? Can you get us a complete detailed answer with regard to the legislative effort to change how the business-privilege tax is collected from the prospective current to the past either calendar year or tax year, however Miss Kammerdeiner figures it out; and can you tell us in that response who is working on what legislation, when do we expect that legislation to go to the legislature, and what is our goal in terms of getting such legislation passed so we can end this particular issue that's been around for a long time?
Are there any other questions from members of the committee? (No further questions.) 00383
The Sinking Fund Commission is next. (Witnesses come forward.)
Good afternoon, Madam President and members of Council. I'm Vince Jannetti, Executive Director of the Sinking Fund Commission, and I'm here to testify on behalf of the Commission on the Fiscal Year 2003 Operating Budget request. The Sinking Fund Commission's 2003 budget request, also funds total $464.5 million. The General Fund portion of this request is $202.7 million, and it includes $91.2 million for capital lease payments and $111.5 million for debt service and other debt-related expenditures. The Sinking Fund Commission's request for the Water Fund for Fiscal Year 2003 totals $163.6 million, and a request in the Aviation Fund totals $93.1 million, all of Class 700 for debt service on Revenue and General Obligation Bonds. 00384 In both the Water and Aviation Funds, the requests for Fiscal 2003 do not provide for any new borrowings. The Commission's 2003 request of $6.4 million in the (unintelligible) Tax Fund is provided for payments on leases for new stadiums. I'd be happy to answer any questions Council may have relative to the 2003 Operating Budget of the Sinking Fund Commission.
Thank you. Mr. Jannetti, on of the detail, could you give us the detailed breakdown of Class 281 and 285 expenditures?
Also, does your budget include any for Parking Authority bond payment guarantees? How much is included for these guarantees, and can you tell us the status of these properties?
I can tell that you that 00385 the 2003 budget provides for $4.7 million for the Parking Authority bonds. The status of those projects I do not know.
Is there anybody from the Administration here that would know the status of these projects? (Miss Davis returns to witness table.)
Currently neither project is active. We'll be happy to get the exact status of the --
Currently neither project is active. We'll be happy to get the information from the Parking Authority and forwarded to you.
Mr. Jannetti, 00386 besides the trends, what other borrowings or refundings are included in your General Fund budget?
There's also a provision for a new borrowing a new General Obligation borrowing in 2003.
I'm sorry, would you mind repeating that? I'm sorry.
There's a provision in the budget for a new -- a $94 million General Obligation borrowing to be issued early in 2003.
Okay, thank you. Are there any questions from members of the committee? (No questions.)
The City Treasurer is next. (Witnesses come forward.)