COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 696, City Hall Philadelphia, Pennsylvania Tuesday, April 29, 2003 10:20 a.m. - - - RESOLUTION 020509 - a Resolution authorizing the Council Committee of the Whole to hold hearings on real estate taxation in Philadelphia and the potential of land-value taxation to encourage development and discourage blight creation in the city... - - - PRESENT: COUNCIL PRESIDENT ANNA VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL CLARKE COUNCILMAN DAVID COHEN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN ANGEL ORTIZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN TASCO - - - V A R A L L O, INCORPORATED LITIGATION SUPPORT SERVICES 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 I N D E X RESOLUTION 020509 PAGE JONATHAN SAIDEL, City Controller ............ ED SCHWARTZ, Tax Reform Commission .......... 9 DR. ROGER MCCAIN, Drexel University ......... 45 BRETT MANDEL, City Controllers Office ....... 50 JOSHUA VINCENT, Center for the Study ........ 56 of Economics ........................... 56 JOHN KROMER, SR., Fels Center ............... 87 FRANK CONCANNON, Controller of Allentown .... 104 DAN SULLIVAN, Henry George School ........... 111 CARTER MURDOCH, National Assoc. of Realtors.. 135 REV. BRUCE EDWARDS, Urban Leadership Council. 141 NAOMI ZASLOW, HAPCO ......................... 147 KEVIN MAZZUCOLA, Automobile Dealers Assoc.... 149 SANDY SORLIEN ............................... 155 CHRISTINE SCHWARZ ........................... 158 FRED MURPHY, Center City Residents Assoc .... 162 CHRIS PATUSKY, Fairmount CDC ................ 172 JOANNE BEACH ................................ 175 ED GOPPELT .................................. 177 KATHY HARRIS ................................ 189 ANDREW HOHNS ................................ 197 ALBERT HARTHEIMER, The Center for the Study of Economics ........................... 208 STEVEN CORLEY ............................... 217 WILLIAM CHECK ............................... 218 JOAN SAGE ................................... 219 3
Good morning, everyone. This is a public hearing of the Committee of the Whole regarding Resolution No. 020509. I would ask Mr. McPherson to please read the title of the resolution.
Resolution 020509, a Resolution authorizing the Council Committee of the Whole to hold hearings on real estate taxation in Philadelphia and the potential of land-value taxation to encourage development and discourage blight creation in the city; and, further authorizing the Committee to seek advice and recommendations on real estate tax policy and land-value taxation from citizens, community groups, economists, academia, business executives, officials from other jurisdictions, and state legislative and executive branch officials.
I believe Jonathan Saidel is our first witness, the City Controller. Please approach the witness table. Good morning. Please identify yourself for the record and proceed with your testimony.
Jonathan Saidel, City Controller. 4 I come before you today to offer testimony on resolution 02059, which seeks to explore the potential of land value tax action to encourage development and discourage blight creation in the City. I applaud Councilwoman Blackwell and all of City Council for focussing attention on this worth I issue. As you know all too well, this past summer, homeowners across Philadelphia received notice that their real estate taxes would increase because of a change in the market value of their homes. Like you, I was upset to see so many neighbors and seniors angrily complaining that their taxes have increased by more than 100 or even 200 percent. Then, as now, I argue that we must fix our system of real estate valuation to ensure fairness, transparency, and certainty. But despite a number of legislative initiatives by this Council, tax relief for our neighbors remains elusive. As one way to reduce real estate tax burdens for Philadelphia homeowners, we can change how we tax property. As I recommended in my November 2002 Tax Structure Analysis Report, I advocate for a system that will tax buildings less 5 and tax land more to encourage individuals to maintain and improve their properties. At the same time, such a shift will discourage speculation and blight by decreasing incentives to allow buildings to decay. Based on my analysis, such a system would reduce real estate taxes on nearly 80 percent of residential property owners. Similar systems in Harrisburg and Allentown have reduced abandonment, encouraged development, and generated popular approval. At the end of the day, I hope to convey a few simple points. First, land value taxation is property tax relief for Philadelphia. While we have and will continue to reduce the wage tax and business taxes, land value taxation will bring relief to neighborhoods hit by August's reassessments. My proposal is to decrease the tax on structures and increase the tax on land so that Philadelphia could generate an equal amount of revenue from the tax on land and the tax on structures instead of the current situation where three quarters of real estate taxes are generated by the tax on buildings. My estimate, confirmed by a research team from Drexel University, is that such a 6 change would decrease real estate taxes for almost 80 percent of Philadelphia homeowners. Like a universal tax abatement, this tax shift would reduce taxes for those who are maintaining and improving their properties. Second, the proposed shift to land value taxation would be revenue neutral as the shift to land value taxation would shift taxes from buildings to land while generating the same revenues. Under my proposal, the School District and the City will receive the same amount of taxes they do now. In the future, if the tax base expands, School District and City revenues should increase accordingly. Today, I will present a number of panels who will address the merits of land value taxation. You will hear from experts and economists that taxes on land value are less troublesome than taxes on wages or business and that land value taxation can reduce residential property taxes, fight flight, and foster community development in Philadelphia. You will hear from City officials that land value taxation is encouraging development and improving neighborhoods in other jurisdictions without stress to revenue collection bureaucracy. You will hear 7 from business leaders that land value taxation make sense for businesses in Philadelphia. Finally, you will hear from a parade of representatives from neighborhood organizations and ordinary citizens that land value taxation can help revitalize neighborhoods across Philadelphia. I hope you will find these panels to be enlightening and educational, and I encourage you to satisfy any questions you might have about land value taxation by posing those questions to these panels of experts.
Staff from my office will remain in these Chambers to aid you in inquiry in any way. I have long believed that land value taxation makes sense for Philadelphia and I am pleased to see that so many individuals and organizations are here today or represented today by written statements to urge this Council to introduce and approve legislation to make this policy a reality. I have long advocated for business tax reductions and I've even marched on City Hall for wage tax reductions, and I'm happy to report that these tax reductions improved the City's business climate and dramatically closed the gap between 8 Philadelphia employment growth and US employment growth. 4 percent. 4 percent. Ongoing business tax and wage tax reductions are working. Now it's time to extend tax relief to productive property owners and enact land value taxation in Philadelphia. Thank you again for turning your attention to this matter. I hope that you will pose your questions to the experts on the panels who should be able to answer any questions you have in greater detail than I could. Again, staff from my office will remain and address any issues you might have about my proposal and that may arise during the exchanges with the panels. I thank you again.
Since we have approximately 52 witnesses who would like to testify, I would ask Councilmembers to refrain from asking questions of the Controller today. We can certainly do so at a later date when we have another 9 hearing.
We have a number of panelists who want to testify on Panel No. 1. Since we only have three seats at the witness table, I would ask Mr. McPherson to please call the first three witnesses on the first panel.
Brett Mandel with the Controller's Office. Mr. Schwartz can speak on behalf of the Tax Reform Commission and then the Controller will present his panels.
A Sergeant-at-Arms will get it and distribute it, please. Good morning. 10
Good morning, Councilwoman Verna. I am here today as Chairman of the newly created Tax Reform Commission that has been meeting since January of this year. Our charge, by November 15, to produce in writing recommendations on how to restructure Philadelphia's entire tax system in order to reduce the burden of taxation on Philadelphia residents, to make the City more competitive, and to provide a better fiscal climate for the City for people to live and work. That is our charge. My name is Ed Schwartz, I'm President of the Institute for the Study of Civic values in my work life, and I've spent a few hours here along the way. Given this timetable, the Commission itself is composed of 15 people who come from a variety of business community perspectives. There are people on an advisory committee which 21 broadens the organizational base. And so it 22 provides an opportunity for a group of people, many 23 of whom who have not met each other before but who have been active in various aspects of Philadelphia, to take a good hard look at all of the tax 11 initiatives that have been proposed and our own notions of what they might be and to see what we think and then to come out and give our best judgment as to what we think ought to happen. We are also required to produce model bills if there's legislation to be produced by this. So that's what we're doing. We're methodically going through a lot of different proposals. We really do intend to give the public some notion of what our recommendations are or might be before November 15th so that there can be at least one public meeting to react to them at that time. So we're not going to wait until the night before November 14th and come out with a surprise package here. The public will be well aware of what we're doing and have a chance to influence us this as it does now. Within this framework, I'm here to say right now, we do not have a firm position on the land tax. This is April, about to be May, and so we have not staked out we're for it, we're against it. But I am here to say that the Tax Reform Commission takes the land tax very, very seriously as a significant proposal for taxes in Philadelphia and 12 one that could do the City a lot of good. And so we are from the very beginning making the examination of the land tax one of our major priorities. For example, the first public meeting that we had to focus on real estate taxes featured a presentation by Benjamin Howells, a former City Councilman in Allentown who led the fight for land tax there, as well as Josh Vincent whom you will hear from here from the Center for the Study of Economics in Philadelphia. We will be having our own first public meeting as the Tax Reform Commission in this room on May from 1 o'clock to 14 8 o'clock in the evening, and we anticipate to hear 15 additional testimony on behalf of the land tax from groups there. A member of our research staff did her graduate thesis on the land tax, working with Robert Inman from the Wharton school, so one of our staff members have specific and particular expertise in that. And we have a Real Estate Tax Committee on the Commission and we have asked Brett Mandel from the Controller's Office, who sits on the Commission, to Chair that Committee. And of course, Mr. Mandel and the Controller have been, as you've heard, 13 leading advocates of the land tax. So that while we haven't yet taken a position, we have taken a position. At least on the importance of this proposal and the need to undertake this kind of careful analysis of it, because if it works as the Controller described it this morning already, this would be, obviously, a huge benefit for the City of Philadelphia in every possible way. What are the issues that we're looking at, and in fact, we had a meeting -- our Real Estate Committee met a couple weeks ago and this was an array of the issues that we felt we needed to examine.
First and foremost, the land tax is aimed at producing economic development by putting pressure on vacant land and the owners of it to do something, the best use of the land. It contributes in theory to the development of the City. And certainly with thousands of vacant parcels of land in Philadelphia, with speculators and everything else, that's an inviting prospect. So we want to take a good, hard look at the evidence collected by the Controller and any other on how this might work 14 for economic development. A second issue, however, on the other side is the question of how much of this money from vacant land would be uncollectible. If we're trying to make this proposal revenue neutral so that the amount that we raise by shifting the burden from improvements to land, the overall amount remains the same, what happens if a certain portion of the land that we are trying to tax higher is just not taxable at all? Having spent a number of years of my life dealing with the problem of vacant land in Philadelphia and trying to get ahold of people who own it who don't live here anymore, that to me is a question. It may be a very small portion of it, but we need to look at that. But on the other side, the assertion of the Controller this morning certainly has been said, not only by Mr. Saidel, but by a Finance Director Betsy Rivell 10 years ago when I was in the Mayor's cabinet, and that is that we could raise the real estate tax with a land tax and 80 percent of the homeowners of Philadelphia, the residential property owners, would get reductions in their taxes if we raise land tax. Well, obviously, that then becomes 15 not simply an economic development program, but an important tax relief program for a lot of people. Is that true? Does it work out? The Controller's numbers suggest that it does. We're taking our own fresh and somewhat independent look at it. On the other hand, some taxes will go up. You know, there's no such thing as a free lunch. Whose taxes will go up? And we've asked that question specifically whose taxes go up here? We know that owners of vacant property go up, but there are others who may have more vacant land on their property than improvements. What does that mean and what impact will that have? And do we think that impact is worth the benefits that we would receive? And finally, are there any other public goods that might be undermined by a land tax? Some people, for example, have pointed out that a parking lot is an obvious example of a piece of land if it's located in an economically hot area that might be used economically for a better purpose. Well, that may be true, but we do have parking problems in Philadelphia. So how does that work? How can it be made to work? 16 So as I say, there are issues on both sites, but I have to tell you that if we thought this proposal were frivolous or ridiculous or off the table or something, we wouldn't be doing that. We're doing precisely the opposite. We think this is an extraordinary proposal and it needs to be examined with great care and that's what we intend to do. I would just conclude by saying that last year -- and a personal note. Controller Saidel had a similar day here on the land tax, and members of Council may recall that I came in at that time and said that while it may not be possible for Council to make a fast decision on this, it certainly was a proposal that deserved to be examined very carefully. And I felt 10 years ago when Betsy Rivell proposed this to Council and it was not voted for or taken seriously then, nothing was done ever again to look at it, I thought that was a mistake because I had a high regard for her abilities as a financial manager. So I am now pleased to have an opportunity to contribute to the analysis and discussion of this, and certainly I would say if the presumptions behind the land tax 17 that have been advanced here hold up to the scrutiny that we provided, I think that -- I can only speak now for myself.
I'm certainly sympathetic to it and I would say that the members of the Commission, wherever they're coming down on this, wouldn't be looking at it so hard if we didn't think of this as something that really needed to be given this kind of scrutiny as a possible route to improving the City of Philadelphia. So I thank you for this opportunity to share these views. I will stay and listen to what people have to say. I'm learning a lot from being on this Commission and I hope to learn more.
Thank you, Madam President. Good morning, Mr. Schwartz.
Mr. Schwartz, I just wanted to ask you a couple of questions or ask for 18 you to investigate some issues that we wrestled with during the course of our NTI proceedings, particularly with respect to vacant land. As you know, being a former Councilperson and being involved in the Institute of Civic Values, one thing that we don't have a shortage of in Philadelphia is vacant planned. One of the things that I'd like you to look into is the percentage of vacant land particularly extremely underutilized, because to some degree some people don't consider parking lots underutilized. But we have a lot of land that are creating blighted conditions in our community, and I'd like to really focus on that. And also our ability to collect the tax. One of the concerns that I have, while we may increase the level of taxes on underutilized, i.e., vacant land, the reality is that our ability to collect any revenue from that vacant land in the past has been spotty, at best. And simply imposing an additional penalty on that property owner, I'm not sure that we'll get that additional revenue and I don't know if you recall I actually introduced and got passed a bill around two years ago. It was called the non-utilization tax. And at that 19 particular time, the Revenue Commissioner indicated that there would not be an increase in revenue simply because the amount of land that we wouldn't get additional revenue from as a result of our inability to collect that tax would offset any gains in any land of landlords or property owners who are, in fact, willing to pay. So in your deliberation, in your analysis as a member of the Tax Reform Commission, could you look into that? Because that's very important.
Well, you'll notice, in fact, in the second of the issues that I raised in my comments here was that issue, and it does reflect my own experience with this going back 30 years. You bring up your ordinance. I will remind the Council -- some of you were here then -- that in 1981, then Councilman the late John Anderson introduced at my behest -- this was my idea. He introduced it, but I brought it to it to him.
And I must admit, Councilman, that I mirrored his bill.
I understand. I heard this. So let us share it with everyone because it's 20 an instructive experience. We were fighting over the fact that thousands of vacant properties were destroying neighborhoods. And at that point we weren't collecting any taxes on them, even the taxes that people owed. So I felt why shouldn't we add a cost for somebody who's owning a property and destroying a neighborhood. So I went to Councilman Anderson and he proposed a vacancy tax, as we called it then, 10 percent on vacant land. And the Council passed it. The Revenue Department tried to enforce it. It sent out letters. Its records as to who owned what were not terribly good, and I have to say here the problem was not that they couldn't find the people; they did. And the people showed up in Council Chambers en mass, some of them, they didn't want this tax. Some of them were not served properly. And so there began a negotiation over the next two years since the Green Administration at that point wasn't interested in this anyway. And so at some point a court agreement -- and that has never been enforced. As far as I know, it's still on the books and now you've introduced it. I 21 certainly have asked the current Revenue Commissioner to -- because I've never been in a position to do this even as a Councilman. I want to take a look as to why it wasn't collected. I certainly think that people who own vacant property sitting in neighborhoods not doing anything with it and the very existence of the property is such a blight that we now have had to take a $300 million bond issue in order to clean the lots and all of that sort of thing. They ought to be paying a higher price. And if a land tax is a way of getting at that, I'd like to be able to do it. I suspect in areas where there's not a lot of economic activity or it's been hard for other reasons, we might have a problem. But in some areas where there is economic activity, then people are just getting off Scot-free and a land tax will put the pressure on them. And the question is how much money do we raise in the process. So, yes, it's a very big concern of mine.
In your estimation, if we try to set a threshold in terms of the value of the land and implementing such an increase in 22 taxes, do you think that would go against the Uniformity Clause?
No. We know that -- we wouldn't even be looking at it. It does not go against -- we could pass it tomorrow. The Uniformity Clause only is people in the same position should be taxed the same way. It does not violate the Uniformity Clause. That's why some of the other -- Allentown for a while, Pittsburgh, have done various forms of taxation. It does not violate the Uniformity Clause. There are some other issues out here that might, but not this one.
You're welcome. Mr. Schwartz, I do believe that another issue that your Commission should be looking at, the City currently uses various incentives to spur development, such as TIFs, abatements, zones, just to name a few. I think you're going to have to look at how the land tax would impact the City's current development strategy.
We are. And I was focussing simply on this proposal. Even in relation 23 to the real estate tax, there are a lot of other issues we're looking at. At the same meeting where we discuss the land tax, we also have presentations from the Board of Revision Chairman David Glancey and Terry Gillan and Ken Gillan on the whole question of assessments. And really, frankly, the entire charge that we have might be guided by the following proposition: If, in fact, the real impediments to development are the constellation of City taxes which is the core argument of the Controller's tax structure report, that the wage tax and the business tax are really horrendous that we could do some things with the real estate tax that is not as horrendous but ease the burden. That may be if we changed all of these things to be tax free, we wouldn't need as many special incentive programs because we have a tax structure that would be inviting to business as it is. So that's one of the virtues of having the Commission with a charge to look at the whole system is that first we have to come to grips with our attitudes about any particular reform and then we have to see how they connect with one another, which if you do one, the other. 24 The Controller's report says if we were to do the land tax, we might even be able to raise the real estate tax because the amount that we could reduce the wage tax and reduce the business tax over all people in Philadelphia would be real winners. That's the kind of perspective that we'll be giving as well as on the various incentive programs.
Thank you. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I've been very interested in this issue, and Lu before me from the Henry George school of tax and all of that. However, I'm still not -- and some parts of my area, especially in University City, are sold on the idea.
Are. They support having land tax. They support Historic Commission. They support zoning to regulate the heights of buildings. They support a lot of traditional kinds of things. And this is a new idea 25 and they support this as well. I'm trying in my own mind to figure out where I should stand. Let me ask you, and you will specifically appreciate the question. If certain areas in the City become popular to developers or residents and land value increases or what we put on top increases, how will that affect, not only development, but blight removal, and all we're trying to do to enhance neighborhoods? At the heart my question is, if you tax the property more, if you improve and others improve their block or if you tax the land more where people will build, who does it affect? Which is better? And which helps out City most?
Well, I think the argument for land tax that we are examining is that by putting more emphasis on land, in the Controller's formulation, have the amount of the tax going on land equal to improvements instead of now where it's, I think, 80 or 73 percent or something like that but it's very skewed to improvements, you're putting pressure on those who own vacant property, often in areas of high economic activity around it to do something with it, to generate more income, not sit on it. It's an anti-speculation tax at that level. And that will, in a City that is struggling for development, be very useful. Now, the question really is, if the tax is -- you know, is not the only reason why there's something else that's not happening. Any of these systems depend on other things. You cannot tax people higher and nothing happens. But if we're looking at an overall strategy for improving the economy, would a land tax in effect be an important tool to be used here? So that's really -- is this a powerful tool in conjunction with the other things that we obviously need to do to improve economic development? I believe in the last five years of the '90s, the narrowing of the gap between our economic situation and the rest of the country, I think the tax reduction program played a role. But other things also played a role. So you have to, you know, build a shared strategy to the extent that we can figure that out, we're going to give it our best shot. And I have to tell you -- personally, you know I've been here for a few years now. The 27 discussions that we are having on these issues at this point in the Commission are among the most intelligent and thoughtful and interesting discussions on these issues that I've ever had since coming here. We have a very good group of people from different walks of life. And now that we've gotten ourselves a little organized, we're down to business here. So we'll give it our best shot.
Thank you. One of my other questions, for example, in my area, in University City, our real estate has gone way up. One gentleman is moving who worked for Penn, has two children, he's moving to Baltimore and he hasn't put his house on the market, a row house home. And they want 400,000, he's been offered that from the beginning in the heart of a regular row house block. So properties that maybe a year and a half ago and with the advent of a new school in the area and Penn giving 15,000 per house, the real estate has doubled, tripled. But how will that affect, for example -- how would land tax affect not developing on land. Here we're land locked. So the real estate has become -- real estate value has tripled. How does this figure into that? 28
Let me take University City. If you shift the burden from improvements in part to land so it's 50/50, the tax on this person who owns a parcel that might take up the full land will actually drop, not rise. But that will happen -- and you're dealing with it citywide. We don't tax University City particularly. Some of us might want to, but, you know, we don't do that. On the other hand if there were somebody who owned a big parcel of land, let's say, in Mantua, not too far, sitting on it because he or she's seeing what goes on at Penn and they're going to wait another five years for the appreciation to finally catch up with Mantua so that they can sell their vacant property for 400,000, that person is going to discover a whopping tax increase because now that vacant property not too far from Penn is a lot better used by trying to develop it. So in your area, it would redistribute the tax burden somewhat from those who --
In keeping with that, as you know, we have the Lucien E. Blackwell Mantua Revitalization Project, and we're doing just that in Mantua. We are trying to market and trying 29 to develop lots all over. We're working on demolition and we've had lots because we've been working on this. And as you know, it's an area that has survived in spite of Penn and Drexel University expansion and the institutions, Penn and CHOP. HUP surrounds it as well as CHOP. And so you're saying -- how will it affect -- you're saying that their taxes could go up and how would it affect the whole issue of blight removal and NTI, in your opinion? I know it's a big question.
I think under these circumstances, if you have somebody who owns a vacant parcel in Mantua and right now you're trying to get them to do it and you don't have to go through eminent domain and all the things you have to do that will take two years. Telling that person that they're going to have to pay 50 or 60 percent higher taxes for the privilege of owning that vacant land would be perhaps an additional incentive for them to sell it. I mean, if all of this works as they're talking about -- and your area would be one of them, in fact, where this could work because you do have, in fact, a blighted area next to an area of high development where people are sitting back as 30 speculators and trying to wait until the price was right. Think of Sam Rapaport in Center City years ago, owned all those vacant properties and blighted properties, et cetera and just sat on them and let them die until everybody else's investment, the City's and whatever made Center City an attractive thing and then he unloaded for a huge profit. But let's say that Rappaport properties really suddenly he's paying a much higher percentage of the land. He's got no improvements on these properties. He would have had much greater incentive at that point to unload those properties earlier and maybe we could have gotten them at a better price and gotten the development done even more quickly. So the areas that are contiguous to development are the ones, I think, that has the best shot of doing this, and there are a lot of them now, obviously, than in an area where you have a little more work to do. But then the strategy it seems to be would be the land tax then becomes a tool -- I'm almost thinking through some of this as I talk. The land tax then at that point becomes a tool to be used to acquire additional land to see the benefits to contiguous land for development. 31 So I'm giving you the theory of it. By the time we have our recommendations in September, we will have run, not only the numbers that have been run, but look at it really hard. And I do think we need to look at it as you're asking. What happens in Mantua? What happens in Strawberry Mansion? What happens in Norris Square? What happens in West Oak Lane? You know, those are the questions that we need to ask hard to get a picture of how this really would work.
How do you think this affects revenues dedicated to the School District?
Oh, it would increase them. Well, let me say this, if it works, it's neutral. The point is that you set the amount of revenue that is being collected now and you try to structure the tax in order to be able to collect the same amount. The issue of how much revenue the real estate tax produces is a somewhat different question. Chairman Glancey has been arguing for what he calls a budget based approach to this. The Mariano bill, so-called, that you passed, is consistent with that. You're saying that if the 32 revenues go up for a certain tax by such-and-such a percentage, then use that additional revenue beyond the 2 percent, I believe in the Mariano bill, to reduce the wage tax. So that's a question of how we structure the overall revenues. But this argument would say that it's revenue neutral for the City, it will be revenue neutral for the School District. The question is whether it works at all, you know.
Thank you. My final question is what other issue that's tangential to all of this is if we were to adopt this, how our whole BRT system would be set up, how we would begin to structure it. So we hope that as your Committee meets this summer, you'll consider that as well.
We are. That's, in fact, the subject of the first half of that meeting that I mentioned with the land tax, very much on those issues and that's a separate but important consideration. Do we need some radically different way of assessing, conducting the assessments, of giving people appeals? We're looking very, very hard at that. But as I say, the object is to come up with a recommendation that will be balanced and that will be effective and that we can stand on and, 33 to the best of our ability, say this will benefit the people who live in Philadelphia and benefit the City.
Well, I will say that we think you're the man for the job. If anybody can help us it's you.
Thank you. Mr. Schwartz, I think a couple other Councilmembers have questions for you. Councilwoman Tasco.
I was going to ask him how would it impact on a row house residential area that does not have the opportunity for development?
Well, we're taxing this citywide. So obviously, if the overall tax revenues go up throughout the City for whatever reason, the Council, over the last two or three years in fact since the wage tax reduction, have been in effect implementing a strategy around that. Revenues have 34 gone up so we've reduced the wage tax. And in this instance, any revenues that would go up would permit a reduction of taxes. But beyond that, according to the theory, a row house -- I mean, I live in one -- uses a sizable portion of the land for a house.
Absolutely. That's when the Controller says under the theory that 80 percent of the homeowners in Philadelphia would experience a reduction, it is because our land is largely fully used. So if you raise the amount that the land is being taxed but then lower the amount that improvements are being taxed, then we get a tax reduction. And by the way, Betsy Rivell years ago said exactly the same thing. So we've got two people who have looked at this who have come to the same conclusion.
There would be no 25 tax on the property anymore, no longer any tax on 35 the property?
There would be -- the Controller's proposal, it sounded more complicated but it really is simple. If you look at right now there is a proportion that is devoted to improvements and a proportion that's devoted to land. And they can share the exact number, but it's like 80/20. All they do here is simply raise the amount that's devoted to land to 50 percent. So you now have 50 percent. But at this point, if your improvements are largely taken up the land, then you get a much higher tax on the land, lower tax on the improvement. And if you're living in one of those row houses, you benefit. In fact, I do think that would happen. The real question is can we raise enough from the vacant land to make it revenue neutral. That's the issue. But I certainly think that is obviously what will happen if you go to this system. Our single family, renters, row homes, they will experience real estate tax reduction.
It's the revenue neutrality question that I want you to go more in-depth into. And give me examples of cities such as Philadelphia, very similar situated in terms of the history of how we have used land and what the economic basis of -- like Pittsburgh or Philadelphia. And where has this been done and what has been the experiences? If this question was asked --
It has not. And I can't say. To be honest with you, I'm learning about the other cities. You will be hearing more about that here. I know Pittsburgh had an experiment in it and a lot is made that they abandoned it, but there were special things that they did wrong. No system is perfect unless you did it right. A lot of vacant land was owned by federal government and whatever. It has worked in some places. And I think the panels that Jonathan Saidel and others have put together are designed to help us all understand that more successfully. I mean, Philadelphia's experience, as you well know, is that we had all this land was 37 occupied largely by factories and manufacturing and then people who lived around it. As those factories closed, we've developed industrial cesspools.
But I heard just now throughout your presentation is just the theoretical aspect of something. But it has to be shown where it has -- if we're going to move from one system to the other, we have to look at cities such that are similarly situated such as Philadelphia where this has been tried and how it has worked or not worked in those cities. And I want to hear whether the revenue neutrality that we speak about, because the school system, other aspects, depend very heavily on whether we're going to have the revenue stream to be able to maintain these systems in place. So before you shift, you've got to be able to with a certain certainty say, these things are going to happen.
Councilman, I absolutely agree with you which is precisely why we're undertaking the kind of careful study that we are. And it's certainly questions our research staff very much includes, look at where this has been done in other cities and particularly comparable cities and what happened as a basis for our deliberation. So 38 we fully agree. I'm not prepared to share the results of all that on April 29, but we will certainly be well along over the summer, and by the fall we will have some notion of those issues.
Because it will make a very big difference to be able to compare the systems and in terms of that.
Because if you say Potunk (ph), Iowa, is doing it and Potunk, Iowa, has a hundred or 50,000 residents and you don't know what the system has been and so on, but a City such as ours that has been an industrialized City, that has had factories that has been basically abandoned over the last 50 years or so and that we have had movement in, and non-use of certain parcels of land, I'd like to see where and how these things have happened.
So would we. And we've got some preliminary sketchy kinds of evidence, but that's a big part of what we want to do. I want to sneak in one other issue here that's related in a way to your question that I need to put on the table that has been raised with us by 39 people in the economic development community. And that is that our commercial real estate tax, the commercial real estate tax is probably way too low for what we could raise, if we could raise it. Now, that does -- we cannot under the current State Constitution have a different tax rate for commercial properties as for residential properties. But I met a couple of people, whose names I won't go into, but names would surprise you, given the role that they play, say that if we did that, we're able to get that kind of an amendment into the Constitution, we could easily raise commercial real estate tax, particularly if it meant more revenue to reduce the wage and business taxes. So again, there's a lot of evidence surrounding this that suggest that it may be a good thing. But you're right, we need to look very carefully at how this has been tried in comparable cities and not just places that have nothing to do with what we are.
And I would imagine the interplay between, as you say, the commercial taxes and so on down the line and how these things all play into one comprehensive set of taxation -- 40
That is precisely what we've been asked to do. The Controller's report from his office does that. Whether you agree or disagree with it, it's a very serious attempt to do that. This is our charge. You actually put the legislation together that put this on the ballot and that's the way this has been structured. And we must do it, by the way in a framework that is fiscally and socially responsible. Meaning, we just can't come out here and say we're going to lower everybody's tax and it's not our job to figure out what happens to the rest of the City budget. That's your job or somebody else's job. No. We're not to give you advice on how to cut spending. But we are certainly to be conscious of what the impact on the revenues that would be available for this. So that is very much along the lines of the question you're asking, Councilman.
Actually, I'm going to hold my question. I had another question about the speculative nature of the increased revenue. But I'll hold it until further testimony. 41
Good morning. I just actually have a question as a follow-up to Councilwoman Tasco, just trying to understand this whole business about land value tax. Land value tax is a tax on the land itself? Is that an equal tax on land across the City or is it taxed by the amount of acreage? When you talked about living in a row home, is it by the amount of land that you own?
Well, I think that under the current proposal -- and frankly, some of the questions that you're asking me I'm happy to share it, but we have a lot of people who are here specifically with the expertise in this and, you know, I'm always happy to stay here and whatever. They've come here to specifically address it. The proposal as I understand it is that right now if you look at your own assessment, you will see -- you go even to the database of it you'll see part for improvements, part for land. And all they're doing now is just the total amount will remain the same except the amount to land will increase significantly and the improvements will 42 decrease. The assessment for every property, that difference will remain, but what contributions to that difference is how it uses the land. It will contribute more than right now it does. And I would suggest, again, you have a lot experts who spend far more -- I'm learning this. You have a lot of experts who spend far more time on this than we have. I'm here to learn from them as well.
So typically with the institution of new taxes in real sharp terms, there are winners and there are losers. What response or explanation would you give to those -- the auto dealership industry which owns a lot of land and contributes in a substantial way to our City's tax base?
For the moment at least, 43 that's something we're going to have to look at. I mean, I understand that that's one of the industries that might have a problem. We have not looked at that and so I don't have an answer for you. That's the kind of question that we need to develop an answer for if we're going to move this way.
I too share Councilwoman Jannie Blackwell's concern about the ultimate impact on the Philadelphia Public School System, so I'll be looking closely to see what those numbers reflect and what that impact will be on the system. Additionally, as you look to provide numbers on what the impact would be on University City and other neighborhoods, indicate as well what the impact will be on different industries in the City on the commercial side so that we can see that kind of comparison. And my second question is, recognizing that nothing is free in government and everything in America comes with a cost, is there any speculation about what it will cost the City to institute this new procedure across the board?
I think those are -- you 44 see the list of questions that we raise. And you've added some others. Obviously, we have to have answers to all of that by the fall. And I can't say that I have those answers now. And frankly, I invite any member of Council and all of you to share with us any of these issues or others that come up. That's what we've been asked to look at and we are and will.
You're comfortable with the expectation that you will be able to get your arms about what really is a huge issue and provide recommendations by the fall?
Very well. Thank you very, very much. Thank you, Madam President.
I will stay and listen to what others have to say and learn along with you.
Thank you very much, Councilman Schwartz. (Applause.)
Mr. McPherson, will you please call the next three witnesses? 45
Thank you, Madam Chair. I am Dr. Roger McCain. I am on the --
I'm sorry. You're going to have to pull the microphone much closer to you.
Sorry. Yes, I can hear it now, thank you. Thank you, Madam Chair, my name is Dr. Roger McCain. I'm on the faculty at Drexel University in the Department of Economics and International Business. I was a coordinator for a faculty research group who were asked to do a fairly narrowly-defined job. I believe there are copies of my testimony available.
Were they distributed, Doctor? Were copies of your testimony distributed?
I guess they will be coming. As I say, the job we were asked to do was very narrowly defined. There had been estimates of who gains and who loses based on ratios of land 46 to property value that were based in turn on Board of Revision of Taxation data. It's concerned that the data might be inaccurate, so my job was basically to go over those data using different methods, statistical econometric methods and, number one, to determine whether there's any reason for concern that they would be inaccurate. Number two, to improve on them if we could. The executive summary is that while, of course, there are differences -- we expect some differences when different methods are used for the same data -- they're fairly small and we don't see any reason for concern about the accuracy of those Board of Revision of Taxation data. I can go on to detail the method that we used is basically one that's very standard, not only in real estate economics but very widely in economics. It's called a hedonic method. And that simply means that we take market prices, in this case arms length real estate transaction prices, together with information about the characteristics of the item that's sold that make it desirable. That's why it's called hedonic. 47 And in order to break out the land and structure value, that's a little more difficult and the method that used is called a hybrid hedonic method because it combines basically two statistical approaches. That makes for fairly complicated statistical work, but fortunately, my colleague is an expert on that so I relied on him. The problem we faced was that the data were very limited. Typically in studies of this kind, there are data from 30 to 50 different characteristics of each property. Variables available for analysis in each of the three databases included geographic area, lot size, living area, secondary areas, basements, porches, garage area, construction quality, building style, age, sale date and in one case the distance to the nearest golf course and certainly things like the number of bathrooms and so forth would be included. From the Philadelphia data we were able to get only three things: Usable living space, land area, and a rough index of the external condition. So it looked like a very tough job. Fortunately, we were able to get some help from the chorographic lab at the University of Pennsylvania. And working with 48 them, we were able as a first stage to estimate an overall quality of the neighborhoods. That's important because that neighborhood quality is correlated and associated with so many of the things that are missing from the data. Houses with two or three bathrooms are darn likely to be in very nice neighborhoods. So that because of that, we were able to get estimates that we have a great deal of confidence in. In technical terms, we were able to account for about 80 percent of the variation, and that's pretty close to standard in these real estate studies. It appears that about to percent 15 of the values are just pretty much random and 16 unpredictable. In any case, human beings are pretty 17 unpredictable and so I'm happy with those results. 18 The outcome, you can see in Exhibit 1, 19 those are the ratios of land value to total property 20 value that we have in Exhibit based on our 21 statistical analysis. The ones that are based on 22 the Board of Revision of Taxation assessments are in 23 Exhibit 2. You can make your own comparison. As I 24 said, there are some differences. But we regard 25 them as being pretty minor. One big point to 49 1 observe is that one thing that's confirmed that our estimates agree with is that Philadelphia is a pretty unusual City. In that, the ratio of land value to total or to structure value is lower for Philadelphia than for many other cities. And our estimates came out that way as well. It's a little more complicated than just looking at averages like this suggests.
Using the methods that we used we can estimate what would be the average value for individual properties based on the characteristics, and again, the quality of the neighborhood. So I set those out in Exhibit 3. This is a little technical, but what you see on the horizontal axis in Exhibit 3 is the ratio of land to total value. And on the vertical action is you see according to two different approaches, how many houses are within a half percent of that ratio. So for example if you look at a 20 percent ratio, the height of the dotted line should show you, according to our estimates about the number of houses that are from 19 and a half to 20 and a half percent from which that ratio, land to total value is from 19 and a half to 20 and a half percent. If you look at the 50 height of the solid line, you'll see about, according to the Board of Revision of Taxation data about how many are from and a half to and a 5 half percent. So in that way we can compare the 6 whole range, and what we see is, yes, again there 7 are differences. The top of the curve is a little 8 different. That's what statisticians call the mode 9 and it's just as good an indicator as the mean, but 10 perhaps what's more important is that there's a lot 11 of overlap. And in fact, we see that although the 12 Board of Revision of Taxation shows a large number 13 of houses with slightly smaller ratios than we do, 14 they show some with substantially larger ratios than 15 we do. They're more spread out on both sides. And 16 I think if we had better data we probably would see 17 a distribution that looks more like what the Board 18 of Revision of Taxation links to rather than less. 19 That would be worth doing, but I'm as confident as I 20 can be under the circumstances that it would not change the conclusions that the ratios that have been used for these estimates of who pays and who doesn't cannot be improved on by the kind of statistical methods that we use. Thank you very much. 51
Thank you very much. The Chair recognizes Councilman Clarke.
Madam President, were all three of the individuals going to testify?
That would be fine. Who's going to present the next testimony? Mr. Mandel?
Brett Mandel from the City Controller's Office. I'm going to present the testimony of David Zwanetz who is the Vice Chairman for the Board of Revision of Taxes. I will also present testimony from time to time during these panel presentations of others who submitted testimony but could not make it personally to the Chambers. I'll also be here now and all day to answer any questions Councilmembers have about the City Controller's proposal itself. This is the testimony from David Zwanetz, who is the Vice Chair of the Board of 52 Revision of Taxes in Philadelphia.
Do you have copies of the testimony you're reading? If so, may we have a copy of it, please?
David Zwanetz Vice Chair, Board of Revision of Taxes of Philadelphia. I'll actually summarize this. I don't have to go through the entire testimony. You'll have it at your leisure and I'll be here. "City has been in the forefront of the efforts to bring tax relief to the homeowners of Philadelphia. "I support the land value tax and City Council authorizes an in depth study of its implementation and effects on each parcel of real estate in Philadelphia. The City Controller should be commended for bringing this issue up for public discussion. The last person to do so was former Councilman James Tayoun. "The two tier land value tax is a disincentive for land speculation and for owners to allow their properties to run down and avoid taxation while they wait for a rising market to sell into inflated prices. They can do this because the 53 present systems rewards them with little or minuscule taxes while it penalizes those who make improvements. The land tax is an incentive for efficient utilization of land. "I believe the land tax will discourage the inefficient use of land and will encourage land to be utilized for its highest and best use. It should encourage the vertical development of land and attract building in our City. The existing abatements are an incentive but engender great ressentiment among adjacent homeowners who feel they are being treated unfairly. "If word gets out that you can build corporate headquarters in Philadelphia without being penalized, I believe we will attract corporate giants the world over to locate in Philadelphia, assuming we also concentrate on solving quality of life problems such as crime, cleanliness, schools and burdensome taxation. "There is an old quotation in the fairy tale land of real estate taxation and it goes like this: Tax man, tax man don't tax me, tax that man behind the tree. "We are all behind that tree, and to 54 some extent we must all share in the burden of supporting this wonderful City. If Council feels there is merit in the land value tax, then permit me to humbly suggest that Council might want to first consider even acting a millage rate on land and improvements that duplicate what we have now, that is .08264 percent on land and the rate on improvements. This would be revenue neutral and establish the principle of separate taxes on land and improvements there on. This will permit a period of investigation into the implementation and effects of the system. In the meantime, things would not change drastically. "A comprehensive study of the effects on taxpayers and revenue can be conducted over a period of years with a view in mind of how each of the more than 550,000 parcels of accessible real estate will be affected and who other than the man behind the tree will pay what. I conservatively envision a period of at least two years to be confident with the new system. It will require a great deal of work on the part of the Board of Revision of Taxes, but I feel confident that under the leadership of our outstanding chairman, David Glancey, and 55 additional funding, this can be done. I'll be happy to participate in this process since I have some very specific ideas on what we need to know to truly be confident. "I thank you, Madam Chair for the opportunity for presenting my views. I also wish to thank City Controller Jonathan Saidel for bringing this issue before the public, and you especially for allowing citizens to express their views on such a timely topic. "I'll be happy to meet privately with any member of Council for discussion at a later date. I should state, however, that although this letter is from the Vice Chairman of the Board of Revision of Taxes, these are my personal views and do not necessarily reflect those of any other member of the Board of Revision of Taxes. "Respectfully, David Zwanetz, Vice Chairman, Board of Revision of Taxes." (Applause.)
Good morning. 56 Please identify yourself for the record and proceed with your testimony.
Thank you. My name is Joshua Vincent. I live in East Falls, 19129. I'm the Executive Director for the Center for the Study of Economics. We're a non-profit foundation that has been doing research and advising municipalities on implementation issues of land value tax since 1980, and we were originally founded, our mother organization, in 1926 in the City of Pittsburgh by the City Assessor and several City Councilpeople in Pittsburgh who at the time thought that land value taxation was a successful idea and should be studied nationwide and internationally. Our center has been established at 1422 Chestnut Street since the year 2000, and we've done research parcel by parcel on how land value taxation would affect various communities, neighborhoods, types of houses all throughout the City. We've spoken to many, many community groups, mostly homeowner groups. And generally the reception to land value tax has been very, very good indeed. I can see by the presence today of so many homeowners that the idea that they should be rewarded for once 57 for keeping their houses fixed up and keeping their neighborhoods in good condition is an idea that's getting out there. The program that we're talking about could be implemented this year by the Council. It's a program that is what I call an annual event. It's just changing your annual property tax ordinance so that you have a higher rate on land values and a lower rate on building values in a revenue neutral manner. Wherever this has been tried throughout the Commonwealth of Pennsylvania and indeed overseas, it has been revenue neutral to the jurisdiction involved. Indeed, I won't go into the other cities since we have representatives and testimony from there. In Harrisburg, for example, they have had a ratio of land tax to building tax at about 6 to 1 for five years. And they've had it in toto since 1975. In that time, the tax base of Harrisburg has increased systematically and dramatically enough that the effective tax rate in Harrisburg has stayed stable and indeed dropped in the past years. For any post-industrial City, 25 especially a City like Harrisburg with so much tax 58 exempt property, that's good news indeed. So the revenue neutrality has never really be a question throughout Pennsylvania. In January of this year, the City of Altoona was the latest to adopt land value taxation. They've already sent out their tax bills and the report from the city government there is that the take, the revenue, has not been decreased at all and, in fact, is very stable. In the City Pittsburgh expanded land value tax in 1979 to about a 4 to 1 ratio. Jack Saunder at the time, the head of the Allegheny County Assessment Office reported that appeals and delinquencies dropped in the City of Pittsburgh. And the reason for that is the reason why we want to enact land tax here in Philadelphia. Once people know that their hard work on their dime and their time in fixing up a house or even buying a house will not be punished by the tax man, they have a tendency to stick around to stay in the City, to take a stab and to maybe fix up new neighborhoods. And that's what's happened in the City of Pittsburgh, Allentown, and Harrisburg. Most of our work has been done in row 59 home communities in Philadelphia, as I said. They see dramatic drops if there were a land value tax. I've been working actively in zip code 19120, which is Olney, East Oak Lane, and we're looking at about 90 percent of the homeowners seeing a reduction on their taxes. And it's the kind of reduction that applies to everybody. This is a universal tax abatement. They don't have to apply for a TIF, they don't have to live in a KOZ, they don't have to apply for a 10-year tax abatement; all they have to do is exist in the City of Philadelphia. And with the change in the property tax rates, they will get that benefit.
I should say that as far as cost of implementation, there has not been any added cost of implementation in any cities that have used land value taxation. Essentially, that's about the message I have. I think that we've shown over the past two years that land value taxation will be a great benefit to people who have never had a program for them before. These aren't the big dogs in the City. They don't apply for programs, are afraid to come to City Hall like most people, and this is a chance for 60 the City simply to say, "Thank you for staying in the neighborhoods. Thank you for keeping the faith in Philadelphia. " Now, behind me is an illustration. This is the impact of land value taxation on residential properties in the City of Philadelphia. Green essentially means tax savings. Each dot represents one parcel. What you're seeing is an overwhelming number of tax reductions in our poorest and our most working class neighborhoods. You do see increases, for example, in North Philadelphia, 19122, 19121. Why? Because there's so many vacant parcels. There's so many abandoned homes. They would see a tax increase for sure. And that's good. These people for years have benefited while other people against all odds keep investing in their homes. Now when you get to 19121 or 22, who saves? It's the owner occupiers. The people that have kept the faith in North Philadelphia, they are aye sayers, just like everybody else in Kensington, Port Richmond, Olney, Overbrook. I could go on to the many neighborhoods, especially South Philadelphia. Eastwick, the many neighborhoods 61 where almost every homeowners would see a reduction on their taxes and the people that have contributed to blight and the corrosion of our communities would finally have to pay the piper. Thank you very much for your time. )
Thank you, Mr. McPherson. Good morning, gentlemen. Gentleman, I'm glad to see a proposal before us, because I agree that we have to come up with some strategy to give relief to property owners, particularly property owners that have maintained their properties in the City of Philadelphia. But I do have to ask the questions as it relates to this particular proposal. One, you just made a reference to the North Philadelphia, a substantial part of which I happen to represent. And you implied that North Philadelphia residents who own homes may receive property tax relief as a result of the increased tax imposed on the vacant land in North Philadelphia. And the reality is, is that we're not collecting any revenue from that vacant land now because people 62 simply will not pay the taxes on that vacant land. So frankly speaking, I don't see any rush to pay additional taxes on vacant land that they're currently not paying on. An overwhelming of that vacant land in North Philadelphia is extremely delinquent because people have just chosen not to pay or absentee landlords. So reality is, I don't see a real increase in our ability to collect from that vacant land in North Philadelphia. There would have to be an extreme -- and we're wrestling with that now -- to make that land valuable in order to make the owners or any potential developers want to build on that land, i.e., the cost of doing business; i.e., the cost of construction. There would have a number of things that are put into place before that land is then brought to some productive use. I just want to get to one question that was made earlier, one statement. With respect to the map determining the vacancy, what methodology did you use? Did you use the BRT or the Department of Revenue? Because I've known when we talked about this earlier, there was a very difficult time determining the vacancy on a yearly basis. While we 63 have an estimate currently about how many vacant lots and how many vacant properties are in place on a yearly basis, there seems not to be the ability to do that in a timely way. Can you tell me how we deal with that? Utility bills? I mean, how do we do that? Do we do it by site visit?
The numbers that my center used were based on BRT numbers using the classifications that they give you, 1 through 6 residential, commercial, industrial and vacant. Plus, we also hand sorted, essentially, through all the properties just to make sure that there was no 14 structure. So when we talked vacant on this chart, what we're talking about are vacant lots and we would have to do -- our center would have to do further analysis on what are determined by the planning department or NTI as to absolutely abandoned properties. I should add that interestingly, 19121 or 22, it's gotten to the point where the property tax take from those areas is so low at this point across the board that a land value tax actually would not impact those zip codes very much because of the delinquency that you're talking about. I 64 mean, we already know that they're not paying. I think that in this -- we've done a rough study, and it's a fairly recent one that I'll provide it to you, that shows that if we took all the vacant delinquent lots throughout the City, we would probably have out of about 780 million in tax revenue, about an increase of $2 million a year in delinquency on vacant lots. But on the flip side, you're going to finally be stemming the tide of people abandoning houses that are livable and people that are still living there. And by reducing the tax on those folks, we'll be able to maybe stop the tide further. I've included in my testimony a little study that I did for Councilman Cohen on just the subject of owner occupiers in North Philadelphia. So you can refer to that, and I'll always be available for questions.
I'm all for creating an environment to give relief to property owners, particularly owner-occupied property owners. My issue is, our ability to reasonably determine the vacancy of properties -- vacant lots that's relatively easy, but properties on a yearly basis. 65 I'm told that that would require substantial amount of resources by the Revenue Department and I think also the Board of Revision of Taxes. I need you to address that, not necessarily today, but to tell me how we do that on a yearly basis because there are a lot of properties that are in flux, particularly on a yearly basis. One of the other issues I have, when you talk about a revenue neutral proposal, somebody's obviously going to have to pay. And one of the issues I need you to address is some of those marginal retail commercial properties that could potentially -- and I haven't done the analysis, so I'm not sure what that would be -- who have substantial amount of vacant land as opposed to the amount of occupied structure. As an example, a supermarket. I've been told based on our inability to get supermarkets in large portions of our urban community that the profit margin is extremely thin. Most supermarkets tend to have a 4 to ratio 22 parking lots versus building. What now happens to 23 that supermarket or a similar type of retail 24 operation that has a substantial amount of vacant 25 land as compared to the occupied structure on that 66 1 building? Does that then create an environment where their ability to stay a float is diminished or --
Well, my philosophy, if I may, is that you have supermarkets, and the idea, I think, is that we have to really work hard to get people to live in the City. In other words, if we had strong vibrant neighborhoods, then a supermarket would come to serve them and their profit margins would go up because there would be more people. In practical day-to-day terms where we've done studies before, say, in Allentown, about half would say, about half would pay a bit more. Individual analysis would have to be done. At the same time, I think that we all support a lot of the aspects of the Controller's program of cutting wage taxes and cutting business taxes, which would make it even more attractive. I think those taxes have much more impact on especially a retail cash environment like a supermarket than the profit tax might. But maybe Mr. Mandel can comment on that.
I would echo Josh's comments. Certainly, what we want to do is create 67 an environment where people want to be in the City. And the more people who want to maintain residences in our neighborhoods make this a more vibrant place for people to do business to serve them.
Okay. I'll be more specific. Right now, actually in a week or two, we have a public hearing on a particular supermarket/shopping center that we're hopeful will develop, and it's called Progress Plaza. And that surrounding area, particularly in the immediate surrounding area is bordered by Yorktown, Temple University, some other developments on the southern end. But it has taken us six years to get an operator who is interested because they view that as a viable location. In spite of that, we're being asked to provide a tax increment finance legislation to create a viable economically viable deal for that particular supermarket. My concern, if now we impose an additional tax on the vacant land, i.e., parking lot, would that deal fall by the wayside because of our inability to provide the necessary incentives?
I'll take a crack at 68 answering the question and then I'd actually redirect it to the professor. In terms of simple economics, the reason that we have to provide a tremendous public subsidy to get Progress Plaza done is a market failure. The private sector will not enter the marketplace in that neighborhood because for whatever reason they don't think the numbers work for them. The public then has to provide a subsidy to make it so that they can turn a profit.
I agree. So that's why I'm asking the question. If we're going to impose an additional tax, what happens to --
If Progress Plaza would pay more under the situation, it would move the numbers a little bit that make it a little bit more difficult for them to turn a profit. On the other hand, I think Josh's point, and this is the point that the Controller's Office report makes again and again and again, census data just out that said since the last census appeared, we've lost an additional 25,000 residents in the City of Philadelphia. If we continue to lose residents, it makes it harder and harder for people who try to make a business serving these residents to serve 69 them. And if the professor wanted to give the classic economics of why people would enter the market or not enter the market -- there's a supermarket at 21st and Callowhill, the Fresh Fields. I don't recall having to subsidize them. They came because there was a vibrant marketplace for them to serve. The more vibrant marketplaces that we create in the City by creating a tax structure that attracts and retains residents, that doesn't discourage businesses to enter Philadelphia means that there would be more entry into the marketplace.
Well, with respect to 21st and Callowhill, an area that I also represent, the real estate market down there is extremely hot, without a land value tax, without any incentive from the government. As a matter of fact, I think that particular area, if you look on your map, may be one of the areas where the value of real estate may possibly increase as a result of this proposal. But I'm looking at marginal type of retail commercial opportunities and I'm concerned that they could be impacted upon by this proposal. I'm just simply asking you to look very clearly, 70 because I have a district that's extremely diverse and I need to be in a position where we have viable commercial opportunities because I'm being told in my years of government every time we try to do 6 something in a very tough area there's an issue 7 about economics. And while we're hopefully pushing 8 ahead in terms of getting residential development in 9 those communities, the numbers still don't work. So 10 I'm just a little worried about the impact on some 11 of those commercial developments. 12
Well, I can just add one 13 thing. The tax is based on the value of land and, 14 of course, where the land is relatively -- 15
Sorry. The tax is based 18 on the value of land. If the land is low value, 19 then that in itself would keep the tax burden down. 20 There is evidence that the market values will compensate for changes in the taxes. So that the cost of a piece of land is really a basket of what you pay to buy that land or what you have to give up to keep it and what its future tax liability is going to be. And those two do tend to shift in 71 ways that offset one another. So simply saying this is going to increase the burden of tax on this particular piece of land is not the whole story when we're talking about future development. Existing developments -- you know, bygones are forever bygones. But in the future developments, you're going to see those land prices shift.
This is in the future. We haven't gotten this deal done yet. And the reality is if there's a supermarket and there's a parking lot, the reality is if there's a viable supermarket, I doubt if they're going to build on the parking lot because they have this ratio where they require so many parking spaces per square foot for certain types of retail development. I understand, you know, the proposal in terms of increasing incentives for individuals to develop or to, frankly speaking, get off of the dime and get rid of the land. Because as I said earlier, we did some legislation earlier to impose an additional tax on vacant land. I just need to get a clear sense that if we're talking about a revenue neutral program, based on your map, where a substantial amount of individuals property owners in the City of 72 Philadelphia will receive reductions, that revenue has to come from somewhere. And the question is how much of that revenue comes from those individuals who receive increases and what type of or potential burden does it create for those particular businesses? Because I, frankly speaking, don't think we're going to get a substantial -- and I think some of your testimony indicated that we're not going to get a lot of revenue from a lot of the vacant land throughout the City of Philadelphia because that's just simply not been the history, particularly in some of the most blighted neighborhoods. So I just want you to give me some real analysis on that because I'm very concerned about that. Thank you, Madam President.
Thank you. Mr. Mandel, I was just very quickly reading part of the testimony from Mr. Zwanetz. It says, "If word gets out that you can build your corporate headquarters in Philadelphia without being penalized" -- I don't know how we're penalizing people -- "I believe that we will attract corporate giants the world over to locate in Philadelphia, 73 assuming we also concentrate on solving quality of life problems, such as crime, cleanliness, schools and burdensome taxes. However, it requires a massive national and international advertising campaign to publicize our land tax value two tier system. My slogan would be, Philadelphia means business. Come build with us." Perhaps I have painted too rosy a picture. Let me caution you that I believe the two tier tax system needs to be implemented gradually and be revenue neutral. Any promise that most people will pay lower taxes maybe misleading." And he goes on. And we talk about wanting business to come in and build with us. Recently, we had a bill 16 for Ikea, how -- that just came to my mind because I think we sat on that for, I don't know how many hours. What happens to a commercial area like Ikea.
Obviously, it depends on what the value of the land is right now and what the value of the structure they would create. I wouldn't pretend to know exactly what it is that Ikea is doing, although I know right now that there's nothing on that land, so right now before any building is built if we're going to increase the 74 tax on the land, decrease tax on building, obviously if it's a parcel that's just land, their tax burden would go up. If they build on that parcel, their taxes would not go up as much under the new system than it would under the current system because we would be taxing their building less.
How about Sunoco that's located in South Philadelphia that has that massive land and all the old tanks and the tanks are presently being used? Are we going to then tax them out of the City?
I certainly wouldn't pretend to know what it would be that Sunoco would do based on what would happen if we changed their taxes, but I would caution you to understand the logic from the other side as well. If you by the argument that says a firm that sees their taxes go up or an individual that sees his or her taxes go up would make a decision to leave the City, you would have to look at it from the other side and say the firms who see their taxes go down, the individuals who see their taxes go down would be more inclined to make a decision to stay in the City or those who might otherwise not be looking at the City would 75 look at lower taxes and say, "Those taxes are lower, I would be inclined to move in the City." So if you're looking at who wins, who loses and you say Liberty Place wins, that means that Liberty can charge lower rents and make it more attractive to go into the City while a surface parking lot loses which makes it less attractive for this parking lot owner to run a surface parking lot. You have to look at the argument from both sides.
And we assume those savings would get passed on? We can only assume that.
Certainly. Just as from the other side, we can only assume if we raise the taxes on anybody that they would either cut into their profits or pass those extra taxes on to the consumer.
Actually, last year we talked about Sunoco a little bit and I didn't have the answers then, and I did the research and I promised Council and I sent them out. And I brought them here and it's in my testimony again.
Could you pull the microphone just a little closer, please? Thank you. 76
I actually did the numbers for Sunoco, and their taxes, interestingly enough, Sunoco gets a bit of the benefit of what a land value tax is because so much of the tanks and the machinery is not taxed. It's not real property. So actually they kind of enjoy the program that we're trying to get everybody else to be able to have. But their taxes, yes, of course, they will go up a little bit less than $500,000 a year. And we got their profits from the northeast refining division last year I could find. For the year 2000 and their profits, net corporate profit was $260 million. So the reduction of their profit would be by .186 percent of an increase land tax. Meanwhile, almost all of the workers at the refinery on Passyunk Avenue and the workers that live in the neighborhood would see tax reductions. And I think they're the ones that are going to benefit. And by extension, Sunoco will even benefit because they're still going to have a workforce that's healthy, happy and owns good homes.
I don't think there's any one of us that would not love to see real estate property taxes decline. You know, we've 77 been saying that we certainly have been overburdened with taxes for, I guess, forever. I think Councilman Goode has certainly been very patient in waiting to be recognized.
Thank you, Madam President. Good morning, gentlemen. I am generally supportive of this proposal. And I understand within this proposal there are winners and losers. And within our decisions as lawmakers, particularly around tax issues, there are always going to be winners and losers. My concern is being honest about who the winners are and who the losers are. So I have two primary concerns. And I don't believe you directly addressed Councilman Clarke's question about how this impacts retail development in Philadelphia. I am very big on retail development. Even though people don't like the fact that they only create entry level, low-skill jobs, there are thousands if not tens of thousands of Philadelphians who need those entry level, low-skill jobs. And I believe to the extent that while we have been losing businesses and losing population within this region, we still have the most businesses, the most 78 population, the most jobs, and we still have as an asset our disposal income here. And so I will in the future continue to make the case for retail development as economic development strategy within Philadelphia. But a lot of retail development that has been successful in recent time, you know, there is an issue of parking. There is an issue of how the structures are set up. And I'm just curious as to have you done an analysis of how this impacts retail development in Philadelphia? Because if that is going to be a loss, I'm not going to say that makes me against this proposal, but we have to clearly identify the winners and the losers and be honest about it before we take a step that is this large.
Well, my office, Councilman Goode, has actually done an analysis under the assessment existing for every type of commercial use.
I'm for future development in terms of looking toward what we're trying to develop in Philadelphia in terms of economic development and how this will impact future retail development. 79
If the tax structure can be reformed such as the Controller is suggesting, then you will not discourage people coming in.
We are actually talking about, when we're talking about retail development, not whether just more people moving into the City, whether we can provide goods and services to them in a convenient way. That retail development might exist in the suburbs or exist in only certain sections of the City because it is not feasible to have retail development everywhere because of this shift. So I'm asking not just in theory whether you think more people bring more revenue to businesses. That's not an answer to the question in terms of how it impacts retail development. And that's the same answer you gave Councilman Clarke, and it's not acceptable.
I'll answer. If you have an existing retail development where the significant portion of the value of that development isn't the fact that it provides parking, chances are their taxes would increase. There's going to be other people here the Controller's Office bringing forward from other cities that I would encourage you to ask 80 how the actual implementation of land value tax affected retail developments in those communities. We're also going to have developers come before you that you can ask the question of what this is going to do for development. Because in terms of moving forward, one of the attractive aspects of a program such as this is, at least in theory and borne out by what has happened in other cities, you should be able to free up some of the land that currently is being speculated on which should drive down some of the cost of land and make it easier for people who are going to open up business to acquire land and build.
I guess real simply I'm saying -- and we can look for some further analysis from other examples. But this is good for homeowners, which is why I'm for it. But to suggest that it's automatically good for economic development, I don't think it's fair to say to suggest that whether it's good for retail development or not does not have significant impact on the City. It can have significant impact on the City when we need to probably create, in my view, thousands, if not tens of thousands of jobs that 81 could possibly come from retail development. Second part -- I was not even going to ask that question until listening to Councilman Clarke's question. The second thing I'm concerned about in terms of winners and losers is it's clear that most of the homeowners in Philadelphia benefit from this proposal, benefit from this shift, particularly low income homeowners. But I'm concerned about in the testimony Mr. McCain says that the BRT data proved limited but says that the basic question we were to address was, are the estimates of the impact of a shift toward land taxation biased or inaccurate because they are based on BRT assessments rather than statistical analysis of market prices of properties. Can you further explain that. I have a follow-up question to that.
Let me ask a more direct question. Are you saying that BRT assessments are in line with market values?
I'm not saying that. I'm saying whatever differences there are do not lead to 82 any errors in judging the ratios because whatever differences there are -- if for example, the land values are only valued at half of market but the structure values are only valued at half of market, then when we look at the ratio, that cancels out.
You're essentially saying if it's 71 percent, it's 71 percent is 71 percent; or 50 percent is 50 percent. But do you believe, from your analysis of the assessment process -- one thing that we have responded to here but not dealt with here -- I'm not sure we can deal with here, is changing the assessment process. I think what the actual problem is. And in that discussion of trying to change the assessment process, wanting to change the assessment process, one of the things that has come out is the fact that it is believed and to a certain extent has been proven that the burden of property taxes is actually borne by lower income people. Do you agree with that?
I'm not in a position to judge whether more of the burden is borne by lower income people or not. If I can go back and try to answer your 83 original question, basically the BRT use the expertise they have. And the way that experts operate, I'm sure they use a wide range of information. When I say the data that were available were inadequate, that is the data that's systematic enough to make a statistical analysis of it. And there seems to be -- I'm sure they use a lot more information than just that. So that's an advantage they have in making those assessments. Taking into account what data were available to us, we saw no reason to think that the ratios were misleading.
The ratios are not misleading, but if we wanted to deal with the inequitable burden that low income homeowners deal with, can we just -- can we afford to use BRT assessments and still even believe we're going to be in a revenue neutral situation?
Well, I don't see -- I guess I don't quite follow your question. The methods to make it revenue neutral based on the assessments are pretty straightforward. As to whether the assessments are just, well, that's not something we addressed. What I 84 know of assessment processes around the country is that there's a certain amount of unpredictability in them, and that is unjust.
We get to a point of revenue neutrality because we spur people toward development or toward improving their homes, but are we satisfied that the BRT assessment process gets us there in a way that we should feel comfortable and ending up in a revenue neutral situation? I mean, do we trust the BRT assessment process enough?
I really can't speak to that. It sounds like pretty much a matter of personal judgment, and I'm not in a position to make a personal judgment that I have a great deal of confidence in one way or the other.
I understand what you said was you don't believe it affects the ratios, but there is a larger question I was asking.
Joshua Vincent, once again. 85 We did a pretty exhaustive study of Olney, actually. And you're right, the values for working class or a poor homeowner, especially a row house, are generally higher. In other words, they're assessed more accurately, therefore, unfairly than more prosperous areas such as Chestnut Hill, for example. And so what we discovered is that a land value tax would not necessitate a wholesale reassessment, but it would reduce because the proportion, the ratio in these poor and working class homes is so high on the building that their reductions would be percentage-wise very high. You're talking if we had the Controller's idea of 50/50, land and buildings, equal revenue, that we would see about percent in Olney and Oak Lane. 17 In other words, these people would have 18 disproportionate benefit reduction of taxes simply 19 because they're clearly, in my opinion, overvalued, 20 and I think in the opinion of a lot of people that 21 just look at the numbers. For example, you have a 22 sales price for a typical row home that's surrounded 23 by abandoned houses or things of that nature, and 24 they bought the house in 2001 for $45,000, yet it's 25 market valued at $65,000 by the BRT. So, yes, this 86 would help that situation.
The fact that poor and working class homeowners are overvalued. They just are. They never appeal their assessments. I don't know exactly why. I'm not equipped with the expertise --
So it would shift the burden somewhat from working class homeowners, but the truth of the matter is they would still bear the disproportionate burden. More of them would get decreased, but they would still bear more of the burden?
You're welcome. Are there any other questions of the panel? (No response.)
Gentlemen, thank you very much. 87 Our next witnesses.
Please identify yourself for the record and proceed with your testimony.
Council President Verna, Members of City Council, my name is John Kromer. I'm here on my own behalf. I'm currently employed by the Fels Institute of Government at the University of Pennsylvania. I know that you see people who used to appear before you as City employees return before Council as experts on urban policy and urban affairs, and that is not my position here today. I'm glad to have an opportunity to testify, and I'm very glad that Council has devoted this amount of time and attention to this issue, which clearly needs to be aired fully before any further action is taken. I've been out of City government less 88 than two years, and I've done most of my work in that period of time out of town. But I certainly kept in touch with the goings-on in Philadelphia, and I must say that in many neighborhoods across the City, the improvements that have taken place just in that brief period of time since I left the public sector are really quite remarkable. And from City Hall with all that goes on here, you may not have the full appreciation that a current outsider such as myself has. To see some of the worse off most dangerous buildings demolished and to see the kinds of open space improvements completed as we have in places such as eastern North Philadelphia and Mantua really is very gratifying. It's a temporary but very important change. It's great to see all the work that has been done with respect to public housing, the demolition of the worst high-rises and some of the most poorly designed public housing sites is a really big accomplishment. So I feel that a lot of improvements have been completed in neighborhoods over the past couple of years, and the stage is really very well set for future investment in the neighborhoods that we're concerned about. It was great to read in the Daily News 89 last week about Universal Community Homes and the great strides that Kenney Gamble and his team have made and the completion of the first phase of King Plaza. And closer to my current place of business, it's great to see the University City area perking up again and to see housing market values stabilizing and correcting the disinvestment that had been occurring during the prior decade. But there's certainly a downside to this, and I know you're aware of this. And that is that as neighborhood improvements begin to take place, people get interested in acquiring land and holding it. Speculation begins to become a problem and vacant properties that have previously been abandoned suddenly begin to be regarded as things of great value and you begin to see overpricing and the difficulty of acquiring land and assembling sites for development increases. That problem of speculation certainly is in existence in the area that I've referred to. South of South Street and some areas of West and Northwest Philadelphia, and that will continue to be a problem as housing markets go strong in the City. So I don't have an analysis of the land 90 value tax. I don't have new information that will convince you that this is the best possible policy as it has been presented. But I do have a word or two to say about vacant property. It's really critical that we continue to do as much as we can to address vacant property in Philadelphia. It's still a widespread problem. I applaud the action that Council has taken to which Councilman Clarke referred in imposing more costs on owners of vacant, undeveloped land. And if this proposed legislation can do more, it would be great to do even more about that. On the other side of the coin, preservation and home improvements and the upgrading and stabilization of existing housing is going to be absolutely critical in the years ahead. We've got to see even more preservation than new construction, and that preservation has to cut across all neighborhoods.
And to the extent that the land value tax and some variation of this proposal is going to make it easier for existing homeowners and new homeowners to upgrade and improve and expand, I think that would be great for Philadelphia. So I hope that you'll consider those two 91 issues, imposing the penalties we can impose on people who hold unimproved vacant land and making it more easy and reducing barriers to upgrading existing housing is a really critical part of our neighborhood reinvestment policy going forward. I've done no analysis on the retail pictures, Councilman Goode, but as I know you're aware, if there are more people then more retail will follow. And that's clearly not the whole picture, but an incentive that brings more people into the City and helps existing residents feel comfortable in staying is certainly going to be good for retail. Clearly, more work needs to be done on this proposal. It would be great to see something constructive come out of the dialog that has continued here today. If the Fels Institute can be helpful in looking more closely at some of these neighborhood impacts that I mentioned, then I'm sure there would be a great deal of interest in doing so without, I may say, a City grant or contract. We'd be very interested in anything we could do to help Council with further consideration of this matter. Thank you. 92
Thank you very much. Are there any questions? The Chair recognizes Councilman Goode.
Good afternoon, Mr. Kromer. It's good to see you again. I actually have never followed that argument that retail follows people. And I know that has considered to be a housing bias argument in terms of community development. And, in fact, we have seen our greatest population growth in this City probably in Northeast Philadelphia where there are abundant options in terms of retail and large malls and those types of things where we've done most of our investment in housing in terms of affordable housing. We have not been able to attract the same type of retail development. So I just don't buy the argument that the retail will follow the people. I believe that people want convenient shopping and the provision of goods and services where they are. It has to be a coordinated strategy that can't be led by housing development. It has to be a coordinated strategy, and that you cannot create disincentives to create convenient 93 shopping for people.
Absolutely. There's got to be a synergy there that works on both sides.
Thank you. Any other questions or comments from Members of the Committee? The Chair recognizes Councilman Cohen.
Mr. Kromer, how would the NTI program affect this? Assume that the program goes through in a couple of years and the City has thousands of vacant lots. Maybe a few have been developed, most of which have not been developed, most of which have probably come to be City property as a result of defaults. How would this affect the situation?
My personal opinion is that a measure like this would compliment NTI very effectively by, as I said, making it easier for people who currently live here and people who are thinking about moving in and upgrading to fix up housing that is here already. New construction clearly has to be a priority, but I'd argue a greater priority across the board has got to be housing preservation, home repairs and home 94 improvements, and expanding existing housing.
How would it improve that? How would it bring that about?
As I understand it, it would not penalize homeowners from making home improvements and upgrading their homes by reducing the increment of taxation on those improvements.
Would it help, for example, to create more -- for want of better word -- suburban-like housing where there would be more yard space, more garden space, more of the kind of amendments that seem very attractive to younger couples with children even before the school age?
I think the NTI-funded housing such as the Brewerytown proposal will certainly help achieve that. But I think an even broader need is for upgrading the existing housing stock. And as the example society proves, people love to love older houses that are well-maintained and well-reserved. And that's what we need, not only in Society Hill, but everywhere where there are viable neighborhoods.
Well, the specific benefit from your proposal comes from the fact that 95 people would not be taxed for improvements?
Yes. This is not my proposal, but that is my view of one of the positive benefits of this approach, yes.
Haven't we already passed some legislation that runs in that direction?
Yes. And I think that's a very positive move. But I believe there may be an opportunity to do even more. From my perspective, the more the better.
Thank you. Are there any other questions from Members of the Committee? (No response.)
Mr. McPherson, would you please call our next two witnesses, please?
Brett Mandel from the Controller's Office. I'll read into the record a summary of the testimony of Janet Milkman, the 96 Executive Director and interim President --
I have it right here. This is the testimony of Janet Milkman, the Executive Director and interim President of 10,000 Friends of Pennsylvania. "Chairwoman Verna and Members of City Council, thank you for the opportunity to present the views of 10,000 Friends of Pennsylvania on this important subject. I am Janet Milkman, the Executive Director and interim President of 10,000 Friends. 10,000 Friends of Pennsylvania is an alliance of organizations and individuals from across the State committed to land use policies and actions that will enable Pennsylvania to strengthen its diverse urban, suburban, and rural communities and reduce sprawl. We seek development that will support the social and economic viability of Pennsylvania's cities and towns, protect environmental quality, conserve fiscal resources, and preserve our State's exceptional rural and heritage resources. 10,000 Friends' principles have been endorsed by over 200 organizations represented 97 well over 310,000 Pennsylvanians. "I am here today to support the Controller's proposal to institute a land value tax, changing the way land and real property are taxed in Philadelphia, to a system where the tax on land and the tax on structures and improvements each generate an equal amount of revenue. As an organization committed to policies that direct public and private investment into existing communities such as Philadelphia, we believe that the land value tax could be an important tool for revitalizing City neighborhoods. This reform would lower an economic barrier to reinvestment in Philadelphia. At a time when Governor Rendell is proposing a large program to spur economic development in older communities across the State, it is especially important that local tax policy also encourage that economic growth. Moreover, by directing that growth into developed places, we will help to preserve our State's natural resources. "10,000 Friends of Pennsylvania has long supported land value taxation. From our perspective, the land value tax is an important tool for urban revitalization primarily because it 98 addresses both higher taxes and declining values. "Land value taxation could provide a host of benefits for the City, while penalizing land owners who intentionally hold property in an underdeveloped state. From a statewide, a regional and local perspective, any policy that discourages this behavior while making it easier to invest in Philadelphia is a good policy. We encourage the City Council to take action on this proposal."
Thank you. Any questions from Members of the Committee? (No response.)
I would ask Mr. McPherson to please call the next witness. Mr. Mandel, you have written testimony.
I also will read a summary of the conclusions of Dr. Kenneth Lusht who is a professor at the Pennsylvania State University and he has done extensive research into land value taxation. I will not burden you with the entire document. I'll just give you a conclusion. If Councilmembers so desire, I would be thrilled to give you the full couple hundred pages of stuff that 99 leads up to this.
I would ask that the Sergeant-at-Arms to please circulate that testimony.
Dr. Lusht's conclusion after looking at land value taxation and its implementation in Melbourne, Australia, is that there is evidence of a long run association between the use of site value tax and the intensity of development and indications that the use of the site value tax stimulates faster development. Taken together, these results support to varying degrees recent analysis of the site value tax which conclude that the tax is non-neutral, encouraging faster and more extensive development. I would certainly encourage Council to pose the questions of actual experience in land value taxation to our next panel which is going to be peopled by officials and folks from other jurisdictions who have actually had experience implementing this policy.
Thank you very much. Any questions from Members of the 100 Committee? The Chair recognizes Councilman Cohen.
What factual data is there as to how this has worked in Allegheny County?
Well, I would encourage you to ask that question to our next panel which will have a representative on it from Allegheny County as well as the City Controller from the City of Allentown who is, like yourself, an old Northeast archive.
On a scale of, say, a hundred percent, what would be the percentage of change in Philadelphia if we enacted this legislation? Would it be a 10 percent change from what we're doing? Would it be 50 percent?
It would depend on what you have on your property right now. The Controller's proposal would be to take the current system where we tax both land and building value at 8.64 percent of assessed value, we would dramatically decrease the tax that is imposed on the structure down to about 5.3 percent while dramatically increasing the tax that one would pay on their land, up to about 18 percent. So if you owned a vacant lot that has no 101 building on it, your tax will increase by more than 100 percent. If you have a building that is a row house, for example, in a working class City neighborhood, your taxes may go down 10, 20, 30, 40 percent.
Suppose you had a lot in a neighborhood where developers have shown no 9 interest?
The lot itself, regardless of interest or not, the lot itself would increase the percentage by more than 100 percent. It goes from 8.624 up to more than 18. And if you have nothing except for your land, well, then the percentage-wise your tax is going to increase by more than 100 percent. If you're talking about an area of the City where there's not very much interest in developing, chances are that land will not be worth very much. Let's just say the person is paying 100 or 500 a year in taxes, $50 a year on taxes. Well, obviously, it would -- the proportion-wise it would increase into proportion to what they're paying right now. If it's $50, it would go up to more than $100. 102 If you have a downtown surface parking lot that right now is paying about $30,000 in taxes a year, their taxes would go up to more than $70,000.
What, in your opinion, would be the impact on development in areas in the residential areas that are kind of very cold as compared to Center City being a very hot place that people want to live? Take North Philadelphia or other residential area where there's very little on the way of development where developers historically have not seen much in the way of future returns and, therefore, have chosen not to build or have claimed that the building costs are too high, that kind of thing?
The land value tax shifts would not be a panacea. It could not create a marketplace where a marketplace doesn't exist. But where there is market interest, where there is speculation that could be capitalized upon, we are very confident that it would move the marketplace. I would, again, encourage you to pose those same questions to representatives from other jurisdictions who actually have experience. In 103 Allentown and Harrisburg where we have studied, after implementation of the land value taxation, the number of building permits and the value of building permits increased dramatically. Harrisburg credits land value taxation to a large extent to helping them reduce the number of vacant properties in our capital city by, I believe the number is more like 75, 80 percent.
Is there such a thing as a geographic distribution where you use land value taxation, say, in the Center City areas and use other kinds of valuation in residential areas or in areas difficult to develop?
I'm not a Constitutional scholar, but I believe that under our State Uniformity Act that we must apply this across the board the same way. But as an example of the surface parking lot in Center City which right now has a tax of about $30,000, their tax would go up more than a hundred percent. That's a dramatic increase of more than $30,000. If you own a vacant lot in lower North Philadelphia that's right now being taxed at $100 and your taxes increase by more than a hundred percent, your increase is $100. 104 Proportion-wise, that's quite a bite. Obviously, in terms of actual cash outlay, not as much as the surface parking lot owner in Center City. So while you couldn't say we will charge a downtown parking lot one tax rate but a lot in lower North Philadelphia different rate, the effects, because of the value of the properties, would be dramatically different.
I was not kidding about the Controller from the Allentown being a fellow Northeast archive. It is the truth.
The next three witnesses are the Honorable Frank Concannon, Dan Sullivan, the Honorable Sal Udin.
Good morning, Madam President. My name is Frank Concannon. I am the Controller of the City of the Allentown. I have some material to hand here if one of the --
Thank you. Sergeant-at-Arms, material to be distributed. Thank you. 105 Welcome, we thank you for coming in today and thank you for your patience.
It's a pleasure. My name is Frank Concannon. I'm a certified public accountant. I am the Controller of the City of Allentown. My comments will be limited to three areas. First, I want to identify myself and the criteria I use for being here. I want to explain to you the history, very briefly, of the land value tax in Allentown. And thirdly, the benefits as I see them of the land value tax. I am a Philadelphian, born and bread from North Philadelphia from the 28th ward, 18th Street just below Lehigh Avenue between Shea Park and Baker Ball, if that means anything to anybody here.
And Councilman Cohen, I understand you're a graduate of Northeast Public High School at 8th and Lehigh which was my alma mater in 1940. Probably before yourself.
'31? Oh, my. Very good. 106 I am, as I say, a product of the City's public school system. And after several years in the United States Navy during World War II, I married a young lady from Port Richmond, east of K and A. We're still together. That was over 50 years ago. My education was at the University of Pennsylvania's Evening School of Accounts and Finance. I went to work then for what was the leading CPA firm in Philadelphia, now part of the Price Waterhouse system. In 1961, I relocated in Allentown to become involved with a business opportunity. After 30 years of public accounting, I left the firm for employment in the private sector. And in 1983, I was elected Controller of the County of Lehigh. Subsequently, I served one four-year term as a member of Allentown's City Council and I am presently the elected City Controller up for reelection this year, and I expect and intend to be reelected. History of the land value tax in Allentown. It's properly known as the property development incentive taxation system. Came into existence in 1997 as part of our Home Rule Charter, which was adopted by the voters of Allentown in 107 1996. We had to have a government study Commission was approved in 1994 by a vote of the residents of the City, 60 percent to 40 percent. The land value tax was introduced as part of the Home Rule Charter which was also adopted by the similar 60 percent to 40 percent. Now, that may sound like a very decisive majority, but I hate to tell you that of the total registration of the City of Philadelphia, those two elections were only participated in by 11 percent of the voters. That tells me there is not 12 much interest or understanding at that time. Now, in the packet which I had handed out to you, there's a copy of Section 807 of our Home Rule Charter, which represents the legal basis for the tax. The method of taxation is based on the assumption that the tax on vacant land at a higher rate than developed land will stimulate commercial and residential development. This has been the case in Allentown. An important factor in our land value tax is that it was intended to be revenue neutral. You've heard that term before. And it has turned out to be. A tax increase is anticipated in the future as a result of additional new construction. Haven't seen it yet. 108 How does it work? Instead of all real property being taxed at one fixed millage rate, a change is made in the apportionment between the millage on the land and the millage on the improvements. That's expressed as a ratio. 4 for the millage on the land to 1 as a millage on the building. 7 percent to 1, almost 5 to 1. This means that approximately 82 percent of the total millage rate on the property is assigned to land and the remaining percent millage rate is 15 attributable to improvements on the building. I 16 cannot at this time explain to you the mathematics 17 of determining the computation of these ratios. 18 I'll have to leave that for one the experts. What is the impact or result of all this? In the packet there is a sheet headed "Construction and Property Values," which shows the number of building permits and the value of the anticipated construction. That is for the past 12 years, 6 years prior to the enactment of the land value tax and 6 years subsequent. I believe that 109 clearly demonstrates an increase in the number of permits lifted and the estimated cost for construction after the six-year period. The average number of commercial construction permits issued was permits per average year as compared with 34 in 7 the average year subsequent to the land value tax. 8 A similar increase took place in the residential 9 construction. 10 Now, I understand that that does not of 11 and by itself mean that all of these increases are 12 attributable to the land value tax, but I think it 13 is a viable indication.
" Our real estate or general property 16 revenues have increased by approximately 600 or 17 $700,000, and this represents an increase of over 18 3 percent since the inception of the land value tax. Now, that increase is not in proportion to the number of building permits issued. The reason for this glitch is threefold. Some of the new construction is in the KOZ, the Keystone Opportunity Zones. Taxes deferred on these properties for a number of years, but ultimately will be added to the revenue stream. Second, the 110 construction activity has been -- much of the construction has been for hospitals, et cetera, not subject to our real estate tax. And thirdly, there have been numerous appeals for reassessments in recent years which have effectively offset the increase caused by the new construction. We consider Allentown very fortunate in that our tax revenue has had even a slight increase during these difficult economic times. We have held our own. To summarize what has been said, the land value tax has been beneficial in our City. We have seen an increase in the development of previously vacant or underutilized land. We have been able to maintain or even minimally increase our tax revenues in face of difficult economic times. Enacting the legislation necessary to implement the tax and tax change was not easy, but it seems to be very well accepted now after seven years. Finally, and it's been said before, this is not a panacea or without some problems. The land value tax was introduced to be revenue neutral and has been. However, some have benefited and some have had increases in their tax. The increases have 111 been concentrated in some business ventures which need substantial vacant land to carry on their business, automobile agencies and restaurants stand out. On the other hand, most of our inner City row homeowners have seen a decrease in their real estate tax. This latter fact, the decrease in real estate tax in areas where it is probably most needed, is, in my opinion, a very strong incentive for its adoption; and that fact makes it politically viable. Thank you.
Welcome. Please identify yourself for the record and proceed with your testimony.
My name is Dan Sullivan. I am currently the director of the Henry George School on South 10th Street. For years I've been 23 dealing with land value taxes in Pittsburgh for the 24 most part as Director of the Center for Local Tax 25 Research in Pittsburgh. 112 I knew everybody was going to talk about the merits of this. I was going to talk about ways that you could screw it up, because I think Council is worried about the possibility of something going wrong. And so we have done this in cities and a 7 couple boroughs in Pennsylvania and so I'd like to 8 talk about what worked and what didn't work. 9 The first thing is, make small shifts at 10 first and then you can make larger shifts as people 11 get used to it. One thing is that taxpayers should 12 be able to predict changes in their tax bills. So 13 you don't want to have abrupt shifts unless there's 14 a crisis. And I'll mention that in a minute. 15 And also, as soon as you start taxing 16 the land and buildings separately, it gives chance 17 for the assessors to start adjusting to changes in the market, and also it gives the chance for people to appeal their land values independently. Right now you can't appeal your land value. You can only appeal the total. " So that gives the 113 taxpayers a chance and the assessors a chance to start adjusting. And if you make larger shifts later on, then you have -- in order words, you don't fix the assessments first and you don't introduce the land tax first. You gradually do both of them. The only two cities that rescinded the land value tax did so because they got a big tax shift all at once, and it antagonized people who were over-assessed. And those people were at war with it. One abandoned it right away and the other abandoned it years later. But it created a very angry group of taxpayers, mostly because they got hit with it all at once, and also because the emphasis was on who would pay more and who would pay less and they felt that they were being targeted to pay more. On this outline, the third one is, avoid class warfare. I'll skip down to that for a second. The important thing -- and this is something Philadelphia has going for it better than anybody else -- is you have people who represent people who will pay more. The Board of Realtors supports this, there's some very powerful members of the Board of Realtors who pay more, and pay a lot more. And so 114 the approach that the Board of Realtors have used with their own membership has been, if this has the benefits that it's claimed for -- and as we look at it, we think it does -- it's better to pay a high tax in a City that's dynamic than to pay a low tax in a City that's dying. And this attitude of the Board of Realtors is probably your key -- cultivating this attitude is what helps keep this from being a political hot potato. There's no guarantee, even now, with the current packages that you will be revenue neutral. Anytime you change taxes, you can slide an increase in there. But the political repercussions are such that you should never do it. " If it's going to be an increase, you should bite the bullet and say it's going to an increase and then say which of these taxes is least burdensome. And I think you'll find land tax to win on that. If you're going to shift them, don't mix a shift with an increase because the people who think that this is supposed to save them money, 115 don't know whether it was the increase that cost them more or the shift that cost them more. So part of this is never mix the two in a given year. Never complicate it. Don't go from wage tax to land tax and from property tax to land tax in the same year. Do one, one year and one the other so people can see how those shifts affect them. Look for ways to maintain parity.
In other words, if you're doing this and you find that you're putting the tax burden on the retailers because you're taking it off the homeowners, think about in one of the subsequent years going from the mercantile tax to the land value tax, because the idea is not to pit one group against another. And even though the merchants will be better off if the community develops -- a lot of merchants understand this -- it just sends a message that you're not neglecting one group or targeting one group in order to help another. Another thing you can do, you have various redevelopment programs and loan programs and things to help people renovate their property. You can make this formally a qualifier; if you pay more on your land value tax, if you pay on your property 116 tax, that puts you on the list of people eligible for these loans. And that way it's, again, saying, "We're trying to get the City redeveloped. We're not trying to punish you. Here you are. " The thing that undid Pittsburgh was that there was a political coup and the Republican Party took over and the -- I don't want to bad-mouth the Republican Party because they have a much better person in charge now. The first Republicans fired 85 assessors and went in there and did a very political change of the assessment and hired an outside company that totally botched the land values. I think, in a way, you're lucky that you don't control the assessors. I think if you talked to county commissioners in any county in Pennsylvania, they will tell you that they wished to God they did not have to be responsible for the assessors. If you're going to mess with the assessment system through a Home Rule Charter amendment or something, probably the only thing that will work is to have an elected assessor. And the 117 only reason that's good is an elected assessor has to talk about the assessments every four years and so he can't run on something else and then mess with the assessments. I'd like to answer some questions that came up that were very specific. I like the specific questions are kind of what I most like. One was about supermarkets, what will happen -- since there's very few Councilmembers here, I'm hoping that I can get their attention. In fact there's only two Councilmembers here, so half my audience is gone -- there's three now. The thing with supermarkets that they do have parking lots, but not of them have the same. We looked at this in Pittsburgh. The supermarkets that had the competitive disadvantage from land value tax were the once in the prime neighborhoods with the huge lots. The trend has been to kill the neighborhood supermarkets and build these big magnet supermarkets that depend on automobiles and have large parking lots. And what we found is the supermarket in the poor neighborhood that is a neighborhood supermarket has a relatively small parking lot and maybe half of his land is parking 118 lot has a competitive advantage under land tax over a supermarket on very expensive land where 80 percent of its land footprint is parking lot. So you actually give a competitive advantage to bringing back the neighborhood supermarkets, especially in the poor neighborhoods where the land value is lower. Ikea was mentioned. Ikea, in fact, I'm sure -- I haven't looked, but it's just the pattern. Ikea, Home Depot, those big corporate stores with the big parking lot are like the supermarkets I was just describing. They would pay more under a land value tax. So would the guy who's sitting on the land that they're interested in. And if they're going to do more with it than he will, then their increased tax is largely off set by the fact that he'll let go of the land cheaper and they can get hold of the land cheaper. The only place where that doesn't apply is where the City has the land or something. This ties into the Sunoco question. Sunoco building, their tanks are mostly all exempt because they've appealed and got them classified for machinery.
Sunoco pays no taxes on any of the 119 structures -- on most of the structures you see. There are some office buildings and things. And the question is what would happen if Sunoco left? Well, they don't get out of paying the tax by leaving. That's the magic of land value tax. A corporation can't say, I'm going to take my land and go somewhere else. So Sunoco is in a position that if they decided they wanted to reduce their land value tax, the best thing they could do is sell some of the land to somebody else. Well, who would buy it but somebody who's going to use it more than Sunoco is using it. It's harbor land. It's very valuable land. So if Sunoco said, "To cut our land value tax, we're going to pack our oil towers closer together or do whatever we have to do and we're going to make this land available," they don't actually cut their tax until somebody buys it. " And there's also some super fund questions. The minute Sunoco stepped away from that land, they would be liable and the whole corporation would be liable for any cleanup. And it's not particularly Sunoco's fault, but oil is kind of 120 nasty. So I don't see Sunoco leaving as a cause of this. I do see them complaining. Again, the winners and losers thing is not really -- if there's something you can do for Sunoco to mitigate that, then you should consider it. Because it's not an antagonism with Sunoco. In Pittsburgh, everybody said -- the US Steel building saved a tremendous amount of money. " But in neighboring Clairton, the US Steel plant held a lot of land and wasn't doing much, got an increase, and everybody said, "What have you got against US Steel? And my answer was the more jobs you create in a given amount of land, the better the taxes should be for you. And the less jobs you create in a given amount of land, the worse the tax system should be for you. And Sunoco, I'm sure, has a significant number of jobs, but it's a huge amount of land and it's very valuable land. So without trying to be for Sunoco or against Sunoco, the question that land value tax kind of automatically poses is, if you're doing a lot with this land, it will probably help you; and if you're doing less with the land, it 121 probably won't. You can't help Sunoco in going from buildings to land because they've already got their buildings exempted. You would probably help Sunoco in going from wage tax to land because people don't want to work in the City of Philadelphia because of the wage tax. The more you reduce the wage tax, the better. And the other thing I'd like to say, Philadelphia under Rendell has had the very sound approach to this. People want to know what the wage tax -- especially if they're going to buy a home. They're looking at not just how high the wage tax is, but whether it's going up or going down. The fact that it's been going down, even by a little bit, is very encouraging to somebody who's thinking about buying a home. And so I don't think you have to rush to get the wage tax down to 2 percent or something. If you just keep shaving it off, it just shows a commitment in the right direction. And that commitment, that sense of commitment is what governs perception, and that, I think, is the most important thing you can do with it. As a final thing, I'd like to say I'm 122 not particularly whetted to Saidel's plan. It's a good plan. I think Councilman Cohen's proposal to exempt people at the bottom of the wage tax ladder would be slightly less useful in terms of development, but more useful in terms of it would help poor people more. Both would help development, both would help poor people. I think that those kinds of amendments are very, very useful. And if we can get state authority to do Councilman Cohen's variation on the wage tax, I think that's a good amendment to Saidel's proposal. Thank you. )
Thank you very much. Your school's reputation is renown. And we thank you for your efforts in this field over the years. Questions? Councilman Cohen.
Thank you, Madam Chair. It seems to me that most of the complaints exist under both systems. Nobody likes sudden increases in taxes. They always complain if 123 that happens. People are always fearful that they are being taxed unfairly compared to others. And the players may change in that diagram. How much change you think it really makes, in your experience over the years?
I'm amazed at how much change has come. In some of these cities the tax shift was fairly small. I should also point out, all of these cities were distressed. Nobody antagonizes the big land owners unless their City's in trouble. So we've had huge shifts. And I think it's -- I don't think the decrease -- you know, politicians like to talk about the decrease in the building tax or the decrease in the wage tax. I think the big difference is if you have a lot that was paying $30,000 a year and the tax change comes in and this year it's paying 32 and the next time they change it, it's going to be paying 35 and after that it's going to be paying 40, you start -- you see that this is going to eat into the idea that you're depending on the land to be worth more in 10 years and so you're waiting. And as soon as that tax starts increasing, you say, "I want to develop it 124 now." I think that's the root of the incentive. But the Henry George Foundation has a lot of statistics on how much increased development occurred in each of these cities. I should say -- because I forgot somebody brought this up,. It's not geographically even. When Pittsburgh shifted to land value tax, the big new developments were downtown, they were next to the biggest park in the richest residential wards, they were in the urban -- near the University of Pittsburgh. So the biggest increase was where the land was valuable. There was an increase in building permits in the poor neighborhoods, but they were primarily renovations. In other words, the neighborhoods that are most analogous to North Philadelphia or the blighted pockets in various places in the City, in those neighborhoods, you tended to just have an increase in the number of people who were putting on a small addition or replacing the roof or remodeling their bathrooms. Those people didn't have a lot of money to invest. One of the problems is investors are trying to capture those land value increases. So the speculative investors are ones that say, "I want 125 to build in an area that's going up in value, because not only will I get back the investment in my building, but because that land's going up in value, I'll get a double return." And the handicap you have in low value areas or areas that are going down is the investor says, "Well, even if I get a return on my building, I'm going to lose money on my land." Land value tax tends to ameliorate that. Not tremendously. You still get your biggest increase in development in -- you know, the parking lots in Center City are probably the first to start saying, "Oh, boy, we should develop this now."
Well, we're complaining bitterly about the high parking rates now in Center City. What would be the impact of the land use value tax on that? Would that tend to increase our parking.
We did a seminar specifically on that a couple weeks ago. The simple answer is, if you go from building tax to land tax, you give an advantage to the parking garage over the parking lot. So you would tend to get more garages and fewer lots. If you go from wage tax to land 126 tax, you're giving the advantage to the office buildings. And so the people who are willing to come in here and use mass transit would be the big beneficiaries. The people who insisted in coming in with the cars would probably find that parking goes up. So it its always a trade-off there. The problem, Yogi Berra said, "Nobody eats at that restaurant anymore; it's too crowded." And if you have a restaurant, that's the kind of problem you want to have. And if people say, "Nobody goes into Philadelphia anymore; it's too crowded," it's because so many people are going in. But they won't be coming in their cars. If you make that shift, they'll have to come in with mass transit. If there was less of a wage tax, people might be more willing to come in with mass transit. So that's the trade off.
Well, we haven't found that shift to mass transit happen yet, but we could live in hopes.
Coming from Pittsburgh, I just want to say our mass transit is terrible. I love the mass transit in Philadelphia.
What do you find 127 about the Controller's proposal that you would change? I noted you made a distinction, you indicated that there's part of the City Controller's proposal that you're not fully in accord with.
I don't know that I would change particulars, except if I were a Councilmember, I would say let's take a little step, look at it, and take it another little step. I don't think you need to -- in fact, you can't commit future Councils to follow through with this unless you have a Home Rule Charter amendment. So you can say, this is a guideline, but each step of the way we would look at it. And if after two years you see that you're bringing -- a wage tax cut is bringing people in but retail businesses are having trouble, then I wouldn't do that next wage tax cut, I'll do a mercantile tax cut or do something that directly benefits that segment that you're most worried about.
My thesis is, if we have a wage tax cut in the neighborhoods, you're going to strengthen retail business because retail businesses have been unable to exist in many 128 neighborhoods. There hasn't been enough buying power in the neighborhoods to support, say, a shoe repair shop, a cleaning establishment or dress or simple clothes store. But I guess, in other words, you think the City Controller's plan may bite off too much at one time before it could be fully digested?
Well, you can resolve to make a big shift. But the fact of the matter is, the way the law --
The way the law is, the people who are sitting Councilmembers in 2003 can only pass the budget for 2004. And the City Councilmembers in 2005 don't have to follow the resolution. So if you resolve to do it a certain way, whoever is on Council when step or step comes along, it's up to them whether to follow through on that. The other thing, something you brought up earlier, the Uniformity Clause -- there's an exception to this. The Uniformity Clause does not let you levy a land tax in the City and not in the 129 neighborhoods or whatever. The exception is there are those business districts that -- you can create a business district, and if the business district wants to levy a land tax on itself to fund additional services -- Pittsburgh did this, the land tax is higher in the golden triangle of Pittsburgh because the business district itself, the property owners in the golden triangle came together and agreed to have a small tax on land to fund their operation.
We have that in the form of our special districts in the City where the business owners tax themselves, say, to provide additional cleaning costs, to keep the areas cleaner, more repaired, that kind of thing.
Mr. Mandel, how do you respond to the questions raised about the City Controller's plan?
I think we're open to any input. It's certainly something worth considering. I think, as you've seen, the Controller's plan was put forth -- some of the steps that we have taken 130 pursuant to the plan have been baby steps. As long as we get in the end to a place where we're making Philadelphia a preferred place to live, work, and visit, the Controller is thrilled. As the Controller has often said to me, he doesn't need to hit home runs, you can score as many runs with bunts and singles. So we're happy to go slowly.
Well, I have to congratulate all of you in your patience because I find for the first time, and that's probably due to the fact that you've continually raised it over time, that the idea is beginning to form a base of support which it hasn't had in the past. We're concerned about Philadelphia's future. We worry about whether this might bring too much change at any given time, whether it may bring more problems than those that are cures. But I'm sure as we continue to experiment, the new Tax Reform Commission that will be operating beginning next year will, I'm sure, give much more attention to your proposals than they would have in the past. So it may be that change will come to Philadelphia. We find it difficult to accept because we tend to blame change for everything. But I'm very grateful 131 to you for your presentation this morning. I think I get a much clearer picture of it than before, but I still worry about things like the parking rate and the sudden change in feeling that everybody who happened to get an increased tax bill may forget their complaints in the past when they got increased tax bills and just blame the change. So keep up your educational work. I think it may well reap a harvest in much shorter time than most of us believed it would.
And to my young relatively newly found co-alumni, I welcome you despite the modest number of years you've been an alumnus of Northeast High School.
I don't know what the proper response to that is, but it's certainly a pleasure meeting you, sir.
Well, there's a young man sitting in the audience, when I mentioned my graduating class was '31, he had a look on his face which indicated to me he thought that was deep down 132 in the middle ages. And I suspect, to him, it really was. (Laughter.)
Thank you very much. Is the honorable Sala Udin here?
Councilman Udin could not be with us, but his office led us to a statement that I would like to present for the record. I make the statement available to the Sergeant-at-Arms for distribution.
This is actually an article 16 that appeared in the Pittsburgh Post Gazette right after the change moving away from land value taxation back to a traditional property tax system. I will just give you the highlights of the article. Essentially, what happened was Councilman Udin's district, which includes the downtown district -- in fact, I would probably liken Councilman Udin's district to our 5th district here in Philadelphia where it has the very wealthy downtown neighborhoods as well as some of the very 133 working class and lower class neighborhoods in the City. The downtown and Pittsburgh was disproportionately increased in taxes after the shift away from land value taxation. Here's a few lines from the article. "Caught between a May mayoral primary 8 and a recent county-wide reassessment that sent land 9 values and tax bills skyrocketing in City 10 neighborhoods such as Shadyside and Squirrel Hill" 11 -- that's the equivalent of Chestnut Hill in 12 Pittsburgh -- "downtown building owners are bracing 13 for a tight year. Making their situation tighter is 14 the recent decision by Mayor Tom Murphy and City 15 Council to undo the way City collected property taxes for the last 88 years." Some of the quotes from some of the people that are paying higher: "If they keep it, it's a recipe for diaster. The threshold for development has just gone up," said Allen Wampler, owner of downtown real estate consultants Synergy Real Estate Corporation and former Development Director for Allegheny County. The new system and resulting downtown tax increases may make you think twice about being in 134 the City. If you look at some of the buildings that paid more, the USX Tower, perhaps Pittsburgh's Liberty Place, saw an increase in taxes of $1.24 million. Their Mellon Center, $1.19 million. Another Mellon property is $1.8 million. This, I hope illustrates what happens when you move from land value taxation back to the traditional property tax system. If you reverse the situation, the people who this article talks about losing would be winners. The large downtown buildings would save money and the same problems that this article points out about the shift would be reversed, these would become opportunities. I submit that for your consideration.
The next three witnesses are Napoleon Saunders, the Honorable Stephen Reed, and Carter Murdoch.
One moment please. We will have a five-minute break for the stenographer. Thank you. 135 (Brief recess.)
The Controller's Office will submit into the record a statement from Mayor Stephen Reed.
The Clerk will please make certain that the stenographer gets a copy, please.
Madam President, I do not have a written statement. , and felt that I could give some further insight into the land value taxation project at hand. D. in economics, specializing in real estate economics. I'm Managing Director of Research for the National Association of Realtors and principal economist. We run one of the largest real estate research institutes in the United States. We collaborate on 136 many group efforts with the Federal Reserve, and private institutions around the country. We are also collaborating on the project with the Controller's Office, Drexel University, and the University of Pennsylvania. This project in particular has really kind of raised some eyebrows and some interest among our research staff. In particular, among our chief economist David Loray (ph), who in particular really likes the project in that it really -- it appears and the research is indicating that it is a win/win policy decision of which we see very few win/win decisions or policy research opportunities. We've been very active through the years in helping support the mortgage interest deduction and bringing into law the $500,000 capital gain which has no tax implications for homeowners. We are in support of homeownership. 4 percent nationally. The purpose of this project really is to encourage economic stimulus and development. In addition to that, it really does encourage homeownership. I think the history really bears that 137 out in particular. If you look at Allentown and Harrisburg and the reduction in the number of vacant lots and the number and the percentage of residents who have had their actual real estate taxes reduced, I think that really does speak to the win/win of it. Currently, the situation in most cities with a taxation policy that is borne primarily by dwelling or improvement actually encourages homeowners to do improvements but not necessarily bring it to get a permit. Ultimately, you get a building permit. Ultimately, if we were to switch the onus more to the land, the incentive to deceive in that respect certainly is decreased. 7 percent home appreciation rate per year over the last 10 years. The City of Philadelphia has done, actually, very well over the last three years. The research division has measured that the average home in the City of Philadelphia now transacts for $157,400; while in 1999, it transacted for $124,800. Many of us are aware of that. I've been a long-term Philadelphia resident, as my family has, for three generations. 138 This appreciation really does benefit everyone. In particular, obviously, homeowners. At the same time and the reason it is a win/win is it also benefits the City because the City receives a portion through transfer taxes of all sales prices. And that is split, obviously, in most cases, by the buyer and the seller. And that is the case in the City of Philadelphia. So as homes appreciation, the City is able to recoup some additional revenues from the appreciation of those homes via the transfer tax. At the same time, with the encouragement of homeownership and the reduction in the number of vacant lots, the number of transactions that occur within a community tend to increase. The increased number of transaction also contributes to a higher tax dollar amount coming through from real estate transactions. Homeownership offers something that nothing else in our economy does. In particular, it offers the ability to build wealth. The Federal Reserve Bank as of 2001 equates the average homeowner to have built $174,800 of equity. That's in their home, that's in investments, that's in 139 total equity, total wealth. At the same time, renters have accumulated on average only $6,800 in total wealth or total equity. This transacts into a community that is more caring, wants to grow. We've collaborated with some research projects with the joint center from Harvard and a particular homeownership actually lends itself to more than just a building up of equity.
Homeowners tend to have children with higher test scores. It results in, obviously, higher quality neighborhoods. A caring that doesn't exist in some cases in more of a rental or transient community. So ultimately, what I wanted to come here and basically say is, the Research Division of the National Association of Realtors has collaborated with this research project and we believe collectively that it is in the best interest not only the City of Philadelphia but homeowners and the real estate community as a whole. )
Marilou Buffum had to leave. She has left a statement with us. I offer it to you.
I would ask the Clerk to make certain that the stenographer also has a copy of whatever testimony is being presented to the Councilmembers.
Steve Markowitz has left his testimony as well. I offer it for the record.
Nancy Hurt has also provided us with testimony that I offer for the record.
Nice to see you, Reverend. REV. EDWARDS: Nice to see you, Madam President. Good afternoon.
Please do. Identify yourself for the record and proceed with your testimony. REV. EDWARDS: I'm Reverend Bruce Edwards, President of the Urban Leadership Council, and it is a privilege and an honor to be before the legislative leaders of our City today in support of what we think is an innovating and very exciting initiative. Since the formation of the tax reform coalition that was spearheaded by the greater Philadelphia Chamber of Commerce, the City Controller's Office, several members of this honorable body and joined by a host of business, civic and grass root organizations, much has transpired on the tax reform front. This coalition that I speak of to date has played a dynamic role as it relates to the passage of legislation that provides for continued reductions in the City's burdensome wage tax, business privilege tax, the passage of legislation that supported the creation of the Tax Reform Commission, and recently our support of City Council bill 030073 that ties property tax increases to reductions in the City's 142 wage tax. It is interesting to note that in the span of one year, the citizens of our City have benefited from this tax reform activity. On this front, you, the members of City Council, our City Controller and his staff, and members of the coalition have shown what I'd like to call great leadership and if I were campaigning, and I know you are, I would not fail to point out these significant accomplishments to the voters of Philadelphia. As we all know, however, these positive strides are only the beginning of the tremendous task that is before us all as it relates to returning our City to a position of growth and economic vitality. Regrettably, as has been said more than once here today, our City continues to lose population at an alarming rate, robbing us of the benefits of a vibrant middle class and our competitive position relative to job creation and retention remains negative. In a real sense, we continue to manage decline as opposed to spurring growth and positive economic activity. I am here today on behalf of our member organizations to lend our unqualified support to 143 what we believe will be a real catalyst for positive change as it relates to taxation in Philadelphia land value taxation. The City Controller's Office through its release of the Tax Structure Analysis Report, the recently released study done by Drexel University for the Controller's Office relative to the shift to land value taxation and the work done by the Center for the Study of Economics are all to be applauded and now serve as a guide for further positive movement towards reforming the way in which our City collects taxes in general and assesses real estate in particular. Currently, the City derives approximately 75 percent of its property tax revenue from buildings and houses. The underlying result is that we offer no real incentive for property owners to build new structures, renovate existing buildings, or for homeowners to maintain their dwellings. To a great degree our current system allows for slumlords and their propensity to allow properties to deteriorate and to remain in a state of disrepair year after year with no penalty or incentive to be good citizens of our City. Land 144 value taxation challenges the prudence relative to taxing buildings at all. " That is the basic truth and lends credence to shifting the burden of tax ratables from what is on the land to the land itself. Land value taxation, in my view, will serve as a foundation for real neighborhood transformation. Not only will we see vast acres of land cleared for potential development, we will see developers and land owners building homes and business sites because it will pay them to do so. Homeowners will not only have the impetus but the resources to rehab and maintain their homes because improvements won't ensure higher taxes, but will in fact lower them, freeing monies that can then be used for improvements and maintenance.
New home construction will increase because potential buyers and homeowners will see the City as a good place to make the single most expensive investment that people make in a lifetime, the purchase of a new home. 145 There are some who might find fault with this plan. But clearly the majority of our current citizens and future residents will benefit from this innovative approach to meeting the needs of the City and its people. In excess of 75 percent of our residents who are property owners will see immediate tax reductions, and the City would see no reduction in tax collections. D. man, now the preacher response, it is a win/win proposition. The question is, does this Body, the Mayor of our City, and other relevant entities have the leadership capacity to make this happen? Others may say that this is too bold a plan, too ambitious. Yet bold action is exactly what is called for if we are to reverse the continuing loss of population and increase our ability to maintain and grow jobs. Finally, let me say that this City that we all live and care so much about is too great and commands too noble a place in the history of this nation to be treated in a manner that merely recognizes the status quo. Freeing our citizens from regressive taxes will empower us as a City and 146 begin a new era of growth and opportunity for all Philadelphians. The land value tax presents such an opportunity and will further send a message to City dwellers and suburbanites that Philadelphia is serious about tax reform and tax reduction. It will send a message across the nation that this City is open for growth and opportunity. The charge before all of us is to make this happen. Most of us from time to time wonder what we will leave behind that will benefit our children and future generations. Putting into place a system of land value taxation will be a lasting legacy and attribute to those who serve in City government now and a testament to the determination of an involved citizenry as it relates to bettering the City that we all love and care so much about. Remember, the money is in the land. Thank you very much. )
Good afternoon. 147 Please identify yourself for the record and proceed with are testimony.
I'm Naomi Zaslow, Public Relations Director for the Homeowners Association of Philadelphia. President Verna and Members of City Council, thank you for today's exploration of the land value tax and the opportunity to speak on behalf of HAPCO, the Homeowners Association of Philadelphia. Our organization's 3,000 members are owners and managers of low and moderate income housing throughout the City. HAPCO was started in 1954 and continues its dogged determination to maintain and preserve and upgrade the City's housing stock. It hasn't been easy, as owners struggle under the burden of burgeoning tax increases and the rise in the cost of water, insurance, and repairs. Housing, especially low and moderate income housing, is a crucial commodity. The land, the taxes, the value, and the assessment of property are essential to the stability, recovery and growth of the City as well as the housing industry. Our board and our members 148 are studying the land value tax proposal because we feel it is worth evaluating. We ask that City Council and the Controller's Office provide more detailed information and examples of the ramifications of the land value tax. Property owners, real estate professionals and tax experts would benefit from more information on the land value tax, and information and understanding would engender reaction and possible support. We understand that there have been positive results in Harrisburg and Allentown. We would certainly welcome positive results for Philadelphia. A new look at our City, our problems and our possibilities is welcomed by HAPCO. Charts, graphs, and numbers may not be exciting, but they are essential if City Council is to take a new path to a new way of assessing property and collecting taxes. We hope that those things can be provided. The members of the HAPCO Board appreciate City Controller Saidel's ongoing efforts to affect change for the better. As the Homeowners Association of Philadelphia reflects on the time 149 that we were the City of Homes, we look to the possibility of new ways of assessing taxes in the future that will encourage private property owners to do business in the City, homeowners to live in a City with a more hospitable tax structure and a tax plan that adds to the financial strength and stability of Philadelphia in the 21st Century. Thank you. (Applause.)
Good afternoon, President Verna and members of City Council. My name is Kevin Mazzucola and I'm Executive Director of the Automobile Dealers Association of Greater Philadelphia. I'm here today on behalf of our Philadelphia members who sell and service new vehicles in 28 stores within the City limits who are opposed to the institution of a land value tax. Even though my members disagree with the City Controller proposal for a land value tax, I want to compliment him for stimulating the discussion of a bolder approach to reducing 150 Philadelphia's taxes. In the past, most of his other proposals have benefited automobile dealers and other businesses in the City. It's hard to argue with targets set for reduced rates on the wage tax and business taxes. The Controller's land tax is a concept that has never been implemented by the City. The basic premise of his proposal is that it will be revenue neutral, rates on land and buildings would be set in such away as to guarantee the City the same amount of revenue it now collects. We, therefore, must look at it as a stand-alone measure that could be implemented by the City independently of other tax changes and with no risks to revenue loss. We also believe that if the City were to experience substantial revenue losses given the current economic climate, it would potentially raise the taxes and the rates of the business privilege tax and the wage taxes to recover the lost revenue. However, if the City were to institute a land value tax which would require a massive citywide reassessment of properties, it seems unlikely that it would abandon the scheme. Motor vehicle dealers 151 would have to live with a system of taxing real estate that we believe is fundamental unfair and damaging to our businesses. Prior to this hearing, we were able to analyze the impact of this proposal on of the 28 7 new car dealers in our City. Our analysis found 8 that 2 of the 20 dealers would experience a 9 relatively small tax reduction. And that the other 10 18 would experience tax increases, many of them very 11 steep increases. The breakdown are as follows: 12 Three would face increases of less than five 13 percent. Three would face increases between 5 and 14 10. Four would face increases between 10 on 20. 15 Two would have increases between 20 and 30. And 16 three would face increases of more than 50 percent. 17 And indeed one dealer's taxes would go up 100 18 percent. 19 The average change for the 20 dealers 20 was a 24 percent increase in real estate taxes. Our analysis used a current assessment on land and improvements as determined by the Board of Revision of Taxes, and we recognize that these breakdowns between land and buildings might change under the more careful reassessment that would be 152 carried out prior to the institution of a land value tax. The final impact on various dealers may be somewhat less harsh or it may be worse. It seems to us unlikely that it would leave new car dealers better off. The major problem with the land value tax, from our point of view, is that it fails to recognize that the lots on which we store our inventory are in effect our warehouses, and also at times extensions of our showroom floors. The lots are paved, lighted, and often landscaped around the perimeters but they do not support buildings. But neither are they blighted properties that detract from the property values of their neighbors and from overall property values in the City. Rather, they are integral assets of our business, and as such, they are helping to sustain an industry that produces 2700 jobs and close to a billion dollars in gross sales and $10 million a year in taxes. I want to emphasize that this data is for the Philadelphia dealers alone. It doesn't include the economic activity generated by our suburban dealers, some of which also benefits City workers and businesses.
Nor does it include the 153 three-quarters of the of a million dollars a year our Annual Auto Show produces for the Pennsylvania Convention Center, totaling over $5 million since the building opened. Operating a new car dealership in the City of Philadelphia is a challenging proposition, given the lower business taxes and more affluent customer base in the suburbs. Twenty years ago there were more than 40 new car dealers in the City. Before the 1984 Business Tax Reform Act gave the City more flexibility in levying taxes, business taxes here were a crushing burden to our industry. As you know, the automobile industry is highly cyclical. Despite the high cost of our products, car dealers operate on narrow margins. A City gross receipts tax forced dealers to pay very high taxes even in years when they lost money. Along with population loss, the City business taxes were responsible for dealers leaving the City. But over the course of the last 15 years, City Council has done a lot to make the tax burden more bearable. Over last decade, you rejected proposed increases of the City wage tax and, in fact, began steadily reducing that tax. You reduced 154 City business taxes on retailers who operate on thin margins as car dealers do. You support an exemption from City sales tax of automobiles purchased by suburban customers. While Philadelphia dealers still face higher taxes overall than dealers in the suburb, the difference has been significantly narrowed. Mayor Street's proposal to accelerate business tax reductions in the years beyond Fiscal Year 2003 is another positive sign for our industry as we look forward to the reductions. The proposed land value tax would reverse that trend. On behalf of our dealers operating within the City and employing those workers in the City of Philadelphia, I ask you to continue the good work you've been doing in recent years to reduce Philadelphia's tax burden but also to oppose the institution of a land value tax. Thank you.
Thank you very much. I don't think there are any questions. Our next witnesses.
Excuse me, Madam President. 155 Sandy Sorlien is with us now.
Thank you, Madam President. My name is Sandy Sorlien, S-O-R-L-I-E-N. I'm listed as representing Ridge Park Civic Association, but I am here testifying just as a private citizen. I'm in favor of the land value tax for Philadelphia even though my own taxes would go up under such a system because I have a big yard. I'm a photographer who lives on the Roxborough-Manayunk line and I have lived in that area for 12 years. I also lived in Northern Liberties 10 years; Queen Village, 3 years. I was born in Philadelphia and lived here all my adult life in the Philadelphia City limits by choice. I published two calendars in the early 1990s of photographs I took of Philadelphia's historic buildings, the houses of Fairmount Park and landmarks of architecture. I recently completed shooting my own neighborhood for a book on Manayunk. For my first full length book of photographs, I traveled through all 50 states photographing architecture. Over eight years of shooting starting in 1988, I saw suburban sprawl 156 beginning to suck the life out of down towns and spread ugliness and sameness all over the open country around these towns. It got worse with every trip. In my beloved Philadelphia, I see older buildings going down for parking garages. I see blighted houses sitting that way for decades. I see empty lots and surface parking lots everywhere like big holes in the urban fabric. When I started photographing architecture, I didn't really understand the forces behind the rapid changes in the countryside and the inertia in cities. I just knew I was seeing something bad. It looked bad. For a visual person, that's a painful thing. It also felt bad. I didn't want to be in places like that. And truly I don't think anyone does. Most Philadelphians agree that the current system of taxation in Philadelphia is broken and has been chasing our residents away for decades. We have to try something serious and we have to try it now. A two tiered gradual shift toward a land tax makes sense to me the way it was done in Harrisburg and other Pennsylvania towns and cities. 157 As the New York Times recently proclaimed in its Sophisticated Traveller Magazine, Philadelphia is one of America's last great walking cities. The reason Philadelphia is so pleasurable to walk through is because of the way it looks and feels. The streets are human-scaled and exact and the City is full of wonderful historic architecture and charming neighborhoods. People come here for those things. They do not come here because of all of our lovely surface parking lots and suburban-type drive-in drug stores and car dealerships and big box stores and trash-strewn lots and decrepid inner-city houses. Rewarding the owners of those kinds of properties by keeping their taxes low is killing the essential character of Philadelphia. It is killing Philadelphia as we know it. Thank you. (Applause.)
Thank you very much. Please identify yourself for the record and proceed with your testimony.
My name is Christine 158 Schwarz. I am a resident of Manayunk. I'm listed as representing the Manayunk neighborhood Council, and yet I am here as a private citizen. My first encounter with land value taxation came at a meeting that I attended in Olney in the month of December. I'm not quite sure how I got there, but it sounded like an intriguing possibility of bringing about overall reform in the City of Philadelphia in the area of taxation that would touch on many other aspects that are problematic here. I came back from that meeting tremendously excited and hopeful that this really could bring about definitive change in our City. I have material here. I'll be brief about the points that I want to make that are not quite the same that have been made earlier. First of all, I want to say that I believe that land value tax will help transform Philadelphia and help it to become one of America's great cities because it acknowledges issues related to complexity. When our tax system was put into effect in the last century, people believed that the world operated like a gigantic machine. If there's a problem with the machine, a breakdown, you 159 identify its cause and you remedy it. However, in the past half century another view of problem-solving has emerged, a model that resembles an ecological system. In this approach, communities can be looked at as a set of inter-dependent parts which together make a whole that is inter-dependent with a larger environment. The present system of real estate taxation presupposes a simple cause and effect process. When you need more money, you raise taxes. If taxes become too burdensome, then fix that part that affects the people being hurt. Unfortunately, these straightforward remedies only create more problems of a different kind and they still don't generate enough money to pay for the services our citizens require. Controller Saidel's tax reform proposals, cutting business taxes, wage taxes and changing the way property is taxed simultaneously, address the problems our City faces holistically. You have before you sufficient material that you can read for yourselves, so I will not burden you by rehashing the information. Only let me make this point: These are not stopgap measures 160 like other reforms that are being proposed. They are systemic. They are interest-related. They will work here as they have in other Pennsylvania cities like Harrisburg and Allentown and in countries like Australia and Denmark. I have presented the ideas of land value tax to the members of two civic associations of which I am a member, Wissahickon Neighbors Civic Association and Manayunk Neighborhood Council, and the membership there received these ideas favorably. Finally, I am concerned on a personal level about the large number of vacant lots that blight our City. They are eyesores. They are discouraging. When my family moved here four years ago, we thought that certain parts of Philadelphia looked like World War III had already taken place. Who would want to move into a place like this? In addition, properties like this bring in a pittance in revenue. In my section of Manayunk, I pay $1200 a year in taxes. If you were to tear down my house, that same piece of property would bring in $100 a year in taxes. 161 Why should we continue to encourage blight of this sort? We ought to find a means to bring more money into our coffers and make our City look better. Finally, in a related matter, why can't the City find more effective ways of collecting taxes from slum lords or owners of abandoned properties? Why can't the City devise a better way of recycling repossessed properties more quickly? I urge you to adopt land value taxation as proposed by Controller Saidel. Thank you for this opportunity. (Applause.)
I'm Fred Murphy. I'm a resident of the Fiddler Square area of Philadelphia. And I'm a professor in fox school of business and management at Temple University. 162 The Center City Residents Association did a study of taxes in the City of Philadelphia and I have one copy of the report which I can make available, also just released on our CCRA website. And what I'm going to speak about today is drawn in part from that report and also from conversations with other residents in Center City. As residents of Center City, we choose to share our prosperity with others by paying for schools and social services we do not use. We make this choice because of the pleasure we derive from City living, yet we are not entirely happy. Philadelphia continues to shrink while other cities are growing, in good part because the tax system drives business and people from the City. Taxes in the City are exorbitant. We can document families where City taxes are percent of take-home pay. 19 The City system fails because it's inefficient, 20 encourages cheating, is unfair in its application, even among residents of the same neighborhood, and has distorted the regional economy to the detriment of the City. When real estate assessments soar, the City should immediately cut the rates to cushion the 163 impact of the jumping assessments and to avoid shocking the real estate market or should use the increased revenue to cut the wage tax. Furthermore, the City should look seriously at a tax on the value of the land rather than the improvements. CCRA endorses the principles of the land value tax because the current assessment rules encourage a lack of maintenance and discourages the upgrading of properties in Center City and adjacent neighborhoods and are unfair. Let me draw from the experiences our members have had. "I'm a new home owner and resident of Philadelphia. And after receiving my real estate tax increase, I started looking at comparable neighborhood property tax rates. I was appalled and incensed that the BRT is valuing for tax purposes rental real estate properties at substantially lower market rates than the owner-occupied properties. Why should an owner of real estate investment property and in many cases the absentee owner living outside the City be subsidized by owner occupied residents? " That was from one resident. Here's another. "A rental apartment property may be valued based on its income rather than full market value as single family homes are. Of course, this can be highly inaccurate too. I gave the BRT an example of a proposed apartment project and asked for an estimate of what the taxes would be. The number given was so high that I questioned whether it was comparable to other apartment projects such as Dranoff's Locust on the Park might pay. At that point, the truth came out. " Seems to be a lot of flexibility in what the assessments are. Lastly, one of our members who went to the hearings to appeal his assessment said that what first happened was that the attorney brought into help residents told them to enumerate everything that was wrong with their properties. Then after 165 hearing the cases, it was clear that exaggerating about the problems are demonstrably failing to maintain the property lowered people's taxes. This person said the members of the panel were like old pols handing out favors to constituents. Essentially, they are giving back a piece of what the City has taken expecting the people to be thankful. He also says that when an owner-occupied house had rental units, the property value was based on the income stream without including the rental value of the unit in which the owner lived. What we have in Philadelphia is a tax system that is broken. The assessments vary from quixotic to destructive to the fabric of the City. The process encourages lying, exaggerated claims, bad maintenance and destruction of property values.
Most important, the current system leads to even more cynicism about City governments and its political leaders. If you don't fix the tax system, you will seal the faith of the City. Thank you. )
The next witnesses are Jim Tayoun, Edmund Goppelt, Kathy Harris.
I have the statement for 166 Kathy Harris to be submitted for the record.
I'm Richard Biddle, I'm a Chestnut Hill resident, 140 Bethlehem Pike.
Most of my comments are going to be related to the Northwest, but I would like to make a couple comments about the assessment issues, and I'll address them also in the text of my presentation. The assessments are a mess, as Fred just mentioned. And it's very clear that if you look at residential properties, they're getting constantly reassessed. Commercial, industrial, and vacant land are not reassessed. And I'll get back to that in a minute. But for the car dealers to come in here and claim that they're being potentially overtaxed if we go to a land tax is just outrageous because they're simply not reassessed now. Their assessments are all over the place. The man gave 167 the same speech last year. I called him on the phone. And also I asked Council to look into it. I'm not sure that that's happened either. The land tax is a win/win proposition for Philadelphia. Philadelphia's City Council needs to take a leadership role in enacting it. With a land tax residential homeowners pay less and get more value for their up-front investments for their residences. They pay much less for the land value component, which is the current speculative bubble drives up the hot neighborhoods, and that is when they're purchasing the residences. They pay much less in terms of the current low land value taxes are capitalized into higher prices for the land. Paying a higher land value tax also means more affordable housing across the board for Philadelphians. You can call it a partial universal tax abatement because all building taxes are lowered year after year. The land tax is a win/win for straightening out the BRT assessment mess. , land and buildings having different millage rates, are introduced, however slight, then all parcels have legal standing to 168 challenge their land value and building assessment allocations. The land tax is a win/win for honest politicians. It's easily explained to constituents in a language most of them understand very clearly, lower taxes on their homes. The land tax is a win/win for eclipsing decline like the downward spiral Philadelphia has been locked in for decades. Of course, there are rumblings of protest about the land tax from some. There are those who don't understand it, and there are those who understand it all too well. There are those few who can only calculate the advantages which City government has already conferred on them and who complain very loudly when asked to annually pay back part of the value which, by the way, was often created in these very same City Council Chambers, including the results from zoning changes, those impacting the quality of the public schools, those affecting the productivity of the City's workforce, those affecting the public investment and the quality and affordability of public transit and other improvements to the City's infrastructure, not to mention the myriad others positively affecting 169 the quality of life in our fair City. " This is where we chose to live when we moved back to Philadelphia from the boring gridlock and sprawl of our nearby suburbs three years ago. Chestnut Hill is almost a model community torn from a template for new urbanism. It's walkable. It has an incredible well-preserved residential architectural heritage. Ditto for its business district. We can catch a train to Center City, New York, or Washington within a two minute walk from our house. In short, it is a great community with awesome public and private amenities and even an increasing diverse population like its renowned neighbors of Mount Airy and Germantown. So what's different in Northwest Philadelphia in regard to the acceptance of a land value tax? There are virtually no available lots for new construction in Chestnut Hill and very few, if any, in Mount Airy. There are more homeowners 170 with large lots with unique single family detached housing, sometimes with acreage sufficient to meet subdivision requirements.
There is a culture of conservation of open space and protection of the Wissahickon Watershed. There's a guaranteed antipathy toward residents who might try to subdivide. There are assessment variations in part which are related to higher percentage of unique single family detached housing. And there's an active reassessment of residential properties while vibrant commercial properties and valuable vacant land assessments are virtually frozen in time with very low antique valuations. While in other neighborhoods that's true with industrial properties. So what are the answers to these problems? And again, the focus is in the Northwest. But it speaks somewhat to the whole City. Enact a comprehensive tax reform as called for in the Chestnut Hill Local editorial by taking down the ridiculous wage tax and the most onerous business killer taxes like the gross receipts tax. The City Controller's tax structure analysis thoughtfully put forth one model to do just that. It just happens to 171 put the land tax shift in center stage. As the Chestnut Hill Local points out, recognize the long-term consequences that while the few stable and growing neighborhoods in Philadelphia like Chestnut Hill may pay more now that they will be saddled more and more burdensome taxes in the near future if values in other parts of the City continue to erode. Assessment reform. Reassess all Philadelphia real estate to collect an additional one-quarter billion dollars per year forever and ever. If you choose, you can rebate all or some of that to residential property owners who have been faced with unrelenting reassessments while owners of commercial and industrial and vacant and grossly underutilized land have had a virtual free ride. org how these transactions will be treated by the Board of Revision of Taxes. Such a process 172 will provide a fair and open way to help mitigate unanticipated increases resulting from a shift to heavier land tax. Those choosing not to participate are free to develop their properties and pay the higher land tax just as they are now. I have a note that I've attached with the presentation about the Chestnut Hill Local. I also have the April 24, 2003 Chestnut Hill Local article, "Could Chestnut Hill support a land tax" attached. It's by James Sturdivant. Thank you. )
Good afternoon. Thank you very much for your patience. Please identify yourself for the record and proceed with your testimony.
Thank you. Christopher Patusky. I'm the Deputy Director of the Fels Institute of Government where I teach Government Law and responsible for operations. But I'm not here on that basis. John Kromer was here earlier today and 173 spoke on behalf of Fels. I'm here as President of the Fairmount Community Development Corporation. I was elected to represent the neighborhood to that Board by the neighborhood and also elected by the Board to be President of that organization. I have a map here I'd like to put in the record to accompany my spoken statement. And my comments are very specific to Fairmount and to abandonment and redevelopment in Fairmount. If you look at the map of vacancy in Fairmount, you'll see that we have a strip of property between Poplar street and West Girard Avenue that has some significant blocks of abandonment. We support the land value tax because we're convinced that it will force the owners of these abandoned properties to either give up the properties to the City through tax sale or sell them. We would like to get control over these properties and turn them into used parcels through private development. We've already taken steps to have this whole area declared a blighted area. And with that and assistance from the City, we'll take these properties and you will see this entire strip 174 become a very prosperous area. Right now, houses in Fairmount go anywhere from 200 to almost $500,000 and there's no 5 reason why this strip of property couldn't be the same, giving a windfall of wage tax and real estate property taxes to the City. The same goes for the scattered abandonment, the few sites in the neighborhood. There's no reason that these properties should be abandoned. Fairmount is a healthy neighborhood and we even have this problem. I think that other neighborhoods, particularly north of Girard Avenue, the land value tax would even have a more powerful influence. They're already speculators buying up properties on Stiles Avenue, Flora and that entire area. Land value tax will make it much more difficult to hold those properties. They'll have to be turned over to the people who will make use of them. Thank you very much.
I have a statement of Greg Pastore to submit for the record. One of the previously called witnesses has arrived. If you'd like Ed Goppelt to step up, he is here.
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Good afternoon. My name is Joanne Beach, B-E-A-C-H. I live in Burholme. I have a very short statement. I represent no one but myself. My home is Council District 10 and it's one of the 17.2 percent of homes in Councilman O'Neill's district that would have to pay more under the land tax, about $500. My little block of Aldine Street is very mixed. Most of the properties on our block would pay less with the land tax. And if it means that me who lived in -- that I who have lived in Burholme for years and have had the privilege 23 of enjoying a neighborhood where people work hard to 24 maintain and improve their properties and their 25 homes, making it safe and enjoyable for all of us, 176 and I'm lucky to live where the original owners were lucky themselves to have the planning, to have space where we could have yards for the children and lots of garden space and trees. I think that the land tax would give more Philadelphians a chance. And after all, the land tax is only an opportunity for all Philadelphians to enjoy in the prosperity of the City. It would give more of them a chance to enjoy some of what I've been able to enjoy in the two-plus decades I've lived in Northeast Philadelphia, where hard work pays and does not penalize. Please consider instituting the land tax in Philadelphia. Thank you very much. (Applause.)
Good afternoon. Please identify for the record and proceed with your testimony.
Good afternoon, Madam Council President and Councilwoman Tasco. Thank you for holding these hearings and to the advantages of land value taxation for our City. My name is Ed Goppelt. Having looked at the statistics compiled 177 by the Controller's Office, my understanding is that if you pass the land value tax, about 75 percent of your constituents will receive a tax cut. It seems to me you have a rare opportunity to do something which is in our City's best interest, won't cost the City a dime, and in addition to those advantages is also smart politics. All that is needed is for you to enact the land value tax here in Philadelphia. The problem, as I see it, is our current property tax system punishes people who fix up their property and rewards those who don't care of their property. The solution is simple. Tax land and building equally by shifting some of the tax burden from buildings to land. The land tax, in my opinion, would help turn around neighborhoods in decline, such as those in Olney and Fairmount, by encouraging homeowners to fix up their houses and also encouraging businesses to invest in their properties. It would also discourage Sam Rappaport-type speculation by penalizing those who buy valuable downtown property and then keep it vacant for decades as the property deteriorates. It would also -- and I suppose this is a 178 pet peeve of mine. But it seems to me, with our downtown area, we have better things to do with real estate than turn it into surface parking lots. And it seems like every time I turn around, another piece of valuable downtown property has been turned into a parking lot. So now instead of the Disney Hall, we have the Disney parking lot. We can do better than that. And I think the land tax would help us achieve a better use of this valuable downtown real estate. I've talked about who I think would be the winners, would benefit from the land tax. I think the majority of your constituents would get this tax break out of it, a badly needed tax break, I would add. The City would win because of less blight and more development. But I'm not going to say that everyone comes out ahead with the land tax. There are going to be losers as well as winners, as you would expect anytime you change tax policy. And in my opinion, the losers in this case are likely to be those who live in affluent neighborhoods such as Chestnut Hill and Mount Airy; parking lot owners, such as Parkway Corporation; land speculators, like Sam Rappaport; car dealers and bill board companies. 179 Now, I know that you in City Council are all up for reelection this year and that each of these losers under land value tax represents a potentially significant source of campaign contributions. As members of City Council, I hope in the case of the land tax you will put the interest of your constituents first and those of your campaign contributors second. Thank you for this opportunity to share some of my thoughts about the land tax for City Council. I am ready to take your are questions.
You mentioned that some of the losers would be affluent people in Chestnut Hill. They are our constituents also. I would say to you that in my district I may not have constituents who are as affluent but do have houses that have a lot of land around them. And certainly some of these people are not -- I would be very concerned about their increase in their taxes. It seems to me they would be penalized if you're taxing them more because they happen to have some ground. Everybody does not live in a row house. We're concerned about everybody, the row houses as well as people with maybe some land. And I have a lot of 180 those people in East Mount Airy and some of those in East Oak Lane and some of those people in Olney. They purchased their homes at a time when the purchase price was fairly low, and if they're going to be increased on their taxes because they own some land, that's a disincentive to buy a house with property around it. So I think we have to look at how we make those adjustments, you know, how we look at this. I would be concerned about that.
Like I said before, I think there are going to be losers under the land value tax. I think the key consideration that I would like you and other members of City Council to keep in mind is, is it better for the City to have the land value tax or to continue with the current system? And certainly, my opinion is that we've got many neighborhoods with serious blight problems and let's give this thing a try.
And I agree with you, but some of the blight problems results from other restrictions we have on how we deal with properties. And I think we have to look at 181 everything we can do to stop blight. I mean, the ability for a person to own a property and just let it sit forever, I mean, that is a problem. And some of them are still not going to pay their taxes.
So there are other issues that have been raised during the course of the NTI discussion about how we get relief from Harrisburg to take property and to dispose of property day in and day out. In my district, we deal with properties that are owned by people who pay their taxes but still allow the property to deteriorate. So we need to find the solution to how we prevent people from doing that. So it's just not any one answer to this whole issue of blight. But I think the discussion is very important. So that's why we're having it. Thank you. Would you identify yourself for the record, please?
I'm Patricia Lowe, a resident of Rhawnhurst and a school activist. I used to live in Olney. I know from looking over hall watch, the properties in Olney by and large would pay less 182 under land value tax. Most of the residential properties in Philadelphia, especially the row houses. By the same token, people who own row houses for the most part are less affluent than people who own houses with more land around them. So in that respect, the land value tax is more progressive than a regular property tax, real estate tax. Now, as far as how well a tax works and arguments for it, I trust that's all been covered this morning very well. I have something I'm going to give you. I just have one copy of it, but I do have multiple copies of one of the pages from it. It's called the Ethical Land Tenure Interest Religious Resource Directory. My speech itself is not written up. But the title of my speech is -- many bumper stickers that say -- Think Globally, Act Locally. And I think the land value tax is a good example of that. You can think globally if you want to increase some global thinking here, it's a very good book that came out, second edition in 1998. It's called "Land Value Taxation around the World," and it gives instances of where countries have adopted land value 183 taxation and how they made out with it. There might have been testimony earlier, I don't know, about Johannesburg in South Africa being a notable example of raising school revenues from land value tax exclusively. There are countries in Europe that experimented with it. The US, according to the book is a good example because until relatively recent years a property tax which was first primarily a tax on land values was virtually the sole source of revenue for a state and local governments. It also shows that the wide variety of jurisdictions within the United States is permitted much fruit full experimentation to capture land values. I'm sure there is testimony about other cities in Pennsylvania that have a graded tax like Harrisburg. And also South Korea is working on a land value tax now, seriously considering it. Australia and New Zealand, parts of those country use the land value tax for raising local revenues. So it's not an unheard of thing. Now, as far the religious -- this is part of the "think globally," beside looking at other countries of the world, a sort of a biblical perspective because I know some people in city 184 government, many of them are Christian, Jewish, religious and use the Bible for guidance. Like from Nehemiah there's a quote, "Restore, I pray you, to them even this day, their lands, their vineyards, their olive yards and their houses." Secondly, "The land is given us for inheritance." Ezekiel. "The profit of the earth is for all." Ecclesiastes 5:9. "Woe unto them that join house to house, that lay field to field, till there been no 13 place." That sounds like a condemnation of land speculation. And that's in Isaiah, Chapter 5, Verse 8. Henry George, of course, I guess compared the land value tax with a Golden Rule, treat others as we would have them treat us. Land value tax is a good start from the point of view of economic justice. So I say, again, like many bumper stickers say, "Think globally but act locally." Thank you.
The next witnesses are Kathy Harris, Andrew Hohns and Edwin Easton.
I'd like to address Mr. Mandel to see if there is anything that an exists on the issue that Councilwoman Tasco, our Chair, raised before, which to me seems to be extremely important. And that is to what extent does the fear of increasing the taxation of the home if you improve it, to what extent does that play a role in people's thinking about improving their homes? Has there ever been a study made of that?
I think that's a fairly widespread phenomenon, and certainly the Controller likes to joke that every house in the Northeast has a porch or has a deck, but if you go and look at pulled permits for those decks, you'll find very few. That was certainly our experience anecdotally and looking around creating our tax structure analysis report. I think it's borne out in the experience of building permits in Philadelphia what 186 is declared, what is not declared. I know personally myself, I just had someone in to look and see if my basement could be refinished. And there was a question of, well, it would cost X if we pulled all the permits and it would cost a little less if we didn't pull all the permits. So I think that's a fairly well established phenomenon. Under land value taxation, the improvements to your home would not be taxed as much. In theory, that should mean that people would be more open about improving their properties. Certainly, our experience in studying what happened in Harrisburg and Allentown was very clear. After implementing land value taxation, the number of building permits increased, the value of building permits increased. The theory met reality. When the tax on buildings was lowered, people built.
And the amount of honesty increased. It didn't cost you any money to be honest about your building improvements. It meant that you used a certified electrician other than a handy man because you were afraid the certified electrician might have to report and get a permit, that kind of thing, which I understand 187 happens very frequently. And also it means if you didn't count the value of the improvement then neighbors would not have to say in front of each other, "Oh, my house has leaks in it or I notice the corner tumbling, resettling," get afraid it's going to sink in. They're kind of preparing so that when they give that testimony on an appeal against the higher assessment, no neighbor can come in and say, "Oh, I heard him bragging about how good his house is."
So there are all these little characteristics that add to why perhaps the value of the home and traditional sense that we've grown to believe in in Philadelphia also induces bad habits for homeowners because it puts a premium, not on telling the truth or wanting to improve your property, but just on the reverse characteristics. I think that ought to be a very strong point that you make. I think Councilwoman Tasco is right. People want to really proud of their home, but they have to be careful because some neighbor might 188 report to the Board of Revision of Taxes who might send out an inspector who might find that the improvements were not done fully legally with respect to the permits and in any event the home is now improved in value because it has an extra powder room or an extra extension. I think that might be a very telling point because many of us in City Council don't know how it will play out in the business field, but we do have a lot of experience on a daily basis because we go to so many community meetings and meet so often with community people, we learn how they're thinking and we're part of the community. Sometimes it represents part of our own thinking before we got elected, of course. Once we got elected, all of us became very principled and honest and always report everything appropriately. But we may have not been quite that good citizens before we got elected. So I think honesty is that kind of issue that might plays a very important role in being decisive with homeowners and people who live in residential areas. Thank you very much Mr. Mandel. 189
Thank you. The Chair recognizes the next panel. Who's going first?
I'm Kathy Harris. I represent myself, but I'm also here for the Olney community. Who will be the last man left standing in the rubble, or will community justice prevail. Over one year ago, I testified on behalf of Jonathan Saidel's 2001 tax structure analysis report, specifically the part related to land value taxation. Like many others, I pray we can all come to the agreement that progressive change has to occur for Philadelphia, "The City That Loves You Back," to survive the continued loss of the many residents and businesses. Dear Honorable City Council President Anna Verna, Honorable City Council Representatives, City Controller Jonathan Saidel and guests, thank you for this opportunity to express my thoughts 190 about Mr. Saidel's proposal; and thank you, Councilwoman Jannie Blackwell, for the resolution 4 introduced by you for land value taxation in 2002. Let's face it, many residents are not as eager to come out, roll up their sleeves and dig in on a team project anymore. Many do not even know their neighbors' names. Many are transient residents who do not consider planting roots in our community. Businesses no longer can afford to have the customer first in mind with peace of mind that the customer will be a regular visiting patron. The ever-growing number of rental properties has turned into a money-making venture for suburban and out-of-state investors and negligent Realtors. Even prospectors were allowed to get wealthier and wealthier while we paid little attention. The news has turned into a nightly thrill show filled with scandal, controversy and diaster in Philadelphia. We cannot even talk about the new Convention Center that's to be a positive addition without someone muddying the thought with talk about disagreements over board member qualifications. We all have our personal ideas in the fight to survive that we have succumbed to user 191 defined reasoning. We have been poisoned in dealing with our future in an idealistic way. We have this ongoing romance with the past with no solid relationship with today and the future. We are playing catch up after the past has already caught up with us. Now here we are just getting over the promised wage tax cuts that were almost rescinded and changes in business taxes and we get with the BRT real estate reassessments. Property taxes are out of control and disproportionate. The City has spent more time catching up with 10 years ago. We are letting today go by and it's chasing more and more people away and making people angry. We are paying for assessments that may have been justifiable when the value of many of the properties were on the rise. But, for many, such is not the case any longer. Somehow the BRT hats missed this. I've included a copy of my testimony before City Council in February 2002 with my written testimony for today along with information I gathered when appealing my recent real estate reassessment before the Board of Revision of Taxes. Living here and riding through my neighborhood its 192 like a roller coaster ride that has a very dark and scary side to it. This is how I view my neighborhood and City at any given time just as I turn from one street on to another. Just the introduction of Operation Safe Streets and the creation of Abandoned Car Unit the size of our City, speaks volumes about the quality of life in our once great City that touted itself as loving you back. I've lived in Philadelphia all my life. I was born and raised in East Oak Lane. I've been at my current residence in Olney since 1975. I look at the remains of a community I once thought was like Mayberry. I am heartsick to know that I am to pay for those who chose not to contribute to their community. 5 percent. There had been several recent foreclosures in my near vicinity with boards still on some of the vacant properties at reassessment time.
There was a drop in market values and the closing of Kmart, Jerusalem Furniture, Super Fresh Market, Kim's Karate and several other businesses in my local area. I thought that surely this would be noteworthy and my 193 assessment would go down. This is unconscionable that the BRT could be so blind. I went to my real estate tax appeal armed with a market analysis report, a full description of my property, and a Summary Data Report from the University of Pennsylvania that included everything from fires to L&I violations to census numbers. I won my appeal and my rate will not be raised for 2003. What comes next time is yet to be seen. I am so angry about this that I have no 12 room to be grateful. I have been paying a lot of attention to run-down properties and checking on what their assessments are and will continue to do so in the future. It is not fair that during this era of anti-blight initiatives that ones who choose to do routine maintenance and improve on their properties are the ones penalized. It is not fair that derelict landlords and owner occupants get tax breaks for the eyesores that plague our communities. Now I look at properties that undergo major renovations with zoning permits and new construction. They are exempt from the increase in real estate taxes on the structure for 10 years. 194 Now there's incentive. PHA owns properties. As we build more and more PHA properties, we are not getting the real estate tax revenue as we would from privately owned properties. All this adds to the deficit and the insult we bear. As far as I know, there is no criminal prosecution for those that have not paid back real estate taxes. There are only liens against their credit, which we all know there are loopholes for getting around. Yet, this is a crime committed against our City and its residents that choose to stay for the roller coaster ride. Where is the incentive to stay and where is the justice? It was a little over 14 months ago that I testified on behalf of the Controller's tax package. I poured my heart and sidewalk knowledge into that grass roots testimony. Now looking back on all the time spent on debating and arguing and hearing that some still have to look into this, I think. I think that in 14 months I could have given birth to a child who would now been five months ago and with proper attention would still be on the grow. I look at my oldest child now ready to turn 30 years old and my youngest now ready to turn 18. 195 What if I continued to debate the logistics and wasn't willing for change in a way of life? Where would that family have come from? There would be no 5 family at all because I would still be gathering facts and statistics. Can we afford LVT? We cannot afford not to. We are losing people hand over fist because they are tired of waiting for something to happen that will make residency and business more appealing. Land speculation has cost us thousands of dollars, and we have been left to balance that deficit. The more we improve, the more we are penalized. The ones keeping the land from being improved should pay the debt they owe. After the fiasco with the public school system which affected my two youngest children and the threatened end to cuts in City wage taxes along with the increased real estate taxes for my eldest. I fear that my children will be among those who choose not to stay and I will not be able to argue that point. If we give the professional vision Mr. Saidel's tax package offers a chance, you will see how it not only identifies and addresses economic 196 vertigo, but clearly provides a blueprint for putting an end to the never-ending disarray and catch up we've come to call progress. As the changes in wage tax, business tax and land value tax all play their part in community and economic resuscitation, I believe we will experience positive change so Philadelphia can love us back.
Honorable elected leaders, I urge you to support Jonathan Saidel's vision and well-written proposal for LVT. If we do not think as progressively as our City Controller, Philadelphia's financial hardships will continue to increase as more and more flee. This is Philadelphia's future Mr. Saidel is talking about and we're at the mercy of the vote you cast for community justice to prevail. Land value taxation is fair and does not discriminate. Thank you.
This is a discussion today. This is not bill, so it's part of 197 a discussion I'm sure we will continue to have it. I appreciate your input.
Councilman Cohen, Councilwoman Tasco, thank you very much for having me. My name is Andrew Hohns. I testify on behalf of myself as a citizen of Philadelphia. I too, like Ms. Harris before me, was here for the previous testimony months ago and 11 remember in that testimony that I began with a story 12 and I think that I'll recount it again. From time 13 to time I find myself turning my thoughts to the 14 classical era in hope of divining from that period lessons which might otherwise be hidden to us. And I was thinking of a time in anxious Athens before the democratic reforms when -- you see the region that Athens is in is called Attica, as I'm sure you well know. And the soil of Attica is very thin soil and very barren soil and difficult to produce many cash crops. Olives and grapes are in abundance, but from year to year, the harvest that they throw off is so variable that it's rather difficult for a farmer to be able to rely on any kind of consistent harvest for his family. So the large land owners 198 got together -- Plutocrats, if you will, got to together and they offered the small farmers a deal. They said, "Listen, every year the amount of fruit that your land produces changes. One year it's a lot of fruit. The next year it's just a little bit of fruit. And so how about this? How about instead of rolling the dice from year to year, how about I guarantee you a set amount of fruit every year and whatever it is, you just give me what it is. If it's a little bit, I'll give you the said amount. If it's a lot, I'll give you the said amount. " Well, this was satisfactory for a while, but inflation crept into their economy, as it creeps into any economy and, it got to the point where the small farmers were really unsatisfied with the slavery that they felt that they were into these large land owners, these large capital providers. And so here we had a situation where the small farmers were thinking that they themselves would revolt, throw off the debt stones on the front of their properties. Whereas the large land capital providers thought to themselves too that they were 199 in a difficult situation because they didn't want to have to deal with a revolution. That would be a rather unappealing situation. And so they consulted the counsel of one who was equally amenable to both the farmers as well as the capital providers, Solon who later became known as the law-giver of Athens. And Solon had -- he offered the Athenians a deal, which you in Council are probably unlikely to be able to offer, which is a shame because it would make it politically more easy for you to adopt a land value tax. What he said to the Athenians was, he said, "Listen, I will think about your problem and I'll offer you a solution. " Now, as much as many Members of Council would desire a 10-year vacation during which time their laws would not be altered. I imagine that the voters of the City of Philadelphia would probably chide against that. But that was the deal that 200 Solon offered the Athenians. And they accepted the deal and he created what he called the sisecthea (ph) the Greek which is a shaking off of all burdens. And he removed all of the debt stones from in front of people's properties and he started again and he returned the land back to the small land owners and he created a new set of classes of taxable categories. And in the end, it produced one of the most wonderful societies that man has ever known a hundred or so years later. The world is very different now and modern day Philadelphia is certainly anything but ancient Athens and we're not a democracy, we're not a gregarinian society. We don't rely on maritime commerce. We don't have slavery. There are a wide number of reasons why we don't resemble them. But at the same time, we can still look back to this people and take a look at the courageous actions that from time to time some of their leaders were able to display in order to remedy problems that had become structural.
And I think that that's what we have here in our current mechanism of taxing property in the City of Philadelphia. We have a 201 system whose problems have become structural. The Board of Revision of Taxes was the recipient of a great deal of public anguish over the course of the last months, and I think the primary reason for 6 that was the shadowy realm that so many citizens 7 feel that its rules and regulations operate under. 8 Earlier today, I wasn't here to have the 9 privilege to hear Ed Goppelt's testimony, but I 10 suspect that Mr. Goppelt detailed some of the fights 11 that he's been having in order to obtain information 12 from that body which is basic public information and some of his latest victories I hope also that he detailed. And to sit here next to Ms. Harris and hear someone who has grown up here in the City of Philadelphia for her entire life, like I have; someone who has raised her family, as I have not yet had the privilege of doing here in the City of Philadelphia; someone who feels like the current tax system -- feels like your penalized unfairly for repairing your house or improving it or taking the steps that are required to ensure that your neighborhood will grow and will be stable; it seems to me that we are urging those citizens whom we most need to remain here in Philadelphia, urging those 202 citizens to leave the City by our inability to act with decisiveness and vigor when it comes to creating solutions to long-term structural problems. I believe --
Aren't people concerned by issues of crime, the level of schools, graffiti, trash, City services generally? Your thesis, I think, would be sounder if that were the one reason people left, the unfair tax structure. But I wouldn't like to see a new tax structure come in expecting everybody to accept it. I suspect that if this new tax structure comes, we still have various problems of lack of public confidence in it because nobody told people in advance about changes that were going to take place. That was one of the main reason for the unhappiness. Many people thought the Mayor was involved in asking for an increase and he had not discussed it to City Council. Nobody knew about it. And if that may not have been true because we never had evidence anyway we suddenly found hundreds of people, thousands of people complaining about huge increases in their tax bills. And I would submit that if that happened under a new system, there 203 would be the same outcry. So I think it's wrong to assume that people are just leaving the City because of the tax structure. That clearly needs some kind of changes. You may comment with respect to that.
Thank you, Councilman. If I made it seem that the tax structure was the only reason that residents have left the City for the last 50 years, then I would wish to clarify right away. I think that the tax structure is one of the reasons that residents have left the City. I think a lack of leadership on the part of Philadelphia's governance is another reason. I think an inability to act with decisiveness, a lack of desire to attract the industries of what were the future, what are now yesterday and even still tomorrow in terms of bringing professional jobs here to the City. A general movement away from the Northeast Corridor toward the Sun Belt. I mean, there are myriad reasons why the City of Philadelphia has lost over percent of its population in the last 50 years. 22 And furthermore, I don't think that the average 23 citizen who decides to leave the City actually does 24 so because they determine that the method in which 25 they have to pay property taxes is too complicated. 204 I don't even think that the actual methodology enters into their calculus. I think, however, that their decision is essentially the emotional outcry of years of having to deal with a system that is so obtuse, so difficult to get one's hands around and so fraught with complication that have been built into it over so many years. I mean, one of the greatest outcries about the raises that occurred last year was that there was no accountability at the BRT because they weren't elected officials appointed by the court, that it was very difficult to exercise your voice through your vote. And essentially there was a disenfranchisement on the part of the citizenship in terms of their officials. And so I think that that was a strong source of frustration. I feel sorry for the Mayor. I feel sorry for the Mayor having to bear the brunt of so many of the criticism, but again, I think it's the complication of the system that put us in this place. And what the land value tax offers, despite from its potential for practical improvement, despite sort of leaving aside the hope that it will encourage people to make the necessary improvements 205 required on their properties, the hope that it will encourage speculators to turn over their land to people that are willing to develop it or turn over their decaying buildings to people that are willing to develop it, you know, when you see a new parking lot go up at 15th and Chestnut, at 9th and Chestnut in any of these places in Center City amidst all of the strides that Center City has made in the last decade, one must wonder if there are some fundamental obstacles or some fundamental inducements that are enabling developers to make the decision that indeed it will be better to take this piece of land and leave it as a spot for cars than it would to put a productive property, an improvement upon that land. So if I in my testimony gave you the impression that the property tax is the only reason that people have left Philadelphia, I hope that I've clarified that. And thank you for your question.
I know that there are many people left who would like to testify. I just wanted to come out here to offer that brief story and hopefully to encourage you to act with a lot of 206 confidence and a lot of decisiveness in this moment because this is a crisis in City of Philadelphia. And by "crisis," I don't so much mean a situation where everything is going wrong, but I mean sort of the original sense of the word of judgement. It's a time of judgement in th City. And we have the opportunity to make some serious strides right now that can change the way that we develop for the next three, four, five decades. That's really my focus. I'll leave with one brief anecdote. This will be much briefer than my first anecdote. I appreciate your indulgence. There was a time, I'm told, when Napoleon was talking to one of his lieutenants and Napoleon said to this lieutenant that it seemed to him -- and I don't know if you've ever been to Napoleon's grave in Paris, because it's really amazing. His barrier area is a large circular room 20 and there are plaques, a half dozen very large plaques, stone plaques, into which are etched all of Napoleon's achievements. For instance, he built this canal, he built this port, he reversed the direction of this river, he codified the laws. I mean, in a short span of time, this one man, despite 207 all of his obvious misgivings and shortcomings was able to act with decisiveness and said at one point in his history to one of his lieutenants, "It seems to me that the soldiers of France should able to March into Paris upon victory under the shade of great elm trees." And the lieutenant said to him, "Well, Napoleon, that's a very nice thought, but how can you say such a thing? You know these trees that you describe will obviously take 30 years to grow." At which point Napoleon urged him to plant the seeds right away. And I think that that's the same decision that we're faced with here in Philadelphia, and I hope that we too will have the same courage in terms of choosing the course that will eventually be ours. Thank you for you time.
The next witnesses are Albert Hartheimer, Alanna Hartzok, Andy Toy.
Good afternoon. Please state your name for the record and proceed 208 with your testimony.
My name is Albert Hartheimer. I'm Vice President of the Center for the Study of Economics, 1422 Chestnut Street in Philadelphia. I congratulate you people for lasting to the last person to give testimony. " So I take it as a signal honor that I'm winding this thing up. I speak in favor of the Council adopting legislation implementing the use of the two rate tax on real property in Philadelphia. The two rate tax is also known as land value taxation, wherein there is a lower tax rate on improvements, a higher tax rate on land, while maintaining a constant yield. I would like to digress for a minute and comment on that. As I've listened to all of the other people today, there seems to be a sense that shifting taxes off buildings onto land is a monolithic thing, that it sort of happens overnight and some people are winners and some people are losers. The fact of the matter is, it's a very subtle mechanism which produces varying change in 209 who pays the tax, how much they pay, and how much the benefit of lose. So I think you should keep that in mind when you're considering this idea. We use taxation to encourage or discourage people's behavior. We tax tobacco heavily to discourage its use; we tax alcohol heavily to discourage its use. The present real property tax in Philadelphia taxes improvements heavily which discourages building, and taxes land lightly which encourages speculation. I understand that in Philadelphia 75 to 80 percent of the real property tax is on improvements and to percent is on land. Do 15 you really want to discourage from building? Is 16 that what you want to do? Because that's what 17 you're doing. 18 If you improve the City by adding to 19 your house or erecting a new building, your first 20 visitor will be the assessor who will assess your 21 new building or addition. The resulting tax is your 22 penalty for improving the City. 23 I have talked to many Mayors who tell me 24 that people will do anything to avoid this tax 25 penalty. They build without a permit, hoping the 210 assessor will not find their project. They remodel the inside of a building, but leave the outside unchanged, hoping to avoid an increase in their assessment. And that speaks directly to what you spoke of, Councilman Cohen, one of the questions you raised before. It is a fact that people don't like to spend their money -- people hate to be penalized with a tax increase when they spend their own good money to improve their property; and they are right. Tax policy should encourage improvement, not discourage it. You can reverse this situation with a lower tax on buildings, and perhaps some day no tax on buildings. People will be able to build new buildings with a lower or no tax penalty, a lower or no increase in their real property tax. If land is taxed heavily, owners of vacant land will encouraged to improve their property to get a return on their investment or they'll sell it to someone who will. We know from experience in 20 Pennsylvania taxing jurisdictions that whenever the tax rate on buildings is lowered, builds; and whenever the tax rate on land is increased, somebody builds. It's a win/win situation. 211 We recommend local gradualism in which the rates are shifted gradually over a period of years. The result is that the positive effects of land value taxation are evidenced gradually and no 6 one is hurt in the process. I've heard a lot of discussion today about winners and losers. The implication is that if you pay less tax, you are a winner; and if you pay more tax, you are a loser. That is not correct. Because with land value taxation, everyone, whether you pay less or you pay more in a shift of taxes off buildings onto land, is a winner. Land value taxation encourages building and related activities. As a result, the demand for buildings and land increases and often there is demand for property for which previously there was no demand.
Mayor Reed of Harrisburg has stated many times that before instituting land value taxation in 1982, Harrisburg had over 4200 vacant buildings. And today there are less than 400 vacant buildings. You know, we had Mr. Concannon here earlier from Allentown. And in the struggle to institute land value taxation in Allentown, one of the chief objectors were the owners of the 212 fairgrounds. Now, the fairgrounds were privately owned and they were large, essentially vacant land. And they protested mightily, as I heard the Automobile Dealers Association protest here earlier. " But six years later, the fairgrounds which were not making a profit under the previous situation have made more money each year since land value taxation was improvised. And I would recommend to the automobile dealers, if any of them ever read this testimony, that they understand that when you have land value taxation, you have more economic activity. And with more economic activity, they will make more money even though they pay more land tax. You know, it's a given that with urban sprawl the City loses population. Somebody here said that Philadelphia lost a lot of people over the last 50 years. And it's a given that as you lose population, you lose tax base. But the reverse is also true. When you lower the taxes on buildings, people may not understand all of the machinations of computing taxes and so forth. But they do understand their pocketbooks. And when people 213 understand that they can live in a house in Philadelphia with less tax than living in the suburbs, they will move back to Philadelphia. And when they move back to Philadelphia, the tax base will increase. Land value taxation will encourage people to stay in the City and move to the City. In Amsterdam, New York in 1993, land value taxation was adopted. The majority of homeowners paid less. A study showed that the properties that saved the most in a shift of tax off buildings onto land were the employers of Amsterdam, companies that owned factories with high building value on land that had low value. They saved the most in a shift of taxes off buildings onto land. That means that those companies, those who employ people will be encouraged to stay in the City and other employers will be encouraged to move into the City. You have rightfully voted to continue the reduction of the wage tax. You can recover this lost revenue by taxing land additionally. It will benefit the community. The land tax has a very unique property, unique solely to the land tax. And that is that it 214 increases its own tax base. The more you reduce the tax on buildings and the more you increase the tax on land, the more building and remodeling will occur. And as this happens, the demand for land will increase and the value of the land will increase, thus increasing the tax base. That is a unique property only in the land tax. An interesting aspect of this is that the place -- now, here's again, I said earlier, people think it's a black-and-white situation; that is, it's a situation where you shift off buildings onto land and everything happens the same everywhere. It isn't that way. A interesting aspect of this is that the place where the tax base increases most rapidly is in the hot commercial areas. These areas provide increased tax revenue, not residential areas where the tax base does not increase as rapidly. So you're not only going to reduce taxes for homeowners; but over the long run, the homeowners are going to be the real beneficiaries because their land will not appreciate in value as quickly as commercial land in areas where a lot of building is going on. The City Council has a unique and 215 important opportunity to improve Philadelphia, and I urge that you adopt land value taxation. And I've listed here all day and made a few notes of things that people have said.
There was a big discussion earlier about property where the taxes are now uncollectible and they're going to continue to be uncollectible even with land value taxation. In questions like this, rather than jump to conclusions or make hypothetical assumptions, I think you have a great well of experience in the State of Pennsylvania. To my knowledge, in those 13 taxing jurisdictions that have used land value 14 taxation, they have not experienced any great degree 15 of uncollectibility after as compared to before. 16 I would like to say something about 17 progressivity and taxation. We as a society belie 18 that the rich should pay more in taxes than the 19 poor. Consider that the poor use very little land 20 and will pay a very low land tax. Middle class homeowners by definition will pay only the tax for the land under their houses. By definition, there are no of middle class land speculators. All large and valuable pieces of land are owned by wealthy individuals or large corporations, and they will pay 216 the most land tax. Consider that with the land tax, you cannot burn it, you cannot put it in a Swiss bank account, it's there for everyone to see. And the art of assessing, which has nothing to do with tax policy, is such today that assessments can be very accurate. So you can't hide the land tax. I would like to say that the state of Pennsylvania, New York, and Massachusetts, where they depend on the sales tax and the income tax, are all going through real problems in trying to balance their budgets because those taxes have diminished radically. The land tax is a very steady base. It permits government to plan, and it permits government to carry on without the increases and decreased that are associated with the sales tax and with the income tax. Thank you very much. )
Good afternoon to the Councilpeople here and all of the various 217 representatives. My name is Steven Corley. I'm resident of the City, a relatively new homeowner with my wife and three children. The issue of taxation is rather complex and nebulous to me, generally speaking. And I don't have any prepared statements. However, I have taken a little bit of time over the last couple of months to try to piece together a limited understanding of what proposed change in the taxation system would mean, taken some classes and tried to tune into some of your sessions that are over the radio on Thursdays. To me, it appears that have a shift from taxation on property to taxation on land would help out our various communities in terms of increasing improvements and getting rid of blight and abandonment. I'm concerned as I walk through the streets of Philadelphia with my young children about the so many, many abandoned houses and blight that you have to navigate or pass by in the course of going to and from various destinations. And I'm disturbed about the message that this sends to, particularly young people, as we're going through the streets. Is this the kind of message that we 218 want to send the young people, that it's okay for many houses many buildings all around them to be dilapidated abandoned as they go to school, as they come from school and as they do the things that they have to do with seeing very little will changes. If land value taxation is going to improve the visual appearance of the property that we see all around us -- and that from what I understand Philadelphia has a high degree of abandoned homes -- than I'm for it. Thank you.
Thank you very much. Thank you for coming down. (Applause.)
My name is William Check and I'd like know what are we doing about addressing the issue of the abandoned lots and moving them out in a orderly fashion on a year-to-year basis, taking 2500 lots out each year, basically, and putting properties back on them basically so that you are bringing property tax revenues into the City as well as taking the abandoned buildings and fixing them up so that they are productive in bringing in income, basically, and fixing the business stock that you 219 already have? As far as abandoned houses, each year and take them out of the loss category, put them in the win category, what are we doing about that with the NTI basically?
It will be very nice for you come back when we have the hearing for the NTI.
I am Joan Sage. I live in Bella Vista. When my husband and I first came here, we felt it was a modest and very neighborly area with all income levels where many artists could live and bring up families. In the last few years, we have seen some people put their homes on the market because they thought they could make a killing. And yet some of our young artist friends who rented could not to afford to buy and stay in this area. For others, they're being displaced because they can't afford the higher taxes. As former social worker in South Philadelphia, I worry when I hear of South Philadelphians who have lived in their homes for many years being displaced by developers who knock down livable homes indiscriminately and give those 220 displaced a pittance for the value those new marketed homes will bring in profits to the developers. You can turn this around. And I wish there were more of you were here. As a citizen, I find it very depressing to come to these meetings and find one or two you here. But especially thank you, Councilman Cohen. And this morning when I saw all these citizens here, and I was thinking how depressing it must for them to see empty seats for people who are supposedly wanting to talk to their Councilmen. And I'm not just talking about just calling your office. That's why they come here, to talk to you. At any rate, you can turn this around by making those non-productive land speculators, polluters and absentee owners pay up or shape up with an incentive tax as the land tax is called. You can stop the present decline by being innovative and willing to make changes. You can bring this City to the point of being the next most affordable City in the country to live, work, and do business in. Your constituents are watching you and will thank you for meeting this challenge. 221 Thank you for listening and for your consideration.
In response to your concern that Councilmembers are here, a number of them are in their offices. This is a discussion, this is a day-long discussion. The Chair, President of City Council, in an effort to accommodate the Councilmember who introduced this resolution, had this hearing. It might have been better had it be held later in the spring when Councilmembers are not distracted by reelection. And so schedules get planned and Councilmembers have pre-planned activities and things that they have to do. And it's unfortunately. We do like to be here when you're testifying. We ask you to come to testify and encourage people to come to speak to their government, but the sponsors of these resolutions have to be much more sensitive to the need all Councilmembers. Anybody else testifying? (No response.) 222
There being none, this committee is recessed to the call of the Chair. (Council adjourned at 3:15 p.m.) - - - 223 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of April 29, 2003, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE OF THE WHOLE ___________________________ Lisa C. Bradley, RPR and Notary Public