Committee Hearing, April 2, 2009

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, April 2, 2009 1:20 p.m. - - - PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 080755 - An ordinance amending Section 15 20-301 of The Philadelphia Code, entitled "Payment of Salaries"... BILL 090167 - An ordinance amending Chapter 17 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes," by amending the eligibility requirements for real estate tax exemptions for certain improvements to, or construction of, residential, commercial or other business properties... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2

Good afternoon. The Committee on Finance is now in session, and we would like to have the Clerk -- first, let me announce that Bill 080755 will be held to the call of the Chair. So if you're here to testify on Bill 080755, that will be held today. The Chair will now call on the Clerk to read Bill 090167.

Bill 090167, an ordinance amending Chapter 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes," by amending the eligibility requirements for real estate tax exemptions for certain improvements to, or construction of, residential, commercial or other business properties to require that said improvements or construction meet or exceed the high-performance building criteria as delineated in the Leadership in Environmental and Energy Design (LEED) Rating System, all under certain terms and conditions. 3 4/2/09 - FINANCE - BILL 090167

Thank you very much. Let me recognize that we do have a quorum in the presence of Councilmembers DiCicco, Blondell Reynolds Brown, Bill Greenlee, Jannie Blackwell, Wilson Goode, Jr. and Jim Kenney. So now we have an opening statement by the sponsor of this bill, which is Councilman Curtis Jones.

Thank you, Madam Chair, and thank you, members of the Committee. Today, this Bill 090167 stands on the shoulders of many citizens and organizations that are deeply concerned about our environment and the future of our city. Groups like Sustainable Business Network, the Green Building Council of Delaware Valley, the Pennsylvania Environmental Council and our own Office of Sustainability have been leaders around this issue. I also want to recognize the 4 4/2/09 - FINANCE - BILL 090167 work of my fellow colleagues that have worked to be champions on this issue long before I ever came to Council, Councilman Jim Kenney, Councilwoman Blondell Reynolds Brown and Councilman Greenlee, just to name a few. With all of the current discussions about the elimination of the tax abatement, what I wanted to offer in these tough budget times was an alternative to that elimination, but an evolution of that tax abatement. And what it simply says is, to future generations of Philadelphians, that if you're going to build in the City of Philadelphia and receive a tax abatement, that building should be green. It's important that if we look at the tax abatement program and what it's meant to the economic viability of the City, it has transformed the Center City skyline, but with the current energy crisis and global warming that threatens us all, we have to reevaluate whether 5 4/2/09 - FINANCE - BILL 090167 this city can afford to do this in its same fashion as we've dealt with in the past. Mayor Bloomberg of New York has said, No good crisis should go to waste, and if in fact we have an energy problem, then we should take advantage to reorganize ourselves and do better for our city. So let's talk about what some of the scientists have said. And I won't belabor this long, because we've all heard it and read it. Scientists have become more clearer than ever that the real problem facing this planet is global warming. The climate scientists, such as James Hansen, now believe that we've already reached critical mass by way of 350 part per million CO2 in the atmosphere. This endangers not just our economic viability, but what our children shall know in the future by way of outdoor enjoyment and other things. It's an international threat. It's not just 6 4/2/09 - FINANCE - BILL 090167 local. Given that buildings are the biggest users of energy, a financial reward for developers to build green is the most straightforward and effective way to move our city forward and spur a green economy. As my colleagues look at green jobs, as my colleagues look at a Schuylkill Trail that can transform how we get from one point to another, all of these things work in synchronization to one another. You cannot have green jobs without green demand for green buildings. You cannot have green buildings without green zoning and, in my opinion, green tax abatement. Philadelphia is already lagging behind many other cities by way of their number of green buildings. According to a report issued by the Pennsylvania Environmental Council, entitled "Building Green: Overcoming Barriers in Philadelphia," our city trails behind cities such as Washington, Chicago, New 7 4/2/09 - FINANCE - BILL 090167 York state, Seattle, Los Angeles and even Grand Rapids, Michigan, who have all built a number of LEED-built projects. And I would encourage my colleagues today to know that the first acronym in LEED is "leadership," and that's what I think this Council will provide by moving our city forward to a greener reality. Let me say that LEED should not be the only standard by which we are judged green, that there are many ways to roam or many ways to a green Philadelphia, and we should today consider them all. You will hear from witnesses such as Ms. Shapiro, a lawyer who specializes in green buildings, but I would like to mention now a few of the many locations where legislation has been enacted: Cincinnati, Honolulu, Seattle, New York state, Maryland and Oregon.

Given the complexity of this issue, I realize this bill will not be voted out of Committee today. I view this as a beginning of a dialogue towards 8 4/2/09 - FINANCE - BILL 090167 a path to a green city. I would also like to make the Committee aware of the fact that I am offering some amendments to this bill 6 today. Several of these amendments will be for your consideration are technical and will allow some of the concerns that have been raised in the offline dialogue about this bill to at least be addressed in some part. Some of those concerns come from the affordable housing community, small residential builders and the like. But let us note one thing and one thing for sure, that we should never plan our city out of fear, not fear of the economy, not fear of how pushback will come, but we should plan not for the two-year recession that we temporarily have, but ten-year cycles and look into the future and decide what our city should be. And I would suggest to you today and I would suggest to many of the people testifying today that it should be 9 4/2/09 - FINANCE - BILL 090167 a greener city, and we will proceed accordingly. Thank you very much, Madam Chair. )

Thank you. Our first witness is Andrew Altman, Director of Commerce. (Witnesses approached witness table.)

Would you state your name for the record and please begin your testimony. DEPUTY

Andrew Altman, the Deputy Mayor for Planning and Economic Development, and with me today is Suzanne Biemiller of the Mayor's Office of Sustainability. Thank you for having me. It seems like we were just together moments ago. I'm here today to testify on Bill No. 090167, which proposes linking receipt of the ten-year tax abatement to Leadership in Environmental and Energy 10 4/2/09 - FINANCE - BILL 090167 Design (LEED) certification. As I said, joining me on the panel is Suzanne Biemiller of the Mayor's Office of Sustainability, who we've been working closely with on all of our economic development initiatives. As we understand the proposed bill, it adds a new requirement by conditioning the abatement and the amount of the abatement on the level of LEED certification achieved, ranging from a 100 percent abatement if the improvement meets the LEED Platinum certification to a 10 percent abatement if the improvement meets the minimal LEED certification standard. Under this legislation, residential, commercial construction and renovation projects that did not go through the LEED process and receive certification would no longer be eligible for a tax abatement, a property tax abatement. There's no minimum size threshold for projects, and state-enabling legislation would be 11 4/2/09 - FINANCE - BILL 090167 needed before implementation. Having said that, the Administration is extremely supportive of efforts that would incentivize more green construction and energy-efficient buildings in Philadelphia, and we want to commend Councilmember Jones, Councilwoman Reynolds Brown, Councilman Green for their leadership and for their vision. However, we believe that altering the current tax abatement program and eliminating tax abatement benefits for non-LEED construction and rehabilitation projects may not achieve this goal and could have significant unintended and negative consequences for development. Because the issue of green incentives is raised, it does offer us a great opportunity to work with the Council, as was just suggested in the opening remarks by Councilmember Jones, to explore an entire package of creative incentives to encourage sustainable buildings. In fact, the Mayor's Office of 12 4/2/09 - FINANCE - BILL 090167 Sustainability has had many conversations over the past nine months with external stakeholders on exactly this topic, and its forthcoming sustainability plan proposes a number of possibilities to consider. In addition, the Mayor's Task Force on Tax Policy and Economic Competitiveness is another way to explore implementation of tax-based incentives for sustainable construction in the context of other tax policy reforms that will be evaluated. We have heard concerns from multiple development leaders and agree that restricting the abatement program in this time of economic uncertainty could likely have the effect of inhibiting development when we most need it. Practically, energy efficiency certification happens after building is constructed, not before, and developers need certainty about future property taxes so they might build those costs 13 4/2/09 - FINANCE - BILL 090167 into their development pro forma. Projects would be less likely to receive financing, increasing uncertainty for developers in the Philadelphia marketplace. In addition to concerns regarding the timing of the legislation and the effect on development, the Administration believes that certain aspects of this could be problematic if implemented. Philadelphia building codes do not line up with either LEED standards or high-performing building energy efficiency standards like the EPA's Energy Star. Simply stated, there's no 17 guidance for developers or homeowners in the current building code on how to go green.

Therefore, the bill would compel the City to rely on private inspectors such as those certified through the US Green Building Council, and, in effect, the control of Philadelphia's tax-exempt decisions would be placed in the hands of the private sector. 14 4/2/09 - FINANCE - BILL 090167 The proposed legislation also mandates one certification standard, the privately developed for-profit LEED standard, tied to new construction. It might be difficult for developers engaged in renovating the City's many existing buildings to obtain LEED certification. It is also hard to imagine individual homeowners going through an expensive LEED process so their renovation investments could qualify for an abatement. In addition, other energy-efficient building standards exist, such as EPA's Energy Star program, which applies more easily to existing buildings. Philadelphia might also want to join other cities in creating model "above code" energy efficiency building guidelines for local contractors to follow. I want to thank you for the opportunity to testify. The Administration looks forward to working closely with Councilmember Jones and all 15 4/2/09 - FINANCE - BILL 090167 of the Council to craft incentives for the best way to encourage energy-efficient construction in Philadelphia. This is a goal that I know we all share. We're happy to answer any questions you have. And just following off my written remarks and what Councilmember Jones in his opening remarks said, we also do view this as a starting point. There is a lot of discussion coming forward in the sustainability plan for the Office of Sustainability of how we look at a package of incentives, both on the regulatory side in terms of zoning, the amendment of the Zoning Code and a number of Zoning Code proposals that the Council has put forward, as well as, as I said, a number of places in the tax code that we could look at in the -- what the Tax Policy Commission will look at, as well as looking at opportunities through the recovery money that we had a discussion on just the other day. 16 4/2/09 - FINANCE - BILL 090167 There's money that -- I'm sorry to go off script, if that's okay, but just for a moment. There are funds that will be coming to the City for energy efficiency. We think this is a tremendous opportunity to look at how to incent exactly the kinds of green development that we want to achieve in this city. So I think looking at that whole package is something that will be very fruitful, and this is a good starting point to start those -- to begin those discussions. I'm happy to take questions.

Are there any questions? Councilman Goode.

Thank you, Madam Chair. Good afternoon, Mr. Altman. DEPUTY

Good afternoon.

First and foremost, it seems clear that the 17 4/2/09 - FINANCE - BILL 090167 Administration primarily does not want to make any changes to the current ten-year tax abatement program, and I'm assuming that keeping that program in place is important. Is there a possibility of a separate abatement program or, more specifically, even though the Task Force work is not done yet, are you considering tax credits as opposed to a tax abatement? DEPUTY

Thank you, Councilmember. Yes, you're right in stating that is the position we've taken in terms of the current program, the tax abatement program. I think we're open at looking at a number of incentives. That's why we've set up the -- that's exactly the reason why we set up the Tax Policy and Competitiveness Task Force, because I think what we wanted to do in that task force is to look at our entire tax system, if you will, and to look for both incentives, the way it's structured. There may be any number of ways to do 18 4/2/09 - FINANCE - BILL 090167 incentives for both green buildings and other important priorities that we all share. So I think what's happened is that there's many proposals on how to use tax incentives. I think we realize that this is a good time to step back, look at the whole code. I think we all share the objective of how to encourage green development, and there's good context to do that.

Thank you. Thank you, Madam Chair.

The Chair recognizes Councilman Green.

Thank you, Madam Chair. Could you list the other standards besides LEED that we're aware of as a city just for the record?

Well, besides LEED, Energy Star, which is the EPA standard for energy efficiency, is sort of one that's becoming actually more 19 4/2/09 - FINANCE - BILL 090167 prevalent in the marketplace today. And other cities have actually taken it upon themselves to modify their own building code so that -- I mean, we sort of have a building code standard in place that's based on sort of the state building code and then the ICC code -- I think I'm getting that wrong -- from 2006. The new code that would be adopted this year, which I think hopefully Council will support when it comes before you in the fall, would raise energy efficiency standards by another additional 15 percent. And then there's movement towards adopting another standard in 2012 that would raise those efficiencies even further. So I think there's movement in the marketplace around building codes. So how can Philadelphia almost get ahead of the curve in some ways by, as the Deputy Mayor suggested, presenting sort of some model building guidelines to the building community now, so taking a look 20 4/2/09 - FINANCE - BILL 090167 at the codes and the standards that exist now in Philadelphia and making some suggestions about how builders could become more energy efficient immediately. So that's something we're taking a look at.

Thank you. What are the Administration's plans to prevent essentially tax increases for low-income homeowners whose homes we will use federal and other money to weatherize, et cetera? As we improve basic systems, fix the home up, they will naturally be worth more, maybe more than twice what they're worth. Because people look at homes in terms of payments a lot of time and if you're decreasing your energy costs significantly as a result of the work the City is going to do, how are you going to protect the citizens who we're helping from significant tax increases as we improve their home? I wonder if you've thought about that at all and whether or not this bill might be 21 4/2/09 - FINANCE - BILL 090167 a vehicle amended to protect people in that situation where we want to promote sort of sustain -- weatherization, green roofs, solar, et cetera, in the City, whether we for those improvements under various plans the City may promote, we don't allow that to increase taxes on the property. DEPUTY

I mean, that's something we can look at.

Thank you.

Thank you. Any other questions? Councilman Jones.

Thank you for your testimony. I kind of had to listen real hard, because it was like one of those disclaimers at the end of a commercial about all the things, but I tried to jot down some of the main concerns, and as I mentioned in my opening remarks, we are going to make some amendments that may address some of those things. Like we understand that 22 4/2/09 - FINANCE - BILL 090167 you can't just do LEED, that there are many vehicles in the room and that we may consider some of those other options. I also liked your comment about how we incorporate some of the standards into the L&I portion of government. But a couple of other things. How many properties in the City of Philadelphia currently are in the tax abatement program? DEPUTY

I would have to get back to you with the precise number. I can roughly --

Let me help you. DEPUTY

It's just -- I just want to give you the right -- I think it's about 10,000.

And what is the deferred revenue from those abatements? DEPUTY

I would have to get you the number.

23 4/2/09 - FINANCE - BILL 090167 Approximately. DEPUTY

I would have to get you the number.

And what is the now revenue that we're finding after the ten-year cycle? Because I was around in Commerce when we started this process, so some of them are coming online now. DEPUTY

That's right.

So what is the amount of revenue due the City of Philadelphia today? DEPUTY

I can get you all of those exact numbers.

I'll stop my questioning now and allow some other testimony, but I just want to put that in your mind. Thank you.

The Chair recognizes Councilman Kenney.

Thank you, Madam Chair. 24 4/2/09 - FINANCE - BILL 090167 One of the other things I'd like to put in your mind is that -- because you weren't here when it was going on, but perhaps you followed it. Of the 10,000 properties that were constructed, I've kind of rhetorically asked you how many do you think would have not been built had we had not the abatement. I know you don't have a specific answer to that, but I think it's important when we have this discussion about deferred revenue and issues of fairness, which are certainly appropriate to raise. I would say that most of those properties would not have been constructed had we not had the ten-year tax abatement. So in the discussion, I don't want to lose -- in the midst of a crisis that involves potentially the raise in real estate taxes and full valuation and all the other stuff, I want to make sure it's understood that, in my opinion at least, the vast majority of those 25 4/2/09 - FINANCE - BILL 090167 properties would not have been constructed, we would not have those residents, we would not have their wage tax, we would not have their spending ability, we would not have any of it. And I think it was clear from the era we were in at the time -- and I don't think it's changed substantially, because I think the market is still bad. So you still need an attractor at some point. So when you're doing that analysis, please consider the effects of the properties that were actually constructed as a result of the program. Thanks.

Point of information. If it ain't measured, it ain't managed, and if we're looking around in the pillow cases for revenue in our sofas today to try to balance a budget, we should know what is anticipated based on our tax abatement. We should be real clear about what it means to today's 4/2/09 - FINANCE - BILL 090167 impact. If in fact we have an objection to the possible destabilization of our local economy based on a green tax, we should know what the impacts are. And my next question would be, what have other cities experienced based on this passage of legislation? DEPUTY

We have not evaluated that. We would have to look at what the experience of other cities.

Thank you, Madam Chair. DEPUTY

The only -- go ahead. I'm sorry.

No. Go ahead. DEPUTY

No. I was going to say that's something as we're looking, the Office of Sustainability, but we'll be coming forward very shortly with a full plan on sustainability that, again, is looking at the whole range of how we promote the 27 4/2/09 - FINANCE - BILL 090167 green economy, green incentives, green buildings, and we'll be looking at other cities. I just want to respond to Councilman Kenney. Not to speculate on that number, but rather to say that one of the dynamics that has not changed in Philadelphia significantly is the disparity between what the costs are to build in Philadelphia and what the rent levels are. We still remain sort of at the fourth highest cost of major cities, and we're probably at the low end, 16th or 17th, in terms of what our rents are and what can be achieved, and, unfortunately, that creates difficult margins for development in the City. So part of what we want to construct and we want to work on is to make sure that we truly have -- I think we're trying to balance here is how do we create truly an incentive for development. Right now with the tax abatement is a by right. It's a certain program which is very 28 4/2/09 - FINANCE - BILL 090167 important in the development community as you're thinking about development. I'm talking about in the neighborhood development or not just Center City development. But as you're looking at how to deal with the cost structure in Philadelphia, it's by right, it's clear, it's certain, very important in the development community. This would put it into the relatively uncertain. Can I meet this standard? What's the cost to meet that standard? And it is a cost. I think it's a cost that we need to look at incentives to offset, and that's what we need to, I think, focus on. But I think we want to at the same time promote development, not take away the incentive to do that, and figure out how we also achieve some of these other goals.

Just one follow-up with that, if I may, Madam Chair.

Sure.

The cost of 29 4/2/09 - FINANCE - BILL 090167 construction in Philadelphia is not likely to be resolved or go down in the near future. Is that an accurate statement? I mean, certainly at some point in time down the road, who knows. Years from now, however it's done, it may come to fruition, but right now what we're dealing with is the same environment, probably even a little worse, than we were when we instituted the program. So we're not looking for a or 30 percent reduction in the cost of 14 construction in the next two, three, five 15 years. Maybe five, but certainly not in 16 the next two or three, correct? 17 DEPUTY

That 18 seems a fair statement. 19

Okay. 20

Point of 21 information. 22

Sure. 23

What is the 24 cost of construction to Energy Star 25 versus construction under the current 30 4/2/09 - FINANCE - BILL 090167 code or LEED compared to construction under the current code? Not national figures. In Philadelphia today.

I mean, I couldn't answer that accurately, Councilman. I've heard some percentages thrown out, and, again, it depends on sort of what LEED standard you're talking about. But I think there is an extra investment that is necessary in most cases for sort of the LEED. Now, there's payback then, because your building is more energy efficient, et cetera, but I think what we would like to focus on is how do you get builders to overcome that initial hurdle. I mean, that's sort of what we're all interested in doing.

Right. And that was the intent of the bill --

Exactly.

-- is to give builders the incentive. And I think we're going to hear testimony -- or I 31 4/2/09 - FINANCE - BILL 090167 don't know if we're going to hear testimony, but I was told we would hear testimony -- maybe it will be at another hearing -- that because of the high cost of construction in Philadelphia for general construction under our current code, the difference between being a LEED certified or building to Energy Star standards, et cetera, and regular construction is negligible, and if that was the case, what would be your position? DEPUTY

You're also going -- there's also, as I read the bill, it has different standards of LEED and there are a number of escalators.

Sure. We've considered -- I mean, obviously the point is, I believe personally other standards should be included other than LEED, and it would be ideal to have them in our building code versus elsewhere. But I just wanted to know -- I mean, you're saying it's more expensive, but my point 32 4/2/09 - FINANCE - BILL 090167 is, you don't actually know. DEPUTY

Well, we will look at the different cost structures, but as it is now, I think, in the bill, if you're LEED Platinum, you get 100 percent. If you're LEED Silver, I'd have to look at the declining -- so each of those is, and we can quantify what we think those additional costs are. I think -- look, our concern here is that the intent in terms of creating incentives for green development, that's clear. The concern is that right now the margin -- and you'll hear from others who will be --

But that's -- DEPUTY

That's my concern.

That goes to the heart of the question I asked. DEPUTY

Anything above what we want to look at that adds an additional cost level. I mean, this 33 4/2/09 - FINANCE - BILL 090167 is sort of -- what the abatement is trying to do is to equalize or at least get us more in line with the competitive cost structure with other cities, which we're way out of line.

I completely agree. The question is, though, given our current cost structure, is it any more expensive to build to these standards? And I think that answer, for large buildings I'm told the difference is negligible or no. So consider -- I don't know if that's true for one single-family home. So I just throw that out there, and if you can -- if you have information or as part of what the Office of Sustainability is doing is gathering that information, if you could provide it to the Chair, it would be helpful. Thank you.

Any other questions? Councilwoman Brown. 34 4/2/09 - FINANCE - BILL 090167

Thank you. I believe I heard the answer to the initial question I wanted to ask, but I will ask it again anyway. Please give me a cliff note version of the Administration's position on this bill. DEPUTY

I was trying to get some numbers as you were speaking. That's the beauty of technology, getting immediate answers, but it will take a little longer. The cliff note version, the sort of bottom line is that we are not -- we don't want to change the current tax abatement program. We're not supporting changing the current --

The existing one currently. DEPUTY

-- abatement program for all of the concerns I laid out. And so, therefore, what we are looking to do is work with the Council on other incentives to encourage 35 4/2/09 - FINANCE - BILL 090167 green development and the meeting of the standards. We don't think the tax abatement program, the current -- I just want to be really clear. That the current ten-year tax abatement program is not the vehicle to achieve this objective. Because of the concerns -- and we will look at Councilmember Green's suggestion -- that there are a number of both unintended consequences and the uncertainty it would put into the system, the extent of the costs that it may add, the uncertainty in developers who have to say, Can I take advantage of this ten-year abatement or I have to achieve LEED or another standard, how do I achieve it, how does certification work. What we're trying to do, I think to be very clear, is, we're at a period where we want to -- we're looking beyond, by the way, the two years and this current economic crisis. We have to say, how do we create a certain development climate so that as a developer -- it could be a 36 4/2/09 - FINANCE - BILL 090167 community developer or larger developer -- what is the structure I can look forward to. The abatement is one vehicle in Philadelphia that's very clear, very certain. It's not discretionary. You know what it is. You put it into your pro forma and you can figure out your cost of construction and what I'm going to sell units for and, therefore, is it profitable. So we think -- let's create -- let's not touch that. There's a lot of, I know, different debates about it, but let's not touch that now. We've had lots of production I would say as a result of that in Philadelphia, and those taxes will start to come online and replenish. As Councilmember Kenney said, development that but for that may not have happened in Philadelphia. Probably would not have happened.

Then I get it. DEPUTY

So let's 37 4/2/09 - FINANCE - BILL 090167 create the pipeline. Let's keep that development incentive in place, which is what the abatement is, and let's work on other sets of things. As I said, those could be zoning incentives. It could be other tax incentives. It could be loan incentives. As I said, the recovery dollars could offer a possibility to start to demonstrate how to achieve some of these energy efficiency measures. I think let's look at the whole set, but let's not touch a program that right now has worked and I don't want to see an unintended consequence later.

I appreciate that. So can one assume from your explanation that the Office of Sustainability is at the table with your department and participating in these negotiations or discussions or scenarios as to where we want to move to? DEPUTY

Absolutely. I mean, we just came from a meeting this morning where we were 38 4/2/09 - FINANCE - BILL 090167 meeting with a number of -- we're going to be doing a number of forums with developers, both large and small, and we're going to be meeting with also community development corporations, looking -- I'll just give you one example. The energy dollars that are coming, the energy efficiency block grant that's coming to Philadelphia from the federal recovery, it's a start. It's probably maybe $12 or $14 million. We're looking at could a portion of that be used to incent exactly the kinds of things that Councilmember Jones and others on the Council and all of you have been very interested in. Can we set that up as a low-interest, very low-interest loan pool, or even potentially a grant for building for developers to add elements of green design and green building standards to their projects. That would be a real incentive out in the market, and we're working hand in hand on that with the development community and 39 4/2/09 - FINANCE - BILL 090167 non-profits. Absolutely.

Here's the ask based on what you just shared with us: I would ask that you keep Councilmembers informed of opportunities like the one you just described, because we want to work in collaboration with the Administration. This is a new area. It is huge. It's an enormous opportunity, and to the extent that we can be informed, if you will, about these developments, then it helps us in the work we're trying to do on our side of the table. That's number one. My second -- I won't call it a concern, but I will say this: I also have a bill up for consideration around building green, and we know that we're still doing -- well, we've done a lot of work. We're almost finished the work we have to do on that before we call for hearings. I guess my concern is, the Office of Sustainability has weighed in, and I believe we can do two things at the 40 4/2/09 - FINANCE - BILL 090167 same time. While Councilmembers have legislative ideas that we want to push down this track, we can do that while the Office of Sustainability is getting its arm around the issue in a way it thinks is appropriate. What I don't want to hear is, Please let's wait until that office knows for sure what it wants to do and then we will entertain or take a clear position on what Council wants to do. I don't want us to move to that place. Do you understand what I'm saying? DEPUTY

Yes.

Yes.

So if we want to do it right and we want to do it well, we're not interested in waiting until we get 100 percent on this A test, because that could be five years from now, because sustainability and conservation is new. So while we're learning to do it right, I think it's important to help us on this side move 41 4/2/09 - FINANCE - BILL 090167 our bill in a way where we ultimately move to a place that the bill is a bill 4 and it moves to the Mayor's desk. DEPUTY

Yes. We hear you. I mean, I think we're -- I think the Office of Sustainability, we are moving both comprehensively and I would say very quickly, and I know that the Office of Sustainability is very interested in this, as are we, in working with the Council on this, because there's a whole comprehensive program in terms of sustainability that's very important to move forward. So we look forward to working with you.

And that you all plan to roll out at some point?

We will be launching the plan in the end of April, and we've had a number of conversations with City Council staff. I know we were trying to meet with you on Tuesday, but Capital Budget hearings got in the way of that, unfortunately. So I know our 42 4/2/09 - FINANCE - BILL 090167 office is trying to reschedule that meeting with you --

Okay.

-- now just to brief members of Council and their staffs. And I know we've been working very closely with your terrific staff on a number of these initiatives and really having some great back and forth, sort of researching what other cities have been doing, what Philadelphia should be thinking about doing, and it's been really helpful to our office to have those conversations.

Okay. My last question is a follow-up to Councilman Green's earlier question. I've learned there are a number of different standards that one can use. Is the Administration looking to come up with a baseline standard so that it does not create a financial burden to those who want to conduct business in the City?

A standard to 43 4/2/09 - FINANCE - BILL 090167 building?

LEED versus Energy Star versus a third one I've heard about that I can't remember now.

There's NAHA I think is another standard that's being developed. I think -- I mean, I don't think we should dictate what standard should be applied to buildings in the City, though I think what we've heard from developers is that there are really no green building guidelines in the current code. So if you were wanting to do a green roof, if you were wanting to make your insulation better quality or different standard, there's nothing in the code to help you --

Or guide them.

Exactly. So how can we, without changing the building code, because there are issues around that, but how can we as a city provide 44 4/2/09 - FINANCE - BILL 090167 guidance to the local community. And that's not just large developers, that's the homeowner who is renovating their kitchen and wants to put in the right kind of windows.

Absolutely.

I mean, I think that's extremely important and would be of great value to the City.

And I'm not suggesting at all that the City should dictate. We should not. But there's something to be said for establishing what the baseline could be, giving the developers the option to rise above that if they care to.

Exactly. And one of -- I should say that one of the goals of the sustainability plan that we call out is reducing energy demand in our buildings by ten percent over the next ten years. So that implicates not only new construction, which obviously this 45 4/2/09 - FINANCE - BILL 090167 bill is about, but also the existing building stock in the City, because let's be honest, there are going to be more existing buildings.

Retrofit. That's exactly right.

So as the Deputy Mayor suggested, could we use some of these new federal energy efficiency block grant funds to create revolving loan pools for existing buildings. So during sort of a tenant improvement time period when a lease is being renegotiated, et cetera, is there a way to say to that building owner, Hey, if you put in new windows or new lighting with automatic timers, et cetera, you can sort of apply to this pool of funding for a low-interest loan. So these are just ideas that we're sort of presenting. Nothing is set in stone. But I think certainly all of us working together to sort of achieve this goal will be really important. 46 4/2/09 - FINANCE - BILL 090167

Okay, then. Thank you both. DEPUTY

I just want to make sure I did address, because I will leave in a few minutes, is that you had clarity on -- I didn't want to leave without you having clarity on our position.

Yes, I do. Thank you. Thank you, Madam Chair.

Thank you very much. Any other questions or comments? (No response.)

Thank you very much for your testimony. Do you want to testify or --

No. I'm fine. Thank you.

Our next panel will include Shari Shapiro, Sandy Wiggins, Spencer Finch. 47 4/2/09 - FINANCE - BILL 090167 (Witnesses approached witness table.)

The Chair recognizes Councilwoman Blondell Reynolds Brown.

Thank you, Madam Chair. I've conferred with my co-sponsor on this bill and we need to make it clear that we are interested in seeing this implemented for new construction going forward. In no way do we want to tamper with, interfere with, get in the way of those agreements that are already in the pipeline. Thank you, Madam Chair.

Thank you. Good afternoon. Would you please identify yourself for the record and begin your testimony.

Good afternoon. My name is Shari Shapiro and I am a green building attorney with Obermayer Rebmann Maxwell and Hippel. I'm also a LEED accredited professional, which is the 48 4/2/09 - FINANCE - BILL 090167 professional accreditation associated with the LEED system you've heard bandied about here this morning. Since 2007, I have published a blog related to green building law and policy. I have done extensive research on green building regulation, publishing in law journals and other popular publications. In addition, I have spoken nationwide on green building law to the American Bar Association, the National Association of Home Builders, ASHRAE and many other professional associations. Finally, I'm part of a team of professionals that is writing a book on green building law and policy to come out later this year. So I am essentially the local expert on green building law and policy. In my spare time, I am also the Secretary of the Delaware Valley Green Building Council, the local chapter of the United States Green Building Council. The DVGBC is an organization with over a 49 4/2/09 - FINANCE - BILL 090167 thousand members, including developers, financiers, design professionals and so forth who are particularly expert in the area of building green. I have the privilege this morning of speaking on behalf of myself and the DVGBC. The DVGBC has come out in support of this bill because it furthers the DVGBC's mission of transforming the Delaware Valley through sustainable development. The primary purpose of my testimony is to provide some legal context for the proposed legislation, to put it in the context of what other cities are doing and to speak to the unique legal aspects of green legislation. But first I want to respond to Deputy Mayor Altman's testimony on a couple of points. The first point is that the United States Green Building Council is a non-profit organization and the LEED system is not a for-profit 50 4/2/09 - FINANCE - BILL 090167 enterprise. The second is that LEED and other rating systems provide a more comprehensive analysis of what sustainability is compared to the Energy Star system, which is specifically on energy efficiency. So the LEED system provides guidance on water usage, indoor air quality, recyclable materials, site selection and other metrics which are important for our environment as a whole. Third, Deputy Mayor Altman characterizes the use of a third-party rating system like LEED as placing control of Philadelphia's tax incentive decisions in the hands of the private sector. First, at the end of the day, the BRT has the ultimate say in whether something gets a tax abatement or does not. Second, in order to have the City of Philadelphia administer a system related to green building, evaluate green buildings, have a standard that is 51 4/2/09 - FINANCE - BILL 090167 particularly unique to Philadelphia would require time, expertise and expense for the City that at this time it can ill-afford to do so. It is not a one-time expense either, as such a standard would have to be maintained over time. The special expertise related to code drafting and ensuring that a standard is kept up to date is exactly why government entities use building codes developed by non-profit organizations all the time, like, for example, the International Building Code. In terms of certifying buildings as green, Deputy Mayor Altman and the Councilman know that L&I is stretched thin as it is and that all developers in Philadelphia have bemoaned the length of the process it takes to get buildings certified. By strategically using market-based experts to certify buildings as green under whatever rating system, Philadelphia can obtain leveraging the private sector's 52 4/2/09 - FINANCE - BILL 090167 investment in a rating system and certification specialists without draining the public fisc to do so. I want to turn now to the structure of the incentive program and green incentive programs in general.

Philadelphia will be, if this bill is passed, by no means the first city to utilize a tax abatement structure linked to a green building rating system; in particular, the LEED system. And I want to emphasize that this step that Philadelphia is thinking of taking is a wonderful step in creating what the Mayor wants to be the greenest city in America. The context, the legal context, for this is that 14 percent of cities with populations over 50,000 people have a green building system in place that takes all kinds of forms, but we're talking about the New Yorks, the Los Angeleses, the Chicagos and so forth, where we clearly want to be. For example, Washington, DC has 53 4/2/09 - FINANCE - BILL 090167 enacted a requirement that all buildings over 50,000 square feet by 2012 meet the LEED requirements. They submit a LEED checklist. This is for all buildings over 50,000 square feet. Boston and our friend Baltimore have similar regulations in place. These are mandatory achievement of green building certifications -- of green building standards. Excuse me. San Francisco enacted a green building code in late 2008 mandating that new residential high-rises taller than 75 feet, new commercial buildings larger than 5,000 square feet and renovations larger than 25,000 square feet would have to comply with LEED requirements. And then there are the ones that have enacted regulations that are very similar to the bill that's before you. Portland has a feebate system whereby certain fees are and incentives are tied to the achievement of levels of LEED achievement. Similarly, Cincinnati 54 4/2/09 - FINANCE - BILL 090167 and Honolulu have property tax rebate-related green regulations that are specifically tied to the LEED program. In short, providing an incentive for green building, tying that incentive or tax rebate to LEED requirements or the requirements of a third-party green building program is a proven policy tool for encouraging green building nationwide. I would like to move on to the legality of the framework outlined in the proposed legislation. The City of Albuquerque had legal trouble. In fact, they were sued by the trade associations from the heating, ventilation and air conditioning entities because they instituted a green building program that mandated energy efficiency above a certain level. By tying green building requirements to an incentive-based program, you don't have that legal hurdle. Secondly, when it comes to the 55 4/2/09 - FINANCE - BILL 090167 building code, by tying your incentive to green building regulations, you are, in a sense, avoiding the issue of updating the entire building code. You provide an incentive system. Builders who want to build to the minimum standard can still build to that minimum standard. However, they will not get the incentive that we want to encourage for a better environment for Philadelphia. Finally, there have been amendments to this bill which provide a less stringent standard for affordable housing and for small-scale residential. Shouldn't we be looking to have the commercial developers and the large-scale developers meet higher standards so that Philadelphia can truly be the greenest city in the country? I hope this legal background is helpful, and I would like to offer the assistance of the Delaware Valley Green Building Council as a resource for any questions or information the Council 56 4/2/09 - FINANCE - BILL 090167 needs about green building and about the LEED rating system in particular and as an ongoing partner with the City to make this bill work in practice by educating the development community. Please feel free to contact me directly or to any of the staff people of the Delaware Valley Green Building Council. At this time, I would entertain any questions that Council might have about the legal framework of the bill or precedence in other cities.

What we're going to do is let everybody testify and then we'll come back with questions.

Unfortunately, I have -- I know that the Council was advised I have an obligation that I can't --

I'm sorry. I did not know that. Are there any questions? Councilman Greenlee had asked me first. 57 4/2/09 - FINANCE - BILL 090167

Thank you, Madam Chair. Good afternoon. I just had some questions specifically. You talk about the other cities, but was there -- I mean, obviously I think it's clear that most people here certainly support green building. Okay? The obvious concern is tying it in with the existing abatement program. Do some of these other cities, like you referenced Cincinnati and Honolulu, did they tie their green incentives into something that already existed; do you know?

You know, I don't know the answer to that question. I do know that the Cincinnati abatement structure is very similar to the one proposed here, although I don't know off the top of my head whether it was already in existence before.

Because I think that's a key element, in my 58 4/2/09 - FINANCE - BILL 090167 opinion, whether something already existed and you're tying something in that could change it or affect it considerably, that kind of thing. And the one other question. Councilman Goode brought up like other possibilities to Deputy Mayor Altman, like tax incentives. What would be your opinion on that, rather than tying it into the existing program, but doing something different, a different kind of incentive, if you will?

I have heard it said that we are currently looking for quarters under the couch and that there is a movement afoot to rescind the tax abatement altogether. So when we're looking at how we can better utilize the incentives that are already in place and already calculated within the budget of the City, it's a question of whether those additional incentives or different incentives can really be afforded at this time or whether we're looking to use a 59 4/2/09 - FINANCE - BILL 090167 tried and true incentive that's already in place, scale it back for the good of the fisc of the City of Philadelphia and use it at the same time to incentivize green building.

I guess the question would be how much scaling back are we doing if we do it that way. That's the only thing that I would raise as a concern about that argument. And obviously we're not moving the bill 13 today, so we're going to have more discussion on it, but I just -- I mean, it could -- and you'll hear other testimony, I'm sure. I know Mr. Sherman has testimony dealing with timeframes and that kind of thing. So it's not just tying it in, I would argue. It's maybe significantly changing it and maybe hurting it to a certain extent, even for a good reason. So I just throw that out there. Obviously we're going to have more discussion on that. Thank you, Madam Chair. 60 4/2/09 - FINANCE - BILL 090167

Thank you. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. I think probably it was actually a similar question I was going to ask, whether cities have a ten-year tax abatement in place. If I'm reading this correctly -- maybe I'm wrong. Correct me if I'm wrong -- is it the Delaware Valley Green Building Council that would make the decision as to whether a building was LEED certified?

No. The Delaware Valley Green Building Council is a chapter organization for members. The United States Green Building Council has a subsidiary organization that does the LEED certification. But nobody in our shop is going to be making those decisions. COUNCILMAN DiCICCO: You're basically advocates for building green? 61 4/2/09 - FINANCE - BILL 090167

We are advocates for building green. We are not advocates for a particular rating system. We get no -- I don't have a cabana in Boca Raton that is LEED Silver. Instead, what the Delaware Valley Green Building Council is, it's a group of professionals who are particularly devoted to green building. COUNCILMAN DiCICCO: No other questions. Thank you.

Councilman Goode.

Thank you, Madam Chair. Ms. Shapiro, don't take this the wrong way, but I believe you used the word "expert," "expertise" at least five or six times within your testimony, and I believe that referred to being a legal expert, a green building expert. But you're not necessarily an economic development practitioner, are you?

I'm sorry?

You're not 62 4/2/09 - FINANCE - BILL 090167 necessarily an economic development practitioner, are you?

No, I am not.

And so in evaluating our economic development toolbox, so to speak, you don't know whether we should keep the ten-year tax abatement or not?

I don't have an opinion on the overall use of the ten-year tax abatement. That is beyond my scope.

But if we were going to throw it out, you would want to put this in?

I'm sorry?

If we were going to throw out the ten-year tax abatement, then this would be a suggestion you would make?

The Councilpeople are much better -- in a much better position to say what the appropriate tax abatement is. I can only speak to the 63 4/2/09 - FINANCE - BILL 090167 legality of the system and what other communities have done. I am not in the position to say whether it's better or worse to have the tax abatement or not.

Thank you.

An expert knows the extent of her expertise.

Any other questions?

Yes.

Yes. Councilman Jones.

Thank you for your testimony. Whether or not we keep a ten-year tax abatement is not why you're here, for the record, but what is a ten-year tax abatement that is green may mean to a city, correct?

There has been evidence that in the cities that have enacted green regulations, that there has been an increase, a corresponding increase, in the green construction. And what's very interesting is that in many 64 4/2/09 - FINANCE - BILL 090167 of these cities, the development community is on board with the greening of the regulations and in many cities it has resulted well. I mean, Washington, Boston have had much more stringent regulations in place for a longer period of time and they haven't seen a decline in building in a way that I think is the boogeyman in the room about this. The question is not whether people will build in Philadelphia, have we not created enough dynamism here to say that people will build in Philadelphia, to be able to take a step back and say, how do we want people building in Philadelphia, let us take those reins and see whether we can make a difference for our children and our grandchildren.

Have you gotten any feedback as to -- so in those cities, they have not had a mass exodus or decrease in construction or massive increase in price? 65 4/2/09 - FINANCE - BILL 090167

Correct.

Thank you.

Thank you. Any other questions or comments? (No response.)

Thank you very much for your testimony.

Thank you. I apologize for having to leave.

That's okay. Next. Who is going next?

Sandy Wiggins. If I may, we actually have a fourth person on our panel, Frank Baldassarre, who will speak after me.

Before you proceed, let me just make an announcement that the Committee on Labor and Civil Service, which was scheduled for 2 o'clock, will begin whenever this hearing is over. So to the people who are testifying, give consideration to the 66 4/2/09 - FINANCE - BILL 090167 fact that there are individuals here waiting for another hearing. Thank you. Proceed.

As expeditiously as I can. Thanks for letting me come and testify on this proposed legislation. I'm a citizen of Philadelphia. I grew up in the area and have lived in the City most of my life and spent the bulk of my professional career here in the real estate, development and construction industries. For the last decade, my efforts have been focused primarily on the green building sector. I'm a principal of Consilience LLC, which is a national consultancy that works on sustainable real estate development all across the country based here in Philly, and, more recently, I've taken on the Chairmanship of e3bank, which is a de novo bank based in Malvern that is focused on green finance. I was founding Chairman of the Delaware Valley Green 67 4/2/09 - FINANCE - BILL 090167 Building Council and I'm a past Chair of the US Green Building Council, the national organization that created LEED. I was also founding Chairman of the Green Building Certification Institute, which is a subsidiary of USGBC that provides professional accreditation for green building professionals. I've served on the LEED Version 3, and I was one of the authors of the LEED for Neighborhood Development rating system. As a contractor for Pennsylvania Environmental Council, who you'll hear from shortly, I was the author of "Building Green," the report, "Overcoming Barriers in Philadelphia," and I serve on the City's Sustainability Advisory Board. As Councilman Jones started us off, we're all aware of the big environmental pressures that we're facing in our city and around the planet, and many people are now waking up to the impact of buildings and the part that they play in that. For the record, 68 4/2/09 - FINANCE - BILL 090167 buildings account for 40 percent globally of all natural resource consumption. They account for 40 percent of primary energy consumption and 70 percent of electricity consumption, and as a result of that, the construction and operation of our buildings accounts for almost half of our greenhouse gas emissions in this country. Buildings also account for a waste -- the construction and renovation of buildings accounts for waste that approximates the municipal waste that we generate in our society and are responsible for about trillion gallons of the trillion gallon freshwater deficit we have in our country. And because of all these statistics, obviously green buildings are a great place to start addressing these issues, but they're also a place to really begin to build economic prosperity. Energy independence is on everybody's mind. We know today that green buildings routinely reduce energy 69 4/2/09 - FINANCE - BILL 090167 consumption by to 30 percent, and more 3 and more often, it's as much as 40 to 50 4 percent. So conservation and efficiency, particularly through buildings, is the cheapest and the fastest way to begin to address energy independence and climate change obviously, because of the amount of energy that buildings consume. LEED, for anybody that doesn't already know it, is an acronym that stands for Leadership in Energy and Environmental Design. It's a rating system that was developed and is administered by the US Green Building Council, or has been up until this point. And it is, as you heard Ms. Shapiro testify, it assesses the environmental responsiveness of buildings in a holistic way, looking at five different impact areas. So sustainable sites, things like transportation efficiency; storm water, big issue in our city; energy use and where the source of that energy is, whether it's contributing to climate 70 4/2/09 - FINANCE - BILL 090167 change and other sorts of degradation to the environment; water efficiency, the way we use materials and resources, whether they have recycled content, whether they're recyclable; and then indoor environmental quality, and that's the impact that the buildings have on all of us. We spend 90 percent of our time indoors.

So LEED does that in a very holistic way. USGBC has spent the last 13 months actually retooling the way 14 certification gets done because of the 15 tremendous market uptake of LEED as a 16 rating system. There are now over 20,000 17 LEED buildings either certified or in the 18 pipeline across the country, and because of this massive uptake in the industry, USGBC realized that it needed to change the way things were being certified to make it easier for people to get it done and to deal with this huge volume. So they are following an ISO, International Standards of Organization model, and have 71 4/2/09 - FINANCE - BILL 090167 essentially engaged ten certification bodies. These are multi-national companies that do certifications of many different kinds. They include organizations like Underwriters Laboratory and Bureau Veritas, who are now beginning the process of certifying buildings so that this could be done quickly and efficiently all around the world. LEED, as you already heard some testimony about, is widely used as a means to govern public policy around green building. S. - 122 cities, 34 counties and 30 towns - that are using LEED in their public policy as a way to incent or mandate green building. One hundred thirty-eight local governments have adopted LEED for public sector buildings. One hundred municipalities have adopted LEED for private sector buildings, and of those, 72 4/2/09 - FINANCE - BILL 090167 56 are for private sector incentives. I will add parenthetically that I think this is the best use of LEED as a public policy measure for an incentive-based program, not as a mandate. You heard some concerns from Mr. Altman earlier about LEED not aligning with building code. It was never designed to do that. Building code is really the least you can do without breaking the law, and LEED was designed as a leadership standard which takes you beyond that in terms of environmental performance. So I think it's appropriate as a means to measure and assess building performance when it's related to an economic incentive. I think the legislation in front of you today is very important for Philadelphia. We, as you've already heard, have not really been in the leadership position. We're lagging behind the rest of the country when it 73 4/2/09 - FINANCE - BILL 090167 comes to green building. Again, checking the statistics yesterday, I found ten different municipalities around the country that are using LEED for a tax exemption or abatement incentive like ours. You already heard about some of them. Baltimore is probably the closest to us, whey they have a ten-year 100 percent tax abatement for LEED Silver commercial buildings. S. today that can provide that validation efficiently and robustly for commercial buildings. So I urge City Council to use LEED for this purpose and perhaps to expand the scope of the proposed legislation to include new commercial buildings as well as renovation of commercial buildings. I think that this would actually increase development 74 4/2/09 - FINANCE - BILL 090167 activity in the City. And, again, it is an incentive, not a mandate. Nobody has to avail themselves of the tax abatement if they don't want to. And I think the City should be getting something in return, and I think as we've seen all across the country, other cities that have put public policy in the place to help the green building community grow are reaping huge economic benefits. I also think that you ought to think about a timeframe for this legislation, because a good incentive when it's put in place will change what's going on over time, and I believe that if this or some variant of it gets enacted, it will change the way development is done in our city at all scales and that green building will become business as usual at some point in the not too distant future. I also think that for the residential sector, it's perfectly reasonable to consider other standards.

75 4/2/09 - FINANCE - BILL 090167 There are other robust standards out there. You've heard a lot about Energy Star. There's another component of that called the Home Energy Rating Index. These are third-party validations of energy performance in the residential market. And I think taking them and combining them with another residential standard that provides a more holistic look at the way that housing performs is perfectly appropriate and is something that should be considered. So I'd also like to end by offering my recommendation that there are a lot of different opinions in the room, and I think bringing these stakeholders together to have a conversation that gets us to a piece of legislation that satisfies everybody in some respect is probably the best way to go, but I would urge you not to give up on enacting green building legislation quickly to put us not in a leadership position necessarily but just get us into a state of parity 76 4/2/09 - FINANCE - BILL 090167 with many of the other municipalities around the country. I'd like to end with -- this is off script a little bit, but there's a lot of concern that's expressed by the Philadelphia development community about what this is going to do to their business, and I think much of that is the result of ignorance and misinformation. It is hard to learn how to do this and do it in a way that makes good economic sense, but my colleagues and myself all across the country have discovered that when you learn how to do this and you really need to change the paradigms that you use for development and design, you can do it for little or no additional cost, and there are huge economic benefits that accrue to the operators of the buildings and also to the municipality where these buildings are being built. And the economic incentives for the municipality are systemic and far-reaching, including things like 77 4/2/09 - FINANCE - BILL 090167 managing our storm water problems here in Philadelphia. And it reminds me of a time early in my career when computer-aided design, or CAD, was introduced to the market. So when that happened -- and I don't know the exact date of that, but it was in the 1980s -- everybody complained that it was too difficult and too expensive, and I actually used to pay architects a premium to design using CAD. There's not an architect in the country today that doesn't design using CAD. Nobody would think of hand-drawing a drawing. It's a much better way to build and design. And green building and validating green building, whether it's LEED or another standard, is the same. As the Philadelphia building community builds capacity and learns how to do this, the complaining will go away. Everybody will recognize this is a better way of doing business, and it will be better for the long-term economic vitality of our city. 78 4/2/09 - FINANCE - BILL 090167 Thanks.

Next.

Good afternoon. My name is Frank Baldassarre. I am the President and CEO of e3bank. We're a new full-service bank coming to the metropolitan Philadelphia marketplace. E3 will focus on providing financial tools necessary for people to incorporate sustainability into their lives, homes and businesses. I've been working in the financial services sector for almost 30 years. I've worked for various banks throughout our region, including the old Industrial Valley Bank, Commerce Bank and CoreStates Bank, to name a few. My experience in banking, though varied, has primarily been focused on financing commercial and residential real estate developments, including office buildings, warehouses, flex space, shopping centers, apartment complexes, condos and single-family subdivisions. Through the formation of 79 4/2/09 - FINANCE - BILL 090167 e3bank, my team and I have conducted extensive research into the economic feasibility of sustainable development and its intrinsic benefits to our community. I'm here today to express my support for the green tax abatement bill 9 being introduced by Councilman Jones. This bill sends a very clear message to the business community and to the residents about your willingness to jointly invest in a more sustainable city and future. One of the most common misconceptions about high-performance buildings is cost. First, we need to define costs, which I will categorize into two types of cost. First is first cost or construction/development cost, and second is life cycle cost or operating costs. Based on all of the relevant data that we have reviewed at e3, the actual increase in first cost for high-performance buildings versus 80 4/2/09 - FINANCE - BILL 090167 code-compliant construction is anywhere from zero to five percent, and the improvement in life cycle or operating costs averages 36 percent savings in energy costs and up to 50 percent savings in water and sewer reduction costs. If you look at this slight increase in cost as an investment, then the question becomes, what is the rate of return on my investment and how quick is the anticipated repayment of this investment? What we are finding is that the typical payback is less than three years for this investment, and the average rate of return can be in excess of percent. In today's investment 18 climate, a 25 percent rate of return on 19 your investment would be considered 20 exemplary. 21 As an experienced financial 22 professional who has studied the risk 23 profile of high-performance buildings, I 24 have found that green buildings can 25 provide substantial benefits by reducing 81 4/2/09 - FINANCE - BILL 090167 risks to the owners, reducing risks to the tenants, to the bankers, to the regulators and to the community as a whole. We have found that these buildings lease up quicker, they have improved rental rates and they experience faster pre-sales in residential projects. Two additional benefits include the improvement in cash flow available to owners to support debt service as a result of the lower operating costs and their ability to reduce one's exposure to future energy shock price increases. As we see based on the realities of our present economic condition, these last two components can really provide tangible, long-term benefits to us all. Finally, utilizing the LEED rating system developed by the US Green Building Council to determine the eligibility of any real estate tax abatement I believe is a smart choice from the City's perspective. With the proposed green tax abatement bill, you 82 4/2/09 - FINANCE - BILL 090167 are making a substantial investment, and the LEED rating system is the best system that I am presently aware of that can provide validation that the taxpayers are truly getting what they pay for. Thank you.

Thank you very much. Are there questions on behalf of -- I'm sorry.

Councilwoman, my name is Spencer Finch. I am the Director of Sustainable Development for the Pennsylvania Environmental Council. I am here today representing the Pennsylvania Environmental Council, and our Senior Vice-President, Patrick Star, sends his greetings. First off, I would like to thank Councilman Jones and his staff for extending an invitation for us to testify here today. We remember the Councilman about a year ago when we released the "Building Green" report, which Sandy just 83 4/2/09 - FINANCE - BILL 090167 mentioned, was there. He not only sent his staff, but he was present during the hearing and very interested in the issues. So thank you. We also wanted to thank not only Councilman Jones, but also Councilwoman Reynolds Brown and Councilman Green for co-sponsoring this bill. This is an important issue; in fact, a critical issue, for the future competitiveness of our region, and we are happy that there is so much interest in this hearing today. I am an engineer and I have lived in Philadelphia for over 15 years. My colleague, Patrick, who can't be here today, has called Philadelphia home for even longer than I have, and he has squarely placed the Pennsylvania Environmental Council in the forefront of promoting smart growth and transit-oriented development in the region for many, many years now. 84 4/2/09 - FINANCE - BILL 090167 Although we have our roots here, we are a statewide organization with a broad view of these issues. For example, we helped the state complete its greenhouse gas inventory two years ago and released a stakeholder-driven climate change roadmap for the state in 2007 that has helped us focus on the long-term risks of continuing to do things as we have done in the past. These are the perspectives that we're bringing to this hearing today. In our "Building Green" report, as I mentioned that Sandy was the main author of and we also tapped the expertise of the Delaware Valley Green Building Council, we tried to boil down the opinions and expertise of all Philadelphians beyond the green business community. We talked to developers, government officials all over the City, and we wanted to boil down their expertise into a simple prescription for helping the City be a leader again in 85 4/2/09 - FINANCE - BILL 090167 green building. Here is the prescription: First, the consensus was expressed in the report was that City government had to lead the way in doing green buildings. The City cannot require the private sector to do what the City itself is not doing. Second, once that step is complete, the City should look at creating incentives for green building in the private sector. Because we are sensitive to the City's budget and tax issues, Sandy and us, we recommended that private sector incentives, at least initially, be revenue neutral, such as looking at creating an expedited system for permitting green buildings and creating zoning incentives, such as FAR or density bonuses. The final piece was education. Just to break from the script a little bit, I think our kids really learn about green issues quicker than any one of us 86 4/2/09 - FINANCE - BILL 090167 does, but all of us here in this room, in the professional communities, architects, engineers, really have to work at brushing up our knowledge, our expertise in relation to green issues, and I think our kids can lead that way. So to wrap up, the prescription is really public sector takes the lead. We look at private sector incentives. And we still believe that is the way to go. Let's pull back for one moment and recall that in the larger scheme of things, building in Philadelphia, building right here in our city, is green already. If you look at the amount of emissions that each one of us -- of greenhouse gas emissions that each one of us Philadelphia residents emits, it's less than half of the national average, just because we live in Philadelphia, and we walk and bike and take transit to work. That's one component.

Jaime Lerner, former Mayor of 87 4/2/09 - FINANCE - BILL 090167 what some call the world's most sustainable city, likes to say that the two most important decisions that any person can make in relation to sustainability are where you live and how you get to work. Because of the City's existing infrastructure in water, sewer and streets and existing transit and walkability, any development that happens here in the City will prevent sprawl, will help more people use transit and bike and walk to work and make our city, our region and our little corner of the United States more sustainable. As an environmental organization, we want more development in Philadelphia. Unfortunately, development in the City remains a somewhat costly and cumbersome process due to high labor costs, high cost of land assembly, high taxes, the second highest level in the nation of any major city. The existing property tax abatement is a relatively small inducement in the face of these 88 4/2/09 - FINANCE - BILL 090167 huge differentials and needs to be regarded with respect and care. We, like some others here today, are concerned that the enormous disparity between the level of taxes and the cost of housing here in the City when compared to those in the suburbs in fact becomes an incentive for not building green, for not building here in Philadelphia. The tax abatement policy can be enhanced, and in fact it might have to be, in these tough economic conditions, but we must also recognize Philadelphia's competitive disadvantage in a very difficult regional market. No shift in green building in Philadelphia will result from this bill 19 if building and retrofits in the City diminish even more and cease. In fact, we want more retrofits to happen, more energy-efficient, less toxic, healthier places to live and work. A green requirement might make sense for larger projects, as was mentioned a few minutes 89 4/2/09 - FINANCE - BILL 090167 ago; for example, multi-family structures over 20,000 square feet, and we should definitely look at different requirements for smaller-scale projects, for residential projects. It is important, however, to set the bar high in terms of the green standard that must be reached, and I really appreciate the expertise that Sandy brings to the table here. But we also must address the legitimate concerns of the affordable housing community and the development community. In closing, just so we understand how important this issue is, Pennsylvania was once second in the nation in the number of green buildings. We were pioneers. Today, we have fallen back to sixth, maybe seventh. We are not keeping up with our peer cities, including Pittsburgh right here in our state. Even Grand Rapids, Michigan has surpassed us. I want to say a thank-you to 90 4/2/09 - FINANCE - BILL 090167 those who are leading the way to make construction more sustainable in Philadelphia. We look forward to being a part of this critical discussion and to try and to achieve the agreement on the best way to move forward. After all, what we're talking about is something that we hold very dear, all of us here in this room, and it's the future of our communities, the future of our city. Thank you.

Thank you very much for your testimony. Questions? Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair, and good afternoon, gentlemen. Thank you for your testimony. Mr. Wiggins, I want to go back to a question that my colleague, Councilman Greenlee, and I had asked. You reference ten cities. I think they're probably the same ten cities that were referenced in Ms. Shapiro's 91 4/2/09 - FINANCE - BILL 090167 testimony. Do you know if any of those cities had or do have an alternative tax abatement program or is it one size fits all, meaning you either build green to get the ten-year tax abatement or you don't get a tax abatement? Do you know?

I don't know the answer to that. COUNCILMAN DiCICCO: No one has that answer. I think that's important, because it would help us to understand as we move through this to develop an incentive for building green as to whether it was either/or or is there some additional incentive we can offer that may offset some of the concerns and costs that Mr. Finch just mentioned in his testimony. It is much more expensive to build in Philadelphia than it is in the suburbs.

Councilman, if I may -- COUNCILMAN DiCICCO: And I'm not making excuses for the developers not 92 4/2/09 - FINANCE - BILL 090167 to build green, but we certainly need to figure out a way in which it could be a win-win for all of us.

There are several different examples of cities beyond these ten cities. These are the ones with the tax abatements, but there are different ways to provide incentives. Arlington, Virginia, for example, has a green building fund. Every development pays a very small fee, cents per square foot of the development, and it's the model that DC is trying to implement right now. And if you build green, you get reimbursed for that very small fee. We have a similar example here in our region in Doylestown that building permit costs are reimbursed. It's a very small community, but you can see that that model works at very different scales. Chicago -- we know about the budget issues here and tax issues here in our region, but Chicago has a different model. They take advantage of various 93 4/2/09 - FINANCE - BILL 090167 schemes of tax-increment financing and provide incentives for private developers and public and non-profit developers to build green. So there are different models. I think what really needs to happen is a conversation, everybody in the room, to try to figure out what works best. COUNCILMAN DiCICCO: I agree. And when we talk about abatements, I was actually going to introduce some bills, but I didn't think it was the politically correct thing to do with the economic situation in our city. But New York has numerous tax abatements, depending on location. They have tax abatements that are 10, 15 and 20 years. Some have to do with green and lots have to do with the economic demographics of a particular community. So, again, I think this is part of a great conversation and I'm glad that we're not trying to get this done today, because there's a lot of things that we 94 4/2/09 - FINANCE - BILL 090167 need to look at. So thank you all for your testimony.

Councilman Jones.

Thank you for those comments, Councilman DiCicco. I didn't say I wasn't trying to get it done today. If that miracle did happen, I would accept it, but I do appreciate the beginning of a dialogue in earnest. I think everyone here, including the development community, appreciates the existing tax abatement and its contribution to stabilizing Philadelphia. It is not, by any means -- and I underscore it again -- our intent to minimize its contribution. It is something that we always constantly need to evaluate and how to make it better, how to make it more expansive, and I believe green is one of those options. But specifically to some of your concerns and at the end of this, we 95 4/2/09 - FINANCE - BILL 090167 are going to come to the table and talk to stakeholders and maybe even offer amendments to this legislation that include size, that includes some of the resources that the stimulus package presents for small affordable housing developments. And we're open to all of that discussion, but sometimes when you try to make change, I understand how another legislator felt when he introduced the smoking ban or another one felt when they introduced menu labeling and that how it was going to be the end of the world if we did these things, and suddenly the sun rose, the world kept turning, and we kept growing as a city. But the thing that I am proud about today is that it's going to force us all to the table, because there are some people out there that actually do want to do away with the entire tax abatement, and if we can all come together in this urgency of time based on the state of the City's economy and come together and make it a 96 4/2/09 - FINANCE - BILL 090167 better city in the process by adding green, not a bad day at the office. Thank you, Madam Chair.

The Chair recognizes Councilwoman Brown.

Listen, I thank you all for your testimony as well. Please help me, though. Mr. Pennsylvania Environmental Council, you say Jaime Lerner. Where was he Mayor, what city?

He was Mayor of Curitiba, Brazil. It's a city of about the size of Philadelphia in southern Brazil.

Okay. And then one of the testifiers mentioned that "and the LEED rating system is the best system I'm presently aware of." I raise that only because I actually convened some developers, contractors, building construction, trade, labor folk around the green building bill to get their input, and the discovery for me were two 97 4/2/09 - FINANCE - BILL 090167 things: One, they did recommend or suggest that we need to go from 10,000 feet to 20,000 square feet. So I'm delighted to see that mentioned here also. But they also said LEED, though it may be the best, does not have to be the end-all, be-all for government to look at, because we don't want to create onerous, burdensome concerns for the development community. And so if you recognize that that's not where we want to end up, what alternative rating system would you recommend that moves us to LEED but is not LEED?

That was my testimony, and what I said was LEED is really the best and I think the only system that can be used or should be used by government for commercial buildings.

For commercial buildings?

Yeah. It is the only system in the country that is 98 4/2/09 - FINANCE - BILL 090167 completely consensus based. The development of LEED follows the guidelines of the federal Office of Management and Budget consensus process for development and goes through a very extensive vetting process with stakeholders. It's third-party validation. So there are many qualities to LEED that just don't exist with other rating systems, and it really provides a menu of selections that individual projects can pick from. They don't have to do it all, and they can pick what it is they want to do or what they think is appropriate to do for their particular project. But what's important from the City's perspective is both the fact that it's a consensus system and it comes with this third-party validation. So if the City is going to tie it to any kind of financial incentive or a mandate, they need to have the comfort that it's going 99 4/2/09 - FINANCE - BILL 090167 to be backed up by this validation, and there really isn't another good system to do that right now.

Okay. Please.

Councilwoman, could I just add to that as well? The beauty of LEED and coming from the banking perspective, if we're providing funding in forms of a loan for a project and I'm offering, say, a discounted rate, the beauty of LEED is, it validates that the consumer and the bank are actually getting what they're paying for. So it goes through a systemic approach that validates not only is this -- are you telling me you're going to build a high-efficiency building, but it actually goes through a validation process, so at the end of the day when the building is built, it's validated that it is actually a high-performing building. That, I think, adds value from all of our standpoints with that ultimate validation 100 4/2/09 - FINANCE - BILL 090167 that we are getting what we're paying for.

And thereby it becomes a universal, agreed-upon standard --

Exactly.

-- from various different sectors, in particular the banking community.

Exactly.

All right. Well, thank you all for your testimony.

Thank you very much. Any other questions, comments from members of the Committee? Councilman Green.

Thank you. Just real quick. The only testimony that, just for the record, the only testimony that we've heard today is essentially that building to a LEED standard has a zero to five percent increase in cost and the cash flow that 101 4/2/09 - FINANCE - BILL 090167 the building then produces as a consequence of that increased cost is significantly more, making the asset more valuable, because obviously buildings are valued on a multiple of cash flow. And I just wondered, Comcast -- I wanted to put this on the record. Comcast to be LEED Gold certified was six percent more expensive, and just wondered if your figures of zero to five percent were local figures or national figures, and then also whether or not you can break that down by residential single-family versus sort of apartment buildings versus commercial properties in terms of the increased cost. And if you don't have that information today, if you could just provide it to the Chair, and she'll make sure the Councilpeople get it.

If I could offer a quick response to that. I think those figures are sort of brackets that function all over the country, including locally, and when people talk about cost 102 4/2/09 - FINANCE - BILL 090167 related to developing green buildings or LEED-certified buildings and they ask what the premium is, my answer is always, it depends. And what it depends primarily on is the level of skill of the development team that's engaged in that, and that includes the designers and the developer as well, because it does require a fundamentally different development paradigm to make it work right. So Comcast, as an example, of a building -- that was started many, many years ago, and the team that developed that building is much more sophisticated today and I would venture to say that if they were doing it over today, the premium would be far less than it was when they estimated that six percent five or six years ago. So there is a learning curve associated with it. It generally always costs more the first time out and it gets better over time. 103 4/2/09 - FINANCE - BILL 090167

And what about the breakdown of single-family residential versus small apartment buildings versus commercial?

Yeah. I can see if we can find those statistics for you from resources at USGBC, but I think the paradigm I was talking about operates in all those different market sectors. I mean, we can give you lots of examples where LEED Gold buildings are being built for a zero premium.

The reason I ask that is because the Administration's main objection to this bill appears to be based on creating some uncertainty, creating additional cost or creating uncertainty as to cost. And so it's important to have data backing up what the actual cost differential is, and I think that would be helpful in the continuing discussion on this issue.

I would like to just add one final comment, even though 104 4/2/09 - FINANCE - BILL 090167 it's unsolicited, relative to the discussion that was going on earlier. I recently attended a real estate roundtable in Manhattan where 50 of the largest developers in the country came together, and the conversation there was primarily around the fact that they are all greening their portfolios, most of them using LEED, to protect their assets from obsolescence, because they see this as the hallmark of any quality building going forward.

Protect their assets from what?

Obsolescence, from becoming obsolete.

If you look at Comcast Tower, just to reinforce that point, any building in Philadelphia that is not a green building in just a few years might not be Class A office space, and Comcast Center will be because it is green.

Wow. 105 4/2/09 - FINANCE - BILL 090167 Thank you all so much. Any other comments or questions? (No response.)

Thank you for taking time out to come this afternoon to share this information. It's quite interesting. Thank you.

Thank you.

Thank you.

Our next panel will be John Gattuso, Sam Sherman, Kevin Gillen, John McDonald and Michael Sklaroff. (Witnesses approached witness table.)

Good afternoon.

Good afternoon. My name is Sam Sherman. I'm the President of the Building Industry Association and I'm here to testify today on Bill No. 090167, which would eliminate the current property tax abatement for 106 4/2/09 - FINANCE - BILL 090167 residential construction unless the project is LEED certified. I would like to thank the Committee members. I would like to thank Councilwoman Brown and Councilman Jones for allowing me to testify on this legislation.

You had to get their permission.

Typically, my style is not to read verbatim off of my prepared testimony.

That's good.

Because I see your eyes glaze over and you kind of -- so what I'm going to do is, I'm going to speak to you, first of all, on behalf of the industry itself, the industry I represent, but then also as a developer myself. The biggest apprehension that my fellow members in the development community have on this legislation is not 107 4/2/09 - FINANCE - BILL 090167 so much the concept of LEED or green building or sustainability. We believe that that market is emerging and that more and more consumers are going to expect it. It's going to become hopefully in the future akin to indoor plumbing and electricity, indoor wiring. However, given the economic situation that we're all suffering through right now in the real estate market and development market, the tax abatement is one of our last by-right tools to attract customers as well as make the pro formas work as it relates to construction costs. And by tying LEED certification to the tax abatement and especially by having a 100 percent of the tax abatement be attached to Platinum is problematic for my membership, in that there is a perception, right or wrong, that LEED will add construction costs. And with that, we also have to expect that if it does add cost, it's going to end up being passed on to the consumer, and right now 108 4/2/09 - FINANCE - BILL 090167 in today's mortgage environment, it's very difficult for homeowners to get mortgages or home buyers to get mortgages in this economic climate. So our biggest concern is the co-joining of the legislation with the abatement and making the abatement and turning the abatement into an incentive that right now the abatement is an incentive as it stands right now. Our biggest fear is that with the uncertainty and the possible increase in construction costs, it would make a lot of pro formas not work right now. As a developer in the City of Philadelphia, I have made the business decision to pursue all future projects incorporating either LEED or sustainability. As a matter of fact, I'll be working hopefully on the next project with Tim's firm as the architects, because that is their area of specialty. As an architect, designer and developer and general contractor, they 109 4/2/09 - FINANCE - BILL 090167 specialize in that. And I am employing that technology and that set of principles because I believe that it will lower the operating costs of the building that I plan to renovate. It will be a rental mixed-use project. But that's my choice. And right now I would ask that if we are going to agree and adopt on a common standard that would apply citywide, that we not use the tax abatement as the incentive, but as was mentioned earlier by Andy Altman and a few others that testified, that we really drill down and explore the funding that's coming from Washington through the Obama Administration and see if we can't set up a fund and use that as an incentive to apply to projects that want to be certified. Secondly, I've been advocating on the national level for a number of years through another position I hold at the Congress for the New Urbanism to create at Fannie Mae and Freddie Mac a 110 4/2/09 - FINANCE - BILL 090167 green location efficient mortgage product that would reduce the mortgage rate for the buyers of LEED certified or green or sustainable developments so that it would attract the buying public to the project as well. It's one thing to get the developers to buy in, but then we have to sell these houses or we have to lease these commercial spaces. And if there's an increased purchase price as a result of the legislation, we may be alienating the very set of circumstances we are trying to create. So with that, I'm going to be brief. I am brief. I'm going to end my testimony. I'm going to pass it on to Kevin. Thank you very much.

If you're passing it on to Kevin, you have to take the seat behind Kevin.

Good afternoon, members of Council. Thank you very much for the opportunity to testify today. 111 4/2/09 - FINANCE - BILL 090167 I'm Kevin Gillen. D. economics alumnus of the Wharton School where I hold the position as a Research Fellow with Penn's Institute for Urban Research and I'm also a Vice-President at Econsult Corporation. At Econsult and at Penn we've worked on a number of green initiatives here in Philadelphia. We did a paper about two years ago demonstrating that the cleaning and greening of vacant lots in the City added substantial value to the property values of neighbors. At Econsult we've done extensive work to help make the Schuylkill greenway happen, the Delaware River greenway, as well as, of course, we did the fiscal impact analysis of the Comcast building, where last I checked is the tallest green building in America. I'd like to begin before my prepared comments with just a little brush-clearing, because there were some questions from the previous panels just 112 4/2/09 - FINANCE - BILL 090167 about basic data points. Regarding abated properties in Philadelphia, the number is just a little bit over 10,000. There are 10,000 properties in Philadelphia that have an abatement. You should have an information packet, which I gave to your staff, that actually has a map of abated properties in Philadelphia. I believe it's the last page in there. Interestingly enough, that 10,000 number is very recent. It was only this past February that the City crossed the 10,000 mark in terms of abated properties. So even in this very difficult and challenging environment, there are still households out there in Philadelphia that are investing in their homes, upgrading their homes, improving their homes, which, of course, increases our tax base even in these very challenging times for the housing market. Regarding the dollar amount of property tax revenues that are abated, 113 4/2/09 - FINANCE - BILL 090167 currently there's been $76 million in property tax revenues abated. In other words, if you were to terminate the abatement program today and put all those properties back on the tax roll, the revenue windfall to the City would be 76 million a year. Be aware, that is under current assessments. So when actual value comes through, we should expect to see that number increase substantially. Third, regarding the level of construction costs in Philadelphia, according to RSMeans, which is an independent national firm, Philadelphia's average cost of construction for residences is about percent above the 18 national average. We are fourth in line behind New York, San Francisco and Boston, in that order. It's an interesting group to be clustered with in terms of construction costs, because house prices and rents and property values in New York, San Francisco and Boston are substantially higher than here 114 4/2/09 - FINANCE - BILL 090167 in Philadelphia, but our construction costs are more directly comparable with theirs. Because of that, I would be careful of inner-city comparisons regarding other green incentive programs. Those programs that add to costs are fine in those markets, which either have low costs, like Baltimore which has a substantial program, or they can also work in high-cost markets that also have very high prices in rents, like New York, San Francisco and Boston. Philadelphia is really unique. It's sort of an outlier of the city, in that we have New York construction costs here but we have Baltimore house prices. And the abatement helps bridge that gap, but currently it has not helped bridge it by a sufficient distance to provide more affordable housing here in Philadelphia. Lastly, regarding the cost of green, according -- I checked with a LEED-certified green building consultant here in the Midatlantic, to do a 115 4/2/09 - FINANCE - BILL 090167 residential property with a Platinum LEED cert, the average cost is to 4 percent above what it would be otherwise 5 without Platinum, and then it goes down 6 from there.

So Silver would be -- Gold 7 would be 10 to 15 percent, Silver five to 8 ten percent. 9 That 15 to 20 percent number to 10 get Platinum certification is significant 11 when you consider they're already 18 12 percent above the national average in 13 terms of construction costs, because that 14 puts your overall cost of construction to 15 do a new house or a new apartment 16 building with Platinum LEED certification 17 north of 30 percent above what it would 18 be otherwise compared to the national 19 average. So those are just some basic 20 numbers to answer some earlier questions. Three points I'd like to make about the current legislation as it stands. LEED certification, if it's used as the standard to grant the abatement, applies only to entire buildings. 116 4/2/09 - FINANCE - BILL 090167 There's, to the best of my knowledge, no 3 such thing as a LEED-certified improvement. So if you put a deck on your home in Mount Airy that's made from sustainably harvested wood, that would not be abated. If you did a green kitchen remodel in Fox Chase, that can't get LEED certification, so, hence, it wouldn't get abated. Since it's only entire buildings, in order to get the full abatement, you would either have to be total gut rehab of a property or it would have to be all new construction. So, again, the legislation as it stands, although we support the objectives of it, would not just limit abatements to just green improvements, it would limit abatements to either green all new construction or green total gut rehabs. Just basic improvements or modifications to your building would not qualify. Secondly, as I pointed out, Platinum certification, which is what you 117 4/2/09 - FINANCE - BILL 090167 would need to get the full abatement, adds on average to percent of cost. 4 That would be on top of the 18 percent 5 cost of premium in the City, which is a 6 substantial gulf to bridge relative to 7 what prices are in Philadelphia. The 8 average house price in Philadelphia is 9 about 110 bucks a foot. The average 10 construction cost for homes start at 11 about 175 a foot. If you're doing 12 Platinum LEED on top of that, you're 13 looking at north of $200 a foot. That's 14 close to a hundred-dollar-a-foot gap that 15 you've got to cross if you're going to 16 sell or rent that house in a pure market 17 environment. 18 Lastly, another practical point 19 regarding the legislation, if USGBC, 20 which is the LEED certifying entity that would be required to get an abatement, is used as the standard, currently there's about an eight- to 12-month average backlog at USGBC to get LEED certification. Plus, there's uncertainty 118 4/2/09 - FINANCE - BILL 090167 on whether or not you would actually get the certification. So currently when you finish a new property or an improvement, you just file your building permit with the BRT and there's a relatively short turnaround time before you get your abatement. Because of that average eight- to 12-month backlog, that's going to significantly lengthen that time, as well as, of course, there's going to be uncertainty about whether or not you'll get the certification that you're aiming for. You may be aiming for Platinum. You may end up only getting Silver or Gold. And this is just something that when factored into pro formas, uncertainty in time equal additional money, unfortunately. So those are the three basic comments that I had about this legislation. That being said, we've actively worked on a lot of green-oriented initiatives and public policy initiatives here in Philadelphia 119 4/2/09 - FINANCE - BILL 090167 before, and we certainly salute the Councilman and members of Council for trying to promote the agenda of making Philadelphia America's greenest city, and we hope to be able to constructively contribute to this conversation going forward. Thank you very much.

Thank you very much.

Point of information. Did you want to wait until everyone --

Yes, I'd like to wait. Who is next?

Good afternoon, Councilmembers. Lee Huang. I'm a Director at Econsult Corporation. Green considerations are certainly public considerations, so it makes sense to try to incentivize that sort of development. My perspective is that the current ten-year property tax 120 4/2/09 - FINANCE - BILL 090167 abatement is good policy on its own and, therefore, a green tax abatement should seek to augment that existing policy rather than replace it. You've heard from Kevin that thousands of units have been abated, many of which are outside -- are in neighborhoods outside of Center City. A report that we did in 2006 also noted that, conservatively, two-thirds of units were induced by the abatement. They would not have existed or have been built but for the abatement. This is for residential. The number is likely much, much higher for commercial. But I want to talk about something a little bit more thorny. One need only look at this morning's paper to know that not everyone agrees with me that the existing abatement program is good policy. In fact, Two Liberty Place is considered a particularly controversial example. So I wanted to walk you through a typical condo owner at 121 4/2/09 - FINANCE - BILL 090167 Two Liberty Place and see if the use of the abatement there is good policy for the City. Generally speaking, to be sure, the City does forego ten years worth of property tax revenues when a high-end unit is built and bought. However, between real estate transfer taxes, wage taxes and sales taxes, all of which kick in immediately, as well as the property taxes that are collected after the abatement expires, the City more than makes up for those upfront foregone tax revenues, importantly, both immediately as well as over the long haul, and I want to use very briefly some actual numbers to illustrate this. 1 million. And, by the way, there are about as many people in the building that paid more for their unit as paid less. So that's about the median. 122 4/2/09 - FINANCE - BILL 090167 Let's call him Mr. Liberty. Mr. Liberty's property tax bill would probably be about $18,000 a year, but because of the abatement, he will only owe about 3,000. That 3,000 represents the tax bill on the land itself and the $15,000 difference represents the tax that's owed on the enhancement to the property. So that 15,000 is what gets abated. So for the first ten years, Mr. Liberty would pay 3,000 in property taxes and the City would forego 15,000. Mr. Liberty would also pay, as a low assumption of estimate, about $15,000 a year in wage taxes and sales taxes, and one-time upfront, Mr. Liberty would probably pay somewhere on the order of $33,000 in real estate transfer tax. So if you add all that up within the ten-year tax abatement period, the City would be foregoing about $150,000 in property tax revenue, but it would be receiving $210,000 of tax revenues from 123 4/2/09 - FINANCE - BILL 090167 Mr. Liberty. Doing the math, that's plus 60,000 for the City during the first ten years, and then every year after that, Mr. Liberty will pay about $36,000 in total taxes, property, wage and sales. So that over 30 years, the City will be plus almost 800,000 or more as a result of Mr. Liberty. And I've provided some charts, and you'll notice that that positive gain to the City, it happens right away. It's not something that you have to wait for. If you multiply Mr. Liberty's contribution of plus 800,000 over 30 years by the thousands of units that are benefiting from the abatement, you have a lot of money that's coming into the City coffer. But let me look at this another way. Remember that our estimate that the property tax abatement induced two-thirds of new or renovated units. So we can look at two scenarios, one in which the 124 4/2/09 - FINANCE - BILL 090167 property tax abatement exists and you have three people like Mr.

Liberty moving in, buying condos, not paying property taxes for the first ten years, paying all the other taxes and then paying all taxes after those ten years, and a second scenario in which the property tax abatement does not exist, in which case you only have one of those Mr. Liberties, they pay property tax right away, as well as all the other taxes. We ran those numbers and we found that during the first ten years, which is when the property tax abatement would be in effect, you'd have $270,000 more in tax revenues to the City under the "with abatement" scenario than under the "without abatement" scenario. 7 million. You multiply that over thousands of units over time, as Kevin mentioned. You're talking about a lot of money goes into the City's coffers. So in conclusion, in an 125 4/2/09 - FINANCE - BILL 090167 environment in which every dollar counts, the property tax abatement program in its existing form brings net new cash into the City budget from day one. Thanks very much.

You made it very clear and I don't know how it gets translated. It doesn't get translated clearly like that. It doesn't get translated clearly like that. Very clear. Michael.

Madam Chairman, members of the Committee, good to be here. I'm here as Chair of the Development Workshop, Incorporated, which is a non-profit dedicated to promoting development in the City to help create jobs, protect and nourish sustainable neighborhoods, and increase the tax base. We are developers, both large and small. We are planners. We're architects. We're consultants, and we're lawyers. In this case, a lawyer. 126 4/2/09 - FINANCE - BILL 090167 In any event, we're happy to be here, and really given the wonderful statements of Deputy Mayor Andy Altman, Sam Sherman and the folks from Econsult, we really stand on that record. I think they make the case. The members of the Workshop support green buildings, support sustainability efforts. Among our members are developers who develop green buildings across the country, but as was said before, the unintended consequences of a bill like this, which begins to erode the ten-year tax abatement, is really not good for the City of Philadelphia in any way, and I think the numbers from Econsult and Mr. Huang and Mr. Gillen really make the case as well as anybody could. So thank you for the opportunity to be here and thank you very much for your consideration.

We thank you for your comments and taking time 127 4/2/09 - FINANCE - BILL 090167 out, but I was thinking that Mr. Sherman has chosen on his own to move towards the green buildings. So maybe through his collaboration with your organization -- and I'm sure he's probably a member of that -- it will begin to change the thinking of the other --

Yes. I'll respond to that very briefly. Members of the Workshop are doing green buildings all over the country and in Philadelphia. So we believe that that will be -- green buildings will be the standard, not because they're legislated, but because they make sense, because they save money. But, again, conditioning our tax abatement, which really was the "but for" for a lot of good development in the City when other factors were positive, that is important. That's what's drawing investment into the City and it's really urgent that we keep it.

If I might add, in my written testimony I think I made 128 4/2/09 - FINANCE - BILL 090167 clear that the Building Industry Association does have a Green Committee, and we provide ongoing seminars, continuing education and outreach and tour green projects through the City a couple times a year. And so we are aware of this and we are doing the outreach within our own membership to educate them on the techniques.

One other thing I might add to this is that the Workshop has people who come to demonstrate various techniques and folks from the City and so forth, and we had a member of the Green Building Council do a presentation to us several months ago. So we're really very appreciative of their efforts, and our people are using their methods.

Thank you.

Point of information. I appreciate the testimony that was given and I understand a lot of work 129 4/2/09 - FINANCE - BILL 090167 was put into it, particularly Mr. Huang's information from Econsult, but it had a premise that based on the revenue projections from, I think it was, 1.7 million revenues, wage taxes, that somehow that tax abatement would not -- would have generated it, but the green tax abatement would not have generated that same 1.7 million. And I just want it on the record, one tax abatement -- it's not whether or not a tax abatement in my mind is a good thing. I think it is, but what form it should take and how green it should be is what is being debated here today. But I do not support the elimination of the tax abatement. I want that really clear. I want it to evolve, however, to include reduction of greenhouse gases. I want it to evolve to include the aesthetics and calming effect of green moves and things of that nature. I do not want it to go away or provide a disincentive for development. And you mentioned also that 130 4/2/09 - FINANCE - BILL 090167 there was an percent differential in construction in Philadelphia. I think that was your testimony. Is that due to green?

No. 7

I want you 8 to say that on the record. 9

Going to the first 10 point, the difference in the two 11 scenarios that Mr. Huang analyzed, the 12 revenues would not change. What would 13 change would be the construction costs 14 under this bill. To get the full 15 abatement, you would need to apply -- 16

Which every 17 day, would you agree, those costs are 18 coming down, every day?

They're still very high.

That's not my question. Every day is it coming closer to market rate? To do green is becoming the norm as opposed to the beta testing increase in price perception; is 131 4/2/09 - FINANCE - BILL 090167 that correct?

Green continues to make steady progress towards becoming more positive.

So it is coming down. The second point of it is, you said that percent differential in 10 construction in Philadelphia is not due 11 to green, correct? 12

Correct. But the 13 additional 15 to 20 percent to get the 14 full abatement under his scenario would 15 be due to green, because you need 16 Platinum certification. 17

Okay. So 18 the point is at what level green it should be, correct?

Right. Everything that you've said I would completely agree with. I think my testimony is not intended to predict whether a green abatement would have more or less inducement than the existing abatement. 132 4/2/09 - FINANCE - BILL 090167 It's simply to affirm the validity as good policy of the existing abatement.

Thank you.

Councilman Green.

Thank you. Mr. Huang, just to confirm what you said, your study did not look at what the economic impact would be on the City of Philadelphia comparing the current abatement to a green abatement?

No. 14

Okay. So would you agree that if there is no cost differential or a minimal cost differential between green building and not green building, that we have the same economic impact or a negligible difference in economic impact from green building required for the abatement versus the current law?

If in fact all things being equal, including the cost, then people would behave in the same way 133 4/2/09 - FINANCE - BILL 090167 and we would see the same proportion of units induced by and, therefore, credited to, if you will, the abatement program in whatever form it's in.

Okay. So really what we're talking about is whether or not building green costs more and how much more in order to figure out whether or not this switch if we want to be the greenest city in America, which is my goal --

No pun intended.

-- this switch would really not impact construction. And that's why I asked the previous people who testified that the cost differential was zero to five percent, which is actually based on sort of national and local data, not the views of one person who is talked to by the person who testified on this panel. The data here is really important in terms of whether or not this is a sound policy for 134 4/2/09 - FINANCE - BILL 090167 the City of Philadelphia to follow, and I think where we are is, there's not a lot of data at least being put forward by opponents of this measure that demonstrate that this will have a negative impact on construction.

Right. I do think that understanding the extent to which LEED certification or other certifications may or may not influence cost or other decision-making criteria is important to study further. My point was that as a baseline, the existing --

No. I completely understand your point.

Well, let me finish. If you are interested from a public policy standpoint -- and I happen to agree with this sentiment -- that you want to incentivize green building, then use the existing abatement program as a baseline and completely remove it from the discussion and now let's talk about additional incentives rather than 135 4/2/09 - FINANCE - BILL 090167 replacement incentives over and above the menu of incentives that are being used.

I understand that, but if our policy -- we did not target this tax abatement around specific neighborhoods that needed development, like many other cities, New York, did, et cetera. We did not target this in any way. We said we're applying it citywide and the entire city is, quote/unquote, a distressed area. What I think may be better public policy is to actually target abatements so that we can actually have a specific intended impact, as long as we're not hurting our tax base. And I would agree, we can't afford to hurt our tax base. We can't afford to have less money come in. But if the same money comes in, we can -- rather than what you're proposing, if there is no cost differential between building green or a negligible cost differential between building green and not building green, 136 4/2/09 - FINANCE - BILL 090167 what you're proposing would actually cost the City dollars, because if there's no 4 cost difference, there's no need to provide additional incentive for building green. You can use the current abatement. So the logic there doesn't work, assuming -- and this is what we need data on -- the cost is the same. Would you agree with that?

Well, again, if the cost is the same, then that is certainly the conclusion that you could draw, that if, for example, the existing abatement is ten years, but if you go green, it's 15 years, then you'd be giving away those extra five years without -- as a straight subsidy without any sort of cost that you would be subsidizing.

Right. That policy would adversely impact the City's revenues. I'm sorry, Michael. I was asking Mr. Huang.

If in fact again 137 4/2/09 - FINANCE - BILL 090167 all things being equal, including the cost situation, then you could make that case.

Thank you.

I would just like to follow up with just a few comments.

Actually, before you do, I have just three more questions for Mr. Huang. And you don't have to provide this information now, but if you could provide it to the Chair. My recollection of your study -- and I did actually read it --

The 2006 study?

Yes. (Continued) -- was that it didn't really control properly for a number of factors. One is, across the country people are moving into cities and construction was happening in cities, and there was a trend demographically where older people are moving back into center cities. So that's -- and the other thing was that -- 138 4/2/09 - FINANCE - BILL 090167 I'm sorry. There was not -- it didn't seem to control for a potential for what I would view, considering the great housing stock we have in the City, the impact on creating an incentive for new construction versus doing rehab, and the other is its potential depression of prices of existing homes, because people move -- people who are going to move in want the incentive of a tax abatement and people make home-buying decisions a lot of times today based on payments, not based on cost. That's why interest rates have such an impact on where prices sell. And rather than going into a long explanation here about that, if you could provide that information to the Chair --

Sure.

-- what kind of controls you had in place for those factors, I would appreciate it.

Sure. The report does go into detail as to how we derived our notion of this "but for" or induced. 139 4/2/09 - FINANCE - BILL 090167 I would just simply quickly note that, yes, there was an urban renaissance nationally that Philadelphia did enjoy. However, you would think then that our permits would steadily increase as we took advantage of this wave. In fact, the very year before the rollout of the abatement in its existing form, there were zero such permits. So it really went from zero to a very significant number, and one has to assume, therefore, that a large portion of that was as a result not just of national demographic trends but of specific legislation that made it easier for units to be built and bought.

How many permits for rehab existed or happened the previous year versus the year the abatement went into place?

There's actually a bar chart in our report comparing building permits in 1999-2005 in Philly versus the surrounding counties. In 140 4/2/09 - FINANCE - BILL 090167 1999, it was something like -- there was a total of --

The question wasn't new construction. It was rehab versus --

Offhand I don't have the difference between the two. I know there was about 150 building permits in Philadelphia in 1999 when there were thousands in the counties, and by 2005, we had actually surpassed the counties.

I'm not arguing with the premise and I do believe that there was a positive impact. I mean, I don't think everything was properly controlled for, but I do think that there was a positive economic impact and I'm not arguing with that premise. All I'm saying is, if the costs are roughly equivalent, there's no reason not to target green construction, although it would take away Mr. Sherman's competitive advantage that he currently has from building green. 141 4/2/09 - FINANCE - BILL 090167 Okay. So who is the person who provided you with the cost for single-family residence at to 5 percent higher? 6

It was a colleague 7 of mine. His name is Brian Uher. He's a 8 Wharton alum. He's a LEED-certified 9 green building consultant and Chief of 10 Operations for a company in Washington 11 called Amicus Green. 12

Okay. And 13 so was that based on his experience or 14 based on data from studies that have been 15 done? 16

He researched it 17 via US Green Building Council and the 18 National Association of Home Builders. 19

Well, we've 20 had testimony today that the US Green Building Council has it as a negligible cost. But I also think something we ought to look at is, obviously for a single-family home it probably is more expensive significantly versus a large 142 4/2/09 - FINANCE - BILL 090167 commercial building or a large Liberty type building. It's not -- and maybe something we need to consider here and get that on is the difference by property type, and where there is no significant difference in cost, perhaps we force builders to go green. Would you guys --

If I can speak to the issue of cost. The cost may be fairly negligible using the LEED certification standard, because the LEED certification standard works on points regarding different things, if you use sustainably harvested materials, recycled/reclaimed materials, energy systems. But each of those different things that get you points have very, very different costs. The cosmetic, if I can call them that, green changes, putting in bamboo cabinets and using low volatile organic compound paints, those are negligible costs. The costs, as the Councilman asked me earlier, have come down significantly and are roughly in 143 4/2/09 - FINANCE - BILL 090167 line with just using the non-green materials. Where the costs are very high are on the energy efficiency side. If you're putting in photovoltaic solar panels, if you're putting in geothermal heating systems, if you have to gut a ducted air conditioning system or replace it with radiant floor heating, those are very, very expensive. That's where your to percent cost comes. 13 Insofar as -- 14

The figure 15 you gave me was for, according to your 16 previous testimony, a single-family home. 17

Correct. 18

Okay. 19 That's my point. That's all. 20 Thank you.

I don't want to curtail debate or discussion. I think it's very good and very healthy. We have another panel and then we still have another hearing. What I would 144 4/2/09 - FINANCE - BILL 090167 suggest and recommend to Councilman Jones, as well as the other sponsors of this piece of legislation, to have further discussion probably in the caucus or additional meetings where you sort of thresh out some of the issues that have been raised today, because the bill is not going to be voted out today. It was just for a hearing. And we will come back again and further discuss it and do whatever the sponsors want to do with the bill once I think that we have something that they might want to go with. COUNCILMAN DiCICCO: Could I just ask --

With one exception, that we have a gentleman on the panel that's sitting there --

I'm not stopping that. I'm just trying to say that to my colleagues, we can have longer discussion in the back room. COUNCILMAN DiCICCO: Madam Chair? 145 4/2/09 - FINANCE - BILL 090167

Because we'll be here all day. Okay. Yes. We're going to get everybody. Thank you. COUNCILMAN DiCICCO: Madam Chair, I just want to go back on a point that my colleague raised. He was talking about statistics, and I think Mr. Lee mentioned about the number of permits that were eventually pulled out that people applied for in a certain given time. There were two bills. There was a bill in 1997, which was the conversion bill, that allowed for rehabs, and during that time up until 2000, there was a three-year tax abatement for new construction, which basically no one was taking advantage of. So the number of permits that were being pulled is going to change dramatically at 2000, even though there were a significant number pulled between '97 and 2000 on the rehab. And that's -- there was some 80-some-odd 146 4/2/09 - FINANCE - BILL 090167 buildings, I believe, in the core of Center City that were formerly vacant buildings that were ultimately converted into residential development. So I just want to -- you're looking at me strange, Mike. I don't know if I'm explaining it. Because I think I heard you question the number of permits as it related to Mr. Lee's statement about the demographics and people moving into the City. There were two different dynamics going on. The conversion bill was for rental units primarily.

The study was based on new construction. COUNCILMAN DiCICCO: On new construction. It didn't include -- so if that can be demonstrated. It may be in the Econsult report. It's been a few years since I looked at it. I think that would be important as well.

When we did the report, we dropped properties that were 147 4/2/09 - FINANCE - BILL 090167 under abatements that had been sunset, the conversion and that three-year new construction abatement. They were not included in the sample of data that we used in the study. COUNCILMAN DiCICCO: Thank you.

Thank you very much. Sir, you want to testify? MR. McDONALD: Yes, if you don't mind.

No. 14 Please go ahead. MR. McDONALD: My name is Johnny McDonald. I'm a principal in an architectural firm by the name of Plumbob, a construction firm by the name of JIG and a development firm by the name of Onion Flats. As a small developer, a developer of between five and ten, six and a dozen units at a time, I have to first say that I believe that the tax abatement -- the current structure of the 148 4/2/09 - FINANCE - BILL 090167 tax abatement in the City of Philadelphia is really a very critical part to development here. As Councilman DiCicco just referred to, in 1997 our firm was granted the second tax abatement in the City of Philadelphia's history in Old City, in your district. I definitely think that that spurred some tremendous following development for the City. I believe, as it's been stated by several people in testimony, including Deputy Mayor Altman today, that the City has now created a pipeline of tax abatements, and we're about to see a windfall of -- the City is about to see the windfall of the past decade of abated property taxes. I can speak personally, because I just lost my tax abatement after ten years and my personal taxes have literally tripled, and that was after a debate and a winning debate at the BRT, that it was reserved, my taxes were increased too much too fast. So they knocked them down a little bit. 149 4/2/09 - FINANCE - BILL 090167 Nevertheless, tripled the tax base personally. With that being said, I believe it's absolute and total money in the bank for the City of Philadelphia, and I'd hate to see that economic stimulus go away. Further, as a sustainable developer, my firm has developed the first LEED-certified projects in the City of Philadelphia. They achieved Gold certification. And, most recently, we have developed the first LEED for Homes residential duplex to hit Platinum certification in the nation. I testified back in October as these hearings were coming together that in order for us to hit these LEED certification standards, they have not been a big stretch for us. I think we can debate back and forth what is the correct certification. I think that's a conversation for a different day maybe. But what I will say is that when it comes to cost -- I'm sorry. First I'd like to say, the LEED certification I 150 4/2/09 - FINANCE - BILL 090167 believe is so very attainable inside of an urban area, such as Philadelphia, because of the checklist of items that you need to be credited with in order to receive the certification, things like relationships to public transportation, walkable amenities, churches, schools, shopping. Further, the City of Philadelphia has an enormous benefit because of its typology of housing stock. It's a prototypical row home typology. As a result, major components of the LEED certification is site usage, and the row home typology fully takes advantage of that. As a segue to cost, because that's on everyone's high list of concerns, as a result of being in an urban environment, I have found in the projects that I've built negligible, at most, and, frankly, no increase in cost, and that's to attain Gold and Platinum certification. 151 4/2/09 - FINANCE - BILL 090167 Further, I think that because we're talking about the City of Philadelphia, just a well-built building will get you -- and don't quote me on this. This has nothing to do with national averages or statistics. It will get you almost all of the way there for LEED certification. When it comes to the conversation of the learning curve around green building, I actually see a huge opportunity for the City of Philadelphia, because there will quickly become training programs, which will quickly increase the skill levels of our labor force, specific to the construction market.

For me, that automatically equals value, and as a result of a higher value workforce, it automatically equates to jobs, which is, I think, very critical inside of the entire conversation of sustainability, both environmental and absolutely economic. There was some conversation 152 4/2/09 - FINANCE - BILL 090167 around incentives, why give any incentives for green building if there's been good development happening already in the City. For me, it's more of a holistic look at 50 years down the line, the type of city that we're all really interested in building. I believe that the incentives for green building can be as simple as some better fast-tracking policy around permitting, for zoning and building permits, but I do believe that a tax abatement hinged to a green -- and I don't like the word "green" very much, but a sustainable and, further, a verified and third-party certified, such as the LEED certification, really will create a higher level of building and, as a result, a better atmosphere for the community of Philadelphia. Some of the notes that I've written down throughout this conversation have to do with this collaborative effort. And by all means do I believe that for this bill to become in effect, I 153 4/2/09 - FINANCE - BILL 090167 think it's going to take -- and I think we all agree -- it's going to take some more conversations. And I don't really -- the great thing that I've experienced here is, I agree with everyone. I don't feel as though I've heard any contrary opinions. It's just about how it's going to get worked out. And I think that's really critical, and I think we're on the precipice of something here that's great. I want to thank you all for letting me be part of this. Specifically, I'd like to recognize Councilwoman Reynolds Brown and Councilmen Jones and Green for taking this very, very important and critical and bold step towards bringing this out into the public view. I'm a sustainable builder. It would obviously add to my market distinction, but I think in the broader scope and looking more holistically at the good of the City, it needs to happen. 154 4/2/09 - FINANCE - BILL 090167 We need to incentivize green building. I think the tax abatement is something that is very important, as my colleague, Mr. Sherman, said. It's pretty important to development in general historically. Ultimately, I believe it will become the norm, but to get us from here to there, if we can create a way to wean us off, frankly, of low-quality buildings and incentivize high-quality buildings at the same time, I think those growing pains will become fewer and further between in a very short amount of time. Thank you.

Thank you. Thank you all. Any questions or comments? (No response.)

Thank you all for your testimony. We appreciate it.

Madam Chair, not to belabor the point. I swear I'm going to be brief. I had an opportunity 155 4/2/09 - FINANCE - BILL 090167 to go to Onion Flats. You are a local developer, you and your brothers? MR. McDONALD: Correct.

West Kensington? MR. McDONALD: New Kensington.

It's now New Kensington, because property values went up, right? MR. McDONALD: Kensington.

You were able to achieve this without any great increase in cost? MR. McDONALD: In construction costs?

Yes. MR. McDONALD: No -- yes, we were able to achieve this with negligible, if any, increase in construction costs.

You were able to meet market and people are clamoring to get to your development. 156 4/2/09 - FINANCE - BILL 090167 You would be classified as a small developer? MR. McDONALD: Yeah, very small. It was an eight-unit project, the Thin Flats project.

Finally, this tax abatement would help to incentivize people like you to get into the green -- excuse me; sustainable building construction and residential properties? MR. McDONALD: Moreover, I believe -- I'm in it, so I do this, but I think I'm the exception as opposed to the norm. More importantly, I believe that legislation similar to this, working through it with a collaborative effort of all parties, will incentivize folks that aren't building sustainable buildings to build higher-performance buildings.

And I would just say, Madam Chair, that if there was ever a reason for me to move out of my 157 4/2/09 - FINANCE - BILL 090167 district, Onion Flats is it. We walked through there and it is absolutely gorgeous. MR. McDONALD: I got one for sale.

Thank you. MR. McDONALD: Open house Sunday.

Thank you.

Mr. McDonald, I want to echo, that is an amazing enterprise. MR. McDONALD: Thank you.

And you are indeed leading by example. Congratulations. MR. McDONALD: Thank you. And if I can just -- we've had an amazing experience of creating these projects, and I have to say that, Councilman DiCicco, you've been totally supportive of this development that we've been doing for years, for over a decade. So let me go on the record by thanking you for 158 4/2/09 - FINANCE - BILL 090167 that. And thank you all, of course.

Thank you so much. Next, Joe Weidle, Bedwell Corporation; Thomas Massaro; and Rick Sauer. (Witnesses approached witness table.)

Good evening. Whoever would like to start, feel free to do so.

I'm going to start. My name is Joe Weidle.

Would you pull your mike closer. We can't hear you.

My name is Joe Weidle, and I'm going to talk a little bit about green education and the trades, a little bit about me. I've been a union carpenter in Philadelphia for 32 years. I've been active in the building trades. I have been involved in green building since 159 4/2/09 - FINANCE - BILL 090167 about 1998. I'm one of the founders of the Delaware Valley Green Building Council. And I am very interested in this bill because I think there's some other consequences of this in terms of how it goes forward. What I've been asked to talk about today is engaging the trades in the type of training we have going on and some of the initiatives that -- you've already heard about several of them in fact. Mr. McDonald's brother Patrick is one of our trainers. In 2003, myself and Rob Flemming from Philadelphia University created a training called Green Advantage. The purpose of Green Advantage was to engage the building trades, the actual people that do the work in green building, to teach them that it was not that difficult, that it was achievable on a day-to-day level and to engage them to be part of the sustainable process. 160 4/2/09 - FINANCE - BILL 090167 We're very fortunate in the fact that in 2005 the Green Advantage training was picked up as a national standard for construction certification in the United States, which means that basically Philadelphia has created these standards for all contractors around the United States. At the present time, we have 50 instructors around the country. We're teaching virtually in every state. And myself personally, I have a long history here of construction in Philadelphia and development. As a matter of fact, I'm the one that developed this room that we're sitting in right here. If you remember a few years ago, there was a leak. I was the contractor that reconstructed City Council Chambers. On Monday, I started a LEED Silver project, the Community College of Philadelphia. I started the Northeast campus, which is LEED Silver. We broke ground on Monday, and hopefully that will 161 4/2/09 - FINANCE - BILL 090167 be a good project. Why I think this is important is for several reasons. One, I want to just say that I travel around the United States teaching contractors and developers how to be green and how to do it at no cost, and to teach them that it's really not rocket science and that if they take the present principles and structures that they have in place right now, they can make this happen. To date, we've trained about 6,000 personnel, including a fair amount in Philadelphia. I think -- I gave a little handout and because of the sake that we're running so late, I think there's a couple of considerations. On the first part of it, what we're seeing around the country, in areas that embrace green building as a standard, it's creating new industries and new jobs and new workforce development. And what I mean by that is that you're seeing completely new industries using recycled products that 162 4/2/09 - FINANCE - BILL 090167 are being sold right back in the marketplace. We've missed some great opportunities in Philadelphia. One of those, if you remember the Neighborhood Transition Initiative --

Just a moment, please. Could we ask the conversation to please go to the hall. It's a little distracting for the witness. If you all could just curtail the conversation. Thank you.

One of the opportunities, if you'll recall the Neighborhood Transition Initiative, there was a small pilot program in which five of the houses were deconstructed, which is a green practice rather than demolished, and it was done to see if there was a cost benefit. One of the benefits that came out of that is, the lumber that came out of those houses was 3-inch-by-12-inch old growth timber from North Central Pennsylvania that was worth 163 4/2/09 - FINANCE - BILL 090167 $5 a board foot. Had somebody and was there a green incentive in Philadelphia to use this material, you could have created an ESOP-owned mill shop right in Kensington or North Philadelphia and employed Philadelphia residents and used the material right here. These are the opportunities we're not seeing. By not promoting green building, these are the opportunities that we're not capitalizing on. All over the country, in Cranbury, New Jersey, which is not too far from here, there's an engineer that developed using the bags that come out of the grocery store to make railroad ties, park benches, parking bunkers, et cetera. What happens with -- our experience has been -- and, again, this year so far I've taught in Oklahoma, Washington, DC, Baltimore, Maryland, and I am very familiar with the building trades. I'm sure most of you know Pat Eiding and Pat Gillespie. I do try to 164 4/2/09 - FINANCE - BILL 090167 encourage them, and I do train their foremen, superintendents, et cetera. What happens is, by passing a law like this, you have a positive feedback that these other things happen. In other words, if you're going to deconstruct a building, you have to use the material. What happens is, you have a trained workforce, they know what to do with it. They create these, I would say, marginal industries that become more -- for example, why doesn't the City of Philadelphia not have a reuse center? Why does it not have a reuse center? Every other major city in the United States -- I handled the deconstruction of the Civic Center, because I'm on the ground every day working. If you remember, it was in the Philadelphia Inquirer, $285,000 worth of reusable material was shipped from Philadelphia to Baltimore because we can't market it, and it was sold by Second Chance, which is in downtown Baltimore. This is what doesn't 165 4/2/09 - FINANCE - BILL 090167 happen when you don't embrace green building. I mean, I could go on for a long time. A couple other things I just want to correct which were said earlier. For residential certification for LEED is done locally. It's not done by the US Green Building Council. It's done by in Philadelphia -- in other words, USGBC has delegated residential certification to local entities. In Philadelphia it's MaGrann Associates in Mount Laurel and the Energy Coordinating Agency, is Liz Robinson. They are the certifiers. So there should be no delay in LEED certification. However, National Association of Home Builders also has a certification, which is actually more comprehensive than LEED for residential, not for commercial. In terms of commercial construction, I'm very much in favor of LEED, because I think it's the most accurate measurement. So I think in place are the 166 4/2/09 - FINANCE - BILL 090167 training, the workforce trainings in place. We've been training people now since 2004. There's trainings constantly going on. The building trades and the people in the field that build the jobs have embraced this. They want to be part of it, and they're learning how to do it. The learning curve has become very short. So basically that was my testimony. Thank you very much.

Thank you. I'll have some questions, but I'll wait until the other people testify. Yes. Next. Tom Massaro, is he not speaking?

No room, Council Lady. I'll wait for the other people.

Okay. Go ahead. Thank you.

Good afternoon and thank you for the opportunity to testify. My name is James White. I'm the Policy Coordinator of the Philadelphia Association of Community Development 167 4/2/09 - FINANCE - BILL 090167 Corporations. PACDC is a citywide association of more than 75 community development corporations and other organizations that have extensive experience in developing affordable homeownership, rental housing development, commercial space and facilities as part of their larger mission of addressing residents' needs and fostering successful revitalization of our neighborhoods. The CDCs operating in Philadelphia agree that the City needs to promote sustainable development and green building practices. In fact, PACDC members are already incorporating such practices into their developments. In addition, public funding sources such as the Philadelphia Redevelopment Authority and the Pennsylvania Housing Finance Agency already require energy efficiency practices and/or incentive green building practices in developments that they fund without utilizing the LEED system. 168 4/2/09 - FINANCE - BILL 090167 While some of our members are pursuing LEED or LEED Silver certifications for their affordable housing developments, due to the higher cost and limited public subsidies for the developments, they have been forced to value engineer out some green building components they initially wanted to incorporate. Given the higher cost associated with achieving LEED Platinum or Gold certification, it is unrealistic to expect that many of their developments will be able to achieve this level without some type of public subsidy. In reality, there are many ways to advance green building beyond requiring LEED certification for projects, which adds additional cost to developments and squeezes projects on tight budgets receiving limited public funding. Thus, we are deeply concerned about using LEED certification as a way to achieve this goal and linking the availability of the ten-year tax 169 4/2/09 - FINANCE - BILL 090167 abatement to the level of LEED certification a development receives. As a result, we are here today to voice our opposition to Bill No. 090167 as it's currently written. We urge the City Council to work with the City Administration and other stakeholders to seek alternatives which would provide funding and/or incentives for techniques that truly promote energy efficiency and sustainable construction in a cost-effective way. At a minimum, this legislation needs to be amended to address the challenges confronted by CDCs and other developers of affordable housing and related mixed-use development projects. To that end, we have worked with the Regional Housing Legal Services to develop proposed language to achieve this that we would like to convey to the Chair -- of course, I don't have any extra copies -- of what we see as language that would amend this bill and make it stronger and 170 4/2/09 - FINANCE - BILL 090167 truly more energy effective and energy efficient. We urge the Committee to hold this bill to provide an opportunity for the sponsors to convey key stakeholders to craft an effective and realistic solution and move us down the path toward a stronger infrastructure to support green building and sustainable development in Philadelphia. Thank you.

Thank you very much for your testimony. Next.

Hi. Good afternoon. My name is Kira Strong. I'm the Vice-President of Community and Economic Development for People's Emergency Center Community Development Corporation in West Philadelphia. We were created in 1992 with the mission to revitalize the West Philadelphia community in which our parent organization, PEC, provides social services to homeless families. 171 4/2/09 - FINANCE - BILL 090167 To date, PECCDC has attracted nearly $40 million in capital investments into our community and transformed over 100 properties into nearly 200 units of affordable housing for social service facilities and a community playground. Thank you for offering me the opportunity to be here today and testify and to discuss the importance of supporting both energy-efficient green affordable housing as well as tax abatements for low- and moderate-income Philadelphia residents. On behalf of PECCDC, I would like to make the following comments regarding this bill: PECCDC supports the building of energy-efficient housing for our neediest residents, those who can most use cost savings in utilities and in tax bills. Those affected by this bill include residents of low-to-moderate homeownership units, low-income housing tax credit developments, as well as 172 4/2/09 - FINANCE - BILL 090167 mixed-use facilities which combine both commercial and residential units. However, this bill, as written, proposes several obstacles to the affordable housing community. Certification and construction costs associated with building to LEED specifications are prohibitive. PECCDC is currently constructing Bernice Elza Homes, a six-unit LEED Silver certified development. It was extremely difficult to raise funding to pay the certification costs and upgrades needed to achieve Silver certification. As this bill 16 stands, this development would be granted only a 30 percent tax abatement. In order to reach 100 percent tax abatement, we would need to build to LEED Platinum level. 2 million project to achieve Platinum certification would be between $150,000 and $250,000. This is a 10 to 20 percent markup. This is not -- we do not, unfortunately, have 173 4/2/09 - FINANCE - BILL 090167 the economy of scale as the Comcast building. We also are required to adhere to very specific specifications triggered by our public subsidy and our funders, which are energy efficient but may not allow us some of the creative approaches that Onion Flats and John McDonald, who was here earlier, was able to achieve in his market-rate developments. We admittedly build to a different standard than what the $500,000 to $700,000 market affords. In a very tight funding environment for affordable housing, it is not possible to raise additional funds to bring us to LEED Platinum level or LEED Gold level. However, it is possible to achieve progressive green standards and energy efficiency without reaching these LEED levels. Of all residents who are eligible to receive tax abatements in the City of Philadelphia, we must recognize 174 4/2/09 - FINANCE - BILL 090167 that our low-to-moderate-income constituents need this abatement most. If CDCs as affordable housing developers are unable to afford the use of LEED, we are prohibiting the neediest group from receiving tax abatements. I must again emphasize that we strongly support energy-efficient green building for low-to-moderate-income residents. However, there are other green building standards which allow for healthy, sustainable homes while bypassing some of the costs associated with LEED certification and Gold and Platinum building levels. We are in support of amendment language proposed by the Philadelphia Association of CDCs and the Regional Housing Legal Services. We appreciate the opportunity to be here today and the past support that numerous City agencies have given to PECCDC and the CDC community. We believe that we have consistently provided an important return on this public 175 4/2/09 - FINANCE - BILL 090167 investment.

Thank you again for the opportunity to provide these comments.

Thank you very much for your testimony. Are there questions? Councilman Jones.

Thank you for your testimony and thank you for some of the advanced discussions we've had about this and possible amendments that may make this a bit more palatable to the small person trying to provide subsidized and low-income housing in the City of Philadelphia. One of those issues is that LEED -- there are many roads to sustainability, and they don't all have to go through a LEED certification, and is it true that we can accomplish some of that by providing a variation of options available to subsidized housing that would make this more palatable?

Yes.

Yes. There are a 176 4/2/09 - FINANCE - BILL 090167 number of options and alternatives, Councilman, and as you know through our discussions, there is Enterprise Community. There is Green Globe systems, which is used internationally, that address residential affordable housing needs without the extrinsic cost that LEED rating system requires. And we appreciate the Committee and your efforts to make sustainable development a reality for the affordable housing units.

Just one other point. In our previous discussions, we also talked about that if indeed, which is not necessarily substantiated, if indeed there was a premium for sustainability and some may say it's somewhere around $3,000, not because of the cost of materials but the cost of the actual certification, that that was in fact prohibitive in fact for subsidized housing development, correct?

Yes, but I believe often times those amounts are more. For 177 4/2/09 - FINANCE - BILL 090167 example, our certification cost in the development I referenced is close to $7,000, and that doesn't include any of the additional construction costs.

So some of those subsidies that were from the stimulus package might be applied to defray some of that cost.

That would be wonderful.

Thank you very much.

I want to just thank you. I work with Kira very closely and Mr. White, and appreciate their testimony. Thank you.

Thank you for the opportunity.

Just one quick question. How many units was your last development you were referring to?

Six.

So a 178 4/2/09 - FINANCE - BILL 090167 thousand a unit?

Right.

Thank you.

I'd just like to ask Mr. Weidle about your -- in this whole issue of green, have you reached out to the Office of Sustainability to offer assistance and ideas about what we might do as a city? Because some of the --

No, but I'd be more than willing to. I am familiar with the Office of Sustainability. I was on the Board of Directors of the Green Building Council for six years, and I do training. Like I said, I do training -- I started actually training suppliers in Philadelphia before there was a Green Building Council. So I have a long history with it. I think that -- I would more than welcome that, if you'd like to forward my information to them. I think it's absolutely necessary because -- and 179 4/2/09 - FINANCE - BILL 090167 I don't -- as a personal opinion, I don't necessarily disagree that -- I think LEED Platinum as a basis for 100 percent of rebate is probably a little excessive, and our studies around the United States -- and we teach in 50 states, and I teach contractors and developers, and the feedback that we have is LEED Platinum is probably a little bit difficult to reach, especially for an uneducated workforce. As the workforce becomes more available -- and the McDonalds and Onion Flats are extremely educated. Pat McDonald is one of my instructors that goes around the country teaching. I think Silver for the tax rebate would be more than adequate for the -- this is my own personal opinion and what I get back from the developers and builders and contractors that we train.

Well, you might want to reach out to Mark Alan 180 4/2/09 - FINANCE - BILL 090167 Hughes and set up a meeting with him, kind of give him some ideas and see how we could incorporate some of your ideas into what their plans are for moving Philadelphia forward.

I think another thing, that as a Council, I think that it's important to remember this thing about positive feedback. If green becomes the norm in Philadelphia, it creates a positive feedback. It brings along other industries with it. That is the experience we're seeing all over the United States. Other industries follow along. And I think that the Office of Sustainability should keep that in mind. For example, if you can produce materials in the City that goes into their homes -- and I've had this discussion with CDCs -- isn't that a wonderful experience? We're not doing it here. It's being done all over the United States, but not here.

I'd like 181 4/2/09 - FINANCE - BILL 090167 to underscore Chairwoman Tasco's recommendation. They are in the process as we speak of pulling together their, what might be called, strategic plan. They're actually meeting with members of Council now to let us know what the framework of that is. So the time is ripe, R-I-P-E, for you to have a conversation with them and offer your input. It's extremely valuable. Thank you.

Thank you very much for your testimony. We appreciate it.

Thank you for having us.

Thank you.

Mr. Eron Lloyd. Is there anyone else here to testify on this bill? Mr. Massaro, I thought you were with the other panel. Come on up. (Witnesses approached witness 182 4/2/09 - FINANCE - BILL 090167 table.)

You will be brief. Go ahead, Mr. Massaro.

My name is Thomas Henry Massaro. I am speaking today in my capacity as a private developer in the City and also someone who has a company to do project management for some leading institutions and corporations in the City. First, I'd like to commend the members of City Council, Councilwoman Tasco, Councilman Jones, Councilwoman Blondell Reynolds Brown and others, for having this review today. I want to focus on some of the things that I think are essential on a collateral basis to make this bill work. First, we need to dramatically increase over the next three years the number of building inspectors in the Department of License and Inspection who are LEED competent. We need to increase the training of plan examiners who will 183 4/2/09 - FINANCE - BILL 090167 help review these plans and contribute to the certification process. Some of the concerns of this bill relate to perceived cost increases to make the green building possible. I was involved in the discussion at Comcast, and the actual projections were the costs were somewhere between six and eight percent greater to have the Gold certification than if it was conventional, somewhere between six and eight percent. Certainly in today's environment, I understand the pause that everyone has about increasing costs. However, there's increasingly great offsets to going green in terms of costs. The number of green building products has doubled since 2000. The number of new products has increased 400 percent in the last three years because more and more companies are developing these products, they're testing these products, and they can contrast the performance of the 184 4/2/09 - FINANCE - BILL 090167 product with conventional products. The more that happens, the more people are willing to use these products. So while the cost of construction commodities worldwide had been going up, plywood, lumber, gypsum, cement, they've come back a bit, but they're really on an upward path. The cost for green commodities increasingly is less expensive, because you have more volume, you have more utilization and you have greater economies of scale in the production. So what's happened is, there's still an upward trend on the cost of conventional construction commodities, and the trend is downward on the cost of green and sustainable commodities. So that trend is going to help us over the next several years. It's important also to understand, on LEED you really should look at it as a three-part process. You have the planning and the siting of the 185 4/2/09 - FINANCE - BILL 090167 building, you have the construction of the building and you have the operation of the building. Now, for those who were concerned that the cost of development is higher for green, you generally get a higher rent. You generally will rent it quicker. You generally will have a wider stream of prospective tenants. And the most graphic example I could give you, there's a building last year. They looked at two buildings. One was highly energy efficient, one was moderately energy efficient. The cost for one was $22 a square foot and about $8 a square foot for maintenance and utilities. The other one was $25 a foot and $3 a foot for maintenance and utilities. So even though their rent was higher, their utility and their maintenance costs was much less. So it brings it within the realm of feasibility. The other thing that people have to understand is that green 186 4/2/09 - FINANCE - BILL 090167 products, natural products in some cases are exponentially less expensive. I had a client last year, a commercial building. They were spending $3,800 that year -- I'm sorry; yeah, $3,800 for -- it's a glass building -- to clean the windows. They went to a white vinegar with water. They spent $137. And actually according to Consumer Products, it actually cleans the windows better.

So right there a green product, just to take some white vinegar and water and wash the windows, was more effective for $137 than for $3,800 worth of cleaning chemicals, which also were caustic. They get into the storm water and the water treatment system, and it has a very pejorative consequence. So the basic point I wish to make today at the request of Councilman Jones, I've developed over 300 units in the City of housing for ownership. Never gotten any public subsidy. And I found ways a decade ago to incorporate green 187 4/2/09 - FINANCE - BILL 090167 technology. And I think what's important under LEEDs is, just by siting the building for passive solar, just by orienting your windows, you could cut your energy use percent. So I think 7 the fact that LEEDs deals with design and 8 planning as well as operation will allow 9 us to remediate any excessive cost on the 10 construction end. We'll pick it up on 11 the value end and we'll pick it up on 12 lower operating costs. 13

Sounds 14 good to me. Water and vinegar, our 15 grandmom did that. 16 Okay. Next. 17 Thank you. We'll come back for 18 questions after he testifies. 19

Thank you, Madam 20 Chairwoman. Good afternoon. Nice to see you all again. Thank you for your patience in this hearing, and I'll try to be as brief as possible. With all of the discussion over green building, I think with the 188 4/2/09 - FINANCE - BILL 090167 statement by, I think, Mr. McDonald about the idea that -- I think everyone is coming to a consensus that the idea of a green building program here in the City is a good idea and one of the issues that -- the only issue that really needs to be worked out is the implementation of that program. So I'm not going to speak much about it. I think we're all on board with that idea. Instead, after listening to all of the discussion, I'm going to try to boil down to the heart of the matter as far as the concerns, and what I think that this essentially boils down to is the role of the current abatement program and the concern of the Administration, of the development community, of the researchers and the other witnesses that spoke today, who recognize the significant value of this project and do not want to see it changed because of its benefits to the City. So what I am here to talk about 189 4/2/09 - FINANCE - BILL 090167 as a representative of the Henry George Foundation is how the abatement program we have, which essentially eliminates the building tax on -- the building tax of the property tax while remaining -- keeping the land side of the property tax, has not only spurred development, but has also secured an influx of population that has produced new enterprise and tax revenue in other areas. So what I'd like to talk about is consideration of, as Councilman Jones actually discussed, an evolution of the current abatement program to essentially become what it is right now a lighter version of, and, that is, for the land value tax. Essentially what that would do is create a universal abatement program not only for new development, but it would also reward the residents who right now are very angry and frustrated because their decades of investments and faith in the City have not gone rewarded 190 4/2/09 - FINANCE - BILL 090167 through this incentive program, and a land value tax will essentially become a retroactive abatement program for all of these residents and real estate investments. And, of course, we will discuss this later on hopefully as far as the budget hearings, but I want to highlight some of the things I noticed, especially the economic researchers that were here as far as part of Econsult failed to mention. From an economic perspective, the change in the tax structure under a land value tax would make development -- and not only green development, but development in general and, thus, the cost of housing -- much more affordable by two important impacts. First, it would reduce the cost to procure land by pushing much of the land that is out of use back into the market. Anyone that knows development here in the City knows that there are almost 40,000 vacant lots and structures scattered around every 191 4/2/09 - FINANCE - BILL 090167 section of the City, and those structures and lots are out of the market right now, being held in speculative purposes, and that artificial shortage in supply of developable property is driving up the costs for development. You can build green anywhere, and you're going to have what economists try to separate out as a fixed cost, but you also have something that we determine has a variable cost, and one of the biggest variable costs for development is land. It's the location value that factors into your development costs up front. The Onion flats, I believe, are in Kensington, and there's also another initiative to build a hundred-thousand-dollar green house, residential house, and that's also in Kensington. And I don't know if it's the only reason, but one of the factors that that location was picked, because the land is very cheap. So that's going to 192 4/2/09 - FINANCE - BILL 090167 reduce your costs for building green.

And so by freeing up all of this land that's out of the market would essentially reduce the acquisition costs and eliminate one of the highest up-front costs to development. But, second, the tax structure reflects the interest rate type of behavior in determining prices and costs. If we were to have a high tax on land -- and I'm not going to bore you with the details of this, but essentially what it does is, it reduces what we call the capitalization of that value into your mortgage payments, which thus reduces your mortgage payments over the long run, because it's not absorbed into the price of the house, as we say. So not only would such a tax reduce the up-front costs of acquisition of property to be developed, thus reducing the development costs, especially if we're going to move into the green direction where you're going to 193 4/2/09 - FINANCE - BILL 090167 see a five percent increase in the cost, but it would also, over the life of the property, reduce the mortgage payments, which would lower the permanent cost of those projects. So I'd really like to just bring those two thoughts into the discussion and also the political side of the abatement program. There was just an article in the paper today about the Liberty Place demonstration and stuff that took place, and I think Mr. Huang from Econsult went over the details of how the abatement program does actually bring in the kind of economic development and revenue that we anticipate. But there is a large population of people that feel left out of this program, and by changing our tax structure to essentially turn the abatement program into our official property tax policy, you're actually bringing all of those current opponents of such a program to become stakeholders and to benefit from 194 4/2/09 - FINANCE - BILL 090167 this type of approach. We all know the tax abatements work. The Administration knows they work. They bring in people that otherwise wouldn't build and live here in the City. And by changing our fundamental structure of how our tax system works, we can broaden this to benefit everyone, whether they're coming in now or whether they've been here for 30 years. So under such a program, there is very concrete economic and political benefits to essentially adopting the mother of the tax abatement program, which is a universal abatement on all buildings, whether they're new or old. I'll leave my testimony at that. I'd be more than happy to answer any questions you may have. Thank you.

Thank you. Any questions? Councilman Jones.

Just an 195 4/2/09 - FINANCE - BILL 090167 ending comment. I first got my taste of what is now called sustainability and green by a former Housing Director, who told me what R-10 insulation was and how to do it, and he did it way before it was vogue to be green or be sustainable. He did it because it made sense, not only to his development but to his tenants, that his tenants were able to afford nice housing because they could afford the utility bills. And he understood and had enough foresight to understand that whenever I add value to the materials, to the systems in my house, I add value to my property at the end of the day and it is worth more. I want to thank my colleagues here for having the endurance to go through all of this and also having the courage to deal with some of the forces that we saw today that are rallying in fear of green. And I want to say that what I've learned is that I believe that 196 4/2/09 - FINANCE - BILL 090167 at the end of the day, all of us can sit around the table and find common ground, but three things need to be understood: That green adds value at the end of the day to the property that you develop; that, number two, the most expensive thing in this city is being poor, because you pay and we pay more for everything, from utility costs to everything, because we don't have insulation factors and we can't afford the R-10 value insulation that maybe some other folks can afford. So we in this Council are not just doing this to deal with whether or not there should be a ten-year tax abatement. As these utility companies deregulate, as the cost of gas inadvertently must go up, as the cost of water and electric gets deregulated, that this won't be something that we're doing for the environment. We're doing it for the citizens of Philadelphia that can still afford to live in this city. So I'm thankful for what the 197 4/2/09 - FINANCE - BILL 090167 testimony has taught me today. I'm encouraged by the fact that this is the beginning of a dialogue, not the end, and that at the end of the day, we will not plan this city's future out of fear. We will plan it out of the right thing to do and for all, for all of its citizens, not just its wealthy, but its most vulnerable. Thank you.

Thank you very much for your comments. Any other comments? (No response.)

Thank you for your testimony. We will recess this Committee until the call of the Chair. Thank you. (Committee on Finance recessed at 4:20 p.m.) - - - 198 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on April 2, 2009, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)