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.