Liberty moving in, buying condos, not paying property taxes for the first ten years, paying all the other taxes and then paying all taxes after those ten years, and a second scenario in which the property tax abatement does not exist, in which case you only have one of those Mr. Liberties, they pay property tax right away, as well as all the other taxes. We ran those numbers and we found that during the first ten years, which is when the property tax abatement would be in effect, you'd have $270,000 more in tax revenues to the City under the "with abatement" scenario than under the "without abatement" scenario. 7 million. You multiply that over thousands of units over time, as Kevin mentioned. You're talking about a lot of money goes into the City's coffers. So in conclusion, in an 125 4/2/09 - FINANCE - BILL 090167 environment in which every dollar counts, the property tax abatement program in its existing form brings net new cash into the City budget from day one. Thanks very much.
You made it very clear and I don't know how it gets translated. It doesn't get translated clearly like that. It doesn't get translated clearly like that. Very clear. Michael.
Madam Chairman, members of the Committee, good to be here. I'm here as Chair of the Development Workshop, Incorporated, which is a non-profit dedicated to promoting development in the City to help create jobs, protect and nourish sustainable neighborhoods, and increase the tax base. We are developers, both large and small. We are planners. We're architects. We're consultants, and we're lawyers. In this case, a lawyer. 126 4/2/09 - FINANCE - BILL 090167 In any event, we're happy to be here, and really given the wonderful statements of Deputy Mayor Andy Altman, Sam Sherman and the folks from Econsult, we really stand on that record. I think they make the case. The members of the Workshop support green buildings, support sustainability efforts. Among our members are developers who develop green buildings across the country, but as was said before, the unintended consequences of a bill like this, which begins to erode the ten-year tax abatement, is really not good for the City of Philadelphia in any way, and I think the numbers from Econsult and Mr. Huang and Mr. Gillen really make the case as well as anybody could. So thank you for the opportunity to be here and thank you very much for your consideration.
We thank you for your comments and taking time 127 4/2/09 - FINANCE - BILL 090167 out, but I was thinking that Mr. Sherman has chosen on his own to move towards the green buildings. So maybe through his collaboration with your organization -- and I'm sure he's probably a member of that -- it will begin to change the thinking of the other --
Yes. I'll respond to that very briefly. Members of the Workshop are doing green buildings all over the country and in Philadelphia. So we believe that that will be -- green buildings will be the standard, not because they're legislated, but because they make sense, because they save money. But, again, conditioning our tax abatement, which really was the "but for" for a lot of good development in the City when other factors were positive, that is important. That's what's drawing investment into the City and it's really urgent that we keep it.
If I might add, in my written testimony I think I made 128 4/2/09 - FINANCE - BILL 090167 clear that the Building Industry Association does have a Green Committee, and we provide ongoing seminars, continuing education and outreach and tour green projects through the City a couple times a year. And so we are aware of this and we are doing the outreach within our own membership to educate them on the techniques.
One other thing I might add to this is that the Workshop has people who come to demonstrate various techniques and folks from the City and so forth, and we had a member of the Green Building Council do a presentation to us several months ago. So we're really very appreciative of their efforts, and our people are using their methods.
Point of information. I appreciate the testimony that was given and I understand a lot of work 129 4/2/09 - FINANCE - BILL 090167 was put into it, particularly Mr. Huang's information from Econsult, but it had a premise that based on the revenue projections from, I think it was, 1.7 million revenues, wage taxes, that somehow that tax abatement would not -- would have generated it, but the green tax abatement would not have generated that same 1.7 million. And I just want it on the record, one tax abatement -- it's not whether or not a tax abatement in my mind is a good thing. I think it is, but what form it should take and how green it should be is what is being debated here today. But I do not support the elimination of the tax abatement. I want that really clear. I want it to evolve, however, to include reduction of greenhouse gases. I want it to evolve to include the aesthetics and calming effect of green moves and things of that nature. I do not want it to go away or provide a disincentive for development. And you mentioned also that 130 4/2/09 - FINANCE - BILL 090167 there was an percent differential in construction in Philadelphia. I think that was your testimony. Is that due to green?
Going to the first 10 point, the difference in the two 11 scenarios that Mr. Huang analyzed, the 12 revenues would not change. What would 13 change would be the construction costs 14 under this bill. To get the full 15 abatement, you would need to apply -- 16
Which every 17 day, would you agree, those costs are 18 coming down, every day?
That's not my question. Every day is it coming closer to market rate? To do green is becoming the norm as opposed to the beta testing increase in price perception; is 131 4/2/09 - FINANCE - BILL 090167 that correct?
Green continues to make steady progress towards becoming more positive.
So it is coming down. The second point of it is, you said that percent differential in 10 construction in Philadelphia is not due 11 to green, correct? 12
Correct. But the 13 additional 15 to 20 percent to get the 14 full abatement under his scenario would 15 be due to green, because you need 16 Platinum certification. 17
Okay. So 18 the point is at what level green it should be, correct?
Right. Everything that you've said I would completely agree with. I think my testimony is not intended to predict whether a green abatement would have more or less inducement than the existing abatement. 132 4/2/09 - FINANCE - BILL 090167 It's simply to affirm the validity as good policy of the existing abatement.
Thank you. Mr. Huang, just to confirm what you said, your study did not look at what the economic impact would be on the City of Philadelphia comparing the current abatement to a green abatement?
Okay. So would you agree that if there is no cost differential or a minimal cost differential between green building and not green building, that we have the same economic impact or a negligible difference in economic impact from green building required for the abatement versus the current law?
If in fact all things being equal, including the cost, then people would behave in the same way 133 4/2/09 - FINANCE - BILL 090167 and we would see the same proportion of units induced by and, therefore, credited to, if you will, the abatement program in whatever form it's in.
Okay. So really what we're talking about is whether or not building green costs more and how much more in order to figure out whether or not this switch if we want to be the greenest city in America, which is my goal --
-- this switch would really not impact construction. And that's why I asked the previous people who testified that the cost differential was zero to five percent, which is actually based on sort of national and local data, not the views of one person who is talked to by the person who testified on this panel. The data here is really important in terms of whether or not this is a sound policy for 134 4/2/09 - FINANCE - BILL 090167 the City of Philadelphia to follow, and I think where we are is, there's not a lot of data at least being put forward by opponents of this measure that demonstrate that this will have a negative impact on construction.
Right. I do think that understanding the extent to which LEED certification or other certifications may or may not influence cost or other decision-making criteria is important to study further. My point was that as a baseline, the existing --
Well, let me finish. If you are interested from a public policy standpoint -- and I happen to agree with this sentiment -- that you want to incentivize green building, then use the existing abatement program as a baseline and completely remove it from the discussion and now let's talk about additional incentives rather than 135 4/2/09 - FINANCE - BILL 090167 replacement incentives over and above the menu of incentives that are being used.
I understand that, but if our policy -- we did not target this tax abatement around specific neighborhoods that needed development, like many other cities, New York, did, et cetera. We did not target this in any way. We said we're applying it citywide and the entire city is, quote/unquote, a distressed area. What I think may be better public policy is to actually target abatements so that we can actually have a specific intended impact, as long as we're not hurting our tax base. And I would agree, we can't afford to hurt our tax base. We can't afford to have less money come in. But if the same money comes in, we can -- rather than what you're proposing, if there is no cost differential between building green or a negligible cost differential between building green and not building green, 136 4/2/09 - FINANCE - BILL 090167 what you're proposing would actually cost the City dollars, because if there's no 4 cost difference, there's no need to provide additional incentive for building green. You can use the current abatement. So the logic there doesn't work, assuming -- and this is what we need data on -- the cost is the same. Would you agree with that?
Well, again, if the cost is the same, then that is certainly the conclusion that you could draw, that if, for example, the existing abatement is ten years, but if you go green, it's 15 years, then you'd be giving away those extra five years without -- as a straight subsidy without any sort of cost that you would be subsidizing.
Right. That policy would adversely impact the City's revenues. I'm sorry, Michael. I was asking Mr. Huang.
If in fact again 137 4/2/09 - FINANCE - BILL 090167 all things being equal, including the cost situation, then you could make that case.
Actually, before you do, I have just three more questions for Mr. Huang. And you don't have to provide this information now, but if you could provide it to the Chair. My recollection of your study -- and I did actually read it --
Yes. (Continued) -- was that it didn't really control properly for a number of factors. One is, across the country people are moving into cities and construction was happening in cities, and there was a trend demographically where older people are moving back into center cities. So that's -- and the other thing was that -- 138 4/2/09 - FINANCE - BILL 090167 I'm sorry. There was not -- it didn't seem to control for a potential for what I would view, considering the great housing stock we have in the City, the impact on creating an incentive for new construction versus doing rehab, and the other is its potential depression of prices of existing homes, because people move -- people who are going to move in want the incentive of a tax abatement and people make home-buying decisions a lot of times today based on payments, not based on cost. That's why interest rates have such an impact on where prices sell. And rather than going into a long explanation here about that, if you could provide that information to the Chair --
-- what kind of controls you had in place for those factors, I would appreciate it.
Sure. The report does go into detail as to how we derived our notion of this "but for" or induced. 139 4/2/09 - FINANCE - BILL 090167 I would just simply quickly note that, yes, there was an urban renaissance nationally that Philadelphia did enjoy. However, you would think then that our permits would steadily increase as we took advantage of this wave. In fact, the very year before the rollout of the abatement in its existing form, there were zero such permits. So it really went from zero to a very significant number, and one has to assume, therefore, that a large portion of that was as a result not just of national demographic trends but of specific legislation that made it easier for units to be built and bought.
How many permits for rehab existed or happened the previous year versus the year the abatement went into place?
There's actually a bar chart in our report comparing building permits in 1999-2005 in Philly versus the surrounding counties. In 140 4/2/09 - FINANCE - BILL 090167 1999, it was something like -- there was a total of --
The question wasn't new construction. It was rehab versus --
Offhand I don't have the difference between the two. I know there was about 150 building permits in Philadelphia in 1999 when there were thousands in the counties, and by 2005, we had actually surpassed the counties.
I'm not arguing with the premise and I do believe that there was a positive impact. I mean, I don't think everything was properly controlled for, but I do think that there was a positive economic impact and I'm not arguing with that premise. All I'm saying is, if the costs are roughly equivalent, there's no reason not to target green construction, although it would take away Mr. Sherman's competitive advantage that he currently has from building green. 141 4/2/09 - FINANCE - BILL 090167 Okay. So who is the person who provided you with the cost for single-family residence at to 5 percent higher? 6
It was a colleague 7 of mine. His name is Brian Uher. He's a 8 Wharton alum. He's a LEED-certified 9 green building consultant and Chief of 10 Operations for a company in Washington 11 called Amicus Green. 12
Okay. And 13 so was that based on his experience or 14 based on data from studies that have been 15 done? 16
He researched it 17 via US Green Building Council and the 18 National Association of Home Builders. 19
Well, we've 20 had testimony today that the US Green Building Council has it as a negligible cost. But I also think something we ought to look at is, obviously for a single-family home it probably is more expensive significantly versus a large 142 4/2/09 - FINANCE - BILL 090167 commercial building or a large Liberty type building. It's not -- and maybe something we need to consider here and get that on is the difference by property type, and where there is no significant difference in cost, perhaps we force builders to go green. Would you guys --
If I can speak to the issue of cost. The cost may be fairly negligible using the LEED certification standard, because the LEED certification standard works on points regarding different things, if you use sustainably harvested materials, recycled/reclaimed materials, energy systems. But each of those different things that get you points have very, very different costs. The cosmetic, if I can call them that, green changes, putting in bamboo cabinets and using low volatile organic compound paints, those are negligible costs. The costs, as the Councilman asked me earlier, have come down significantly and are roughly in 143 4/2/09 - FINANCE - BILL 090167 line with just using the non-green materials. Where the costs are very high are on the energy efficiency side. If you're putting in photovoltaic solar panels, if you're putting in geothermal heating systems, if you have to gut a ducted air conditioning system or replace it with radiant floor heating, those are very, very expensive. That's where your to percent cost comes. 13 Insofar as -- 14
The figure 15 you gave me was for, according to your 16 previous testimony, a single-family home. 17
I don't want to curtail debate or discussion. I think it's very good and very healthy. We have another panel and then we still have another hearing. What I would 144 4/2/09 - FINANCE - BILL 090167 suggest and recommend to Councilman Jones, as well as the other sponsors of this piece of legislation, to have further discussion probably in the caucus or additional meetings where you sort of thresh out some of the issues that have been raised today, because the bill is not going to be voted out today. It was just for a hearing. And we will come back again and further discuss it and do whatever the sponsors want to do with the bill once I think that we have something that they might want to go with. COUNCILMAN DiCICCO: Could I just ask --
With one exception, that we have a gentleman on the panel that's sitting there --
I'm not stopping that. I'm just trying to say that to my colleagues, we can have longer discussion in the back room. COUNCILMAN DiCICCO: Madam Chair? 145 4/2/09 - FINANCE - BILL 090167
Because we'll be here all day. Okay. Yes. We're going to get everybody. Thank you. COUNCILMAN DiCICCO: Madam Chair, I just want to go back on a point that my colleague raised. He was talking about statistics, and I think Mr. Lee mentioned about the number of permits that were eventually pulled out that people applied for in a certain given time. There were two bills. There was a bill in 1997, which was the conversion bill, that allowed for rehabs, and during that time up until 2000, there was a three-year tax abatement for new construction, which basically no one was taking advantage of. So the number of permits that were being pulled is going to change dramatically at 2000, even though there were a significant number pulled between '97 and 2000 on the rehab. And that's -- there was some 80-some-odd 146 4/2/09 - FINANCE - BILL 090167 buildings, I believe, in the core of Center City that were formerly vacant buildings that were ultimately converted into residential development. So I just want to -- you're looking at me strange, Mike. I don't know if I'm explaining it. Because I think I heard you question the number of permits as it related to Mr. Lee's statement about the demographics and people moving into the City. There were two different dynamics going on. The conversion bill was for rental units primarily.
The study was based on new construction. COUNCILMAN DiCICCO: On new construction. It didn't include -- so if that can be demonstrated. It may be in the Econsult report. It's been a few years since I looked at it. I think that would be important as well.
When we did the report, we dropped properties that were 147 4/2/09 - FINANCE - BILL 090167 under abatements that had been sunset, the conversion and that three-year new construction abatement. They were not included in the sample of data that we used in the study. COUNCILMAN DiCICCO: Thank you.
Thank you very much. Sir, you want to testify? MR. McDONALD: Yes, if you don't mind.
No. 14 Please go ahead. MR. McDONALD: My name is Johnny McDonald. I'm a principal in an architectural firm by the name of Plumbob, a construction firm by the name of JIG and a development firm by the name of Onion Flats. As a small developer, a developer of between five and ten, six and a dozen units at a time, I have to first say that I believe that the tax abatement -- the current structure of the 148 4/2/09 - FINANCE - BILL 090167 tax abatement in the City of Philadelphia is really a very critical part to development here. As Councilman DiCicco just referred to, in 1997 our firm was granted the second tax abatement in the City of Philadelphia's history in Old City, in your district. I definitely think that that spurred some tremendous following development for the City. I believe, as it's been stated by several people in testimony, including Deputy Mayor Altman today, that the City has now created a pipeline of tax abatements, and we're about to see a windfall of -- the City is about to see the windfall of the past decade of abated property taxes. I can speak personally, because I just lost my tax abatement after ten years and my personal taxes have literally tripled, and that was after a debate and a winning debate at the BRT, that it was reserved, my taxes were increased too much too fast. So they knocked them down a little bit. 149 4/2/09 - FINANCE - BILL 090167 Nevertheless, tripled the tax base personally. With that being said, I believe it's absolute and total money in the bank for the City of Philadelphia, and I'd hate to see that economic stimulus go away. Further, as a sustainable developer, my firm has developed the first LEED-certified projects in the City of Philadelphia. They achieved Gold certification. And, most recently, we have developed the first LEED for Homes residential duplex to hit Platinum certification in the nation. I testified back in October as these hearings were coming together that in order for us to hit these LEED certification standards, they have not been a big stretch for us. I think we can debate back and forth what is the correct certification. I think that's a conversation for a different day maybe. But what I will say is that when it comes to cost -- I'm sorry. First I'd like to say, the LEED certification I 150 4/2/09 - FINANCE - BILL 090167 believe is so very attainable inside of an urban area, such as Philadelphia, because of the checklist of items that you need to be credited with in order to receive the certification, things like relationships to public transportation, walkable amenities, churches, schools, shopping. Further, the City of Philadelphia has an enormous benefit because of its typology of housing stock. It's a prototypical row home typology. As a result, major components of the LEED certification is site usage, and the row home typology fully takes advantage of that. As a segue to cost, because that's on everyone's high list of concerns, as a result of being in an urban environment, I have found in the projects that I've built negligible, at most, and, frankly, no increase in cost, and that's to attain Gold and Platinum certification. 151 4/2/09 - FINANCE - BILL 090167 Further, I think that because we're talking about the City of Philadelphia, just a well-built building will get you -- and don't quote me on this. This has nothing to do with national averages or statistics. It will get you almost all of the way there for LEED certification. When it comes to the conversation of the learning curve around green building, I actually see a huge opportunity for the City of Philadelphia, because there will quickly become training programs, which will quickly increase the skill levels of our labor force, specific to the construction market.
For me, that automatically equals value, and as a result of a higher value workforce, it automatically equates to jobs, which is, I think, very critical inside of the entire conversation of sustainability, both environmental and absolutely economic. There was some conversation 152 4/2/09 - FINANCE - BILL 090167 around incentives, why give any incentives for green building if there's been good development happening already in the City. For me, it's more of a holistic look at 50 years down the line, the type of city that we're all really interested in building. I believe that the incentives for green building can be as simple as some better fast-tracking policy around permitting, for zoning and building permits, but I do believe that a tax abatement hinged to a green -- and I don't like the word "green" very much, but a sustainable and, further, a verified and third-party certified, such as the LEED certification, really will create a higher level of building and, as a result, a better atmosphere for the community of Philadelphia. Some of the notes that I've written down throughout this conversation have to do with this collaborative effort. And by all means do I believe that for this bill to become in effect, I 153 4/2/09 - FINANCE - BILL 090167 think it's going to take -- and I think we all agree -- it's going to take some more conversations. And I don't really -- the great thing that I've experienced here is, I agree with everyone. I don't feel as though I've heard any contrary opinions. It's just about how it's going to get worked out. And I think that's really critical, and I think we're on the precipice of something here that's great. I want to thank you all for letting me be part of this. Specifically, I'd like to recognize Councilwoman Reynolds Brown and Councilmen Jones and Green for taking this very, very important and critical and bold step towards bringing this out into the public view. I'm a sustainable builder. It would obviously add to my market distinction, but I think in the broader scope and looking more holistically at the good of the City, it needs to happen. 154 4/2/09 - FINANCE - BILL 090167 We need to incentivize green building. I think the tax abatement is something that is very important, as my colleague, Mr. Sherman, said. It's pretty important to development in general historically. Ultimately, I believe it will become the norm, but to get us from here to there, if we can create a way to wean us off, frankly, of low-quality buildings and incentivize high-quality buildings at the same time, I think those growing pains will become fewer and further between in a very short amount of time. Thank you.
Thank you. Thank you all. Any questions or comments? (No response.)
Madam Chair, not to belabor the point. I swear I'm going to be brief. I had an opportunity 155 4/2/09 - FINANCE - BILL 090167 to go to Onion Flats. You are a local developer, you and your brothers? MR. McDONALD: Correct.
It's now New Kensington, because property values went up, right? MR. McDONALD: Kensington.
You were able to achieve this without any great increase in cost? MR. McDONALD: In construction costs?
Yes. MR. McDONALD: No -- yes, we were able to achieve this with negligible, if any, increase in construction costs.
You were able to meet market and people are clamoring to get to your development. 156 4/2/09 - FINANCE - BILL 090167 You would be classified as a small developer? MR. McDONALD: Yeah, very small. It was an eight-unit project, the Thin Flats project.
Finally, this tax abatement would help to incentivize people like you to get into the green -- excuse me; sustainable building construction and residential properties? MR. McDONALD: Moreover, I believe -- I'm in it, so I do this, but I think I'm the exception as opposed to the norm. More importantly, I believe that legislation similar to this, working through it with a collaborative effort of all parties, will incentivize folks that aren't building sustainable buildings to build higher-performance buildings.
And I would just say, Madam Chair, that if there was ever a reason for me to move out of my 157 4/2/09 - FINANCE - BILL 090167 district, Onion Flats is it. We walked through there and it is absolutely gorgeous. MR. McDONALD: I got one for sale.
Mr. McDonald, I want to echo, that is an amazing enterprise. MR. McDONALD: Thank you.
And you are indeed leading by example. Congratulations. MR. McDONALD: Thank you. And if I can just -- we've had an amazing experience of creating these projects, and I have to say that, Councilman DiCicco, you've been totally supportive of this development that we've been doing for years, for over a decade. So let me go on the record by thanking you for 158 4/2/09 - FINANCE - BILL 090167 that. And thank you all, of course.
Thank you so much. Next, Joe Weidle, Bedwell Corporation; Thomas Massaro; and Rick Sauer. (Witnesses approached witness table.)
Good evening. Whoever would like to start, feel free to do so.
Would you pull your mike closer. We can't hear you.
My name is Joe Weidle, and I'm going to talk a little bit about green education and the trades, a little bit about me. I've been a union carpenter in Philadelphia for 32 years. I've been active in the building trades. I have been involved in green building since 159 4/2/09 - FINANCE - BILL 090167 about 1998. I'm one of the founders of the Delaware Valley Green Building Council. And I am very interested in this bill because I think there's some other consequences of this in terms of how it goes forward. What I've been asked to talk about today is engaging the trades in the type of training we have going on and some of the initiatives that -- you've already heard about several of them in fact. Mr. McDonald's brother Patrick is one of our trainers. In 2003, myself and Rob Flemming from Philadelphia University created a training called Green Advantage. The purpose of Green Advantage was to engage the building trades, the actual people that do the work in green building, to teach them that it was not that difficult, that it was achievable on a day-to-day level and to engage them to be part of the sustainable process. 160 4/2/09 - FINANCE - BILL 090167 We're very fortunate in the fact that in 2005 the Green Advantage training was picked up as a national standard for construction certification in the United States, which means that basically Philadelphia has created these standards for all contractors around the United States. At the present time, we have 50 instructors around the country. We're teaching virtually in every state. And myself personally, I have a long history here of construction in Philadelphia and development. As a matter of fact, I'm the one that developed this room that we're sitting in right here. If you remember a few years ago, there was a leak. I was the contractor that reconstructed City Council Chambers. On Monday, I started a LEED Silver project, the Community College of Philadelphia. I started the Northeast campus, which is LEED Silver. We broke ground on Monday, and hopefully that will 161 4/2/09 - FINANCE - BILL 090167 be a good project. Why I think this is important is for several reasons. One, I want to just say that I travel around the United States teaching contractors and developers how to be green and how to do it at no cost, and to teach them that it's really not rocket science and that if they take the present principles and structures that they have in place right now, they can make this happen. To date, we've trained about 6,000 personnel, including a fair amount in Philadelphia. I think -- I gave a little handout and because of the sake that we're running so late, I think there's a couple of considerations. On the first part of it, what we're seeing around the country, in areas that embrace green building as a standard, it's creating new industries and new jobs and new workforce development. And what I mean by that is that you're seeing completely new industries using recycled products that 162 4/2/09 - FINANCE - BILL 090167 are being sold right back in the marketplace. We've missed some great opportunities in Philadelphia. One of those, if you remember the Neighborhood Transition Initiative --
Just a moment, please. Could we ask the conversation to please go to the hall. It's a little distracting for the witness. If you all could just curtail the conversation. Thank you.
One of the opportunities, if you'll recall the Neighborhood Transition Initiative, there was a small pilot program in which five of the houses were deconstructed, which is a green practice rather than demolished, and it was done to see if there was a cost benefit. One of the benefits that came out of that is, the lumber that came out of those houses was 3-inch-by-12-inch old growth timber from North Central Pennsylvania that was worth 163 4/2/09 - FINANCE - BILL 090167 $5 a board foot. Had somebody and was there a green incentive in Philadelphia to use this material, you could have created an ESOP-owned mill shop right in Kensington or North Philadelphia and employed Philadelphia residents and used the material right here. These are the opportunities we're not seeing. By not promoting green building, these are the opportunities that we're not capitalizing on. All over the country, in Cranbury, New Jersey, which is not too far from here, there's an engineer that developed using the bags that come out of the grocery store to make railroad ties, park benches, parking bunkers, et cetera. What happens with -- our experience has been -- and, again, this year so far I've taught in Oklahoma, Washington, DC, Baltimore, Maryland, and I am very familiar with the building trades. I'm sure most of you know Pat Eiding and Pat Gillespie. I do try to 164 4/2/09 - FINANCE - BILL 090167 encourage them, and I do train their foremen, superintendents, et cetera. What happens is, by passing a law like this, you have a positive feedback that these other things happen. In other words, if you're going to deconstruct a building, you have to use the material. What happens is, you have a trained workforce, they know what to do with it. They create these, I would say, marginal industries that become more -- for example, why doesn't the City of Philadelphia not have a reuse center? Why does it not have a reuse center? Every other major city in the United States -- I handled the deconstruction of the Civic Center, because I'm on the ground every day working. If you remember, it was in the Philadelphia Inquirer, $285,000 worth of reusable material was shipped from Philadelphia to Baltimore because we can't market it, and it was sold by Second Chance, which is in downtown Baltimore. This is what doesn't 165 4/2/09 - FINANCE - BILL 090167 happen when you don't embrace green building. I mean, I could go on for a long time. A couple other things I just want to correct which were said earlier. For residential certification for LEED is done locally. It's not done by the US Green Building Council. It's done by in Philadelphia -- in other words, USGBC has delegated residential certification to local entities. In Philadelphia it's MaGrann Associates in Mount Laurel and the Energy Coordinating Agency, is Liz Robinson. They are the certifiers. So there should be no delay in LEED certification. However, National Association of Home Builders also has a certification, which is actually more comprehensive than LEED for residential, not for commercial. In terms of commercial construction, I'm very much in favor of LEED, because I think it's the most accurate measurement. So I think in place are the 166 4/2/09 - FINANCE - BILL 090167 training, the workforce trainings in place. We've been training people now since 2004. There's trainings constantly going on. The building trades and the people in the field that build the jobs have embraced this. They want to be part of it, and they're learning how to do it. The learning curve has become very short. So basically that was my testimony. Thank you very much.
Thank you. I'll have some questions, but I'll wait until the other people testify. Yes. Next. Tom Massaro, is he not speaking?
Good afternoon and thank you for the opportunity to testify. My name is James White. I'm the Policy Coordinator of the Philadelphia Association of Community Development 167 4/2/09 - FINANCE - BILL 090167 Corporations. PACDC is a citywide association of more than 75 community development corporations and other organizations that have extensive experience in developing affordable homeownership, rental housing development, commercial space and facilities as part of their larger mission of addressing residents' needs and fostering successful revitalization of our neighborhoods. The CDCs operating in Philadelphia agree that the City needs to promote sustainable development and green building practices. In fact, PACDC members are already incorporating such practices into their developments. In addition, public funding sources such as the Philadelphia Redevelopment Authority and the Pennsylvania Housing Finance Agency already require energy efficiency practices and/or incentive green building practices in developments that they fund without utilizing the LEED system. 168 4/2/09 - FINANCE - BILL 090167 While some of our members are pursuing LEED or LEED Silver certifications for their affordable housing developments, due to the higher cost and limited public subsidies for the developments, they have been forced to value engineer out some green building components they initially wanted to incorporate. Given the higher cost associated with achieving LEED Platinum or Gold certification, it is unrealistic to expect that many of their developments will be able to achieve this level without some type of public subsidy. In reality, there are many ways to advance green building beyond requiring LEED certification for projects, which adds additional cost to developments and squeezes projects on tight budgets receiving limited public funding. Thus, we are deeply concerned about using LEED certification as a way to achieve this goal and linking the availability of the ten-year tax 169 4/2/09 - FINANCE - BILL 090167 abatement to the level of LEED certification a development receives. As a result, we are here today to voice our opposition to Bill No. 090167 as it's currently written. We urge the City Council to work with the City Administration and other stakeholders to seek alternatives which would provide funding and/or incentives for techniques that truly promote energy efficiency and sustainable construction in a cost-effective way. At a minimum, this legislation needs to be amended to address the challenges confronted by CDCs and other developers of affordable housing and related mixed-use development projects. To that end, we have worked with the Regional Housing Legal Services to develop proposed language to achieve this that we would like to convey to the Chair -- of course, I don't have any extra copies -- of what we see as language that would amend this bill and make it stronger and 170 4/2/09 - FINANCE - BILL 090167 truly more energy effective and energy efficient. We urge the Committee to hold this bill to provide an opportunity for the sponsors to convey key stakeholders to craft an effective and realistic solution and move us down the path toward a stronger infrastructure to support green building and sustainable development in Philadelphia. Thank you.
Hi. Good afternoon. My name is Kira Strong. I'm the Vice-President of Community and Economic Development for People's Emergency Center Community Development Corporation in West Philadelphia. We were created in 1992 with the mission to revitalize the West Philadelphia community in which our parent organization, PEC, provides social services to homeless families. 171 4/2/09 - FINANCE - BILL 090167 To date, PECCDC has attracted nearly $40 million in capital investments into our community and transformed over 100 properties into nearly 200 units of affordable housing for social service facilities and a community playground. Thank you for offering me the opportunity to be here today and testify and to discuss the importance of supporting both energy-efficient green affordable housing as well as tax abatements for low- and moderate-income Philadelphia residents. On behalf of PECCDC, I would like to make the following comments regarding this bill: PECCDC supports the building of energy-efficient housing for our neediest residents, those who can most use cost savings in utilities and in tax bills. Those affected by this bill include residents of low-to-moderate homeownership units, low-income housing tax credit developments, as well as 172 4/2/09 - FINANCE - BILL 090167 mixed-use facilities which combine both commercial and residential units. However, this bill, as written, proposes several obstacles to the affordable housing community. Certification and construction costs associated with building to LEED specifications are prohibitive. PECCDC is currently constructing Bernice Elza Homes, a six-unit LEED Silver certified development. It was extremely difficult to raise funding to pay the certification costs and upgrades needed to achieve Silver certification. As this bill 16 stands, this development would be granted only a 30 percent tax abatement. In order to reach 100 percent tax abatement, we would need to build to LEED Platinum level. 2 million project to achieve Platinum certification would be between $150,000 and $250,000. This is a 10 to 20 percent markup. This is not -- we do not, unfortunately, have 173 4/2/09 - FINANCE - BILL 090167 the economy of scale as the Comcast building. We also are required to adhere to very specific specifications triggered by our public subsidy and our funders, which are energy efficient but may not allow us some of the creative approaches that Onion Flats and John McDonald, who was here earlier, was able to achieve in his market-rate developments. We admittedly build to a different standard than what the $500,000 to $700,000 market affords. In a very tight funding environment for affordable housing, it is not possible to raise additional funds to bring us to LEED Platinum level or LEED Gold level. However, it is possible to achieve progressive green standards and energy efficiency without reaching these LEED levels. Of all residents who are eligible to receive tax abatements in the City of Philadelphia, we must recognize 174 4/2/09 - FINANCE - BILL 090167 that our low-to-moderate-income constituents need this abatement most. If CDCs as affordable housing developers are unable to afford the use of LEED, we are prohibiting the neediest group from receiving tax abatements. I must again emphasize that we strongly support energy-efficient green building for low-to-moderate-income residents. However, there are other green building standards which allow for healthy, sustainable homes while bypassing some of the costs associated with LEED certification and Gold and Platinum building levels. We are in support of amendment language proposed by the Philadelphia Association of CDCs and the Regional Housing Legal Services. We appreciate the opportunity to be here today and the past support that numerous City agencies have given to PECCDC and the CDC community. We believe that we have consistently provided an important return on this public 175 4/2/09 - FINANCE - BILL 090167 investment.
Thank you again for the opportunity to provide these comments.
Thank you very much for your testimony. Are there questions? Councilman Jones.
Thank you for your testimony and thank you for some of the advanced discussions we've had about this and possible amendments that may make this a bit more palatable to the small person trying to provide subsidized and low-income housing in the City of Philadelphia. One of those issues is that LEED -- there are many roads to sustainability, and they don't all have to go through a LEED certification, and is it true that we can accomplish some of that by providing a variation of options available to subsidized housing that would make this more palatable?
Yes. There are a 176 4/2/09 - FINANCE - BILL 090167 number of options and alternatives, Councilman, and as you know through our discussions, there is Enterprise Community. There is Green Globe systems, which is used internationally, that address residential affordable housing needs without the extrinsic cost that LEED rating system requires. And we appreciate the Committee and your efforts to make sustainable development a reality for the affordable housing units.
Just one other point. In our previous discussions, we also talked about that if indeed, which is not necessarily substantiated, if indeed there was a premium for sustainability and some may say it's somewhere around $3,000, not because of the cost of materials but the cost of the actual certification, that that was in fact prohibitive in fact for subsidized housing development, correct?
Yes, but I believe often times those amounts are more. For 177 4/2/09 - FINANCE - BILL 090167 example, our certification cost in the development I referenced is close to $7,000, and that doesn't include any of the additional construction costs.
So some of those subsidies that were from the stimulus package might be applied to defray some of that cost.
I want to just thank you. I work with Kira very closely and Mr. White, and appreciate their testimony. Thank you.
Just one quick question. How many units was your last development you were referring to?
So a 178 4/2/09 - FINANCE - BILL 090167 thousand a unit?
I'd just like to ask Mr. Weidle about your -- in this whole issue of green, have you reached out to the Office of Sustainability to offer assistance and ideas about what we might do as a city? Because some of the --
No, but I'd be more than willing to. I am familiar with the Office of Sustainability. I was on the Board of Directors of the Green Building Council for six years, and I do training. Like I said, I do training -- I started actually training suppliers in Philadelphia before there was a Green Building Council. So I have a long history with it. I think that -- I would more than welcome that, if you'd like to forward my information to them. I think it's absolutely necessary because -- and 179 4/2/09 - FINANCE - BILL 090167 I don't -- as a personal opinion, I don't necessarily disagree that -- I think LEED Platinum as a basis for 100 percent of rebate is probably a little excessive, and our studies around the United States -- and we teach in 50 states, and I teach contractors and developers, and the feedback that we have is LEED Platinum is probably a little bit difficult to reach, especially for an uneducated workforce. As the workforce becomes more available -- and the McDonalds and Onion Flats are extremely educated. Pat McDonald is one of my instructors that goes around the country teaching. I think Silver for the tax rebate would be more than adequate for the -- this is my own personal opinion and what I get back from the developers and builders and contractors that we train.
Well, you might want to reach out to Mark Alan 180 4/2/09 - FINANCE - BILL 090167 Hughes and set up a meeting with him, kind of give him some ideas and see how we could incorporate some of your ideas into what their plans are for moving Philadelphia forward.
I think another thing, that as a Council, I think that it's important to remember this thing about positive feedback. If green becomes the norm in Philadelphia, it creates a positive feedback. It brings along other industries with it. That is the experience we're seeing all over the United States. Other industries follow along. And I think that the Office of Sustainability should keep that in mind. For example, if you can produce materials in the City that goes into their homes -- and I've had this discussion with CDCs -- isn't that a wonderful experience? We're not doing it here. It's being done all over the United States, but not here.
I'd like 181 4/2/09 - FINANCE - BILL 090167 to underscore Chairwoman Tasco's recommendation. They are in the process as we speak of pulling together their, what might be called, strategic plan. They're actually meeting with members of Council now to let us know what the framework of that is. So the time is ripe, R-I-P-E, for you to have a conversation with them and offer your input. It's extremely valuable. Thank you.
Thank you very much for your testimony. We appreciate it.
Mr. Eron Lloyd. Is there anyone else here to testify on this bill? Mr. Massaro, I thought you were with the other panel. Come on up. (Witnesses approached witness 182 4/2/09 - FINANCE - BILL 090167 table.)
My name is Thomas Henry Massaro. I am speaking today in my capacity as a private developer in the City and also someone who has a company to do project management for some leading institutions and corporations in the City. First, I'd like to commend the members of City Council, Councilwoman Tasco, Councilman Jones, Councilwoman Blondell Reynolds Brown and others, for having this review today. I want to focus on some of the things that I think are essential on a collateral basis to make this bill work. First, we need to dramatically increase over the next three years the number of building inspectors in the Department of License and Inspection who are LEED competent. We need to increase the training of plan examiners who will 183 4/2/09 - FINANCE - BILL 090167 help review these plans and contribute to the certification process. Some of the concerns of this bill relate to perceived cost increases to make the green building possible. I was involved in the discussion at Comcast, and the actual projections were the costs were somewhere between six and eight percent greater to have the Gold certification than if it was conventional, somewhere between six and eight percent. Certainly in today's environment, I understand the pause that everyone has about increasing costs. However, there's increasingly great offsets to going green in terms of costs. The number of green building products has doubled since 2000. The number of new products has increased 400 percent in the last three years because more and more companies are developing these products, they're testing these products, and they can contrast the performance of the 184 4/2/09 - FINANCE - BILL 090167 product with conventional products. The more that happens, the more people are willing to use these products. So while the cost of construction commodities worldwide had been going up, plywood, lumber, gypsum, cement, they've come back a bit, but they're really on an upward path. The cost for green commodities increasingly is less expensive, because you have more volume, you have more utilization and you have greater economies of scale in the production. So what's happened is, there's still an upward trend on the cost of conventional construction commodities, and the trend is downward on the cost of green and sustainable commodities. So that trend is going to help us over the next several years. It's important also to understand, on LEED you really should look at it as a three-part process. You have the planning and the siting of the 185 4/2/09 - FINANCE - BILL 090167 building, you have the construction of the building and you have the operation of the building. Now, for those who were concerned that the cost of development is higher for green, you generally get a higher rent. You generally will rent it quicker. You generally will have a wider stream of prospective tenants. And the most graphic example I could give you, there's a building last year. They looked at two buildings. One was highly energy efficient, one was moderately energy efficient. The cost for one was $22 a square foot and about $8 a square foot for maintenance and utilities. The other one was $25 a foot and $3 a foot for maintenance and utilities. So even though their rent was higher, their utility and their maintenance costs was much less. So it brings it within the realm of feasibility. The other thing that people have to understand is that green 186 4/2/09 - FINANCE - BILL 090167 products, natural products in some cases are exponentially less expensive. I had a client last year, a commercial building. They were spending $3,800 that year -- I'm sorry; yeah, $3,800 for -- it's a glass building -- to clean the windows. They went to a white vinegar with water. They spent $137. And actually according to Consumer Products, it actually cleans the windows better.
So right there a green product, just to take some white vinegar and water and wash the windows, was more effective for $137 than for $3,800 worth of cleaning chemicals, which also were caustic. They get into the storm water and the water treatment system, and it has a very pejorative consequence. So the basic point I wish to make today at the request of Councilman Jones, I've developed over 300 units in the City of housing for ownership. Never gotten any public subsidy. And I found ways a decade ago to incorporate green 187 4/2/09 - FINANCE - BILL 090167 technology. And I think what's important under LEEDs is, just by siting the building for passive solar, just by orienting your windows, you could cut your energy use percent. So I think 7 the fact that LEEDs deals with design and 8 planning as well as operation will allow 9 us to remediate any excessive cost on the 10 construction end. We'll pick it up on 11 the value end and we'll pick it up on 12 lower operating costs. 13
Sounds 14 good to me. Water and vinegar, our 15 grandmom did that. 16 Okay. Next. 17 Thank you. We'll come back for 18 questions after he testifies. 19
Thank you, Madam 20 Chairwoman. Good afternoon. Nice to see you all again. Thank you for your patience in this hearing, and I'll try to be as brief as possible. With all of the discussion over green building, I think with the 188 4/2/09 - FINANCE - BILL 090167 statement by, I think, Mr. McDonald about the idea that -- I think everyone is coming to a consensus that the idea of a green building program here in the City is a good idea and one of the issues that -- the only issue that really needs to be worked out is the implementation of that program. So I'm not going to speak much about it. I think we're all on board with that idea. Instead, after listening to all of the discussion, I'm going to try to boil down to the heart of the matter as far as the concerns, and what I think that this essentially boils down to is the role of the current abatement program and the concern of the Administration, of the development community, of the researchers and the other witnesses that spoke today, who recognize the significant value of this project and do not want to see it changed because of its benefits to the City. So what I am here to talk about 189 4/2/09 - FINANCE - BILL 090167 as a representative of the Henry George Foundation is how the abatement program we have, which essentially eliminates the building tax on -- the building tax of the property tax while remaining -- keeping the land side of the property tax, has not only spurred development, but has also secured an influx of population that has produced new enterprise and tax revenue in other areas. So what I'd like to talk about is consideration of, as Councilman Jones actually discussed, an evolution of the current abatement program to essentially become what it is right now a lighter version of, and, that is, for the land value tax. Essentially what that would do is create a universal abatement program not only for new development, but it would also reward the residents who right now are very angry and frustrated because their decades of investments and faith in the City have not gone rewarded 190 4/2/09 - FINANCE - BILL 090167 through this incentive program, and a land value tax will essentially become a retroactive abatement program for all of these residents and real estate investments. And, of course, we will discuss this later on hopefully as far as the budget hearings, but I want to highlight some of the things I noticed, especially the economic researchers that were here as far as part of Econsult failed to mention. From an economic perspective, the change in the tax structure under a land value tax would make development -- and not only green development, but development in general and, thus, the cost of housing -- much more affordable by two important impacts. First, it would reduce the cost to procure land by pushing much of the land that is out of use back into the market. Anyone that knows development here in the City knows that there are almost 40,000 vacant lots and structures scattered around every 191 4/2/09 - FINANCE - BILL 090167 section of the City, and those structures and lots are out of the market right now, being held in speculative purposes, and that artificial shortage in supply of developable property is driving up the costs for development. You can build green anywhere, and you're going to have what economists try to separate out as a fixed cost, but you also have something that we determine has a variable cost, and one of the biggest variable costs for development is land. It's the location value that factors into your development costs up front. The Onion flats, I believe, are in Kensington, and there's also another initiative to build a hundred-thousand-dollar green house, residential house, and that's also in Kensington. And I don't know if it's the only reason, but one of the factors that that location was picked, because the land is very cheap. So that's going to 192 4/2/09 - FINANCE - BILL 090167 reduce your costs for building green.
And so by freeing up all of this land that's out of the market would essentially reduce the acquisition costs and eliminate one of the highest up-front costs to development. But, second, the tax structure reflects the interest rate type of behavior in determining prices and costs. If we were to have a high tax on land -- and I'm not going to bore you with the details of this, but essentially what it does is, it reduces what we call the capitalization of that value into your mortgage payments, which thus reduces your mortgage payments over the long run, because it's not absorbed into the price of the house, as we say. So not only would such a tax reduce the up-front costs of acquisition of property to be developed, thus reducing the development costs, especially if we're going to move into the green direction where you're going to 193 4/2/09 - FINANCE - BILL 090167 see a five percent increase in the cost, but it would also, over the life of the property, reduce the mortgage payments, which would lower the permanent cost of those projects. So I'd really like to just bring those two thoughts into the discussion and also the political side of the abatement program. There was just an article in the paper today about the Liberty Place demonstration and stuff that took place, and I think Mr. Huang from Econsult went over the details of how the abatement program does actually bring in the kind of economic development and revenue that we anticipate. But there is a large population of people that feel left out of this program, and by changing our tax structure to essentially turn the abatement program into our official property tax policy, you're actually bringing all of those current opponents of such a program to become stakeholders and to benefit from 194 4/2/09 - FINANCE - BILL 090167 this type of approach. We all know the tax abatements work. The Administration knows they work. They bring in people that otherwise wouldn't build and live here in the City. And by changing our fundamental structure of how our tax system works, we can broaden this to benefit everyone, whether they're coming in now or whether they've been here for 30 years. So under such a program, there is very concrete economic and political benefits to essentially adopting the mother of the tax abatement program, which is a universal abatement on all buildings, whether they're new or old. I'll leave my testimony at that. I'd be more than happy to answer any questions you may have. Thank you.
Just an 195 4/2/09 - FINANCE - BILL 090167 ending comment. I first got my taste of what is now called sustainability and green by a former Housing Director, who told me what R-10 insulation was and how to do it, and he did it way before it was vogue to be green or be sustainable. He did it because it made sense, not only to his development but to his tenants, that his tenants were able to afford nice housing because they could afford the utility bills. And he understood and had enough foresight to understand that whenever I add value to the materials, to the systems in my house, I add value to my property at the end of the day and it is worth more. I want to thank my colleagues here for having the endurance to go through all of this and also having the courage to deal with some of the forces that we saw today that are rallying in fear of green. And I want to say that what I've learned is that I believe that 196 4/2/09 - FINANCE - BILL 090167 at the end of the day, all of us can sit around the table and find common ground, but three things need to be understood: That green adds value at the end of the day to the property that you develop; that, number two, the most expensive thing in this city is being poor, because you pay and we pay more for everything, from utility costs to everything, because we don't have insulation factors and we can't afford the R-10 value insulation that maybe some other folks can afford. So we in this Council are not just doing this to deal with whether or not there should be a ten-year tax abatement. As these utility companies deregulate, as the cost of gas inadvertently must go up, as the cost of water and electric gets deregulated, that this won't be something that we're doing for the environment. We're doing it for the citizens of Philadelphia that can still afford to live in this city. So I'm thankful for what the 197 4/2/09 - FINANCE - BILL 090167 testimony has taught me today. I'm encouraged by the fact that this is the beginning of a dialogue, not the end, and that at the end of the day, we will not plan this city's future out of fear. We will plan it out of the right thing to do and for all, for all of its citizens, not just its wealthy, but its most vulnerable. Thank you.
Thank you very much for your comments. Any other comments? (No response.)
Thank you for your testimony. We will recess this Committee until the call of the Chair. Thank you. (Committee on Finance recessed at 4:20 p.m.) - - - 198 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on April 2, 2009, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)