And what about the Sunocos of the world? 196 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Well, if you mean gas stations or tank farms, it's been knocked around a little bit, and in my personal opinion, and that's for what it's worth, a tank farm isn't going to go anywhere anymore. They can't really go to another area and open up shop, nobody will have them. If you're talking about tank farms along the Schuylkill, they have lots and lots of open land, and as Councilman Tayoun said, they're not really taxed much at all simply because the tanks themselves aren't really taxed. So I think that if --
I think the Councilwoman's probably referring to the refineries that we have.
That I am sure employs hundreds and hundreds of people.
Are you saying 197 2/12/02 WHOLE - RES. 010700 (TAX REFORM) that it really doesn't matter because they can't go anywhere else, that we should be able to tax them as much as we want, and they're going to just have to stay there whether they like it or not?
That was just my opinion if you're looking at just a land tax, but we're also talking about reduction of business taxes and wage taxes, and that will be nothing but of benefit to these companies.
I didn't mean to interrupt you, but I just -- I know the refineries in my district and I know that they employ hundreds and hundreds of employees.
Exactly. I'm sorry, I didn't mean to interrupt you, but I just had to address that.
I appreciate that 'cause that is specifically what I was referring to. My final question is, as you have described it, you see implementing the land-value tax in concert with or in connection with or along 198 2/12/02 WHOLE - RES. 010700 (TAX REFORM) with the execution of a number of other taxes. The reality, however, is, I have yet to see a major municipality execute comprehensive tax reform of any kind. So acknowledging oftentimes that tax reform is very, very incremental and a very conservative process, what is your opinion to the one I heard you express here today that if we, as a city, are going do look at tax reform, we need to start with the wage tax?
I think that the wage tax is anecdotally and factually a very important factor in the perception of Philadelphia as a place not to come to, not to do business in. The property tax in Philadelphia doesn't really raise that much money compared to the wage tax. I think you could implement a land-value tax on its own, and it would be beneficial certainly, but it wouldn't have the impact that wage-tax reduction would do -- would have.
So then, would you agree with the notion that the wage tax is the best first start?
I think that reduction of -- yes, taxation of labor and capital is a start that 199 2/12/02 WHOLE - RES. 010700 (TAX REFORM) this city has to make, and I think that the land is a perfect repository for that revenue need.
Okay, thank you very, very much. Thank you, Madam President.
You're welcome. Mr. Vincent, what other cities started with the land-value tax and no longer have it, such as Pittsburgh?
Well, Pittsburgh is the brand-new example because of the problems I delineated. In the Commonwealth, Hazelton and Uniontown both had land-value taxation and they both abandoned it after one year.
Yeah, actually. What they did was, they dropped the building tax rate very dramatically in the first year out, and they did it against -- actually against our advice in Uniontown in 1992. The reason they did that was because they were looking at only the carrot part of what the land-value does, they were thrilled at the tax reduction for the homeowners; but at the same time, 200 2/12/02 WHOLE - RES. 010700 (TAX REFORM) because -- in the other Pennsylvania cities, the property tax means a whole lot more than it does here, and so it meant a whole lot more fiscally to the downtown property-owners who were afraid that their flat-top parking lots would get an onerous tax burden. And the squeaky wheel gets the grease, and so essentially, they were suspended after a year.
Thank you. Are there any other questions of Mr. Vincent? (No further questions.)
We will now hear from other members of the panel. (No immediate response from panelists.)
I never knew Mr. Schwartz to be shy, to sit back and --
Fair enough. I'm Ed Schwartz, I'm here from the Institute for the Study of Civic Values. I would also add that I have 201 2/12/02 WHOLE - RES. 010700 (TAX REFORM) spent about an alarmingly large number of years looking at these questions, including three in the 1970s, before I became a councilman, and I've spent full time in a group called "The TEA Party," Tax Equity for America, where we really absorbed all of these questions. And I'm not here to critique Jonathan Saidel's entire report. I've read a summary of it but not the entire report. I also believe that any meaningful analysis of public budgets has to do what this Council does every year and the Mayor, and that is to examine both taxes and spending as they relate to public goals; for example, job development and the quality of residential life. And, frankly, apart from what the Mayor and this Council has to do every year, where you face up to this obligation, because that's what's you're paid to do, the debate over tax reform, including much of the testimony that I've heard today, has absolutely nothing to do with that process. For example, outside of today, former Mayor Rendell boasts that the wage-tax reductions that he initiated have "saved the taxpayers," in 202 2/12/02 WHOLE - RES. 010700 (TAX REFORM) his language, roughly 100 to $150 million annually. Well, another formulation would be that these reductions have cost the public treasury 100 to $150 million annually. If we took 100 to $150 million and invested it in improved safety and commercial and industrial corridors, adult literacy and job training, and improved access of City revenues to suburban jobs, wouldn't we have achieved even greater economic gains over the past five years than the ones you've heard about today? Who knows? That question has never been asked in that form. And this hearing has replicated that entire absence. I would point out, however, that every single year that PICA has published one of these reports, there is almost a boilerplate paragraph that somebody needs to take a real hard look at what economic gains we're gaining from the wage-tax reduction program. It's not done. And there's much more I might say to what was here, but as you know, there's much more general that I might say on almost every subject, but I didn't come here to do that. 203 2/12/02 WHOLE - RES. 010700 (TAX REFORM) I think Jonathan Saidel anticipates this problem in relation to his report by saying that while he favors the entire complexion of the proposals, that each of them, you know, is a proposal in its own right. And since the land tax is kind of new and controversial, if not in the debate, and I have reason to at least think we ought to take a careful look at it, I came here to do that. I would add one only tiny, little point which I found interesting that Councilman Tayoun and I have talked about this stuff for as much as anything else for a long time, but the one tax proposal that I do favor is the Mayor's proposal to lower the gross-receipts tax.
To lower the business gross-receipts tax. At a time when you're trying to attract small businesses that are often capitalized by debt, go many years without profits in order to be able to get into the marketplace, attacking gross receipts is precisely eliminating the major kinds of business that, in fact, engine the future of our economy. So I think that that 204 2/12/02 WHOLE - RES. 010700 (TAX REFORM) makes some sense. Regardless, here too, any proposal has to examine what you're going to gain and lose revenue-wise, but I think that that makes a lot of sense. And I also think that the land tax in Philadelphia is an option that we really need to look at very carefully in this city, given the condition of this city. Under a land tax, as I understand it, we replace our current real-estate tax system, which taxes both land and the improvements that residents and businesses add to it, with a system that simply taxes the unimproved value of the land; that is, the value of the land under normal sales conditions, assuming that no 16 structural improvements have been made. It seems obvious to me that such a system would provide an enormous incentive to development. The greater the value of the improvements on land become, the less the percentage of the tax on individual land and property owner. If I own unimproved land which could be sold for $10,000, a 5 percent tax would be $500. If I make improvement to the land that raises its total value to $50,000, the $500 becomes a 205 2/12/02 WHOLE - RES. 010700 (TAX REFORM) 1 percent tax on the property that I now own. So development reduces my tax rate. And, therefore, that's a tremendous incentive to develop vacant land. It becomes a powerful disincentive, deterrent to outright speculation, which has been a serious problem in huge areas of Philadelphia over the years. So for these reasons, I think it's worth looking at, and in fact, there has been a little bit of a history here. Going back to 1981, I persuaded the late Councilman John Anderson to introduce and to, in fact, see the passage of what was called "the vacancy tax," a 10 percent, or 10 cents on the dollar, tax on vacant land. We were at that time terribly concerned that all of this vacant property was developing and boarded-up, abandoned houses, all the things we're discussing today, and these folks weren't paying any taxes on it. So the idea was to add a penalty for just sitting there on this unused tax. Well, Council passed it. The Revenue Department was quite opposed to it. Their system of collections stunk. They sent out a letter imposing this tax on all sorts of places. A 206 2/12/02 WHOLE - RES. 010700 (TAX REFORM) firestone of criticism emerged, the tax was basically paralyzed from collection, and you ultimately rescinded by Council. But there was an effort to do that. Then, as I say in the testimony, I didn't realized he'd be here, Councilman Tayoun, as you point out, was a champion of this. One thing that was not generally known -- maybe some of you will recall, I was now seeing this from the executive branch side of government, but during the City's budget crisis in 1989 or '90, I forget which of the years, then-Finance Director Betsy Raveel (ph) proposed a real-estate tax increase but within the framework of a land tax that she claimed would actually reduce real-estate taxes for most Philadelphia homeowners.
'89. Thank you, Councilman. I recall I was somewhat -- I didn't know what quite to make at a technical level of the proposal for land tax. We had our arguments with Betsy, but at this level, she was, you know, unparalleled really. And I thought that she would 207 2/12/02 WHOLE - RES. 010700 (TAX REFORM) have come out, having looked at the Philadelphia system and come out with something like this, gave a certain amount of credibility to that proposal. Unfortunately, as often is the case, this was proposed to City Council, which did not have enough time to evaluate or look at it, and we never pursued it again, which I thought was a terrible mistake. Something of this complexity needs to be handled the way the Saidel report is handling all of these things -- as proposals, and then you move forward and try to see whether they make any sense. Finally, as one of our panelists has already indicated, even without a land tax, the City has used real-estate tax abatements creatively for many years as a tool for economic development aimed at offsetting the negative impact of the wage tax, and we've all accepted these incentives, and they appear to have worked in many instances. A land tax carries this principle to a higher level. But I do believe, as I've said in relation to any of these proposals, you need to look at it hard and ask some of the questions in greater depth that you've already, in a sense, asked. For example, what will be the impact of moving to a 208 2/12/02 WHOLE - RES. 010700 (TAX REFORM) land tax on different kinds of real estate? That question has been raised in part by Councilwoman Blondell Reynolds. We know that the speculators lose and people in businesses with highly-developed properties win. How does that break down, given Philadelphia right now and in the future, into various categories of homeowners, renters, industrial and commercial properties. With the anticipated gain in taxing vacant land, we offset by uncollectible revenues on much of this land. And what are the advantages -- the absentee ownership problem facing many of the properties alluded to in North Philadelphia, you know, kind of offsets any potential gain, and the numbers of what we could collect are irrelevant 'cause you can't find the people and you don't collect the tax. So to what extent did this get stymied? Would it make sense to shift the balance between land and (indiscernible) improvements without moving entirely to a land tax? Are there degrees here of land and improvements which might make some sense, and what's the proper formula, and what are the advantages or disadvantages? 209 2/12/02 WHOLE - RES. 010700 (TAX REFORM) And what benefits would a land tax offer us in the marketing of vacant land under the Neighborhood Transformation Initiative? I do believe that NTI, with its promise now of another several thousand vacant properties being eliminated and land being made available, may be an ideal setting in which to introduce a land tax as a further incentive for people and businesses and whatever to come in and develop the land that we're currently clearing. So I think this is an option worth considering carefully. You're not going do rush through this budget and suddenly pass it on the basis of a couple of panels and reports. This is something that would go over the course of the year, but I do believe that this is an important option to look at, particularly in the context of NTI, where we are working very hard now to figure out how to reclaim and redevelop and reuse land that had a value in the past but is right now a liability to the City and we hope to have a value in the future. So I thank you for the opportunity to offer these comments. And as far as the larger 210 2/12/02 WHOLE - RES. 010700 (TAX REFORM) issue, you can expect that we'll have some things to say about those as well down the road. Thank you.
Thank you, Madam President and Councilmembers. I'm Joanne Denworth, and I'm President of 10,000 Friends of Pennsylvania, so I'm going to bring a sort of statewide perspective to this issue and not look at really the detail of the Controller's proposal, though I think it's an admirable in its detail, and that that needs to be analyzed very carefully in the way that Ed Schwartz spoke about. 10,000 Friends is an alliance of organizations and individuals from across the State committed to land-use policies and actions that will enable Pennsylvanians to strengthen its diverse urban, suburban, and rural communities, and reduce sprawl. We aggressively seek development that will support the social and economic vitality of Pennsylvania cities and towns, protect environmental quality, conserve fiscal resources, and preserve our state's exceptional rural and 211 2/12/02 WHOLE - RES. 010700 (TAX REFORM) heritage resources. 10,000 Friends principles have been endorsed by over 200 organizations across the State, representing well over 310,000 Pennsylvanians. And I should say that these are very diverse in their environmental heritage, but also business, municipal planning, and a lot of organizations, and we have a number of endorsers right here in Philadelphia: The Horticultural Society, Greater Philadelphia Urban Affairs Coalition, the Reinvestment Fund, and some others. I am here to support the proposal by the Controller's Office to institute a land tax, changing the way land is taxed in Philadelphia from the current system to a tax on land and the tax on structures and improvements would generate an equal amount of revenue, or at least to tinker with the balance and the formula so that buildings are paying less and land is paying more. We believe that the land-value tax could be a very important tool for the revitalization of City neighborhoods that's been eloquently spoken to by other people who have testified. As the report recognized, to be effective, such a program would 212 2/12/02 WHOLE - RES. 010700 (TAX REFORM) need to be well-administered and implemented through a fair assessment process and in conjunction with other regulatory tools such as improved tax collection and appropriate planning and zoning, which is a very important to us; for example, to preserve open space and other neighborhood land and amenities. While we have not thoroughly analyzed the full complement of the tax and other proposals in the Controller's report, we do want to emphasize our support for the direction of a number of these recommendations: for a reduction of City business and wage taxes, and I agree with the reduction in gross receipts and some reduction in the wage taxes to at least make us competitive in attracting business and jobs in this region; for continuing to pursue Commonwealth funding of Philadelphia county and State-level courts -- I don't know if we'll ever get there, but we certainly ought to keep trying to relieve the City of a burden it should not have to bear alone; for reducing the expense of government where possible; and 213 2/12/02 WHOLE - RES. 010700 (TAX REFORM) for statewide reform of the school finance system to reduce reliance on the property tax. That reliance across the State, which I see everywhere, has caused great disparities among Pennsylvania's municipalities in the education that they're able to provide for their children and the services that they're able to provide to their residents and businesses. The health and economic vitality of Pennsylvania's 56 cities and 962 burroughs -- I want to tell you, that's more urban communities than most states have municipalities -- is of grave concern to 10,000 Friends and its many partner organizations.
Most of these cities and burroughs are in relative economic decline as middle- and upper-income taxpayers have headed for the suburban and exurban locations to work and live in sprawling new developments, leaving cities and burroughs to provide for infrastructure, schools, municipal services, social services, and quality-of-life amenities on constantly-shrinking tax and revenue bases. Unlike other states where sprawl is, in part, a product of growth, Pennsylvania very little 214 2/12/02 WHOLE - RES. 010700 (TAX REFORM) growth, just over percent in 30 years population growth; yet one of the highest rates of land consumption per person in the country. And while this exodus has lots of causes, and certainly tax policy isn't the only one, it is clear one of the major motivating factors for people leaving cities and burroughs is higher taxes combined with declining value and quality of life in neighborhoods. One of 10,000 Friends' first acts as an alliance -- we've only been in existence as a separate corporation for three years and we've had quite an impact, we think -- was to support legislation enabling burroughs to use the land-value tax, which was passed in 1998. It had already been authorized for third-class cities and was in effect in 16 cities at that point. There are more now, right?
Where it spurred reuse and reinvestment in urban properties. From our perspective, the land-value tax is an important tool for revitalization primarily because it addresses both higher taxes and 215 2/12/02 WHOLE - RES. 010700 (TAX REFORM) declining values. It provides an incentive to invest in urban properties and a disincentive to allow them to decline and to hold them for speculation. It appropriately taxes improved land, and I think that's very significant 'cause not only do we have land, but we have land that has valuable infrastructure, which is served by infrastructure and public investment, and it spurs and leverages private investment. It can also enable a city or borough to decrease business and property taxes, as the Controller proposes. We support policies that will encourage urban redevelopment and revitalization for the sake of bringing back Pennsylvania's over 1,000 urban communities, but also for the purpose of reducing pressure for sprawling development in the suburbs and exurbs. Pennsylvania's cities and town can be the answer to sprawl if we make them attractive and competitive, with vital neighborhoods that hold their value. The economic and environmental health of Philadelphia is of particular concern to us -- and to me because I live here and care about it very deeply -- because of the population and job losses 216 2/12/02 WHOLE - RES. 010700 (TAX REFORM) it has suffered in the last several decades and the large number of vacant lots and buildings here, more than any other major city in the nation. Philadelphia, because it is exceptionally historic, culturally rich, and a liveable city, has more potential than many cities to attract residents and businesses, as the recent success of Center City as a residential, commercial, tourist, and entertainment destination shows. The City needs to use every tool at its disposal to make its neighborhoods attractive to residents, to people who live here already, and to the people who will come. While the land tax alone won't be enough to solve tax-competitiveness issues, it can spur development, and this is the reason we endorse it so strongly, particularly in conjunction with something like NTI, which we also strongly support and are very pleased to see that that is going to move forward. And I think, as Ed said, it can work very well -- a land tax could work very well in conjunction with NTI when we're trying to attract developers to our neighborhoods. I would also like to point out that we 217 2/12/02 WHOLE - RES. 010700 (TAX REFORM) have -- 10,000 Friends has been supporting a package of urban blight bills in the legislature, which has passed the House and is in the Senate. While we think these kinds of measures are quite important, perhaps this incentive sort of program to spur redevelopment is the most effective to actually get reinvestments and revitalization of Philadelphia's neighborhoods. So I thank you very much for the opportunity to speak to all of you today and am glad to answer any questions.
My name is Nicholas Tideman, and I'm a professor of economics at Virginia Polytechnic Institute and State University. Of course, my opinions are my own; they are not the opinions of my institute. From an economic perspective, the property tax is a combination of two very different taxes: It's a tax on land combined with a tax on improvements. The tax on land is one of the most benign taxes in terms of economic efficiency, while 218 2/12/02 WHOLE - RES. 010700 (TAX REFORM) the tax on improvements is one of the most harmful. The tax on improvements operates like an increase in the interest rate that banks charge to businesses. It increases the rate of return that investment must yield to be profitable and, thereby, squeezes out some investments. In the same way that the economy slows down when the Fed increases interest rates and accelerates when the Fed lowers interest rates, the economy of a city slows down when it increases the tax on improvements, and it accelerates when the tax is lowered. But the effect on a city of an increase in the tax and improvements is even more severe than the effect of an increase in interest rates on a national economy because of the concentration of the effect on a single locality. When the tax on improvements rises in a single jurisdiction, people and capital move to other places. When the interest rate rises, people need to go abroad to escape its impact. A tax on land is benign because land can't move to another jurisdiction. In fact, a tax on land may be not merely benign, but actually 219 2/12/02 WHOLE - RES. 010700 (TAX REFORM) beneficial; this is because a tax on land reduces the profit from land speculation, thereby reducing the amount of land speculation, leading to a greater effective supply of land at lower prices. The higher taxes on land motivate people who would otherwise leave the land they hold undeveloped to either develop it themselves or someone else who is prepared to do so. Several years ago, I had a doctoral students, Florenz Plassmann, working under my supervision on a study of the impact of two-rate property taxes in Pennsylvania. He is now an assistant professor at the State University of New York at Binghamton. Plassmann and I looked at building permits in the 15 Pennsylvania cities that at that time had used two-rate for more than one year, and we looked at about 200 similar Pennsylvania municipalities that had maintained equal rates of taxation on land and improvements. We examined separately the number of permits and the value per permit for whole structures and for additions or alterations for residential and for commercial or industrial structures. We found that two-rate taxation made a 220 2/12/02 WHOLE - RES. 010700 (TAX REFORM) difference in all categories except whole commercial or industrial structures. The way we explained the absence of an effect on whole commercial or industrial structures is that most cities, whether they have two-rate taxes or not, use the LERTA program to grant tax abatements to those who build whole commercial or industrial structures. Such tax abatements are economically equivalent to two-rate taxation, except that they apply only to a fraction of the potential sources of development for a city. When we combined the effects of two-rate taxes on all categories of property, we found that for each 1 percentage-point difference in the effective tax rates on land and improvements, construction each year was greater by an average of 15 percent. Our 90 percent confidence interval on this estimate was 8 percent to 23 percent. This is the kind of impact that Philadelphia can expect if it shifts some of its property taxes from improvements to land. Mr. Saidel is proposing a number of other reforms for Philadelphia. While I don't have numerical predictions to make about their 221 2/12/02 WHOLE - RES.
010700 (TAX REFORM) consequences, I can say that economic theory supports the expectation that they, too, will bring major benefits to the Philadelphia economy. Thank you.
Thank you. Are there any other questions? (No questions.)
The next panel: Napolean Saunders, Benjamin Howells, William Heydt, Alanna Hartzok. (Witnesses come forward.)
Thank you, Madam President staff. I'm very happy to be here with you. My name is Alanna Hartzok, and I am State Coordinator of the Pennsylvania Fair Tax Coalition. We work in support of tax shifting throughout our state, meaning tax reform that lowers the tax on workers and labor-produced wealth such as homes and other buildings, while increasing taxes on the value of land sites in order to collect for the public benefit the value created by society as a whole I am here today to tell you briefly about the role this tax reform has played in our capital city of Harrisburg and also to describe how this 222 2/12/02 WHOLE - RES. 010700 (TAX REFORM) policy promotes the maintenance and construction of quality affordable housing. The business administrator of Harrisburg Nate Saunders, sends his regrets that he was not able to be with us today, but he does intend to be a speaker at an upcoming seminar on February 20th, and is available by phone to talk with any Philadelphia City Councilmember who would like to speak with him directly. In the early 1980s, Harrisburg was considered the second-most distressed city in the United States under the federal distressed criteria. Harrisburg was a depressed city with more than 4,200 vacant, boarded-up buildings. High unemployment, and high crime and fire rates. Harrisburg gradually began shifting its property tax off buildings and onto land according to its assessed value. Year by year, as the city gradually restructured its property tax along these lines, the city improved noticeably, according to a number of criteria. In this city of 53,000 within a 12-year period, after implementing the tax shift, there were 4,700 more city residents employed, and 223 2/12/02 WHOLE - RES. 010700 (TAX REFORM) 41 percent of all city households had incomes over $25,000, compared to only percent previously. 25 billion in new investment, 6 and the city set two consecutive records for the 7 most building permits issued in any year. 5 percent, the fire 9 rate dropped 50 percent. 10 During this time, the City of Harrisburg 11 began to win a number of awards such as the 12 All-American City Award, the Highest National 13 Community Award due to its creation of non-tax 14 revenues and local government reform. S. where urban renaissance has been successfully conducted. Harrisburg annually attains top national fiscal awards, one of only four of Pennsylvania's 2,640 municipalities to do so. Harrisburg's reform of its property tax, which lowered taxes on buildings and raised them on land values, is credited by Mayor Steven Reed and other city administrators as a key policy in 224 2/12/02 WHOLE - RES. 010700 (TAX REFORM) promoting the revitalization of their city. Mayor Reed says, "The City of Harrisburg continues in the view that a land-value taxation system, which places a much higher tax rate on land than on improvements, is an important incentive for the highest and best use of land in already-developed communities such as cities. "With over 90 percent of the property owners in the City of Harrisburg, the two-tiered tax system actually saves money over what would otherwise be a single-tax system. 2 billion in new investment occurred in Harrisburg, reversing nearly three decades of very serious decline, and that the two-rate system has been, and continues to be, one of the key local policies that has been factored into this initial economic success here. Note that these improvements have come about, even though 41 percent of the land of Harrisburg cannot be taxed by the city because it 225 2/12/02 WHOLE - RES. 010700 (TAX REFORM) is state or nonprofit real estate, and even though the school property tax remains on a flat-rate system. In the next city budget, Harrisburg will increase the tax shift ratio to taxing land values six times more than building values. City Business Administrator Nate Saunders told me over the phone yesterday that the number of vacant structures -- over 4,200 in 1982 -- is now less than 300.
As the number of vacant properties slows down, the city demolishes those properties that it owns and sells them at market rates, as there's now sufficient low- and moderate-priced housing, says Mr. Saunders. I am sure that many of you here today have been puzzled, as I have been, over how it is that the market economy does not function well in terms of supplying quality affordable housing for low- and even middle-income people. The land-value tax harnesses market forces in order to correct this problem. The experience of this policy in cities of Pennsylvania which are implementing it has shown that it does stimulate the local economy to promote employment and the construction of affordable 226 2/12/02 WHOLE - RES. " If Philadelphia does not move towards this form of tax restructuring, most likely it will face an increase in social problems such as homelessness and unemployment. The 2003 Bush federal budget calls for multi-million dollars of decreases in funds for public housing, decreases in capital funds for public housing repairs, and multi-million eliminating from community development block grants. But with this solid and proven tax-reform policy in place, we can project that the positive effect of this policy will be amplified in Philadelphia. Under the proposed plan of the office of the City Controller, the tax shift would include the full property tax base and would shift taxes not only off of homes and other buildings but also off of wages. With enhanced purchasing capacity for its residents and an increase in building renovation and construction, Philadelphia would have a chance to become the first-class world city that the Cradle of Democracy could, and should, be. And in ending, I want to draw your attention to this very nice piece of literature put 227 2/12/02 WHOLE - RES. 010700 (TAX REFORM) out by the City of Harrisburg by the Mayor's Office, who, within an article inside of this as well as on the back cover page, it uses the tax shift, lowering property tax millage on improvements and on land as a way to promote the City of Harrisburg. Thank you for your attention.
Tough action act to follow. Good afternoon. My name is Ben Howells, and I'm here from Allentown, where I served five four-year terms on City Council, many of them as president. With the exception of the first year, I was an advocate of using split millage as the proper way to levy property tax. There are so many valid reasons to structure yours and our tax in this manner that I won't try to enumerate them. There should be healthy skepticism over something as new and yet as old as this. Let me disavow you of some of the problems you think you might encounter and then maybe expose you to some that you may not have realized prior to this. First, the State of Pennsylvania has 228 2/12/02 WHOLE - RES. 010700 (TAX REFORM) mandated for nearly a century that the two components of an ad-valorum levy shall be assessed separately for purposes of applying the tax rate. Explicit in this is the enablement of separate rates to these two components -- land and improvements. Nothing new is required here, merely the determination of each rate by the legislative body of each community. Secondly, the defence of such a move is well-established both by practice in the State and in sound economic theory wherever taxes are levied. One recoups from the user or property owner within a community that which the community provides. The value a community adds to a parcel is the infrastructure in place to serve that site, whether there is an improvement there or not. The owner of that site that improves that property is presently, without split millage, expected to pay taxes on -- if the ratio is here the same as it is now in Allentown, that's $80 of every $100 of the improved value of that parcel. Very little of the parcel outside of the land itself receives direct benefit from the community and its infrastructure, so why penalize the owner for improving the property when 229 2/12/02 WHOLE - RES. 010700 (TAX REFORM) that is exactly what we encourage and hope will happen. Downside? None really. Those that understand the measure react to it mostly based on its impact on them. Residential units that have a higher fraction of their value in the improvements would generally see a reduction of taxes, where commercial, with parking, will probably see an increase. Highly developed center city parcels that rely on off-site parking will, like residential sites, probably see a reduction, appropriately. Look at extremes to decide if this will make a favorable difference. If all property taxes were derived from land, there would be no 17 disincentive to developing the parcel except for the cost of the construction itself. If all taxes came from the improvements, there would be a disincentive to improve. Which is more desirable? You at City Council are empowered to decide. A final caution: The fairness of this measure is tied directly to the fairness of the assessment upon which the rate is levied. If the appraised market value determinations are uniform, 230 2/12/02 WHOLE - RES. 010700 (TAX REFORM) there will be the same acceptance overall of any tax levied on that property, and assessments, especially in the State have been influenced to reduce the taxes on everything residential units, the largest beneficiary of the measure, both in terms of the number of units and the aggregate resulting savings, and that's called win/win. And I have a couple of anecdotal additions to the text I supplied. The opposition to this has been, and will, continue to play Chicken Little. If you need some strengthening to pass the measures, the 80 percent residential taxpayers that benefit from it will reward you. In Allentown, the largest objector to the inauguration of the land-value tax was what we call fair grounds, and they rely on open space for a one-week Greater Allentown Fair. They declared that they would probably have to go out of business as a result of the enactment of land-value tax. Every year since land-value tax has been in place, their profits have grown.
So it does not have the negative impact on business that the Chicken Littles would have you believe. The assessments in Pennsylvania have 231 2/12/02 WHOLE - RES. 010700 (TAX REFORM) shifted the ad-valorum burden off nonresidential -- in all cases, nonresidential uses onto, in all cases, residential units in Allentown by a factor of 45 to 50. In other words, 30 years ago, if they were even -- the residential component now pays 45 to 50 times as much in taxes as the nonresidential portion. So who will benefit and who will lose? It's pretty obvious. Thank you.
Thank you very much. Councilman Cohen, do you have a question?
Yes. Allentown is pretty close to Philadelphia, so your experiences would seem to have a much greater relevancy to us.
What do you think the ultimate impact has been with respect, say, to the economic health of the city?
First, it was an uphill fight to get it in. As a matter of fact, in my 20 years, I didn't get it in. The year after I left, it came in, and I'd like to believe that 20 years of button-holing and lobbying and arm-twisting had 232 2/12/02 WHOLE - RES. 010700 (TAX REFORM) some effect on the final outcome. The prediction was, the minute it was legally possible to get rid of it, it would be gotten rid of. Several proponents -- when that due date came over the horizon, several proponents of land-value tax called me and said, Can we come into Allentown and help fight those who want to eliminate land-value tax? I said, you know what, no one wants to, and that's a fact. It is the most non-issue issue Allentown has ever seen. It pales by comparison to fluoridation in the water supply. So it really has become an absolute non-issue meaning, I presume, that most people who would attend City Council meetings and complain have no complaints.
Why is it that -- I believe most of the people who were here today seemed to represent business interests.
Well, I know Mr. Saidel presented a package which is considered by most people to be a carrot on a stick, and I prefer to 233 2/12/02 WHOLE - RES. 010700 (TAX REFORM) see it as a carrot and a carrot. The land-value tax standing by itself is a positive measure; the reduction in business tax is onerous business taxes and personal income taxes is a carrot. So I suspect that the businessmen here saw their part of the plan as great. And people -- other testifiers here have seen the residential portion, the land-value tax portion as great. So you've got two advocates where you only had one if you were talking about land-value tax by itself.
As we've proceeded over the years with a tax shift in the cities of Pennsylvania, it has been primarily almost a one-on-one process of one or two advocates for the shift with the expertise going and presenting to City Councils with a couple City Councilmembers advocating it and then the shift is made. Overall, it has not been a movement that has broadly educated the constituencies of these cities and that needs to be corrected. 234 2/12/02 WHOLE - RES. 010700 (TAX REFORM) In the City of Philadelphia, we feel that we are really at beginning stages to expand our education about the effects of this policy approach. You know, it's very much out of the usual right-left box, and in my experience and that of many of us in this tax-shift movement, we have found that once it's understood by people coming from the social-justice and economic-justice perspective as well as especially local-based businesses, there's real solidarity, if you will, that this is a good overall policy that is fair and equitable for all of the citizens of the City. Sometimes we find that if we come in more strongly on one side, if it's on the right, then the left is kind of puzzled about it. Maybe it's the divide we have to show that we can move beyond this divide. And I think some values of this tax shift, especially first and foremost, is looking at how we can have a market economy that's a fair market economy, that addresses these basic-needs problems -- affordable housing, for instance, is so crucial -- and really solves this growing gap between the rich and the poor, which is creating such havoc with us politically and socially. 235 2/12/02 WHOLE - RES. 010700 (TAX REFORM) So those who dig pretty deeply with us and look at that wealth-distribution problem come to understand and appreciate how this also addresses the issues of equity. Thank you.
Well, Philadelphia is a vast city, geographically-speaking; it's a vast city in many other ways, too. But there are parts of City that there's been very little private investment in many, many years. We have many thousands of vacant lots, something between 30,000 and 40,000.
It appears to many of us that certain spots of the City would go many years -- perhaps maybe never -- without being developed. How do you reply to questions that that might raise?
Allentown's enacted a number of other measures that helped address that problem, and frankly, I -- I drive through Philadelphia, I walk through Philadelphia, and I cry when I see buildings that are beautiful and empty. And there 236 2/12/02 WHOLE - RES. 010700 (TAX REFORM) is an explanation for that that goes beyond land-value tax or no land-value tax, and that's either, you know, is a good set of tools in your toolbox and use 'em. Now, I suspect that Philadelphia sees the same problems we see. Enforcement makes enemies, if you will, but to have a viable city, you've got to enforce building codes, occupancy codes, and they aren't enforced either place -- or not enough, let me put that it way.
Now, you mention tools in a toolkit metaphorically, but there's actually the importance of tools in our toolkits, quite literally in terms of the incentive effects of this form of property-tax restructuring, and that is, we often here that we have to bring in outside developers to develop. That's not the only way to develop. We're looking at local-based economic development where community members themselves take that hammer, take those nails, and fix that up property because now they can do it out in the open, they're not going to be penalized for the improvements. We're going to see boarded-up buildings that either are going 237 2/12/02 WHOLE - RES. 010700 (TAX REFORM) to get fixed up or they're going to be on the market for sale for somebody to purchase that can fix those properties up. So it's really, I think, a different way to look at development as a much more grassroots incentive for fixing up the houses.
Just stay where you are for a moment. To the Chair, I remember debating some years ago the question of the policy of the Board of Revision of Taxes in the City of Philadelphia raising the assessed value of the home and, therefore, raising the tax on the home when, say, someone enlarged the home, built a kitchen, replaced an old kitchen with a new one or put in a second bathroom -- in some cases, put in a first bathroom -- and it was felt that the improvement was being penalized by an increase in taxes, when actually, the community was benefitting. Now, that's the only thing analogous to the what you're talking about that I've seen experienced in Philadelphia.
Is there an analogy 238 2/12/02 WHOLE - RES. 010700 (TAX REFORM) there or --
Well, as I understand you, you're absolutely right that current form, the traditional form of property taxes is absolutely upside down. We're taxing the improvements, the incentives, the labor, the work disproportionately much higher than the value of the site itself. So this really harnesses the property tax in a correct manner, to make the property tax progressive, for one thing, based on ability to pay. This is why we see that the 80 to 85 percent of homeowners paying less is quite politically palatable. With harnessing market incentives correctly, we start seeing that there's an increase in the housing supply, and when there's an increase in housing supply with the decrease of what we're hoping to be a decrease in wage taxes in Philadelphia, and we're seeing an increased purchasing capacity and a higher housing supply, which maintains housing affordability. So this is a way to not throw the baby out with the bath water with property taxation by eliminating property taxes, but actually restructuring a property tax itself so that it 239 2/12/02 WHOLE - RES. 010700 (TAX REFORM) makes it work in the correct way.
Well, one concern I've heard expressed among my colleagues is the concern that in order to bring people into Philadelphia, we've got to have more housing that is like the kind in suburbia, rather than the traditional rowhousing in Philadelphia. By that they mean having more ground either in front or in back or on the side, with the homes maybe having indoor garage space for a car, and then they express the concern that that will increase under the land value, and that will put us at a disadvantage if there was a switch to the land-value-based tax. What is your comment?
Yes, I don't see it that way, I don't describe it that way. And if I thought that this would lead to gentrification and higher housing costs for poor people, I would not support this policy. I support this policy because of 20 years of concern for housing affordability and the problem of the growing rich-poor gap through all of our cities and throughout the United States. I see even in my small borough of 240 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Chambersburg, Pennsylvania, they talk in terms of development, of bringing people downtown to shop, and we would say, Well, the problem is that the people who live there themselves don't have the purchasing capacity to shop, to spend, to meet their basic needs, so let us look at how we can get the people who live in our towns and in our cities to have an increased and enhanced purchasing capacity so that with the population base that we have, we have a greater capacity for turning the city around. I don't know if it brings people in from the outside -- it may if it becomes a better place to live, but we have to look at all of these vacant sites and all of these boarded-up buildings. And the highest land values are concentrated in a very few blocks of Philadelphia. So many of the outlying neighborhoods, they're going to see a down-taxing when you untax the housing. I don't think really that we're going to have to worry about gentrification under this form of tax policy.
I'd like to offer a challenge to City Council in Philadelphia: Put all 241 2/12/02 WHOLE - RES. 010700 (TAX REFORM) of the ad-valorum tax on land and then stand back and get out of the way, because you will be amazed at the incentive to fix up, rehab, and build becomes. It's -- it -- you know, for a Martian, it's obvious: If you tax land and someone owns it and doesn't do anything with it, he's paying an awful penalty. He's either going to sell it or improve it. And if he owns a vacant residential unit, he's going to make it used. He's going to go into the market with that property.
We have huge tracts of lands where it's very difficult to identify any owner. The records have one name and that party has disappeared and we can't find anybody who owns it.
Mm-hmm. You guys had the same guy we had. He shunted property ownership between Allentown and California. I've forgotten his name but famous on the East Coast for that process. You couldn't track him down. One of the measures we enacted requires that an onsite manager be named by the owner or designated by the City. I'm not sure that that's ever been done, but that man, or that manager, is 242 2/12/02 WHOLE - RES. 010700 (TAX REFORM) authorized to solve the problems of that property. In other words, if an inspector says it needs thus and so, it's done. It works.
What happened to the tax revenues of Allentown? Did they increase their roll?
Yes, they have. In a way, there are other things we can attribute that to. I'm not going to sit here and tell you that Allentown's turn-around fiscally is solely because of land-value tax, but it didn't hurt.
I would say that the city needs to move forward on eminent domain for properties that have not paid property tax within a certain time period. If it reverts back to the City, then the City can decide on the best use of that. It can, like it does in Harrisburg, it tears those properties down and then puts it back on the market, so that's an overall net benefit back to the City. Or the City could also maintain ownership and simply lease out that property site at fair 243 2/12/02 WHOLE - RES. 010700 (TAX REFORM) market value. We see other cities in the world using this approach quite effectively.
Last question. Doesn't the land-use tax assume that the market is healthy for development and expansion?
Well, when we looked at Harrisburg as the second most distressed city in the entire United States in 1980, and to see how rapidly -- with a gradual shift, what they did over a year or two, they started out with two times more tax on land value and took it off the building value, revenue-neutral, and then shifted, as they saw the building permits increase over the next two, three years, they would shift it wider and wider so that this coming year, the budget shows six times more tax on land values than on buildings. As it was more successful, as they could see the success of this, they were convinced that they would keep moving forward in this direction. 244 2/12/02 WHOLE - RES. 010700 (TAX REFORM) And there were a couple of occasions when overall taxes of the City of Harrisburg needed to be increased, and they decided to increase the tax on the land value.
I read newspaper stories that have said things like, We don't understand what Mayor Reed is doing, how he's creating these miracles, where we're having better police services and more parks and winning all of these awards, and yet, homeowners are paying less taxes. So what has been the effect is that we see a city that is now winning many awards and an administrator and a mayor who says this is a key policy in Harrisburg's turnaround. And we're not saying it's the only thing did right, but it provides a kind of holistic framework or context to again harness these development incentives the right way to the benefit of the people as a whole. And I might mention that in Dauphin County, 80 percent of the low-income people live in Harrisburg, and to see that they're doing well, making good use of federal and State funds for 245 2/12/02 WHOLE - RES. 010700 (TAX REFORM) low-income housing, that certainly for a low-income area to see that the crime rate has been low and that the city is a beautiful, quality place to live. I'm not saying that it's just that low-income people should all be focused into one urban area. But under the current conditions. Harrisburg shows a high quality of life for its citizens, and Mayor Reed owns the City of Harrisburg, he walks on water.
This is Panel No. 6: Mickey Rowley, Bruce Nichols, Della Clark, Michael Moore, T.A. Spina, Bob Hornick, Krista Bard, Kay McKenna, Thomas Woodward, Tom Dugan, Jacqueline Jenkins, Troy Madres, Melani Lanmond, Ken Ford, Kathy Harris, Erin Murphy, Jean Gendron... (Witness come forward.)
Good afternoon. Please identify yourself for the record and proceed 246 2/12/02 WHOLE - RES. 010700 (TAX REFORM) with your testimony.
My name is Spina. I use the initials T.A.,first name. Shall I go on?
I have some handouts, three-page handouts for the members of the committee. The first page is a copy of a letter I sent to the Philadelphia Inquirer, the second is an illustration of my position, and the third page is some comments I submitted to the Select Committee on Business Taxes some ten years ago. I'll just cite some of the important facts that I indicate in my letter. I'm in a hurry -- I have to go to the South Street to join the revelers, okay? I agree with Mayor Street that the emphasis should be placed on a reduction of business-privilege tax, which I'll refer to as "BPT" in the future, but I don't agree that the reduction should apply to the gross-receipts portion of the tax. Since the BPT is a tax imposed under privilege, a license, if you will, of conducted business within Philadelphia, how better to measure the cost of that privilege than by the 247 2/12/02 WHOLE - RES. 010700 (TAX REFORM) amount of the business of gross receipts conducted within Philadelphia? I agree with City Controller Jonathan Saidel Jonathan Saidel that the emphasis should be placed on a reduction of the tax rate on the net-income portion of the BPT, primarily because it discriminates against resident businesses, which, because of the income-apportionment factors, pays as much as six times the amount of tax based on net income than the amount of tax paid by a nonresident business with the same gross receipts in Philadelphia and the same net income. That fact certainly is no inducement for a business to move within Philadelphia, nor does it encourage a business to stay. For example, a resident business which relocates to Bala Cynwyd but continues to generate the same volume of business within Philadelphia could save up to 60 percent of the tax on net income that it paid while in Philadelphia. In addition, it would no 22 longer be subject to the onerous business use and occupancy tax. On the second page, I have an example of what I just stated. On the third page, I make some 248 2/12/02 WHOLE - RES. 010700 (TAX REFORM) comments that I referred to the Select Committee on Business Taxes ten years ago. One concern is the elimination of a net-profits tax. Because of the 60 percent business-privilege tax credit, the effect of the rate of the net profits tax is less than 1 percent. Elimination of the net-profits tax will reduce the number of tax returns required to be filed by a taxpayer and eliminate the administrative costs related to that tax. It would do away with a percent BPT 13 credit and this will eliminate the necessity of 14 taxpayers to complete and add an added schedule on 15 their return. It would reduce the cost of payment 16 adjustments arising from erroneous computation and/or application of the BPT credit. The administrative costs are substantial in correcting these errors taxpayers make in computing that 60 percent BPT credit. Finally, I recommend the elimination of the allowance -- there's a net-income loss carry-forward allowance (indiscernible) in net taxable income. The business-privilege tax requires that 249 2/12/02 WHOLE - RES. 010700 (TAX REFORM) net income reportable shall be the net income for the calendar year proceeding the tax year. Allowance of a net operating loss carryover is inconsistent with that section of the regulations, and it's inconsistent with the concept of a privilege tax. That's why I propose to eliminate the allowable net operating-loss carry-forward. That's all I have to say.
Thank you, Mr. Spina. Thank you very much. Our next witness, please identify yourself for the record and proceed with your testimony.
Mickey Rowley, Executive Director, Greater Philadelphia Hotel Association.
Council President Verna and members of City Council, good afternoon. As I have testified here before, I represent the 60 hotels, 15,000 rooms, and some 40,000 hotel-related employees delivering hospitality services in the City. We're here to testify in support of change in the City's tax structure, change that will encourage business expansion in Philadelphia. We think City Controller Saidel's Tax 250 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Structure Analysis Report goes a long way in prompting such change. You probably think I'm going to tell you how awful the wage tax is for employees, how onerous the gross-receipts tax is for owners and investors, and how the property tax structure, including use and occupancy tax discourages hotel business expansion. While all of that is true, I'd rather tell you more of what you haven't heard today. You have heard from Charlie Pizzi, I trust, and Paul Levy, people of the Center City District, and they know a lot more about tax structure than I do. But I can tell you that our hotel business growth, our anemic office tenancy growth seriously impacts the hotel business. Hotels survive on three primary sources of business. First and most visible is the conventioneer. In the past eight years, since the opening of the Convention Center, we've seen a tremendous increase in demand from the conventioneer segment. In 1999, room night demand from conventions was up 9.3 percent; in 2000, convention demand was up 24.4 percent; and last year, 2001, one of the worst convention years, 251 2/12/02 WHOLE - RES. 010700 (TAX REFORM) demand was still up percent. A second and important demand segment is tourists. We believe the City's been pretty successful in recent years in promoting the City as a fun place to vacation and spend weekends. The numbers support that success. In 1999, the tourist demand was up 22.6 percent; in 2000, tourist demand was up 8.1 percent; and for 2001, we predicted a tourist increase of nearly percent, despite it being a very bad last quarter. But the third and very important source of demand for our hotels is what we call "commercial traffic" -- the lawyers, accountants, and support staff, business travelers who come into the City on assignment from companies they visit here. This segment represents nearly one-third of our total demand, yet has been expanding at a very slow pace. In one recent year, 1998, in the midst of a rapid business expansion in the country, we actually saw a 1.9 percent decline in demand from commercial travelers. In 1999, commercial demand increased 7.5 percent; in 2000, it was up 13.4 percent, which isn't bad. But last year, we predict a meager 2 percent increase in deman from 252 2/12/02 WHOLE - RES. 010700 (TAX REFORM) commercial travellers. Our colleagues, by the way, in competitive cities tell us that their commercial demand traffic increased by up to percent during similar years. 6 You've heard testimony about the exodus from Center City of major office tenants. You've been told that there's a direct link between office tenancy and the City's tax structure. We agree. What frustrates the hotel salespeople on the streets of Center City looking for new business is that there is no new commercial business in Center City to support a healthy and expanding commercial segment of the hotel business. As mentioned, this is nearly one-third of our total demand. We urge you to take a close look at the Controller's analysis and do something to change the City's tax structure to encourage new business in the City. The health of the hotel industry in the City is dependent on business expansion, and indeed, the jobs we have created are dependent on your taking action now. Thank you.
Thank you. Mr. Rowley, has the weekend specials at 253 2/12/02 WHOLE - RES. 010700 (TAX REFORM) the hotels, called "Spend the Night," has that been very successful?
It's been tremendously successful, actually. We've had 15,000 room nights so far and about a million and a half in room 7 revenue, and probably 4 million in economic impact. We have been delightedly surprised.
Oh, that's great. Glad to hear that. Thank you. Our next witness?
I have copies of what I have to say for the Sergeant-at-Arms. Madam President and Councilmembers, my name is Bruce Nichols, and I'm President of Museum Catering Company, and I'm here before you today as President of the Greater Philadelphia Restaurants and Purveyors Association, GPRPA. The GPRA represents the food industry, from diners and chain restaurants to caterers and fine-dining restaurants, as well as the region's purveyors of food, beverage, and restaurant supplies. We are a part of Philadelphia's service sector that, according to the Controller's report, represents 49 percent of the revenues from the 254 2/12/02 WHOLE - RES. 010700 (TAX REFORM) business-privilege tax, and it's the BPT that I want to focus on today. Various members of the GPRPA met with representatives of the Controller's Office last year as they sought business input, and while many of us expressed ongoing concern about the liquor- by-the-drink tax, we turned much of our discussion to the BPT. To us, it seemed a regressive form of double taxation that not so much discouraged new startup business; most independent restaurateurs starting out had little or no awareness that the BPT existed, as it demoralized businesses, particularly against small, independent restaurants when they realized that there was a sizeable tax that they needed to pay that they had not even heard of. I speak from personal experience. My wife, some years back, had a great 30-seat restaurant in Center City, but let me tell you, 30 seats is not really very much. The first spring, she saw her double BPT tax bill, some well into four figures, and she was really pretty overwhelmed. She was trying to meet payroll, pay 255 2/12/02 WHOLE - RES. 010700 (TAX REFORM) her vendors, the landlord, the laundry, and all of the other immediate necessities for a business that during the week often generated daily revenues of less than $1,000. The BPT tax really must be lowered. As for the gross-receipts portion of the tax, we support the Controller's recommendation of moving from 2.4 mills to 2 mills in 2003. Even so, in years like 2001, when many in our industry suffered substantial losses, paying a tax called "business privilege" rings somewhat hollow. We hope that some day, the City will completely eliminate a tax businesses pay even in years that they operate at a loss. The City must take seriously the call to improve the business climate by lowering the tax burden on small businesses. Innovative and creative restaurants and the business of hospitality are at the heart of the vibrancy people feel about Philadelphia. The GPRPA supports the Controller's recommendation that the net income tax half of the BPT go from the current 6.5 percent to 4 percent in 2003, and that the net-profits tax be completely 256 2/12/02 WHOLE - RES. 010700 (TAX REFORM) eliminated after 2003, so that corporations partnerships, and individuals pay the same lowered business rate. Our restaurants and businesses are in Philadelphia because we want to be here. Please help our restaurant and hospitality environment shine by making the City more business-friendly, and make these needed changes to the BPT. Thank you.
Thank you. Good afternoon. Please identify yourself for the record.
Good afternoon. My name is Ben Frank, and I'm the Executive Director of Center City Proprietors Association; Krista Bard could not be here today. Center City Proprietors Association is the voice of small business in this city. Within our organization boundaries -- River to River, South Street to Spring Garden -- there are at least 5,000 small-business owners, with 10 or fewer employees; that's about 50,000 people affected by small-business issues. CCPA recently polled our members, asking 257 2/12/02 WHOLE - RES. 010700 (TAX REFORM) what are the biggest obstacles to doing business in Center City? The number-one answer was taxes. So we polled our members again specifically on the tax issue. They feel that the most burdensome taxes are the business-privilege tax on gross receipts and net income and the City wage tax. We are normally enormously grateful that Jonathan Saidel and his team are trying to tackle the problem of taxation, making some excellent recommendations. We are relieved that our mayor sees the need to reduce taxes as well. We hope it will both business privilege and City wage. We need you to take action now. We must do something to give all businesses, especially small businesses, incentives to locate and stay in Center City. If we continue on the same track, we will continue to drive business out of the City. Please be a part of the solution: Reduce our taxes, help small-business owners stay in business, help the City grow and thrive. Our small businesses are what give the City its unique character. We make Philadelphia a place where people want to visit, live, and work. You probably got your hair cut at one of CCPA's member's stores, 258 2/12/02 WHOLE - RES. 010700 (TAX REFORM) had lunch at one of our member's stores, had lunch at one of our member's restaurants, are reading papers copied by one of our member's machines, and will probably buy a Valentine's gift from one of our member's stores. We need a tax break desperately. Don't dismiss the ideas of Mr. Saidel or our mayor. Take the challenge, be community leaders, and find a way to cut taxes that make it easier for business to thrive. You can make the City such an attractive place to do business that business owners will flock to invest here. Then we would have a much healthier tax base. Please don't act from fear; act instead from the vision of a vibrant, thriving city. Please do something to help make the City more attractive to employers and employees -- start by lowering taxes. Thank you.
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Thank you. Good afternoon. My name is Tom Woodward, and I'm here on behalf of Tom Callan. Tom was unable to attend today's 259 2/12/02 WHOLE - RES. 010700 (TAX REFORM) meeting; however, he did prepare written comments, which I will simply read.
My name is Tom Callan. I'm a managing director with BlackRock Financial Management. BlackRock left Philadelphia ten months ago as a result of the high cost of Philadelphia business tax. I am here today as a concerned, longtime resident and taxpayer of the City to share a few insights on that and to fully endorse recommendations in the report outlined in the Tax Structure Analysis Report authored by the Office of the City Controller. BlackRock is an investment organization with over $225 billion in assets under management and over 800 employees. It is headquartered in New York, with offices in Edinburg, Tokyo, Hong Kong, San Francisco, Boston, Wilmington, and until ten months ago, Philadelphia. S. equity business. The equity business is the firm's single biggest growth opportunity. When we left Philadelphia, we 260 2/12/02 WHOLE - RES. 010700 (TAX REFORM) employed about 50 in portfolio management, equity trading, and trading operations. There was the potential for this to grow to 250 people in the coming decade. Over half of those employees of those employees lived in Philadelphia and all but one employee walked or took public transit to work. Geographically, Philadelphia was an excellent satellite location for BlackRock. The firm's mid-town New York headquarters was only 90 minutes away. The City enabled BlackRock to draw on a well-educated talent pool. We hired dozens of interns from the University of Pennsylvania and from Drexel. Furthermore, BlackRock has close ties with Penn; the chairman, vice chairman, and president of BlackRock attended the Wharton School and University notables served, and have served, on the board of the BlackRock funds. Yet even these benefit and ties were not enough to overcome the substantial tax burden levied by Philadelphia on Blackrock's growing business. 5 percent net income tax based on the complex 261 2/12/02 WHOLE - RES. 010700 (TAX REFORM) formula for the sole privilege of having an office in Philadelphia. The BlackRock management committee ultimately decided that the tax costs could not be justified, and that as a public company, we should either reinvest the potential tax savings in the business or return it to the shareholders. Last year, I personally retained the law firm of Stradley Ronan to analyze the City's tax burden on investment management companies and to compare it with that of surrounding municipalities. What I learned was absolutely consistent with the findings of the Office of the City Controller. Based on these finding and on my personal insights into Blackrock's decision to leave the City, I would like to underscore two key points made in the Controller's report: 1. The business-privilege tax is more important to a corporation with operations in the City than the wage tax. 8 percent Pennsylvania tax. Additionally, 262 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Philadelphia residents continue to pay the City wage tax and incur higher commuting costs. The business-privilege tax, not the personal wage tax, was at the center, and is at the center, of every corporation's decision to leave or bypass Philadelphia. 2. The apportionment formula used for calculating the net income tax portion of the business-privilege tax is a key obstacle for businesses that derive no tangible economic benefit from being located in the City, and that is almost all businesses operating and competing in our global economy. The penalty of this apportionment formula for Philadelphia is that it will retain only small businesses serving the local community and tourism. It ensures that there will be a continued hollowing out of the Philadelphia business community. It is not all grim, however. The Tax Structure Analysis Report is complete with well-reasoned recommendations; not all are expensive. I want to underscore that one would virtually eliminate the obstacle to retaining and attracting future growth business of the world 263 2/12/02 WHOLE - RES. 010700 (TAX REFORM) economy.
On of the Tax Structure Analysis Report, the Office of the City Controller recommends that we change the current multi-factor apportionment formula for determining tax liability for the net income portion of the business-privilege tax to a single factor and apportionment formula beginning in Fiscal Year 2003. The recommendation is to base the net income tax on the percentage of gross receipts generated within the City. Under the current formula, businesses located outside of the City pay a lower tax rate on income earned in Philadelphia than City-based businesses do. Under the new formula, the effective tax rate would increase for businesses located outside of Philadelphia and decrease for City-based businesses. According to the Revenue Department, this change would represent a worst-case scenario, a first-year loss to the City budget of just $11 million. I repeat, $11 million. What a simple, powerful, and affordable idea: Reward businesses for choosing to locate in our city rather than penalizing them for it. 264 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Nothing is are more important to the vitality of the City of Philadelphia and its ability to solve the social problems than the creation of well-paying jobs. The budget proposed by the Administration recommends cutting the gross-receipts portion of the business-privilege tax, which is levied on receipts generated within the City. S. and world economy and bring outside money home to Philadelphia. The Administration's proposal will not create jobs, nor will it stem the losses. Changing the apportionment factor will. Consider the costs to our city of a business like BlackRock leaving: Salaries for the BlackRock Philadelphia employees ranged from $35,000 to over million. S. income-earners. The firm attracted significant amounts of outside money to the Philadelphia local economy, including: 265 2/12/02 WHOLE - RES. 010700 (TAX REFORM) — Over 2,500 room nights annually at hotels in Center City all utilized by rooms consultants, clients, business partners, and companies from around the world seeking to raise capital through BlackRock; — Literally thousands of meals at the City's best restaurants; — And then when you consider the growth factor, multiply this time four In closing, I will leave you a reason for optimism. The City of Philadelphia has tremendous potential as a major financial-services center among other fast-growing knowledge businesses. I am confident that corporations that have moved from the City to the greater Philadelphia area will reconsider the City if City Council changes the apportionment formula, as recommended on the report. I also believe Philadelphia could attract a significant portion of the financial-services jobs that have been moving out of Manhattan for a long time. I would like to thank the Office of the City Controller for their initiative and for their thoughtful and provocative work. I would also like 266 2/12/02 WHOLE - RES. A. Thank you.
Thank you. - - - 267 2/12/02 WHOLE - RES. 010700 (TAX REFORM) (Procedings now stenographically recorded by Lisa C. Bradley, RPR.) - - -
I assume you discussed the latest problems raised with the Revenue Department or the Finance Department of the City. I'm very much interested in what you said. I'm not too familiar with that apportionment. Were they apportioning the amount of business that they believed came out of Philadelphia.
Well, a company like BlackRock is really generating most of its revenue in places outside of Philadelphia. It's simply a financial services company serving clients literally around the world. Yet because it was headquartered and based in Philadelphia, the equity division, they were subject to these taxes. Yet from their perspective, because the business itself didn't really involve that many clients in Philadelphia, there was very little incentive to want to stay in Philadelphia.
Well, say if the Philadelphia office moved back to the home office in New York, would that tax be completely eliminated? 268 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Except for any deals or anything that might be done in Philadelphia, yes. And they've moved. They're gone.
Did you speak with any Philadelphia official about what appears clearly from the way in which you characterize as a clearly unjust tax? Did you speak to anyone in the Philadelphia Finance Department or in any of its business establishments?
I can't answer that question only because I'm here on behalf of Tom Callan who is the author of this particular letter. And he's an employee of BlackRock. But I would be almost certain that they did speak to the city people, particularly, given the connections with Penn and anything else involved on their board.
Would you be good enough to explain to him that I certainly, and I'm sure other members of Council would be very much interested in knowing what he did to inform City officials of what he believed was an unfairness and what their approach was.
Yes. I'd be more than happy to convey that. 269 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Because it seems clearly from the way you put it that this was the tact. I believe today this is the only complaint we had about the net income -- the net profits portion of the privilege tax.
Well, I think it's very important. We in Council are very much interested. We're always concerned where the make-up revenue is going to come from. I think most of us would support changes, at least taking initial steps to make those changes in the clearest cases of what appear to be totally irrelevant and unjust taxes. It seem to me that the instance you explained was such a instance. So if you could speak the author of that letter, if he could put things together and address the concerns of President Anna Verna of City Council, I think there will be many of us in City Council that would like to see changes in the law.
Because we do think that Philadelphia is ideally suited to be a 270 2/12/02 WHOLE - RES. 010700 (TAX REFORM) financial center. Thank you. Thank you, Madam President.
Thank you. Thank you very much, sir. Please identify for yourself for the record.
Thank you. I'm Kay McKenna, City Council Observer for the League of Women Voters. I'm here on behalf of the president of the Philadelphia League, Heidi Gold. I have copies of her testimony. Our testimony is short because our position on taxes does not cover all aspects of the Philadelphia Tax Code, Business Tax Code. However, the League of Women Voters of Philadelphia very much approves of and supports the scope and intent of the Controller's Philadelphia Tax Structure and Analysis Report. The league has advocated for the re-configuration of Philadelphia tax structure since 1970 and supports an equitable and flexible tax system for Philadelphia, including a competitive climate for both businesses and residents. Specifically, the League supports taxation of net 271 2/12/02 WHOLE - RES. 010700 (TAX REFORM) profits rather than gross receipts. That's net profits, not net income. The league supports aggressive tax restructuring that will help reverse the trend of urban flight. The proposals contained int City Controller's report address these issues and are carefully designed to attract residents and businesses to Philadelphia. So the League encourages City Councilmembers to consider the proposal outlined in the City Controller's tax structure report. It's a blueprint for change in the Philadelphia tax policies. Please call Heidi Gold at the given number for any additional information. Thank you.
Thank you very much. You have all been so very patient and I'm very grateful. Thank you. Our next witness.
Good afternoon, Madam President and Council. I'm Bob Hornick. I'm chairman of the Pennsylvania Institute of Certified Public Accountants Committee on Local Legislation and taxation. I'm here today with my colleague Matt Malenson (Ph) of the same committee. 272 2/12/02 WHOLE - RES. 010700 (TAX REFORM) I want to thank you for this opportunity to discuss this issue with you. I have good news for you. I know you're working on probably information overload in statistics. And I promise you my testimony is probably going to have very little of that, if none. For a number of years, my committee has recommended local tax reform. We consulted with specialists in various areas, including finance, taxes, labor, education, economics, state and local government, and elected officials. In recent years, our City has some wonderful success stories, including the Pennsylvania Convention Center, the Kimmell Center, tourism, Center City District, and others. We're proud of these achievements, but they're too few and too small in relation to the overall City economic picture. Regardless of our City's underlying economic structure of business and jobs as failing, and we've been in a downward spiral for most of the last half century, as you probably have heard from other speakers. And it is not the portrait of the vibrant City we would like it to be. The Controller's report confirms what 273 2/12/02 WHOLE - RES. 010700 (TAX REFORM) many of us have concluded for sometime now. There's a demonstrated need to make fundamental changes in the City tax structure. And many of the recommendation Controller's report are in accord with those made by our committee. And our committee specifically has advocated and supports the following recommendations: Change in the current multi-factor apportionment perimeter for determining tax liability for the net income portion of business privilege tax to a single factor apportionment perimeter, and you've just heard that. An advocate for Pennsylvania General Assembly to make a technical amendment enabling legislation for the City's business privilege tax to make it a retrospective tax instead of prospective tax. And eliminate the need for businesses to double pay their business privilege tax. And I understand that's being worked on currently. In addition to the above recommendations, I believe we must have substantial or continue with reductions and have substantial reductions of the City wage tax and net profits tax immediately. I think we should make a dramatic statement to the world that we no longer want to be 274 2/12/02 WHOLE - RES. 010700 (TAX REFORM) known as the high-tax anti-business location. We need all the publicity we can get to try and rid ourselves of the poor reputation we presently have in business and labor community. We have to put Philadelphia on the short list when business location is considered. Right now we have to get Philadelphia on the list for professional advisors. In regard to budgetary issues, I would like you to consider arranging for financial modeling that takes into consideration a situation that is not static. In other words, what I'm saying is, if we change the structure it's just possible we could attract new businesses, new labor, and raise our tax base. That would be our goal. And that would mean that we could have greater revenue, which I know is vital for the City operate. This involves, of course, financing our City future. We need to have long-term commitments and restructure our tax loss. We need to eliminate taxes in a negative factor consideration of location of business in Philadelphia. Businesses would not flock to Philadelphia tomorrow if taxes were eliminated. It would be a good way to start the ball rolling, but 275 2/12/02 WHOLE - RES. 010700 (TAX REFORM) at the same time we must municipal services, school, crime control, neighborhood improvement, and the community amenities is essential.
So the agenda is for the improvement, which we all agree on, improvement of the City. And the top of that agenda, in our opinion, keystone is tax reform. Finally, I would say in closing, many of the statements I have just made were supported by the Mayor's Transition Committee a little less than two years ago. The major points in the Transition Committee recommendations, as you all may remember I'm sure. Reduce the wage tax and gross receipts burden is one. Another is the top liability in our area is considered the tax load. And finally, the third one, from Mayor John Street Transition Team Tax Policy and Sub Committee recommendation, shift tax burdens from wage tax to other taxes improve compliance. So with that, I conclude my report. Thank you.
I don't 276 2/12/02 WHOLE - RES. 010700 (TAX REFORM) believe so. Thank you. Thank you for your patience. Good afternoon. Please identify yourself for the record.
President Verna, my name is Kevin Mazzucola. I'm the executive director of the Auto Dealers Association of Greater Philadelphia. I do have written testimony that I'd like to share with Council. Our association represents 240 new car and truck franchise dealers throughout the greater Philadelphia area generating close to $10 billion in sale and about 15,000 employees. I'm here today to testify on behalf of our 28 dealers that are in Philadelphia. I feel a little bit like a fly in the ointment. And there's been a lot of ointment here today. And I say that respectfully because for the vast majority of the speakers today, we support the Controller and what they're trying to do. And even though my members disagree with the City Controller's proposal for a land value tax, I want to compliment him for stimulating the discussion for a bolder approach reducing Philadelphia's taxes. 277 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Most of his proposals would benefit my association and our industry in the City. It's hard to argue with the target set for reducing the rates on the wage tax and business taxes as ideals. If a consensus were to be developed that these kind of reductions could be achieved in the near future and then be maintained and if specifically legislative proposals were put forward to implement these reductions, I'm sure that the members of my association would express strong support. In the mean, however, we live the world of realities, and our concerns pragmatic. While the Controller's other tax proposals represent to the City in the long run will come out ahead, a basic premise of the land value tax is that ti will be revenue neutral. Rates on land and buildings would be set in such a way as to guarantee the City the same amount of revenue it now collects. We, therefore, look at the land tax as a stand-alone measure that could be implemented by the City independent of other tax changes and with no 23 risk of revenue loss. We're also concerned that if the City were to implement the Controller's other proposals and then experience substantial revenue 278 2/12/02 WHOLE - RES. 010700 (TAX REFORM) losses, it would simply raise the rates of those taxes to recover the lost revenue. But if the City were to institute a land value tax which require a massive citywide reassessment of properties, it seems unlikely that we would abandon that scheme once we were there. Automobile dealers would have to live with the system of taxing real estate is fundamentally unfair and damaging to our business. Prior to this hearing, we were able to analyze the impact of this proposal on of the 28 12 new car franchise dealers in our City. Our analysis 13 found that 2 of the 20 dealers would experience 14 relatively small tax reductions and that the other 15 18 would experience tax increases, and many of them 16 very steep. And I'll give you a breakdown very 17 briefly: Three would face increases less than 5 18 percent. Three would face increases between 5 and 19 10. Four would have increases between 10 and 20. 20 Two, between 20 and 30. Three between 30 and 50. And three would face increases of more than 50 percent. And indeed, one dealer's taxes would go up 100 percent. The average change, when you total all of these dealers, is about 24 percent increase in their taxes. 279 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Our analysis used the current assessment on land and improvements as determined by the Board of Revision of Taxes. We recognize that these breakdowns between land and buildings might change under a careful reassessment and that would be carried out prior to the institution of the land value tax. The final impact on the various dealers may be somewhat less harsh or it may be worse. It seams to us unlikely, though, that it would leave the car dealers better off.
The major problem with the land value tax from our point of view is that it fails to recognize that the lots on which we store our inventory are in effect our warehouses and also at times extensions our showroom floors. The lots are paved lighted, and often landscaped around the perimeters, but they don't support building. But neither are they blighted properties that detract from the property value of their neighbors and from overall property values in the City. Rather, they are integral assets of our business. And as such, they are helping sustain an industry that produces 2700 jobs and close to $1 billion in gross sales and $10 million taxes a year just for the City alone. 280 2/12/02 WHOLE - RES. 010700 (TAX REFORM) I want to emphasize that those data are for the Philadelphia dealers alone. Again, they do not include the economic activity generated by our suburban dealers, nor do the include the $24 million generated by the annual auto show from last month. Operating a new car dealership in the City of Philadelphia is a challenging, proposition given the lower business taxes and more affluent customer base in the suburbs. Twenty years ago there were more than 40 new car dealers in the City. Before the 1984 business Tax Reform Act gave the City more flexibility in levying taxes, business taxes here were a crushing burden to our industry. As you know, the automobile industry is highly cyclical. Despite the high price of our products, car dealers also operate on narrow margins. The City gross receipts tax of 4 mills forced dealers to pay very high taxes even in years where they lost money. Along with population loss, the City's business taxes were responsible for dealers leaving the City. But over the course of the last 15 years, the City Council has done a lot to make the tax burden more bearable. 281 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Over the last decade, you rejected proposed increases in the City wage tax and in fact began steadily reducing that tax. You reduced City business taxes on retailers who operate on thin margins as car dealers do. You supported an exemption from the City's sales tax of automobiles purchased by suburban customers. While Philadelphia dealers still face higher taxes overall than dealers in the suburbs, the difference has been significantly narrowed. Mayor streets proposal to accelerate business tax reductions in the years beyond Fiscal Year 2003 is another positive sign for our industry. Although we would also like to see, of course, the schedule wage tax reductions resume as quickly as possible. The proposed land value tax would reverse what has been from our perspective a positive trend towards a better tax climate. On behalf of philadelphia dealers operating at 28 locations an employing 2700 workers, we ask you to continue the good work you've been doing in recent years to reduce Philadelphia's tax burden to our industry, but have concerns and 282 2/12/02 WHOLE - RES. 010700 (TAX REFORM) reservations regarding our industry on the institution of a land value tax. Thank.
Thank you. Thank you very much. Good afternoon. Please identify yourself for the record. Good afternoon. My name is Tom Dugan.
I said I was asked to come here and speak by Jonathan Saidel's group. And when they first asked me, I wasn't quite sure why. And to be honest with you, I'm still not sure why. I am not an accountant. I am not the head of a chamber. I'm not a tax attorney. I'm not an economist. I am a business owner, a simple relatively small business. And actually, I kind of did the opposite of I think what we're trying to prevent. I had a business in the suburbs and I brought it into the City. One of the one main reasons I did that is because I felt that that's where the action is and I think that's what's important to our business. But 283 2/12/02 WHOLE - RES. 010700 (TAX REFORM) I held off doing that until I got the opportunity to go into a Keystone Opportunity Zone. And I think that's really what's, in my mind, kind of pushed me over the edge to say, Okay, I'll bite the bullet on 4 percent taxes, or whatever that happens to be. I think one of the interesting things is that when you talk about tax cuts and tax breaks and things like that -- forgive me if I'm making assumptions, but I think everybody in this room 11 probably is very close to the situation. And I tend to be your typical suburban guy, even though I was raised in Philadelphia and went to grade school and high school and College in Philadelphia. If you asked me what the wage tax was, I would say, "I don't know, 4.-something or other. And my guess is that 90 percent of the people in the suburbs would tell you the same thing. So, if you talk about lowering a wage tax from -- and I don't know what it is -- 4.5 percent to 4.2 percent, in terms of dollars to the City, I think that's a lot of money. But in terms of impact, that doesn't really -- it's still 4. something or other to the people who you really want to bring back in. So I guess my point is that -- and the same would go with the business 284 2/12/02 WHOLE - RES. 010700 (TAX REFORM) privilege tax. Whether it's 6.5 or 6.7, it's still pretty much the same thing from an outsider's perspective, from a business owner's perspective. And I think if you need to do something, in my opinion, it's a radical thing that needs to be done. And I know that governments aren't used to doing radical things the way entrepreneurs are, because I think there's more at stake. For me as an entrepreneur, I started a business on my own and I built it up and I brought it into the City, but that was my choice. The people I affect, I had immediate control over. I had a finite number of people. You guys have 1 1/2 million people that you have to worry about. And I understand that. But I think if there's something to be done, if there's something that you're looking at doing, I kind of look at it needing to be more of an impact than just saying, Okay, we'll decrease it by, you know, five-tenths of a percent or whatever that number happens to be. It tends to be much more of an impact -- even if you lowered it from 4 point something to 2 point something Year One, that's headline news and everybody hears that and everybody knows about that. And then if you raise it up the next couple of 285 2/12/02 WHOLE - RES. 010700 (TAX REFORM) years, that's a separate issue. But I guess my point is that I'm not really smart enough to identify the economics of the situation. And I'm not smart enough to draw you the graphs and quote you the statistics and explain to you how the tax plan works. I read the tax plan twice because the first time I'm not sure if I understood it. But it's somewhat of a radical position that they're taking. And I think it's important to do something. I think something needs to happen. And I'm not smart enough to tell you what that something is, but I read the report and the report is something. And it's more than anything else that I've seen or read or heard even imagine.
Today there are five. We were out of the City and moved in a little over a year ago. 286 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Great. And you are in favor of the City Controller's plan?
Yes. And, again, I think when -- I think it's well-written plan. It's an excellent plan, well laid out because a knucklehead like me can understand it. And I think that's important. I think that there's a lot of information in there. And I think, actually, the best line in that whole report is on , and it's somewhere on there that the basically says the assumption of this plan is that there's a desire for change. And I forget exactly the wording of it. But if you base that assumption, if there's an assumption that you want to do something, then the plan holds true. If there is not -- if that assumption is false, then the plan is worthless. And I purposely -- of the whole report, that's the only line that I underlined because I thought that was important.
Thank you, Mr. Dugan. Are there any questions or comments from members of the committee? 287 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Thank you again.
Della Clark. Michael Moore. Jacquelin Jenkins. Are any of them here? Della Clark. Michael Moore. Jacquelin Jenkins. Troy Madres.
Madam President. Bret Mandel from the City Controller's Office. Mr. Madres is not able to give his testimony, but I submit it in for the record.
The Center City Residents Association also planned to testify on behalf of tax reform, but are not here. I submit that for the record.
Just a moment please. I'm just looking for their names.
They're actually not on the list. They faxed it in this morning. Geoffrey Gardner, another late addition from Preferred Real Estate Investments, Incorporated, submits testimony. As does Cynthia Kuper from Versilant Nanotechnologies. So we ask that these be added to the written. 288 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Please identify yourself and proceed with your testimony.
My name is Ken Ford. I'm the director of the Henry George School of Social Science here in Philadelphia, 10th and Pine in South Philadelphia. Madam President, my remarks are simply to urge you to save the City of Philadelphia from a slow economic implosion by taking advantage of the opportunity to alter the City's form of taxation in the direction of a greater emphasis of land or location values and an extra burden on purchases and wages, a burden which Philadelphians and ex-Philadelphians have stated over and over again were factors they considered when deciding where to live or where to start a new business or when to expand their existing businesses and where to expand their existing businesses or even direct where to 289 2/12/02 WHOLE - RES. 010700 (TAX REFORM) live or to place their capital and their money. Now, the great advantage in a movement towards a greater emphasis on land or location values is that the municipal officials of the City will be collecting revenues for the functions of City administration that the City's own policies helped to create. Every decision to increase police or fire services in a particular area or build a new library or improve the street lights or even to tear down old factories and buildings near an otherwise well-situated parcel of land has the effect, intended or unintended, of raising the land or location value of all nearby parcels of land in that area. Now, one could say this a story of Delaware Avenue or Manyunk or the Avenue of the Arts. Or if you wish to go back in time far enough, the story of Society Hill or Olde City or much of Center City Philadelphia. This idea also inspired the creation of the special services improvement districts. Who should recoup the benefits of improved or increased services? Individuals, to the extent that they the contributed their labor and their materials to the rebirth of area, but shouldn't the City itself collect the increased land 290 2/12/02 WHOLE - RES. 010700 (TAX REFORM) or location values that the City's own policies were invaluable in creating? I would say the answer is unquestionable yes. And the other great advantage of a shifting from consumption and wages to land or location value, is that when a particular area begins to improve, those who are of low income have a chance to benefit from the improvements that are taking place in that area. All too often, if a formerly poor area or neighborhood begins to improve, either through private or public efforts, the poor are long gone by the time the process of the improvement is completed. The process is known obviously gentrification. Now, wouldn't a better method of improvement be to revive an area in a way that increase location values go to a public purse for public purposes and not to private bank accounts? If there's little incentive to speculate, there's also little incentive to force out the poor in anticipation gentrification. There's also no 22 incentive to let buildings lie idle and literally fall apart while getting tax breaks and waiting for something, usually a taxpayers subsidized project such as a convention center, or an Avenue of the 291 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Arts or new sports facilities to increase location values. Now, Philadelphia could do itself no 5 greater favor than to put itself on the road to recovery by stimulating its renewal with a new method of taxation in the direction of land-value taxation. Philadelphia is on a crossroad. It has lost jobs and population for 40 to 50 years. The two paths before us are apparent. One path is to allow the dry-rot that has taken hold in many of our neighborhoods to continue and expand further and further. Philadelphia then slowly descends into the rank of municipalities that are on permanent life support. Now, the heart beat of commercial and industry die away. Cities that are already in this lamentable and unfortunate state include Camden, Chester, East St. Louis, Garry, Newark, et cetera.
Philadelphia then becomes an object of derision or pity, not a point of pride for the Delaware Valley. Fortunately, this is only one of the paths. The other path is the one that will no 24 doubt interest you. On this path, the outflow of Philadelphia's life blood, jobs and population, is 292 2/12/02 WHOLE - RES. 010700 (TAX REFORM) totally ceased. The process of dry-rot has been reversed as the causes of economic blight as well as physical blight are removed from the streets of Philadelphia. In Adams Smith's so-called invisible hand of private enterprise begins to manifest itself again in earnest as the neighborhoods revive themselves and re-flex their muscles and discover their once-strong vitality. The dead hand of speaking and the under-utilization of resources in the City are phenomenon which die away. This City's municipal officials will be able to point with pride to a state of affairs in which Philadelphia is once again viewed as the engine and not the anchor of the Commonwealth and of the region. Now, the second and far superior path is not only immediately practical but has many precedents. We must adjust Philadelphia's method of taxation to encourage what is desperately needed, capital formation, job creation and commerce, and get rid of that which forms the dead hand, absentee land ownership, real estate speculating slum-lording and other forms of un-benigned neglect that is slowly smothering Philadelphia. As was previously mentioned, our state 293 2/12/02 WHOLE - RES. 010700 (TAX REFORM) capital, Harrisburg, endured a crisis in the 1980s which, relative to is its scale, would be familiar t those struggling to keep Philadelphia economically afloat. Harrisburg had been classified as one of our most distressed cities, was clearly headed towards a Camden or Chester type status. And Harrisburg was able to rescue itself by reforming its property tax so that the bulk of the tax fell on land or location value and not on buildings. Land-use was encouraged. Building, construction and improvement was encouraged. Absentee idle building and land ownership was discouraged. Harrisburg eventually received, as stated previously, an all-American City status. Now, Harrisburg was not alone in improving themselves through this method of tax reform. Approximately 16 cities have reformed themselves in a similar manner. The Commonwealth is the leader among the states in this method of tax reform. Its apparent efficacy and the necessity of the form will become obvious as it's studied in greater and greater detail. Now, if the municipal officials of the City are wise, Philadelphia will soon join the rank of cities in Pennsylvania that have been improved 294 2/12/02 WHOLE - RES. 010700 (TAX REFORM) and reformed. This would be appropriate since the greatest champion and popularizer of this reform was born and bred Philadelphia, the economist Henry George. And that concludes my remark, Madam President.
Thank you very much, Mr. Ford. Ms. Lamond, do you have prepared testimony?
If you'd like to simply summarize it, we will give a copy to the stenographer and it will be transcribed.
My name is Melani Lamond and I've been a resident of the University City area of West Philadelphia for about 30 years and a Realtor in that area for 18 years. Under Mr. Saidel's proposed land value tax, I want to say that the property tax on my home and several properties that I own would increase. They happen to have a 295 2/12/02 WHOLE - RES. 010700 (TAX REFORM) large around of land. But I'm in a hundred percent in favor of his proposals. I believe that we need to change our tax system now for the good of our City. And I also realize that the increase in my property taxes would be offset by decreases in wage and business taxes. I urge you to make these changes as soon as possible. I want to make two comments. First, as the Secretary of the University City Community Council, an umbrella organization composed of numerous community groups in University City. I'd like to report that the Community Council and Councilwoman Jannie Blackwell held a town meeting for University City neighbors on January 17th at which Saidel and Mr. Mandel explained their proposals. Following a question-and-comment period, we took an informal vote and found that of the approximately 100 neighbors present about half a dozen were undecided and everyone else present was in favor of Mr. Saidel's proposals. No one opposed them. There has also been favorable discussion of the proposals on our local University City e-mail list serves. We believe that this is a strong endorsement from our area of the City. 296 2/12/02 WHOLE - RES. 010700 (TAX REFORM) There were some other people here earlier from City University not schedule to testify. One of them, John Holland is still here and some others were here earlier to support this. Secondly, as a property owner in University City, I'd like to give an example that helped our town meeting understand how the current tax structure preserves the status quo right on Baltimore Avenue, a commercial main street in University City and slows down the revitalization of Baltimore Avenue and of our City. My husband and I recently bought a little three-story storefront with two apartments above it at 4728 Baltimore Avenue. It's lot size is 864 square foot and the annual property tax is $926 or $1.07 per square foot per year. Next door at 4730-34 Baltimore Avenue is a vacate lot about four times the size of our property at 3,450 square feet. The building on that lot burned down in the early 197Os. Its annual property tax is $79 or 2 cents per square foot per year. $1.07 per square foot for my property and 2 cents next door, with each lot having the same 3C zoning. For 30 years 4730-34 Baltimore has been a weed-filled vacant lot which is 297 2/12/02 WHOLE - RES. 010700 (TAX REFORM) detrimental to the rental of my storefront and an unpleasant intrusion on our struggling commercial block. Yet under the current tax system, the lot's owner is under no pressure to make any improvements, not when he's paying $79 a year in taxes. For us to maximize the potential of our Baltimore Avenue Main Street, we need the more equitable taxing system that Mr. Saidel has proposed. Thank you for giving me an opportunity to ask you to make the changes.
Thank you very much. We appreciate your patience. Our next witnesses will be...
Good afternoon. Please identify yourself for the record and proceed with your testimony.
My name is Kathy Harris. At a time when Philadelphia is the target of many debates, the one thing that always comes up is the anti-blight initiative and the need for redevelopment. However, forming a plan with a logical sense of order seems to be the big problem. 298 2/12/02 WHOLE - RES. 010700 (TAX REFORM) The schools, a new sports stadium, and neighborhood transformation are top priorities while the incentive for people to stay in Philadelphia is dwindling along with the further reductions in city wage tax. We've had so may pictures of a brighter future painted that the smoke screen has choked many residents and businesses out of this City. How can we continue to move forward without an incentive for people to stay? How will businesses thrive if their customer base drops? How can you expect people to actually want to invest in a neighborhood when they are not even sure if five years down the road their investment will be their loss? We need your help and we need it now. Dear Honorable Councilmembers, Council President Verna, Mr. Saidel and many guests, good afternoon and thank you for hearing my views on the City Controller's November 2001 Tax Structure Analysis Report. Thank you, Councilwoman Blackwell, for calling these hearts. My name is Kathy Harris, resident in the Olney community for years and lifelong 25 Philadelphia resident. 299 2/12/02 WHOLE - RES. 010700 (TAX REFORM) I have with me some pictures that I've used at a Town Watch conference where I led a workshop on community justice. As stand-alones, these pictures are just random pictures; and yet, when I put them all together they paint a picture, a picture of our community as seen through the eyes of visitors, homeowners, potential investors and our youth. Our youth, yes, potential future Philadelphia homeowners. My visuals clearly example the quality of life that has become so common in Philadelphia. They show physical and economic decay. Not the type of picture you would invest in. While this is a hearing to review Mr. Saidel's tax report, I feel it has everything to do with anti-blight initiatives. The cuts in the City wage tax, business tax, and real estate tax are all the main ingredients of the logical sense of order that we should follow in hopes of reviving this City. After hearing the presentation given by Mr. Saidel and his staff at the University City Community Council, I was convinced that the land value tax proposal seems to be an excellent idea and 300 2/12/02 WHOLE - RES. 010700 (TAX REFORM) one of the most sensible approaches in gaining people's trust. Just traveling through our City streets paints a picture that is not indicative of trust. One minute you may see a neatly groomed row of homes, and with just the turn of a corner you feel as though you are at a theme park where the monorail has delved into the trenches of the horror house and has now become a roller coaster ride that you are struck on. The amphitheater is filled with abandoned cars, vacant homes and the residuals of what was once a thriving community. People are leaving while here we are still on the ride being left to hold on a little bit tighter as it twists and turns, all the while waiting to see where it stops. Then the roller coaster ride is over. We are sick, disillusioned and looking to run from it. I recently met someone who was looking at a home that has been vacant and boarded up for quite a while. When I asked him if he was interested in purchasing it, he told me he was looking to buy a home but didn't think it would be in my area because it was beat. Beat? That's how my community looks to 301 2/12/02 WHOLE - RES. 010700 (TAX REFORM) others? It's no wonder why investors and derelict landlords don't worry about the homes or vacant lots they own. Many are absentee owners who only care if they are losing money. Just the very thought of having a land value tax is refreshing and puts the tax burden on the source of the problem.
We already pay a price when we have the potential adoption of vacant lots that will result if these houses are not tended to in a timely fashion. How long do we wait for refurbishing before the expense outweighs the real estate value? When this happens, so does demolition. How many urban gardens can we possibly have? What kind of revenue will they generate when it's the City that will own these properties and ultimately bear the tax burden? It is just not fair that the ones trying are the ones penalized. It's nice to think that under Mr. Saidel's land value tax plan we could fix the theme of our community without being penalized for caring. We would have inviting streets with homes intact. Potential home-buyers will see our Olney community as inviting. The business corridor will have a much-needed face-lift and ultimately employment will 302 2/12/02 WHOLE - RES. 010700 (TAX REFORM) rise. Our youth may have a chance to stay and eventually raise their families and generate fresh tax revenue for our City through employment and residency. Land value taxation is written with the best interest of the community, resident, and business in mind. We would be rewarded for choosing to stay and ride it out. We are looking for a balance and a plan that is clear, accountable, and credible. My community and city involvement came through the need to keep my eyes and ears open for a finely tuned plan. I come before you today in support of Mr. Saidel's tax reform package, as I see it as being the first, well-detailed incentive for a future in our Olney community and the City as a whole. As a committeewoman in the 61st Ward, I trust you will have the best interest of Philadelphia and all its communities as heart when making your decision. Who's going to be the last man, left standing in the rubble, or will community justice 303 2/12/02 WHOLE - RES. 010700 (TAX REFORM) prevail? Your vote can make that difference. Thank you.
Thank you very much. Our next witness. Please identify for the record. MS. GENDRON. My name is Jean Gendron. I'm a resident of Center City. I'm also a CPA. I do not have a prepared text. I've come here mainly because it's bothered me so much to see what's happening in the City. Unlike Kathy, I'm a relative newcomer. I moved here by choice from midwest about 10 years ago. I've continued to choose to stay in Philadelphia. I love the City. I spent years counseling clients on state and local taxes. And it became more and more apparent to me over the years that I was traveling outside the City repeatedly to visit clients rather than seeing them here in Center City or within the City limits. I think that you've all heard plenty about the taxes and how onerous they are. I think that for most of my clients it was sort of the combination of all of them. The business privilege 304 2/12/02 WHOLE - RES. 010700 (TAX REFORM) tax, which incidentally is not only burdensome, but very difficult to from comply which of from the perspective of the form. The forms are difficult to do to begin with. The wage tax adds employer doing business here. The other thing that I don't know if anybody mention we've the additional 1 percent sales tax. And that adds basically 1 percent to the cost of everything these people purchase here and use here. When you look at all of these in combination, not to mention, of course, the real estate tax which does not encourage businesses coming in or not to invest in real estate here, it's a little bit much. It's really overwhelming. I think that while some of the moves that have been made in recent years are certainly positive, the gradual reduction in the wage tax and so on, it's clear to me that we need something much, much more drastic than that. We need to do something that will send a message to businesses that we are going to change and we are going to be friendly to business and that this is a place where they want to be. Thank you very much.
Good afternoon, Madam 305 2/12/02 WHOLE - RES. 010700 (TAX REFORM) President, Councilman Cohen. I'd like to thank you both for your patience being here so long. I know it's a long day.
Please excuse my voice. I'm get willing over a cold. I really appreciate this opportunity to come before you today to add a voice to this tremendously important dialog about our current system of taxation that has been initiated by the Controller's Office. We know that its onerous. We've heard as much throughout the day from everyone testifying. There can be little doubt that the system is on of the kew causes of flight from our City. But to hear me now complain or to add my dissatisfaction to the chorus already assembled, it's a theme too familiar to these present for me to recount, and I will, therefore, pass it by. But by what course we have reached present position? By what methods of government we have arrived at this system of regressive taxation? What the external conditions out of which it sprang? These are the shadows that I will try to illuminate before I proceed to any recommendations for action. I pray that for the present occasion you will find 306 2/12/02 WHOLE - RES. 010700 (TAX REFORM) to be a subject upon the citizen may properly dwell, and to which all who are here, be the governed or governors may listen with advantage. In general, and perhaps surprisingly, the City's taxing power is created and defined by our friends in Harrisburg. There are two specific pieces of notable legislation. First, the Sterling Act of 1932 authorizes Philadelphia to assess taxes on persons, transactions, occupations, privileges, subjects, and personal property within the City limits. The Sterling Act also imposes significant limitations on these powers. First, it prohibits Philadelphia, absent special permission from the State, from leaving a tax that the State already collects. Meanwhile, the Sterling Act places a geographic restriction on Philadelphia's taxing authority. It limits Philadelphia's taxing authority to persons and transaction within the City's limits. Now, courts have interpreted this to allow the City to tax all resident income regardless of where it is earned while limiting tax on non-residents to income that they earn within Philadelphia City limits. 307 2/12/02 WHOLE - RES. 010700 (TAX REFORM) Second and thematically related, the Little Sterling Act of 1963 authorizes the City to grant its school district the power to impose taxes on anything that the City can tax under the Sterling Act except the wages or net income of non-residents and under an income of residents at a rate equal to or lower than the wage tax. These are the two key pieces of legislation that have lowered our City's government down the pernicious and slippery but often seductive slope of raising local taxes to generate more and more revenue. But additional State legislation has augmented the way the City may tax. There's the First Class City Business Tax Reform of 1984 that authorize Philadelphia to tax the net income and the gross receipts of individuals and corporations engaged in business within the City. This legislation allows the City to alter the rates of these levies, but requires the Pennsylvania General Assembly to act to implement certain other changes to the City's business privilege tax. I could go on with a lesson in history, but this lesson in history is only valuable to the extent that it allows us to understand the 308 2/12/02 WHOLE - RES. 010700 (TAX REFORM) mechanisms by which we might adjust our current position and achieve our ams. Our key concerns that the Commonwealth has forced the City to pay for its own courts, left in place tax anachronisms that drive away businesses and systematically neglected and under-funded Philadelphia's Public Schools are the same elements for whose change we must vigorously lobby and anticipate results. City Controller Jonathan Saidel and his talented staff, led by Brett Mandel, as well as the researchers over at the Philadelphia Policy Center, have explored ways that the Commonwealth could help reduce the tax burden.
They found three things that the Pennsylvania General Assembly could do to help solve our City's tax crisis. We could technically amend the business privilege tax to help new businesses. We could fund Pennsylvania's courts state level and increase State funding for public schools while exploring alternatives to property tax funding. In my submitted written testimony, you'll find a longer explanation of each of these, but for the purposes of allowing those here present who have not testified to go in shorter order, I 309 2/12/02 WHOLE - RES. 010700 (TAX REFORM) will refrain from saying them here. But focus only on funding Pennsylvania courts at the state level. The Commonwealth of Pennsylvania, I think, should fund its courts at the state level, thereby removing the terrible burden of court funding from the City. This is made particularly burdensome in Philadelphia because usually counties fund the Commonwealth courts, but here in Philadelphia where we're coterminous, county and City, the burden is even greater. If the Commonwealth were to assume its legal responsibility as reiterated by the Pennsylvania Supreme Court in 1996 after prior decision in 1987 and implemented a unified court funding system with funding provided for court operations and personnel, the City of Philadelphia could reduce its current tax expenditures by approximately $111 million. This would allow the City to lower its wage tax by shy of 10 percent to the benefit of all Philadelphia residents and business. I know that it will not be easy to make these crucial changes to reduce Philadelphia's taxes. They will be opposed by those who are not familiar with the history of the problem; so let us 310 2/12/02 WHOLE - RES. 010700 (TAX REFORM) seek to inform. They will be opposed by those who not realize the critical role that Philadelphia plays in the Commonwealth's economy; so let us be articulate. And for those who lack the vision to imagine what our great City would become if taxes weren't forcing out businesses and residents; let us be ambassadors of that vision, showing that with Harrisburg as an ally, there are few things that we can not accomplish in a host of cooperative ventures; so let us go fourth carrying this message as a delegation and as a people joining with other struggling cities and counties to transform these disease into reality. Please allow the record to reflect that I thank Councilwoman Blackwell for calling these hearings. I thank you both for your patience and consideration bid you courage and fortune in your resolution of this great matter.
Chris Patusky, Eli Massar, Betsy Masters, Francine Denise Braithwaite.
Good 311 2/12/02 WHOLE - RES. 010700 (TAX REFORM) afternoon. Kindly identify yourself for the record.
Chris Patusky, resident of Fairmount and deputy director and chief operating officer of the Fell Center of Government of the University of Pennsylvania. Thank you, President Verna and Councilman Cohen for staying the hear the citizen voices. God bless you. I'm going to pass over my unprepared statement except to make a few points. My written statement actually is the Controller's Report which I think represents one of the finest pieces of public research and writing that I have read and was written with no motive other than saving this City. The basis of my opinions on the tax system in Philadelphia are that during the 1990s I founded six start-up companies in the DC area and in Florida. And so I have a fairly long record of experience with what factors go into a business deciding whether to come to a certain location. Everyone else has commented on the nature of the taxation system in the City and how it makes this City radioactive to business. You would not come here if you were a business. And as an expert in 312 2/12/02 WHOLE - RES. 010700 (TAX REFORM) the start-up field, there's no way around that. However, the City does have remarkable assets that can overcome the tax situation if you make some changes to the tax system. I'm going skip over the details of the Controller's report and just mention two of them. The first one is that there is an absurdity in the tax system here that Bob Hornick mentioned. He's part of the CPA Council, I believe. He spoke earlier. And that is that you pay taxes prospectively here as opposed retrospectively and you pay twice in the second year. I've never heard of anything like this before. As a business person, if I heard that, the City would have no credibility to me that I could trust that I'd be treated with logical or rational manner. So, first of all, please, enact the legislation that's already drafted to make the taxes here retrospective. The second thing is the allocation system. If you simplify that and make it only based on sales, then it would coincide -- first of all, if you sell outside of the City, you wouldn't be taxed for those so you could attract large businesses. Also, it simplifies the system for businesses who 313 2/12/02 WHOLE - RES. 010700 (TAX REFORM) want to come here. So those are my two main points, and I recommend that you enact those two and then just get into the Tax Code and you'll see how difficult it is for businesses, first, to understand it and then to apply it. I spent nine months going over this Tax Code, and I still had difficulty understanding how it applies to business. I can't imagine how the average business person can understand it. Thank you very much.
Madam President, my name is Eli Massar. And as you maybe able to tell from the way I'm dressed I'm a student, yet I am a permanent resident of University City. I thank you for the opportunity to make these comments. As I've submitted the written testimony, I'll just focus on two major points within the testimony. Point No. 1 would be that by eliminating the wage tax cuts, the current proposed budget presentation I think represent the breaking of a 314 2/12/02 WHOLE - RES. 010700 (TAX REFORM) promise to business and residents, and that is the promise that began in the mid-1990s when City Council began reducing gross receipts and wage taxes together. The promise that it might be slow, but the next year would be better than this year and 7 years later would be even better than it is now. 8 With close to a decade of these cuts, Philadelphia 9 is just beginning to become a reliable and long-term 10 residential and business investment. Assuming the recent headlines are an indication, the current budget proposal could potentially erase this newly positive reputation almost overnight. Consider the following: The morning after the budget presentation, the Inquirer headline did not read "City shifts tax cutting effort to a more stimulatory gross receipts tax." Instead it read, "Mayor halts the wage tax cuts." And I'm very concerned that after almost 10 years of progress in reducing wage taxes and business taxes that this may, in fact, have the impact of ruining the beginning good reputation that the City has built recently. The second point I'd like to make or 315 2/12/02 WHOLE - RES. 010700 (TAX REFORM) summarize would be that without a doubt the gross receipts tax is terrible. However, it may not be the most important tax, given a limited budget that we must cut. And I would propose that we may, in fact, want to look more seriously at the net income tax. I'll just give one example of why I say this. And that would be the gross receipts tax cuts currently is cents for every hundred dollars that 11 a business collects. So I'm wondering whether it's 12 the 24 cents that you have to pay on a hundred 13 dollars or the $4.50 that a business has to pay for 14 every hundred dollars of labor that it employs or 15 the $6.50 that it pays for every hundred dollars it 16 makes in profits. 17 So given that comparison, I'm hoping 18 that maybe we can reevaluate whether or not the 19 gross receipts tax cut is the most important and 20 efficient way to stimulate the economy here in 21 Philadelphia. Thank you for the opportunity to 22 speak. 23
Thank you. 24 Good afternoon please identify for the record.
Good afternoon. My name 316 2/12/02 WHOLE - RES. 010700 (TAX REFORM) is Elizabeth Masters. I'm here to testify as a citizen of Philadelphia. I'm an architect with my own business here in Philadelphia. I'm also adjunct professor at Temple University. I've served as president of the Chestnut Hill Community Association, and I'm also a member of the AIA's Task Force for Neighborhood Transformation. First of all, I'd like to shorten my a written testimony and cite the technical expertise that we've heard earlier and observations and experiences of many others. Ditto. For Philadelphia's future I envision revitalized neighborhoods and the creation of new businesses and jobs all leading to more opportunities for everyone. But to achieve this, we must take action now. I am here to ask that you adopt City Controller's tax reform package, reform the system, lower the tax burden, and do whatever it takes to make this happen. In fact, I think the proposal could be even more radical. Philadelphia is a city with tremendous assets, but the disadvantages currently outweigh the advantages, it seems. And review of statistical evidence that we've heard today supports this point 317 2/12/02 WHOLE - RES. 010700 (TAX REFORM) of view. Knowing these facts, I really have to ask, "What am I doing here?" And anyone else who reads the facts would certainly ask that question. So I feel that we really need to make changes now. Philadelphia taxes are too high, all of them are too confusing, and the forms are absolutely impossible. Saturday a week ago the Chestnut Hill Business Association sponsored a retreat to examine the future of Germantown Avenue. Attendees expressed much concern about vacancies and the difficulty of drawing new businesses to the Hill. High taxes and City red tape were identified as the top problems deterring commerce on the Avenue, not our own Chestnut Hill issues. So these City issues really were on the minds of all the participants. If business is sluggish on the Hill, a setting which is already attractive and vibrant, what prospects do other neighborhoods have? The Metropolitan Philadelphia Policy Centers Flight or Fight released last fall articulates the urgent need for a transforming vision and high-impact policy change. One of their key recommendations is to reform and restructure 318 2/12/02 WHOLE - RES. 010700 (TAX REFORM) taxes. Doing so will make Philadelphia more competitive and the City Controller's tax reform package is one possible answer to the call for reform. You, the members of City Council, have the power and authority to seize this opportunity to change the course of the City's decline. It is time to institute innovative solution to lower and simplify taxes. It is time to cultivate new opportunities. Tax reform is a keystone in the process, and you can achieve it now by adopting the Controller's proposed reforms. And I think it's really important to keep our sights on the long-term view and the long-term effect, and not just solving short-term problems. Thank you very much for hearing me.
Thank you. I'm amazed that anyone has mentioned the U and 0 tax, which I think is so erroneous, Use and Occupancy.
I think it also is a terribly onerous tax, however, the fact that the proceeds go to the School District I think mitigates some of the bad feeling I have about that one. 319 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
And I think it's still rotten. My name is Francine Braithwaite. Legally I'm known as Ruda Bartholomew on a day-to-day basis and I live at 1900 JFK Boulevard, a property that's likely to be impacted with taxes that are probably two-thirds higher than the people across the street by the proposed changes in the Tax Code and may even cause the building of a lot that's right at the corner across the street from the stock market, thus giving me no access to sunlight ever again in my life. These proposals are sufficiently compelling that I want to see them happen even if there are what might be small hits on my life. This City has to grow. And, you know, this thing is getting in the way of my love life. Not as a lover thing. But I have friends who come from all the surrounding area to a church at 17th and Spruce Street year in, year out, as single people. The minute they get married and have one child, they're out. They love the City. They want to be here. But they get up and they walk over and over and over again. Now, maybe there's a spiritual thing that can hold them a little bit longer. But I don't want 320 2/12/02 WHOLE - RES. 010700 (TAX REFORM) my life affected in that way. Single people from Wayne and from Peterborough, I mean people come from everywhere because they love the City and yet they can't stay here. " It's so compelling, it's so equitable, it's so clean, it can be administered so transparently and with such ease that I've seen people in the political spectrum from Libertarians to Republicans to Democrats to the Green Party all adopt the land value tax as part of their platforms. And simplified taxes are good. Right now, there are just too many taxes. There's inadvertent noncompliance going on constantly. As we use this "Dah tax," this really smart way of valuing locations in the City and then taxing accordingly, as we focus in on that way of taxing, we're going to have compliance because people can do it. I can't do my taxes as they stand now. I have lived here now 14 years. I'm a New Yorker by birth and I've lived in a number of other places. For all the years that I've worked here, I've had a 321 2/12/02 WHOLE - RES. 010700 (TAX REFORM) few occasional jobs where I didn't have taxes taken out. I would be very hard pressed to tell you how to get a wage tax form so that I can pay my taxes. I'd like to do that; I just don't know how. And I bet you there's a lot of that going on. And that's not a good thing for you. One of the things that we're talking about with the land value tax is location, location, location. Everybody knows that if you put your business, let's say, a Wendy's, at 15th and Chestnut, you're going a whole lot more business than if you put it in the middle of a set of contracted houses in the Northeast. It's just going to happen. There are more people walking past with lively eyeballs and a desire for the things that they need. And that walking effort adds to the value of that property. The drive-by value, not to mention all the infrastructure that we've heard about, fire, police, et cetera. We are creating the values. The whole community creates them. Thousands and thousands and thousands, I can say that, of that value is being collected per adult in this City right now by somebody. It isn't the City. It isn't the people of the City. It's going into 322 2/12/02 WHOLE - RES. 010700 (TAX REFORM) the pockets of people who are doing a good thing and some people who are doing a bad thing. We're giving this value and we're not receiving it back and then we spend all of our time on our knees begging Harrisburg and the Feds and Habitat for Humanity and everybody to subsidize us. We let them walk away with our stuff. We can't continue to beg it back. We've got to capture those values that people make through the everyday efforts that go on in the City. And that's the way to go. I will address three things that have been mentioned to me as problems in the last little while. One is the problem of side lots.
Folks are very concerned that people in the neighborhoods who have reclaimed vacant land and made it pretty or usable by themselves, their families, perhaps by their neighbors, would be unfairly and unduly taxed. It's a concern that needs to be addressed just as a much as Alanna addressed the gentrification issue. In these neighborhoods that have had these specific reclamation efforts where there has been demolition and a side lot has been created, the land values are already very, very low, so they're going to be taxed at a very, very low rate. And what we see with the 323 2/12/02 WHOLE - RES. 010700 (TAX REFORM) analysis that one can find on Hall Watch or some of the other boards, in many of those cases, there will be a slight increase in land value tax for both properties. But it will not as much as the decrease from houses and the decrease from wages. So people expended this kind of energy to make something good for their neighbors will still continue to receive good value and not, in general, paying more taxes, especially those areas where there has been demolition. They will not be paying more taxes even with the addition of one side lot. They'll get a smaller decrease than the rest of their neighbors in the decreases that come with the decrease of taxes on housing. So that's one thing. The second thing is car dealers. I think we all appreciate the car from time to time, even me who lives three blocks away and walked here. Cars are important. However, public transportation is more important for a City to be lively. And the same things that are done for other kinds of warehousing of goods need to be employed by those car dealers. Things that need to be done by people who own flat parking lots also need to be done by those car dealers. And if they're land location 324 2/12/02 WHOLE - RES. 010700 (TAX REFORM) value taxes do tend to go up by doing things like vertical building of dealerships and that kind of thing, if it's so onerous to continue to hold on to the property next to one, then maybe that whole area full of car lots would be enhanced by a coffee house or housing or by having restaurants and book stores and whatever in those areas. You know, I can't lay the solution right on top of them, but they're going to have to do what the rest of us do, which is develop the property appropriately so that there's maximization of the land values there. They tend not to be that high in some of the areas where there are car lots that I've seen. But there are car lots within the city of New York and they are well-used, and especially with more on demand of supply of vehicles. As the need for the specific vehicle to show up in the lot improves out of Detroit and other places, it's a less necessary thing to have a huge inventory of cars on a way spread out lot. It's just not as necessary. The third thing would be the tank farms. We're concerned. We want to have access to oil and petroleum products in the City. There's no doubt about that. We provide them with our waterfront. 325 2/12/02 WHOLE - RES. 010700 (TAX REFORM) We provide them with our fire prevention and fire put out services. We police them in a number of ways. We send roads in so that their workers can get to work. We give up rights-of-way for pipelines. We incur costs in fuel transfers in the City and outside of the City. This is a hard thing. I don't want them to be hurt terribly. But I do think if we value the land correctly, there can be even things done there like they're not being afraid to further enclose their tanks so that they're harder to go into flame. We've had a few flame-ups every once in a while. They wouldn't be so afraid that building something to contain those liquids more carefully would be counted as building that they would be taxed on. So all of it would be a whole lot safer. Things about the way the waterfront is used can change. And I know that they're important.
I know that I don't want to pay higher bus costs because the oil and the petroleum is more expensive. But I think if you look at the whole City and its needs, you'll say, We'll incur some costs here and we'll lower some costs there. And I think there's still a good chance for a good outcome. 326 2/12/02 WHOLE - RES. 010700 (TAX REFORM) The last thing I wanted to say is there's something very significant going on in Harrisburg that Alanna Hartzok spoke of. Going from 4200 abandoned lots and abandoned buildings to fewer than 300, even if it takes years, and it wouldn't 7 take that long here, without major subsidies from 8 the Feds, without major subsidies from the 9 legislature that is housed there, that's something 10 significant. We have an opportunity in this state 11 over all to do something that we can't do in many 12 other states. We're the only state that expressly 13 says you may tax a building and the land it sits on 14 at different rates. This is part of the benefits 15 that we've even received from the Ridge 16 Administration. But here in Philadelphia, we have 17 an opportunity to do that kind of changeover with 18 much stronger effect because we've got a city, a 19 county, and a school district that all operate in 20 the same boundaries and have similar if not the same legislatures who can make those decisions about revenues and all of that. So as we look at this, there's a chance for us do an even better changeover. Every time one of these cities increases the multiple between the 327 2/12/02 WHOLE - RES. 010700 (TAX REFORM) land and the building, every time building permits go way up fast, that's work; that's income; that's jobs; that's a City. So please let's stop letting our value walk away. It's our value. We put it into the location, the very calories that we use to walk past a building. So let's capture those values and land location value taxation and see what happens and stop punishing people for doing what's right. That's my comment. Thank you.
Thank you so very much. We really appreciate your patience. You were all patient. You've been sitting here all day, and we certainly appreciate. Thank you. Our next witnesses.
Joan Sage, Kim Harold Brown, Patricia Lowe, Richard Biddle.
I am Joan Sage, and I have lived in Philadelphia for 18 years. And having worked here as a social worker, I'm upset when I see Philadelphia lose people, jobs, and businesses that make a City thrive and see homeless people in a City 328 2/12/02 WHOLE - RES. 010700 (TAX REFORM) full of houses and probably more with the people being thrown off welfare March 3rd. What can you and I lose with the Controller Office's new tax plan that would reduce taxes on people who work, live, and do business here except to reverse this decline. And with a site value land tax, property taxes would go down for 80 percent of owners and abandoned houses would disappear without expensive wholesale destruction. We have Pennsylvania cities as well as cities 12 worldwide as proof of the land tax can and will make 13 these things happen. If Harrisburg can see 14 abandoned properties disappear by using a land tax, 15 so can we. 16 Friends, neighbors, and business people 17 bring positive, productive activity to our community and yet they are penalized for doing so by inefficient nuisance taxes. Yet there are absentee owners of neglected properties that depress our area and obviously can afford to produce nothing, just sitting and speculating, waiting for our tax money to increase the value of the area and then make a profit by contributing nothing and taxpayers pay for their profiteering. 329 2/12/02 WHOLE - RES. 010700 (TAX REFORM) You can turn this around by making those nonproductive land speculators, polluters, and absentee owners of neglected properties pay up or shape up with an incentive tax, as the land tax is called, to use it or loss it to those who will contribute to the life of the City. You can stop the present decline by being innovative and willing to make changes. You can bring the City to point of being the next most affordable City in the country to live, work, and do business in. Your constituents are watching you and will thank you for meeting this challenge. Thank you for listening and for your consideration.
My name is Patricia Lowe. I gave out some written materials. " It's an editorial supporting land value tax. My concern was with the first paragraph where the Mayor says that it would be unworkable. So Mayor Street pronounced it unworkable. I want to address that. First, I'd also like to say regarding 330 2/12/02 WHOLE - RES. 010700 (TAX REFORM) some thorny problems like gift lots and refineries and car dealerships and all that, a sensible zoning goes a long way to avoiding any inequities taxation like that because, as we know zoning, proper zoning defines the highest use of the property. Zoning laws define the highest best use of the property and that would determine the market value and the assessment. My question is about specifically what are dealers about gross receipts tax. Well, they have a receipts selling new cars. And I kind of doubt that whatever real estate tax they pay current or future is anywhere near the amount of the business expense that they incurred for taxation by gross receipts tax. And I would say the same goes for oil refineries too. Taxation on the sale of the oil that they make represents a higher proportion of the cost of their business than whatever tax they would pay on land which is basically zoned, I guess, as nuisance land. And if it isn't, it ought to be. Now, regarding the unworkable part, I figured maybe that's what he was talking about, gift lots. Maybe the Mayor meant that. I know they're high and dear to his heart and all. But maybe he 331 2/12/02 WHOLE - RES. 010700 (TAX REFORM) was talking the assessments, the state of real estate assessment in Philadelphia as it is today where the state -- you know, the State of Pennsylvania, when one goes to transfer real estate and buy tax stamps for the deeds, you have to fill out a form that says what the assessed value really ought to be and you have this equalization ratio, you multiply it with. The State really doesn't trust the City assessments. But my point -- and this is what I'm concerned with. There's a second page of the handout. If you go to the Delaware Valley Regional Commission and get on their web site, you can see the aerial map they've made. You don't see the pictures, per se, but you see a map like this where I marked Philadelphia with black and yellow boarder. And that can be blown up. All of Philadelphia is available on one CD. Maybe City Council would splurge for one among all the Councilmembers that they could share and they could download Ark Explorer, which is bat program for free from say University Pennsylvania Neighborhood Information Center, their site. And they could view the aerial photographs right in Ark Explorer and they could get 332 2/12/02 WHOLE - RES. 010700 (TAX REFORM) some files from the Mayor's Information Services Office, can get street map to overlay on the aerial photo map and then they would get a sense of where the lots are in the City just by clicking a mouse. And eventually when the coordinants are all matched up and some technical solved, which might be solved already as far as I know judging by the quality and all of the Delaware Value Planning Commission's maps, the assessments annual tax assessment will be as easy as a click of the mouse when they go to update their assessments because you must realize that you have to accurate and up-to-date assessments to make the land tax workable. The other thing was the last page that I submitted is also part of their brochure, which I didn't get a chance to go to the Borse Building and get Delaware Valley Regional Planning Commission's color brochure, but you see one page of that, and that has the prices. The $665 for Philadelphia, that's 5 CDs for the map files, the aerial photos of the whole city in a graphics format called TIFF or T-I-F-F. But if you get it in a compressed file 24 called Mr. Sid, then that's on one CD and that's $399. And that's the file that you would need, most 333 2/12/02 WHOLE - RES.
010700 (TAX REFORM) likely, to read it in Ark Info or Ark Explorer. Ark Explorer particularly which is available for free over the Internet. So City Council can do its own little search about that.
I'm Richard Biddle. I live at 140 Bethlehem Pike. I just moved back in the City two years ago. Of course, sometimes I wonder why I did it. I must have my head examined. I moved back because of the quality of life. You know, there are some problems. The one I'd like to talk to you just off the cuff today is what I've run into in terms of real estate assessment practices in the City. They are certainly better than they used to be. I was a resident here 30 years ago. They were strictly political. They were run by, I guess, the committee person in the neighborhood depending on whether you were in favor or not in favor the level of your assessment. They've gotten a lot better since then. But when you look at the land and building split, you run into a horrendous difficulty. And I think 334 2/12/02 WHOLE - RES. 010700 (TAX REFORM) it's the same difficulty that the gentleman from the Auto Dealers Association was alluding to. I don't that they really did their homework in looking at the accuracy of the assessments. And I'll give you an example. The example relates to the Longstreth residents in Chestnut Hill where I live and the Rizzo residents in Chestnut Hill where I live. The Rizzo residence is just shy of an acre. The assessment on that lot is $17,000. The Longstreth residence is three-quarters of an acre, the assessment also $17,000 an acre. The Biddle residence is one-quarter of an acre, 11,000 square feet, it's $29,000 or about 2.60 square foot as opposed to -- if you go across the street there's residence that was purchased about the same time, bigger lot, in fact, 27,000, better than twice the size of my lot. The people got a better buy on it, probably. They paid a little bit less. But the fact is they have a much bigger lot. My assessment renders $29,000 in land. Theirs is $9,000. These are 1999 assessments.
Mr. Biddle, did you ever appeal? 335 2/12/02 WHOLE - RES. 010700 (TAX REFORM)
Oh, yeah. I'm in the process of doing that right now. That's not the issue. The real issue is that we need a complete reassessment of every parcel of Philadelphia real estate at once. We don't need this piecemeal action that the BRT has taken in hand as of 1981 or 1982 called the Green Coleman agreement, which actually ran out in 1987 or '88. We need the BRT to do its job to assess land values and building values accurately. If we're moving to a land tax -- and I'm very strong advocate of the land tax. I pay $2100 more. The Rizzo residence and the Longstreth residence as of 1999 paid a couple hundred dollars less. My neighbor with a bigger lot pays a couple hundred dollars less. If we went to a complete land tax, my real estate would be $20,000. My neighbor's would be, instead 4,000, 3500 on their bigger lot. So that's the kind situation that we're into. And that's also kind of situation that the auto dealers, I think, are describing, but not really looking at. And maybe they need some help from the City Controller's office to address that. This has been a long day. Thanks very 336 2/12/02 WHOLE - RES. 010700 (TAX REFORM) much. I think that's a wrap.
Thank you so much. Thank you all very much. You've been very patient. Kim Brown was called. There was no 8 answer. Who is our next witness, Mr. McPherson?
Bruce Andersen, Greg Pastore, Jacob Himmelstein, and Ralph Treadway.
I am handing into the record Greg Pastore's testimony. I also have Erin Murphy, another Philadelphian who came but was not able to give testimony. I'm handing in a copy of her testimony.