Mr. Controller, what I'm saying is, I understand that the numbers were wrong in 159 4/18/07 - WHOLE - BILL 070114, ETC. the past and that that's been uncovered. The issue now is, do we know that the new numbers are wrong? Because the new numbers, as far as I know, have been confirmed by the state Budget Director and by other people, and there are a number of people who believe that the new number is over a billion dollars over the next five years and there is a new number that probably is a sure number that we should be looking at. CONTROLLER BUTKOVITZ: I would say that it probably is at least -- one thing I can tell you for sure, whatever they say it is, it's worse.
So you would agree that the cumulative deficit over the next five years is probably over a billion dollars? CONTROLLER BUTKOVITZ: Yes.
So what should we do about that? CONTROLLER BUTKOVITZ: Again, it's hard to say without having access 160 4/18/07 - WHOLE - BILL 070114, ETC. to -- they had a situation where they only had $500,000 in no-bid contracts. Now they have -- or business consultant contracts. Now they have $7.7 million in business consultants contracts. Now they have over $600 million in no-bid contracts. It seems logical that there's going to have to be additional revenue streams for the schools, but to give a comprehensive answer that there's no 13 waste or that there's nothing that could be cut out, I can't say because they won't let us get at the underlying data. What I suggested to the Mayor's task force and to the state Budget Secretary is something akin to zero-based budgeting. I think when you're dealing with the no-bid contracts, the School District right now, they'll give you a sheet with maybe one line that tells you why this amount is in there. I think the people running the School District know what they're doing. They know why 161 4/18/07 - WHOLE - BILL 070114, ETC. they're awarding these contracts, and they should be required to make that showing to the Council and to the outside stakeholders justifying why we need all those no-bid contracts. And you have multiple different types of administration in handling of the schools. That also needs to be consistent and justified. It seems it is very -- it is likely that there's got to be more money for the schools, but you can't say how much. Vallas is still over there. He still won't let us have -- he wants to control the data.
I understand, Controller. I'm going to try one more time. They say it's a billion dollars. CONTROLLER BUTKOVITZ: And I said it's at least that.
Let's say it's two billion. CONTROLLER BUTKOVITZ: Okay. 162 4/18/07 - WHOLE - BILL 070114, ETC.
But let's reduce it back to a $1 billion problem. If it's only a $1 billion problem, what should we do about it? CONTROLLER BUTKOVITZ: Well, there's two general courses of action. There's increased taxes and there's reductions in spending. And as Mayor Rendell said when he came into office, before he was going to ask for a tax increase, he was going to make sure he squeezed out every dime of unnecessary spending. And I don't think that that process has been gone through in the School District, and I'm not going to write a check for what Paul Vallas did without letting anybody know without getting in there looking under the hood, kicking the tires and seeing what the situation is.
Pretty soon this has nothing to do with Paul Vallas. CONTROLLER BUTKOVITZ: It has everything -- he's still in control of 163 4/18/07 - WHOLE - BILL 070114, ETC. the data.
Pretty soon this has nothing to do with Paul Vallas. CONTROLLER BUTKOVITZ: And then we can have the --
And we still have a billion dollar problem that somebody has to be responsible for. CONTROLLER BUTKOVITZ: Well, I can't take responsibility for solving something that people won't let me get at. I mean, I would be acting in ignorance to propose a policy solution without being allowed to review the raw data. I've been fighting from my first day in office for a chance to review that data. I want -- and we are not shy even about taking unpopular positions when necessary, but one thing we're committed to is doing our own analysis and looking at real data. I'm not going to have Paul Vallas or anybody else there write a number down on a piece 164 4/18/07 - WHOLE - BILL 070114, ETC. of paper and then say, Oh, by the way, take my word for it, here's the problem, now it's your problem.
Okay. So we come up with our own numbers, which we will do, particularly since we're going to move beyond Paul Vallas and the state Budget Director will be involved, hopefully the Controller's Office will be involved -- CONTROLLER BUTKOVITZ: Hopefully.
-- hopefully we'll be involved. I guess what I'm really getting to is, there are definitely going to be cuts. There's definitely going to be a need for state subsidy. There's definitely going to be a need for local subsidy. I'm asking not so much for us to resolve what the numbers should be at this point, but you know in the end where I'm going. Doesn't it require a millage shift? CONTROLLER BUTKOVITZ: Look, I 165 4/18/07 - WHOLE - BILL 070114, ETC. commend your leadership, for example, on the proposed transfer in real estate millage, but I would note in dealing with the magnitude of the problem, that would yield $20 million in revenue. We're talking about an annual problem of $200 million, right? I don't see anybody on the Council and I am not suggesting a 10 or 30 or 50 percent increase in real 11 estate tax. Nobody wants that, and I am 12 not for that, right? Somehow they're 13 going to make -- 14
And no one 15 is suggesting that. 16 CONTROLLER BUTKOVITZ: But 17 I'm -- 18
I guess what 19 I'm suggesting is that there are 20 automatically going to be cuts. There's automatically going to be a need for more state subsidy. There's automatically going to be a need for more local subsidy, and doesn't part of that local subsidy have to come from a millage 166 4/18/07 - WHOLE - BILL 070114, ETC. shift? CONTROLLER BUTKOVITZ: From the millage?
From a millage shift. Doesn't part of that subsidy have to come from a millage shift? CONTROLLER BUTKOVITZ: I think that the action you've taken is productive and contributes to a solution, but I believe that we are facing a School District crisis of such large magnitude and the major sources of money would either be the state or real estate taxes, and the state is something we don't have any control over. Everything we've heard is that it's going to be a fight and that the state thinks it's very unlikely -- the state's position is that they have put in $300 million plus over the last four years.
I'm aware of all the issues. The simple question is, isn't the local subsidy going to have to 167 4/18/07 - WHOLE - BILL 070114, ETC. require a millage shift? CONTROLLER BUTKOVITZ: If you're asking if I'm for the proposal that you have on the millage shift --
No. I'm not necessarily asking if you're for that particular proposal. I'm asking, isn't the new local subsidy required to help the School District going to have to require a millage shift? CONTROLLER BUTKOVITZ: I think that would be productive, but if you're asking me theoretically what are the options, it doesn't necessarily have to be a millage shift. They could just raise the total level of real estate tax. I mean, if they doubled everybody's real estate taxes, the schools would have the money without a millage shift. Nobody would do that, I hope.
I was asking you a serious question. CONTROLLER BUTKOVITZ: That's a serious answer. 168 4/18/07 - WHOLE - BILL 070114, ETC.
It's not a serious answer. CONTROLLER BUTKOVITZ: Sure, because --
I'm saying -- CONTROLLER BUTKOVITZ: Look, I was a legislator for --
Doesn't a reasonable response to a new local subsidy to deal with a billion dollar plus problem mean that we're going to have to do a millage shift? CONTROLLER BUTKOVITZ: A millage shift won't solve the problem. You heard me testify --
I already knew that. CONTROLLER BUTKOVITZ: -- that the entire take on the real estate tax is a billion dollars, right?
At this point, it's going to take a millage shift, it's going to take the City 169 4/18/07 - WHOLE - BILL 070114, ETC. assuming some of its costs in the School District, it's going to take new assessments, which I'm about to get to, but I'm saying doesn't it require as part of the package a millage shift? If you don't think so, just say no. I'm just asking. CONTROLLER BUTKOVITZ: It's just -- if I just didn't think so, I'd say no, but the truth is, it's a policy option for the Council. It's one of a menu of options that Council will get to choose and that the Legislature will get to choose. And we may think some parts of it are better ideas than others, but there's no scientific answer to it. There's the full range of options that are available to the City.
Let me move to my second question, then I'll move back to the first again. The Council President asked you whether new assessments are necessary regardless of whether we move to full 170 4/18/07 - WHOLE - BILL 070114, ETC. valuation or not, and your answer was, yes, new assessments will continue to occur. CONTROLLER BUTKOVITZ: Yes.
I didn't understand what that meant. CONTROLLER BUTKOVITZ: I think as the Board of Revision of Taxes goes through their regular process, they continue to upgrade the valuation of properties as they get around to it. I don't think anybody is suggesting they not do that.
What you just said is "as they get around to it." What does that mean? CONTROLLER BUTKOVITZ: It means that it tends to be absorbed on a more continuous basis rather than an immediate constant rate-shock basis.
But the truth is that there really have not been any new assessments. CONTROLLER BUTKOVITZ: Oh, 171 4/18/07 - WHOLE - BILL 070114, ETC. that's not our experience at all. We hear from people all the time there's constant reassessments.
If there were constant reassessments, then what's your issue with full valuation? CONTROLLER BUTKOVITZ: That the constant -- this kind of computerized automated constant move towards the highest recent sales data will choke off development in high-growth areas because of the critical mass and how it's multiplying too quickly, too fast and too often.
So you believe that the assessment process as it is is a fair process? CONTROLLER BUTKOVITZ: I think all things considered, it is the healthiest process for the economic well-being of the City. There are many things that we can find in life that are not absolutely fair. I wouldn't say it's the fairest process. If your objective 172 4/18/07 - WHOLE - BILL 070114, ETC. was fairness to the exclusion of everything else, then you would go for the full valuation assessment. But it's always a combination of concerns.
I'm not even raising the issue of full valuation right now. I'm asking you whether the assessment process, in your view, is a fair process. CONTROLLER BUTKOVITZ: I think it moves towards fairness. I don't think it's at an absolutely fair -- depending when you take the snapshot, you can't say it's absolutely fair, unless everything is equal on the day that you take the snapshot.
Is it close to being fair? CONTROLLER BUTKOVITZ: Is it?
Close to being fair. CONTROLLER BUTKOVITZ: Fairness, in my -- I mean, if you want -- I could go all day on fairness, because I 173 4/18/07 - WHOLE - BILL 070114, ETC. don't think it's fair that we don't get a dime from the University of Pennsylvania, which is the largest employer in Philadelphia, and that -- so how far do you want to extend out this issue of fairness? There's a lot of inequities and unfairnesses.
If it's not fair because we're not taxing certain institutions, then it's not fair. If it's not fair -- CONTROLLER BUTKOVITZ: Right. Well, it's not. There's a lot of --
If it's not fair because certain areas are overassessed and certain areas are underassessed, then it's not fair. CONTROLLER BUTKOVITZ: Sure. If that's the parameters, it's unfair, because there's a hodgepodge of different policies. You have -- look, you have people who get to pay no taxes at all on the improvement right across the street from people whose taxes are skyrocketing 174 4/18/07 - WHOLE - BILL 070114, ETC. because the guy who is not paying taxes got the improvement. Then you have special forgiveness for certain businesses that are supposedly being located in distressed areas that are, by no stretch of the imagination, distressed areas.
I completely agree with you and voted against almost all the tax. CONTROLLER BUTKOVITZ: So to talk about that in terms of uniformity or fairness but to just define it in a narrow range misses the fact that the whole system is loaded with unfairnesses.
So if the system is loaded with unfairness, the only option is not to just raise taxes, but there is an option of making the system a bit more fair or as fair as we can make it that will probably reap more revenue; is that true? CONTROLLER BUTKOVITZ: In my view, if you're going to kill the patient 175 4/18/07 - WHOLE - BILL 070114, ETC. by giving him so much medication that it's fair and in the process the City dies and development in the City dies --
That's not the question I asked you, Controller. CONTROLLER BUTKOVITZ: Well, I know. You would like to control the words that come out of my mouth.
The question is -- no. I would like you to give me an actual answer in terms of whether we can actually address the problems of the School District, address other revenue problems with the City by simply changing the assessment process. I'm not talking about full valuation. I'm talking about dealing with the unfairness that exists there. Are there other ways to deal with the unfairness in the assessment process that will reap us more real estate revenue that would deal with both School District problems and City problems? 176 4/18/07 - WHOLE - BILL 070114, ETC. CONTROLLER BUTKOVITZ: Let me put it this way: If you're going to get a billion dollars more in five years out of people's real estate taxes --
You know what, you can sit here and keep playing political games. I'm simply asking a simple question you can give me simple answers to. I'm not even trying to be combative. The first question was whether to deal with the School District problem locally we have to do a millage shift. You wanted to play around that. Then -- CONTROLLER BUTKOVITZ: Look, Councilman --
-- the next question was simply, how should we move forward with assessments without full valuation, how should we move forward without full valuation. You still want to play the full valuation game. I'm not talking about full valuation. I'm not talking about raising 177 4/18/07 - WHOLE - BILL 070114, ETC. taxes. I'm asking you, what needs to happen in terms of the assessment process to bring this City the type of revenue that it needs in terms of the School District and the City? CONTROLLER BUTKOVITZ: First of all, the premise on reassessment has always been that it's not going to yield one more dollar of revenue. Any change in reassessment will be equalled out zero. So who is playing games? Now, if you want to take the position that you are for a big revenue shift to the School District and you're not for a real estate tax increase, you're making a political game out of it. We got a big headache here, and I believe this --
No, no. A millage shift is a millage shift. This is becoming a joke. A millage shift is a millage shift. It's not a tax increase. CONTROLLER BUTKOVITZ: Well, how are you going to pay for all the 178 4/18/07 - WHOLE - BILL 070114, ETC. City's expenses?
It's one half of one percent. It's less than a hundred million dollars of a $20 billion Five-Year Financial Plan. CONTROLLER BUTKOVITZ: And I said that was a good idea.
Thank you, Madam President. CONTROLLER BUTKOVITZ: Thank you.
Are there any other questions of the Controller? (No response.)
Thank you. MR. McPHERSON: The next department is the Board of Revision of Taxes.
Good afternoon and welcome. 179 4/18/07 - WHOLE - BILL 070114, ETC.
Before you identify yourself, we do have a copy of your testimony. I would ask that you abbreviate it as much as you could.
We will give the stenographer a copy and it will be transcribed in full.
Thank you. Please identify yourself for the record and proceed with your testimony.
My name is Charlesretta Meade. I am Chairman of the Board of Revision of Taxes. With me today are Board members. To my left is Mr. Harvey Levin, who is our Vice Chairman. We also have Mr. C. Nix, I should say; Mr. James Dintino; and the Honorable Alan Silberstein. To my right is our Executive Director, Mr. Enrico Foglia. 180 4/18/07 - WHOLE - BILL 070114, ETC. We are here today to testify on the proposed 2007-2008 Fiscal Year Operating Budget for the Board of Revision of Taxes. We have submitted our detailed written Operating Budget testimony for your review, and since you've given me the permission, we will summarize the highlights of our report. For Fiscal Year 2007-2008, we are requesting from Council a budget area allowance of 13 million 5 hundred 76 dollars -- I'm sorry; $13,576,852, an increase of $408,374 from the preceding year. The bulk of this increase, $192,145, represents increased repayments to the Productivity Bank for loans associated with the BRT's plan to modernize and upgrade its technologies. However, the Board has sustained the general budget reduction of $202,432, reflecting a loss of six key employment positions. We understand that all City 181 4/18/07 - WHOLE - BILL 070114, ETC. departments have been required to sustain cuts and to learn to do more with less. However, we have sustained a substantial loss in institutional knowledge due to the DROP program and we are engaged in several significant multi-year projects. We need a continued investment in these human resources at this time. During 2006, the Board of Revision of Taxes acted to improve delivery of service to our citizens in the following areas: The Citizens Survey Center completed its first full year of operation to the public. m. m. The CSC operation includes a new automatic call distribution system, a new public service facility and an online inquiry application, courtesy of a revised and improved BRT website. The BRT public service center responded to over 6,600 inquiries and questions via e-mail, 20,800 telephone calls averaging 84 per 182 4/18/07 - WHOLE - BILL 070114, ETC. day, 2,800 walk-in visitors and regular mail. On the horizon for the Citizens Service Center is our Interactive Voice Response System Project due for completion during summer/fall 2007. The telephone-based system will provide the identical real property valuation information presented on our website to citizens without Internet access. I'd like to take this time to bring you up to date on the CAMA Project and the Full Valuation Project. The BRT's CAMA Project, which is our Computerized Assisted Mass Appraisal Project, is a complex technology project installed to modernize the information technology system that is used to perform the BRT's business operation of property assessment and valuation. The new computer system that results from the CAMA Project completion will provide for greater accuracy and improved equity in the property valuation 183 4/18/07 - WHOLE - BILL 070114, ETC. process. The goal is to fully implement the new Oracle-based system that will replace the Legacy VSAM system. The Full Valuation Project is the BRT's business initiative project that will modify the valuation method for setting the market value of all real property in the City of Philadelphia. Both projects require the application and practice of proper project management methodology that will ensure successful completion. Primary and common methodology practices of both projects include quality assurance, thus our theme "to get it right, before we get it fast" and responsible risk management, proactive strategies to mitigate areas of risk. All of the CAMA Project accomplishments are at various stages of completion. They include completion of gap analysis reports, business and technical requirements definition, initial system design, initial testing 184 4/18/07 - WHOLE - BILL 070114, ETC.
plans, prototype testing, conversion of BRT's Legacy data, identification of reports, a training program aligned with BRT business needs, a developing plan for reorganization of workforce staff, business process reengineering, integration planning, testing and data quality assessment measurements. Operational readiness coincides with the completion of all tasks required for system implementation. The target date for operational readiness of the CAMA Project is between December 2007 and January 2008. Optimal business readiness will be achieved sometime after the implementation of the new Realware system. The BRT will exercise full and complete quality assurance testing both prior to and post implementation of the new technology system. Full business readiness of the new CAMA system is anticipated at approximately six to 12 months post implementation, between June 185 4/18/07 - WHOLE - BILL 070114, ETC. 2008 and December 2008. Full Valuation Project: The basic update to that is basically that the Board message, as expressed to the many community groups with whom we have met over the last two years, is that the BRT has no intention of implementing full value in the absence of tax relief protections for property homeowners in the City. Real property tax relief protections, such as homestead exemptions and property tax phase-in's, are under consideration for legislative action by this City Council and the state Legislature. We urge your serious consideration, debate and eventual passage of the necessary property tax relief measures. The BRT pledges our full cooperation with our legislative leaders in these matters. And in closing, we'd like to explain and emphasize that our intention is to work cooperatively with Council. We do not intend to simply implement the 186 4/18/07 - WHOLE - BILL 070114, ETC. Full Value Project. What we do intend is that when we're at our business operational stage, which is during the fall of 2008, we will be prepared to present the necessary information to Council involving the market valuations that would occur. Any additional information that the Council would need, we intend to cooperate fully so that you can take into consideration the changes that you need to make, especially changes in the rate and other property tax relief measures. We will then, in 2009, if Council has reduced the rate and if Council is prepared, 2009 we'll be prepared to send notices on full value for the 2010 tax year. We wish to thank City Council for your attention of the needs of our department. We welcome your continued support. Thank you for your time and patience, and we will be happy to answer any questions Council may have at this 187 4/18/07 - WHOLE - BILL 070114, ETC. time.
Thank you very much. On of your testimony, you state that the statute of the Board's pre-determined ratio cannot be in excess of percent of the State Tax 9 Equalization Board's common level ratio. 10 What is the common level ratio 11 for Philadelphia? 12
Councilwoman Verna, 13 I'd like to bring my Director of 14 Assessments to the table to assist me 15 with this question.
I think we all know him, but he has to identify himself.
We have not received the 2006 STEB common level 188 4/18/07 - WHOLE - BILL 070114, ETC. ratio. I believe the 2005 was about 28.3, and we are within the percent 4 tolerance. 5
Are 6 we in jeopardy of having to lower our 7 pre-determined ratio of 32 percent, and, 8 if so, what is each one percent drop 9 worth in lost revenue? 10
I'll be honest, I 11 haven't calculated that. Our primary 12 mission is market value as an assessment. 13 The Revenue Department applies the 14 millage. 15 We haven't actually started reporting our sales for the next period. There's some uncertainty in the market. It's very difficult to speculate on what's going to happen. We're noting that there's longer marketing periods. There's a lot of uncertainty in the market, and we just really haven't been able to see which way the trend is headed. Some people you talk to say that things are stable; other people say 189 4/18/07 - WHOLE - BILL 070114, ETC. things are headed down. Probably we'll have a better idea by June or July.
Thank you. Can you tell us when the last time that you reassessed the City as a whole?
Actually, on an annual basis, we do review all the market value as an assessment. We have an ongoing program to try to equalize and improve equity and uniformity, and we basically have been preparing for full value. The last equalization program, I believe, was in -- the last full equalization program was in 2004.
The current reassessment practice is that we follow 190 4/18/07 - WHOLE - BILL 070114, ETC. the first-class county assessment law. We use the IAAO industry standards and, in effect, we try to look at entire neighborhoods. We try to make sure our data is accurate. We try to improve equity, and then we try to move our market values up or down, whatever is necessary.
On , you mention full valuation and the BRT's pledges of full cooperation with our legislative leaders in these matters. When do you expect to use this new system of assessment proposals?
I'm sorry. I didn't hear the last word you said. When do we expect to use the new system?
Right. When do we expect to use the new system; is that the question?
Yes. As we expressed in the paragraph before, full business readiness of the new CAMA system is anticipated between June 2008 and December 2008. So during the fall of 2008, we would be ready to use the system. That's our projection. However, we cannot merely go to full value. We have to know that Council is prepared and has, in fact, lowered the rate at that time. So by the fall of 2008, we can present Council with the accurate projections of the actual values that would be set in a full value world. At that time, we'll assist Council and I know Council has an excellent staff that can crunch the necessary numbers so that they could make the rate change. When that rate change is made or when you notify us that the rate change will be made, if that is done by the 2009 season, which is July for us to send out notices, then if the rate is 192 4/18/07 - WHOLE - BILL 070114, ETC. changed during the 2008-2009 season, our 2009 notices would reflect the full valuation.
Thank you. The Chair recognizes Councilman Goode.
Thank you, Madam President. I failed to ask several questions of the Revenue Commissioner when she was here, so I end up asking different departments the same question. Would you happen to know how much is owed in terms of real estate tax revenue to the City?
No. That's not -- in terms of how much is owed in tax revenue? No. That's something that the Revenue Department would handle. We wouldn't have any knowledge --
-- of the actual 193 4/18/07 - WHOLE - BILL 070114, ETC. tax amount.
The actual tax dollars, no. Only what I've read in reports, but, no, we don't do the tax itself.
I'll ask the same question that I asked to the Controller. Do you believe that the real estate tax assessment system is fair and how could it be fairer? Are there sections of the City that are overassessed and sections of the City that are underassessed, and is that a longstanding problem that needs to be corrected?
I have to preface the answer to that question with the fact that I am committed to the fact that -- we have an excellent staff, but we have a 194 4/18/07 - WHOLE - BILL 070114, ETC. staff that's too small, and because of that, even though we have done our best in previous years, the answer to your question is that there is not the type of equity. We move toward equity as we can, but there is not the type of equity that needs to exist, so that over the next two years and while Council is working on the rate issue, our goal will be to concentrate, once again, on establishing the equity.
So is it fair to say that there's a historical problem that has existed and we have not closed that gap and that we are probably still far from closing that gap in terms of some areas of the City being overassessed and some areas of the City being underassessed?
What happened, we started in the mid '90s the equalization process. It originally started as trending. It was an equalization process with the goal of equity. And we were 195 4/18/07 - WHOLE - BILL 070114, ETC. close. I think we were about 69.1 percent to that and felt comfortable, and then we had the boom in the real estate market. And so then the issue becomes -- it's not that we have not had any activity. It's that with that rising market, then trying to -- you're playing catch-up to that as you're looking at the new sales and the new market that exists. So I would say that we were at a point before the increase where we were close to 69, I think, point 1 percent, was our statistical analysis in terms of equity, and we presumed at that time that once everyone is up to that 70 percent amount, then we would have equity or uniformity. Then we had the boom in the market, and that's resulted in inequities occurring again, and so we have to work on that. One of the issues that we've had over the past two years is, we had hoped to implement our new CAMA system. It's taken a bit longer than anticipated, 196 4/18/07 - WHOLE - BILL 070114, ETC. and so we really had to divert staff over the past year to really work the needs of the CAMA system, obtain characteristics for us, go through training and just the multiplicity of activities. We concentrated on, this year and the previous year, handling the commercial and industrial, trying to bring them up so that our residential evaluators could be out doing what they needed to do. So that is something that we do have to concentrate on now, because we have to catch up with the existing market.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam President. I have a couple questions 197 4/18/07 - WHOLE - BILL 070114, ETC. relative to the issue of timing. What action does the Board need to take to implement full valuation, what formal action?
What formal action does the Board need to do to make full valuation a reality?
Well, we've talked about the implementation of our new CAMA system. We're working on two projects. We're working on the project for the installation of the new CAMA system and implementation of that system, and we're also working on a full value project. The CAMA system is not dependent upon full value. Once we have the CAMA system in place, then we will be able to assess values as we are now. We're using whatever methodology or approach is appropriate. However, for full value to take place, we really must have the CAMA system in place. So as our report details, that we are anticipating 198 4/18/07 - WHOLE - BILL 070114, ETC. that December 2008 -- by December 2008, we'll have the CAMA system. We'll be fully implemented and fully tested so that we know that we have accurate values. At that point, in order to implement full value, this Board feels that we need to present the information necessary to Council, and I know that information includes the market values, the actual market values that would be generated by full value. And then, ideally, we'll be working cooperatively with you and with the state if the state needs our assistance with any of the buffers that they're putting in place. And then at the time that there is -- that we have knowledge that there will be a lower tax rate, then we will know that we can go forward with full value.
But does the Board have to vote to implement full valuation?
Does the Board have to vote? 199 4/18/07 - WHOLE - BILL 070114, ETC.
Is there a formal vote of the Board, somebody makes a motion, somebody seconds it and the Board votes.
So is there at this point unanimity on the Board that you would in fact pass full valuation?
The unanimity on the Board is that we will go forward with -- and we had a vote and a discussion on this since I've been here. I can talk about that. And the decision was that we would proceed with the Full Value Project in this manner, and, that is, that we would go forward getting ourselves to the state of business readiness. That would be 2008. So working on the CAMA system. And at that time, once we're at that state, then we would present the data to Council and allow Council to act, and then we would know based upon what Council is capable 200 4/18/07 - WHOLE - BILL 070114, ETC. of doing at that time if we would be going to full value for the 2009 notices for the year 2010.
The hypothetical question is, if we lower the rate and you don't do full valuation for whatever reason or you do full valuation and we don't lower the rate, isn't there -- what comes first?
We have to reduce the rate first before you vote on it or at the same time?
This is something that we've discussed, because it's a first-time thing and so it's one of timing, and I know it's difficult if I'm giving you a range, that we should be ready the fall of 2008, September to 201 4/18/07 - WHOLE - BILL 070114, ETC. December 2008. I don't know if that gives sufficient time to Council to do what they need to do to lower the rate. However, if you were to send to us your consensus informally, if the Council President were to say to us that we are going to lower the rate, we haven't done it yet, but it will be done by the end of the season, because we know it's a process, by June of 2009, then immediately when we know that, then we would prepare to go toward full value, and I know that you're lowering the rate, it's lowering the rate in certain buffers also, I understand. So that's how we plan to proceed.
But as you are aware, we're going to have a new Mayor.
And we don't know at this point in time who that Mayor is going to be or what their philosophy is going to be vis-a-vis full 202 4/18/07 - WHOLE - BILL 070114, ETC. valuation, number one, and where I think the real rub is going to be is how far do we lower the rate to equalize it as far as revenue is concerned when I have a Mayor that's going to need money and maybe is not going to want that rate lowered as much as some of us may want it lowered, because that would be an opportunity for that Administration to see an uptick in real estate revenues based on the fact that -- the theory of this that was always given to us was that you go to full valuation and we lower the rate to a level that makes it revenue neutral. That's as always I understood it, that this was going to be revenue neutral at least as far as the budgetary argument is. Now, people's real estate taxes may in fact go up, but that we were going to lower the rate to a level that it wasn't going to be a windfall for the City. Is that your understanding of that discussion? 203 4/18/07 - WHOLE - BILL 070114, ETC.
Yes, that's my understanding of the discussion. I hesitate simply because --
Yes. And I will just say I should add that I will work cooperatively and the Board voted to work cooperatively with the Administration and Council as well. Now, when Council and the Administration are in discussions and not in agreement, then our Board as an independent Board has to do what we need to do.
And what that would mean to us is that -- and, again, I've talked about the level of staff that I have, and, practically speaking -- and we haven't voted on this issue yet, so I'll just speak to you practically as the Chairman. 204 4/18/07 - WHOLE - BILL 070114, ETC. If I'm discussing with the Board that it's 2009 and Council and the Mayor are in a dilemma and it doesn't appear that they will come to a decision on the rate, my recommendation would be as Chairman is very simple and it's based upon a practical matter. It's based upon the fact that if we were to go to full value absent a change in the rate, we would implode our system, because what would happen is that the place that people would come to petition would be the Board of Revision of Taxes. Even though it would be a revenue issue that the rate isn't lowered, they would have to come to the Board of Revision of Taxes. And even for those cases where ideally dealing in a vacuum we could say that, Well, our job is to assess values and our job is to place market values and we've done that, we would have to allow every appeal that comes before us and give it an opportunity to be heard. We could not hear 567,000 cases, when we've 205 4/18/07 - WHOLE - BILL 070114, ETC. had in 2005 -- and I think Mr. Davey meant to say it was 2005 was the last increase, substantial increase for residential. When we've had 15,000 cases presented to us, it's been very busy and very busy for our evaluators and very busy for us. So 500, 200,000, that's just not going to work. So in my mind, it just doesn't make sense to do that. What it does make sense to do -- and it's something that the Board has discussed -- is that we have to proceed with our legislative mandate, and that's to place the values. While Council, though -- while we are moving toward full valuation, we have enough to do on the issues of just making sure that values are equitable and what Councilman Goode was referring to in terms of uniformity, that we'd still be able to do our job.
Do you have a state statutory deadline for the implementation of full valuation? 206 4/18/07 - WHOLE - BILL 070114, ETC.
Do you have a statutory requirement to full value assess but not to implement the actual -- not to pull the trigger?
The reading of the statute states that -- and I don't have the statute with me -- that the assessment should be based on base year or actual value, and actual value as determined by the court is to be market value. So we have that mandate, but in terms of having a specific deadline mandate to get to full value, no, we don't have that.
Yes. Well, and that's our previous Chairman. That was his vision, and I commend him for that, just the appreciation that we needed to be ready if at some time that became an 207 4/18/07 - WHOLE - BILL 070114, ETC. issue, because as you could see, we started on this trek with the new CAMA system and we must have the mass appraisal system in place in order to do full value with the staff that we have. We have to have that in place, and the recognition that it's taken us two years just to get to this point and we thought we'd be there and we project that it's going to take another two years. So we need to have that system in place first.
So an agreement between the Council and the Mayor on the rate is what's going to determine whether or not this goes or not; is that a fair statement?
Yes, I think that's fair. And simply because, as I said, the problem would be is that the Board of Revision of Taxes, even if our staff were doubled, even if it were doubled, we would not be able to handle the kind of hearings that would occur if we made the change in market value to full value and 208 4/18/07 - WHOLE - BILL 070114, ETC. the rate were not changed.
And that's a practical analysis, not a legal analysis. That's just practically speaking as Chairman of a Board saying what we could do.
One of the concerns I have relative to this whole timing issue is that we're talking hopefully 2008-2009 that there's some agreement that comes about, but then you get close again, practically speaking, politically to 2010 and '11.
And you're back in the same time frame that's kind of slowed this down. Although there were some technical issues you needed to deal with, I think it kind of got slowed because we were moving towards 2007. On the other end -- well, are you saying no, 209 4/18/07 - WHOLE - BILL 070114, ETC. that's not the case?
-- the political issues in 2007. I'm not saying anything is wrong. I'm just saying it's human nature, because we're going to be rolling towards -- whether I'm running again or not in 2011, there's going to be people in here running and a Mayor running again as you move towards 2011. So I just have some concerns about the practical politics of making an agreement that may raise people -- the ironic part of this whole thing is that I could vote at some point in time to lower taxes in Philadelphia, real estate taxes, and get my brains beat in for people thinking I raised their taxes. That's the hard problem with this coming up with the rate, is that people's taxes, some 210 4/18/07 - WHOLE - BILL 070114, ETC. people's taxes, are going up. They're going up because the value of their property is more, but no one understands that. When they open up the bill, I guess in February when they get them -- is that when they get them, generally February, March?
-- (continued) and it's going to be we raised their taxes. And that's the education process that we need to undertake, because you have people living in neighborhoods whose actual practical taxes are going up, who don't care about the value of their home. They don't care that their home went from 150,000 to 550,000. They're not moving. I mean, they're happy it didn't go down, but they're not looking to flip it and get out. So we're going to have an education process of dealing with people and making them understand this. 211 4/18/07 - WHOLE - BILL 070114, ETC.
And not just an education process. I mean, I'm not dealing with the political issues. I'm just looking -- because I'm not political.
Well, no. I'm in government and I'm looking at you as the arm of government. I separate the political aspects from the government aspects of it.
And as part of good government, I think not only do people need to be educated, but I think it's imperative that Council and the state legislative body put in place the buffers that are needed, because we have areas where we see areas in Kensington and North Philadelphia, all over the City, that are going the way of, say, the Fairmount area where they've been 212 4/18/07 - WHOLE - BILL 070114, ETC. gentrified, but you still have that person who lives there who was born in that house, and when you look at the deed, that the parents --
I see it at Girard Avenue coming from the Art Museum east. That's what's happening right there now.
-- bought the house for $2,000. So that's why it's really imperative. And whatever we can do to assist you, we will, in terms of putting in place, in terms of helping you to know what buffers exist in other jurisdictions so that those buffers can be put in place. And one of the things that, while I have this audience here, one of the things that hurts the Board's heart where it's very difficult for us to deal with is the issue of the senior citizens, when we get many of them who come before us and they're just a little off of the 213 4/18/07 - WHOLE - BILL 070114, ETC. tax freeze. They're making enough just to get by. And it's very difficult to see that, because we're seeing more and more of them coming in areas where the values have gone up because of gentrification issues. And we just really implore Council -- and I know there's a problem with the state mandate, that it has to be close to the poverty level, but I think the poverty level should have changed by now and should be a lot higher than exists, because the ordinance sort of goes in concert with PACE and PACENET, and that dollar amount just isn't sufficient. I mean, we have senior citizens that we just see who are hurting, and what we know is that for everyone who is 75 years old and 80 years old and able to file that appeal and come down, there are probably ten more who don't get to file the appeal. And the other problem is that we see people in terms of education, Councilman Kenney, we see many people who 214 4/18/07 - WHOLE - BILL 070114, ETC. know nothing about the tax freeze, and what we started doing quite a few years ago, we have a box. We have the tax freeze forms, and Councilman Rizzo often sends one of his staff members over and will either have -- if a councilmanic staff member is there or we'll have our own staff take the person to the side. For some people they've assisted them in filling out the information so they could just come and bring the necessary data. We welcome when there's a Council representative there, because then that person is able to do the necessary follow-through. So since I have that just on that issue, really if you could work on that, that's just one thing, along with homestead exemptions and other issues. We're well aware of that. We have to separate ourselves from that. But for practical purposes, we have to realize that if you don't do certain things, then it would be impractical, in a sense, of 215 4/18/07 - WHOLE - BILL 070114, ETC. good government for us to do certain things. Now, if a court of law ordered us to, then, of course, we would all act accordingly, but as it stands right now, we plan to work cooperatively with Council and the Administration on this issue. And then each year we know that we have to be prepared to do our job, which is to value and assess, whether it's based on the full value because you've been able to make the necessary change in the ordinance or whether it's on making sure that there's parity, equity and equalization throughout the City. I'm sorry.
Thank you. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. Good afternoon. 216 4/18/07 - WHOLE - BILL 070114, ETC.
As you know, all of us don't agree with the comments of my colleague. Otherwise, we wouldn't have the question on the ballot about full valuation. We believe that the discussion could ensue once the issue is resolved of everybody's taxes being evaluated so that they're fair now. As you know, there's a booklet out that we got with the budget from the Mayor's office and in that booklet they said these people are underassessed, these people are overassessed. So I don't know why we don't assess everybody properly. That's by the Administration's own definition, that our assessment isn't fair to everybody. Once we assess everybody at rates we believe are fair, then I think we could have this discussion. But until everybody by our own rules are assessed at what they should, then I think having full tax valuation is premature. And I 217 4/18/07 - WHOLE - BILL 070114, ETC. think that's the only fair way to do it. And likewise -- so that's why we fought for the whole issue of it being on the ballot. Because I've been around here a long time, since the Rizzo days when I worked for Lucien Blackwell and when he had only one staff member, and every time they reassess taxes, they go up. I've never seen anybody's go down. I've never seen people who can say, Boy, my block, they reassessed me and -- it was always to make it fair, but in my experience, we've lived through two or three of them, and each and every time they touch taxes, people in the neighborhoods complain and cry that their taxes go up. I like my job. I'd like to be here. I've been here a very, very long time. I'd like to stay here, and that is why we fought for this issue. But in all fairness and in the City's needing money, I think perhaps we should have the discussion, but not until we agree that 218 4/18/07 - WHOLE - BILL 070114, ETC. we've taken the time and the work to make sure that we agree that people who are underassessed or overassessed -- you don't need a law. We don't need to enact this 40-year-old statute at this point without having done our part to make sure it's fair. So that's my two cents on that issue. And the other is, in view of this whole discussion of taxes and assessments, how do you feel about the land tax versus property rehabilitation on properties on top land? Do you all have the specific --
It's 219 4/18/07 - WHOLE - BILL 070114, ETC. an old, old issue.
Well, it's something that we discussed this week, and I hate to continue to say again, we go to the staffing that we have in terms of the land value, but we do have a project underway with that.
Some people say that we should tax on the land and then some people --
Mr. Davey will comment on where we are with that and where we're trying to go.
Councilwoman, we've explored over the years the land value tax; in other words, only taxing the land. Many times it was brought to our attention that Pittsburgh had something like a land value tax. They had a higher rate on the land. They had a lower rate on the building. Pittsburgh actually got away from it. Most of the governments that use the land value tax are in the 220 4/18/07 - WHOLE - BILL 070114, ETC. midwest, are small communities, Canadian communities. We really have not seen anything to support the fact that by going to a land value tax there's going to be significant improvement. Most of our vacant land in the City tends to be small lots that really have a serious problem being developed. We would definitely explore anything if we felt that the result was going to be positive, but we can't compare the City of Philadelphia with a small rural town. We can't compare it with a Canadian province, and the closest city to Philadelphia, Pittsburgh, which had something in that order, is actually going back to have one rate on land and building.
And, Councilwoman, if I can comment on two things that you said in terms of, just for the record, clarity. In terms of never decreasing when we increase, in terms of the market value, reassessments that we did for 2003 221 4/18/07 - WHOLE - BILL 070114, ETC. through 2007, there have been substantial increases, but there have always been decreases as well. For instance, in 2003, we increased 235,005 properties, but there were 39,157 properties that were decreased. And so -- and I won't read the entire chart, but there are always decreases when there are increases.
I didn't mean it technically, but there's no comparison.
But in terms of comparison. But just for clarity of the record. And the other issue is that in terms of the Full Value Project, as I had articulated and as our report shows, that we're moving forward with our CAMA Project, and that CAMA Project will assist us in providing more accurate market values. We will be able to, however, use that system with whatever method of valuation that we're using, 222 4/18/07 - WHOLE - BILL 070114, ETC. whether we're still working with the fractional method or whether we are at full value. So the CAMA Project and the Full Value are separate things. On the issue of the Full Value Project, I think you were coming in as we were stating our position, and it's just that our position is that on the Full Value Project, when the CAMA system is ready -- we can't do full value until that system is ready. When that system has a state of business operation, which is projected for 2008, what we will do is then present the market values that will be generated that are actual values for the actual homes and would reflect the actual bills eventually that would be computed for a taxpayer so that Council can then change the rate, and hopefully during that -- before that time or during that time, Council can also place in the buffers and work with the legislative body to do that. We will not go to full value if 223 4/18/07 - WHOLE - BILL 070114, ETC. Council and the Administration were working cooperatively with them too, but if there's not going to be legislation that lowers that rate, then we would not go to full value for a practical reason, and that's because we could just not handle the number of appeals. It would implode our system. Also, it would result, in terms of good government, in a sense, in gross unfairness for us to simply say, We'll do that, and then if you don't do what you're supposed to do, that's your problem. This is the Philadelphia government. We're all working together. So we can't do that. And what we recognize is something that Councilman Goode asked us about, is that because of the increase in the market over the past few years, we really haven't caught up. So even though we were at a point where we were at close to the 70 percent, we're no longer close to that point and there are some inequities. And that is our 224 4/18/07 - WHOLE - BILL 070114, ETC. goal, that over the next few years while we're moving to full value, we'll also be moving to correcting those equities and getting everyone on a parity, which is our mandate of equalization. When Council is ready to change the rate, then we know we can do full value. If not, we know we can continue to do our job of assessments and that going to the point of equity is not going to be something that happens overnight, because if it did, well, you know the situation. It would be too much of an increase for most people.
Let me thank you. I believe you. And what you said about us working together, we are all one city, although, as you see, many of us have varying opinions on the issue. But thank you. I think your leadership is positive, that you're trying to do the right thing for our city. And I know the gentleman next to you. Your Executive Director is a jewel, Ricky. We've worked 225 4/18/07 - WHOLE - BILL 070114, ETC. with him for many years. He's been wonderful over the years.
You've been very patient. Thank you. MR. McPHERSON: The next department is the Philadelphia Art Museum.
Thank you very much. Please identify yourself for the record and proceed with your testimony. 226 4/18/07 - WHOLE - BILL 070114, ETC.
Good afternoon. I am Anne d'Harnoncourt, Director and CEO of the Philadelphia Museum of Art, and with me are my colleagues. To my right, Gail Harrity, Chief Operating Officer. To my immediate left, Robert Morrone, Director of Facilities and Operations, and to my far left, Cheryl McClenney-Brooker, Director of External Affairs. It is always an honor to appear before Council President Verna and City Councilmembers to testify on behalf of the Museum. You have the Museum's written testimony, but there are several very important points I'd like to address before my colleague, Gail Harrity, goes through the very quick PowerPoint. So I will not be using visual images. Number one, the historic partnership of this world-class Art Museum encompassing a great diversity of cultures and art forms with the City of Philadelphia which constructed and owns 227 4/18/07 - WHOLE - BILL 070114, ETC. our landmark building, which was opened in 1928. It owns many of our collections, including the Rodan Museum we administer, and since 1928, the City's annual operating support for security and maintenance costs has been and continues to be absolutely crucial to our ability to raise private and foundation funds to accomplish our mission on behalf of the public. The second point I'd like to emphasize -- the first is that historic and terribly important living partnership. The second is that profound educational impact. The most profound impact made by any Art Museum is on the minds and lives of the citizens and its community, especially the young people and school children who pour through our doors in increasing numbers. We have approximately every year between 75,000 and 80,000 school children. And I also want to remind City 228 4/18/07 - WHOLE - BILL 070114, ETC. Council that the Museum's "pay what you wish" policy on Sunday, all day Sundays, guarantee that all Philadelphians, as well as visitors from near and far, have access to the great works of art in our collections, and Sunday is family day at the Museum. And the galleries are full of children, of parents and grandparents, all with dreams that their child will have a chance to be the next Picasso, the next Jacob Lawrence, the next Diego Rivera or the next Georgia O'Keeffe. I would further like to emphasize point three, our longstanding and ongoing partnership with the School District of Philadelphia, and it's all the more important as schools cut back often on the arts even as research proves that interactions with visual arts help children learn faster in other fields. Our education programs reach out to everyone. We had over 202,000 individuals in Fiscal '06 participating in programs for adults, families, teens 229 4/18/07 - WHOLE - BILL 070114, ETC. and children. And in the coming years, we are working -- we're very proud to be working with an array of other institutions and the School District of Philadelphia in a great initiative to have every single fourth grader in Philadelphia public schools involved in a deep way in the arts in many of our partner institutions, and it is called Art Literacy and Museums. We are very thrilled with that program, which we think will be a national model. The fourth point, I need to emphasize the diversity and exciting nature of the exhibitions at the Museum, which not only reach many audiences in our community but attract hundreds of thousands of visitors to Philadelphia every year, with very measurable impact on the City's economic well-being, which my colleague, Gail Harrity, will talk about in just a moment. I remind you of the great Andrew Wyeth retrospective last year, a 230 4/18/07 - WHOLE - BILL 070114, ETC. great local hero respected on a national and international scale; exhibition of Great Art from Latin America, which closed last winter and is now in Mexico City on its way to Los Angeles; an exhibition just about to open devoted to great artists of Japan in the 18th Century; a show that will open later in May of William H.
Johnson, the great African-American modernist and whose collections, great works on paper, this Museum and the City is particularly rich. And next fall we look forward to the landscapes of the great impressionist Renoir and the powerful images of the Mexican modernist heroin Frida Kahlo. The Museum simply cannot organize and mount these exhibitions without the City's basic support of the security and maintenance, which enable us to borrow great works of art from around the world and to raise very substantial sums of money for the exhibition costs. And, finally -- and this is 231 4/18/07 - WHOLE - BILL 070114, ETC. also very exciting and very important -- this is a banner year for the Museum and our public as we open the first extension of our public galleries collection facilities in education resources since 1928 in the City-owned Ruth and Raymond G. Perelman building, beautiful art deco landmark transformed from a private ownership to the public domain, another great addition to the Parkway. It would not have been possible without the City's help, the Mayor's help, this Council's help. Councilmembers are all invited on June 14th to come and see the building without works of art in it, and after Labor Day, the entire public will have that pleasure. In conclusion, I cannot sufficiently express the Museum's devotion to its mission to educate, inspire and attract hundreds of thousands of visitors, both from Philadelphia and all over the world, and the crucial role played by the City, not only in capital 232 4/18/07 - WHOLE - BILL 070114, ETC. support to sustain our 80-year-old building, for which we are very grateful, but in the annual operating support. 25 million that we are operating with this year. And we are thankful to all the members of City Council for their support of that figure in the current year's budget. The two million is less than one-third of the cost of securing and maintaining the City-owned buildings, which we strive so hard to fill with more and more people encountering more and more art. 5 233 4/18/07 - WHOLE - BILL 070114, ETC. million in Fiscal '08. Art museums in cities across the country -- and there are very many -- in city-owned buildings are in the creative and educational partnerships with their cities, as we are with our beloved Philadelphia. Detroit; San Francisco; Brooklyn; Chicago; Newark; Birmingham, Alabama; and Baltimore, to name just a few. Philadelphia's relationship to its Museum over the last almost 80 years has been extraordinarily important for what we are able to contribute to the City. We believe that we are a very wise investment which returns value many times over, and my colleague, again, will speak to that. So we are very proud to play a part in Philadelphia's cultural renaissance. We think it's a powerful engine for social and economic vitality, and I hope that together we can realize Philadelphia's full potential as a mecca 234 4/18/07 - WHOLE - BILL 070114, ETC. for cultural tourism, for education, for improved quality of life for all of its citizens. Thank you very much.
And I would just like to continue. I'm Gail Harrity, the Chief Operating Officer of the Museum, and I welcome the opportunity to present this very brief PowerPoint presentation. Beginning with the Museum's mission, as Anne has so well articulated, the Museum, in partnership with the City, the region and museums around the globe, seeks to preserve, enhance, interpret and extend the reach of our great collections to an increasingly large and increasingly diverse audience. As you know so well, the Museum ranks fourth amongst -- is the fourth largest amongst museums around the nation. It houses nearly 250,000 works of art, attracts 700,000 to a million visitors per year and organizes exceptional international loan 235 4/18/07 - WHOLE - BILL 070114, ETC. exhibitions. Anne has spoken about the Ruth and Raymond G. Perelman building, which we're thrilled will open this year and allow the Museum to bring more art to more people. The view from the Perelman building across the Parkway to the Museum will be the wonderful view for teachers in the Wachovia Education Resource Center, and we will have the ability to transform fabulous spaces to sort of sweeping new galleries to bring more of the collections to the public. The addition on the rear of the building will have a cafe opening into wonderful architectural spaces, most notably here on the left rendering of a sky-lit gallery, which will be the entrance into galleries -- into the collection's galleries. You see on the right the construction as of today. So we really are nearing the completion and getting ready for the City Council, who will be the first to view the completion 236 4/18/07 - WHOLE - BILL 070114, ETC. of the building. But, again, the Perelman building will make the Museum even more of a destination definer for Philadelphia, where, as you know, the tourism industry is our second largest industry and the Museum itself directly generates seven to ten percent of the annual leisure travel visitors to Philadelphia. And thus, the Museum, its collections and its programs have a significant economic impact on the City with its special exhibition programs and with its special collections. We want to thank City Council in particular for supporting last year's Andrew Wyeth exhibition through the City's Productivity Bank. S. It also, through the ripple effect throughout the City, inspired over 23,000 visitors to attend other cultural 237 4/18/07 - WHOLE - BILL 070114, ETC. institutions and historic sites and performing arts programs around the City. 8 million in tax revenues to the City and state were generated over the two-and-a-half-month period of this exhibition. What we hope that the City Council will recognize is that the Museum is good for business. The City's investment in the Museum is an excellent one. For every $1 spent by the Museum, it generates nearly $4 in economic activity for the City and the region. For every one job created by the Museum, nearly eight jobs are created in Philadelphia and Pennsylvania. And I have here on the slide but in the interest of time, I won't go through these numbers specifically, but 238 4/18/07 - WHOLE - BILL 070114, ETC. as you can see, the direct employment is significant for Fiscal '06, creating more than 2,000 jobs, and the indirect employment is also significant, nearly 1,300 full-time equivalent jobs. In Fiscal Year 2006, if one were to look at the Museum's activities in its entirety, you would see that there was over or close to $107 million in direct economic activity. With Museum visitors spending over $46 million on hotels, restaurants, retail, transportation, a vast majority of this was new spending in the region. And, again, the Museum spent over $60 million on payroll, goods, services, including construction costs.
So there's a very significant direct economic impact from the Museum's activities, and the indirect economic impact is also significant, generating an additional $105 million, or almost $40 million from the Museum visitors' spending and over $65 million by the 239 4/18/07 - WHOLE - BILL 070114, ETC. Museum's spending on goods and services. If we were to summarize those last two slides, you would see that overall for Fiscal '06, including the Wyeth exhibition, the economic impact generated by the Museum's visitors and secondary industries generated $212 million in total economic activity in the City and region, over 3,300 full-time equivalent jobs and over $12 million in tax revenues to Philadelphia and the Commonwealth. 5 million of operating support for Fiscal '08, which would be our hope would be the first step towards a multi-year restoration of City support to fund 100 percent of the security and maintenance costs of the City's great Art Museum. Thank you very much.
Thank 240 4/18/07 - WHOLE - BILL 070114, ETC. you. Is anyone else going to testify? (No response.)
When did you find out that the Administration had cut your budget?
About two months ago, I believe. I believe it was when we received -- when the budget information was circulated.
Ms. Reed, can you approach the table, please. Ms. Reed, the Administration during the hearing on the cultural and commercial corridor borrowing praised the Art Museum as a major economic engine for the City and the region. Can you tell us why you are cutting their budget?
Dianne Reed, Budget Director. We had a Five-Year Plan to balance. We cut back the Art Museum, 241 4/18/07 - WHOLE - BILL 070114, ETC. along with other entities that received increases in '07, in order to meet the fund balance requirements we had through Fiscal '12.
Well, if we don't give them the proper funding that they need to operate it, who will?
The City is also providing $30 million of capital support to the Art Museum, which has a $500 million fundraising campaign. They have the top-tier contributors in the region providing support to them. Of all the entities that we fund, the Art Museum is in the best position to fund some of its own costs out of its other sources.
Well, that's our jewel. I mean, I don't understand.
I should also add 242 4/18/07 - WHOLE - BILL 070114, ETC. that we are granting them another Productivity Bank loan this year for an upcoming exhibit in the fall, which is worth about the same amount that they were decreased this year, and that is not a loan that has to be repaid. We accept the fact that the City will receive revenue from this investment through the level of economic activity that Museum officials have described.
Since the Museum will be opening a new facility this fall, why hasn't additional funding been included in the Five-Year Plan for the operating expenses?
I don't think we received a specific request for that. We did? Okay. We did. Because we needed to balance the Plan. 243 4/18/07 - WHOLE - BILL 070114, ETC. Now, we're going to take out $50 million of wage tax in Fiscal '11 and another 50 million in Fiscal '12, for a total of 150 million. This year we're going to take out twelve and a half million. So we're greatly increasing -- or decreasing the City's ability to fund programs in those out years with those very high tax cuts. So there have been all kinds of choices made, and we have to stay within those constraints and still produce a $45 million fund balance Fiscal '09, '10, '11 and '12.
I hate to keep interrupting you, but I just get so annoyed. During the period that we were talking about borrowing this money -- I'm sorry if I annoy you.
Oh, thank you. -- (continued) no one, no one from the Administration ever said that we were going to be facing this financial crisis. Everything was beautiful. When 244 4/18/07 - WHOLE - BILL 070114, ETC. you testified, there was not one word that was said about how we were going to be facing this crisis during this budget hearing and yet we went forward with another bond deal. So how do you explain that to us now? And we're cutting the Art Museum, who we were told, Oh, they're the jewel, they're the major economic engine, but today we're cutting them. Now, I'll tell you, I guess I sound frustrated at times and I guess I sit here too long during the day, but it just is unbelievable to me that in a matter of a couple months -- we talk about Vallas? I think you fall into the same category, hon. When you want something, everything is beautiful, everything is beautiful. I think this is a disgrace.
The tax cuts that will occur in -- wage tax cuts that will occur in the out years have never been supported by the Administration. That's one thing. 245 4/18/07 - WHOLE - BILL 070114, ETC. The second thing is that the borrowing is for the purpose of economic stimulus. I would say the City has no 5 other way to provide any economic stimulus given how constrained the Plan is, so that you have a leverage situation where we have debt service under $9 million and we will be increasing all of these institutions' abilities to provide economic benefit to the City. I think it was an extraordinary step, like NTI. So that that is a completely different kind of effect than a marginal cut to the operating support for the Art Museum, which, again, is not something that the Administration is doing lightly. It's falling on all kinds of departments and entities pretty much equally, except, as we've said, for the courts, the prisons and uniform positions.
Mr. Greenlee, maybe you see things differently than I do.
Council 246 4/18/07 - WHOLE - BILL 070114, ETC. President, I certainly agree with your comments. I'll leave it at that. The Art Museum is a great benefit to the City. I just wanted to go on record as somebody who is a nearby neighbor of the Museum, just first thank you for all the cooperation you gave our community when you were doing the Perelman building. I'm sure you remember, as I do, the first meeting that was not that friendly for some people. There were people reading poems. There were people protesting. I thought we were bringing Delilah's Den in there instead of the Perelman building. But it worked out. And I certainly want to mention George Ross, who was the point person all those times. I've talked to him many, many times. Most of it was friendly conversations. And I'm looking forward and I'm sure Councilman Clarke, who worked so closely on this, and all the Councilmembers, are looking forward to 247 4/18/07 - WHOLE - BILL 070114, ETC. the opening of the Perelman building, and I'm also looking forward to those fences coming down so we can park there, too. I got to sneak that one in there. Just one other question. The work you're doing for the parking, how is that coming along? What's your time frame there?
This is the Museum's landscape parking garage and sculpture garden, which began at the beginning of this year, in January, and it is a two-year project, so we hope that it will be completed in the spring of 2009. The work thus far has gone well. As you know, this is an entirely privately funded project, and we're very excited about its opening, in that it will provide over approximately 440 parking spaces for the Museum and it will also significantly enhance that part of Fairmount Park given that the top of the garage will be a wonderful new sculpture 248 4/18/07 - WHOLE - BILL 070114, ETC. garden with fabulous views of the Schuylkill River, the Boathouse and the Azalea Garden, Water Works and the like. It's going very well.
Great. It certainly will be a positive addition, and, once again, I appreciate the cooperation with the Fairmount community and the other communities that are right around there. Lastly, your membership, how is it? Does it continue to increase, I hope? I say that as a member. I think I renewed my membership.
Terrific. I said we've been very encouraged by the growth of membership over the last five years. It varies on a monthly basis. It's over 50,000 members at this point, and we continue to strive to see future growth, but if you look over the last five to ten years, it's more than doubled.
That's true. I just, again, repeat what the 249 4/18/07 - WHOLE - BILL 070114, ETC. Council President said, when things benefit the City, we should recognize that, I think. I'll leave it at that. Thank you, Madam President.
You're welcome. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I certainly agree again with your statements. It appears that as mural arts, Mr. Donatucci at the Register of Wills, whenever people work hard and raise extra money, then they're somehow penalized and not congratulated and supported. And I agree with you, it's not fair that this is such an important, important asset to our City that they not be supported in the way that they should. Thank you very much.