Thank you, Madam Chair. This is -- has been quite interesting. My only question actually with regard to Cardone actually does not directly involve this particular TIF, but I'm trying to piece together some information, making no allegations. But is Cardone either presently or at the new location, is part of their property adjacent to a piece of Fairmount Park property, or are they possibly in the process of receiving a piece of Fairmount Park property as a part of the 45 5/26/99 COM. OF WHOLE - 990249 sale or lease or something like that? I have some bits and pieces of information.
On their Rising Sun property, they abut Penny Pack Park, and there is a transaction that's being negotiated between Fairmount Park and Cardone where Cardone -- (Mr. Fina confers with Cardone representatives present.)
That's correct, Councilman, that Cardone possibly may receive Fairmount Park property and will give up other property.
All right. So it's just kind of a swap transaction going on? Is that the new site or --
No, that's at the site that is not subject to this TIF or the TIF we propose to have the public hearing on next Wednesday.
It's a part of that transaction, the Ashton? 46 5/26/99 COM. OF WHOLE - 990249
So it's just another piece of Fairmount property somewhere.
It's property near Fairmount Park that's PHA, sir. It's not Fairmount Park. They did talk about Fairmount Park at one time, your recollection's correct.
All right, so it's a PHA piece or property. They may get that in their inventory, they may swap out a piece of their --
Okay, but it's not a piece of the park system. 47 5/26/99 COM. OF WHOLE - 990249
All right, all right. I'm done with that. Thank you for the clarification. Madam Chair, I recall the request by Councilman Cohen with regard to the separation of the two bills but that was my only question about Cardone.
Well, if you don't mind, I think you're going to have to wait on the other. Do you have any other questions?
I don't have any more Cardone questions; I'd just like to go back to St. James. The wheel has passed me three times.
Thank you, Madam President. I'd like to say that Cardone is in my 48 5/26/99 COM. OF WHOLE - 990249 district on the Rising Sun Avenue property. My tenure -- and I just became their representative in 1995. Since that time, I have not received any complaints or concerns raised that Councilman Cohen has raised. If I had, I would have raised those issues with Cardone as well as PIDC. They have been very good neighbors and have stayed in Philadelphia and do employ a number of people in the city of Philadelphia. And so I'd like to say that as the District Council person, I have not received any complaints, or no one raised any concerns. But if that does happen, certainly we can have a conversation with them. They've been cooperative.
Thank you very much. Councilman Rizzo, do you have a question on the Whittaker issue? Thank you.
Likewise, I've had nothing but good experiences with Cardone Industries. And I want to on the record let you know that there are many suburban communities that have tried desperately to get Cardone to relocate 49 5/26/99 COM. OF WHOLE - 990253 to Bucks, to Chester, to Montgomery County, and they feel an obligation to the city of Philadelphia and work very, very hard to be a good neighbor, and I just wanted that to be a part of the record.
Thank you. Are there any other questions regarding Whitaker TIF. (No further questions.)
Hearing none, the Chair recognizes Councilman Nutter concerning the St. James Court TIF.
Thank you. I know this is risky going back into this issue, but just some facts, Mr. Fina. The proposed TIF note still remains at $7 million, the only change is the developer' equity or other investors upwards of $21 million; is that correct?
And the $7 million, is it my recollection either from the first time we did this or from Monday that the term of this 50 5/26/99 COM. OF WHOLE - 990253 TIF district -- is this the 12-year one?
Okay. The $7 million in TIF revenue are essentially revenues that we would forego as a part of the TIF process. That's $7 million over the life of the TIF term?
Well, that's the face amount of the notes, sir. What we've done is, we've calculated the number substantially higher. Like in any mortgage loan you pay on your house that you may have a mortgage for 7 million, but --
So would it be appropriate to say that the net present value of that is $1.7 million.
The net present 51 5/26/99 COM. OF WHOLE - 990253 value is $7 million, but if we take that $20 million over the users, it's approximately 4 $1.74 million a year. 5
It's actually not 8 my math. It's great having this PECO Energy 9 calculator with the solar, it's wonderful. But it 10 does make you look mathematically smart. 11 The economic analysis on the one here that we received, line item 4, you have on this -- and it's probably kind of preprogrammed into the computer -- the City, the School District and the TIF note, we talk about what the -- these are the dollars that come back either to the City, the School District, or to fund the TIF note. Oh, I see now where you got the $20 million figure from on the TIF note. You have that listed as a 20-year sum in thousands because most of our TIFs are actually 20 years.
With the exception of this TIF, yes, all others are 20 years, and we try to give you consistent data so that you have 52 5/26/99 COM. OF WHOLE - 990253 comparisons with the other TIFs that you've approved.
I understand that. 5 Well, I mean the consistency of the data, 6 therefore, confuses us now that we have one that's 7 only 12 years. And that's a joke, by the way. 8 So the return, based on the amendment 9 to the City on your 20-year sum figure, do I read 10 that correctly to be over 20 years, $14,235,000? 11
And what is the 13 number, or would you take that number and divide 14 it by 20 and then multiply it by 12 to get the 12-year return?
And that's without my 53 5/26/99 COM. OF WHOLE - 990253 calculator, however.
Well, you're, you know, you're at PIDC, you're supposed to know these things off the top of your head. And that gets you a return of $700,000.
To the City and whatever the figure is to the School District. Is it fair to say that the $1.7-million-a-year benefit to the developer for the 12-year life of the TIF, we figured out that it's a $20 million cost, and then we backed it out to 1.7 a year. That's 700,000 coming to the City, probably another 600,000 or so -- 500, 600,000 going to the School District.
And then the TIF note itself being repaid. Is it fairly accurate to say that the tax revenue generated back both to the City, the School District and to cover the TIF note is more than what the annual benefit is to the developer? 54 5/26/99 COM. OF WHOLE - 990253
I think that's fair to say. I think you're also making a good point that the City and the School District receive together more funds than the -- pays the TIF note than if this project not developed. In other words, the City and the School District should get substantially more dollars annually over the course of the TIF than ever goes into the TIF note and substantially more than they're receiving now for this vacant, blighting property.
So at the end of the day, notwithstanding the $7 million and the $20 million life value over the life of the term of the TIF, would your testimony be that when this transaction is completed, the City does in fact make back what it gave up, plus some?
The TIF note represents 8.4 percent of the total proposed amended amount of $83.5 million, which, in comparison to -- now is this -- St. James is a part of the 14 -- technically a part of the 14 TIFs that we've already passed.
My recollection is that million out of 83, 8.4 percent might be 7 somewhat lower than some of the others that we've done; is that right?
For the time, the effort, and any of the activity here for today, I mean, why does the developer -- or what's the benefit to the developer to get a $7 million TIF note from the City, 8.4 percent of his total project costs for a project that's $83.5 million? When all is said and done, what's the benefit?
If I could explain it in colloquial terms, that in effect is the profit. Without the TIF note, the developer would not make any money by the numbers we've run; and, therefore, the developer has said that it would not initiate the project. And this is not the first developer. The developer prior to this had also said the same.
Right. And without 56 5/26/99 COM. OF WHOLE - 990253 the TIF note, I guess the person could go and try to find another $7 million from somewhere, a bank, another group of investors, and the like, but I think what I'm hearing from you earlier is that the person is probably either maxed out or the numbers don't work to make the transaction economically viable.
The numbers do not work to make the transaction economically viable without the TIF note. We are convinced of that at PIDC.
Okay. So we've got a relatively low TIF amount going into this project.
We've got returns in terms of taxes over the same 12-year period that exceed the annual benefit to the developer.
If the person was able to go out and find the $7 million, I mean, would your testimony be, if they were somehow able to do so that and still figure out a way to build this, to get to the other issue that was raised -- I mean, ultimately, the person might just have to 57 5/26/99 COM. OF WHOLE - 990253 raise rents to make the project work and potentially raise them at a rate that the market wouldn't support, even at Eighth and Walnut?
Our belief is that the market would not support them anywhere in Center City or Philadelphia and, therefore, this probably would not be competitive without the TIF -- with other projects in Montgomery, Bucks, Delaware County, over in New Jersey. So this particular resident of the city of Philadelphia who has traditionally fled the city would not come into the city of Philadelphia and be a resident here and pay numerous taxes.
What's your basis of information on apartments in Montgomery, Bucks, Delaware, and Chester that rent is in the range of $1,000 to $4,000 a month?
No. I'm saying, is there any general information around about --
Cushman & Wakefield and most of the -- and I use that name not for any particular reason, but it just came to mind. But 58 5/26/99 COM. OF WHOLE - 990253 most of the large real estate firms have annual statistical information on residential vacancies, rents, and growth in the five-county area that I have reviewed numerous times and seen that the city of Philadelphia is at an extreme disadvantage. Although occupancy is high, the market does not support --
Do they have many places that have rents in these ranges?
Oh, yes, yeah. There are -- Bucks County, portions of Montgomery have very high rents.
Okay. I mean, it just seems -- I mean, you know. . . I'm not anticipating to ever be in a position to pay $4,000 a month in rent. It would just seem to me that if you were doing that, I mean I guess I could see it certainly happening in Center City. But as you move out, I mean, if you're spending that kind of money, I mean I guess I don't know why you're not in a -- it would probably be an 59 5/26/99 COM. OF WHOLE - 990253 insult to call a place like that's paying that kind of mortgage "a house"; it would be more like a mansion or something like that. But I mean, you know, people can do whatever it is they want to do.
That's correct and it has to do with maybe an individual's personal tax status.
If they're not looking to own, they don't need that tax advantage.
But they do want to rent so they'll rent at the most economical dollar figure they can find that gives them the amenities that they desire.
Sure. So finally, what the real estate market is telling us, though, is that there is high demand for this kind of a unit in Center City. You're testimony is, without some assistance, the project doesn't get built. The numbers work at the end of the day not only for the developer but allow us to get repayment for what we are foregoing because we are not 60 5/26/99 COM. OF WHOLE - 990253 giving them any money; we are foregoing what would naturally come to us if the project were to happen. And when you do the numbers on the project, we get back more than what we have given up.
That's correct, Councilman. One calculation which we did not make and we could not make 'cause we weren't sure, but the residents of this apartment building, many of them will move from the city who work outside the city or are on fixed incomes and are not considered wage, but they will be paying taxes to the city of Philadelphia that they're currently not paying. We do not add that as an additional number; we just have an intuitive sense that there will be additional funds.
But we would not want to risk, without having the statistics to support that, to bring that figure to you.
Mr. Fina, as I was sitting here, it occurred to me that if we 61 5/26/99 COM. OF WHOLE - 990253 did not consider this TIF, the developer would have been eligible for a five-year abatement, so if he had --
So aren't we like leveling the playing field here so to speak?
We are trying to be as consistent with the ten-year tax abatement for Class B office space that exists today that is motivating investors to put money into those properties and for renters to come in and rent those properties on an economic basis. But, again, it's an incentive. So that ten years from completion that exist for a Class B office building from the second floor up is equal to the 12-year we have when you consider construction. In fact, this TIF began -- we're not asking to change -- date January 1, 1999, so the TIF is already running, and we're almost six months into it. So if you approve this in three weeks, 62 5/26/99 COM. OF WHOLE - 990253 it will be, in effect, an 11.5 year TIF. And at that point, construction hasn't even begun so the developer is getting very close to the economic threshold for this project.
Thank you. The Chair recognizes Councilman DiCicco.
Thank you, Madam President. I just actually got into the conversation I was going to get into about the ten-year conversion bill that Council passed about a year and a half ago, but there are just two other points. One is, we keep speaking to people who will be coming in and why would anyone want to pay $1,000, $4,000 a month for rent. We're assuming that these people were renting someplace else. In most cases, and there is a report that I will hand out to all of Council shortly, you will find that many of these people are what we refer to as "the empty nesters." These are people who live in suburbia in the four-, five-, six-bedroom mansions or, you know, very expensive 63 5/26/99 COM. OF WHOLE - 990253 houses, who are making a decision to move into the City because they no longer need that house. Their children have moved away, and they want to be close to the arts, the entertainment, and all the cultural things that the city has to offer. And in that same report, and this has been discussed from time to time in various news articles about the growth in Center City and how attractive it is. For every wage-earner who earns $35,000 a year, as a example, $26,000 is put back into the local economy, and that is not a part of the calculation here. So when we get 270 units that will be occupied by one or more people, based on whatever their income is, if you took that $35,000, and if they were making -- their cumulative income was $350,000, you multiply the 26,000 by 10, each household or resident who occupies a unit will be putting in almost a quarter of the million dollars back into the local economy. So I think those are numbers that we never have -- we don't factor in for whatever reason, but I think we should take into consideration when we consider doing these TIFs, 64 5/26/99 COM. OF WHOLE - 990253 which do give a developer an incentive to do because developers, like all of us, they would like to have a return on their dollars. But I don't want to look at it -- and I think this has been said time and time again -- as a giveaway. We are trying to do everything we can as a city to attract people to come in to live so that we can support all of the other services we would like to do for folks who don't have the wherewithal to do some of the things that the rest of us have. And without that growth, we're going to be a city that will continue to lose its population. Thank you, Madam President.
Thank you. The Chair recognizes Councilman Cohen.
Mr. Fina, how much would the apartments have to be raised in rentals for the developer to achieve the same profit that he may intend to make as a result of this TIF arrangement?
If you recall my earlier calculation that I did, I took the total revenue to the TIF fund, divided it by 270 units, divided 65 5/26/99 COM. OF WHOLE - 990253 that by the years. On an annual basis, there would be approximately $6500 of additional rent income, or about $600 or $550 a month that the developer would have to charge the tenant to come in to this. Two other developers have tried to do that calculation as well as this developer without public assistance 'cause, as you can note, there's a bit of controversy many times about public assistance, and they'd rather just proceed without that. But they could not "make the numbers work," as we say in the business. We could not pencil out the project without this assistance. If you start spending $1500 to $1600 a month to $4500 to $4600 a month, in that range, it makes us not competitive with other locations. It makes that empty-nester not willing to come into the city. There's a great risk to the developers taking on this project. He's risking all that first mortgage debt that he must repay if this fails. If he cannot encourage those residents to come into the city, if we cannot encourage those folks to come into the city, this developer could 66 5/26/99 COM. OF WHOLE - 990253 go bankrupt on this project. We would only be obligated to pay the TIF note to the extent that taxes are paid on this project. If they are not paid, we are not obligated to pay anything. And it's the developer, with 60-some million dollars of first mortgage debt in equity that is taking a huge risk to do this project. Other developers from inside the city and outside the city have looked at this, tried to make it work, and have said it doesn't work. This is a very risky project, Councilman, and I am certain that without public assistance, that it won't even be attempted for some time.
Well, I think what you say makes a plausible argument, but I think equally plausible and more persuasive to me is the argument that these people with an income sufficient to pay those kinds of rents and with the desire to move into Philadelphia would be coming into Philadelphia. My objection is not to the people coming in; my objection is to giving them public money because they would, in my opinion, qualify 67 5/26/99 COM. OF WHOLE - 990253 least to become beneficiaries of public funding. That's the question that I'm raising. I don't know, you know, how accurate your figures are but, you know, assuming the accuracy of your estimate, it seems to me that the people who are coming in have the financial ability to pay that increased figure if that's necessary -- particularly in a market that has no 10 vacancies basically, there's great demand, there isn't enough supply. I think these people would be coming into Philadelphia because of the desirability of living here but. . .
I don't think we can, at this basis, get a definitive answer, but I don't think public funds are intended to be used for that purpose, and that's why on this matter, I will be voting no because I don't think it's a proper use of public funding. Madam Chair, I'd like to go back, if I may, to the Whittaker TIF with a series of questions.
Oh, now, 68 5/26/99 COM. OF WHOLE - 990253 you're not being very fair.
Yes, I would like to. On the Whittaker TIF, on of your statement. . .
Yes, on the project plan. On , you say part of the additional $7 million in additional public funding is going to come from Philadelphia Economic Stimulus Program. Doesn't that mean the money is coming from the City General Fund?
Councilman, what I said earlier today is that a maximum of $1 million would come from the Economic Stimulus Program. I clarified that. The remainder would come from State programs. So one million --
Let me ask you this hypothetical question. As I understand it, this 69 5/26/99 COM. OF WHOLE - 990253 $15 million of public funding going into the Whittaker project, including both the TIF and what you describe as additional public funding as yet not fully determined. Suppose this money were used to provide, say -- I hope my arithmetic is right -- 3,000 awards of $5,000 each to working-class Philadelphians to make first-time home purchases. What would be the economic benefit of that? Suppose we --
Councilman, there's a real critical issue here -- that unless the dollars come from the project, unless the project is built, there are -- we do not have all those other dollars. We cannot get the State to put money into the program you say unless the legislature of the State decides to do that. We have economic development programs that respond to jobs for a specific business. So maybe you could talk about that for the $1 million, and you could certainly take that up with the Administration, I'm sure they'll entertain a letter from you to that effect. But nevertheless, the balance of the dollars are geared from programs that have been 70 5/26/99 COM. OF WHOLE - 990253 approved by this City Council and by the State legislature to do economic development projects that create new jobs. That's what we're creating. We're creating jobs for blue-collar workers in the city of Philadelphia which have been disappearing for the last 30 years. In fact, you've been critical that we should be focussed more on creating those blue-collar jobs in other sessions of City Council. We're responding to your criticisms and your demands.
Well, you're saying that absent a State program that -- you're saying that State funds are essential for the development of this kind of TIF funding.
Not necessarily for this TIF funding. State funds are to reduce the TIF we would be requesting here and reduce the amount of other public funds we would be requesting to retain Cardone in the city of Philadelphia. They can do this expansion, they have other locations in the United States and Canada where they do the work they're doing now. And, Councilman, earlier today -- 71 5/26/99 COM. OF WHOLE - 990253
Well, I'm asking about the comparison of economic value to the city of making this loan to Cardone as against increasing first-time home ownership, say, by 3,000.
Councilman, we have shown you statistics and I've quoted here the amount of money that inures to the School District and to the City from this project being created is enormous over the years and even larger beyond 12 that. 13 You have the ability to pose 14 legislation anytime you wish for another type 15 program from funds from the General Fund. This 16 doesn't prohibit you from doing this. This, in 17 fact, creates dollars into the General Fund by 18 doing this TIF project. We are generating more 19 dollars into the City's General Fund than if we 20 don't do this project.
No, but I think we generate much more money from the City's General Fund if public monies were used for the purpose of encouraging first-time home ownership, and that the use of $15 million for a different purpose 72 5/26/99 COM. OF WHOLE - 990253 would engender greater income.
That may be an interesting program, and I don't have the expertise, again, to comment on it. But, certainly, I cannot tell the State or what you've approved for economic development purposes and --
And, again, I want to repeat, sir, I am responding to your criticisms that we need to create more blue-collars jobs in the city of Philadelphia, in the neighborhoods. These are neighborhood projects that are creating these types of jobs, and I thought you would be pleased.
Well, if it weren't Cardone, I might very well be pleased, but from everything I know about that company, I don't share the other optimistic expressions about the company. I understand you require an economic opportunity plan whenever such a loan is made; is that right?
In consultation with City 73 5/26/99 COM. OF WHOLE - 990253 Council and City Council staff, that is a requirement of the beneficiary, developer, or the business to prepare an economic opportunities plan that is acceptable to City Council staff and, therefore, I assume acceptable to City Council and certainly the President's Office.
That plan is in negotiations between Cardone Industries and City Council staff. Cardone Industries has called for meetings and advised City Council staff of what they're doing. City Council staff has advised me that they're in negotiations, things are going well, and that there isn't a problem.
I'm a member and have been a member of this City Council for quite a while; I never remember getting any report. Is there such a thing, Madam President? Can we have made available to us whatever may exist?
I don't like to name members of City Council staff without their permission so, I mean, there is negotiations going and that person of City Council has those plans. 74 5/26/99 COM. OF WHOLE - 990253
Are you talking about, Miss Hamilton? Miss Hamilton, is that who you've been working with?
I will see to it that she gives us a copy of her report.
All right. How -- how does PIDC conclude that this -- let's assume that what you've said is sound and that this company economically would be justified if it had the funds to invest the funds in this expansion. How do you conclude that this kind of an expansion would not take place save for this TIF financing? In other words, suppose I'm a businessman and I know that a TIF financing is available. It's in my interest to use it. If I didn't have it available, I could go ahead and use other funding. How do you conclude that the TIF financing is what makes the project feasible and that the absence of it would prevent the expansion from taking place? 75 5/26/99 COM. OF WHOLE - 990253
Councilman, you raised the same philosophical argument that's been raised many times that but for the economic development incentives, would this project occur? We do a lot of financial analysis and we do a lot of negotiating with the business, and we've come to the conclusion that but for these dollars, this project would not proceed. The developer would not do it. We know they have locations that do the very same thing they're proposing here -- in California in, Montebello, California, and I may misstate that, but in Massassaqua (ph.), Canada that they could do this there, and they're offering incentives. A Councilman earlier said that he's aware of contacts, and we are aware of two, of counties in southern states to entice Cardone to go there. So it's kind of a locational "but-for." If we can't provide them economic assistance, they will do their project someplace else that will provide economic systems.
Much like the PNC Bank 76 5/26/99 COM. OF WHOLE - 990253 operation center, the first TIF that you approved, did. We were in negotiations with that business to make certain they would not go to New Jersey and keep those jobs here. That's what that first TIF did.
And it's been expanding in other development that has occurred around it. That's what we're hoping for, Councilman.
But that kind of competition underlies the fact that there is no 14 economic need for this funding, but what does exist is that, apparently, various business groups have put governments in a bind so that governments compete against each other and offer the money, when actually, the money is not needed except to compete with other states' offerings or other cities' offerings.
Councilman, that's a national debate that's going on. PIDC contends that we do an economic analysis on every project which we fund and that we approve, that for but for that project, it will not be funded. 77 5/26/99 COM. OF WHOLE - 990253
You have that. We show the benefits that occur, the costs that are involved, the sources of funds that are provided, and we make a subjective determination that the public funding is needed, as we've done in every economic transaction all 4,000 for --
Councilman, you have a copy of that in the project plan.
Well, I didn't find that to be the kind of plan I was talking about, a kind of analysis.
He set forth all the arguments as to why they were doing it.
But, again, it's very subjective when it gets down to the analysis and we look at the locational but-for argument. We 78 5/26/99 COM. OF WHOLE - 990253 know they can move elsewhere, Councilman. They're ready to expand.
Well, I will say that I do not -- that may be the plan, as you see it, but I don't regard that as an economic analysis showing anything other than we're competing with another governmental body -- not that there is an economic need for this grant of money. And I congratulate business on its success in putting government bodies in this competitive position with each other, each offering more and more public monies to them.
Let's take your assumption. That is correct, we are keeping this business here, we are growing this business here, we are creating new jobs and more taxes for the city of Philadelphia. They are worthy goals that this Council has in the past supported and I think continues to support.
Well, I'd like to 79 5/26/99 COM. OF WHOLE - 990253 see those results. We haven't been seeing them on jobs. Now, is there a contract worked out with the company? Suppose the company does not meet the obligations of 500 jobs, what happens?
For every job they do not create of the 500, by 1/500th. So if they only created 250 net new jobs in the city, they would only get 50 percent of the TIF revenue that we proposed in this project plan.
Now, is there a written-out plan that provides for this?
There's a TIF agreement that's entered into by the City, by the School District, by the developer, by PAID, by the lender that will stipulate that language, yes, and that will be done.
No. This has not been drafted yet, sir; you haven't approved the 80 5/26/99 COM. OF WHOLE - 990253 legislation.
Yeah, well, it's -- we have forms of that agreement and we have a project plan that spells that out, and we have an amendment to the project plan that spells that out.
This a law that we must comply with. We can't put this in this law that you are passing and then disregarded; we would be in violation of law.
Well, that wouldn't be the first time that government agencies are in violation of law were that to occur. But do you have a form draft that we would get?
Because in this 81 5/26/99 COM. OF WHOLE - 990253 term, in this analysis as to whether jobs have been created or not, there's an awful lot of weasel room, and I'm interested in a program that would be able to show objectively -- and if it did, it would be for the first time, in my judgment -- whether or not there was an actual increase in the number of jobs.
Maybe you could get a convert if you could ever show that there's actually an increase in the number of jobs that --
Councilman, this is the first TIF that we were providing this language in. This is the first time that --
And, Councilman, excuse me. If you look at the plan, it's on , Section G. Councilman Cohen?
. . . Is that attached to the St. James? 82 5/26/99 COM. OF WHOLE - 990253