Committee Hearing, May 18, 2004

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING - COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, May 18, 2004, 1:00 p.m. - - - Bill Numbers 040255, 040257, 040258, 040261, 040313, 040009, 040010. 04011, 04012, 04013, 04014, 04015, 04016, 04017, 04018, 04019, 04020, 04021, 04022, 040256, 040421, 040422, 040423, 040259, 040260, 040262. Resolution No. 040276. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DAVID COHEN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN JUAN F. RAMOS COUNCILMAN FRANK RIZZO COUNCILMAN FRANK DI CICCO COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILMAN DARRELL L. CLARKE COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN BRIAN J. O'NEILL - - - 2 Whole - Bills 040255, et al - 5/18/04 P R O C E E D I N G S - - -

Good afternoon, everyone. This is the continued public hearing of the Committee of the Whole. Mr. McPherson will please read the bill numbers. MR. McPHERSON: 040255, 040257, 040258, 040261, 040313, 040009, 040010. 04011, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 040256, 040421, 422, 423, 040259, 260, 040262 and Resolution 040276.

Thank you. Our first witness. MR. McPHERSON: The Greater Philadelphia Chamber of Commerce. GOVERNOR SCHWEIKER: Thank you, Madam President. Given continued commentary... First let me introduce... On my right is the Chairman of the Chamber, Bill Sasso; my left is Judy von Seldeneck, a member of the Executive Committee of the Chamber; and just on Bill's right is Joe Mahoney, the 3 Whole - Bills 040255, et al - 5/18/04 Executive Vice President of our organization.

Welcome. GOVERNOR SCHWEIKER: So thank you so much for the opportunity to visit and to complete our testimony.

Identify yourself. GOVERNOR SCHWEIKER: For the record, I'm Mark Schweiker, the President and CEO of the Greater Philadelphia Chamber of Commerce. I might mention before we begin that, as you well know, we were here Monday of last week, as well as Wednesday, and because of a variety of circumstances were unable to finish our testimony. So on behalf of 6,000 members, let me acknowledge the opportunity that you extend to us to complete our testimony. And given the continued commentary concerning the position of the Greater Philadelphia Chamber of Commerce surrounding the tax reform debate, it is 4 Whole - Bills 040255, et al - 5/18/04 important to set the record straight on the Chamber's position. Last week my remarks were focused on the City budget, and your responsibility as elected officials to pass a balanced budget that does not weaken key elements of the City economy. Today I'm here to clarify the Chamber's position on the tax bills before you. On Monday, May 10th, we submitted for the record our position on tax bills. You have that. That was provided to you Monday of last week. And I might add, in terms of approach, that testimony was to be delivered by Joe. And if I may, I'd like to read it for the record. Moving down to... I come before you today to offer testimony in support of City Council bills 040009 through 040021, inclusive. As you know, the Greater Philadelphia Chamber of Commerce represents 5 Whole - Bills 040255, et al - 5/18/04 over 5,500 businesses in the region. As such, our primary reason for existence is to ensure that this region is a place where businesses will choose to locate, thereby providing jobs, tax revenues, and enhance the overall economic well being of this region. As you are aware, Tax Bills 040009 through would implement the 11 recommendations of Tax Reform Commission. 12 The Chamber has been supportive of 13 the Tax Reform Commission from the very 14 beginning. We testified before the 15 Committee on Law and Government in support 16 of Bill 020255 and a Resolution known as 17 020264 which created the Tax Reform 18 Commission here in the City. 19 We then appointed Andrew VandenBrul 20 as the Chamber's official designee to the 21 15-member Commission. The Chamber has testified on three previous occasions also, publicly supporting the findings of the Tax Reform Commission, in addition to having a letter 6 Whole - Bills 040255, et al - 5/18/04 from our CEO Council for Growth hand-delivered to the Mayor and every member of City Council. At this point I'd like to congratulate the Commission for their outstanding work over the summer, and for working to come up with a plan for meaningful tax reform, I might add a plan the Mayor himself deemed a blueprint for tax reform in the City. The Chamber has always pushed for tax reform that is fiscally responsible and would in no way bankrupt the City. What you have before you in the way of the aforementioned bills is a fiscally responsible package, provided that the savings realized in this plan is used to offset tax reform and not to plug other budget holes. I believe there is little dispute that these recommendations will lead to a more competitive Philadelphia. Now, you've already been barraged with the statistics highlighting the large 7 Whole - Bills 040255, et al - 5/18/04 number of people and jobs who have left the City since the '70s. I don't think anyone questions those facts. The reason we are here today is to stem the loss and work to reverse the trend. Meaningful tax reform is probably the best way to do just that. Yes, we were pleased to hear that the Mayor plans to continue to reduce the onerous wage and gross receipts taxes, but believe the cuts could be more substantial.

And pushing the effective date for the wage tax incremental reduction to January 1 of 2005 instead of July 1 of this year reflects an actual net increase, as does the proposal to change the Mariano bill, so that the ceiling above which property tax revenue growth would have to be used for wage tax reduction would go from two to four percent. These two proposals are not real tax reform but, rather, tax shifting. As stated in my previous testimony before this body, the Chamber supports 8 Whole - Bills 040255, et al - 5/18/04 business intensive measures which bring people and revenue to the City. Conversely, we do not support measures that drive them away from the City, like extraordinarily high taxes. We think there are many prudent choices to be made by this Council, and tax reform must be included in those choices if the region is to thrive. Having said that, the Chamber also believes in right-sizing government, asset sales, and a more strident approach to the collection of taxes and fines to help pay for tax reform. One of the findings of the Tax Reform Commission is that if the City increased collections by just one percent, the City could realize $20 million in revenue, much more than needed to fund the first year of tax reform. I congratulate you on hearing all of the tax bills and not just a select few. Again, I would urge you to give careful consideration to implementing the 9 Whole - Bills 040255, et al - 5/18/04 recommendations of the Tax Reform Commission. The Tax Reform Commission has done their job. And now, as we all know, it is time for the next step. Thank you for this opportunity.

Thank you very much. Are there any questions or comments from members of the Committee? GOVERNOR SCHWEIKER: Madam Chair, let me finish right here.

Oh, I'm so sorry. I thought you were finished. GOVERNOR SCHWEIKER: An important note. You will note that we indicate that the package of bills is deemed to be fiscally responsible, and that we support passage of fiscally responsible tax reform. Make no mistake. The Greater Philadelphia Chamber of Commerce fully supports the work of the Tax Reform Commission. And as I've already mentioned, we 10 Whole - Bills 040255, et al - 5/18/04 have testified on numerous occasions in support of their body of work. The Greater Philadelphia Chamber of Commerce believes that the bills introduced in City Council represent a blueprint for a more competitive and economically vibrant Philadelphia, one that will be attractive to both businesses and residents alike. The Greater Philadelphia Chamber of Commerce believes that Philadelphia City Council has a responsibility to vote on all 13 bills this year. Now, while we have reservations on the land value tax, we believe that the other bills are important pieces of a competitive tax puzzle. We recommend that Council pass those bills. It is our hope that members of Council will not interpret any concern on timing as an excuse to delay consideration of the package of bills this year. As indicated in my testimony, it is competitiveness of our City that the bills -- rest on the fact that bills be 11 Whole - Bills 040255, et al - 5/18/04 voted and passed this month. I greatly appreciate this opportunity to comment on the bills this afternoon, and I certainly appreciate the opportunity to return and reinforce the Chamber's position. Thank you.

Thank you very much. Are there any questions or comments from members of the Committee? The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. More a comment just to Governor Schweiker, Mr. Sasso, Miss von Seldeneck and Mr. Mahoney. Didn't see you over there. Appreciate your testimony and the clarification today. I think it is very helpful that there is a clear message from the Chamber of Commerce. I think your presence here today, 12 Whole - Bills 040255, et al - 5/18/04 all of you, reaffirms that, and the many calls and comments that have come in, at least to my office, in a very positive way about the need for tax reform. And as we have in the past, I certainly look forward to working with you to try to significantly change the onerous tax structure and tax burden in Philadelphia. And I think the leadership on this issue that you're providing and working with others will make a great difference, as all of us try to accomplish the same goal of helping the City to grow, helping to create more jobs and a more business friendly environment. So I want to thank you again for coming in today, and for the very clear message and the unifying tone that it brings to this very serious issue. Thank you, Madam Chair.

You're welcome. The Chair recognizes Councilman 13 Whole - Bills 040255, et al - 5/18/04 Clarke.

Thank you, Madam President. Good afternoon. Madam President, unfortunately I got here a little late. And I have before me testimony that was originally, I'm assuming, read by Mr. Mahoney. GOVERNOR SCHWEIKER: Well, no. It was Monday of last week when, as you know, we were originally scheduled to present that midday. By 6:30 p.m. that night, the opportunity had not been afforded us. So formally it was submitted for the record and not read aloud. Today I did just that.

So you reading Mr. Mahoney's -- GOVERNOR SCHWEIKER: It is almost to the word the same position and remarks.

Okay. I know during the last several days there's been some question about your position, as it relates to your prior testimony. 14 Whole - Bills 040255, et al - 5/18/04 One of the issues that you talked specifically about was the need to identify the necessary cuts. And I see in here you reference the collections process that could essentially offset the initial year and the plan. I personally have received some information that talks about a five-year plan that -- GOVERNOR SCHWEIKER: A what?

A five-year plan. GOVERNOR SCHWEIKER: Oh.

That substantially's more aggressive, in terms of the need to have to identify offsets. Do you have a sense of -- And depending on whose figures you believe -- If, in fact, we were to implement the entire tax package, that could potentially create an additional $300 million in the five-year plan gap, how we would be in a position to accommodate that need? GOVERNOR SCHWEIKER: No. It's 15 Whole - Bills 040255, et al - 5/18/04 something that Council would have to draw up and implement. I mean, we certainly made our outlook clear today that we expect you to take up tax reform, be supportive of of 7 the 13 bills. 8 And I think in those out years, 9 that's certainly within the purview of the 10 Council, and not something that the Greater 11 Philadelphia Chamber of Commerce would 12 delineate.

So your testimony -- GOVERNOR SCHWEIKER: We've generally made reference to asset sales, and as an example we always -- You know, I'm on board 15 months, but I can tell you that the encouragement to sell the Gas Works has always been a position of the Greater Philadelphia Chamber of Commerce. And so, we're comfortable with that. And as I mentioned on Wednesday, it took pains to mention that the Mayor ought to be complimented for his boldness to 16 Whole - Bills 040255, et al - 5/18/04 suggest facility closures and that kind of thing.

All right. So your focus today is primarily in and around the -- GOVERNOR SCHWEIKER: Oh, yes; make no mistake: Tax reform.

Can I ask the question? GOVERNOR SCHWEIKER: Yeah.

All right. First, relating to the implementation of the entire tax package; but second, you only referenced the first year. And in the out years where we, I think all of us, agree, the potential gap would be substantially more, you primarily think we can fill that gap with asset sales. You referenced PGW, probably an entity that we couldn't give away at this particular time, frankly speaking. Is that... GOVERNOR SCHWEIKER: Well, we're not 17 Whole - Bills 040255, et al - 5/18/04 prepared to speak to that today.

So you're primarily just focused on this next fiscal year. GOVERNOR SCHWEIKER: Yeah. We're not prepared to speak to that today in any kind of specific manner. But I tell you that I represent many committed business executives, and will tell you that with a more affordable tax model over time, the prospects for job growth are enhanced; and, you know, that would help with collections. I might also add that the whole idea of marketing and branding the region in the City which enhances those prospects as well, is something that the Greater Philadelphia Chamber of Commerce is prepared to do and do well. And that would help that cause. But no --

But you're prepared to recommend the passage of bills that -- GOVERNOR SCHWEIKER: Yes. 18 Whole - Bills 040255, et al - 5/18/04

-- you agree don't just deal with the first fiscal year. GOVERNOR SCHWEIKER: Yes.

Agree with the outlying bills. GOVERNOR SCHWEIKER: Yes.

But you're not prepared to discuss the implications of the passage of those bills beyond the first year. GOVERNOR SCHWEIKER: Yeah.

Okay. Okay. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman O'Neill.

Yes. I would just like to echo my colleague's remarks, that this really is clarifying, and it's right on. It's unambiguous. And it's a position I always knew the Chamber to have. And I'm glad there's no question about interpreting that. And those of us 19 Whole - Bills 040255, et al - 5/18/04 that, you know, think this is something we have to do and it's maybe a once in a lifetime opportunity, wouldn't want the business community not to be feeling the same way. So, I thank all of you for coming and making it as clear as clear gets. Thank you. GOVERNOR SCHWEIKER: Thank you.

Thank you. The Chair recognizes Councilman Cohen.

Thank you, Madam President. Governor, what does tax reform mean to you? What are the concepts of tax reform? Because the name is seductive, it makes people believe that what is coming is something better, something fairer. What does it mean to you? GOVERNOR SCHWEIKER: Well, I'm not sure that I can -- I have enough time to provide all of my thoughts on that. 20 Whole - Bills 040255, et al - 5/18/04 I know that's not your question, but... I think put simply, a more affordable tax model for the City, one that residents recognize as such, and one that businesses recognize as being more affordable so that they will invest and grow and provide jobs for your constituents.

How about the population other than just businesses? GOVERNOR SCHWEIKER: Well, that's what I mentioned. I mean, keep in mind that residents have the prospect of a lower wage tax over time. And I find that valuable. In the last year I began to pay the wage tax, and so I appreciate the direction that's being contemplated here. And I assure you that the Greater Philadelphia Chamber of Commerce is interested in tax fairness, fairness for businesses, as well as fairness... a fairer and attractive tax model for its residents as well. 21 Whole - Bills 040255, et al - 5/18/04

Well, while you were Governor, your predecessors, Chamber President Charles Pizzi, testified in favor of the bill which finds itself finally in an annex of a final report, but was totally ignored otherwise by the Tax Reform Committee. Was that... Is that a change of position now by the Chamber -- GOVERNOR SCHWEIKER: Well...

-- that it's no 13 longer interested? Mr. Pizzi thought it was a very fair tax, and felt that it ought to be addressed immediately after the general tax. GOVERNOR SCHWEIKER: Well, Councilman, I would have to... Individually speaking, I find that to be a meaningful approach to treating folks who especially have... only enjoy lower income, the right way to go. The Chamber itself has generally been supportive of that concept. In fact, I might... You probably know this. Even 22 Whole - Bills 040255, et al - 5/18/04 in the tough budget year that I inherited as Governor, we did continue and expand the tax forgiveness program. And I'm proud of what was accomplished in that period. And having said that, individually speaking, I'm very comfortable with it. And I think the Chamber, depending on its definition, would find it attractive as well.

Well, I find myself in a difficult position frequently as a very partisan Democrat, having to point out that in Pennsylvania the Republicans have a far better tax policy when it comes to income tax and wage tax than Democrats do. That's something that's very embarrassing to me that that ought to be the case. But apparently it is because in your Administration and in the Washington Administration people who pay income tax, if they fall within certain categories, can file for refunds at the end of the year. And we're engaged in Philadelphia of 23 Whole - Bills 040255, et al - 5/18/04 trying to encourage more low income workers to file for their refunds. But in the meantime, Philadelphia has an outstanding record of being probably the most regressive City in the country, maybe the most regressive government in the United States, with respect to tax policy because it doesn't recognize even the low rates of income which the Republicans recognize as a basis for refunds. In Philadelphia you pay a wage tax if your total income is two or three thousand dollars a year. You never can file for that refund. Once you pay the tax, you're hooked for good. And it seems to me that this tax proposal that Council is going to be considering tomorrow afternoon is the kind of thing that deserves bipartisan support. It ought to... Unless tax reform includes fairness and equity -- That doesn't mean equality. A rich man paying $2,000 in taxes is altogether different from a poor person paying that amount. We mean real 24 Whole - Bills 040255, et al - 5/18/04 equality. And I find myself unable to believe, in the concept of fairness in these tax reform proposals that are being presented to us because if it doesn't include an allowance for low income workers to get the tax refund back, to permit that kind of a process, if they fit within the same standards as are set up in Washington and by Harrisburg at the state and federal levels, then it seems to me everything they do is suspect, as not being covered by the principle of fairness. Now, I had hoped that the Chamber would be at some point indicative that there was this element that was missing in the tax reform proposals, and would do something to correct it. But apparently that's not so. And I wondered, has the Chamber also become an advocate that at the local level fairness goes out the window? GOVERNOR SCHWEIKER: Well, I think what we said is that, you know, it's within 25 Whole - Bills 040255, et al - 5/18/04 the purview of the Council and only the Council to determine what's affordable. But conceptually it's something the Chamber finds acceptable. I mean, everyone likes... You know, everyone's happy with the prospect of a lower wage tax, wherever they are on the income scale; that's for sure. But thank you.

Thank you, Madam President.

You're welcome. The Chair recognizes Councilwoman Brown.

Thank you, Madam President. Good afternoon, everyone. Let me start by saying that all of us, I believe every single individual in this room, believes that reasonable, responsible, and to quote you fiscally responsible tax reform is long overdue. All of us supported unanimously the Whole - Bills 040255, et al - 5/18/04 important work that has been performed by the Tax Review Commission. All of us supported, I believe it was two years ago when we were initially faced with the decision to continue tax reductions, when we signed onto the wage tax bill that was actively, and I would say very, very successfully initiated by your predecessor to the left of you. And let me say with your testimony, I, too, agree completely that the collection -- that we as a City need to do better with regards to the collection of taxes. I have, in fact, introduced a resolution for to us to more carefully look at how our departments do or do not do that. Where I am having trouble with the position you've taken is -- And I quote from last week's testimony. Quote, if you do not have corresponding spending cuts to match these tax cuts, the entire exercise becomes questionable. 27 Whole - Bills 040255, et al - 5/18/04 Now, if we accept the fact that the City is already looking at a $200 million plus gap, if we accept the fact that we have to had been confronted with closing -- proposed closing of rec centers, proposed shutdown of pools, proposed cuts to arts and culture, help me reconcile how we take deeper cuts, and stack that against additional spending cuts in the budget. I mean, currently you mentioned Mayor Rendell and then Council President Street in their nine years of what they propose. And my staff and I have done some calculations. And already we have $671 million in wage tax reductions. Yes, we'd like there to be more. Yes, there should be more. But what do we stack that against when we're confronted with cutting of City services? I need you to help me reconcile that because I will find it quite difficult to go before citizens of this City this summer and say, well, we just passed this needed 28 Whole - Bills 040255, et al - 5/18/04 tax package, and the tradeoff for that is more proposed City closing of pools. GOVERNOR SCHWEIKER: Well, I certainly sympathize with the tough decisions that you face. And I say that having experienced public budgeting over some years. And 9 yeah, those steps you may find unappealing. 10 But that certainly is part and parcel of a 11 job of member of Council. 12

The choices 13 that we make. 14 GOVERNOR SCHWEIKER: Yeah. That's 15 something that we will defer to the 16 deliberations of the City Council. 17

You believe 18 that we should act and move on the wage -- 19 the further deepening reductions in the 20 wage tax, not knowing what will happen in 21 Harrisburg? 22 I mean, we're all hanging with 23 baited breath, with regards to what we hope to happen in Harrisburg. And we all have experience of holding onto -- you know, 29 Whole - Bills 040255, et al - 5/18/04 having baited breath, and then being shot in the foot because the most favorable circumstance did not pan out, thereby negatively impacting the City. GOVERNOR SCHWEIKER: Well, that's a complex picture and question that you raise. I would assure you that the Chamber is doing all that it can in Harrisburg to bring about the circumstances for the passage of the gaming bill which has the half a point reduction for the wage tax. And I think you know that.

And your best guess at this juncture, as you sit here, is what, with regards to the gaming bill? GOVERNOR SCHWEIKER: We're very hopeful. I guess... I -- I stopped guessing. My -- I stopped guessing two months ago on that one. Let me sincerely say that we wish that to happen, and we're working to that end in Harrisburg.

And the regrettable reality is, had that happened, 30 Whole - Bills 040255, et al - 5/18/04 I guess, was it a year ago, we would not even be having a conversation about wage tax reductions. But it did not happen. And I've learned in the short time I've been here often -- not always but often -- the best predictor of future behavior is past behavior. So if I had to rely on the past actions or inactions of Harrisburg, for a range of different reasons that we all understand, I would be not inclined to count on the movement of that legislation. So that's where I guess we have the fork in the road. GOVERNOR SCHWEIKER: I'm not sure I can provide any advice on that. When I took a shot at that last Wednesday, it didn't go so well. So, it is our hope. And it would have to happen soon, given the obligation for this body to complete its work soon.

Then my final comment is: The one word that we use in 31 Whole - Bills 040255, et al - 5/18/04 your testimony that for me was very compelling was the word affordability which underscores the perspective that we all want this. Can we afford to do all bills all 7 at the same time this fiscal year, when we 8 already know in our face is a proposed $200 9 million potential gap? So that's the 10 rhetorical question. 11 Then I will push the pause button, 12 and we'll see where the continued 13 deliberations, discussions take us. GOVERNOR SCHWEIKER: Thank you. And I would just mention, you know, based on our findings -- And we certainly don't have the impressive data and reference material that's provided to Council. And it should be that way. But, you know, our calculations do show us, though, that every time the wage tax has been cut, the collections go up. So, you know, it's an encouraging picture. And again, I would finish by acknowledging President Verna's invitation 32 Whole - Bills 040255, et al - 5/18/04 to return today and allow us to complete our testimony. We are grateful for that. And if my remarks boil down to anything in the company of the Chairman of the Chamber, Bill Sasso, and former Chairwoman of the Chamber who knows a little bit about wage tax interest, that it's tax reform and tax reform now. Thank you.

Thank you. Just a moment, please. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you. Thank you, Madam President. Good afternoon, everyone. Picking up on the conversation my colleague, Councilwoman Reynolds Brown, concerning the proposed cuts in recreation facilities, arts and cultural institutions, et cetera, that we're all faced with today and having to make some of those decisions. And using also her, quote, best indicator of future performance is -- 33 Whole - Bills 040255, et al - 5/18/04 future behavior is past performance, history has proven in the City of Philadelphia that because of the high cost of doing business: The wage tax, business taxes, et cetera, that there is no job growth. Actually, there's been a reduction in jobs, in many jobs over the last decade or so. And but for the wage tax reductions that we did a couple of years ago which was a battle to get there, but we did get there -- And as you pointed out, we did see some slight increases in revenue collections there -- these cuts that we're talking about today, they're not going to go away next year -- this year, next year, the following year, five years out, because history has proven that we're losing jobs. Losing jobs means we're losing revenue. We're losing residents. So, if we don't do something dramatic today, the likelihood is that all of those proposed cuts that we're faced with today will only continue into the future. 34 Whole - Bills 040255, et al - 5/18/04 So, to do nothing suggests to me that we are satisfied with the status quo, and that by some miracle maybe things will turn around. I don't think that's the way to go. I would rather have to face my constituents in the next three years to say that we at least gave it a shot and we tried. And hopefully, if the recommendations that the Tax Reform Commission has put forth in these bills has a reverse effect, so that the job decreases stop -- there's no longer any job decreases -- we don't see that reduction -- we either see stability or an increase -- then we won't have to worry about the rec centers, and the pools closing, and the cultural institutions, and the cuts that we know today are going to continue. They're just not going to stop this year. They're not. Because history has proven, as I've said, that businesses will continue to 35 Whole - Bills 040255, et al - 5/18/04 leave. We're faced with a major business -- It was reported on the radio this morning -- the Food Distribution Center. Significant job loss. Did we cause that? No. But we're in strict competition now with New Jersey, two miles over the bridge, across the river. We may lose hundreds of jobs and millions of dollars of revenue. Now, there's an issue there on the facility and the improvements that they need to exist. But part of the -- the overall picture of what they're looking at is the climate of doing business in the City of Philadelphia, notwithstanding the capital improvements that that facility, that industry needs to continue to operate. If we were able to find facility dollars, capital improvement dollars to straighten up that facility, I still think the issue is being looked at globally by that industry down there as, does it pay to do business in Philadelphia? Which has been the old, you know, saying around here 36 Whole - Bills 040255, et al - 5/18/04 for decades. And we continue to sit here -- And I understand, and the Councilwoman, I think, understands that I am fully in support of full funding for the arts. And we don't want to see any of these things happen. But the reality is, the rubber has met the road. It's time to either act positively and try to make a change and author changes or to sit back and just watch us die a slow death. My question again... It's a statement, obviously, that I made. But my question is, do you see things similar to what I suggested?

As the Chamber, do you see any increase in jobs, any new businesses coming here, if we don't do something about the tax structure in the City of Philadelphia? GOVERNOR SCHWEIKER: I don't think there's any question. Without making our tax model in the City more affordable, it's very hard to argue that our chances for economic victory and luring in more 37 Whole - Bills 040255, et al - 5/18/04 businesses are great. I think they're diminished, Councilman. But having said all of that, my outlook -- and I think I speak for an awful lot of people who are members of the Chamber, and certainly for members of Council. I mean, we who lead, I think, characteristically must be optimistic. And I think with a little bit of optimism and I think the gutsy move in the next few weeks to improve that tax model, we will win. And frankly speaking, I wouldn't have taken the job if I thought that we were going to face dissension, economic dissension. We would not be undertaking the business granting and marketing effort if we didn't think it was worth it. It will pay off. So, yes, I think if we -- I think if your observation and statement and then question boils down to anything, it's what can you expect in the future if we do 38 Whole - Bills 040255, et al - 5/18/04 nothing? Probably laggard status, relative to other great cities. I don't have to remind you -- it was just today that they mentioned another city in this country outruns... takes a higher place on the ranking than Philadelphia. But I do believe, taken together, the business assets of the City and in this region -- and they're interconnected and we're interdependent -- along with work force development commitments and a more affordable tax model, together we can win. And we can be very specific. I mean, some of our industry hot spots, you know, life sciences and biotech and big pharma. 80 percent of the world's pharma companies are here, with tremendous investment in employment for our residents. Very sophisticated IT application in the world of finance. Chemicals. We could still grow those industry sectors. But I do think, as far as government behavior and important public decisions, there will be few more important moments 39 Whole - Bills 040255, et al - 5/18/04 and decisions, as far as what dynamically leads to an economic ascension and improving the business environment than the bills that you're to examine and ideally soon to pass. COUNCILMAN DiCICCO: Thank you for that comment. And I agree. And I said this the other day. I think that sometimes all of us, and especially the citizens of the City, get caught up into this notion that maybe it's just a lot of us talking and saying a lot of things to sound important. Because when you walk outside your house in the morning or you come home at night and you travel throughout the City during the day, you see a City that's operating. You see a police department. You see a fire department. You see sanitation. You see a lot of things happening. And people are wondering, is it really true that at some point this may all go away? Because we've been saying it for 40 Whole - Bills 040255, et al - 5/18/04 such a long time. But the reality is, it is going away. And it doesn't -- it's the old adage that, you know, it's a depression -- It's a recession if my neighbor's out of work; it's a depression when I'm out of work. And until it hits somebody personally, where their company that they work for goes out of business or leaves the City as a result of this tax structure and being forced out, basically, forced out... People don't realize it. They don't -- I think they don't understand how bad it really is. It is bad. And we're faced with, I think, in a very historical moment in this City, as we were a couple years ago when we did the wage tax -- continuation of the wage tax cut. This is very historical moment.

We either bite the bullet now and give it a shot, because if it doesn't work out -- and none of us can predict the future -- there's always an opportunity, based on the legislation, to pull back and make some 41 Whole - Bills 040255, et al - 5/18/04 adjustments. But we've got to do something very dramatic, in my opinion. And I was happy to hear you say, you know, basically it's the status quo. Status quo means it's not going to get any better. My biggest fear is, if we don't do something, that it will even become worse. It's the snowball effect because we're reaching that point where we just can't continue to lose as many jobs as we have, without having a dramatic affect on all the services and all the things that we provide as a government. Thank you for being here today, and thank you for your testimony and clearing up -- clearing the air, if you will, on some of the remarks that may have been made last week. Thank you. Thank you, Madam President.

Thank you. The Chair recognizes Councilwoman Tasco. 42 Whole - Bills 040255, et al - 5/18/04

Thank you. Good afternoon, and thank you all for coming to make your testimony. I just want to ask you a couple -- one -- maybe a couple of questions, but at least one. The Chamber is a regional chamber? GOVERNOR SCHWEIKER: Say again.

You are a regional chamber? GOVERNOR SCHWEIKER: Yes.

I remember in the '70s when the Chamber at that time was encouraging the development of Great Valley in Ft. Washington, which may have had some effect on people leaving the City of Philadelphia. What is your program for encouraging or recruiting businesses to Philadelphia? And do you get conflicted at times, in terms of selling Philadelphia over some other part of the region? GOVERNOR SCHWEIKER: No. I feel like there is a deference to the idea that 43 Whole - Bills 040255, et al - 5/18/04 we're in it together, that we're economically interdependent. And that's an important attitudinal perspective, and we do try to foster that. But I think... I think I can give you some practical examples, and then some other references. I mean, you know, the Mayor's reference to New River City and the development along the waterfronts, our members find that inspiring. And some day, perhaps, that comes to pass. We're encouraged by that. We promote that. The work down at the naval... The former Navy Yard, you know, Abtech is just coming in there. It's a sophisticated, high tech firm, I think, with 300 jobs or so. And I think to Councilman DiCicco's point, they want to be here. So, we promote that as well. And, of course, we do pay attention to suburban interests, and because when you take a look at the biography of the Chamber in terms of membership, you know, we're just around 6,000 members. 44 Whole - Bills 040255, et al - 5/18/04 Roughly half of them have a suburban address. And yes, even in New Jersey and New Castle County in Delaware. And half of them have a City address. So, that is the nature of our membership. But having said all of that, for 203 years -- and this won't change -- you know, we pay very close attention to economic, and political, and social, and cultural matters of the City.

Do you think the Tax Reform Commission was done a disservice by not being able to look at the expenditure side of the -- of the whole tax reform issue? GOVERNOR SCHWEIKER: Well, individually speaking, I don't believe the Chamber had a position on that dimension of that assignment. You know, they looked only at the revenue side and how you amassed the operating revenues. Individually speaking, yeah, it seems... Probably makes your job a lot tougher as office holders. Probably would 45 Whole - Bills 040255, et al - 5/18/04 have been a lot easier had objective, informed Commission members were able to take a look at the expense side, as you grapple with, you know, reduction in operation. I think that stands to reason.

So we might have had a different outcome. GOVERNOR SCHWEIKER: Pardon me?

We might have had a different outcome. GOVERNOR SCHWEIKER: Well, I wouldn't want to speculate that. I don't think anyone was surprised by the drumbeat emitted by the Tax Reform Commission which was that it's high time to, you know, work to improve the business environment and the tax model of the City.

Thank you very much, Madam President.

You're welcome. The Chair recognizes Councilman Mariano.

Thank you, 46 Whole - Bills 040255, et al - 5/18/04 Madam President. Governor. I always wanted to call you that, Governor. GOVERNOR SCHWEIKER: Thank you.

The Tax Reform commission estimates on a positive impact or supply side effect of tax reduction. Assuming significant growth in the real estate tax, how do we offset that? I mean, it's a little different being a District Councilman going back to Juniata and Kensington and explaining to people some of these numbers, where they're -- It is quite a possibility, using the supply side effect, because of what you just spoke with Councilwoman Tasco about, that we don't know how much the real estate revenue grows. So we're estimating that if the wage tax is reduced, more people want to live here, as Councilman DiCicco says. And that makes a lot of sense. In a perfect world, I need to know how I go back to Kensington and Juniata and 47 Whole - Bills 040255, et al - 5/18/04 Frankford and explain to these people, you know, how we're not digging a deeper hole for them. Someone who's just mainly concerned about her limited income and how her -- she may be at 72 years old, be able to pay her real estate taxes, where she might be just over the part where she doesn't get a discount because, you know, her husband earns just a little bit too much money for her Medicaid. GOVERNOR SCHWEIKER: Sure. Well, I'm not sure I can --

That's not -- That's not as hard as the Pennsylvania mining disaster, but... GOVERNOR SCHWEIKER: Well, I'm not sure I can offer you... advice on how to pitch it to your --

I mean, you have to believe somebody. GOVERNOR SCHWEIKER: -- your constituents.

They'd have to 48 Whole - Bills 040255, et al - 5/18/04 believe -- GOVERNOR SCHWEIKER: Well, I -- I -- I --

-- Tax Reform Committee -- GOVERNOR SCHWEIKER: I've been there, Councilman. I mean, I've been in my share of hot meetings, and county meetings and that kind of thing. COUNCLIMAN MARIANO: Do you ever use the word -- GOVERNOR SCHWEIKER: And I would find it -- I would -- I would find it very helpful to quickly reference that the more -- And I do believe this. And we've talked about this.

Yeah, I believe you do. GOVERNOR SCHWEIKER: I believe, as the folks to my left and right believe, that with, and fairly so, the more aggressive enforcement in tax collection effort when it comes to the property tax... I think $20 million is the minimum. 49 Whole - Bills 040255, et al - 5/18/04

Mm-hmm. GOVERNOR SCHWEIKER: And so that doesn't necessarily lead to higher real estate taxes. Just got to reinforce things down there, and you'll come up with 7 million bucks. 8 There are many, many... I mean, 9 someone mentioned past behavior is 10 indicative of future success. And there 11 are many, many jurisdictions throughout 12 this country that, with proper enforcement 13 and systematic improvements in how you 14 operate, you'll generate more top-line 15 revenue. And, you know, we're very 16 comfortable saying that $20 million. 17 And then hopefully in later years, 18 the idea that the business environment is 19 more attractive, and you have a more 20 attractive tax model, too, that you start to get the investment, the business commitment, the job growth, and ultimately a growth in top-line collections, without having to resort to a higher rate, whether it's real estate or wage or with the 50 Whole - Bills 040255, et al - 5/18/04 others.

Since you and I had that aggressive collection talk today, I -- I -- I had Pedro Ramos in the hallway. And Pedro said that they actually started -- I missed his testimony last week, but he testified that they have started down the rode of aggressive tax collecting. But again, I have to say that. There's a trust. It's hard to tell people to trust you when it's so... you know, it's so abstract. All that is so very abstract. It's just... It's easy to say when you're not involved with what you do, we do, or what the Chamber does, is I want to cut your taxes, and it's going to be all right, you know, but I might not be able to keep that fire station open. Now, do I believe some of that is what the second floor, no matter who the Mayor is or isn't, is going to say? I mean, we just had a very candid conversation with the Mayor, a few of us 51 Whole - Bills 040255, et al - 5/18/04 downstairs. And it seems to be that he's serious about some of these cuts. Now, we have to take that train and go head on with him on the road. And I don't have any problem doing that. But I know there's no magic answer, you know what I'm saying? And I have faith in what you're telling me. We've had these conversations, but I think it's just I don't think the people get it. People aren't economic majors, people who don't understand supply side economics versus the other part. By this Tax Reform Commission using positive impact or supply side economics, it's hard for us to explain and get that out. They've been doing a good job getting their message out, with their phone calls and their Saidel robo calls, and things like that, because we're getting -- I'm getting it back, and I'm sure all these Councilmen are getting it back. People are confused, but they want 52 Whole - Bills 040255, et al - 5/18/04 the right thing. And I know there's no 3 magic answer from you or anyone or you would have told us already. It just takes a little faith. And then we're going to have to -- Best we go down and grab some intestinal fortitude and take a chance or not take a chance on this. And that's how it's probably going to fall down. I can't predict what way it will go. We'll look at it. But we all get together and talk about stuff, and... GOVERNOR SCHWEIKER: Well, it ain't easy and.

I know. GOVERNOR SCHWEIKER: And I'm happy I have the position I have; and, you know, best of luck to you as a public office holder.

I'm happy, too because I don't want to get ahead of the Chamber. GOVERNOR SCHWEIKER: I say that very respectfully. But I do believe... I do believe, though, that I think by and large 53 Whole - Bills 040255, et al - 5/18/04 residents realize that the demographic picture of the City has changed. Population has dropped. And you know, to some extent, when you look at the operating ratio of the City, and particularly in complement, and what's committed to facility operations, that, you know, they -- I think over time, with an education effort, they would buy the idea that there has to be some curtailment. And that translates into less pressure on the expense side.

Thank you. Thanks for your answer.

Thank you. The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Govern Schweiker, a couple of questions. Were you a member of the Tax Reform Commission? GOVERNOR SCHWEIKER: No. 25

Okay. 54 Whole - Bills 040255, et al - 5/18/04 GOVERNOR SCHWEIKER: But we had -- The Chamber was represented by the gentleman that I mentioned a moment ago.

Okay. And I think at that time you were not President of the Chamber of Commerce; is that correct? GOVERNOR SCHWEIKER: No. 10

And -- GOVERNOR SCHWEIKER: I was when they finished their work.

I understand. And were you a member of the Philadelphia 21st Century Review Forum? GOVERNOR SCHWEIKER: Yes. COUNCIMLAN NUTTER: What subcommittee were you on? GOVERNOR SCHWEIKER: Regional cooperation.

Okay. You weren't on the tax committee, were you? GOVERNOR SCHWEIKER: No. 24

Okay. And are you normally involved in the annual budget 55 Whole - Bills 040255, et al - 5/18/04 process, as conducted by this City Council or the City Administration? GOVERNOR SCHWEIKER: No. 5

Okay. Are you normally consulted about budgetary priorities or proposed cuts or adjustments in the City budget? GOVERNOR SCHWEIKER: No, not with -- Not within the timetable related to budget creation. I mean, there's plenty of check-in phone calls, when it comes to business agenda interests throughout the year, and many of the Council members would acknowledge that as well.

Were you part of any of the discussions with regard to the budget in front of us for FY '05, and any of the proposed cuts related to either rec centers, swimming pools, Art Museum, libraries, or any of those -- Cultural Fund or any of those entities? GOVERNOR SCHWEIKER: No. 25

Okay. Your job 56 Whole - Bills 040255, et al - 5/18/04 is, as President of the Greater Philadelphia Chamber of Commerce, to represent a particular constituency, many of whom employ residents of our City; is that correct? GOVERNOR SCHWEIKER: Yes.

And whose financial fortunes are... In your opinion are their financial fortunes tied to whether those businesses can survive or grow in this City, based on a variety of economic factors? GOVERNOR SCHWEIKER: I believe that, yeah.

Okay. Your position is to support the work of the Philadelphia Tax Reform Commission; is that correct? GOVERNOR SCHWEIKER: Yes.

Now, the Philadelphia Tax Reform Commission was an independently appointed body, whose charge was to put forward recommendations to lower the tax burden on residents, workers and 57 Whole - Bills 040255, et al - 5/18/04 people who do business here; is that correct? GOVERNOR SCHWEIKER: Yes.

Okay. And the citizens of Philadelphia -- GOVERNOR SCHWEIKER: Not only that, but I mean... Yes.

I'm sorry? GOVERNOR SCHWEIKER: Not only that; but, you know, I mean, their operational suggestions, and that kind of thing, too, as you know.

Right. But that charge in the question... GOVERNOR SCHWEIKER: Yeah.

...that 80 percent of the people who voted on that question approved, was that they come up with a series of recommendations to, in fact, lower the tax burden on residents, workers, and business people here in Philadelphia; is that correct? GOVERNOR SCHWEIKER: Yes.

And from your 58 Whole - Bills 040255, et al - 5/18/04 perspective, as a leader of a business organization, have they put forward such a plan that responds to the charge? GOVERNOR SCHWEIKER: Yes.

Have you had an opportunity to look at any of the work of the Philadelphia 21st Century Review Forum? GOVERNOR SCHWEIKER: Yes.

On that document, there are a series of recommendations. Now, this is from the subcommittee. This is a tax subcommittee. The members were Dr. Jeremy Nowack, who was a subcommittee chair; Dr. David L. Crawford, who was a member; Edward McBride, a member; Joseph Quinones, a member; and Dr. Edward A. Schwartz, a member who also happened to Chair the Tax Review -- Tax Reform Commission. , their first recommendation is: Adopt the Tax Reform Commission's vision and major recommendations. The City should move quickly to adopt the major 59 Whole - Bills 040255, et al - 5/18/04 recommendations of the Tax Reform Commission, even if expenditures have to be reduced to cover the initial tax revenue shortfall. The Mayor's very important quality of life strategies will not have the desired impacts or be sustainable in the long run in the absence of fundamental tax reform. What's your reaction to that statement? GOVERNOR SCHWEIKER: On the money.

I'm sorry? GOVERNOR SCHWEIKER: It's on the money.

He said it's right on the money.

I'm sorry. I didn't hear you. GOVERNOR SCHWEIKER: Makes a lot of sense.

Okay. Thank you. Councilman Rizzo tells me that's a 60 Whole - Bills 040255, et al - 5/18/04 gambling term. I'm not quite familiar with that. (Laughter.)

That's a different public hearing. The other thing that strikes me about... Now, the Philadelphia 21st Century Review Forum, you said you served on that? GOVERNOR SCHWEIKER: Yeah.

Who were its members appointed by? GOVERNOR SCHWEIKER: Yes. I thought you were asking me whom we appointed. Mayor Street.

Okay. So this was his organization. GOVERNOR SCHWEIKER: Yes.

Okay. GOVERNOR SCHWEIKER: And he reached out to the business community.

I'm sorry? GOVERNOR SCHWEIKER: And particularly the Chamber, as to, you know, 61 Whole - Bills 040255, et al - 5/18/04 individuals that could help prepare that work.

Right. GOVERNOR SCHWEIKER: And I was asked to help out when it comes to establishing the basis for regional cooperation. And the same goes for Nick DeBenedictis, who is the C.E.O. of Aqua America.

And it's my understanding, at least from news accounts, that one of the reasons -- There could have been others, but one of the reasons that we received our budget later than our traditional time over the past, at least 12 years, in March was because the Mayor wanted to have the opportunity to incorporate the work of the 21st Century Review Forum in the budget proposed to us on March 18th, a slightly different time period than we would normally receive it in January. I'm struck by two other passages. I'd like your reaction. On , Philadelphia has a fundamental choice to 62 Whole - Bills 040255, et al - 5/18/04 make. We can try to manage continued economic decline or we can seize the moment of opportunity to create significant economic growth. Businesses and residents are seeking and will benefit from a fairer, simpler and more equitable tax system. If the Mayor pushes now for significant long-term tax reform, the committee believes that current businesses will stay in the City and new ones will come. But it is imperative for the City to manage the delicate balance required by Mayor Street's three-pronged strategy to implement tax reform. Continue the investment in quality of life programs and invest in infrastructure improvements. Now, one of the key findings was also that political leadership that balances tax reform, quality of life initiatives, and budget discipline is essential to achieve tax reform, and can produce the defining moment in the revitalization of the City of Philadelphia. 63 Whole - Bills 040255, et al - 5/18/04 In the second term of the Administration, Mayor Street should elevate his political assets and economic development vision above the political bickering that will inevitably surround tax reform. The mayor must articulate the necessity for tax reform, along the lines of the Tax Reform Commission, and remain budget disciplined, while still investing in quality of life initiatives. The Mayor and City Council must work together to make the budget work. Do you have any reaction to that? GOVERNOR SCHWEIKER: Hopefully, it happens.

Well, I appreciate that. I think what I'm struck by in that is that it says, the Mayor and City Council must work together to make the budget work. It doesn't say the Mayor, City Council, and the Greater Philadelphia Chamber of Commerce or the Mayor and City 64 Whole - Bills 040255, et al - 5/18/04 Council and the Tax Reform Commission or the Mayor and City Council and the 21st Century Review Forum. It says, the Mayor and City Council must work together to make the budget work. So, while I appreciate, obviously, the testimony, and your strong support as a business leader for tax reform, I think the opportunity to go into the details of the budget, and how we figure out what goes where, and how shortfalls are made up, or what the rates are, or what the schedules are, or what tax will be what rate in what year, even with your testimony, it still left, as the 21st Century Review Forum lays out, the Mayor and City Council must work together to make the budget work. That's our job. Our job is to make the tough decisions. I appreciate your testimony. I appreciate the time that you spent here. And as much as we get good advice and recommendations from this group or other groups or even the Greater Philadelphia 65 Whole - Bills 040255, et al - 5/18/04 Chamber of Commerce, there are people who ultimately get to make these tough decisions. That's what we get paid for. So I appreciate you coming in this afternoon, and all the people that are with you. Thank you, Madam Chair.

You're 10 welcome. 11 The Chair again recognizes 12 Councilman Cohen. 13

Thank you, Madam 14 President. 15 Governor, I don't agree with all the 16 naysayers that we're hearing, that 17 Philadelphia is sort of on the verge of 18 disappearing. Let me just cover quickly a few things. We've managed to get a loan of $300 million. It's the City of Philadelphia, much more than the state, that kept the school system operating. We've had a Safe Streets Program, that the Council did not know anything 66 Whole - Bills 040255, et al - 5/18/04 about in advance, but which has expended $70 million since its inception about a year-and-a-half ago. There's talk about a large sum economic development fund to create... It seems to me we've got a lot of life left. And it seems to me that in this discussion there's one subject we're staying away from, a subject that to me seems obvious would raise a lot of money for the City. And that is if we got into the pay to play discussion. Most of the contributions in the Mayoral campaign, a large sum, about $20 million, spent by contributors, most of whom were business people doing business with the City of Philadelphia. Seems to me that businessmen invest. And that in addition to the uncomfortable feeling most people have in discussing pay to play in Philadelphia, everybody quietly knows it's a real problem, and that if we want to make a major change in 67 Whole - Bills 040255, et al - 5/18/04 Philadelphia, we've got to get rid of the old pay to play idea, and let merit rule the day. But I would like to just do a little something on numbers. Take the $20 million that was invested in the Mayoral race, largely by business contributors, because who else would have that kind of money? It seems to me business expects to get returns, so that when they do get contracts from the City of Philadelphia, that those contracts have to reflect the cost of getting the business. And so, it seemed to me for a long time that the real contributors to pay to play are taxpayers, not the businesses directly. The businesses see it as a need in Philadelphia to be in with whoever is running the City. And apparently whoever runs the City can get large sums of money, in the hope that business is going to be rewarded. And since that's a business expense, that's got to be recaptured, so the cost of contracts 68 Whole - Bills 040255, et al - 5/18/04 go up. And it seems to me that the best way to begin to turn the corner in Philadelphia would be a simple thing, to announce that pay to play is at an end, that there's not going to be accepted by any City officials any size of contributions or to create a very stringent limitation of funds. And that as the cost of contracts is going to go down, the climate will get clearer. People won't feel as unclean and as concerned about their chances of getting business. It will be done on merit. And that would bring business down. It would be the most welcome thing to businesses coming into the City because they know they'd come in and they'd be judged on merit, rather than having to know the right people and make right combinations of contributions. What would your comment be to that kind of an approach? GOVERNOR SCHWEIKER: Well, pay to play, as we know it in the City, must end. 69 Whole - Bills 040255, et al - 5/18/04 I can assure you that as a -- as someone who works in a place where we regularly receive phone calls around the world, around the country about opportunities of doing business in the region, and particularly in the City, particularly in the real estate industry, the old pay to play reputation does come up, and it is in part a disincentive. To that end, the membership was sufficiently concerned that some weeks back, Judge Ida Chen, who did visit with our policy research and legislative committee to talk to us about that particular effort at rectifying it. And it was a long meeting. And a lot of tough questions. And Judge Chen acquitted herself very positively. So, we will watch that, this development very closely.

And you're right, there is a connection between access to City government, agencies and doing business. And weren't whether or not it's conducted 70 Whole - Bills 040255, et al - 5/18/04 on a fair plane, we will watch that. And for the record, you know, we've always supported the need for campaign finance, although, you know, campaign finance is depending on the definition you choose. You know, but generally as a concept, pay to play as we know it must end, and campaign finance reform makes eminent sense.

Well, I know there was a boat builder, I think, or somebody who worked from the docks, Holt. And Mr. Holt somewhere working Delaware up till a few years ago when he moved to Florida, he said he couldn't stand this business of campaign contribution. I've heard many people say the same kind of thing. Some of them have picked up and moved. And I assume by watching, what did you precisely mean. What are you going to be looking for? GOVERNOR SCHWEIKER: Well, when we talk about campaign finance reform -- and I won't go into a dissertation here. It's 71 Whole - Bills 040255, et al - 5/18/04 certainly not my intention to go on. But you know, there has to be a... you know, a cap on contributions. There has to be reporting, regular reporting. And so that... It would be two elements that we would mention. I don't think it's up to the Chamber to specify what has to get done. But our incentive for participating and monitoring is, you know, more than just the ethical interest that, you know, it be done fairly. It's got a lot to do with a city's reputation for being a relatively easy place to start business or to grow your business. And so that connection I would mention.

Would you agree that you believe the cost of government could be lowered if we got rid of pay to play? GOVERNOR SCHWEIKER: I'm not sure I could adequately respond to that one.

All right. Thank 72 Whole - Bills 040255, et al - 5/18/04 you. GOVERNOR SCHWEIKER: Thank you.

Thank you. Are there any other questions or comments from members of the Committee? (No response.)

Seeing none, I thank you, Mr. Governor. Is there anyone at the table that would like to add anything to what has been said? Oh, I'm sorry. Councilman Clarke.

Thank you. Real brief. Governor, when I asked the earlier question about your ability to respond to the out years, you basically said you weren't in the position to do that at that point. But in subsequent responses to questions by other members, you talked about the additional property tax collection beyond this fiscal year. You implied that there was a potential to have enhanced property tax collection, referencing Councilman 73 Whole - Bills 040255, et al - 5/18/04 Mariano's question related to property tax revenue. Then subsequently you responded to Councilman Nutter's... I hate to say somewhat leading questions. But that the recommendation by the 21st Century Committee to cut expenditures, that you supported that. It sounds like to me that you have had some thought process, as it relates to the out years, in closing that potential revenue gap. And I believe it will be substantial. I mean, have you -- GOVERNOR SCHWEIKER: Yes and no. 17

-- done an analysis or have you not? And I'm not criticizing -- GOVERNOR SCHWEIKER: Yes and no. 21

Seems the further you go along in your testimony, seems like you have had some thoughts about that. GOVERNOR SCHWEIKER: I have -- Yes 74 Whole - Bills 040255, et al - 5/18/04 and no, in sense that, yes, I am someone that has budgets under his belt, finds 4 interesting this exercise. And I say that 5 to get to the point of saying I respect the 6 difficult choices soon to be made by the 7 City Council. 8 But no, in the sense that the 9 Chamber does not have, you know, a concrete 10 game plan and projections in the out years, 11 no. 12

All right. I 13 mean, I wouldn't expect you to because we 14 don't either. 15 My concern is that when you 16 recommend the bills -- and some of the 17 bills reference, to some degree, the 18 possibilities of increasing revenue, 19 particularly when you talk about this whole 20 budget-based real estate program that gives 21 the impression, if you read it the way I've 22 been reading it, it gives the impression 23 that potentially we could raise the rates, in the event that the revenues associated with the business -- 75 Whole - Bills 040255, et al - 5/18/04 GOVERNOR SCHWEIKER: No, not necessarily raise the rates. I mean, with the installation of helpful technology and... and properly so, just being more aggressive in the collection, you'll get... you'll get that $20 million.

I... GOVERNOR SCHWEIKER: And that's not --

I mean, that's the first $20 million? I mean, I don't necessarily agree, but that's possible. But my concern is in the out years -- GOVERNOR SCHWEIKER: Well, that's probably a repetitive $20 million, though. You know, once you folks have to pay their fair share, that's going to be locked in for years to come. So that's not a once and done development.

Okay. So over the five-year plan, where I'm being conservative -- GOVERNOR SCHWEIKER: I mean, 2004, there are plenty of improvements that are 76 Whole - Bills 040255, et al - 5/18/04 available to City governments that just were not around because of, you know, technology impediments years ago or even 5 18 years ago. So, they're there. 6

Okay. So even 7 with the proposed aggressive collection, 8 we're talking about $20 million over a five-year period per year. And we're still -- GOVERNOR SCHWEIKER: No; you may be able to generate that in the next year.

I understand that. That's your belief. But the projection is, if we implement all the tax cut bills -- and I'm giving a conservative number -- then it could be $300 million. Do you think -- Have you given any thought to any additional -- any additional processes that will allow us to fill that gap beyond the collections? Because I don't -- You know, because I don't, frankly speaking, see our ability to have that aggressive a collection -- 77 Whole - Bills 040255, et al - 5/18/04 GOVERNOR SCHWEIKER: At this time, no, I don't have a specific response.

But you do believe that there is the need to provide the appropriate cuts in government. Because you did say that this -- GOVERNOR SCHWEIKER: Appropriate. Appropriate, yeah.

But you haven't given any thought to the specifics of those cuts. GOVERNOR SCHWEIKER: No. 14

Okay. Do you agree that the increase in revenue associated with real estate could happen, above and beyond a simple correction in our collection process or more aggressive collection process? GOVERNOR SCHWEIKER: If I understand your question right, that in later years, with consistent operation and enforcement...

I don't think -- Well, I'm asking you do you see anything 78 Whole - Bills 040255, et al - 5/18/04 above and beyond that? Because, you know, I don't see -- GOVERNOR SCHWEIKER: Well, I think the theory is, with significant growth, whether residential or commercial or industry, you know, without raising rates, you get a higher top line income number, yeah.

So you mean the growth in the wage, based on the reduction in the wage and business tax -- GOVERNOR SCHWEIKER: I think --

-- will stimulate -- Are you saying it will stimulate the real estate economy? GOVERNOR SCHWEIKER: Well, I think it -- I think it -- I think one could argue that it is -- it is -- it is a stimulant for any number of industry sectors. I mean, if you're working at GSK across town here and... or someone offers you a job from elsewhere -- you know, and you're living in another part of the country; and, you know, someone says to you 79 Whole - Bills 040255, et al - 5/18/04 in the HR department that, yeah, that's a city that's habitually and dependably so reducing wage taxes, I got to believe that that's an enticement, and you know, happening thousands of time -- a thousand times over, that it leads to business activity, job growth and naturally so without higher wage rates, higher top line collections.

Okay. Let me ask you a question related to another statement you made. And I asked this question of somebody else. They talked about history has shown that a reduction of wage tax has created an increase in collections. GOVERNOR SCHWEIKER: Yeah. I don't have the particulars on that, but...

Yeah. If you have -- If you said that we've had a reduction in jobs but we've had a... but we've had an increase in the revenues associated with wage tax, what do you attribute that to? 80 Whole - Bills 040255, et al - 5/18/04 GOVERNOR SCHWEIKER: I think --

I mean, in your testimony -- GOVERNOR SCHWEIKER: Yeah.

-- you implied that -- GOVERNOR SCHWEIKER: Yeah.

-- if you cut the taxes... GOVERNOR SCHWEIKER: Well, I think --

...the revenues in this City will grow, and you implied that it was based on job creation; but that -- GOVERNOR SCHWEIKER: Well, I think the obvious --

-- in fact, is not what has happened. GOVERNOR SCHWEIKER: Yeah. I think the obvious --

Because we continue to lose jobs, and we've collected more revenue from wage tax. What do you 81 Whole - Bills 040255, et al - 5/18/04 attribute that to? GOVERNOR SCHWEIKER: I would think the obvious answer is that you've got some stalwart business people who still believe in the City and still want to do right by the residents and still create jobs. And so, you know, the... And with the collections or the -- you know, the -- even with the relatively small reductions in the wage tax, you get ample economic activity to up the amount that's collected. The other thing I'd point out is to certainly Governor -- Well, and Mayor Rendell's credit, if you remember, there was a very aggressive effort at collecting wage taxes from those who had been overlooked in years gone by, for example, professional athletes.

So what you're saying is that we have embarked all the way back to the Rendell years on an aggressive collection process. GOVERNOR SCHWEIKER: It had gotten better there. I think there certainly was 82 Whole - Bills 040255, et al - 5/18/04 a spike in collections because of, you know, that enforcement effort, yeah.

You think we're continuing to do that? GOVERNOR SCHWEIKER: I think you're going to have to.

No. I'm saying, do you think we are continuing the aggressive collections process? GOVERNOR SCHWEIKER: I think that... I would -- I would say so. But it always -- I mean, efforts at improvement; I mean, there's no best. There's always better. I know it sounds trite but, you know, that's what the Council insists be done, and that's what a Mayor insists be done. And I know he speaks that way. Plenty of room for improvement.

$20 million worth? GOVERNOR SCHWEIKER: Yeah, I'm willing to bet that one.

Based on what? GOVERNOR SCHWEIKER: I think 83 Whole - Bills 040255, et al - 5/18/04 training for the folks in that operation, I think the installation of helpful technology, and I think... Yeah; maybe even to think about the amnesty program again. I don't know. Amnesty programs always pay off.

That's usually a one-time shot. GOVERNOR SCHWEIKER: I had ten of those --

That's usually a one-time shot. GOVERNOR SCHWEIKER: Pardon me?

Amnesty programs traditionally are a one-time shot. GOVERNOR SCHWEIKER: Well, you can't do it every year, but -- But it --

I agree with that. GOVERNOR SCHWEIKER: Yeah.

But I mean, you suggested that we're going to be able to have this continued aggressive collections process that could potentially generate a 84 Whole - Bills 040255, et al - 5/18/04 minimum of $20 million a year. GOVERNOR SCHWEIKER: Just on the property -- Just on real estate tax, yes.

And it's your belief that we haven't aggressively gone after real estate taxes? GOVERNOR SCHWEIKER: Oh, it could stand to be improved. That's -- I think that's our point. I don't think it's a matter of being difficult to improve. I'm just saying it could stand improvement.

Okay. GOVERNOR SCHWEIKER: And that's not coming from me. That's coming from the members of the Tax Reform Commission and others who observed that operation.

Okay. Okay. I just wanted to get a little more clarity. Okay. Did you reference Phoenix, in terms of -- This is really not related to this particular issue, but you referenced Phoenix surpassing the City of Philadelphia. GOVERNOR SCHWEIKER: Well, I 85 Whole - Bills 040255, et al - 5/18/04 mentioned Phoenix because their population just now in past days surpasses that of the City of Philadelphia, yeah.

Has Phoenix done that through annexing other counties? GOVERNOR SCHWEIKER: Yeah. Yeah. Well, I don't know about other counties but --

So, I'm saying if we had the ability to annex other counties, we would probably be as big as New York right now. GOVERNOR SCHWEIKER: Yeah. Well, now you're being competitive. I feel the same way.

So, I mean, your reference to Phoenix surpassing our population -- GOVERNOR SCHWEIKER: Yeah. It's not you're not -- They're not comparing apples to oranges --

-- it's not a real -- GOVERNOR SCHWEIKER: -- they're not 86 Whole - Bills 040255, et al - 5/18/04 comparing apples to apples.

Yeah. Okay. All right. You said it. GOVERNOR SCHWEIKER: Yeah.

Okay. It's not the same. GOVERNOR SCHWEIKER: And by the way, Phoenix is probably the exemplar when it comes to efficient municipal operations, year in and year out do it well. And they're award winners.

Okay. GOVERNOR SCHWEIKER: And so they're not only relevant, as far as population growth; they do an outstanding job out there.

Okay. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Rizzo.

Thank you, Madam chair. 87 Whole - Bills 040255, et al - 5/18/04 Good afternoon, Governor. I'm sitting here thinking and wondering if I wanted to broach this area. But since you talk about... You mentioned this $20 million. It leads me to something that's been on my mind for a lot of years about how efficient our government is. Now, this is efficiency. If we're not collecting the money just in the area of real estate tax, something's not running as efficiently as it should. Now, you hear year after year after year the government asks -- the local government -- asks the corporate sector to come in and look at what we do, and what we don't do, and how we can do it better. What is your understanding about how efficient we are? We hear about tax reform. We hear about playgrounds closing, firehouses. But one of the phrases that's always not there is, maybe we can try running this place better, smarter, and not have to do a 88 Whole - Bills 040255, et al - 5/18/04 lot of these things that we do. GOVERNOR SCHWEIKER: Well, Councilman Rizzo, I'm not sure if I'm more dependable than anyone else to comment on this. I can tell you that I represent what I think is an enlightened business community, certainly those who do business here in the City, that they're more than willing to lend a land to seek such efficiencies. So I don't -- I don't -- I don't feel qualified to comment, you know, department by department by department. As you know, certainly what comes up often is the condition of the Gas Works.

But I think you do know, as has happened -- I mean, some of the top corporate executives in the region have stepped forward to not audit but to review various operations in the government, and nothing ever seems to change. It seems, though, they spend all 89 Whole - Bills 040255, et al - 5/18/04 this time -- I think they're worn out. I think that they've come and offered assistance so many times, that after they spend weeks and early morning meetings, late evenings, et cetera, that if something operational isn't -- If their recommendations aren't accepted, I don't think I'd come back and help any more. I probably -- GOVERNOR SCHWEIKER: Councilman, it gives me the occasion to say that I do believe that business executives, many of them in this room, are... use the term worn out. They may feel a little bit of distress at the pace of improvement, but they're not giving up. I mean, they love the City as I do and you do. And that's why they put themselves forward, and that's why these folks are here today. And so on one hand, yeah, they may be frustrated, but they're in here pitching with you. I might point out we talk about City endeavors. I mean, the school system... I 90 Whole - Bills 040255, et al - 5/18/04 found it, and maybe I just paid attention too much to what goes on here, but I found it very interesting that perhaps a few years ago the school system could have -- probably would have been in here on a budget review for maybe two days. I don't know. Don't hold me to particulars. But I think the presentation that just was concluded, relatively speaking, went well, and not the same in length which I think is indicative of a strong hand, you know, being applied by someone like Paul Vallas, and I think a very earnest group of School Reform Commissioners, one of whom is seated behind me today, in the form of Dan Whalen, that it is proof positive that you can turn it around.

Well, I remember, like most people, when the School Reform Commission was a bad thing for the City school system. And I remember when it was even referred to as being evil. And it was, again, that resistance that kind of troubles you when you see the resistance 91 Whole - Bills 040255, et al - 5/18/04 that occurred back when they were trying to reform the schools, and now how far along in a short period of time. It's one of the -- I guess it's one of the better things that I have seen happen in a short period of time, significant change. GOVERNOR SCHWEIKER: Well...

And change for the better because change isn't always good. GOVERNOR SCHWEIKER: Hope it's okay for me to say that it delights me for you to make that observation because I'll be forever attached to such efforts and seeing to it that classrooms are better for every child, because of past endeavors. And I see it as reason to be optimistic. It's come a long way, and I... You know, you credit bold leadership. And I might parenthetically keep in mind that there were folks who said it couldn't be done, when it comes to eking out that $75 from the state. And we 92 Whole - Bills 040255, et al - 5/18/04 managed to provide that. And I think dynamically, if I could connect some tough decisions a few years back in Harrisburg, with the particular budget condition of the school system, that, you know, I think it inured to the benefit of the school system, and it made the budget review exchange that this Council conducted go swimmingly, as compared to where it was -- and it was pretty raucous a few years back. So, take it as a reason to be optimistic as to what can be done if we band together and take bold steps and install tax reform.

Thank you for your support during that time. Again, during this conversation, I want to hear more about working smarter, spending the taxpayer's money smarter, making the government more efficient, doing things -- You know, it amazes me when you come from the corporate world and you come to government, and you just can't believe 93 Whole - Bills 040255, et al - 5/18/04 that a big government like this could be operating the way it does, especially when you've come from a relatively efficient operation. And you say, well, this has got to change next year, and three years later it's still the way it was. And again, that's the frustrating part, because nowhere in the conversation do I hear a lot -- And I'd be naive to say that it doesn't get better in some areas of the government, but we never hear more about doing it better. That's what I want to hear more of. GOVERNOR SCHWEIKER: Well, the business community is eager to help. And I would reference my successor in Harrisburg. I mean, they are determined, if I have the number right, to take the cost of doing business in the Commonwealth down by about a billion dollars. And, you know, some would say, you know, unlikely. But step one is the top dog, you know, the leaders, even the 94 Whole - Bills 040255, et al - 5/18/04 legislative insisting that this been endeavored. So, I credit Governor Rendell. And I think I know Mayor Street a little bit, and I think he sees himself as a student of City government and would prefer the same. But, you know, the Council has a role to play in this and say that this is what an enlightened body does. It's not just about budget balancing, but what do you expect, in terms of behavior in the future, from leaders and executives. You know, I don't want to go on. I know we want to finish up. Doesn't get done, though, without regular City employees making a heartfelt decision that they want to help, too. It's got to be open to them.

Great. Thank you, Governor. GOVERNOR SCHWEIKER: Then you get those reduced operating costs because they're in there with you.

Thank you. 95 Whole - Bills 040255, et al - 5/18/04 Thank you, Madam Chair. The chair recognizes Councilman Goode.

Thank you, Madam Chair. Good afternoon, Governor. I was going to let this question go but I really can't. When you testified last week, I won't even try to characterize what you said or didn't say. But the fact that there was some inference that maybe we would not pass the entire package without totally revisiting what you said or didn't say, which bills did you have in mind? GOVERNOR SCHWEIKER: Well, the land value tax is not something we can support, the land value tax bill.

But that bill has no particular revenue implications. As we know, it may be revenue neutral. GOVERNOR SCHWEIKER: Well, down the road, though, if -- if -- if a matter of law... 96 Whole - Bills 040255, et al - 5/18/04

I think -- I think the conversation you had, without characterizing what you said or didn't say, again, was really around the issue of revenue, and what bills did you have in mind, in terms of priority, in terms of what should not be passed first. GOVERNOR SCHWEIKER: No. That was... Let me just say to you that I sit here espousing one outlook, that these bills be passed.

I'm sorry. I didn't -- I didn't follow what you just said. GOVERNOR SCHWEIKER: The bills be passed, and so...

That's interesting Councilman Kenney just walked in. GOVERNOR SCHWEIKER: Did not have the opportunity --

No, no, no. The truth of the matter is, as I said, I was going to let this go. 97 Whole - Bills 040255, et al - 5/18/04 But while you did not complete your testimony last week, the testimony you did offer -- and I guess whatever considerations people had about whether your viewpoint had changed or not -- Councilman Kenney asked a very directed question which said that as a member of this Council, are you asking me to vote for the entire package. And I think that's how we really got into the issue. And the answer was no. 13 GOVERNOR SCHWEIKER: No, that's not so.

Okay. Well, let me ask you a different question. GOVERNOR SCHWEIKER: We did check the record, and that was not the case.

Okay. This is different -- GOVERNOR SCHWEIKER: It was not reported accurately.

We won't quibble over what happened last week or what didn't happen last week because I have a different 98 Whole - Bills 040255, et al - 5/18/04 question this week. The different question this week is, what happens if we make a decision to just phase out the business privilege tax? What does that do to the local economy? Do nothing else within the package. We vote for one bill, to phase out the business privilege tax. What does that do to the local economy? GOVERNOR SCHWEIKER: Striking a tax? Everything for the business community... You know, anyone that pays it would find it very appealing.

My question is, obviously there are decisions being made by this Council. I don't believe anyone believes that all 13 bills are going to pass, so we're not going to pass a package. Different members have already made decisions not to support certain bills, whether it's land value tax, whether it's going to be the wage tax because we're going to wait on Harrisburg, whether it's going to be the 99 Whole - Bills 040255, et al - 5/18/04 business privilege tax. I'm asking you what impact do you believe the passage of just Bill Number 5 would have on the local economy, in terms 6 of business and job growth? 7 GOVERNOR SCHWEIKER: I think it 8 would... As far as I would go is to say 9 that it would be a very significant and 10 positive step.

Would it be dramatic to the point that it sent a message nationally about Philadelphia, in terms of attracting businesses? Would it send the type of message, in terms of business retention? Would it send the type of message, in terms of business expansion, that for the cost of that particular bill 19 over the five-year plan, that possibly just phasing out the BPT, not that the other things shouldn't be done, not that I'm not going to vote for the aspects of the package, but isn't the phasing out of the BPT the most positive message we can send, in terms of business attraction and 100 Whole - Bills 040255, et al - 5/18/04 retention and expansion? GOVERNOR SCHWEIKER: There's probably different reactions to that, different answers to that question. I sit here looking holistically at the tax model of the City and making them all more affordable.

The business community is not going to get all 13. The business community -- GOVERNOR SCHWEIKER: We'll take 12.

If the business community had to pick one, which one would you want first? GOVERNOR SCHWEIKER: Well, that's a decision you're going to have to make.

I understand that. But I'm still asking the question of which bill would you want first? GOVERNOR SCHWEIKER: We're desirous of all 13 being taken up, and at least 12 of them --

Only reason why I asked the question is, one, because I 101 Whole - Bills 040255, et al - 5/18/04 wanted to get it on the record that the cost of eliminating the business privilege tax is probably only a third of this package, period, at most. And the truth of the matter, there are other costly bills within this package that people are not examining separately, that I think need to be examined separately. And obviously we're going to do whatever we're going to do. I just don't think it's helpful to continue this conversation about full package or not full package. But thank you. Thank you for your testimony. GOVERNOR SCHWEIKER: Thank you. Thank you, Madam Chair.

Thank you. The chair recognizes Councilman Nutter.

Thank you, Madam Chair. Just two quick things, Governor. And thank you for your extended time. 102 Whole - Bills 040255, et al - 5/18/04 First, let me in a way congratulate you for being one of the few people, of the hundreds who have come to us during the course of these budget hearings over the past month or so, who has actually been asked to lay out in detail how we would either restore cuts or cover certain costs as a result of implementing any of the Tax Reform Commission bills. We've had hundreds of people come to the table to ask for any number of things, almost all of whom did not have to go through an extensive, detailed, down -- almost down to a page number explanation of what we should do as a Council, or how we should do it, or any of those issues. And as I said in the earlier round or in previous comments, I would still submit that even if you had a fairly detailed package of what we would do -- what we should do, I mean, certainly I and I know a number of other members would take a look at it and would respectfully appreciate it, but would still be left to 103 Whole - Bills 040255, et al - 5/18/04 believe that it is our job and our responsibility to make these difficult decisions and do it in the way that we feel best. And so, I mean, I do find it somewhat interesting, this... any efforts, I guess, to put that ball back in your back in your court or shift any of the responsibility for taking these steps. I think that where you could, though, be helpful -- And I'd ask you to give some thought, as some of the questions that were going back and forth about whether the tax collection or efficiencies and the like, we may want to at least take a look at a page from a previous Mayor's book. I know in the early '90s -- there could have been other efforts. I was not as directly familiar with them. but I would ask you to give some thought, if you ever get away from the table, when you go back to the chamber, and with the leadership and the Board, the City very 104 Whole - Bills 040255, et al - 5/18/04 well may benefit from the lending, as has happened in the past, of executives to the government to work with the City Administration and certainly City Council, to identify areas where we may either enhance revenues for the City or identify a variety of efficiencies or productivity initiatives. And so, I would only ask if you would give some thought to that. You obviously don't have to respond here at the moment. But I'm sure, in trying to deliver a more direct and positive message, you may not have anticipated that this was going to be a graduate level course in the City's budget or the five-year plan. I do appreciate your patience. And again, recognize that whatever decisions we make, whichever number of bills come out -- And I would agree with Councilman Goode; it is probably not likely that an entire package of 13 bills would get approved. But I think we at least need to 105 Whole - Bills 040255, et al - 5/18/04 recognize a number of the Tax Reform Commission measures are not revenue related. They're not tax reform related. They may be system reform. They may give us -- They do give us suggestions on, you know, how we would make things run a little better or run a little differently. But I think, when you get right down to it -- And I wouldn't necessarily expect that you'd memorize the bill numbers -- but you know, really Bill 9, 10, 12, I think 13 and possibly one or two others have 14 in-your-pocket, out-of-your-pocket tax 15 implications. 16 And so, it would seem to me, though, 17 that wage tax reductions, business 18 privilege tax reductions, those kinds of issues would certainly be in the forefront of the business community's mind. And a couple other measures may make it easier for people to do business with the City or get their forms in on time.

But I think I would doubt that many businesses, in trying to figure out whether 106 Whole - Bills 040255, et al - 5/18/04 they wanted to be here or not, get into some of the deeper details or the arcane components of what goes on, in terms of when you file or how you file or quarterly payments, and the whole -- And I don't -- There's no disrespect in any of the great work of the Tax Reform Commission. But I think when we talk about how does the City grow, how does it thrive, when you look at Center City, one of the area of the City that has benefited, helped the City because of the population growth in Center City, some of which is driven by decisions that we've made in the government in terms of tax abatements on conversions of buildings and have encouraged people either in other parts of the City, if not in our suburbs, to take advantage of these kinds of opportunities, again, we are confronted with: Those were decisions made based on financial issues, based on tax advantages, and they are place by place, location by location, deal by deal. And I think what we're trying to do 107 Whole - Bills 040255, et al - 5/18/04 here is get away from some of that, level the playing field, and create an environment where we don't need as many of those kinds of individual tax reform packages, and we have a full-fledged City-wide tax reform package that creates the proper environment. And so, it's been interesting spending this time with you and the Board members. I appreciate it. Thank you. GOVERNOR SCHWEIKER: Thank you.

You're welcome. The Chair again recognizes Councilman Clarke.

Thank you, Madam President. Actually, I thought was done, but Councilman Nutter's statement triggered a thought. With respects to Councilman Nutter's reference to our targeted tax incentive -- And I agree fundamentally with him that we 108 Whole - Bills 040255, et al - 5/18/04 should have a more comprehensive strategy where all individuals can participate in whatever incentives we put in place. First, do you agree with that, that premise? GOVERNOR SCHWEIKER: If I understood it correctly, a comprehensive...

Yeah. He referenced a particular -- GOVERNOR SCHWEIKER: -- strategy... COUNCIMLAN CLARKE: -- some of the growth in Center City, and a lot of it was attributed to abatements. GOVERNOR SCHWEIKER: I'm not ready to answer that one.

And conversions. GOVERNOR SCHWEIKER: I'm not ready to answer that.

All right. Because that was leading up to my next question. As we discussed -- And you probably won't be able to ready to answer this all. As we discussed these tax reforms, my 109 Whole - Bills 040255, et al - 5/18/04 question would have been, and will be, and is, if you're ready to respond to this, should we rethink the abatement and conversions that we currently have in place that are focusing incentives on particular properties, properties that participate in programs that we put in place in a targeted basis? GOVERNOR SCHWEIKER: No. I don't... Again, I'm here year-and-a-half, and Joe Mahoney's been with the Chamber for 13 years. And just had a quick sidebar. And 14 the feeling is, they seem to be doing just 15 fine.

Okay. And I agree. But my question is, if you... And maybe I shouldn't ask you this question, but we can't ask Council members in a public hearing. (Councilman Nutter said something away from the microphone, not reportable.)

All right. Councilman, my question centers around the 110 Whole - Bills 040255, et al - 5/18/04 abatement process and conversion process. There's some thought... And I know I've had a thought about if, in fact, we did a comprehensive tax package. And actually in referencing the KOZs, because you know I introduced a resolution some time ago because I thought this whole TIF and KOZ process probably needed to give us some opportunities to look at a more comprehensive way of providing incentives. As we talk about these reform packages, do you have a sense as to whether or not we should look at all the existing incentive packages that continue tax abatement, the conversion bill that's in place. That is, to my understanding, particularly on the part of Center City that I represent, has been one of the great incentives for increased development opportunity on the residential side.

Of course we should always on a regular basis, and we probably would if we had an office of tax 111 Whole - Bills 040255, et al - 5/18/04 policy, look at all of these issues. I voted for tax abatements. Councilman DiCicco has been the leader in this particular area, and I'm sure he can give you a much more detailed history. I don't think that... One of them at least, possibly the conversion bill, my recollection is it may not have been looked upon by one of the recent Administrations as particularly great. And I think this Council in passing that proved the point that it was. Councilman, I think the bottom line here is, we have a complex array of abatements, TIFs, KOZs, KOIZs, Empowerment Zones, and a whole lost of other provisions, all designed to get around the fundamental fact that we had refused for years to do comprehensive tax reform in the first place. And we are so far behind, and we are so backward in our tax scheme, that we probably have to keep in place many of the ones that we have, still do a comprehensive 112 Whole - Bills 040255, et al - 5/18/04 tax reform package. And one day, if we're all -- if there's anybody left in the town, maybe we'll have the luxury of not needing some of what we have at the moment, but I don't think that day is going to be here any time soon. We have probably one of the most complex arrays of tax systems of any major city in the United States of America. And I think that we were right to put many of these abatement provisions in place or extend them from three years to five years to ten years. And they have helped and worked in many instances. I mean, doesn't -- I mean, you don't have to be Milton Freeman to figure out that if you're going to get a ten-year tax abatement on a new construction house, you might want to -- you might want to take advantage of it. Maybe that's something that we should always have. But, you know, your original question was to look at all of this. Of 113 Whole - Bills 040255, et al - 5/18/04 course we should look at all of it and see how it all fits together. We have historically done whatever we thought was best at a particular point in time. I think the purpose of the Tax Reform Commission, and probably now the purpose of your resolution, is to look at things in a more comprehensive fashion. I think the TRC did its. Job and we've now reached a point where it's time for us to do our jobs in voting -- having public hearings, taking a vote on the bill, they'll go up, they'll go down, and we'll take from it there. But, you know, it all ends up -- It's a big boomerang effect. It all ends up coming back to us. It started here. It went out to the public. It went out to a Commission. They sent it back. It's back in our shop. And the buck really should stop with us. And I don't think there's any way to get around that.

Okay. To 114 Whole - Bills 040255, et al - 5/18/04 reference my more --

I'm sorry?

To reference my more specific question... Your response is that at this point we probably should not look at repealing our eliminating any of the current targeted incentives but we should pass a tax reform bill.

Are you talking about tax abatements? I don't think we're going to repeal anybody's KOZ.

I'm sorry?

Or anybody's TIF. I don't think that's going to happen.

I'm asking from a policy perspective.

I don't think --

Should that be part of the discussion?

I don't think there's anything wrong with looking at everything that we do, and the way we do it, and question the reason why. That's why we created the Tax Reform Commission on 115 Whole - Bills 040255, et al - 5/18/04 the tax side. I don't remember all the specifics of your resolution, but I'll take it that you wrote a comprehensive resolution to look at all the other things we do. And we should certainly look at them. I don't know what we're going to find. But we should always be looking at our taxes and our tax policy. That should not be just something that we do on an every now and then or on a crisis driven basis. It's something we should do all the time, and I don't know whether we should repeal anything at this particular moment because, you know, we have -- we have enough problems.

So... Okay. I want to be clear. So we should not address those issues at this time.

I don't understand what you mean by address. If you ask me should we look at them? Absolutely.

Should we act on 116 Whole - Bills 040255, et al - 5/18/04 them?

I'd like to see what happens when we look at them. I'd like to have the opportunity to sit in the public hearing and hear what the testimony is so we understand the reason that you put the resolution forward in the first place.

So, the Tax Reform Commission did not look at any of the existing programs, with the exception of the non-utilization tax as possibly repealing or eliminating -- And I shouldn't be asking you this question because you're not a member of the Tax Reform Commission, but I know that you have worked closely with them and you may possibly know the answer to that question.

I don't know what their basis was. And you and I have had a number of conversations about this. I don't know what their basis was for recommending the repealing the non-utilization tax. I'm going to assume that no one 117 Whole - Bills 040255, et al - 5/18/04 remembered or possibly did the research to realize that you had made an amendment to the bill in 2001. I think it's inappropriate to repeal the non-utilization tax, especially if you're going to come back with another piece of legislation to make sure that it actually gets enforced. With regard to the TRC and whether they looked at tax abatements, TIFs, KOZs and the like, I believe it was within their charge... I do not remember what they said about any of them, but I don't know that any of them have to do with tax rates or lessening the tax burden on residents, people who work here, and people who do business here. I don't even recall if there's a specific recommendation on those particular issues, which may have been the reason that you did the resolution that you did. I don't recall.

That wasn't the reason I did the resolution. 118 Whole - Bills 040255, et al - 5/18/04

I don't know why you did the resolution.

And I don't know, because I didn't see anything in any of the documents that referenced their analysis of the existing...

Right.

...incentive packages.

Well, maybe they didn't get to it.

My question today is essentially, if we're going to look at a more comprehensive approach, and referencing several occasions throughout this hearing process, individual concerns about our targeted approach on these various tax incentive programs, should we, in fact, not look at possibly changing, terminating or doing whatever to some of those programs that currently exist?

I understand that. But none of those programs have anything to do with the wage tax, none of 119 Whole - Bills 040255, et al - 5/18/04 them.

They have to do with real estate.

Okay. Well, that's not the only tax in front of us. They don't have anything to do with --

I didn't say it was.

Okay.

I said we're talking about a comprehensive package. I'm simply referencing a particular part of that comprehensive package.

I understand. I don't think -- I think the report is what it is and does, you know, speak for itself. They gave us 13 bills. And, you know, they got introduced. We're in a public hearing. And we'll do whatever we're going to do with them. And if there are other hearings about TIFs, KOZs, KOIZs, Empowerment Zones or anything else that we come up with, tax abatements and the like, you know, that's 120 Whole - Bills 040255, et al - 5/18/04 kind of what we do for a living.

Okay.

Okay.

Thank you.

You're welcome. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President. And I don't want to belabor the record much longer, and appreciate you folks sticking around. But I want to engage in this because of the issue of the tax abatement. And I think it speaks to the very issue of creating an incentive, creating an opportunity for a business and investors to do things in the City of Philadelphia. And I hesitate sometimes to talk about the ten-year abatement, primarily because I don't want anyone to be of the opinion that I'm out promoting myself because I was the sponsor of those bills. But since someone else raised it in 121 Whole - Bills 040255, et al - 5/18/04 this Council, I think it's important to understand that very similar to the tax reform package that we're debating now, which basically says we will reduce certain taxes in certain areas and certain categories, in the hope that it will encourage and stimulate additional business, create more jobs which will increase revenue, but for the abatement which was a tax cut, call it what you want, those buildings, the conversion piece in 1997 would never have been converted to useful buildings. It was a bold, a dramatic step that we took back in 1997. And at the time I remember then Mayor Ed Rendell wasn't really warm to the idea at first. There were a number of members of Council who expressed some concern that it would be lost revenue to the School District, et cetera. But we made the case that if we don't do something now -- and this is back in 1997 -- those buildings, those empty 122 Whole - Bills 040255, et al - 5/18/04 buildings that are throughout the City and in particular Center City, during some great times under the Rendell Administration, had not yet been put to use. They were sitting there vacant. The bill passed in '97. We're three years away from getting the full tax benefit of that legislation. But as a result of that, some 70-odd buildings are now occupied. They were put to use. People are residing in then. The majority of the people who reside in them were not Philadelphia residents in the first place. So I kind of look at that abatement bill, and the bills before us in the Tax Reform Commission's report, very similarly. What do we need to do to encourage development, to create an environment that will encourage people to stay, grow, or come into the City. It's an incentive. Call it what you want. There's a lot of tags you can put on -- names you can put on it. But it's an incentive. 123 Whole - Bills 040255, et al - 5/18/04 And I think what we did in '97, we all know the results of that. And Councilman Clarke, you just spoke to a considerable amount of conversions that took vacant buildings in your District and made those into useful buildings. And they're on the tax roll. And a lot of good things are happening. So, I don't -- See, for me it's very simple: We either do something, and we put the carrot out there, and we invite people to come in and taste the water, test the water, if you will, is the same thing we did in '97. That's why I support tax reform, but for no other reason. Because if we don't -- And I sound like a broken record because I said this earlier today, said it last week when Mr. Schwartz testified. The status quo is unacceptable, should be unacceptable because history has proven that we are not doing anything, in terms of job growth, because of this tax structure that we have been strangled with 124 Whole - Bills 040255, et al - 5/18/04 for the last five decades or so. So, why not take this opportunity which I don't even consider a risk because we can always pull back on these bills if we find that there's some dire consequences as a result of our enacting these tax bills going forward. We can always pull them back, adjust them, repeal them, call it what we want. This is not set in stone for perpetuity.

Let's give it a chance, to see if it will make a difference because we certainly know, again, to do nothing will result in nothing but further job losses for the City of Philadelphia, translates into less revenue. And more rec centers, additional rec centers, additional cultural institutions and the like, all the things that we're talking about this year will only be exaggerated in the years going forward. Thank you, Madam President.

Thank you. The Chair recognizes Councilman 125 Whole - Bills 040255, et al - 5/18/04 Kenney.

Thank you, Madam President. I just want to make a statement. Governor, I appreciate you coming back in here today and clarifying the position of the Chamber. I think we're much more clear now on the Chamber's position; respect certainly the Chamber's position in this issue, and pledge to do my best to get all or most, if not all, of these bills passed in a timely manner. Do you know what the largest employer is in the City of Philadelphia, who the largest entity is? I believe it's the University of Pennsylvania. GOVERNOR SCHWEIKER: You got it right.

And I also believe that probably the second largest employer in the City of Philadelphia, I think, is the City of Philadelphia. GOVERNOR SCHWEIKER: Yeah.

If not the 126 Whole - Bills 040255, et al - 5/18/04 School District of the City. Doesn't -- Doesn't that -- those two facts alone allow you to draw some conclusion about what's happening to our economy, what's happened to our economy over the years? GOVERNOR SCHWEIKER: Yeah. I think that they reveal two things. I think one is a positive and one you have to watch. The positive is that we are attractive in an entire world when it comes to world class medical care and life sciences and biotech development, of that kind of thing. And U of P, along with the University of Pennsylvania is -- the hospital, along with the University is, unlike 50 years ago, a big, big, big economic engine.

But it is a nonprofit, so to speak. GOVERNOR SCHWEIKER: Yeah, but -- yes, they are, in a sense. But when you look at their impact and how they endow and bring about commercial and company spinups 127 Whole - Bills 040255, et al - 5/18/04 and job growth, they're a big, big economic engine. But yeah; on the side, Councilman, the idea of the public, the government's being the biggest employer, yeah, it's something to watch. But I would tell you across the Commonwealth, and to a great extent in other jurisdictions, that is often the case where the public enterprise is a big employer.

Yes. I guess -- And I've been here since '92, and I think since '95 we've been tinkering with the tax rates in a small, you know, incremental way, both business and wage. And also, we've been doing things like TIFs, and abatements, and KOZs, and KOIZs, KOEZs. Your Administration was helpful in expanding those programs. And a lot of the criticism that we've gotten or we've heard as a result of doing these kind of targeted tax cuts is that it's not fair. 128 Whole - Bills 040255, et al - 5/18/04 It may be fair and important and helpful to get the project going or to get that thing built or to get that building or to keep somebody here, but it's just not fair overall to the business community because we're just helping individual companies and not the entire climate. GOVERNOR SCHWEIKER: Yeah.

And as we've seen, based on -- I guess unofficially yesterday we became the sixth largest city in the country. And I know that there's some apples and oranges comparison there because Phoenix is a much larger metropolitan area, and Philadelphia's metropolitan area has actually grown more than Phoenix has. But our problem, again, as we discussed the other day, is that Philadelphia has a border. And even though the region is growing, the City is shrinking. And even with all the things that we've done, all the things we've attempted 129 Whole - Bills 040255, et al - 5/18/04 to do, whether Council members have agreed with them or not agreed with them, voted for them or against them, it still hasn't worked. We're still losing our population, and we're still losing our jobs. And I sit here, and I listen to very sincere individuals in this Council who have a sincere concern about social welfare programs, the poor, people who are in need. But I honestly believe that over the next five, seven, ten years without a change in anything we're doing, a drastic change, there's not going to be any money around for anyone to have any programs to help anyone. And what I would really -- what I really believe is going do happen, if we were to have the courage to pass these bills, is there's going to be some pain, and we're going to take some grief, and we're going to have some complaints. But I would suspect that over a decade, a decade or two, we're going to see those private employer numbers jump. And 130 Whole - Bills 040255, et al - 5/18/04 the people that will be providing the tax revenues to pay for services for the homeless -- and hopefully we can reduce that. GOVERNOR SCHWEIKER: Yeah. COUNCIMLAN KENNEY: Services to people in need; people who, you know, children and youth, all those issues that are a growing burden on any city, that those tax revenues will be coming from private sector employment and not from nonprofit and public sector employment. And I'm willing -- I'm willing to take that chance. And as Councilman DiCicco said and some others have said, we can adjust, we can tinker down the road. But a bold statement -- And this is not business versus, you know, the tax -- This is not business versus poor people. This is not taxpayer versus poor people. These are not fixed income senior citizens who own their homes versus anyone else. This City will not survive without 131 Whole - Bills 040255, et al - 5/18/04 major tax reform. And I think this is not drastic tax reform that we've had. The TRC has done a terrific job in considering all of the factors involved and coming up with a program or a plan that is not drastic. It's not drastic at all. As a matter of fact, it probably could be more drastic. Probably could be more drastic than it is. GOVERNOR SCHWEIKER: Yeah.

So, I think that we get caught up in the micro picture of how we actually do this if we pass these bills, as opposed to the macro picture of what happens to the City if we put ourselves in a level playing field with just the people surrounding us. Just the counties and the state surrounding us, if we can get in a more level playing field, I think we retain those jobs, we attract jobs, we grow jobs, and people who work in the private sector, as opposed to working for the government. So, again, I'll listen to your 132 Whole - Bills 040255, et al - 5/18/04 comment, but I want to thank you for clarifying the position of the Chamber. I think it's very important that you came back here and did that today. GOVERNOR SCHWEIKER: Well, if your point is, to paraphrase, a long-term gain with some short-term pain, then...

Or long-term death. GOVERNOR SCHWEIKER: ...we would agree.

Or long-term death. GOVERNOR SCHWEIKER: Yeah. And I really do think that, as you kind of compare the relative positions of a very dedicated Mayor and a very dedicated Council, it's probably a matter of degree that is the difference, not so much intention and direction. It's a matter of degree. I mean, to be specific, I mean, on the wage tax, the difference between what Mayor Street espouses and what the Council 133 Whole - Bills 040255, et al - 5/18/04 does is relatively small. So, you make a good point. I would just finish, Madam President --

Let me just -- I want to say one other thing. We've gone -- And again, from '95 on, we've gone slow. I mean, some of what we're being cautioned to do now for the Administration and some members of Council who sincerely believe, you know, what they're saying is that we should still continue to go slow. We've gone slow since 1995. GOVERNOR SCHWEIKER: Yeah. Well, that gives --

Time to speed up the train a little built. GOVERNOR SCHWEIKER: Well, it gives me the opportunity to say, yes, if my remarks were reduced to anything last Wednesday, it was that... essentially saying be careful. That wasn't the same thing as saying slow.

I understand. 134 Whole - Bills 040255, et al - 5/18/04 GOVERNOR SCHWEIKER: So it did give me the opportunity to come back and offer that clarity. Councilman Kenney, I just want to mention one other thing, just to end on an encouraging note, as far as what the region and the City, what it can do. You know, Shire Pharmaceuticals is coming to this region. Parenthetically, they will hire Philadelphians soon. And to listen... And their C.E.O. will be here Monday of next week, I believe, for a WHYY event. But to listen to their assessment as to why they've come here is to listen to the game plan for winning economically. You know, as you know, life sciences and biotech, pharm, that's our sweet spot. We can grow it even more. We have to work together. And I think having a more affordable tax model helps that particular cause. But I guess what I'm trying to raise here at the conclusion is that we do have 135 Whole - Bills 040255, et al - 5/18/04 it all. And I don't mean in the proverbial sense. We still have a mighty attractive location in the mid Atlantic area. We've got hard working folks. I mean, we're known for that. We make things and make things well. And you throw in, I think, an important element of the recipe for being competitive and outstanding, a more affordable tax model, we will win. And, of course, to get to that promised land, if you can call it that, there are some tough decisions that the Council would make. And I would offer a final remark, that this Chamber is very eager to work with Mayor Street. Our support of Mayor Street's endeavors on many other counts, and certainly with what the City Council must accomplish, we're in there pitching with you, even though ultimately you've got to make, officially speaking, the final choices and the final decisions. And we thank you. 136 Whole - Bills 040255, et al - 5/18/04

Thank you.

Thank you. Again, we thank you for coming in again. We really appreciate it. GOVENROR SCHWEIKER: Thank you.

Thank you so much. Thank you. Commissioner Tartaglione was due to give testimony on her budget today. However, she's in Harrisburg. She has submitted written testimony which has been circulated to all of the Council members, and a copy will be given to the stenographer. At this time I would like to call upon the Managing Director, please. Good afternoon. Thank you for coming back again this afternoon.

Could I just say one thing before the Council people leave, that I want to thank Governor Schweiker and Bill 23 Sasso for taking up my offer and Sister Mary's offer to go on a tour of our homeless shelters tomorrow or Thursday to 137 Whole - Bills 040255, et al - 5/18/04 see some of the great work we're doing in the City, and some of the great challenges we have ahead of us. Thank you.

Wonderful. The Chair recognizes Councilman Clarke.

Yes. Thank you, Madam President. Good afternoon. Managing Director, in your earlier testimony, I had requested a list, a flow chart of your employees, the hierarchy because there was some confusion in my mind whom reported to whom, and who I needed to contact about a particular issue. And I haven't personally gotten that, but I believe I was told it was forwarded to the Council President today.

Either yesterday or today, yes.

What was that? I'm sorry.

I had requested in the earlier testimony a flow chart of the hierarchy of the Managing Director's Office. And it primarily centered around 138 Whole - Bills 040255, et al - 5/18/04 my inability to determine who was in charge of what particular part of the Managing Director's Office who was responsible.

And did I understand the Managing Director to say that I received it today?

We delivered something today, yes.

I don't see it. Maybe Sharon has it. I'll check. It is my understanding from Sharon Ortiz that she did make copies, and that they have been circulated to each of the Council members' offices.

They have been?

Yes.

Today?

Today.

Do you have that?

Today. I just received it yesterday, distributed today.

I'm sorry. I can't hear you. 139 Whole - Bills 040255, et al - 5/18/04

We received some information yesterday which was circulate to all Council members.

Today.

And whatever --

So --

-- was delivered --

So maybe my office --

-- today was copied and circulated to all Council members.

Okay. I haven't had an opportunity to see it today.

I didn't see it either.

All right. I can't question you about it because I haven't seen it.

Okay. And Councilman, I'd be glad to sit down with you, if you want, after you've seen it. 140 Whole - Bills 040255, et al - 5/18/04

All right. We are -- Our time is running out on the hearing process. Let me talk to you about another issue.

Sure.

The vacant lot department... Talk to me about the history of it, and how it was created, how its employees were hired, where they are, who they report to.

I would need help in answering that question because I was not here for the creation of it. But the vacant lot folks report to Tumar Alexander who works with Tom Conway and the whole Clip program. I can't give you the history of it. I would need some help on that.

All of them report to Tumar?

I don't know. Miss Jones, my Chief of Staff, may have a better answer. 141 Whole - Bills 040255, et al - 5/18/04

Laurie Jones, Chief of Staff, Managing Director's Office. Again, I wasn't here, as the Director wasn't, for the inception of the program. But what our plans are for FY '05 are that the vacant lot crews will be divided up throughout the City geographically. And there will be a number of crews that will report to Tumar Alexander, and a number of other crews report through supervisors to Tom Conway.

What's in place now? Who do they report to now?

As of... During most of fiscal year '04, they all reported to Tumar Alexander.

All of them. Are any of those employees full-time now or receive benefits?

I believe that there's some people who were a part of other programs that were transferred into vacant lot that have benefits, but for the most 142 Whole - Bills 040255, et al - 5/18/04 part no. 3

Say that again? I'm sorry.

There are some people that are... who work in the vacant lot program now, who were parts of other programs in the City that had benefits before, that work in vacant lot now, that have benefits. But for the most part, those employees do not.

So are there employees that were hired after current employees who are... temporary -- Well, not temporary. They don't have benefits. And they got hired after the employees who do not have benefits. Now those employees have benefits working in the program. Did you understand that? I know it was kind of a convoluted question.

I'm not sure I understood it. But I would answer you this, that there are a number of employees that do not have benefits.

All right. 143 Whole - Bills 040255, et al - 5/18/04

In that program. It's an issue that we're aware of; we're trying to address.

But there are a number of employees who do have benefits.

There are some that have.

Some of which do not have seniority over the other employees.

that I don't know.

Can you find out? What I'm trying to understand, if there are individuals who work in their department, the vacant lot, who report to Tumar, how some of these individuals have benefits; some don't. Some of the individuals who have more seniority don't have benefits; and some who have less seniority do have benefits.

We will find out. I thought, but I'm not sure... I can't say 144 Whole - Bills 040255, et al - 5/18/04 I'm a hundred percent correct. I thought it had more to do with position, as opposed to, for example, supervisors. But I'm not sure I'm correct. We will find out the correct answer.

Does it have more to do with geographical location?

I -- I -- I don't know the answer to that. We will find out. I think... I know that there's an issue with it, and we've addressed -- we've discussed how to address that issue in the context of the budget process.

You said there's an issue with it.

Well, I think to me there's an issue when some people are getting something and other people aren't. And, you know, when that's always the case, you've got to have clear --

Well, who created that issue? I'm trying to understand... My understanding is there were people who got hired as recent as a 145 Whole - Bills 040255, et al - 5/18/04 year ago. They have benefits. And people who have been working with the program for three or four years have no benefits.

I don't know how that -- how that occurred. I would have to find out for you.

Excuse me, Councilman. Don't we have employees at MOCS, I think. They have a budget of $1.9 million. And we're told that they clean the vacant lots also. Is that so? I believe it's in your budget.

Some of them are assigned to the vacant lot program. That's my understanding.

Well, do they receive benefits?

I don't know. I would have to -- I don't want to sit here and give you answers that I'm not sure of. I would have to go back and find out who has benefits, who does not, and why those that do not, why they don't and why those that do do. 146 Whole - Bills 040255, et al - 5/18/04

Okay. So, let me understand what it is you're getting. You're getting the employee list. If I'm incorrect, please correct me -- and the tenure of the employee, who has benefits, who doesn't have benefits, and geographical location, because I understand you have a number of teams.

And why those that have benefits have benefits, and why those that don't don't.

Right.

We will get that to you.

Okay. I'm sorry. I actually thought I got your chart. Never mind. Actually -- Okay. Well, did -- Unfortunately, I can't have follow-up questions because there are a number of things that you're unclear.

Okay.

So I'm assuming you'll get whatever -- 147 Whole - Bills 040255, et al - 5/18/04

We will get that to you, yes, sir.

Okay. All right. Madam President, thank you.

Thank you. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President. Good afternoon. Topic of discussion, I know, is very dear to the Recreation Commissioner. Camp William Penn. Nothing personal, Commissioner, but I've been on this for a couple weeks now. Last I think we spoke, Mr. Goldsmith, we talked about you were engaged in the investigation of the possible sale and looking for an appraisal. Could you bring us up to date. Is there any information that you can share -- that you may be able to share with us today?

We -- We do not -- I 148 Whole - Bills 040255, et al - 5/18/04 probably misspoke. And I thought that we were further along in the appraisal process than -- than we are. I think we have -- trying to get a ballpark figure, but we're also in the process of retaining or just have retained someone to do the actual appraisal. So I misspoke when I said the appraisal was being done and it would be done shortly. I apologize for that. COUNCILMAN DiCICCO: I understand that. No problem. I appreciate that. But I do really think it's important that we pursue this. When you look at the issues that are before us today, the issue of the Tax Reform Commission and the bills that this Council is deliberating on, and you look at what the Administration says that the gap in the budget will be if those bills were enacted, for this year it would be probably in the area of $3 to $10 million is the shortfall in the budget. So, conceivably, without putting a price on Camp William Penn, if we were to 149 Whole - Bills 040255, et al - 5/18/04 get $10 million for it, that would satisfy the issue for the budget deficit for this year, notwithstanding the other issues that we have to look toward for the future. But just in the simplest of terms, if we sold that asset, we would have enough in return for that sale that would at least get us over the hump for this year, and quite possibly even the second year of the five-year plan. So, that's -- that's the reason for my insisting, if you will, on coming up with the number. Now, we still would have to sell it. We'd have to find a buyer. I understand that. But I really think this is something we need to do, because it really fits into this overall discussion of budget deficit, cuts in services, facility closures, et cetera. I mean, that one place is not the silver bullet, not the magic wand for perpetuity, but it could really help us for the next two, maybe even three years, as we 150 Whole - Bills 040255, et al - 5/18/04 deal with there wage Tax Reform Commission issues that we have in front of us.

I understand. COUNCILMAN DiCICCO: So that's the reason why I keep insisting on that.

I understand. I think your... And I don't know if the Budget Director is in the room here. Rob? But I think you underestimated what the... if all the tax cuts are passed this year, what the '05 problem is. I think it's significantly more than that. But I'd have rather have the... I just want the record to be clear, as I understand it, so we're not... and we understand the magnitude of the problem. The other thing I would say is that... And I always hate to put a number on what we may get in selling something because that sort of becomes a ceiling, then. COUNCILMAN DiCICCO: I understand that. And I misspoke last week or the week before when I said $10 million. 151 Whole - Bills 040255, et al - 5/18/04

Yeah. COUNCILMAN DiCICCO: Not suggesting that that's what it was worth. But that's a preliminary response I got from someone off the cuff who's somewhat familiar with the area --

I just -- COUNCILMAN DiCICCO: -- not necessarily doing an appraisal.

I just heard yesterday that -- an amount considerably less than that, so... But that's why we need an appraisal. But I understand some of that land may not be developable, and so forth, so I think -- COUNCILMAN DiCICCO: Right?

And whatever we receive in that -- And I'm not going away from the basic concept of asset sales -- would be a one-time -- COUNCILMAN DiCICCO: Yeah.

-- as opposed to a recurring thing. COUNCILMAN DiCICCO: I understand. 152 Whole - Bills 040255, et al - 5/18/04 But also... And this, I guess, goes to the Commission of Recreation, Vic Richard, is the cost of maintaining which is $500,000 a year, so you have to factor that in as well. And I understand the Commissioner's sentiments and the fact that young urban kids get to have this great experience. But we have to make decisions all the way around. And for me, if I can keep the pools open for the next year, two years because of some of the sales or at least the reduction in maintaining that facility, the options -- If those are the two options, I would certainly opt to keep the pools open because a lot more kids would get the use of those pools than our being given the opportunity to use Camp William Penn. It's a hard decision but it's one that we have to make --

I understand. COUNCILMAN DiCICCO: -- I have to make.

There's a lot of 153 Whole - Bills 040255, et al - 5/18/04 hard ones. COUNCILMAN DiCICCO: The question was, Mr. Dubow, was that I had posed to the Managing Director that the sale of -- the possible sale of the Camp William Penn, the price of the sale might be around $10 million -- we don't know for sure, but just using that as an arbitrary figure -- would be enough to cover the budget deficit for this... for 2005 which is somewhere around... under $10 million. If the tax cuts -- If the tax cuts that are proposed and the Tax Reform Commission were implemented, what is the negative revenues for the budget?

Let me... There's a two-part answer to that. First, because of the loss of the PGW revenue, there's about a four-and-a-half million dollar deficit before the impact of the Tax Reform Commission proposals. COUNCILMAN DiCICCO: Before --

Before. COUNCILMAN DiCICCO: -- the impact? 154 Whole - Bills 040255, et al - 5/18/04

Before. And our analysis of those proposals, is they'd cost about $15 million in '05. COUNCILMAN DiCICCO: Additional to the four and a half?

Yeah. COUNCILMAN DiCICCO: So it's $20 million in round figures.

$20 million. The other thing to point out is that in the plan we assumed that we will successfully complete asset sales in '05 in January to about $30 million off of them. So for us to do better than planned, we'd have to have more than $30 million in asset sale proceeds during the year. COUNCILMAN DiCICCO: Okay. Thank you for clearing that part of it up for me. I have no further questions. Thank you, Madam President.

Are there any other questions of the Managing Director? Any comments? The Chair recognizes Councilwoman 155 Whole - Bills 040255, et al - 5/18/04 Miller.

Yes. Good afternoon. How many vacant lot cleaning crews do we have left now or how many people? Didn't we start off with 200?

I don't know the answer to that. I'll have to get you the answer. That sounds like an awful lot, but...

Or a hundred. I think it was a hundred, wasn't it? COUNCILMAN DiCICCO: Will you repeat that question again?

It was the number of people that are still with the vacant lot cleaning program. I think it was a hundred, actually. Okay.

I will get you the answer.

Okay. Thank you. Thank you, Madam President.

Thank you. 156 Whole - Bills 040255, et al - 5/18/04 The Chair recognizes Councilman Cohen.

Yeah. Just one question about billboards, Mr. Goldsmith. Does the City have any policy which supports the notion that no matter what the courts do, we're going to keep billboards going; and if the Supreme Court of Pennsylvania says it's illegal, just ignore it?

No, I don't think that's the City's policy. I think the Mayor's asked the City solicitor and I to recommend to him a policy, but part of that policy will obviously be adhering to whatever the highest court of this Commonwealth says the law is.

Then I should take the matter up with the City Solicitor.

I'm not passing the buck to the City Solicitor, but I think he and I are supposed to make a recommendation to the Mayor on what the -- our policy should be. 157 Whole - Bills 040255, et al - 5/18/04

Well, you know, sometimes those of us that are lawyers have had experiences with the Supreme Court, and maybe for a moment or two we feel we'd like to thumb our nose at them. And then we realize, well, after all, that's the Supreme Court of Pennsylvania, and that would get you nowhere, and it would not be polite. So you overcome that feeling, and you do what the court tells you to do. But the City seems to just feel free to ignore that, because the Supreme Court has found billboards illegal and they -- in certain locations, and it has no impact on what the City does. And the City goes its own way and ignores it, even when the billboard is on City property.

This is part of our analysis, and --

Well, could I ask you and the City Solicitor, you for your part, to look at it? 158 Whole - Bills 040255, et al - 5/18/04

Sure.

And the City Solicitor. Maybe there's just a lot of mistaken notions about things.

As I indicated last time when I testified, I actually have a tool in my car, which I promised some of you that I would get, that I actually take down illegal signs on utility poles, and so forth, because I think they're blights. So I'm not one personally in favor of billboards, particularly illegal billboards in our City. But that's the recommendation that the City Solicitor and I will make to the Mayor, and be glad to discuss it with you.

All right. Thank you. Thank you, Madam President.

Thank you. Any other questions of the Managing Director? (No response.)

Thank you 159 Whole - Bills 040255, et al - 5/18/04 very much.

Thank you.

Thank you. It was my understanding that Council members wanted the Law Department, MBEC and Procurement to come back at the same time. Oh, before... Is that so? Before we do that, do we have someone from the Airport here? Good afternoon.

Good afternoon.

How are you, Mr. Iszdell? Good afternoon. Thank you for coming back. I was asked for your return. I believe Councilman Nutter had some questions of you, if you don't mind waiting just a moment, please.

Not at all. Thank you.

The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Mr. Iszdell, we received a copy of a 160 Whole - Bills 040255, et al - 5/18/04 very large package not too long ago, which represents the... I guess is it a lease agreement between the City and a private company to oversee concessions at the Airport?

That's correct.

Okay. How many concessions are there at the Airport.

Mr. Iszdell, excuse me. You're going to have to identify yourself, please.

Good afternoon. I'm Charley Iszdell, Director of Aviation. And I'm going to ask Deputy Director James Tyrell to assist me in answering your first question.

Good afternoon, Madam Chairwoman. My name is James Tyrell, Deputy Director of Aviation for Property Management and Business Development. Mr. Councilman, there are approximately 153 locations at the Airport under the Marketplace Redwood Concession Program. 161 Whole - Bills 040255, et al - 5/18/04

153 locations?

Correct.

Okay. And what is the term of the agreement with Marketplace Redwood?

The term of the agreement is years. The commencement 9 date is June 4, 1998. 10

15 years, you 11 say? 12

Correct. 13

Okay. And are 14 there any provisions in that? You said, 15 again, it's a lease?

Yes, Mr. Councilman.

And just for the record so I can understand, was that lease approved by City Council?

I do not believe the lease was ever approved by City Council.

Okay. Well, it probably wasn't because it probably did not need to be; is that correct?

Yes, Mr. Councilman. 162 Whole - Bills 040255, et al - 5/18/04

Okay. So you we have a 15-year lease agreement. Commenced June 4, 1998, you said?

Yes, sir.

And what's the technical term for Marketplace Redwood, in terms of this contract? Are they a master concessionaire? Are they... What are they called?

They are actually called a developer.

A developer. Okay. And prior to this agreement, was there a developer for the Airport?

There was not. There was a master concessionaire.

Master concessionaire. Who was that?

Aramark.

And did they have a lease?

Yes, they did.

How long was it? 163 Whole - Bills 040255, et al - 5/18/04

I believe the term was years. 4

20 years. 5 And so did that expire in 1998? 6

The Marketplace Redwood 7 contract was actually executed in 1994. 8 The term, the 15-year term, began running 9 after the opening of the BC Mall, which 10 was -- 11

After the what? 12

After the opening of 13 the -- what we called the BC Mall which was 14 the core or the majority of the lease 15 concessions. 16

So you said it 17 actually started in 1994? 18

Correct. 19

Do you have a 20 date?

It was... The lease was executed in December of 1994.

Okay. So then what happened on June 4, 1998?

On June 4, 1998, the BC 164 Whole - Bills 040255, et al - 5/18/04 Mall opened, which represented approximately 33 stores. The lease itself term -- The term commenced as of that date, the secondary term.

So we're talking about an initial term and then a secondary term?

That's correct.

So, was the initial term from '94 to '98?

The initial term was from 1994 until the opening of the BC Mall which actually occurred on June 4, 1998, yes. There was not a specific period spelled out in the lease for the initial term.

Well, what was the difference between this initial term, the '94 to '98 time period, and then the 15-year term? I mean, what was the purpose -- What was the significance, I guess, of the BC Mall opening? Why was that relevant?

If I could elaborate, 165 Whole - Bills 040255, et al - 5/18/04 during that initial period, we had a major construction period, during which there was, in fact, no retail mall in existence. We built the mall in the years between '94 and '98. So the way the agreement was originally structured, the 15-year term did not -- was not set to start until that retail mall and food court which is in the core space of the Airport was actually open and ready for business.

Well, when did the Aramark lease expire?

Aramark actually had two leases with the City at the time. One was for food and beverage, and one was for retail. They both had different expiration dates. I believe one was in '93 and one was in '95. I don't recall exactly, but they actually were going to overlap the Marketplace Redwood contract.

So, when these leases expired, did you put this developer agreement out to bid? 166 Whole - Bills 040255, et al - 5/18/04

The RFP for a developer was actually issued in December of 1993.

How many companies responded?

I believe we had three responses.

Do you remember who they were.

Marketplace Redwood, BAA, which was British Airports Authority, and another one from a company called Tishman Developers.

Aramark didn't even apply?

Aramark was not necessarily qualified to respond, since they were actually a master concessionaire and not a developer. The RFP was specifically for a developer.

What's the difference?

A master concessionaire actually operates the concessions themselves, where a developer subleases 167 Whole - Bills 040255, et al - 5/18/04 them to another operator.

So what does the developer do?

Developer does capital improvements, and leasing, and management.

Okay. And what was the amount of the bid or... I mean, I understand with concessions, regular contracts it's the lowest responsible bidder; concessions it's the highest responsible bidder. Was the winning bid?

The final financial consideration was tied to the number of enplanements, number of passengers that actually go through the airport, and a share of a profit-sharing arrangement.

Profit-sharing?

Correct.

Okay. The City participates in -- Is the City the other participants in the profit-sharing?

Yes, sir.

Okay. What does this contract generate? Is it for the City 168 Whole - Bills 040255, et al - 5/18/04 or for the Airport?

It is for the Airport.

All the dollars have to stay on the Airport property?

Yes, sir.