COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, November 14, 2000 10:45 a.m. - - - BILL 000609 - An ordinance amending an ordinance approved February 3, 1999, (Bill No. 980705), which created the Jump Street Tax Increment Financing District. BILL 000610 - An ordinance creating the Avenue of the Arts Garage Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the Avenue of the Arts Garage Tax Increment Financing District. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 11/14/2000 - COMMITTEE OF THE WHOLE I N D E X Robert Fina, Senior Vice President, PIDC . . . James Cuorato, Director of Commerce. . . . . . 5 E. Solms, Exec. Dir., Ave. of the Arts Inc. 149 Floyd Alston, President, Beech Interplex, Inc. 151 George Schaeffer, Project Manager. . . . . . . 153 Regional Performing Arts Center Marilyn Rivers, Executive Director . . . . . . 159 Women's Christian Alliance Shelly Yanoff, PCCY. . . . . . . . . . . . . . 185 Stanley Fields, Academy House Resident . . . . 187 3 11/14/00 - WHOLE - BILL 000609, 610 P R O C E E D I N G S
Good morning, everyone. This is the public hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the title of the first bill, Bill 7 No. 000609.
Bill 000609, an ordinance amending an ordinance approved February 3, 1999, (Bill No. 980705), which created the Jump Street Tax Increment Financing District by approving the amended project plan for the redevelopment of the district submitted to City Council by the Philadelphia Authority for Industrial Development. (Witnesses come forward.)
Good morning, Mr. Fina. Please identify yourself for the record and proceed with your testimony. Do all Councilmembers have a copy of Mr. Fina's testimony? If you do not. . . (Councilmembers respond off record.)
You do not? Does everybody else have a copy of Mr. Fina's testimony? 4 11/14/00 - WHOLE - BILL 000609, 610 All right. Mr. Fina, I believe we have enough copies.
All right, if you have copies, fine. Good morning, President Verna and members of City Council. My name is Robert Fina. I am Senior Vice President with Philadelphia Industrial Development Corporation, PIDC, and I'm appearing on behalf of the Philadelphia Authority for Industrial Development, PAID. I'm here to provide testimony on Bill No. 000609 and Bill No. 13 000610. Before I continue my testimony, Mr. Cuorato, the Commerce Director, would like to provide his testimony because I believe he does have another engagement.
All right. I'm sorry. I do believe he did say that. Mr. Cuorato, please identify yourself for the record, and I guess you could submit your testimony at this point in time regarding both bills, so maybe we ought to read the title of Bill 24 000610 also.
Thank you, Madam 5 11/14/00 - WHOLE - BILL 000609, 610 President.
Just a moment. Mr. McPherson's going to read the title of Bill 610 in order for you to testify on the two bills.
Bill No. 000610, an ordinance creating the Avenue of the Arts Garage Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the Avenue of the Arts Garage Tax Increment Financing District.
Good morning, Council President Verna and members of City Council. My name is James Cuorato. I am City Representative and Director of Commerce for the City of Philadelphia. I'm here this morning to testify regarding Bill No. 609, which would amend the Tax Increment Financing District for the Jump Street project on North Broad Street, and Bill No. 610, which would establish the TIF District for the Avenue of the Arts Garage at 15th and Spruce Streets. 6 11/14/00 - WHOLE - BILL 000609, 610 As Mr. Fina said, he will be testifying as to the specifics of each of these bills. I wanted to provide the members of City Council with our basic strategy for presenting TIF proposals for your approval. While we are developing a specific set of criteria upon which to evaluate future TIF proposals, I believe that these two projects clearly meet all of the goals that we will establish for creating TIF districts. Our strategy will contain three basic guiding principles in evaluating projects for TIF designation: The first will be the, quote/unquote, but-for argument, which is to say that it must be clearly established that a project cannot proceed "but for" a TIF District being a part of the funding; The second major criterion will be that the project have a noticeable and positive impact on its surrounding neighborhood; The third criterion will be that a project be consistent with the overall planning for the community in which it is being developed. 7 11/14/00 - WHOLE - BILL 000609, 610 For both of the projects here before you today, these criteria will be met. Regarding the Jump Street TIF, I would note that this is an amendment to a project that had been previously approved by City Council. Mr. Fina's testimony will address of the issue of the need for additional financing. As to the second and third criteria, the Jump Street project will have a very positive impact on the North Broad Street Avenue of the Arts north area. It is also consistent with our goal of revitalizing this area of North Broad Street. As for the 15th and Spruce Streets parking garage, the parking is entirely consistent with our comprehensive Avenue of the Arts plan and will provide the much needed parking for the Avenue of the Arts in general and the Kimmel Center for the Performing Arts in particular. These two projects represent what I expect will be the final two TIFs that the Administration will be presenting to City Council this calendar year. By the 2001 City Council session, we will be prepared to discuss in more specific detail our overall policy on tax 8 11/14/00 - WHOLE - BILL 000609, 610 increment financing. Inasmuch as these two bills are critically important to our developments on both North Broad Street and South Broad Street, and in that both projects meet the broad goals that will be a part of our overall strategy, I respectfully request your approval of these two bills in order that these two projects can move forward. Thank you very much for your consideration of this testimony, and I would be glad to answer any questions that Councilmembers may have.
Thank you. Mr. Cuorato, you say you're developing a specific set of criteria to evaluate the TIFs in the future? It is my hope that you will definitely be in touch with Council's technical staff as you are developing the criteria so that we can have some input or knowledge about them in the future.
Thank you. The Chair recognizes Councilman Ortiz. 9 11/14/00 - WHOLE - BILL 000609, 610
Yeah. I have only one question, Mr. Cuorato. The but-for question, it really needs a very amplified answer. This is a locale that generally will be market-driven, as we say in the business. It is a locale that people would want to be at. Extensive building is going on, and will keep on going on there. It will not end with the arts center. So that traffic will be an ongoing -- I'm asking -- I don't care about the garage I thought they were both, open 'cause you testified to both.
You testified to both, so I'm -- I'm questioning as to the garage because -- I -- I question the necessity of subsidizing and giving tax benefits that really take away from the school in the long run to a business that will be self-sufficient, given the current and future development that will be going on in the area and -- and a very clear explanation as to what makes it unprofitable without the subsidy. What makes it that ten years and fifteen years from now, this will not -- or very clear in the very near future, this will be an unprofitable 10 11/14/00 - WHOLE - BILL 000609, 610 building situation? I guess I really do not understand it.
Councilman, Mr. Fina's testimony is going to address the specifics of the but-for argument for the garage, and there are some provisions in this one that will enable us to have the TIF repaid even sooner if the garage is profitable, which Mr. Fina will explain to you in more detail. My basic philosophy, though, as I had mentioned at a prior Council meeting, is going to be that TIFs should not be viewed as an entitlement by developers and that we are going to have to be absolutely convinced that the projects would not go forward if some sort of subsidy is not provided and that they are projects that we actually want to happen, which is to say they are consistent with our planning for the community and would have a very noticeable and positive impact on a neighborhood.
But anyone would come forward and say, Well, I'm not going to build that unless you give me a TIF, it is not profitable, it is not doable, it is not -- and -- 11 11/14/00 - WHOLE - BILL 000609, 610 and we keep on approving these because they were supposed to be going to the places where no 4 development could be taking place. In front of the Arts Center, surrounded by the Wilma, surrounded by all of the other entertainment centers that are going on, all of the restaurants that are taking place, the Academy of Music, and so on down the line, I don't think that this is a place that is going to just lie there without any sort of interest from any developers.
The specific proposal for the garage, we believe, did meet the but-for argument, and it is critically important to both the Avenue of the Arts development and --
But I haven't heard the answer as to the but-for. That's --
Mr. Fina is going to provide that as part of his testimony, which he can do now.
Thank you. Are there any other questions? The Chair recognizes Councilman 12 11/14/00 - WHOLE - BILL 000609, 610 DiCicco.
Thank you, Madam Chair. I just want to pick up on what Councilman Ortiz was speaking to. I think what -- I hear what he's saying and I think for the average person to look at what's going on out there, you would assume that because of all of the other development, yes, there's a higher interest to do developing in that particular community. But the question remains as to what the cost of doing the development is. I mean, I'd like to build a restaurant there tomorrow; I can't afford it. Well, let me say that again: I would never want to own a restaurant again. But the point I'm making is that even though the area is a very attractive place to develop, it may not necessarily mean that you have the wherewithal to get it done, because the more attractive and more vibrant the community becomes, the more costly it is to do the project because -- maybe not in the case of the garage, but the property values go up, the cost of acquisition go up and a lot of other things that you have to 13 11/14/00 - WHOLE - BILL 000609, 610 factor in. And I think the financing piece to it is really what is at the heart of it this, not necessarily a community where people would want to develop versus a community where people would not want to develop. It's the cost of developing.
Madam Chair, Madam Chair, if I may. That is the market. I mean, that's the way that this society works. That's the free market system. That if you want to make some money, you invest, you put your own money in, and you take some risks. That is what capitalism is all about. I mean, we -- we are -- we are now putting ourselves into this situation in which I agree with you, you know, that -- if a place develops and the Avenue of the Arts takes off, well, obviously, the land is going to cost more. But if it costs more than your investment and then the -- usually, the profit is greater down the line, because you have -- you have created the environment. That is what the market system is all about. I thought that, you know, the other 14 11/14/00 - WHOLE - BILL 000609, 610 way we go is towards the more socialistic type of system in which government begins to subsidize and give to the -- give to wealthy individuals. And -- but if it is not needed, I can see it where there is a place in which -- in North Philadelphia, in American Street, in Kensington, in 25th and York, places where we would need attractive incentives. But in Center City, in front of the new -- new concert hall, right next door to the Academy of Music, the Wilma, all of the other restaurants, I just want to be convinced that this is a necessary subsidy from the taxpayers, that, in essence, takes away, down the road from the school system. I -- I mean, who are we satisfying and who are we hurting down the line? And I think that question has to -- that is the question that really has to be answered, and I don't think we have answered that question in a satisfactory manner in this Council over the years. That's all. Thank you, ma'am.
Councilman DiCicco, were you finished with your questioning or comments? 15 11/14/00 - WHOLE - BILL 000609, 610
Yeah. Again, and not to be argumentive, but I think when we look at the Avenue of the Arts, had it not been for $300 million of State money, which is public dollars, invested into the Avenue of the Arts, we would not have the Avenue of the Arts, we wouldn't have the other development that has occurred as a result of that. So government always plays a role, and I think it is appropriate for government to take a role to encourage development. And I don't think we're ever going to get away from that because there's just not enough money in the private sector, in most cases, for a developer to come along with his or her own money to make a project work. It would be great if they could, but there's always some sort of assistance that is going to be necessary, I think, in the majority of cases. Thank you.
What is the projected cost for this development?
Again, I identified myself previously for the record. I'm Robert Fina. 16 11/14/00 - WHOLE - BILL 000609, 610 The total costs is projected approximately $32 million.
Councilman Kenney, do you wish to be recognized?
Thank you. Thank you, Madam Chair. I don't have as much problem with the but-for -- what was the cost -- but-for cost, 'cause I do -- I do understand the numbers and I understand that this is a required mechanism that we use to spur on this kind of development. I guess my general question is, I always thought the Parking Authority was established and created partly to control on-street parking and the movement and flow of parking on the street, but also to have the capability to issue bonds and to do other things to create structured parking and other types of off-street parking. While I recognize that this is a private company and we're trying to work out this mechanism for them, why wouldn't the Parking Authority decide to do this type of development to build a structured garage, to have the retail 17 11/14/00 - WHOLE - BILL 000609, 610 spaced, and to plow some of the revenues that the Parking Authority would earn back into other City-type projects? I mean, obviously, we depend on the Parking Authority for a substantial amount of revenue from ticket-writing and other things and from the operation of off-street parking lots. In this location, with this lucrative opportunity to make sure that -- obviously, this -- hopefully, this garage will be filled most evenings and during the day. Why wouldn't the Parking Authority, with less costs to the City, be doing this type of project?
Councilman, that's a very good question, and we did consider that for some time and met with the Parking Authority on that subject. There are several reasons why we concluded this would be a better mechanism. The first one is that the land is privately owned by Parkway Corporation, and it would require a process that would eventually lead to condemnation, the timing of which would not support the demand for parking that's associated with the completion of the Kimmel Center. 18 11/14/00 - WHOLE - BILL 000609, 610 The second one is that the Parking Authority would sell bonds that were guaranteed by action through the City Council, with the City guaranteeing those bonds, and we thought there would be a better mechanism to apply the TIF. And as I will talk about the TIF in my testimony, we have what we're calling not just the but-for, but "a claw-back." And that claw-back means that if the garage does well, the public pays off its debt with profits from the developer early, or earlier than projected. So we're trying to create mechanism that is the least onerous on the public to develop this garage in a timing that is most efficient for supporting the Kimmel Center.
Maybe you could explain to me the difference between this particular project and, say, almost a similar style project on Rittenhouse Square, where, I believe, the Parking Authority actually went out and bought the private land, which was -- the land, which was privately owned and was going to actually do -- well, I think was going to do the construction of a garage in a very -- probably a 19 11/14/00 - WHOLE - BILL 000609, 610 more lucrative area or a more expensive area. I will say Rittenhouse Square is a more expensive area than 15th and Locust at this day as we speak. Why the difference there as opposed to here? Both are privately owned parcels, the Parking Authority could be involved in either or none, and they decide in one case -- and I know you're not speaking for the Parking Authority, in one case to be involved in the Rittenhouse Square project, which is similar in style and scope, I guess, probably the one at 15th and Locust is larger. But what's the difference between the two?
Councilman, I appreciate you're noting that I can't really speak for the Parking Authority. They actually began that project prior to our planning for this particular garage. As you will note, they are still not proceeding with that project; I expect they will, but I'm not certain. Also the bonds that the Parking Authority did use to acquire that in our proposal to build it are, again, guaranteed by the City of 20 11/14/00 - WHOLE - BILL 000609, 610 Philadelphia. We're trying to avoid that mechanism, and I can't really speak as to the validity of moving forward with that project presently or in its present form.
I guess on this particular issue, 'cause I'm going to support this issue, but I think in the future, maybe we ought to be looking at the Parking Authority and the ability to use the Authority more than we do as it relates to the provision of off-street parking opportunities for our Center City and even neighborhood developments. It seems to me to be probably a better way to go and more direct benefit both in an increased revenue stream to the City through the Parking Authority and, as Councilman Ortiz suggests, an avoidance of the loss of down-the-road revenue for the schools.
I think that's right, Councilman Kenney. I think that the situation with Avenue of the Arts was such that because of the land ownership situation and the timing constraints, it was the prudent way to go, which is with the TIF and having it privately developed. 21 11/14/00 - WHOLE - BILL 000609, 610 But I certainly agree with you that we can look to have the Parking Authority more involved in developments like this.
And just one final question. You had mentioned -- you had told the Council President that you would be providing a cost benefit analysis on all of our TIFs? When do you think that that will be available? Do you have a general time frame for how long it would take to get that? A couple of months, a month, two months?
Councilman, what PIDC does is a routine, and we occasionally provide it to City Council, is that we do provide analysis on every TIF, and I could demonstrate, and I have the information available presently, that demonstrates that every TIF we've done so far, the City and School District would be better, as far as total tax revenue from those projects now than they did prior to the TIF and the development occurring. Every TIF we've done so far indicates that -- every TIF that's closed and developed, and we have data on that available. Every TIF we've done that's been 22 11/14/00 - WHOLE - BILL 000609, 610 approved by City Council we project will do better. A lot of them have not gone to construction yet and are not generating taxes, but those that are, there are more taxes to the City and to the School District than before the project was built and before the TIF was approved.
And that analysis is based on the fact that there was nothing there to begin with, correct?
I'm a little curious. This is an existing parking lot. How many cars are they able to park, do you know?
I suggest Councilman DiCicco go into the parking business 23 11/14/00 - WHOLE - BILL 000609, 610 rather than the restaurant business. As I read from this printout that you gave us, with 128 parking spaces, there is generated $1.2 million? Am I incorrectly reading that? Operating cash flow?
With 128 automobiles. How many automobiles will they be able to park with the garage?
660 automobiles. Madam President, that's prior to taxes. There are a number of parking taxes associated with a parking lot or a parking garage, so that's gross revenue, I believe, the million 2. Oh, I'm sorry, you're -- I'm wrong. That's correct, it is a million 2 gross profit, gross profit.
It may be helpful if I go into my testimony 'cause I think many of these questions would be answered.
I think that Mr. Cuorato has to leave and I think that there 24 11/14/00 - WHOLE - BILL 000609, 610 are a couple of members that haven't been recognized yet. So if you don't mind, Mr. Fina, I would like to recognize Councilman Goode.
Thank you, Madam President. I'll be very brief; I know you have to run to decide on who the next economic development head of PIDC is going to be, but since you are the Commerce Director, I'd like to discuss just briefly with you related to your testimony the whole issue of even coming up with a new TIF strategy. Is it, in your opinion, better to come up with a strategy that will give tax incentives to individual developers rather than actually looking at the costs of dramatically cutting the wage tax and business privilege tax? I mean, what do you think the better strategy is? since I'm assuming that we couldn't do both.
I'd like to do both, Councilman Goode. I think that -- my approach is going to be that TIFs only be used when absolutely necessary. I have had discussions within the Administration about the possibility of reducing 25 11/14/00 - WHOLE - BILL 000609, 610 the wage tax and the business privilege tax, even more so than the current five-year plan calls for because, frankly, in the three months that I've been on the job, I have met with dozens of businesses, and that is what I am hearing back from them, that the tax structure is onerous and pleas for help in that regard. So if your question is, where would I rather see the attention focused on more TIFs or reducing taxes, I would rather reduce taxes.
And with each TIF that we do, doesn't that dramatically impact our ability to cut the wage and business privilege tax because we're giving up revenues to individual developers rather than giving breaks across the board to actually change the business environments in the City?
Well, I wouldn't look at it as doing TIFs is only a revenue reducer; I would look at the positive aspects that we're getting from the TIF projects that we're supporting. And, I mean, I will speak for the TIF policy going forward, which is to say that it will 11/14/00 - WHOLE - BILL 000609, 610 be used when necessary as an economic development tool to get a project moving forward that we want to see, that is good for a neighborhood, that provides jobs, that's consistent with our planning for a neighborhood -- not necessarily because a developer comes forward and says, I want to do this project, I have a gap, I need a TIF and, therefore, we just do it.
But you would agree that with tens of millions, if not hundreds of millions of dollars, in TIFs that have been done, essentially, we have not changed the business climate in Philadelphia, we haven't changed the business climate within very narrow areas in which we've done several TIFs and that TIFs actually do not change the business climate or the business environment except for that individual developer.
Councilman, I would respectfully take issue with that. I think the TIF has been an enormously advantageous tool for us to have. I think for a number of projects and -- for a number of projects for which TIFs have been approved, I don't think that those projects would have been able to go forward without that 27 11/14/00 - WHOLE - BILL 000609, 610 specific tool.
My specific question is simply that it does not change the business climate for anyone other that the individual developer.
Well, it's -- the projects that we've approved TIFs for have provided hundreds of jobs for Philadelphians, which, I think is, certainly a positive benefit, and they pay wage taxes.
I'm talking about the actual environment in which we do business, whether it's the Avenue of the Arts area, whether it's any other area in which we've done TIFs that's a specific geographic area. It has not impacted that environment for anyone other than the individual developer, or else we would continue to do TIFs in the exact same places.
Well, I -- I just -- I mean -- while most of the TIFs have been in the broadly defined Center City area, I think you could argue that the projects for which TIFs have been supported have made this business district much more viable, much more vibrant. I know most 28 11/14/00 - WHOLE - BILL 000609, 610 of the projects have been hotels but, no, I -- I think it's had a very positive impact on the City.
Thank you. Councilman Cohen, you're next to be recognized. Do you have questions of Mr. Cuorato? Because he had indicated that he had to be at a meeting. Or is it for Mr. Fina? Are you questions for Mr. Cuorato or Mr. Fina?
And that's because I'm trying to struggle with the justification for TIFs, whether they're good for the City or whether -- and the developer or whether they're really only good for the developer. 29 11/14/00 - WHOLE - BILL 000609, 610 Mr. Cuorato, in your explanation as to the basis for giving TIFs, it seems to me that we have gone in a totally round circle. We no longer are interested in whether a developer needs TIFs; all we're interested in is whether or not it's a good project for the City. And if it's a good project for the City, you're saying that we should grant the TIFs, and you did not include at all the question of need by the developer. In fact, it seemed to me you went out of your way to say that that's kind of irrelevant. Now, when we first started down this road, the total justification was the need for the developer, otherwise the project couldn't go through. You're saying now that we eliminate that totally as a factor. A developer who could make, say, what would be considered a good profit without a TIF, nonetheless, is entitled to a TIF if the project is good for the City. Do I understand you correctly?
No, you do not, Councilman. In fact if you -- the testimony that I gave this morning, the very first point that I brought up, that the first criteria that would be 30 11/14/00 - WHOLE - BILL 000609, 610 used in judging TIFs is whether or not there is an actual gap, which is to say that if a developer comes in and has a project that it would be good for the City that we would want to support, they will have to prove that there's a funding gap, a financing gap that only a TIF could approve; otherwise, we're not going to support it. So that -- that is not the case. That would be the first guiding principle that we would follow in evaluating TIFs. And in fact --
Unless, I was wrong, you did not even mention it in your reply to Councilman Goode.
I may not have mentioned it in my reply to Councilman Goode because I thought the question was a little different, but in my testimony, it's the first point that I mentioned, it's the first point that I brought up. And, in fact, there have been -- even in the several months that I've been the Director of Commerce, there have been a few developers who have come in with projects that I did not feel were able to demonstrate the financial need, and we have just said no, we're not going to support a 31 11/14/00 - WHOLE - BILL 000609, 610 TIF. So that was the first point that I made in my testimony.
So then you're stating the need of the developer is the first requirement that has to be shown, the need with respect to that particular project, I assume, rather than the need generally of the developer.
The developer would have to demonstrate to us, through a very detailed proforma, that the project could not go forward without the subsidy, which would be a TIF funding.
They demonstrate to us, and you will see this morning, Councilman Cohen, in the specific details that Mr. Fina's going to present on these two projects that they would present to us their sources and uses of fund, which is to say the cost of a project, which we can evaluate and determine whether it's realistic or unrealistic, and the sources of funds that they have for the project, which are equity and debt financing in most cases, traditional debt 32 11/14/00 - WHOLE - BILL 000609, 610 financing. And we -- we do push; we do not simply accept what a developer presents to us. If an equity investment that a developer's proposing is too low, we will say that. If we believe more traditional financing can be secured, we will say that. We do not simply accept a developer's numbers. If they come to us with a project, we will push very hard. If we are convinced that traditional sources of funding have gone as far as they can go and there is still a gap and it is a project that we believe is good for the City, I think that warrants us presenting a TIF proposal or putting a TIF proposal together. But, otherwise, we would not.
And you're saying there has to be an equity involvement by the developer?
In virtually all of the projects that we have seen, or that I have seen, there is an equity investment by the developer, and then there's traditional debt financing or mortgage financing. And oftentimes for the 33 11/14/00 - WHOLE - BILL 000609, 610 projects that we look at, that does not equal the uses of funds in order to have a project fully developed. And if we think a project is good and worthwhile and good for the City, that's when I think we are warranted to step in and help.
Now, when a developer prepares a financial statement for you, does the developer employ any experts in the financial field, or does the developer just put together his own figures as best he can and present them to you?
Most developers that we deal with are experienced and have either in-house capability to do that or will have financial advisors or consultants working with them.
Now, on the other end, how about the City? How does the City analyze the developer's requests?
In similar fashion. For most of the requests, the expertise is in-house. For extraordinary circumstances, if we feel we need to go outside and get outside financial advice or consulting, we will. But in most cases, we have the expertise in-house to make those 34 11/14/00 - WHOLE - BILL 000609, 610 decisions.
What is this expertise in-house that we have? Could you name names and tell us the backgrounds and tell us the training they've had to make financial evaluations?
Well, Mr. Fina, who is seated right here with me, can describe his own qualifications and background. He's had extensive experience in very complicated financial transactions, and his ability to analyze a proforma is excellent. And I've worked with Mr. Fina on --
He's a fine man, has great intentions, and does a great job. But what I'm interested in now is not in making a recommendation for Mr. Fina for some promotion to a higher position, which he undoubtedly deserves, but I'm just interested in knowing how the City of Philadelphia protects itself by having the most expert, knowleged people available to any government in evaluating developer' requests.
We have, between the expertise at PIDC, at the Department of Commerce 35 11/14/00 - WHOLE - BILL 000609, 610 and the City Finance Department, I think we --
I'll tell you why, Mr. Cuorato, I raise this question. It is common knowledge throughout the whole United States for years that regulatory agencies, for example, begin to seem almost like the regulated agencies after a while, and that the main interest of regulatory agencies generally becomes the interests of those agencies that they're regulating. The more people work together, develop working relationships, the more similar their views become, so that in effect, there is never any really objective analysis. For example, it strikes me -- in this particular project, I don't know when it was acquired by Parkway, the lot, for example. Do we have figures, do we know what Parkway paid for the lot? Is the lot being considered at all as part of the equity investment? And when it is so considered, at what value is that lot listed as having equity value? And are the other resources of the developer ever considered in a project, or does each project have to stand on its very own? And if there is a period of time, as most projects 36 11/14/00 - WHOLE - BILL 000609, 610 require a period of time before the income is fully realized, whose burden is it to provide for that period of time. My view would be that it's the developer's responsibility, not the City's responsibility. And the developer has had on opportunity over many years, in most cases, to develop that equity reserve. But I would like the answers to those kind of questions that come not directly from me or from Mr. Fina but from people who are well recognized in the economic field. So my question to Mr. Fina is, when a developer brings in these documents, who examines them? Because I don't think it ought to be the agency that makes the final decision. I think there ought to be a separate objective evaluation by an independent agency employed by the City seeking to represent the City's interests. Mr. Fina, are you going to reply to my question or --
Forgive me, Councilman, I'm not sure what the question was, but if you're asking -- 37 11/14/00 - WHOLE - BILL 000609, 610
The question was, what is the expertise that the City of Philadelphia employs in analyzing any developer's documentation in support of a project request for TIFs?
I would only reiterate what Mr. Cuorato said, that the expertise exists at PIDC, the Commerce Department, and the Finance Department. At PIDC, my staff, I have -- just to go over their credentials, if I may, I have three people working for me. Two have MBAs from Penn in business that do financial analysis, another one has a Ph.D., a third person has a Ph.D. They have the academic expertise that you're looking for credentials to test that. At times, we will hire a consultant if we believe we need a consultant to further analyze a project if it's more complicated than our experience. I've been doing this for approximately twenty years. By no means do I consider myself the best, but I have 20 years' experience in analyzing projects in various agencies, under various criteria, and I employ all of that expertise as well as the staff that I mentioned. 38 11/14/00 - WHOLE - BILL 000609, 610 I'd be more than happy to meet with you to go over the resumes of the people who work on this and how we go about analysis. My testimony will provide some insight into our analysis, and the information that I provide Council on a regular basis will provide some insight into our analysis, and I think, you know, it may provide some of the answers that you seek.
Do you -- do you prepare -- for each project that's before you, do you prepare an analysis in written form supporting whatever recommendations you reach?
We have a rather extensive analysis, some of which I've outlined with my testimony that was circulated. So to answer your question, yes, we provide written analysis for each project.
Let me ask you, in this particular project, is the land itself that's currently being used as an open-lot parking surface -- parking area, is that part of the equity that the developer puts into the development?
And can you tell us what the value is projected as the equity involvement?
The value we project, based upon income and other appraisals in the area, $7,950,000.
$7,950,000. This parcel has been acquired by the developer over the past 12 years, and this represents the market value that 13 we have applied to the parcel. 14
And do we have any 15 figures on what the cost of acquisition was when 16 the developer first acquired it 20 years ago? 17
We do have that information, 18 yes. When the developer began acquiring the 19 parcel some 20 years ago, the probably cash out, 20 without carrying costs in any way, is somewhere close to $4 million.
We have received documentation to that effect, yes. 40 11/14/00 - WHOLE - BILL 000609, 610
And you say the value for equity purposes here has not quite doubled.
And do you apply that kind of evaluation to every aspect of a proposal presented by the developer? Do you go to that kind of an analysis?
Now, when you say, as you testified before, that every one of the TIFs we have granted you can document that the School District and the City did better after the grant of the TIF than before. What do you mean by that? How did the City and the School District do better? What makes you say that? What do you conclude happened?
That the taxes that inure to the benefit of City and the School District have increased and are substantially greater than they were before the project was built and before the TIF was approved. 41 11/14/00 - WHOLE - BILL 000609, 610
Well, wouldn't that be in every case? Whenever there is a development, isn't there increased revenue coming from the project, no matter how it's financed?
That's usually the case, but some of these parcels that were developed that were vacant and not generating any taxes for 40 years, there was nothing ever happening before the TIF was approved and the project; therefore, we went forward. And we have statistical data that will --
But wouldn't that have happened if the project had been developed without a TIF?
But, Councilman, my point is that they weren't developed. For 40 years, a property in Eastwick, near the Airport, where the PNC building, was vacant. Since then, not only did that project get built, with 1100 jobs, but there are four hotels and two restaurants that have been built that are not in the TIF but that are there and would have never been developed, and those property owners will tell you without PNC Bank, as approved by this Council, that TIF 42 11/14/00 - WHOLE - BILL 000609, 610 occurring and that project being built. So we do have statistics that prove that the specific TIF District has improved, and we have related data that indicates that develop has occurred surrounding the TIF District. At least in the PNC Bank operation facility, it's very clear.
Do you have any standards as to how long property has to lie around being undeveloped in order to feel that you've got a case to prove that were it not for the TIF, the project would have been continued to remain undeveloped? Like, for example, let me take the development of Northern Liberties in recent times as one community, or Old City. It seems to me that much of the development in those two areas occurred because developers saw the economic possibilities without respect to TIFs. There was some that recently we've given TIFs to before we gave abatements to in some cases, but that the vast majority of development occurred without TIFs and abatements. I'm trying to find out what standards 43 11/14/00 - WHOLE - BILL 000609, 610 you apply to make a decision of the but-for the grant of the TIFs, this would not have developed.
We look at the economics of the project that's proposed, and plus each TIF District must be a redevelopment area, certified by the Planning Commission as blighted and blighting under the State definition.
Well, take this area of this development. Do you consider this now a blighted area surrounded by everything in Center City? That's desirable. And for that, maybe the Parkway deserves a good bit of credit for its past activities, but can it now be considered a blighted area in any way?
Under the State definition, an underutilized property, which a parking lot is considered, it's considered blighted. That's under the State definition.
Is that a definition that exists in the law? 44 11/14/00 - WHOLE - BILL 000609, 610
All right, that's an interesting concept. Okay, thank you, Madam Chair.
You're welcome. Are there any other questions of Mr. Cuorato? The Chair recognizes Councilwoman Tasco.
In looking at the bottom line of a project's development, when you look at the financial statement, you look at the projected profit income that would be generated from this project over the years? Do you look at that?
So if you look at that and you see a large profit being generated from a project, couldn't that developer use the projected profit to increase the borrowing power 45 11/14/00 - WHOLE - BILL 000609, 610 for the project rather than asking for a TIF from the City?
If the projected profit we believe is too large -- we make some reasonable determinations about what would be a sufficient rate of return for a project to succeed. If the proforma shows excess profits, we will question the developer about that, and more than likely, if a project looks like it can be successful without a TIF, we will not support it. I think when Mr. Fina presents details of the 15th and Spruce garage today, you will see that there is a provision that if the garage is successful beyond a certain point, that the TIF would be repaid sooner. But to answer your question, yes, we do look at a developer's projected return and take that into consideration.
When you look at the garage and where it's located and the cost of parking, and it's across the street from the Avenue of the Arts -- what's the new building?
Kimmel Center. 46 11/14/00 - WHOLE - BILL 000609, 610
The Kimmel Center, right. There's a lot of activity going on around there. And analyzing the financial statement, what does the profit look like. What does the bottom line look like? Does it look like the developer could, in applying for the loan that you talk about, be able to -- it's only, what, $6 million they're asking for from the City, $6 million?
I mean, that's a small amount when you look at the total cost of the project.
Councilwoman, with my testimony, I had provided what is called a "project financing gap analysis" to each member of Council. There are outlines, our conclusions basically of how there is a gap that exists. Even with the revenue that's generated from the proposed garage that we project to be generated, there's a gap that exceeds the TIF, actually. The gap is about 7.84 million, the TIF is 6.2 million because the gap -- So the developer, even after equity's 47 11/14/00 - WHOLE - BILL 000609, 610 provided to a project in the form of the land, has to provide additional cash to this development as well as borrow $15.6 million. The risk is on the develop to get a return for its equity and to repay that debt. So we attempt to maximize that -- the private investment. We look at the TIF more or less as a shallow subsidy program, one that attempts to encourage capital investment, not replacing it. We always look to the developer in the business to provide debt and equity first and then determine if there's a gap in how we would fund that gap. And even then with our analysis and from discussions of me coming before City Council, we brought something -- a new concept that we started several months ago in continuing in our TIFs in our negotiation with the developer, something we call a "claw-back," where if the developer makes a certain return on its equity, a certain profit, we then share above that the return to pay off the TIF note early. So if I'm wrong in my calculations, if I've made mistakes and overestimated the difficulty of a developer to earn a profit, we 48 11/14/00 - WHOLE - BILL 000609, 610 have a mechanism that we're creating that we document that the developer must share its profit with us until the TIF is paid off.
Okay. My next question is, the efforts by PIDC and the Commerce Department to be supportive of the projects and come up with creative ways to help them, is it possible to get that same creative support for the children's fund in terms of me trying to try in -- generating some dollars from these developments for a children's fund, but we don't get the same enthusiasm to invest in children that we get to invest in businesses. What commitment can you make at this point to help us figure out how we can get this children's fund going? I want to see the same enthusiasm and support for helping us develop this fund, and I need some commitment from you.
Councilwoman, I -- I fully support the idea of a children's fund. However, I -- I cannot support the idea that it be -- it be funded from our business assistance programs. And I -- I say that with all due respect. I understand the intent, and I think 49 11/14/00 - WHOLE - BILL 000609, 610 it's most noteworthy. I would just ask that you consider the fact that we are at a disadvantage in attracting business and development, and I am doing everything that I can to overturn this perception that Philadelphia is not a business-friendly environment, to overturn this perception that our tax structure is onerous and burdensome and what I -- what I'm trying to do is -- is do things that will make the situation more positive. I just don't think funding the children's fund from the basic programs that we use to help businesses is going to -- is going to further my goals to increase business. I am not saying that the children's fund is not important. What I guess I'm saying is that if -- if there are other ways that that can be funded, including direct appropriations, those are the ways that I think it should be done.
I don't want to see us put at a further disadvantage, and my fear that is in the business assistance programs that we provide, if we're taking money out of that, it's 50 11/14/00 - WHOLE - BILL 000609, 610 going to further the disadvantage that we're working under.
Well, I don't agree that we're disadvantaged. I have some land up on Cheltenham Avenue that I got developers standing in line to develop. They want to develop it. I mean, they got -- there's land over there on the Boulevard and Logan, 34 acres. Developers are standing in line to develop it. They don't seem to say that they don't want to invest. And that's in the community, it's not downtown. So I don't agree with that argument. I think it's a safe argument to use to grant support for businesses, and they really do have to do that. But I think we ought to stop using the negative that Philadelphia's such a bad place and folks don't want to come in and develop. I think they will develop. If the folks who developed around PNC Bank developed, they didn't ask for a TIF, but they came in and developed. So we do have to present City in a positive light, that we do have something to offer. If we don't have an adequate workforce and we continue to have an increase in crime, they're 51 11/14/00 - WHOLE - BILL 000609, 610 not going to want to come. So we ought to see the benefit inn the development of these projects to support the children so that we can grow children to be responsible citizens as a benefit as a result of the investment. So I -- I think that -- and then I just read in the paper this morning that we got a developer buying up everything in the City. Evidently, he wants to develop. He bought the Acme market, he's buying up everything. Nobody's giving him any TIFs yet, but he's got all this land and we can't seem to take it for ourselves. Did he get a TIF on the Acme market? I mean, you know, we get this argument all the time. We got to do it because the people are not coming to Philadelphia. I do not agree that, you know -- and, you know, I think that we're going to have to work on finding a way to fund these children, and it can't continue to come out of the general fund, and we ought to tie it to economic development, and people will pay because the folks who want to come and do business in Philadelphia want a crime-free City, they want a workforce that's skilled and capable, and if we 52 11/14/00 - WHOLE - BILL 000609, 610 tie the two and make it a positive argument, then it's better for everybody. It's better for Philadelphia and it's not the Oh-woe-is-me- Philadelphia argument that we continue to get over and over again. And I just don't buy into it. So I'm going to call you because I want you to tell me how we can do it. I don't want to hear nobody telling me anymore that we can't do it. We're going to figure out how we do it. And that's all I got to say. Thank you.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. I continue to be softly persuaded to support TIFs because of one compelling factor, and that is the ultimate benefit to the Philadelphia School District. And I -- Councilman Ortiz continues to raise it, an important question for me regarding the School District and when the benefit happens. On of your testimony, first 53 11/14/00 - WHOLE - BILL 000609, 610 paragraph, the quote is, project benefits include 230 construction jobs, 57 permanent jobs, and new annual average tax revenues of $275,000 to the School District. Explain to me when that happens. It does say "new" but "new" is relative. So could explain to me when that happens, one. And, two, what happens at the end of the years, when, 10 according to information, the loan dies? 11
Councilwoman, you're quoting 12 my testimony, which I have not given yet. 13 Mr. Cuorato had given his and he was going to try 14 to go to another commitment. 15
I'd be happy to answer that 18 question maybe after I give the testimony. 19
Sure. Why don't we allow Council colleagues to continue to talk with the Commerce Director, and then you can answer the question after his departure.
Councilman Nutter. 54 11/14/00 - WHOLE - BILL 000609, 610
Thank you, Madam Chair. Mr. Fina or Mr. Cuorato, if -- if you responded to this earlier, I apologize, either because I was delayed in getting here or I missed it. But one of the things I wanted to try to understand about this project was --
Some people look forward to the opportunity not to hear me, so I appreciate my colleagues actually asking me to speak up. One of the things that I've been intrigued about this particular project related to the larger project, which is, obviously, the Regional Performing Arts Center, now, I think, more officially, the Kimmel Center. Was a parking garage or a significant increase in parking spaces a part of the original project? I mean, when people conceived that center, what was their -- what was the idea relative to parking? What's the seating capacity at the facility? Was this gone through earlier?
Councilman, the seating capacity is 2700 in the concert hall and 600 in the recital hall.
All right. So 3300 new seats in a brand-new facility that takes up -- the footprint of this building is what, from Spruce to Pine, Broad to 15th?
Okay, Delancey's the small street between Spruce and Pine, right? So when the concept was put together, when this was envisioned, which -- I mean, I think the RPAC, Kimmel Center is a great project. What did people say about where folks were going to park? I mean, what was the idea?
Councilman, I believe there will be representative from RPAC that would like to speak and could probably address that question better than I. It was considered -- earlier, maybe before you came in, we talked about why would not 56 11/14/00 - WHOLE - BILL 000609, 610 the Parking Authority do this rather than using the TIF to support this project and -- and our succinct answer was that the Parking Authority would take too long, there would have to be bonds guaranteed through City Council, guaranteed by the City, and we thought this was a better mechanism, particularly in the fact that there will be taxes generated from this project that if the Parking Authority created a parking garage, there would be less taxes generated; even with the TIF, there would be more taxes. And the fact, also, that we are basically putting a risk on the developer to do the garage as assume having the public risk the garage. So there's a number of answers, but if I can -- if you would be so kind to ask that question again of the RPAC representative when they give their testimony, I think that would only enhance my answer to you now.
Well, I understand that but, I mean, I'm assuming that you would have asked that question yourself, right? I mean, if someone -- whenever somebody came to you with this proposal, didn't the thought occur to you that -- 57 11/14/00 - WHOLE - BILL 000609, 610 I mean, why is this almost being looked upon as an add-on? I mean, 3300 seats, big new facility, where are people going to park, I mean, seems to be kind of the next natural question. I mean RPAC wasn't the secret.
That's correct, Councilman, we did consider that -- always parking was thought about in the project. We -- the initial thinking that I'm aware of dealt with the Parking Authority providing parking in the structure, that they would acquire land probably through the condemnation process and build a garage.
When was that? That went on for the last two years that I'm aware of, those discussions with the Parking Authority.
You've had discussions for the last two years with the Parking Authority about this?
And all during that time you couldn't figure something out?
No, we could. We thought this was a better approach, Councilman, and that's 58 11/14/00 - WHOLE - BILL 000609, 610 why here today, to present that, and I will present that in my testimony. In answer to your question, we think this is a better approach for this particular site than going through that process of condemnation, than the Parking Authority exercise its ability to finance a garage through City-guaranteed bonds.
Okay, I understand that. I mean, I'm just -- you know, I'm not an RPAC expert, it wasn't, you know, a project that I really had to do very much with. In the last few years, as it -- I mean, you've mentioned the Parking Authority on a few occasions. Has the Parking Authority done any projects in the past two years in the City?
Well, I think it was indicated earlier by one of your colleagues that there are proposals by the Parking Authority to do a number of projects, including the 18th and Rittenhouse Square area, but do I not believe the Parking Authority's commenced any parking garage since, except the Airport.
And what they've brought in, I guess, under distress, for Eighth 59 11/14/00 - WHOLE - BILL 000609, 610 and Market some time ago -- I mean, that was kind of a last-minute thing. And, I mean, they seemingly got themselves together to figure out how to -- I mean, obviously, the rest of the project failed, but I think they're going to go forward with that, right? I mean, they responded in a crisis to -- I mean, I'm not -- this developer, the Parking Authority, I mean, I'm just trying to sort all through the stuff. I mean, I haven't articulated a particular view yet; I'm just trying to understand the background and the details.
Thank you. Thank you, Madam Chair. Councilman Nutter, I just wanted to respond to one question with respects to the Parking Authority's involvement. There was one issue at the time. If you recall, there was a 60 11/14/00 - WHOLE - BILL 000609, 610 bill that was requested from the last administration that would increase the cap on the number of spaces for the garage. And at that time, I believe the Parking Authority was considering going out and getting a bond for four -- three or four garages, but all of those garages would be more than the 500 parking space cap. And at that time, members of Council, particularly members who represented parts of Center City, did not feel comfortable with taking, which is currently a zoning issue, out of the hands of the community. So we did not pass that bill, remember that? And that's one of the reasons why they felt uncomfortable with proceeding with that without having sense of being able to do a larger garage.
Councilman, is that the matter of the last administration? I think there was some attempt to exempt the Parking Authority from certain zoning regulations. Was that --
Exactly, yeah. And right now, in retrospect -- well, I don't want to 61 11/14/00 - WHOLE - BILL 000609, 610 -- currently, we're in a discussion about a garage at 19th and Walnut, and it is being litigated, so I think that that decision might have been prudent on that particular case.
Okay. So, these discussions started a couple years ago, and the conclusion two years later, through this whole process, was to go this particular route. Now, when did RPAC become a viable proposal?
Okay. Why don't I save those issues for RPAC. The project plan that we received back in September indicated that this is a $31.3 million project, and it has in the project plan acquisition costs of $7.9 million. Now, I was under the impression that this ground is already owned by the developer who wishes to develop; is that correct? 62 11/14/00 - WHOLE - BILL 000609, 610
It's maybe a misnomer by calling it "acquisition." It's the market value of the land in the existing parking lot today that the developer's contributing, as well as cash to the total development of the project.
I'm sorry, you lost me with that answer. I have no idea what you just said.
The -- we've calculated the value of the land as it exists today --
And when you do an analysis of a project, you look at what the developer's contributing. The developer is providing the land as part of the total development costs. In other words, if the Parking Authority had to buy the land, they would pay $7.9 million, we anticipate, for this land.
But they're not in 63 11/14/00 - WHOLE - BILL 000609, 610 this, right?
I mean, we have done a few of these, so I don't mean to seem difficult or even particularly dense. I mean, I didn't have my yogurt this morning but -- I mean, this is listed as costs. It says acquisition, 7.9; construction, 15.9; fees and expenses, 7.5; total project cost, 31.3. And that's matched up against financing, private debt and equity, 25.1; the TIF, 6.2. Excuse me. I guess what I'm not completely understanding is, how does the developer, putting forward what's now estimated to be the value of the land in the project ends up either as a cost or -- I mean, doesn't the developer, I guess, have a particular incident to put up the land in order to make the project happen?