COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 17, 2000 10:55 a.m. - - - TIF Bills: 000212 - West Chestnut Retail TIF 000221 - Networks TIF (Continued) 000222 - Schmidts Plaza TIF 000223 - South Ninth Retail TIF 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 COUNCILMAN THACHER LONGSTRETH COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL 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 5/17/00 - COMMITTEE OF THE WHOLE I N D E X William Hankowsky, President . . . . . . . . . Philadelphia Industrial Development Corporation Shelly Yanoff, Executive Director. . . . . . . 84 Philadelphia Citizens for Children and Youth 3 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 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 Bill No. 212.
Bill No. 212, an ordinance creating the West Chester Retail Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the West Chester Retail Tax Increment Financing District. Bill No. 2221, creating the Networks Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the Networks Tax Increment Financing District. Bill No. 222, creating the Schmidts Plaza Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the Schmidts Plaza Tax Increment Financing District. And Bill No. 223, creating the South 4 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 Ninth Retail Tax Increment Financing District and approving the project plan of the Philadelphia Authority for Industrial Development for the redevelopment of the South Ninth Retail Tax Increment Financing District.
Good morning. Kindly identify yourself for the record and proceed with your testimony.
Good morning, Council President Verna. I am Bill Hankowsky, and I'm President of the Philadelphia Industrial Development Corporation, and I want to thank you the members of Council for your time this morning, I am here to testify in support of Bills No. 212, 221, 222, and 223, for the four TIF Districts that Mr. McPherson just read into the record. Since introduction of these bills, PIDC has met with City Council, Council staff, representatives of the School District to review these project plans. On Monday, May 8, 2000, the School District agreed by resolution to participate in the districts before you today should they be approved by Council. Collectively, the creation of these 5 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 four TIF Districts represent a $130 million investment in vacant or abandoned land and buildings, which the City currently values at a value of $13 million. 9 million for the City. Over the term of the districts, new revenues will total 28 million for the School District and 54 million for the City. I would like to briefly describe each district and some changes that have made in the project plan since they were circulated to City Councilmembers on April 13th. The creation of the West Chestnut Retail TIF will enable the developer, Chesmark LLC, to construct a 50,000 square foot supermarket with surface parking on vacant land at 56th and Chestnut Streets, thereby providing needed goods and services to the immediate community. 4 million project. The TIF would be repaid from new real estate, sales, business privilege, and 50 percent of the use and occupancy taxes. 6 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 Projected public benefits include 60 construction jobs, 125 permanent jobs, and annual tax revenues of $46,000 to the District and 138,000 to the City. Since introduction, the West Chestnut plan has been amended to correct certain tax calculations. 1 to the TIF Fund. This amended 14 project has been filed with the City Clerk for 15 review by the public. 16 The creation of the Networks TIF will 17 enable the developer, Amerimar Enterprises of 18 Philadelphia and Angelo Gordon of New York, to 19 renovate the over one million square foot vacant 20 SmithKline Beecham Building at 15th and Spring 21 Garden Streets into a state-of-the-art 22 telecommunications and e-commerce office complex. 23 The TIF will be structured to attract e-commerce 24 companies which are currently unwilling to locate 25 in the City. 8 million project. The TIF would be repaid from real estate, City sales, and business privilege taxes. No use and occupancy taxes would be dedicated to the TIF Fund. 1 million to the City. Since introduction, this plan has been amended to clarify certain issues: First, the name of the developer has been changed from 1500 Spring Garden Associates, LP to 1500 Network Associates, LP, but that reflects no change in the controlling affiliates; Second, the developer anticipates that they may sell or lease portions of the 700,000 square foot telecommunications center as condominiums or some other forms of ownership, and the e-commerce center would be leased and not sold as condominiums or other forms of ownership; Third, although projection of the BPT illustrated the gross revenue portion of the BPT, 8 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 project plan authorizes application of all new BPTs to the TIF Fund; And, finally, the calculation of the reduction of tax increments was clarified to indicate that the 5 percent growth rate may be compounded annually. This project plan was also amended and restated and filed with the City Clerk I would like to parenthetically point out one point that's not in my testimony with this particular TIF. In this project plan, we are doing something we have not done before, which is, basically, we are saying that we accept the developer's representation that there is a gap based on the proforma that's been provided to us.
However, should they be able to get rents higher than they anticipate, that they would then use a portion of that increased value to pay down the TIF early. " So the idea is that should the project work better than they anticipate, our participation would decrease more rapidly over time. The creation of the Schmidts Plaza TIF will enable that developer, an affiliate of Tower 9 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 Investments, to demolish the abandoned Schmidts Brewery at Second and Girard and construct a 240,000 square foot retail complex in two phases -- again, providing needed goods and services to that community. The City and School District are being asked to approve up to $8 million in TIF loans in the two phases for this $34 million total project cost. The TIF would be repaid from real estate, City sales, and business privilege taxes; again, no use and occupancy taxes are being used in the TIF Fund. The projected public benefits include 250 construction jobs, 600 permanent jobs, and annual tax revenues of 351,000 to the District and 580,000 to the City. Again, since introduction this plan has been amended to correct certain technical items. 8 million to the Fund. 3 million to the Fund. And the initial project plan had also mislabeled the southern boundary as 10 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 Laurel Street, and the correct street is actually Pollard Street. Again, the project plan and bill have been amended and restated to reflect these changes and are on file with the City Clerk. Again, I should just note for Council's information parenthetically that there will be companion legislation which you would see over the course of the next several months dealing with street closings and the Redevelopment Authority providing condemnation assistance for this project, so there will be additional Council actions necessary. The creation of the South Ninth TIF will enable the developer, Carmel Realty Associates, to renovate a 13,000 square foot vacant building on Ninth Street just below Washington Avenue and to a discount store and restaurant, again providing services to the immediate community and anchoring and revitalizing this block. 5 million project. The TIF would be repaid 11 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 from real estate, City sales, business privilege, and 50 percent of the use and occupancy taxes. The projected public benefits include 5 construction jobs, 35 permanent jobs, and annual 6 revenues of $10,000 to the District and 40,000 to 7 the City. No changes have been made in this 8 project plan. 9 Before I close, we have also provided 10 to Council one amendment to the Schmidts ordinance, which is consistent with the correction of the boundary. So it simply changes the legal description of the district, and I believe that amendment has been provided to you and has been circulated. So that would be an amendment to Bill 16 No. 222, and it changes the legal description. There's also been a proposed change in the project plan language as it relates to what can be done or changes that can be made to these plans after approval by Council. " For the West Chestnut Retail TIF and the South Ninth Retail TIF, the last sentence would be amended to, "After settlement of the financing, no further amendment shall be required," with the remaining words stricken. In closing, I'd like to remind members of Council that today's hearing is required under the state statute, the Pennsylvania Increment Financing Act to create a TIF District, and that the Act requires Council to wait three weeks for final consideration, which would allow Council's first action, should it deem it appropriate, for a meeting on June 8th. We would ask for your approval of Bills 212, 221, 222, and 223. And I would be prepared to answer any questions Council may have. I may have -- excuse me one second. (Mr. ) 13 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
I think, as the President understands, there's been some further discussion on a potential amendment to the Networks TIF that's still being discussed, and perhaps I would ask that you consider that once it's resolved in the next few minutes. Thank you.
Mr. Hankowsky, have all Members received a copy of the amendment to Bill No. 222? Do all Councilmembers have a copy of the amendment?
Do you have enough copies of the amendment so that every Councilmember will a copy of it?
And the Chief Clerk's office should also be given copies. 14 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
Mr. Hankowsky, what are your assumptions with regard to the number of jobs that will be created as a result of the project regarding Bill 222? And what assurances do we have that these jobs will be in fact created?
Oh, Network, I'm sorry. Well, the Network project is really a. . . the SmithKline Building is a 1,037,000 square feet, I think. The developer has acquired the property and is really doing two things with that building. Taking approximately 700,000 square feet of it and converting it into what is generally called a telecommunications center, a telecommunications hotel. These are facilities that our new economy requires be instructed for the various servers and equipment that support the 15 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 Internet and the telecommunications industry have a plastic to be housed. They need to be near a significant source of power, they need to be near where fiber optic is, and they are actually a critical piece of the infrastructure necessary for the rest of the City to be able to plug into the new world of e-commerce. In addition, the developer is proposing to take approximately 265,000 square feet of the building, which is the tower, and convert that into office space, because we will have a situation, then, where all of this infrastructure, all of the fiber and connections to the Internet, will be immediately at hand, and the companies will be able to locate there and, again, sort of plug right in. The anticipated jobs that I've reflected in my testimony assume that that space gets leased out on a normal basis of about, you know, how many people would occupy how many square feet of office space. And we contemplate, therefore, that it would create up to these 1500 jobs. This will happen over time as the space is leased, and we don't have a guarantee in the sense 16 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 of they haven't signs leases for all that space at this point. They are currently in discussion with a number of potential tenants and are obviously looking to know that they have the capacity to execute the project, which would include the TIF component in order to finalize those leases.
Okay. On the same bill, in Part 4, Section A of the project plan, you indicate that the developer may obtain a portion of its funds from public non-City programs that assist infrastructure development by environmental remediation or creation of opportunities for high-technology business. Would you please explain what you mean by that.
Yes. The -- there are programs that are available. For example, Commonwealth of Pennsylvania has certain programs that are available to abate environmental problems. There are also -- the State has certain programs that are available for high-tech businesses. The developer is not saying that they will, but they would like to seek the opportunity to source those funds in order to augment the 17 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 financing for the project. And, therefore, we have provided that that could occur in Section 4 4-A. They would not be looking for any additional assistance from the City of Philadelphia, and we would not provide any additional assistance other than TIF that's before you today.
Thank you. A number of Councilpeople have questions. At this time, I recognize Councilman Nutter.
Thank you, Madam Chair. Mr. Hankowsky, you -- first let me commend you for your creativity with regard to the claw-back provision. I wanted to ask one question about that. I thought I heard you say that the way this will work is if the rents are higher than projected, then the amount of the TIF will go down.
Let me -- let me be more specific, Councilman, and I know we've talked 18 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 about all of these things many times, so this is another one that's a little more complicated than I said it, but I was trying to briefly at least get the concept across. The way it would work is, annually, we would take a look at the average rent that the developers are receiving from that space.
And we are looking specifically at the office space rents, the 265,000 roughly square feet. And we would take a look annually at the average rental that they're receiving. And in the Year 1, sort of the break number is $15 a square foot. If they go out and rent this space for an average cost of $11, nothing happens. If they're able to rent this space for greater than $15, then 50 percent of that additional income that they would be receiving would be applied to retire the TIF note early. So let's say it 19 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 created $100,000; it applied the $100,000 so that the next year the TIF note wouldn't be paid on principal, we would be making it go away.
Take me back to the $15 a square foot. Let's say that they're able to rent at 20.
Right, and $5 of value per square foot is calculated: 50 percent of it, the developer gets to keep, 'cause we want to incentivize if we're going to do this; 50 percent gets applied to the TIF note. So if the TIF notes had an annual debt service of 500,000, now they have to apply the extra money, and they would apply 600,000 to it, whatever the amount came out to be.
Councilman Nutter, excuse me. I believe Councilman Rizzo has to leave, and he wants to be recognized if you don't mind.
Could I just make one 20 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 comment for the record, Councilman Rizzo, just -- I need to further explain what I said 'cause I don't want to be --
I unfortunately have to leave. A good friend, (unintelligible) Stein, as many of us know, died, and today is his service. So I'm going to leave my votes voting aye on all of these TIFs and amendments.
Thank you. Mr. Hankowsky, please proceed, I'm sorry for interrupting you.
Yes. Councilman Nutter, again, because I never want to get caught not fully being on the record.
So the $15 is a starting point. We've also provided that that $15 will move up for -- at a compounded rate of 5 percent a year.
You're saying 15? 21 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
The $15. In other words, to reflect the fact that, okay, that should grow over time.
So it goes up by 5 percent plus CPI. There's also a provision that should the developer do (unintelligible), in effect, they could earn credits and sort of pay themselves back to the degree that they're way under. If they they've given us money, if they've gone over and there's a year they've paid out, we never pay them back. So even if they have a bad year after that, they don't have a look back.
Yeah, right. We never do more than what's called for in the plan.
I understand. What, I guess, in your calculations -- and, again, I appreciate you taking a look at it from that particular perspective. I'm assuming that there must be a point at which there is some level of 22 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 incentive for the developer to try to get a higher rent, and there must be a point at which there's additional incentive to try to get the higher rent based on the additional payback. Or is there all upside and no downside for all parties on this?
No. I think that because we're sharing the upside, the developer in every instance would be -- would be better off taking the higher rent, even if he applies 50 percent of it to lower our benefit to him.
You'd always on a net cash basis be better off to do that than to somehow always keep it at, like, 14.95.
It's different, by the way, than some other Old City deals where we weren't as astute about that, where we've actually incentivized people to just stay under.
We're trying not to do that now. 23 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
Right. You know, I just want to make the record clear about what we're doing and not doing. Now, did I also understand you to say, I think in this same project, that there was either the possibility or the option or it was undetermined about potential condominium development in this same building?
Yeah. The best way to think about this building, I think, Councilman, and I don't know if you physically have a essence of it but --
This is the SmithKline Building 15th and Spring Garden?
Yeah. So there's a large, low building and then there's a tower. The low building, which has big floor plates and was actually used by SmithKline at one point as pharmaceutical production operation, they actually manufactured their --
Right, I've actually seen things made in there in a previous life.
Right. And it can take 24 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 very heavy floor loads, has high bays. That's where the switching equipment in this infrastructure for the e-commerce world happens. The developer would have a right under this proposal to condominimize (sic) that portion of the building. So if Nextel (ph.) comes along and says, Yeah, I want to be in that building but I want to own my floor where I'm going to put my servers, etc., for whatever business reason, the developer would be allowed to do that.
The tower, which is where this office calculation happens, that is not provided for. They would -- that would continue to be rented.
All right. So when you use the term "condominium," you are not using it in a housing context.
You are using it as a space ownership context. 25 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
Now, just by way of kind of keeping track of some of the bouncing balls around here, we did a TIF for the new SmithKline Building; is that correct?
A vacant piece of ground. We TIFed that had. Then SmithKline sold this building, which is an existing building --
-- to the present people who are the developers in front of us; is that correct?
That is accurate. 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
I think it's -- I think it's in the project plan. My recollection is, it's 14.8 million.
So SmithKline sells that building to the present owners.
And our role here today is, we're looking at a TIF for that building for its development.
And reuse. Do you have any sense of what the plan was for the building before they had come to, I guess, you guys? Or was that coincidental to the sale and the purchase or -- I mean, did they 27 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 anticipate getting a TIF as a part of the potential purchase of this building?
When you say "they," are you meaning the developer or SmithKline? Just so I'm responsive.
The developer. The developer in this instance has actually done -- I'm going to use this phrase, and I hope it -- these "telecommunications hotel buildings" in other cities. This happens to be a -- sort of a current fad in real estate. Because of the e-commerce economy, people are -- there's a very urgent need to find big buildings in urban areas as close as you can to the fiber and the power to service the Internet.
This developer was interested in seeing whether that could be done in Philadelphia and I think has identified that there's, in fact, a market to do that. And, fundamentally, the low portion of the building, roughly 700,000 square feet, the old manufacturing, which is dedicated to that, is what 28 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 the developer, I think, was most intrigued by this building about.
And, basically, the developer probably could proceed with that project without us, in an economic sense.
What the developer then saw was 265,000 square feet of office space and said, I think I can do something with that also, but I'm not sure that that economics can work, given what I have to spend to fit that out and given what these kind of companies pay in rent, but given that they would be literally abutting juxtaposed against this infrastructure, at least I've got a sales basis upon which they would come here. And if you, the public, would be prepared to work with us in assisting us in getting that done, we'll go off and create that space and we'll go market that space and bring those companies to Philadelphia.
And that basically 29 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 drove the TIF component, that portion of the project.
I mean, the reason I ask the question -- I mean, you know, I want to see these companies come, but I'm just trying to better understand the chain of events of what people do and how they do it in these transactions. You decide to buy a building from someone, you have some ideas about what you want to do with it. And do you coincidental to that begin making approaches to the government or an economic development agency about possible assistance, or do you just go and buy it, kind of complete your deal, and then say, Well, let me go scout around and see if I can get some help with this.
I mean, it's 14.5 million. I mean, that's like a lot of money. 30 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
So it seems to me that you kind of know what you're going to do and how you're going to do it before you put your cash down or letter of creditor credit card or however you pay for these kind of transactions.
Right. I think in this instance, this developer had this building under agreement of sale but had not acquired it, came to the public and said, I have this under agreement and here's what I think I can do. I'm very confident that I can do this telecommunications hotel piece, I think I can do this e-commerce office piece. I don't think that piece may not pencil out; would you be willing to consider assisting us on that piece? And that piece, by the way, would be the piece that have the significant job creation. The telecommunications hotel piece does not create very many jobs. There are some people there to, you know, make sure the servers don't break and, I guess, worry about Love Bug viruses, or whatever they do. But the significant employment impact is in the tower, one. 31 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
Two is -- and I think -- in fact, I think Councilman Clarke at some point had hearings about the e-commerce business issues for the City generally and the need for to us position ourselves as a city to, to be candid, I think, to make the statement that yeah, we want those kind of businesses also and.
And we think that this project is very consistent with that. It is, to some extent, a statement.
I think it's consistent with what we're seeing out in West Philadelphia at the Port of Technology Building, which quite candidly, would not work were it not in the Keystone Opportunity Zone.
So there are different -- different incentives are kind of happening here.
So they came to us and 32 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 said, Would you be willing to help us think about that? and we said yes. And as we explored it more, we said, Yeah, but suppose things happen really well?
And people will pay better rent, we shouldn't have to do this so let's do that.
But I think this -- and then the developer, understanding that we were willing to ask this Council for consideration and the School District, proceeded to buy the building, which they have now done, I think, maybe two weeks or three weeks ago, roughly.
All right. Well, let me just finally say on that that I think the opportunity to have a lot of these companies here is good for the City. I just wanted to understand the chain of events and how you do that. Madam Chair, if I could ask two last 33 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 questions. These are not project-specific; these are information requests. Mr. Hankowsky, we're up to completed 5 TIFs, 4 in front of us today, and 1 still to come; 6 is that correct? 7
We are -- yes. This 8 Council has approved 19. I just want to -- 19 are 9 completed in the sense they're not all built. 10
There are four before 16 you today, and that is correct, there is one other 17 pending two weeks hence. 18
On the 19 that are 19 approved, if you could provide to the Chair for distribution to us a specific report giving some base detail information on all of the TIF projects approved to date, that would be: the date of implementation, construction start date, construction end date -- at least for those that are completed, and any information you have about 34 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 those that are approved but have not stated; the number of employees that are presently working at the completed TIFs; and any new numbers you have on proposed TIFs, or the numbers that you expect for those TIFs once they get up and running. All right?
Councilman, if I could, just informationally today, which I could tell you, I think five have closed -- eight have -- when I say "closed," in other words, the -- we've actually closed the TIF note and the financing.
So eight are either complete or under construction, and we will provide that data.
For the remaining eleven, they are still somewhere in the pipeline of trying to get put together, and so we would be providing our anticipation of what will occur.
Sure. And for 35 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 those eleven, if you could give a brief blurb as to where they are or where you think they are in the pipeline and how soon you expect the start-up.
Right. I think we're all aware that there's at least one that may not happen.
But today is such a happy day; we don't want to talk about that, right?
So we will give you our best sense of where they might be, right.
You can just put a mouse with a circle and an X through it.
With regard to the Kvaerner project, you remember Kvaerner.
Could you provide us with a detailed report of how many people are working at Kvaerner today, a breakout by race and gender, and within those categories, as well a 36 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 breakout of the Philadelphia residents and non-Philadelphia residents by zip code.
Okay. Could I just -- so I'm responsive, you're looking for permanent employees there versus the remaining construction workers that are there?
I'm primarily interested in the permanent employees, yes, people who actually work at the site and are doing something with a ship, some steel, or something like that, okay?
And, lastly, there are a number of reporting requirements that have been added to the Philadelphia Code over the past couple of years by a number of different ordinances. And as a part of your other TIF report, if you could let me know where you are in the process of making those various reports that are due to the Council. Most of them are usually due by the end of the year. That was Ordinance 23 No. 980799-A, although you won't have much to report on that because I think that deal is not complete. It's probably in your eleven, it's the 37 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 West Philadelphia Retail.
Bill 980845, Bill 5 990181, and 990326. Actually, forget about the last one, that's not yours. But the middle too, if you could let us know on a separate report where you are in the reporting process, I would greatly appreciate it.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. I would like to ask that in preparation of the report to the Chair that Councilman Nutter has requested, that you add on to that a couple of 38 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 things. One is the answer to the question, the number of years. I see here it's after years, 4 benefits kick in, so I want to know if that's 5 consistent across the board. I'm looking to see 6 if there's some kind of formula or standard that's 7 applied, or is it on a case-by-case basis; and if 8 it is, why? 9 And I also notice that there's no 10 consistency in the percentage of taxes. For 11 example, in the four TIFs that are presented here 12 today, there's 50 percent U and O in two cases and 13 no percent U and O in other cases, and I'd like to 14 see what that is too across the board with the 19 15 TIFs. 16
Is there a formula 19 applied, is there a standard? Who makes the 20 decision and based on what do you make the decision when it comes to the application of taxes? Please.
Yeah. In terms of the application of taxes, let me also talk a little bit about the term question. 39 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
About the term, length. There is a State statute that authorizes the creation of Tax Increment Financing Districts. That statute says that the District cannot be longer than years, so you'll never see them 8 longer than 20; that's by statute. 9 Generally, what people are looking at 10 is in the way we've structured TIFs in 11 Philadelphia generally is where we're saying to 12 the developers, You go find the money, somebody to 13 lend you the money, and we use the taxes to pay it 14 off. So it's a loan, or what's often referred to 15 as the "TIF note." 16 And people clearly are interested in -- 17 I mean, it's fairly obvious, I guess, that if you 18 can have a debt for a longer term, that cost per 19 year is lower, you know, the debit service is 20 lower. So people are generally looking for 20-year TIFs. And I think all but one, if I recall, went for the 20-year term. The one project that we had at a shorter term was, in fact, a policy issue, which was a particular project that has not happened at 40 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 this point, but it was for new construction residential. And we were concerned about creating an unfair precedent. Councilman DiCicco had introduced a bill a couple years back that provided a 10-year abatement if you rehabbed an old building. So here we have -- this Council and we had all made a decision of years on abatement 10 if you're rehabbing, so we said, well, it would be unfair now for new construction to give somebody 20. So we said in that project, we will make you even, par. So that one TIF is 1 10-year TIF.
In terms of the taxes and how we look at those, basically the party, the developer is coming to us and saying, We see a gap in our project that we think a TIF could help fill. And we do calculations about what will the project throw off in various kinds of taxes -- real estate, sale, business, use and occupancy, and others, wage but. Those four are available to use to fund a TIF.
We basically do them 41 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 based almost in the order I gave them out in terms of saying, Well, if we can satisfy the need to fund that gap with real estate, we would stop at real estate. If we thought you needed some more tax revenue, we'd look to go to sales and then we'd look to go to the BPT, and we always look to use and occupancy last. So what you'll see on use and occupancy -- and you'll actually see if I put the TIFs in chronological other. And there has been some fair amount of dialogue in these chambers about this over the course of approval of the prior TIFs 14 with regard to trying to minimize the impact of 15 those future prospective revenues on the School 16 District. And since 100 percent of the use and 17 occupancy goes to the District, it's the last tax 18 we look at. 19
And if we can say no, we want to say no. And you'll see sometimes we'll say, Well, okay, we need some of it, and we'll do 50 percent. And there's been other percentages of it, but it's the only one we've done on kind of a percent basis. 42 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
So one of my follow-up questions was also -- I was hard-pressed to understand why the School District would buy into a proposition, period, would buy into this proposition. And you've partly answered that, and part of the answer is -- please repeat it so that I know I understand it.
Yeah, well, I think the District buys in for two reasons, and I obviously can't speak for the School District in total but at least I'll tell you what I think -- why I think they're doing it. There is a fundamental presumption here and, you know, it's a judgment, so people can agree or not agree, that these projects are worthwhile projects to undertake from a general economic benefit sense. They -- you know, they bring employment to the City, and some of the ones before you today goods and services to neighborhoods, take blighted or undeveloped land and get it fixed, etc., and that these projects would not occur, that the math would not work unless we provided some level in assistance, which is often called the "but for" argument. But for 43 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 us helping, it will not happen.
Therefore, the District is really looking at an either/or scenario. Either we say, no, we're not willing to participate and we're not going to use the TIF mechanism, and therefore, they would look at -- take a simple one, the 56th Street supermarket, that piece of ground will lay fallow. And we do a calculation and say what you'd get on those real estate taxes to the School District are X, you know, $30,000 or something, not a lot. If this proceeds, we think you can get X plus Y, more money than you get today.
Less than you would get if we didn't TIF it 'cause you'd get other taxes that we are using in the project, but more than you'd get today. And if the judgment is that we're better off allowing the project to proceed and getting more taxes than we get today and getting part of the pie than not having any pie to deal with at all.
So you'll get a 44 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223 part of it during the term, and then they get the balance of that benefit at the end of years? 4
Yeah. At the end of 20 5 years, the world looks the way it would look if we 6 had never touched it. 7
So full taxes are paid 9 and they go to all the appropriate bodies that 10 receive those taxes. The School District gets its 11 55 percent in real estate, they get all the U and 12 O, etc., whatever -- you know, and some of these 13 -- and by the way, Councilwoman, different 14 projects will have different impacts. So as an 15 example, a hotel where people, you know, tend to 16 enjoy themselves so they might drink some, the 17 District will get liquor-by-the-drink tax that 18 they wouldn't get otherwise. 19
So you'll see -- sometimes when you look at these, you might say, Well, it looks like in this project, the School District gets a lot more that it does in this project. It generally is driven by what's happening in that project. 45 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223
Okay. Let me go on the record of saying that I am hard-pressed to support economic development initiatives that do not reflect what the City has already done successfully -- namely the 1 percent for art. The business community and the community that cares about children and youth in this city found a middle ground and both won -- children and youth won and the business community won. So currently as TIFs -- well, I can only go based on the four that I've seen. None of them reflects some consideration for that policy that's already in place. And we know it's possible because other cities are doing it. So I put that on the record because that's always going to be a consideration of mine. And as we look forward, I am going to look to see to what extent, if any, is given to the business team thinking and considering how young people in this city can benefit from these major economic development initiatives. I'm putting that on the record now, and I will use that as a barometer as we move forward.
Understood. 46 05/17/00 - WHOLE - BILLS 000212, 221, 222, 223