I think primarily I would say both; we shared information. The vast bulk of what's in front of you now, even though it looks bulky and I respect the comment about the -- I understand the comment about knowing 60 11/30/98 - WHOLE - BILL NO. 980788 what's in the bill. The vast bulk of what we are presenting today are the legal definitions of the boarders of particular parcels that we are talking about. It turned out that that -- that that turned into an absolutely insomniac theater effort here to actually put the parcels and define the contiguous natures of the subzones. So the vast bulk of what you see this morning is actually a refinement of what was -- what was presented in sort of broad categories with the introduction of this bill.
And in those briefings or discussions, did you talk about these specific areas or the boundaries --
We talked about in particular -- we talked about some of the broad areas and in some cases particular boundaries. But it hasn't been -- but all of the time we were continuing to refine the specific boundaries and the specific parcels. 61 11/30/98 - WHOLE - BILL NO. 980788 All throughout we've been endeavoring to try to make sure that we don't include parcels where there is current business activity or that do not have good development opportunities. Now if we do understand that there are development opportunities, we wanted to back those up.
I understand that. I am just talking about process. This has been going on since last spring, but we get all of our documents on the day of the hearing. And now you tell us, as is often the case, that if we don't do something right now, we miss a deadline and it's all over and it's our fault. And that's basically what you are going to tell us at the table this morning, right?
I don't know if I would be directing, assessing fault like that. It has been a very long process.
It's what it ends up being, right. All right. I just want it noted for the record. We will see what happens. (President Street returns as Chair.)
Please proceed. 62 11/30/98 - WHOLE - BILL NO. 980788 Does any other councilmember have any other procedural concerns before we get started with the formal testimony?
Councilman Cohen joins in Councilman Nutter's comments; the record will so reflect. Anyone else? Mr. Mullin, please proceed.
Thank you. I am here today to testify on behalf of the administration, to testify in support of and offer amendments to Bill 980788. This bill would authorize the establishment of 12 subzones and a Keystone Opportunity Zone in the City of Philadelphia and authorize the tax payments and -- excuse me abatements exceptions and credits required under the state legislation that carried the KOZ program. These authorizations are contingent upon the Commonwealth selecting the City as one of the 12 KOZs statewide. And incidentally, the timing is the 63 11/30/98 - WHOLE - BILL NO. 980788 applications are due December 31st of this year. We have anticipated that the State will make selections, stateside selections, awarding the zone sometime in either February or March. And we understand that those awards will be retroactive to January 1st of 1999. This KOZ program is a new state initiative modeled after Michigan's Renaissance Zones. Under this program a property owner and/or business located in a KOZ will effectively pay no state or city business taxes, no real estate, or no use in occupancy taxes for 12 years beginning January 1st, 1999. Our goal is to promote capital investment in neighborhoods, attract new business into the city and help existing businesses expand and grow here in the city, all of which should increase employment and strengthen the City's economy. The waiving of these taxes will provide a very strong incentive to locate in these areas and invest in modern physical plant and business infrastructure. I would like to submit today several amendments and request your favorable 64 11/30/98 - WHOLE - BILL NO. 980788 consideration. The first set of amendments, and I note that is the giant bulk of the paperwork here, establishes the subzones and their particular boundaries. The bill, as introduced, listed areas to be included with no specific boundaries. Since introduction, we have done extensive reviews of sites suggested to us by City councilmembers and State-elected officials, and as a result have removed one from consideration, that PGW Site was originally listed, as an insufficient area for inclusion, and consolidated a few sights to create one subzone from a few separate sites, most notably along the Delaware River, and added a few sites that were not on the original list. These changes are all outlined and the proposed subzones are illustrated in the maps in your packet. In the aggregate we are proposing approximately 1900 acres for inclusion. The State allows up to 5,0000. What I do want to call your attention to in the information that you have been 65 11/30/98 - WHOLE - BILL NO. 980788 provided, and it is bulky, the first batch is the proposed amendments themselves. And about 98 percent of those are the legal descriptions of the properties. The second batch has a "Sites Proposed for Inclusion," a summary, which lists the subzones and gives you the feel for the 9 types of parcels that are included. In all, 10 there are over 350 parcels included in our 11 proposal here. 12 And following up, that is a map of each one of the subzones prepared by the City Planning Commission with information about each one of the BRT parcels included here. So each one of the subzones has a map and a listing of the specific parcels as well as the summary, the summary showing the 350 parcels and the 12 subzones. The second set of amendments are technical amendments that resulted from discussions among the law department, revenue department and the state departments of Revenue in Community and Economic Development. One makes it clear that all demolition liens and liens 66 11/30/98 - WHOLE - BILL NO. 980788 arising out of any code violations must be paid off in addition to delinquent taxes. We had always said that we want to make sure no one can get -- no owner of a property or business can get any benefits if that property or that owner or that business is delinquent in city taxes.
We wanted to make sure we even strengthen that by saying no one can get the benefits of these taxes if they have any outstanding liens; for example, demolition liens in areas where we have spent money or code violations. In other words, we want to make sure anybody taking advantage of this is completely current on all fronts with the City. We think this addition here strengthens that. And another emphasizes that any exemptions authorized in this ordinance are ultimately contingent upon State designation as a KOZ. If a parcel is removed before the application is submitted, it would not be exempted from city taxes only. In other words, as we mentioned, since there might be things coming up that would 67 11/30/98 - WHOLE - BILL NO. 980788 say that we can identify another type of use for a property that we wouldn't want to have in a KOZ before the December 31st deadline, we would want to be able to take that out. This legislation would not let it -- would not let that property owner later on say, even through we weren't selected as a KOZ, we have the City Council that has said you don't have to pay city taxes here. The benefits of the tax exemptions will only accrue if it is in this legislation and agreed to by the State in the application. There are a couple of other technical definitional amendments. I will defer to City Solicitor Rich Fager (ph) a little bit later to talk about those. But I do want to switch -- I do want to concentrate on the proposed amendments that talk about actual boarders. In consideration of where to locate the KOZs, the City team started out with some very basic concepts. First, this was never meant to be a revenue giveaway program but an investment program to help grow and attract businesses in the city. 68 11/30/98 - WHOLE - BILL NO. 980788 Secondly, the City can ill afford to lose any substantial tax revenues; and by the way, I note not only the City but also the School District. Third, this should be an economic development project focused primarily on manufacturing industrial and warehouse distribution sectors as opposed to a residential development program. Finally, we want it to be fair to existing businesses, so we work to minimize any existing businesses in the proposed zone. Given these general guidelines, we came up with some additional guidelines to focus our search: concentrate on vacant, abandoned, environmentally challenged, and tax delinquent and/or otherwise underutilized land or buildings. We also wanted to look a publicly owned vacant land, such as PIDC Industrial Parks, which is a top priority for us since they offer us a great opportunity for development and currently generate no tax revenues. Properties should be of a developable size to that, and 69 11/30/98 - WHOLE - BILL NO. 980788 properties should be available to be developed in a reasonable amount of time although the incentives for any private -- would certainly with a 12-year time clock ticking would probably be stronger than any incentives we would have to try to get them to go out and try to develop, utilize the land a lot more intensively than currently. Based on these guidelines, we scoured the city for sites that met these guidelines, initially identifying about 30 areas that might work. Analyzing revenue effects, size limits, known development planned for each area and applying similar criteria from our guidelines, we eliminated some areas, consolidated some and came up with the list that is now before you of the 12 subzones. 6 million this calendar year. In all likelihood, we believed these annual revenues would decline each year as more and more of these properties become delinquent and underutilized or further underutilized. 70 11/30/98 - WHOLE - BILL NO. 980788 Roughly this is comprised of $1 million in property taxes -- I'm sorry. $200,000 of UNO, and $400,000 of BPT, Business Privilege Tax. Actual property tax collections are less than 700,000.
So as you can see, in these areas, which roughly total 1900 acres and include more than 350 parcels, they not very high revenue producing areas to begin with. Our legislation also requires businesses to be current, as I mentioned earlier, on all taxes and with this amendment carry no 14 outstanding city liens or violations in order to be eligible for the benefits under the KOZ program. 5 million in L&I liens. We project that a significant portion of these delinquencies are collectable and therefore would prove to be and up front windfall for the City and the School District. In addition, six of these properties are on L&I's hot list for demolition. And this 71 11/30/98 - WHOLE - BILL NO. 9 million. Hopefully under the incentive of the KOZ program, an interested party will come in and demolish the property at his own expense, thus saving us the expense in returning the property to productive use as well as eliminating a land use cancer in the specific area. Michigan initiated its renaissance perhaps roughly months ago, and they report 14 that statewide in the first year, 54 projects 15 have been initiated, which expects to create 16 4,000 jobs. Total investment in these 17 projects -- that's stateside remember. 18 The total investment in these projects is estimated to be over -- in these projects is estimated to be over $322 million. Also, in spite of the fact that that is yet to be publicity on the KOZ Program and no 23 real marketing done by either the State or the City, we have received a fair amount of calls from businesses looking to expand in the city and 72 11/30/98 - WHOLE - BILL NO. 980788 most notably from outside of the State. One example is a California high tech company is waiting to hear if Philadelphia is selected as a KOZ. They want to open an East Coast manufacturing and assembly operation. If so, they can expect to open their East Coast facility here in one of the KOZ subzones. In addition, too, businesses on American Street have talked about expanding their operation, one into an old abandoned warehouse and the other to a vacant piece of City-owned land. Neither business could do this without the KOZ incentives. These three projects alone could create 60 new jobs, help retain 70 jobs, clean up certain areas and provide the city economy with modern new business infrastructure. The State legislation and City legislation addresses two major areas of concern: one, existing businesses in the state moving into a KOZ just to take advantage of the tax breaks; and the second case of people moving into a zone, taking advantage of benefits for a few years, then leaving. 73 11/30/98 - WHOLE - BILL NO. 980788 Both the state law and council legislation states that any business moving into a KOZ from within the state must either increase employment by at least percent in the first 6 year or make capital improvements to property 7 located in a KOZ equivalent to at least 10 8 percent of the company's gross benefits from 9 previous years. 10 And I would remind you that we are 11 talking about basically vacant or dilapidated 12 structures or vacant land. So anybody looking to 13 move into a KOZ basically would have to actually 14 invest specifically in a new plant and equipment. 15 In addition, there are recapture 16 provisions in the law that requires businesses 17 moving out of the KOZ within the first five years 18 to refund the State and the City up to two-thirds 19 of the exemptions, credits and abatements 20 received. Finally, a business moving into the zone with mostly vacant land and deteriorated buildings will have to make a substantial investment in the building or new facility doing substantial renovations on the existing building. 74 11/30/98 - WHOLE - BILL NO. 980788 To walk away from such an investment would be very difficult. Even if it did, a relatively new modern facility will be available for another business to utilize. The City's problems are rarely due to modern plant and equipment.
I believe this program will lead to a significant increase in the investment and development of modern competitive business facilities' infrastructure in the city. Most of you understand that a big hinderance to business attraction and retention is a relatively obsolete outmoded and depilated building stock. In closing, I just want to say that this Keystone Opportunity Zone Program is just that, an opportunity; an opportunity to attract manufacturing and other industrial businesses to the city that would otherwise locate elsewhere and to help retain and grow some of the businesses presently in the city which might otherwise might move out. I believe it will lead to investment in modern plant and equipment, restore many parcels to protective use and increase employment 75 11/30/98 - WHOLE - BILL NO. 980788 in the city. I request the rules of Council waived to allow this bill to be reported out of committee and have the first reading at the next council session. This will allow us to meet the State's application deadline of December 31st. And this concludes my prepared testimony as my colleagues and I are available to answer any questions you may have. Thank you.
Thank you very much. First of all, if this bill is passed and the application is made, and these zones set up, and if there is a zone -- and area, Keystone area on which the current zoning will permit residential -- could it, even if we don't anticipate it --
-- could the owner just do residential over our protest?
If it is zone residential? 76 11/30/98 - WHOLE - BILL NO. 980788
If it is zoned residential. We have very few parcels zoned residential, which we are looking at doing one or two things: either rezoning; or two, we have legislation that doesn't have to be at the same session, but legislation that will prohibit the development of residential -- residential development inside the Keystone Opportunity Zone. We literally have only about three or four blocks, most of that vacant and abandoned. And we are looking for those to be actually parcels that would be included in and assembled for other uses, nonresidential uses.
What I would like for you to do for me and for the members of this committee is give us the detailed written explanation as to how it is the administration proposes to assure councilmembers that this thing could not get approved and all of a sudden people start doing residential over our protest under circumstances that we might not have even conceived of at this time. The second question is: How do we 77 11/30/98 - WHOLE - BILL NO. 980788 protect existing businesses from competition in one of these areas? I mean, all of us -- I can tell you that I already have a situation in my district where the Navy Yard has caused a tenant in a very important location, has caused the tenant to be relocated out of that location into the Navy Yard based on the incentives. How do we protect not just against the moving around, say there is a company in some other part of the city, the state, the world who comes and now can compete, maybe in an unfair kind of way with existing businesses? How do you deal with that? And I would like to have something in writing on it. And last but not least -- that's good enough for now. The Chair recognizes Councilman DiCicco.
Thank you, Mr. President. Good morning, Mr. Mullin. As the Keystone Opportunity Zone relates to business facilities. Is there any possibility that in these areas that are designated that you can have a combination of 78 11/30/98 - WHOLE - BILL NO. 980788 industrial retail when the retail also qualify, or could it just be would retail qualify for that zone?
Retail -- if zoning is allowed in retail -- if zoning allows retail in any of these areas, and I believe in some cases it does, we have not moved to prohibit that. We have, in sites that we believe are obvious retail uses, we have not included those because it is not our intention to try to -- that would be probably the toughest part in the equity to provide one retailing outlet compared to another one inside the city as opposed to manufacturers who are really competing out in the world as opposed to competing against the company across the street when they are making some sort when they are assembling or manufacturing or distributes.
Let's assume that we have a situation where we may want to encourage some development, and the only development that would be appropriate for that area would be retail. An I will use the Schmidt's Brewery as an example. 79 11/30/98 - WHOLE - BILL NO. 980788 That could probably be industrial there, but the likelihood is that it may be more beneficial or more attractive for a developer that wants to do retail, a strip mall, what have you. Would they be excluded? Or could they be included in this zone?
That particular site is not included. But other sites where someone does look at the potential for retail development would not be excluded subject to existing zoning. Our basic thinking is the following on retail: Generally retail -- the land value of retail is higher, it has a higher value out in the marketplace than virtually any other use now. And to the extent that there are parcels where there might be only a couple of things hindering some part of the environmental or old outstanding tax delinquency or assembling parcels, as opposed to -- hindering the development, as opposed to the fact that that development would absolutely -- we can't even foresee anything that would have an economic 80 11/30/98 - WHOLE - BILL NO. 980788 feasibility there. we think that KOZ-ing it would end up being way too much of an incentive for retail than perhaps some of our other programs.
But I guess what I am getting at is, I don't know if we want to shut the door and do that.
And what is our ability and what role would Council play? Would Commerce have to come back to Council? Is it the zoning that would basically govern what happens there. Again I will use the Schmidt's Brewery.
I will defer to my colleagues in the law department. But I believe it is the zoning that would take over. After the legislation, the zoning would be the main way that City Council will keep any type of control or, you know, reason to have parcels come back in for any type of review. And in that sense, that's pretty much outside of direct financial assistance or tax 81 11/30/98 - WHOLE - BILL NO. 980788 abatements or tips. That's pretty much the way council still has for the rest of the 140 square miles of at the city.
Thank you very much. The Chair recognizes Councilman Kenney.
Thank you, Mr. President. Just to proceed on the same line of questions as Councilman DiCicco. When you look at a site like Schmidt's in its location, its proximity to both North Philadelphia and the River Front in an area that you can see or at least envision at some point in time truly becoming a renaissance neighborhood with not only perhaps light industrial but retail and other types of uses, why would we take a parcel that size and just ignore it?
And not include it? It is our belief that that particular parcel has value, has sufficient value for a development now 82 11/30/98 - WHOLE - BILL NO. 980788 and it is not -- it is not any fundamental problems dealing with holding that parcel up, but instead it is -- it's an ownership issue and issues with the city for current owner.
But as I pursue the list of properties and looked at the ownership and tax liabilities, some of them are simular in outstanding tax liabilities as that particular site.
It is not just tax labilities but also potential use. All lot of the one places where we have tax labilities, there isn't anybody interested in using that. For this particular site, we believe there would be people interested, and it is more a question of us just working out something with the current owner.
Additionally, the American Street corridor has been an empowerment zone for quite some time. And to the credit of many of the merchants and many of the business owners and property owners there, they have really struggled to keep that vision moving forward. 83 11/30/98 - WHOLE - BILL NO. 980788 What's wrong with the empowerment zone that has not allowed that particular area to progress? And what will the KOZ do different than what the -- I know there are different elements of KOZ versus the empowerment. But the empowerment zone doesn't seem to work as well as we would like it.
I think the simplest way that I would explain what the difference is, there is what the KOZ provides, a stronger financial incentive to develop something on any given -- compared to what we can provide directly or indirectly to a business. We have in the American Street -- in the enterprise zone and empowerment zone, for that matter, actually talked to many of the businesses there. Because there was one question, would someone like to have -- would someone like to see if they have a business in Parcel A and Parcel B that's KOZ'd, what happens? Well, more often than not, people there are basically, one, happy to see development in areas that along their -- along 84 11/30/98 - WHOLE - BILL NO. 980788 their strips or in their commercial are industrial areas to see actual development there after seeing years and years of not. The second thing is we know that every one of the existing businesses have an opportunity to go in and purchase offer expand or have operations there. Once the KOZ is designated, that parcel, if it is privately owned, is out on the market place. And one thing I think is very important to note is what will happen to those parcels to the extent that there is potential use, their market value, their value, will increase. And it will increase. And it will be bid up by the -- it will be bid to the level of the highest and best use potential for that. So when someone says, but what about these guys, they are paying no tax here, chances are they will have paid significantly more for that property than the person who doesn't. The markets have a way of equilibrating that. And our hope is that the market value, the uses, will lead owners or potential 85 11/30/98 - WHOLE - BILL NO. 980788 users to be able to find that they can privately -- now that they don't have taxes -- clean up the parcels, invest in the building and new infrastructure there, and help all of the businesses in that particular area.
Of the sites 8 you are recommending, I notice that two three are 9 empowerment zones or enterprise zones. 10
How many are 12 there that are in empowerment and/or enterprise? Is there an upside?
There are three. And, in fact, your question reminds me indirectly that I forgot to go through this list, which I apologize for, and I would be happy to do that. But to answer your question directly, West Parkside and American Street are two -- are two of the empowerment zones. And a portion of -- by the way, American Street and the North Central -- there is a portion in each -- for the state enterprise zones, we have areas along the port, we have American Street Enterprise Zone, we have an area in Hunting Park West Enterprise Zone 86 11/30/98 - WHOLE - BILL NO. 980788 and also West Parkside is part of -- both a State Enterprise Zone and Federal Empowerment Zone.
When it comes to the property owners being current before being approved as a KOZ on the real estate taxes, does current mean paid off or agreement in place? Do they have the opportunity still to pursue, to pursue tax relief for the Board of Revision of Taxes or for the Tax Review Board? What are the standards of that?
Yeah. And our lawyers say there is an agreement in place, number one. And I believe that they still have -- there's not anything -- may I ask Rich Fager to join me here?
Richie Fager from the Law Department, Divisional City Solicitor. The answer to your question is, any agreement in place or anybody who was pursuing in good faith an appeal of a tax bill before the BRT 87 11/30/98 - WHOLE - BILL NO. 980788 or any appropriate tax work.
And this would be despite the length of the delinquency? The property has been delinquent in taxes for 6 years, 20 years, although they are already here 7 for that length of time. 8 They would also be eligible to come 9 in now, once this is promulgated, that they can 10 apply to be a KOZ, come in now and make a deal, 11 and be, I guess, relieved of the responsibility 12 that they haven't upheld in the last 15 years to 13 do anything about this deal. 14 For example, if you have a property, 15 you know, that the business or the owner of the company or the owner of the property fell on hard times and came on recently to set up an agreement and is doing their best to pay, then, again, you may have people here who have owed tens to hundreds of thousands of dollars in real estate over the past ten or 15 years that have made no 22 efforts to even pay attention, because we haven't really pursued any of this until we did the lien sale. But prior to that, people either 88 11/30/98 - WHOLE - BILL NO. 980788 committed an effort or they didn't. It would seem to me that a long-term delinquent property owner may now be getting some relief that he or she does not deserve.
I don't think that's the intent. I think quite the opposite. I think the long-term delinquent, if that person even exists, has to come clean in order to bet this benefit and come clean in some way satisfactory to the Revenue Department or the Law Department.
I think the notion of good faith there -- I mean, taxes and penalty typically on some of these, we are more willing to negotiate on taxes and interest and penalties if there has been signs of good faith and people trying to develop. And we know which people don't and haven't. And I doubt there is going to be any --
Do you have a total of all of that parcels? I know you may not have it with you today, but can you provide a total of all of the parcels involved that are being recommended as KOZs, the total of all tax delinquency both interest and penalties -- 89 11/30/98 - WHOLE - BILL NO. 980788
Yes, sir. It's very -- it's rough, but it's about $3.9 million.
It is broken down by parcel here. It is just a matter of what the total is.
And again, we think that at least one -- we are still looking, but we think that at least $1 and a half million of demolition liens from L&I.
I would also like to mention to councilmembers particularly, if there is any information that you think you need, now is the time to make that request. We will not be asked -- I will not make a recommendation that we vote on this bill 20 today but that any outstanding information that anybody has or requests, get it in the record today so that we can get the administration working on that. This hearing will be recessed until later in the week. We definitely want to make 90 11/30/98 - WHOLE - BILL NO. 980788 sure every councilmember has an opportunity to request any information that anybody wishes. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Mr. Mullin, on the first page of your testimony, you make reference to Michigan's Renaissance Zones. Can you share with us a little information about Michigan's Renaissance zones? I don't get up to Michigan very much.
Nor do I, actually. And I can share a very little on that. I am not thoroughly versed on this. The State government, State of Pennsylvania, modeled the KOZ proposed lap to the Renaissance Zone legislation there. The one thing that I would note, and I think it's very worthwhile to note this, Michigan -- the structure of Michigan's state and local tax system, like a lot of states in the Midwest, is very much different than Pennsylvania's. The typical tax burden for a business or an individual, the proportion that goes to the state as compared that goes to the 91 11/30/98 - WHOLE - BILL NO. 980788 locality is much higher in Michigan than it is in the State of Pennsylvania. So when the State of Michigan is looking at zeroing on taxes and requiring the local areas to zero in on their taxes, too, that is a significantly higher budget tax expenditure or investment on the part of the state government there. And hence, it has a significantly more -- more of an interest in making sure that its investment am pays off. And I am talking that being relatively speaking now. I am not just saying that the State of Pennsylvania isn't interested in this at all. But in terms of what -- what dollars are foregone and what taxes are foregone, it is greater in Michigan than here.
What are those taxes that is are foregone in the Michigan program?
I think it is primarily business -- some type of business taxes, state income and both individual and corporate and property taxes. Very similar to ours.
I thought I had 92 11/30/98 - WHOLE - BILL NO. 980788 read somewhere recently where Michigan, though, had instituted a prohibition on the abatement of any taxes for either school districts as an incentive to attract businesses to Michigan; is that true?
I think I heard that, too, but I don't know for sure. I can check.
I notice in your testimony that there is no mention made that I could find of the wage tax abatement provision which seems to exist in the bill on Item No. 6 on . Is there, in fact, a wage tax abatement in this bill?
Yes, there is. Wage tax and Pennsylvania State Personal Income Tax for people residing in the zone. And I think that's -- I mean, that was one of our reasons for not having a -- not having residential development included in the zones. If you live in the zone regardless of where you work, you don't pay city wage tax or 93 11/30/98 - WHOLE - BILL NO. 980788 state income tax. I think that probably is part of the -- that question and that issue, I believe, underlies Council President Street's request for a written explanation about what we are looking at in the residential prohibition.
That we are talking about right now, I think, sir, it may be about 40 or so right now.
Maybe about 40 or so in one area of a three-block area that we are looking at. Our intention is to zero those out or exclude those particular -- what do you call them?
In the American Street Subzone, in only the American Street Subzone, are 94 11/30/98 - WHOLE - BILL NO. 980788 there any residential -- currently residential properties.
And we have been deleting the ones that have current residents. But if they are dilapidated houses and, as I mentioned, can sort of be put together in assembly, ultimately we want to include those. And it is only in that subzone where there are some existing residential now in this legislation, but it is our intention to take those -- to take those out. A lot of those are the ones that we just started looking at and reviewing last week.
So then what is the purpose of having this provision in the bill?
It is a requirement of the State. The State require that the legislation, the local legislation -- it abates 95 11/30/98 - WHOLE - BILL NO. 980788 any local income taxes or wage takes.
So if there were residents -- let me make sure I understand how this is proposed to work. If a person is a resident in the zone and they are working somewhere, no matter where they would be working, whether in a business in the zone or somewhere else in the City of Philadelphia, that person, by the nature of their residence in the zone, would be exempt from wage tax and state income tax?
Well, notwithstanding what Philadelphia is doing, are you aware of other municipalities or cities or towns that are applying for this, that are allowing this provision to stay in as put in?
Chester is looking for Keystone Opportunity Zones separate from Delaware County. Delaware County, Montgomery County and Bucks County are joining to look at some 96 11/30/98 - WHOLE - BILL NO. 980788 industrial areas only. And I believe Chester has included some residential. And the State has -- the State including the governor has actually said he would certainly like to see some residential areas throughout the State in the -- in Keystone Zones. And I don't know whether that's -- what other counties are doing, rural counties or other counties. We have not heard from Pittsburgh whether they are including, or Allegheny County whether they are including residential areas.
It has been mentioned a number times either in newspaper reports or even -- and it may still be the featured item in the five-year plan that Philadelphia and Pittsburgh seem to lead the pack in terms of local tax burden as compared to some other cities across the country. Is that my 20 recollection of the five year plan? . 21
And in the bar 23 graph, it seems to indicate that a large part of 24 that is more of a function of the various state 25 taxes that are imposed as opposed to the plethora 97 11/30/98 - WHOLE - BILL NO. 980788 of various taxes that we impose at the city level; is that correct?
What efforts have been made over the past seven years to do anything about that?
Of the state taxes that apparently push us to the head of the list.
I understand. We've make some efforts to try to deal with our own tax situation. What are we doing on the state side?
Well, we have -- we have been in favor -- this administration has been in favor of the reduction of Corporate Net Income 98 11/30/98 - WHOLE - BILL NO. 980788 Tax. I believe we were in favor of the reduction of the Computer Sales Tax, the Computer Services Sales Tax that was enacted at the state level. In general, I don't know whether we actually proposed changes to the state taxes. But in general, when there are reductions in state taxes workers' compensation and other state taxes or state business costs, in general we are supportive of those reductions.
Well, I appreciate that. And notwithstanding, I mean, has that still essentially left us pretty much relatively in the same position?
Yeah. The study you were citing actually -- in the five-year plan actually was referring to, I think, a 1993 study. It was just -- it was just revised for 1998. And even though Philadelphia had -- the businesses -- this particular type of business that they had a standard business, even though it showed the biggest reduction out of the top 23 cities surveyed, basically the largest 25 cities 24 in the country, we were still the -- Philadelphia 25 was still the highest in tax burden. 99 11/30/98 - WHOLE - BILL NO. 980788 The reductions on the city side, I think, contributed significantly to that shrinking of the first-place gap.
Right. So the state tax reductions have not significantly helped us in any particular --
Probably. They have added -- they have reduce a little bit. But relatively speaking, other states are doing very similar things and potentially even --
I understand. So let me go back to my first question. Whether it is the '93 study or now the revised '98 study, what efforts is the City taking directly to lobby the state legislature and the governor for tax reform that might actually do something throughout the city as opposed to this piecemeal fashion that we are proposing here today?
I think -- my knowledge right now is basically none. We're concentrating sort of on our own taxes there and working on this Keystone Opportunity Zone legislation. Basically none. But there may well be some -- I will 100 11/30/98 - WHOLE - BILL NO. 980788 find out. But there may well be some bits and pieces we are looking at dealing with the state legislation.
Okay. What impact, if any, will this KOZ proposal have on our various or some of our various TIF Projects or TIF Districts? And is there a map that you have given individual locations on the parcels? Is there a city-wide map to show all of the KOZ areas?
I will get that. I do have one here that I was going to show, and just some general -- sort of in this area and this area. But the detailed maps are what are provided to you in your packet that show the exact parcels. But I will get a city-wide map so you can take a look and you can see the 12 areas.
If you would do me a favor and coordinate with Bill Hankowsky, who I have a previous request into, I would like a city-wide map that shows all of the KOZs, all of the TIFs, all of the special service districts, the empowerment zones and any other specific areas. 101 11/30/98 - WHOLE - BILL NO. 980788
And the enterprise zones that show you how the city is being carved up for either various tax incentive programs or, in the other case, increase assessments for people trying to improve their own areas.
So I talked over my first question. And my first question was: What's the impact of KOZ on the tax increment financing districts that we have been working on?
I think the only case where we have an existing overlap of TIF and KOZ is in the Naval Business Center. And I want to take it -- I want to ask Bill if we have carved out bits and pieces of Naval Business Center to exclude the KOZ. And it is our intention to, if there is an overlap, the KOZ would take precedent.
I will introduce Bill 102 11/30/98 - WHOLE - BILL NO. 980788 Hankowsky. And the question was -- Bill will introduce the bill again. And the question was, based on what with the KOZ taking precedence over any TIF area in the zone.
As Steve said, for all of the TIFs we've dealt with or have pending currently in city council, none of those are proposed to be at the KOZ with the one exception of the Naval Business Center. As you recall, at the Naval Business Center what we did was we created a large district, which was different than the other TIFs which were very project driven, where we outlined the project. So at the Naval Business Center -- and I appreciate all of these drawings in some cases may be difficult to read when reduced down to 8 and a half by 11. But at the Naval Business Center, we are proposing to include in the KOZ that portion of the shipyard currently vacant, no 23 businesses are in it right now. So it's old manufacturing buildings. And we think that the KOZ incentive 103 11/30/98 - WHOLE - BILL NO. 980788 would attract businesses there in a way that the TIF would not. We are proposing to take a portion of what is known as Girard Point, which is an environmentally challenged area that the Navy has told us about. So maybe this will help and maybe -- and what we will have to do is introduce when Council comes back in session, an amendment to the TIF Plan to de-TIF it, to take it out of the TIF. Because it doesn't automatically fall out by you taking this action.
Right. What I am primarily about is not the project-by-project detail. What I am interested in primarily is the tax revenue projections both for taxes being abated or taxes coming back to us. You have provided us with a fairly detailed project plan. My concern was, we abate certain taxes or TIFs and now with the KOZ, they are abated. My concern was: Any recalculations that may need to be done based on the impact of these two economic development tools; secondly, we had the discussion just last week and will 104 11/30/98 - WHOLE - BILL NO. 980788 have further discussion when the other two TIFs come to us about impact of these programs on specific taxes, the real estate tax and the use of -- the real property tax and the use of occupancy tax and their impact on the school district, even though there are net increases, you can't miss what you never had, and all of those various arguments. This is, again, one more utilization of an incentive program that ultimately results in a missing out of tax opportunity. And then, naturally, we have the "but for" argument. It is a consistency of concern about the loss, potential loss of unanticipated revenues especially as it relates to the school districts.
Thank you. Do you have any idea of when these maps will be available?
I think now that we know what the KOZ is, it should only take a couple of days, I would hope.
All right. Thank you. 105 11/30/98 - WHOLE - BILL NO. 980788 Thank you.
Thank you very much. The Chair recognizes Councilman Cohen.
In the definition portion of the bill, you defined both "domicile" and "resident." And the requirement for resident is that the person also be domiciled as well as being a resident. So that's a double test an individual must pass in order to qualify for the exemption on the wage tax; is that right?
Yes, Councilman, those definitions come right out of the state legislation. They are either verbatim or almost verbatim.
Does that mean say someone operates a very big business outside of any zone and that person buys property in the zone and establishes a genuine home there, would that exempt that person who has all of his income earnings outside of the zone; is that person eligible for a wage tax exemption? 106 11/30/98 - WHOLE - BILL NO. 980788
If the person actually is domiciled and resides in the zone, yes, although that is -- the administration is making every effort to make that almost impossible. But, yes, if the person lives in the zone, all of the income is exempt from state and local taxes.
What do you mean that the administration is making it nearly impossible?
Virtually all of the zone is currently zoned not-residential, and that small portion that Mr. Mullin described to Councilman Nutter before, that there are approximately 40 people living there right now on American Street, and there is some publicly-owned property, which is zoned residential, but that is in the public's control.
Wouldn't it be a good thing if people did come and live there? I am wondering, why are we discouraging it? That might be a question that Mr. --
That's actually a good question. And it is an issue -- the main reason why we were discouraging the residential -- I 107 11/30/98 - WHOLE - BILL NO. 980788 guess there was really three reasons: One is that we thought that -- again, we are trying to make sure that the revenue impact of this is as small as possible. Tapping into the wage tax base is something that -- we are talking primarily about land that doesn't pay any property taxes now or is vacant, dilapidated or severely underutilized, so we didn't want to tap into the wage tax base. The second area is, if you picked a parcel somewhere in the city and said people could live in there basically tax free, the property values would go up. Perhaps possibly the property values on the boarder right on the other side of the street, if you are not in there, might go down as people no longer want to look at your house to potentially buy because the one across the street offers this extra incentive. And we would be talking about some portion of the city -- you know, we have approximately 100,000 acres in the city. What little enclave or what little portion would end up getting this gift bestowed? And we thought 108 11/30/98 - WHOLE - BILL NO. 980788 that there would be tremendous problems on sort of the equity side and also selecting, just plain old selecting, which areas. Every council district has a couple of areas that might look attractive there. And once you start doing that -- and again, for residential development, it would be a good thing. We believe that the cost fundamentally would be too high on the wage tax.
Is inclusion of such a section compelled by the state law? I mean, do we have to have a section with respect to residents?
We do not have to. We are allowed to, but we do not have to. But we do have to put in that wage tax just as its corresponding state, personal income tax will be zeroed out for any resident domiciled. And we do have to include that language. We are allowed to include residential, but we don't have to.
Councilmember, would you permit me to interrupt you or just for a second on the residential zoning part of this 109 11/30/98 - WHOLE - BILL NO. 980788 thing?
I think this council is entitled to some legal advice on the extent to which the zoning board, the grant variances that might have a way of authorizing residential in areas that might be, for example, industrial so that, you know, we come in here and we say, oh, this is industrial, right, or this is commercial or some of the lower forms of zoning, you know, we look around and somebody is overlooking trying to get variances some place to do some things -- I mean, I want to know -- I think we are entitled to know, you know, what would have to happen, besides the general information that I requested, what would have to happen in order for residential to be available on any of the proposed sites, whether or not it would require an ordinance of council or some kind of variances so that -- we don't want to have to speculate on any of that. Do you understand? Because what we don't want to do is delegate a measure of authority so that those people now can do things 110 11/30/98 - WHOLE - BILL NO. 980788 that maybe the mayor or yourself don't intend and maybe this council doesn't intend. So if you could look at each one of the parcels and be able to say to us, in order for this parcel to be considered for any residential development, the following would have to occur, and then as to the sites of these various districts, there can't be any question, because we know if the law department says, right, then that's it. That's what we hear. The Chair thanks the Councilman for yielding, but I think that kind of information will be helpful as we pursue all of this.
My understanding, Mr. President, is that the ordnance and maybe the state law just defines a resident, and the zoning wouldn't matter. So that if anybody chose to live in an industrial property and no action was taken to remove that person, there is nothing that I know of legally that can stop anybody from having a domiciled or residence on any property. It may be that somebody would have to 111 11/30/98 - WHOLE - BILL NO. 980788 file a complaint and you have to start an L&I proceeding and maybe we get involved with the various zoning boards. But the law doesn't say the property of the domicile area or the resident has to be zoned residential. It just defines the person. And if a person lives in a warehouse building and establishes a residence there, he may be doing something illegal under City laws, but I think he would meet this test. But I think the President's suggestion for a legal opinion on that would be good, because the zoning board does have the power under current law to grant variances for people to live in a residence even though the property is zoned as something else, zoning board with the variances. So I will leave further questions on that until the legal issue. Let me ask a question on the business. Suppose you have a business, say retail business, toy stores that often have many locations, or pet shops, that kind of thing, or rug stores, anything. And suppose one comes into a given zone, what happens? To what extent is 112 11/30/98 - WHOLE - BILL NO. 980788 that business entitled to get the exemption for real estate tax and business taxes?
The owner of that property -- number one, if a retail business says I want that, that parcel and it has been identified as a KOZ, there would be two things going on: First, there would be other people looking to buy that property or lease that property, too. And we would bid -- and it would get bid up, either the rent or the price would get bid up. The second, the businessmen established there would not have to pay property taxes either through the rental to the owner, because the owner wouldn't have to pay, or the business bought the property itself, it would thought have to pay property taxes, it would not have to pay business privilege taxes, state business taxes, state corporate income tax, and it would not have to pay sales tax on its wholesale, the wholesale sales. It would have to charge sales taxes to customers coming in on a retail sales.
Would that not 113 11/30/98 - WHOLE - BILL NO. 980788 affect the taxes applicable to the other property?
Correct, to retail sales. If you and I walked into the store and bought something, we would still pay the 7 percent tax.
But I mean, all other taxes that the business pays, I don't know whether they file a separate tax form for each business or file one tax form covering all businesses.
If it's a chain, for example, and it has ten stores throughout the city and one is in the KOZ, they would be required to separated that out and show -- and not pay and show an exemption for the various taxes. By the way, not just for the city but also for the state.
So that the advantages for the business are fewer than to a resident in the zone?
Well, the resident, as far as getting taxed, will be exempt 114 11/30/98 - WHOLE - BILL NO. 980788 from taxes no matter where they worked. If they worked outside of the zone anywhere or at two or three jobs outside the zone, they would be exempt from all of the wage taxes --
But I think the analogous store, by nature of the fact that the business is doing its operations out of that site, it's property and basically income-type taxes would be exempted. And if you live there, your property and your own income-type taxes, regardless of where you earned your income, whether it be wage tax or state income tax. That's the analogous situation. You as an individual wouldn't have to pay that either at that particular site.
I notice in the description of the Delaware River, we have the Lower Delaware River, we have an Upper Delaware River and we have a Central Delaware River. So it seems to be that is everything along the Delaware River. Or are there other portions that are neither lower, upper or central?
No. Actually, that is pure geographic description to identify three 115 11/30/98 - WHOLE - BILL NO. 980788 separate subzones. The Lower Delaware River includes, as Bill Hankowsky mentioned, the Naval Base, the Girard Point, the privately owned Girard Point, the Naval Hospital, Piers 122 and 124 along -- down the old coal piers down the bottom of the Delaware before the curve and Pier 74 annex around Snyder Avenue, the one undeveloped poor parcel right now. The mid -- the Central Delaware Riverfront includes the non-used portions of the Riverside Industrial Park, which is the Old Cramp Shipyard and the Port Richmond Area that is currently not leased to operators. The Upper Delaware is up around the northern shipping site, the old Federal -- Federal Arsenal Annex, the 17 acres of the old Northern Metals Site, the Philadelphia Coke Site; in other words, up further -- essentially just below our prisons.
How are the Delaware River portions named that are in between?
They are not included. They are not included. Each one of these -- each 116 11/30/98 - WHOLE - BILL NO. 980788 one of these areas has specifically identified parcels in them. We just call it that to give the subzone a name.
Does the Lower Delaware River now include the Navy Yard?
They are still included even though they are crossed out?
What excludes it literally is that we've drawn the boundaries of the proposed KOZ to not include it.
Basically any of the operating businesses or established businesses we have taken out of the zones. And it is only the vacant and underutilized and dilapidated buildings that we have included.
So that the only way we would know that for sure, say if I were very skeptical and wanted to have proof, you would find me something which describes a parcel of land by its description --
Yeah. Well, there are a couple of things. One is, I believe, that about 118 11/30/98 - WHOLE - BILL NO. 980788 85 percent of the language here we have to write up because it is publicly owned parcels that don't have BRT numbers. And so in each one of those, we have to have a description describing which parts of the lands you are talking about. In the privately owned and some of the smaller public areas, there are actual BRT parcel numbers. And all we have to put in the legislation is that parcel number completely identifying that parcel.
Mr. President, may I suggest that the request for legal interpretation include the question of legality of picking up parcels in the city. I am just concerned. Suppose residents or businesses in a certain area believe they have been unfairly not included or for some other reason feel they are being treated unfairly. I would just like to know the state of law. Do we have the power to pick out these individual sites?
Councilman Cohen, while you were questioning the witness, it occurred to me to try figure out a way of getting 119 11/30/98 - WHOLE - BILL NO. 980788 some advice on the question. It is my understanding that the Uniformity Clause of the Pennsylvania State Constitution limits the kind of classifications we can establish that treat people differently but we know we can because we have a resident wage tax rate and a nonresident wage tax rate. So we know that there are some -- there is obviously some latitude that the State in conjunction with the City has. And I think what we need is some direction on what, if any -- how will this comply with the various legal restrictions that we have on us that prohibit our ability to treat one taxpayer in the way that is different from the way we treat another taxpayer. And we may not be asking all of the right questions in the right way. But what we want you to do is, where we have failed to properly frame the issue, we would like you provide to take the responsibility of looking at and framing before us, even if it has to be framed in a little of a different way. It does raise all of these kinds of questions. And I think it's only fair that 120 11/30/98 - WHOLE - BILL NO. 980788 councilmembers be asked to consider this in this way at this time, be given as much advice as we can either on questions that might be raised by others who have an interest in all of this. Is that fair enough, Councilman?
I think that's a fair requirement. I think we ought to have some confidence in our legal position. If some taxpayers -- and there are bound to be some who are going, well, right across the street from the zone, they ought to have been included, and it's unfair that they weren't included, why does this other fellow have a business advantage over them, that sort of thing. So I think we ought to have some clarity as much as there can be on this issue. One last question: Would you be able to make a flat-out statement that the bill does not permit any thriving or viable business, does not grant any thriving or viable business any benefits, but that the benefits are limited to businesses, I guess, that are not thriving? You know, is that true or is that not true?
That's what I was 121 11/30/98 - WHOLE - BILL NO. 980788 saying.
We have endeavored to eliminate all -- as many but not all. We're constantly finding that there is a little business in one of these buildings that we thought was completely vacant and we are checking. But the sum total is really insignificant. We have basically endeavored to exclude any existing businesses and parcels or buildings or areas where we know of something in the pipeline that is already going to -- that is already going to happen. And so we're trying not to -- basically trying not to then add something that we already know either from just plain old market forces or some of our other programs; we're already working with to keep those out. We don't want to -- again, we are very mindful of the view espoused here by council, Councilman Nutter and others, about what sort of taxes will be forgiven in the future and -- and I mean corollary to those, we are very 122 11/30/98 - WHOLE - BILL NO. 980788 mindful of trying to minimize the revenue, direct revenue impact of this zeroing out. Unlike TIFs and unlike abatements, it doesn't freeze where you are now. It literally takes whatever you earn, whatever you are paying now and now and makes it zero. So there is an immediate impact there and endeavor to minimize that. If you can think of -- one thing that I noted, it is about $1.6 million of total bills and taxes that are on now and probably 1.3 million out of our roughly $1.9 billion of tax collections on these 2,000 parcels, 2,000 acres out of roughly 100,000 acres where half of that is our stuff, publicly owned. But that is a small area of the city, but it is nonproductive. In most cases we were trying to find the places that are simply not productive, and we don't envision any real opportunity given what we have in our -- the area we have now or read of the local economy. We don't see anything is potentially going to happen. Would I say categorically that on one of these parcels something might not 123 11/30/98 - WHOLE - BILL NO. 980788 happen five years from now? Absolutely not; I couldn't say that at all. If there is something going on now, we basically have endeavored to exclude that. There might be some small businesses going on in some of these places. You know, literally, we go out in one month and there is something starting up or something not starting up, but for the most part there really aren't any existing businesses here.
Well, does the Amtrack Northeast Corridor, Glenwood Ave. essentially have areas where there is ongoing -- on the Old North Philadelphia Rail Station or Amtrack --
That is not included. But a lot of the dead industrial buildings and land surrounding that area will be included. And we hope that that will be something that will both spark not only -- not only have we had investment in that community there for the new 124 11/30/98 - WHOLE - BILL NO. 980788 shopping center and others, but also sparked in that area -- basically along the Amtrack Corridor and the spur, the Northwest Spur, that is that old industrial underbelly of the city that we are hoping this will spur some additional interest to lead to development.
Roughly from Front Street on the eastbound to about -- to about 29th Street on the Amtrack Corridor, and then right behind the North Philadelphia Station where the northwest is, in the 18th and Indiana area, around -- between Lehigh and Allegheny, in that area. There's a Y on the old -- on the old, the rail right-of-way where those industrial buildings are just shot. We all know them from driving around probably, so we've erased them from our minds. But hopefully these are the ones they will be able to either restore some of those 125 11/30/98 - WHOLE - BILL NO. 980788 or tear some of them down and, again, add to productive use.
And what factor is placed overall, whatever is the financial ability of the owner?
The financial ability of the owner in this particular case -- I mean, we are looking at land use as opposed to financial ability.
If it (unintelligible) land decided to okay in an area like one of these areas, there would be plenty of space, I would think, in several areas of the city, this bill would apply to them.
Well, I don't know about that particular case. But I do want to remind everyone here, just like abatements and TIFs, in a lot of cases, the fundamental rationale for being someplace still has to fundamentally be an economic purpose for someone locating someplace. If someone thinks I can go in here 126 11/30/98 - WHOLE - BILL NO. 980788 and just get something, and willy-nilly, if that is the only person on earth thinking that, then they will get a bargain. But as long as there are a couple of other people thinking that, too, then the prices will be bid up and the use will go to something that they can actually take advantage of. People are saying, are you going to end up having speculators on this? Anybody who speculates on this with the time-clock ticking every second of the day, where they are speculating and not doing anything, is losing financial advantage. So this may be one of those types of things that will actually spur some people to do investment or sell to the developer or to someone who would do the invest.