COUNCIL OF THE CITY OF PHILADELPHIA2 COMMITTEE ON FINANCE3 Room 400, City Hall6 Philadelphia, Pennsylvania Monday, October 24, 20117 1:40 p.m. PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR10 COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL CLARKE11 COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN12 COUNCILMAN WILLIAM K. GREENLEE COUNCILMAN CURTIS JONES, JR.13 COUNCILMAN JAMES KENNEY COUNCILWOMAN MARIA D. QUINONES-SANCHEZ14 COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 110548 - An ordinance amending The16 Philadelphia Code, principally Title 19, entitled "Finance, Taxes and Collections," and17 such other provisions as may be appropriate, to reduce the tax burden on existing and new18 businesses... BILL 110554 - An ordinance amending Chapter 19-2600 of The Philadelphia Code, entitled20 "Business Privilege Taxes," by providing certain exclusions, modifying certain21 definitions, and revising certain tax rates... - - -23 2
Good2 afternoon. I apologize for being late.3 We'd like to call the Committee on4 Finance to order and recognize that we5 have a quorum in the presence of6 Councilmembers Brown, Greenlee, Green,7 Blackwell, Goode, Kenney and myself.8 We ask the Clerk to read Bill9 No. 110554.10
Bill 110548, an11 ordinance amending The Philadelphia Code,12 principally Title 19, entitled "Finance,13 Taxes and Collections," and such other14 provisions as may be appropriate, to15 reduce the tax burden on existing and new16 businesses; and to eliminate, waive, or17 reduce certain fees and permit charges,18 all for the purpose of generating growth19 in existing businesses, the birth of new20 businesses, and the creation of jobs; all21 under certain terms and conditions.22 Bill No. 110554, an ordinance23 amending Chapter 19-2600 of The24 Philadelphia Code, entitled "Business25 10/24/11 - FINANCE - BILLS 110548 & 1105541 Privilege Taxes," by providing certain2 exclusions, modifying certain3 definitions, and revising certain tax4 rates, all under certain terms and5 conditions.6
Thank you7 very much.8 The Chair recognizes9 Councilwoman Sanchez.10
Thank you,15 Madam Chair. We are handing out now16 amendments that have been worked on with17 the Administration with respect to this18 bill, and the Administration will testify19 about them with Mr. Dubow's testimony.20 It keeps in place both the exemption and21 single sales factor and just deals with22 timing and other things that the23 Administration would like to discuss.24 So everybody can take a look at25 10/24/11 - FINANCE - BILLS 110548 & 1105541 that amendment.2 Councilwoman Sanchez.3
Thank4 you. I think before we get started with5 this and just kind of set the tone, we6 have from day one been very diligent and7 committed to working with the8 Administration on what we believe to be9 an important piece of legislation at an10 important time given the economy, and,11 you know, I'm very thankful for the12 Administration and their team and our13 team's work on all of this, and14 particularly our stakeholders who,15 through this process, have really16 educated us around how do we make17 Philadelphia really open for business.18 So I look forward to the19 testimony and hope that the Finance20 Committee will support us on this bill.21 Thank you.22
Thank you23 very much.24 The Chair now recognizes the25 10/24/11 - FINANCE - BILLS 110548 & 1105541 first panel.2
We6 recognize the first panel, Mr. Edward7 Kicak, Pete Windle and William Stockwell.8 (Witnesses approached witness9 table.)10
Would you14 please state your name for the record and15 begin your testimony.16
Peter Windle.17 Good afternoon, Chairwoman18 Tasco and members of Council. Thank you19 for the opportunity to testify on the20 need for pro growth tax reform. My name21 is Pete Windle and I'm the President and22 CEO of Windle Mechanical Solutions. Our23 company is located in the Tacony section24 of Northeast Philadelphia. I'm also a25 10/24/11 - FINANCE - BILLS 110548 & 1105541 current Board member of the Urban2 Industrial Initiative and Manufacturing3 Alliance of Philadelphia. We're a small4 American manufacturing firm that does5 business and aims to succeed with our6 local customers as well as those located7 in several states around the country.8
11 Our company was formed in 200612 when I acquired the assets of XL Machine13 Company, who had been in operation in14 Northeast Philadelphia since 1969. Since15 taking over in 2006, we've almost doubled16 our sales volume. Our company is a17 precision machine shop that focuses on18 manufacturing highly engineered component19 products and assemblies for the20 biopharma, oil and gas, power and21 aerospace markets. On any given day, we22 manufacture parts that are vital to the23 efficient operation of pipeline pumps,24 which move oil throughout the country,25 10/24/11 - FINANCE - BILLS 110548 & 1105541 equipment critical to vaccine production,2 apparatus that is used in power3 generation, and complex helicopter parts4 and assemblies that are used in search5 and rescue operations. 12 We currently employ nine13 people, many of whom are Philadelphia14 residents. I am happy to say that we15 have added two jobs since the middle of16 2010, one as recently as last week. The17 average salary of our workers is over18 $47,000 per year, and all are offered19 comprehensive health care and benefit20 packages. 23 I feel good about owning a24 manufacturing business in one of25 10/24/11 - FINANCE - BILLS 110548 & 1105541 Philadelphia's neighborhoods. I believe2 even though we're small, our presence in3 the neighborhood has a significant4 impact. 25 10/24/11 - FINANCE - BILLS 110548 & 1105541 I support the proposed business2 privilege tax reform for two main3 reasons. First, it would mean tax4 savings for my company. The savings5 could translate into the company's6 portion of an individual's health7 insurance premium, a year's worth of8 lease payments for the latest technology9 of machine tool, upgraded order10 processing and job-tracking software,11 training for co-workers that may lead to12 our next innovation and the company13 growth, part of a new hire's salary. 17 Second, I think the reform18 would make my company, as well as other19 manufacturers in Philadelphia, more20 competitive with companies outside of the21 City. 10 Under this concept, we would only pay the11 net income tax on the sales inside the12 City and, like our competitors, wouldn't13 have to pay it on sales outside of the14 City. 23
Thank you.24 Next. Mr. Kicak.25 10/24/11 - FINANCE - BILLS 110548 & 1105541
4 Nobody ever got it right. 6 Good afternoon. 11 Thank you, Councilwoman and the Committee12 on Finance, for providing a forum for13 dialogue and discussion regarding the14 impact and the merits of reform15 provisions of the Philadelphia business16 privilege tax. 4 We employ approximately 115 people in the5 City of Philadelphia. Our customers6 manufacture equipment for many different7 industries using our stainless steel and8 nickel alloy plate products. We service9 industries such as the oil and gas,10 chemical, pulp and paper, water11 purification, food processing,12 semiconductor, solar equipment and, most13 recently, the nuclear industry. 25 10/24/11 - FINANCE - BILLS 110548 & 1105541 With all that has been said,2 Sandmeyer Steel remains a proud3 tax-paying corporate citizen in4 Philadelphia since its inception in 1952,5 and our company has provided jobs to many6 over our existence, thus supporting the7 City of Philadelphia through the City8 wage tax. Corporately, our tax support9 of City services rests primarily in our10 payment of business privilege tax, real11 estate tax, U&O, as well as many of the12 associated licenses and permits. 2 million in21 the taxes that I just enumerated. On22 more than one occasion, we have spoken23 about the possibility of moving outside24 of the City of Philadelphia due to the25 10/24/11 - FINANCE - BILLS 110548 & 1105541 onerous business privilege tax to a more2 attractive location where we can more3 easily sell to our national and worldwide4 markets. 11 About a year ago, I had the12 privilege of testifying before City13 Council regarding Bill 110635 that also14 had ramifications, major ramifications,15 and tax savings for our company. While16 that bill would have provided even a17 greater savings for us, we all realize18 that compromise and cooperation are19 necessary ingredients oftentimes in20 getting things accomplished. 25 10/24/11 - FINANCE - BILLS 110548 & 1105541 I am here today to support --2 to render my support for Bill No. 6 When combining the six and a half percent7 tax rate of the BPT, corporations located8 in the City of Philadelphia face a heavy9 tax burden, which can easily approach 5010 percent when combined with state and11 federal taxes. 17 The current existing method18 creates an incredible disincentive for19 Philadelphia businesses like Sandmeyer20 Steel Company who have their predominant21 presence of employees and capital22 investments located in the City. 4 Each increase in the number of employees5 and payroll, each purchase of equipment6 and investment are accompanied by more7 income allocated to Philadelphia and8 inevitably an increase in the privilege9 tax. 13 While Sandmeyer Steel Company14 has and, in all probability, is committed15 to remain in Philadelphia, under these16 provisions I often wonder why any company17 would consider Philadelphia as a18 business-friendly environment to begin a19 business or expand its existing presence20 in the City. 8 I have analyzed the impact of9 these proposed changes on our company by10 reviewing 2005 to 2010. On average, the11 proposed changes, when fully implemented12 under this bill, would have saved13 Sandmeyer Steel Company approximately14 $165,000 per year and, over that six-year15 period, close to $1 million. Such16 savings would result in additional17 investment and more modern needed18 equipment in growing our business and19 inevitably in increasing employment as20 our business grows. 9 Earlier I asked why would any10 company move into the City of11 Philadelphia to conduct business12 operations with the tax burdens that13 exist. In the last year, we have14 learned, and it has been well publicized,15 that a new major employer, Teva16 Pharmaceutical, is moving their suburban17 facility into the City. Articles have18 indicated that they will create 40019 permanent jobs in the City, create 60020 temporary construction jobs and will have21 a major distribution center located in22 Northeast Philadelphia.
Ironically, Teva23 Pharmaceutical will be our new neighbor24 at Sandmeyer Steel Company. They share a25 10/24/11 - FINANCE - BILLS 110548 & 1105541 fence line with us. 11 It might be a little stretch that I'm12 astonished that we would give tax relief13 to create business. I'm not. That's a14 good thing. 2 million in taxes17 to the City in the last six years, having18 paid the three-factor formula. I'll19 leave that aside. 22 110554. 5 Shouldn't the companies that6 have had an allegiance to Philadelphia7 for so many years receive the same tax8 treatment? 4 I do have the confidence in the5 members of this Chamber that you will6 thoughtfully consider what we have added7 to this dialogue on tax reform. 13 Please vote and act on the14 provisions of Bill No. 21
Thank you22 very much. We'll wait until everyone has23 testified and then we'll open the floor24 for questions.25 10/24/11 - FINANCE - BILLS 110548 & 1105541 Mr. Stockwell.2
Yes. Good3 afternoon, Chairwoman Tasco and members4 of the Council. My name is William5 Stockwell. I'm the owner and CEO of6 Stockwell Elastomerics. We were founded7 in 1919. We're a four-generation8 business. We first began on 6th and Arch9 Street, then we've moved to Fishtown in10 1950. We moved from Fishtown up to our11 present location off of I-95 and Academy12 Road in 1981 where we are right now.13 We're proud to be a Philadelphia company.14 Our business is a custom15 manufacturer of silicone rubber gaskets16 and elastomeric components. We provide17 components to technology sector companies18 worldwide, not only in the country.19 Actually, 12 percent our revenue is20 shipped to Southeast Asia. We're very21 proud of that.22 We employ 77 people. Over half23 of our people, 48, reside in the City of24 Philadelphia. The average salary of our25 23 10/24/11 - FINANCE - BILLS 110548 & 1105541 workers ranges from $35,000 to start to2 approximately 50,000 as an average, just3 a base pay when they've been with us for4 a while. We actually have a quarterly5 gross profit margin that we distribute.6 We're proud to say that we pay the vast7 majority of medical and dental, and this8 is -- the manufacturing sector does this9 and other sectors of the economy do not.10 We're very proud of this. It's good11 work. It builds value.12 Look, I have no intention to13 move my business out of Philadelphia. I14 love Philadelphia. What brings me to the15 table, I didn't have a whole lot of data16 as far as what this would save us, but I17 have a very recent example of the cost of18 running a business in Philadelphia.19 I'm 57 years old. I'm the20 fourth generation of my business. I have21 nobody else behind me. My kids don't22 want to run the business, and I'm trying23 to attract new talent. I did a24 nationwide search for a new Director of25 24 10/24/11 - FINANCE - BILLS 110548 & 1105541 Sales, had somebody I thought signed up2 and, at the last minute, the person3 didn't sign on because their perception4 is that Philadelphia is not a very5 business-progressive community. I spoke6 against that. I told this person that,7 no, we're really in play here, but their8 perception is my reality. The person9 didn't come on board. I would have loved10 to have had an example of this bill to11 show them that we're making progress.12 Like I said, I have no13 intention to move out. But what happens14 to a company like ours? What happens to15 a company like ours? Let's say it's five16 years from now and I don't have a17 successor. The natural thing is for me18 to sell the business, right? I mean, I19 don't want to be an old man trying to do20 what I do right now. What happens then21 is a strategic buyer would likely come in22 and buy the business and immediately look23 at the tax disadvantage and yank the24 thing up and we're history from this25 25 10/24/11 - FINANCE - BILLS 110548 & 1105541 area. That's what happens in2 transitions.3 So I applaud you for4 considering this. I hope you do it. We5 intend to stick around for a long time.6 If you want to come up and see our7 facility, you're all welcome to come up.8 It's a fun place.9 Thank you.10
Thank you.11 Thank you all for testifying.12 The Chair recognizes Councilman13 Green.14
Thank you,15 Madam Chair.16 Thank you so much for coming in17 to testify. I know we've been working on18 this and talking to many of you for quite19 some time about this. I think it's worth20 noting that the difference between the21 four manufacturers between the original22 proposal that we worked on last year and23 this proposal is pretty miniscule in24 terms of the tax differential. It's25 26 10/24/11 - FINANCE - BILLS 110548 & 1105541 basically the gross receipts amount,2 because you'll only be -- you and your3 competitors will now only be paying4 taxes, net income, on what you're selling5 in Philadelphia.6 And so, you know, I don't have7 any questions for you. I think you are8 all eloquent and clearly understandable,9 and thank you very much.10
We'd like14 to thank you for testifying and trust15 that as we pass this legislation and it's16 in your favor, that the savings that you17 gain from this, as you said, Mr. Kicak,18 will be used to hire new employees. That19 helps our real objective here, is to20 create jobs, and if this bill helps, it21 returns the dollars to us by having more22 employees in the City of Philadelphia.23
We thank you for24 all your good work.25 27 10/24/11 - FINANCE - BILLS 110548 & 1105541
Thank you2 very much. Thank you.3 Next panel, Ms. --4 (Applause.)5
Gloria6 Bell. Is there a Nancy Minor here? And,7 Ms. Bell, would you both come up, please.8 (Witnesses approached witness9 table.)10
Good11 afternoon. Thank you for coming. Would12 you identify yourself for the record,13 please, and pull the microphone to your14 lips.15
Good afternoon,16 Councilmembers. Thank you very much for17 having me here. My name is Gloria Bell.18 I am the founder of Red Stapler19 Consulting and I serve on the leadership20 team of Philly Startup Leaders.21
Thank you.24 A lot of the esteemed speakers25 28 10/24/11 - FINANCE - BILLS 110548 & 1105541 here today, a lot of your own advisors, a2 lot of the experts are going to give you3 a lot of facts and figures and process4 information, and what I want to share5 with you today is something a little more6 intangible. It's about the experience of7 being a small business owner, a startup8 company in the City of Philadelphia, what9 not only I myself have experienced in the10 three years that I've owned a business11 here but also what members of my12 organization have experienced, what I've13 learned from various interactions with14 other members of the startup community15 here in Philadelphia.16 For anyone who started a17 business, one of the things that you18 know, if you run a household or run a19 business, one of the toughest things is20 budgeting and making financial decisions21 and deciding where your money is going to22 go, where is the best place to spend it.23 When you're dealing with a startup24 company, especially one that's being25 29 10/24/11 - FINANCE - BILLS 110548 & 1105541 bootstrapped by contributions from its2 founders, by contributions from their3 family and friends, those decisions get4 even more difficult, and when you're5 having to make a decision on am I putting6 aside money to pay taxes or am I hiring a7 new employee, am I upgrading my hardware,8 am I buying new software, those decisions9 become ones that keep us up at night.10 One of the wonderful things11 about running a business in the City of12 Philadelphia and one thing I want to tell13 you -- I am not originally from14 Philadelphia. I've been in this area for15 28 years. I've lived in the City itself16 for six, and I don't see myself ever17 leaving. I have come to love this city.18 This has become home.19 One of the things that is very20 prevalent among my colleagues that work21 in the startup community in Philadelphia22 is, they feel the same way, Philadelphia23 is home. And there are a lot of them24 that are choosing to start companies25 30 10/24/11 - FINANCE - BILLS 110548 & 1105541 here, to keep their companies here and2 even some I know of that are moving their3 companies into the City of Philadelphia,4 and they're not doing it because it's the5 easiest place to do business or the6 cheapest place to do business, because by7 far, compared to some of their options,8 it's not. But what they're doing is9 they're doing it because they believe in10 this city and they love this city and11 they want to see it grow.12 What we would like to see is13 the same love from City Council, from the14 Administration, from all the government15 officials and from big business in16 Philadelphia for the startup community,17 taking efforts like this bill that's18 before you to say, We understand the19 pressures you have, we understand the20 decisions you have to make and we21 understand how difficult it is to run a22 business in the City of Philadelphia and23 we want to find ways to help you. The24 City's tagline is the City that loves you25 31 10/24/11 - FINANCE - BILLS 110548 & 1105541 back. That's a really strong message to2 the startup community that the City of3 Philadelphia does love them back and4 wants them here and wants them to stay5 here.6
Good afternoon,10 City Council. My name is Nancy Minor.11 I'm with the United Steelworkers, and we12 represent a thousand employees at the13 Sunoco facility in South Philly and the14 Marcus Hook facility in Delaware County.15 We've spoken with several of16 the City Councilmembers, most of the City17 Councilmembers, over the past several18 weeks regarding the upcoming sale or19 closure of the facility. I'd like to20 give you a different perspective as an21 employee of a manufacturer that is22 planning on closing or selling their23 facility.24 I've been with Sunoco for 2025 32 10/24/11 - FINANCE - BILLS 110548 & 1105541 years. I love my job. We have a top --2 we have a world-class group in that3 facility, limited safety issues. Sunoco4 has made a decision that is not going to5 be changed. What your bill may do will6 be encourage a new employer to come in7 and run the facility and maintain not8 only the thousand jobs in the facility9 but the eight people that are affected by10 every job loss in that plant. So we're11 not talking a thousand people. We're12 talking 8,000 in Philadelphia alone.13 If your bill brings in a new14 employer, you save -- the City will15 continue to get the $30 million in taxes16 every year that Sunoco pays to them.17
Thank you24 very much.25 33 10/24/11 - FINANCE - BILLS 110548 & 1105541 Thank you both for your2 testimony. The City does love our3 startup companies, and we want to see4 someone buy the Sunoco plant. I think it5 is significant that in very profitable6 years, Sunoco pays a significant amount.7 I'm not going to mention the dollars.8 You put out a figure. Most of their9 sales are outside the City. And so the10 free cash flow that this change will11 provide any acquirer of that company12 allows them to make the decision. It13 could be -- 30 million a year could be14 the difference between penciling an15 acquisition and saving a thousand jobs or16 not, and they're a thousand well-paying17 jobs with benefits, with wage taxes18 probably approaching $30 million.19 So thank you very much for your20 testimony, both of you.21
Thank you25 34 10/24/11 - FINANCE - BILLS 110548 & 1105541 very much. Thanks for taking the time.2 And just so painful. It's just too3 painful to listen to that, $30 million.4
Okay.7 Now, we have -- the next panel will8 testify on both bills, 110554 and 110548.9 And before we begin with the witnesses, I10 call on Councilmember Jim Kenney.11
Madam12 Chairperson, should the Clerk read the13 bill.14
I'm sorry.19 I'm moving too fast. We still have --20 I'm sorry, SEIU. Please forgive me.21 Don't shoot me. Testimony from Marvin22 Robinson, Matthew Wah and Anna Kauffman23 and Raymond Kerstetter testifying on Bill24 110554.25 35 10/24/11 - FINANCE - BILLS 110548 & 1105541 (Applause.)2 (Witnesses approached witness3 table.)4
Good afternoon,5 Finance Committee. Thank you for giving6 us the opportunity to consider this new7 bill in City taxation. My name is Anne8 Gemmell. I live in a neighborhood filled9 with small businesses and I serve as the10 democratic committeewoman in that11 neighborhood filled with small12 businesses. And I'm also very proud to13 be here today as the Political Director14 of an organization called Fight for15 Philly. Fight for Philadelphia has been16 spending most of the summer, beginning17 last May and June, knocking on doors in18 neighborhoods that have been hard hit by19 the Great Recession and talking to people20 about what caused the recession and how21 we can begin to fix the recession. And22 one of our main concerns is23 accountability at all levels, for24 corporations being good citizens, for25 36 10/24/11 - FINANCE - BILLS 110548 & 1105541 government looking out for the little2 guy.3 So we have some voices here to4 speak to this bill today. Thank you for5 the opportunity to address you all.6
Hello. My name is9 Matthew Wah. I'm 21 years old. I am10 from the Frankford neighborhood and11 graduated from Frankford High School in12 2008. I'm here because I notice a13 decline in my neighborhood, and small14 businesses like mom-and-pop shops are15 closing down, and now what was once a16 safe and beautiful neighborhood is now17 dangerous and filled with poverty. And18 this is not fair to our children, which19 is the future of Philadelphia.20 For this reason, I ask the21 Council Finance Committee to pass the BPT22 reform and help our neighborhood23 businesses survive during these tough24 times.25 37 10/24/11 - FINANCE - BILLS 110548 & 1105541 Thank you.2
Thank you.3 I appreciate your testimony.4 Young man.5
My name is6 Marvin Robinson. I'm a committeeman in7 the 4th Ward, 15th Division, also a block8 captain. I just want to sit here and ask9 the Council, all of y'all that's going to10 make the decision on this bill, I hope11 y'all make the right decision, because12 this is going to benefit the people that13 have small businesses in the community,14 for them to grow, because the big15 corporates has already took enough from16 the small business.17 So I hope this bill that y'all18 believe to have in front of y'all, y'all19 will pass it, and that's all I'm here20 for, to support the bill.21
Thank you22 very much for taking time to come to23 testify. We appreciate that.24
Good afternoon,25 38 10/24/11 - FINANCE - BILLS 110548 & 1105541 Councilmembers. My name is Anna Kauffman2 and I am in the Northeast Philadelphia3 area. I am a senior citizen and I have4 worked for the City of Philadelphia5 within the City for 50 years. I own a6 small duplex. It's an owner-occupied7 duplex that I pay taxes on and they're8 sort of like escalating beyond my9 in-pocket expenses. And I also have a10 new tax that's called the refuse11 collection fee tax that I must pay every12 year out of pocket.13 I pride my home and I'm trying14 to save my home and not give it up and15 move out of Philadelphia like a lot of16 residents have. And we have a lot of17 abandoned factories that are idle, just18 sitting by idle for many, many years, a19 real eyesore to our community, and I20 would like the Committee to pass this21 bill as well to help our small22 businesses.23 I talk to people and they're24 very unhappy -- they couldn't be present25 39 10/24/11 - FINANCE - BILLS 110548 & 1105541 because they run a restaurant business,2 and that's very difficult to break away3 time to come here, but they do know the4 facts and I told them I would come and5 speak for this bill for them to help us6 out. We really need help. And I've been7 asking the Mayor for two years, please8 help us.9 Thank you.10
Good14 afternoon, fellow Philadelphians. My15 name is Raymond Kerstetter. I don't16 really have a speech to give, but I'll17 just be short and sweet.18 I have been born and raised in19 Philadelphia. I moved to Virginia. I20 moved back to Philadelphia. And my21 business is just a very, very small22 hobby-come-home-based business, and the23 reason why I was testifying was the fact24 that I feel that I shouldn't be penalized25 40 10/24/11 - FINANCE - BILLS 110548 & 1105541 to -- without having a brick and mortar2 operation, just out of my home, to be3 required to, one, have a license and4 collect on like gross receipts, because5 my receipts are far, far less than the6 people that have given testimony prior.7 And I just feel that I'm all for8 businesses and paying taxes and paying9 sales and use tax. It is our duty, our10 civic duty, but I just feel that in order11 to just have a small business, I just12 feel that we should just operate without13 any kind of restrictions such as14 licensing or any of that.15 I'm pretty sure like a lot of16 people are vest pocket dealers and people17 that sell maybe Avon or Tupperware or18 whatnot, and I just felt that, you know,19 I really strongly hope that you get20 together and do something to help us21 little people kind of survive in these22 times.23 Thank you very much for your24 time.25 41 10/24/11 - FINANCE - BILLS 110548 & 1105541
We thank2 you.3 We thank all of you for coming4 down to testify on this piece of5 legislation.6 (Applause.)7
It's very8 helpful. And come again.9 Any other questions, comments?10 (No response.)11
Thank you12 all for coming.13 Now we'll move to the next14 panel, Councilman Kenney.15 We'll first have the Clerk read16 the bill for 110548.17
Thank you23 very much, Madam Chair, and thanks for24 all of the witnesses who testified on the25 42 10/24/11 - FINANCE - BILLS 110548 & 1105541 Green/Sanchez bill and will be testifying2 on both that bill and Bill No. 110548. 5 Over the past three years, the6 economic recession has severely7 restricted our business community's8 ability to grow, innovate and employ9 members of our city's workforce. New10 businesses and entrepreneurs not only11 face a tough market, but they face12 City-imposed financial barriers to13 starting a business in Philadelphia. 21 The last few budget cycles have22 forced us to make some tough choices23 regarding tax increases. So our24 challenge is to use targeted incentives25 43 10/24/11 - FINANCE - BILLS 110548 & 1105541 to attract new businesses and create new2 jobs. 5 The Kauffman Foundation's6 report, entitled "Starting Smaller,7 Staying Smaller: America's Slow Leak in8 Job Creation," states that the way to9 confront these challenges across the10 United States is to start more employer11 businesses, ensure that they are starting12 larger and nurture their growth. The13 Foundation's research shows that before14 the recession, roughly one in two new15 businesses nationwide survive the first16 five years. Now the rate of business17 survival is starkly lower, and the18 recession is also causing businesses to19 hire fewer employees. 23 Bill 110548, as amended, aims24 to do exactly this - provide an incentive25 44 10/24/11 - FINANCE - BILLS 110548 & 1105541 for businesses that is directly tied to2 job creation. 15 To ensure that these new16 businesses hire Philadelphians, the bill17 requires that they employ at least three18 employees after one year and employ at19 least six by a year and a half. 22 The bill effectively reduces23 the cost of doing business in24 Philadelphia by eliminating the tax25 45 10/24/11 - FINANCE - BILLS 110548 & 1105541 burden. We can allow businesses to2 reinvest their earnings. By reducing3 certain license and permit fees, we can4 reduce startup costs. 9 I'd like to say in addition10 that I believe that the Green/Sanchez11 bill is crafted in a great way and will12 go a long way in helping all size13 businesses going forward. The purpose of14 this bill is to give incentives for15 people to start a business in16 Philadelphia, whether it's a small17 business or a medium-sized business or a18 large business. 24 So I expect that -- I look25 46 10/24/11 - FINANCE - BILLS 110548 & 1105541 forward to supporting the Green/Sanchez2 bill on their BPT approach and I also3 look forward to putting this bill into4 place to get some job jump-start in5 Philadelphia over the next two years. So6 I think both complement each other. )10 COUNCILMAN KENNEY:11 Hypothetically -- and I know it will12 never happen. Hopefully we'll continue13 to move towards that goal. 2
Thank you,6 Madam Chair.7 I just want to say thank you,8 Councilman Kenney, for your comment about9 our bill. Really we're headed in the10 same direction with these two measures.11 The BPT reform proposed by Councilwoman12 Sanchez and I levels the playing field,13 so that when you're a Philadelphia14 business and you're selling goods and15 you're competing locally or around the16 world, you pay the same tax to the City17 of Philadelphia as someone who is not18 based here in the City of Philadelphia.19 It also provides -- and what your bill20 does is level the playing field at the21 inception of a business, because when a22 business starts, they will pay no taxes23 here to start here and they will pay no24 taxes outside the City to start there,25 49 10/24/11 - FINANCE - BILLS 110548 & 1105541 and hopefully the combination will let2 them start here and then stay here. So I3 look forward to working with you.4
Great.9 The first panel, we have Mr. Wonderling,10 President of the Chamber of Commerce;11 Mr. Joseph Mahoney, Philadelphia Chamber12 of Commerce; Stewart Weintraub from the13 Chamberlain; and Mary Faustino from the14 Asian American Chamber of Commerce, if15 she's here.16 (Witnesses approached witness17 table.)18
Thank you22 so much for being here and testifying,23 and certainly I'm sure you enjoyed the24 testimony from our citizens in25 50 10/24/11 - FINANCE - BILLS 110548 & 1105541 Philadelphia, who really care about2 what's happening here in the City and3 want businesses to come so we can create4 jobs and cut down on some of the problems5 that we have.6 So we welcome you and ask you7 to begin your testimony. Who is going to8 testify?9
Thank you,14 Chairwoman Tasco. 18 For the record, I'm Joe19 Mahoney, Executive Vice-President of the20 Greater Philadelphia Chamber of Commerce,21 and I'm here today to present testimony22 in support of City Council Bills 11054823 and 110554. 18 According to the Bureau of19 Labor Statistics, the City continues to20 lose jobs. It had an average of 657,00021 jobs in 2010. By August of this year,22 the number had declined to 647,000. 3 As previously mentioned, the4 high unemployment rate in the City is5 even higher among certain categories of6 workers. 12 This bill, known as Jump-Start13 Philly Legislation, is designed to entice14 businesses to locate here and to create15 new jobs for local residents by exempting16 from all business-related license fees17 for the first two years of operation any18 new business that employs at least six19 full-time employees who live in the City,20 at least three in the first year and, as21 Councilman Kenney said, six in the22 second. This bill includes an exemption23 from all business-related license fees,24 business privilege taxes, transfer taxes25 54 10/24/11 - FINANCE - BILLS 110548 & 1105541 and zoning-related fees for the first two2 years of operation. 16 The current BPT structure puts17 Philadelphia-based businesses at a18 competitive disadvantage. 24 Bill 110554 has two main25 55 10/24/11 - FINANCE - BILLS 110548 & 1105541 components - an exemption for the first2 $100,000 of gross receipts and a3 proportionate share of net income for all4 businesses. This exemption would be5 phased in starting in 2014, which I6 believe is FY15. 45 percent,11 net income only on income derived from12 sales in Philadelphia. 18 During 2003, the Tax Reform19 Commission recommended a ten-year20 phaseout of the BPT and a change in the21 apportionment formula to a single sales22 factor. The Greater Philadelphia Chamber23 of Commerce championed the Commission's24 recommendations then and now. 8 Adopt sales receipts as the only factor9 for apportioning the net income base of10 multi-jurisdictional businesses. The11 current formula for apportioning income12 in Philadelphia double weights sales and13 equally weights the contribution of local14 property and payroll to a business's net15 income. 5 We believe that the combination6 of a waiver on fees and permits, coupled7 with the $100,000 exemption, will level8 the playing field for Philadelphia9 businesses and will have a minimal impact10 on out-of-town businesses. 25 58 10/24/11 - FINANCE - BILLS 110548 & 1105541
Thank you.2 Who else is testifying?3 Thank you. Ms. Faustino.4
Thank you. Good5 afternoon, members of City Council,6 Councilmen Kenney, Green and Councilwoman7 Sanchez of the Finance Committee. I am8 Mary Faustino, Interim Executive Director9 of the Asian American Chamber of Commerce10 of Greater Philadelphia. Since early11 2004, our mission has been to assist12 Asian community businesses as minority13 business owners in encouraging, assisting14 and promoting their business growth.15 The Asian American Chamber of16 Commerce of Greater Philadelphia supports17 the Greater Philadelphia Chamber of18 Commerce in supporting City Council Bills19 110548 and 110554.20 Both bills would inspire new21 businesses for the City of Philadelphia22 and would help encourage our existing23 Philadelphia businesses, both large and24 small, that the City of Philadelphia is25 59 10/24/11 - FINANCE - BILLS 110548 & 1105541 helping in their bottom line.2 Thank you for your attention,3 and the Asian Chamber looks forward to4 the next step to encourage the passing of5 Bills 110548 and 110554.6 Thank you.7
Thank you8 very much.9 Any questions from members of10 the panel here to this panel?11 (No response.)12
Thank you13 very much. I think they worked on it so14 hard, they're just glad to see you here15 supporting it. Thank you.16 (Applause.)17
Well,18 Mr. Dubow, you just knew you were going19 to be on time.20 (Witnesses approached witness21 table.)22
Good afternoon.25 60 10/24/11 - FINANCE - BILLS 110548 & 1105541
Would you2 please state your name for the record and3 proceed with your testimony.4
May I apologize in5 advance for the testimony getting up here6 so late. 8 I'm Rob Dubow. 12 We are here today to testify and answer13 questions on two bills before the14 Committee, Bills 110548 and 110554. 13 Prior to his Administration, Councilman14 Nutter championed business and wage tax15 reductions for all Philadelphians. Most16 recently over the course of the past17 year, we have worked in partnership with18 Council; in particular, with the offices19 of Councilmembers Green and Sanchez, to20 study the impacts of different business21 tax changes. 24 The Administration believes25 62 10/24/11 - FINANCE - BILLS 110548 & 1105541 that both bills have positive elements2 that we support. We originally had some3 concerns with the bills and have had4 ongoing discussions with the5 Councilmembers and their staffs regarding6 proposed changes to the bills. 22 The bill would also eliminate23 business taxes and license fees for the24 first two years of operation for all new25 63 10/24/11 - FINANCE - BILLS 110548 & 1105541 businesses that continuously employ at2 least three full-time employees by the3 end of the first year of operation and4 that continuously employ at least six5 full-time employees between a year and a6 half and two years of operation. Those7 businesses would also be exempted from8 the business privilege license fee9 immediately. We understand the purpose10 of this bill is to lower the costs11 associated with starting a new business12 in order to stimulate new business13 formation and increase employment among14 Philadelphians. 15 The total estimated revenue16 impact of this proposal based on the17 amendments we've discussed is18 approximately 20 million over the course19 of the Five Year Plan. 22 The analysis is based on actual23 business creation data available in24 Department of Revenue records. It25 64 10/24/11 - FINANCE - BILLS 110548 & 1105541 doesn't account for any additional2 business creation that may result if this3 proposal has its intended effect of4 stimulating new business creation. 18 Also, it's important to discuss19 these proposals in the context of the20 City's overall financial situation. Our21 current projected fund balance in the22 Five Year Plan is below 30 million in23 each of the Plan's last two years, and24 the stalling national economy has led to25 65 10/24/11 - FINANCE - BILLS 110548 & 1105541 revenues coming in lower than projected2 which, if current trends continue, would3 cost the City's General Fund almost $504 million a year. 7 We are generally in favor of8 the concept of eliminating fees for the9 business privilege license. While the10 financial conditions we just discussed11 made it impossible for us to support the12 bill as originally proposed, we have13 worked with Councilman Kenney to develop14 amendments to the bill to delay when the15 fees will be eliminated for already16 established businesses until 2014. 24 There are some administrative25 66 10/24/11 - FINANCE - BILLS 110548 & 1105541 components of the bill that will require2 some additional work on the Department of3 Revenue's part that will probably result4 in the need for new employees. 21 Bill No. 16 Our understanding of the17 purpose of this bill is to benefit small18 and medium-sized businesses by providing19 the gross receipts and proportional net20 income exclusion and removing a21 disincentive for businesses to locate in22 Philadelphia by implementing single sales23 factor apportionment, because our current24 structure taxes companies based on the25 68 10/24/11 - FINANCE - BILLS 110548 & 1105541 amount of property, payroll and sales2 they have in the City. 11 Based on analysis conducted by12 the Department of Revenue, in the13 aggregate Philadelphia-based firms, as we14 have come to define them working with the15 sponsors of this bill, would benefit from16 $50 million of the total $48 million17 annual tax reduction when the bill is18 fully implemented. 2 Almost all business sectors3 would benefit from this proposal.
8 With regard to business size,9 while some small businesses benefit and10 others fare worse, overall almost 5011 percent of the tax reduction benefit12 would go to small businesses, defined as13 businesses with $1 million or less in14 annual gross receipts. 24 We did have some concerns with25 70 10/24/11 - FINANCE - BILLS 110548 & 1105541 the bill as originally proposed and have2 had discussions with the sponsors on3 modifications. Given the financial4 challenges facing the City, we couldn't5 afford the very significant cost of the6 bill as introduced. 13 We are in agreement with14 providing a phase-in of the gross15 receipts and net income exclusions16 starting in FY15 at 50,000, going to 7517 in FY16 and 100,000 in FY17 and18 thereafter. 24 We are also in agreement with25 71 10/24/11 - FINANCE - BILLS 110548 & 1105541 the concept of implementing single sales2 factor apportionment starting no later3 than tax year 2015, which corresponds to4 Fiscal Year 2016, and support amendments5 to put that proposal in place. 12 In conclusion, on behalf of the13 Mayor, we want to again thank the14 sponsors of these proposals for their15 efforts in pushing these significant16 issues, with the shared goal of improving17 our business climate and attracting and18 retaining employers in Philadelphia. 3
Thank you.4 Are there any questions from5 members of the Committee?6 (No response.)7
Is there12 anyone else here to testify on these two13 bills?14 (No response.)15
There16 being none, we will now close our public17 hearing and go into our public meeting.18 The Chair calls on Councilman19 Green to offer the amendment on Bill No.20 110554.21
Thank you,22 Madam Chair. I offer an amendment, which23 has been previously circulated, on Bill24 No. 110554.25 73 10/24/11 - FINANCE - BILLS 110548 & 1105541 (Duly seconded.)2
It has3 been moved that the amendment be adopted4 for Bill 110554.5 All in favor?6 (Aye.)7
There11 being none, the motion is carried.12 The Chair recognizes13 Councilwoman Blackwell to report Bill14 110554 out of Committee with an15 amendment, with a suspension.16
Thank17 you, Madam Chairman. I move that Bill18 No. 110554, as amended, be reported out19 of Committee and that the rules be20 suspended in order to permit first21 reading at our next session of Council.22 (Duly seconded.)23
It has24 been moved and seconded that Bill No.25 74 10/24/11 - FINANCE - BILLS 110548 & 1105541 110554, as amended, be reported out of2 Committee with a favorable recommendation3 and that the rules of Council be4 suspended so this bill can be heard at5 Council's next session.6 All in favor will say aye.7 (Aye.)8
There12 being none, this motion is carried.13 The Chair recognizes14 Councilwoman Blackwell to report out Bill15 110548 -- the amendment. I'm sorry; the16 amendment to the bill.17
I'm sorry.20 Is there additional amendments to the21 Green/Sanchez bill or have they already22 been --23
They just24 did this.25 75 10/24/11 - FINANCE - BILLS 110548 & 1105541
But there2 aren't any additional ones? I'm just3 asking if there were.4
I'm saying7 but there are no additional ones besides8 that?9
No.10 Would you report out -- we'd11 like for you to call up the amendment for12 Bill No. 110548.13
Thank you,14 Madam Chair. I move that Bill No.15 110548 --16
-- be19 amended accordingly as to the amendments20 circulated to the members of the21 Committee.22 (Duly seconded.)23
It has24 been moved and seconded we adopt the25 76 10/24/11 - FINANCE - BILLS 110548 & 1105541 amendment as circulated to Bill 110548.2 All in favor will say aye.3 (Aye.)4
There8 being none, the motion is carried.9 The Chair recognizes10 Councilwoman Blackwell to report out Bill11 No. 110548.12
Thank13 you, Madam Chair. I move that Bill No.14 110548, as amended, be reported out of15 Committee and that the rules of Council16 be suspended in order to permit first17 reading at our next session of Council.18 (Duly seconded.)19
It has20 been moved and seconded that Bill No.21 110548, as amended, be reported out of22 Committee with a favorable recommendation23 and that the rules of Council be24 suspended so this bill can be heard at25 77 10/24/11 - FINANCE - BILLS 110548 & 1105541 Council's next session.2 All in favor will say aye.3 (Aye.)4
There8 being none, this bill is carried.9 We thank you all very much, and10 this Committee is adjourned.11 (Committee on Finance adjourned12 at 2:50 p.m.)13 - - -14 15 16 17 18 19 20 21 22 23 24 25 78 CERTIFICATE2 I HEREBY CERTIFY that the3 proceedings, evidence and objections are4 contained fully and accurately in the5 stenographic notes taken by me upon the6 foregoing matter on October 24, 2011, and that7 this is a true and correct transcript of same.8 9 10 11 12 --------------------13 MICHELE L. MURPHY14 RPR-Notary Public15 16 17 18 (The foregoing certification of this19 transcript does not apply to any reproduction20 of the same by any means, unless under the21 direct control and/or supervision of the22 certifying reporter.)23 24 25