COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, December 3, 2008 10:00 a.m. - - - PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILWOMAN WILLIAM GREENLEE COUNCILMAN JAMES F. KENNEY COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO BILL 080791 - An ordinance amending Chapter 16 19-3100 of The Philadelphia Code, entitled "Attorney Fees in Collection Matters; Retention of Private Attorneys"... BILL 080882 - An ordinance amending Chapter 19-3200, entitled "Keystone Opportunity Zone and Economic Development District"... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good afternoon. We're going to move the hearing along. We have two other hearings scheduled for this afternoon. So I'd like to call the Committee on Finance to order, recognizing that we have a quorum in the presence of Councilman O'Neill, Councilman Greenlee, Councilman Kenney, Councilman Goode, Councilman Green and Councilwoman Blondell Reynolds Brown. We'd like the Clerk to read the bill, please.
Bill No. 080791, an ordinance amending Chapter 19-3100 of The Philadelphia Code, entitled "Attorney Fees in Collection Matters; Retention of Private Attorneys," by providing for a schedule of contingency fees to be assessed relating to collection expense incurred in the collection of delinquent tax and other municipal claims; authorizing such expenses; and making certain related technical changes, all 3 12/3/08 - FINANCE - BILLS 080791 and 080882 under certain terms and conditions.
Thank you. Also let me recognize Councilwoman Jannie Blackwell.
Could we please have Shelley Smith come forward, Keith Richardson, Dan Cantu-Hertzler and Cynthia White. (Witnesses approached witness table.)
Good afternoon. Would you please identify yourself for the record and proceed with your testimony.
Certainly. Good afternoon, Councilwoman Tasco and members of Council. My name is Shelley Smith. I'm the City Solicitor. To my right is Keith Richardson, Revenue Commissioner. To my left is Dan Cantu-Hertzler, Chair of our 4 12/3/08 - FINANCE - BILLS 080791 and 080882 corporate and tax group, and Cynthia White is seated behind us to my left. I have submitted my testimony in advance. Would you like me to review it?
I said I've submitted my testimony in advance. Would you like me to read it into the record?
We haven't read it, so just let us hear it for the record.
Good afternoon, Councilwoman Tasco and members of the Finance Committee. I am City Solicitor Shelley Smith. With me, as I said, are Keith Richardson and Dan Cantu-Hertzler and Cynthia White. We come before you today in support of Bill No. 080791, 5 12/3/08 - FINANCE - BILLS 080791 and 080882 which asks City Council to exercise the authority granted by the General Assembly in 2004 to impose on delinquent taxpayers some or all of the costs of collection of certain taxes and other municipal claims. Sections and of the Municipal Claims and Tax Liens Law, reported at 53 Pennsylvania Statutes Annotated, Sections 7101 and 7106, have for many years permitted the City to impose attorneys' fees on taxpayers that owe delinquent real estate taxes and other delinquent real property-based charges, such as water and sewer bills and nuisance liens. The City may do this if City Council approves the charges, and City Council did so pursuant to Bill 19 960359, approved in July 1996, which added Chapter 19-3100 to The Philadelphia Code. Section 19-3101, Subsection currently permits the City to impose attorneys' fees of six percent in matters handled by the Law Department, 18 percent 6 12/3/08 - FINANCE - BILLS 080791 and 080882 in matters handled by outside counsel on a contingency fee basis, and $75 per hour in matters handled by outside counsel on an hourly basis. Under Section 19-3101, Subsection 2, the City Solicitor may adjust those rates by regulation, though this has never happened. In Act 83 of 2004, the General Assembly granted similar authority to municipalities to impose the costs of collection agencies onto delinquent taxpayers. The General Assembly did this by amending the definition of "charges, expenses and fees" in Section 1 of the Municipal Claims and Tax Liens Law to include all sums -- and I'm quoting -- "all sums payable or incurred by a municipality to file, preserve and collect unpaid taxes, tax claims, tax liens, municipal claims and municipal liens," end quote, and by further providing that a municipality, quote, "may also recover as charges, expenses and fees the charges, expenses, 7 12/3/08 - FINANCE - BILLS 080791 and 080882 commissions and fees of third-party collectors retained by the municipality, provided that the charges, expenses, commissions and fees of such third-party collectors are approved by legislative action of the municipality," end quote. Based on this legislation, we come before you today to ask that you use that authority from the General Assembly to amend Chapter 19-3100 of The Philadelphia Code. The taxpayers of this City should not bear the cost of paying others to collect delinquent taxes, especially under our current economic circumstances. When you grant this authorization, in some instances, it may be more cost effective to retain collection agencies as opposed to law firms to collect delinquent taxes and other claims that come within the Municipal Claims and Tax Liens Law. For example, we are negotiating with a collection agency to collect recently delinquent real estate taxes for a 16 8 12/3/08 - FINANCE - BILLS 080791 and 080882 percent contingency. Before we referred such properties to a law firm for legal proceedings and potential foreclosure at an percent contingency. We believe a taxpayer whose delinquent taxes are collected by the collection agency should bear the percent collection agency 9 fee, just as a taxpayer whose delinquency 10 requires the action of an outside law 11 firm must pay the 18 percent contingent 12 attorney's fee. 13 New Paragraph (d) to Subsection 14 19-3101, Subsection 1 would allow us to 15 impose a collection agency fee of up to 16 16 percent on these real estate-based 17 taxes and municipal claims.
We currently 18 pay 18 percent or even 25 percent in certain instances, but we are requesting that only 16 percent be added onto their delinquencies, because we do not intend to charge taxpayers more for collection agency fees than we do for attorney fees. The 16 percent will significantly improve the City's bottom line even if it does 9 12/3/08 - FINANCE - BILLS 080791 and 080882 not fully cover all contingent fees. We are also asking for clarifying amendments to Paragraphs 1(a), (b) and (c) to clarify that we may charge less than the full authorized amount where we see fit. We do not intend to overcharge taxpayers. Finally, the amendments to Sections 3101, Subsection 2 and 3102 would give my office the same authority to revise fees and set contract terms for collection agencies as it has for attorneys. I want to emphasize that this bill only relates to fees under the Municipal Claims and Tax Liens Law and not to other taxes, such as hotel, use and occupancy, liquor, amusement or business taxes. We do not yet have authority from the State to pass contingent fees onto taxpayers that are delinquent on such taxes. The State does have such authority, and we will be seeking it from the General Assembly. If 10 12/3/08 - FINANCE - BILLS 080791 and 080882 we get it, I will be before you again to request your authorization to pass those costs onto the taxpayers in a similar fashion.
So what you're doing, you're now opening the door to allow collection agencies to collect real estate liens?
You couldn't do it until the State passed the legislation?
Well, we could do it, but we wouldn't -- we would have absorbed the cost. So it was not cost effective for us to do it.
So you weren't allowed to collect the fee from 11 12/3/08 - FINANCE - BILLS 080791 and 080882 them to do the collection?
Well, if you have collection from the Water Department, I mean, don't they pay a fee? How do you collect revenue through --
What is your relationship with collection agencies on the water collections? COMMISSIONER RICHARDSON: The collection agencies that you're using at the Water Department, we have to pay them a fee for doing the collections for the City.
So you have to pay them? COMMISSIONER RICHARDSON: Yes. The City absorbs that fee.
The City pays the -- how much do they pay? What's the percentage? COMMISSIONER RICHARDSON: The 12 12/3/08 - FINANCE - BILLS 080791 and 080882 percentage, I think, for the water is 18 percent. So I can't give you a dollar amount, but that's a percentage.
You were paying percent to the Water 7 Department, to those collection agencies 8 who collect on behalf of the Water 9 Department? 10 COMMISSIONER RICHARDSON: Yes. 11
So why 12 couldn't you use a collection agency 13 before? 14 COMMISSIONER RICHARDSON: We 15 were using a collection agency, but they 16 charge a fee, so we had to pay -- the 17 City has to pay the agency the fee. We 18 couldn't charge that fee back to the water customer.
In other words, the 18 percent fee is deducted from the revenues that the City collects.
In the Water 13 12/3/08 - FINANCE - BILLS 080791 and 080882 Department example.
So now are you proposing to use collection agencies who operate in the City of Philadelphia?
I believe -- I mean, what we would submit and have issued, an RFP, and we receive proposals, and we are evaluating the proposals that we've received, and I believe that the proposers are Philadelphia -- at least some of the proposers are Philadelphia collection agencies.
Do they get any consideration by being a Philadelphia business?
When you make your selection after an RFP comes back. You don't have to necessarily take the lowest bidder, but you have other considerations. Is that a consideration?
So now you 14 12/3/08 - FINANCE - BILLS 080791 and 080882 pay the law firms right now, the only ones that you're using for the real estate collections?
So could you have negotiated a fee with them for percent? We do have law firms in the 9 City who are doing this work. Could you 10 renegotiate the 18 percent down to 16 11 percent? So now with the 16 percent, the 12 law firms won't get the business. 13
I think that -- 14 well, I think that we've attempted to 15 negotiate a fee with the law firms. I 16 think the percent reflect the lowest 17 fee that we were able to negotiate. 18 Certainly it reflects -- obviously attorneys have -- attorneys typically have a value to their service that's reflected typically in an hourly rate, and that factors into their calculation of what fee is reasonable based on the volume of business and the likely collections. 15 12/3/08 - FINANCE - BILLS 080791 and 080882
So what happens to them? Because they certainly have a strong minority participation in this City.
But would they be able to negotiate down to 16 percent?
Yes. I'm Dan Cantu-Hertzler. What we are proposing for their coming contract is that they collect the taxes that have been delinquent for a longer period of time. That, in effect, is reducing their contingency, because those older debts are harder to collect, whereas right now they have some more 16 12/3/08 - FINANCE - BILLS 080791 and 080882 recent ones as well. So our proposal is that they continue at percent and a 4 collection agency that has the more 5 recent debts start at 16 percent. 6
Thank you. 10 Good afternoon, everyone. I 11 didn't hear the answer to Chairwoman's 12 question regarding will this be -- I 13 don't want to misquote -- limited to 14 Philadelphia firms only. You said you 15 did an RFP. 16
I believe her 17 question was whether or not Philadelphia 18 firms would get the business, was that one of the considerations, and the answer was yes.
And what was the answer to the follow-up question regarding additional -- I don't want to misquote -- additional consideration for Philadelphia firms? 17 12/3/08 - FINANCE - BILLS 080791 and 080882
We don't assign a particular number of points for any particular factor. We evaluate the proposals as a whole, and one of the factors is Philadelphia-based firm, is whether the firm proposing is a Philadelphia-based firm.
So the more precise answer to the question is that it is not limited to Philadelphia, anyone in the region can apply for this opportunity?
That's correct. The opportunity is not limited to Philadelphia-based firms.
Which also suggests then that the workers can be from some place other than Philadelphia?
Okay. If my memory serves me correctly, in my 18 12/3/08 - FINANCE - BILLS 080791 and 080882 first term here, there was a non-lawyer type firm in the collection business and the outcome of that was not favorable in that particular circumstance. My concern is the following: Most of the time we're in the business of being advocates for constituents that call our office, and even those constituents who have fallen on hard times want to honor up in terms of their taxes, but are not able, need advocates who can talk with, ask for -- not dismissal but consideration to help that taxpayer honor up that particular duty. I have no confidence in non-lawyer type enterprises, because my experience is that very seldom they could care less about that particular personal circumstance of that business or that citizen. And so for that reason, I do have reservations that we are thinking about moving towards an entity that is not a lawyer type professional enterprise, because lawyers then have a 19 12/3/08 - FINANCE - BILLS 080791 and 080882 Code of Ethics that they have to live up to, which is an additional assurance for us as advocates for constituents that the boundaries are being honored. So with that said, help us understand -- and I didn't follow the discussion and dialogue around percentages, the collection agencies can earn up to X percentage. So with that said, help us understand why moving in this direction can be of a greater benefit to citizens in the City.
First of all, I think -- I'm absolutely sensitive to that concern, as we all are. It's my experience that, without intending to denigrate lawyers as a whole, lawyers can be as insensitive as non-lawyers to the issue that you're identifying. It is our responsibility to manage the contracts with these agencies who would want the business and, therefore, be inclined, in our experience, to satisfy our concerns. 20 12/3/08 - FINANCE - BILLS 080791 and 080882 With respect -- using as an example some of the issues that have arisen with the Linebarger contract, we are mindful of the need to include in the contract terms terms that make clear our expectation that reasonable arrangements and reasonable parameters around settlement discussions for these kinds of issues be followed, and certainly it's our obligation on behalf of the City to ensure that those guidelines are being followed by the agencies that we retain to engage in this collection activity, and we would expect them to adhere to them and be sensitive. And those guidelines reflect the sensitivity to the taxpayers' desire to resolve on sort of reasonable terms that you're talking about.
I beg your pardon? 21 12/3/08 - FINANCE - BILLS 080791 and 080882
Thank you. Thank you, Madam Chair. I think that we should be aware that the collection of taxes is not subject to the federal Debt Collection Practices Act. So there are no 14 restrictions on a collection agency under federal law. So the harassing phone calls that people get from collection agencies currently are permitted by federal law. There would be absolutely no legal restrictions on a collection agency collecting a debt other than what we put in contract, which we may or may not be able to enforce or ever hear about the problem. So I think this is potentially very -- I just wanted to get that fact 22 12/3/08 - FINANCE - BILLS 080791 and 080882 out there, because lawyers have Rules of Professional Conduct that they have to comply with. Collection agencies will have no law prohibiting any tactic they want to use if we permit them to collect these taxes, and I just think that that's -- we need to think about this.
Okay. There is a similar -- there's a State law similar to the federal Debt Collection Law that does apply to collection agencies, although it may not apply to us. It does apply to collection agencies, and it does provide the kind of protections you're talking about.
If the federal law is silent, then, no, there's nothing in the federal law to supersede State law. 23 12/3/08 - FINANCE - BILLS 080791 and 080882 In other words, if the federal law is silent as to the particular issue, then there's no issue.
Thank you, Madam Chair. I have to echo what has been said already. I think there's a real concern here. And I guess a basic question is, why go away from just lawyers and go to collection agencies? I mean, let's face it, we all can tell our stories. We've all heard them. I mean, I'm just more comfortable -- I kid about lawyers sometimes, but I'm just more comfortable that they're going to follow certain regulations than a lot of these collection agencies I've been around. And you could put restrictions on them, but they still are who they are. And I just think as a lawyer, there are more restrictions or more regulations that they have to operate under. 24 12/3/08 - FINANCE - BILLS 080791 and 080882
That are universal in terms of understanding and awareness.
It's troubling, I guess is the best word to say. COMMISSIONER RICHARDSON: I think the collection agencies that potentially the City may engage in in the near future you will find are very professional that would be dealing with our taxpayers. The citizens that you're talking about may be perhaps some of the most egregious citizens or taxpayers that have been thumbing their nose up at us for several years. And you got to realize with the Department of Revenue, we've been sending dunning notices out. The Law Department is trying to have proactive ways to collect the money also. So when you engage with an agency, they're dealing with a taxpayer that may be egregious that is not willing to take care of their responsibilities 25 12/3/08 - FINANCE - BILLS 080791 and 080882 that is owed to the City of Philadelphia. Now, with experience working at the State level with the collection agencies, they've done a very good job and they've been very professional. There was very limited conversations about taxpayers being slandered on the phone by someone from an agency. I don't think you would get that from them. You're looking at more someone that's probably calling in regard to a credit card debt or other debt compared to tax debt.
I guess I'm getting whatever I hear from collection agencies. That's what I usually hear from. I'm not saying they're all bad, but everything that we hear -- COMMISSIONER RICHARDSON: Again, we're not using them as we would like to go for it with them, as we're talking about the real estate taxes today and potentially coming back to you soon 12/3/08 - FINANCE - BILLS 080791 and 080882 about business taxes. But you got to understand, the taxpayer that we're talking about is someone that said -- it's just like, for example, a couple weeks ago we posted delinquent taxpayers on the website. Those are the most egregious people that are telling you, We don't care what you do. So here's a person that you have to send out to an agency. For all the cases that we potentially may have, there may not be enough attorneys in a firm to work all those cases, so you give it to an agency who has a plethora of people to work and can take the time and at a lower cost than paying an attorney to collect the debt that is owed to the City.
Not to be sarcastic, I've never heard there's not enough attorneys to do anything.
I'd just like to add too that we have the right to re-call any case from the agency if we think the 27 12/3/08 - FINANCE - BILLS 080791 and 080882 agency is being unreasonable. And I think -- it's our perception that because the collection agency is operating at a pre-litigation stage, they're less -- they should be less threatening than the lawyer, who has more legal tools at the lawyer's disposal.
Maybe the lawyer doesn't have to act a certain way. It seems to me it's the way these agencies, at least historically that I have heard, have acted. Now, Commissioner, you said there's others and I'm not saying there aren't, but -- COMMISSIONER RICHARDSON: I would say this to you --
They were so bad that there are restrictions on what time they can call. Now you can put your name on the list of the State that you don't get any calls. That's how bad they were. And some of them still can be. So that is why we're all 28 12/3/08 - FINANCE - BILLS 080791 and 080882 sitting here -- we've had experience with them. Maybe some of us personally, some of us not, but we know if the State implements a program that says if you don't want to be called, call this number and put your number in and you won't get calls from these collection agencies or, I mean, I guess these people who are calling to sell you something. But if you're being harassed, they call you at 6 o'clock in the morning. They call you -- there are restrictions, but they still don't abide by those restrictions. So we don't have a favorable feeling about collection agencies. COMMISSIONER RICHARDSON: Again, with the agencies that we potentially could be using know the guidelines of calling after 7 o'clock in the morning and before 9 o'clock in the evening time. Again, a lot of the agencies also recognize that if they do contact you one time, they cannot call you again until a week later. 29 12/3/08 - FINANCE - BILLS 080791 and 080882 So I think, again, the taxpayers that you are getting that are calling you saying they are very upset by the agencies contacting them, you can call us, let us know, we can have that case pulled back and we can work it within our systems between the Law and Revenue Department instead of being with the agency.
And if I may, in the time that we've used Linebarger, we've not -- Linebarger's conduct has not been beyond complaint either. So the mere fact that lawyers are involved doesn't necessarily improve the handling of a particular case, nor does, I would suggest, the mere fact that a collection agency might be involved suggest that the handling will necessarily be negative. I don't think that the perception broadly and kind of anecdotally of collection agencies should drive the determination of whether or not we are able to use them and pass that 30 12/3/08 - FINANCE - BILLS 080791 and 080882 cost along. I think it's incumbent upon us, and we've indicated our acceptance of the responsibility to oversee the work of the collection agencies to ensure that these issues that you legitimately identify and issues with which we are all concerned be monitored appropriately so that the collection agencies don't abuse the authority that they're given on our behalf to collect this debt that's owed to the City.
Just a couple things for clarity. The work that would, if this bill passed, potentially go to a collection agency at two points under the attorney fee -- is it 16 versus 18?
Is that collection work that prior to this bill 25 hypothetically passing would have been 31 12/3/08 - FINANCE - BILLS 080791 and 080882 done by Linebarger or another firm?
Yes. Yes. What we're proposing is to assign to a collection agency the more recent debt, as Mr. Cantu-Hertzler said, the more recent debt, which previously might have been assigned to Linebarger.
Now we're getting into policy. Forget the other issues. Have we been dissatisfied with Linebarger's collection rate on early debt versus later debt, since that's what is going to shift? I'm just turning your answer into a question.
And follow that, we think collection agencies may get us more money on the short-term stuff than Linebarger has been getting us?
I think that what we are endeavoring to do is take a slightly different approach to long overdue outstanding collections and direct the legal resources, which we 32 12/3/08 - FINANCE - BILLS 080791 and 080882 think are the heavier resources, towards the debt that's more difficult to collect.
I don't know if it's come across. I think there's a real strong feeling up here about this collection agency issue, but --
It would seem to me that the early collection is the easiest. I mean, some people would say that's the cherry picking part of collections. To be giving that out up to 16 percent when we give percent to the 18 law firm, which is now going to migrate to the more longer-term stuff, seems to be an unfair differential in favor of the collection agency. It would seem to me that you would get more weighted heavily on the harder-to-collect stuff than the easier-to-collect stuff. I'm just throwing that out, 33 12/3/08 - FINANCE - BILLS 080791 and 080882 because it just jumps off the page. And that's aside from issues like who do we want from a policy standpoint to be doing this kind of collection work.
Let me just say this: I have a case which I spoke to you about and which I will continue to -- will pursue with you, but one of your top tax delinquents is in my district, and I have for years tried to get the City to move on it, and nothing has been done. Nothing has been done. I've asked. And so -- you're new. Okay? You're new. You just got here, and I spoke to you about it, but I want to talk to you more in detail about it. But it's been for years. The City didn't do it, could have taken it to sheriff's sale, without calling them. Didn't have to call them. They're so far in arrears that the City didn't have to give it to Linebarger or anybody else. Just go take them. So I wonder about just in-house 34 12/3/08 - FINANCE - BILLS 080791 and 080882 collection before you put it out there, what is the process and how do you -- do you put forth real effort to collect these taxes from these people? I just raise that for you, because some of you have been here for a while, others are new, but we will talk about that. But I have the largest -- I believe one of the largest in the City is in my district. We've been trying to move it. It hasn't been moved to sheriff's sale. Everybody says, Oh, yeah, well, I'll get back to you. Nobody gets back to me. We're going to move on. Anybody else here to testify on this bill? (No response.)
I just was wondering if you could answer Councilman O'Neill's question. You sort of answered it backwards by saying we're changing the 35 12/3/08 - FINANCE - BILLS 080791 and 080882 long and -- we want to change our focus on the long end and have the lawyers. Do we expect that collection agencies -- and if I'm stating this incorrectly. Do we expect the collection agencies will increase revenue versus Linebarger? Are we dissatisfied with the early revenue collection that's currently happening?
Given that -- I'm going to defer to Commissioner Richardson on the question of better collections results. I would prefer not to speak about satisfaction or dissatisfaction, because to me that is a process of our evaluation of contract reforms that I don't think it's appropriate to get into in this forum, although I'm happy to have a separate conversation with you about that issue. But I'm going to defer to Commissioner Richardson on the answer to that. COMMISSIONER RICHARDSON: With regards to bringing on additional 36 12/3/08 - FINANCE - BILLS 080791 and 080882 agencies, you have an opportunity to increase our revenue that we haven't been going after. With more agencies on board, it makes more competition for other agencies. There's more opportunity for us to get more cases out to the agencies as well. As you said earlier, cherry picking is a good ideal, but if you can't get to all those cases, they start to become stale. So you have more to send to an agency while they're still somewhat fresh. So it would help us increase our revenue streams in the City of Philadelphia. Percentage-wise, I couldn't quantify that for you, but I think it would be advantageous for us.
So why wouldn't law firms, adding additional law firms, fulfill that same end? COMMISSIONER RICHARDSON: Again, with law firms, you got to realize you may have a firm of 50 to 100 people. 37 12/3/08 - FINANCE - BILLS 080791 and 080882 You have a collection agency that may have a staff of two to three, four hundred people. So you have more opportunities for those cases to be worked more readily than a law firm. You may have one particular case in a law firm you continue to work on. Those other cases may become stale. So then you're going to be losing an opportunity to get the funds, whereas another creditor may be knocking on the door and they're going to take care of paying them and we lost our opportunity to get that money that was owed to the City.
So in this time of financial crisis, what you're saying is, the City is going to engage in more aggressive collection practices with our most at-risk portion of our population? COMMISSIONER RICHARDSON: Even if we weren't in a financial crisis, I think we still would be engaging with more collection agencies. 38 12/3/08 - FINANCE - BILLS 080791 and 080882
Bill No. 080882, an ordinance amending Chapter 19-3200, entitled "Keystone Opportunity Zone and Economic Development District," by providing for additional properties to be added to certain subzones; providing for extensions of the term of benefits for certain properties; and making related and technical changes; all under certain terms and conditions. (Witnesses approached witness table.)
Good afternoon. Do you have any surprises for us? Are we going to sail through this?
Good afternoon, 39 12/3/08 - FINANCE - BILLS 080791 and 080882 Madam Chair and members of the Committee on Finance. My name is Duane Bumb. I am Senior Deputy Director of Commerce for the City of Philadelphia. I am joined at the table today by Vince Dougherty, who is also from the Commerce Department. I am here today to provide testimony in support of Bill No. 080882, a bill authorizing the City of Philadelphia to apply to the Commonwealth of Pennsylvania to expand the benefits of the Keystone Opportunity Zone, or KOZ, program within the City. The bill would specifically authorize, number one, the addition of certain parcels to the KOZ program where the properties being added are immediately adjacent to existing KOZ-designated sites; and, number two, the extension of the term of KOZ benefits to selected unoccupied sites currently approved to receive KOZ benefits. The bill also makes technical amendments to Chapter 19-3200, which makes the City Code consistent with the State law on the 40 12/3/08 - FINANCE - BILLS 080791 and 080882 Keystone Opportunity Zone program. In July of 2008, the State Legislature passed and Governor Rendell signed Senate Bill 1412. This bill made certain changes to the current Keystone Opportunity Zone program, including authorization for local governments to seek approval for additional properties to receive KOZ benefits and to extend the term for unoccupied properties in existing KOZ subzones. The Commerce Department has assembled a list of properties in response to the changes authorized under Senate Bill 1412, including several publicly owned sites that do not currently generate tax payments to either the City or School District. Privately owned properties are also being recommended for addition or extension of KOZ benefits for those sites where significant economic development projects were identified that could proceed based on the availability of Keystone 41 12/3/08 - FINANCE - BILLS 080791 and 080882 Opportunity Zone benefits. The privately owned properties are being recommended subject to a requirement that each property owner enter into a Payment in Lieu of Taxes, or PILOT, with the School District effectively offsetting the cost to the District for its portion of the abated taxes. Based on our review of the properties that could generate significant new economic development opportunities without negatively impacting projected tax receipts, the Commerce Department is recommending adding two vacant publicly owned properties at the Navy Yard and ten vacant privately owned properties to the existing Keystone Opportunity Zone program. We are also recommending that the Keystone Opportunity Zone term be extended for seven years for vacant 24 publicly owned properties and 12 vacant 25 privately owned properties, as noted on 42 12/3/08 - FINANCE - BILLS 080791 and 080882 an attachment you have in front of you summarizing the list of recommended properties. The cost to the City of the proposed property additions is estimated at $38,645 per year, and the cost for extending the term of the KOZ designation for the proposed properties is $61,580 per year. These costs are based on 2009 Board of Revision of Taxes' proposed assessments for the properties. The years for which the benefits and costs apply for each property is also included in the attached property list. As I already noted, these proposed changes in Keystone Opportunity Zone benefits will be revenue neutral to the School District, since all privately owned properties will be required to enter into a PILOT agreement with the School District for their portion of the taxes. In summary, we believe the properties being recommended for 43 12/3/08 - FINANCE - BILLS 080791 and 080882 inclusion in this legislation will provide significant investment and tax creation opportunities with minimal opportunity cost to the City and virtually no cost to the School District. I would like to submit proposed amendments to Bill 080882 at this time.
A summary of those amendments is also sort of attached and was provided to you with my testimony. With the Chair's concurrence, I can summarize those amendments for the record. And then if you want me to -- after you want me to do that, I would say that it would conclude my testimony, and I would respectfully request the Committee's support for this bill and proposed amendments and would further request that the rules of Council be waived to allow for first reading at Council's next scheduled meeting. Thank you for your consideration. I'd be happy to answer any questions. 44 12/3/08 - FINANCE - BILLS 080791 and 080882
In your testimony you say the School District will be held harmless. How is that formalized within the legislation or within the agreements?
There are -- again, the process that we are proposing is that all privately owned properties that would otherwise be obligated to pay taxes enter into a Payment in Lieu of Taxes with the School District. We presented that to the School District for their consideration at their December meeting as well.
So that's formalized for the School District process? 45 12/3/08 - FINANCE - BILLS 080791 and 080882
That's right. This would be agreement between the School District and the property owners.
In terms of what you described as minimal opportunity cost to the City and which you describe as significant investment in job creation opportunities, is there actually any project benchmarking that is done that says that X amount of jobs have to be created or X amount of investment has to be done in lieu of the taxes that we're giving up?
No. What you're suggesting is something that we actually proposed for an earlier piece of legislation that Council saw this past June for a proposed business attraction in a Keystone Opportunity Zone in West Philadelphia where we had put a new job requirement on. Again, a large majority of the properties that are on our proposed list today are publicly owned sites that have already received KOZ 46 12/3/08 - FINANCE - BILLS 080791 and 080882 benefits and that we're looking to provide an extension because they have not been developed -- actually, just to provide additional sort of incentive for future investment and job growth. We have not defined the minimum amounts for those. Some of those sites are actually pretty small, so you'd probably want it to be tailored on a per-site basis.
But all the sites are not incidental individual sites. Some of them obviously can become projects if assembled together. And the question is, have you established any project benchmarks at all in exchange for the revenues being given up? I had this conversation actually with Mr. Dougherty when he briefed me on this and was told that there was at least some criteria that was going to be set up in terms of project benchmarking.
Well, it would be our intention on a project-by-project 47 12/3/08 - FINANCE - BILLS 080791 and 080882 basis as they come before us to sort of establish criteria to support projects before we would consider transfer of those publicly controlled sites, so that in fact there will be job requirements on a project basis. We would absolutely be building those in, but it will not -- it's not a blanket bill or --
But there's no minimum criteria or benchmarks that are set?
There will be -- there will not be benchmarks per se on an across-the-board basis. There will be benchmarks that are established to identify minimum job creation and project investment criteria based on the site configuration.
So, in essence, we don't necessarily know what we're getting in exchange for the revenue, minimally?
I think that's true. Again, I sort of go back to the -- I'm 48 12/3/08 - FINANCE - BILLS 080791 and 080882 focusing primarily on those industrial park sites that are publicly owned that do not generate taxes today, that if we -- it would be our intention to provide additional incentive to encourage that investment and that job creation. Sort of without the additional benefit, there's probably less likelihood that those sites will see a development interest in the short term.
I understand that, and I'll be brief in terms of further comments, but I'm not suggesting that you create criteria before you have an interested party per se that's supposed to match any other ventures out there, but my suggestion, is there any sort of benchmarking that exists in terms of how many jobs have to be created per thousand dollars that we're forgiving? I mean, is there any job creation criteria set for this or any other investment criteria set for this, minimally?
I mean, for example, a thousand dollars per job, 5,000 per job, 10,000 per job in terms of taxes we're forgiving or in terms of investment that's going to be made.
I understand what you're saying. We have existing benchmarks for industrially zoned property that we are looking to attract new industrial development, which would indicate how much investment per acre is at a minimum, how many jobs created per acre at a minimum. We don't have the same sort of criteria for commercial developments, but we certainly have those for industrial sites. Again, most of the properties we're talking about here are industrially zoned properties. So we do have that.
Thank you, Madam Chair. 50 12/3/08 - FINANCE - BILLS 080791 and 080882 Good afternoon.
The amendments that are proposed, do they affect any of the maps or properties that you briefed me on? In other words, have you added any properties in the amendments that we have not discussed?
I think just because of me having sort of talked with you later rather than earlier in that process, the answer is no. I believe that we've sort of gone -- I've talked to many of the Councilmembers to determine did the properties that we incorporated into the ordinance as introduced, were they sort of acceptable. I got -- we did receive some recommendations to add certain properties. I think I knew those when I spoke with you. They are certainly listed here in the amendments.
At the Navy Yard, 51 12/3/08 - FINANCE - BILLS 080791 and 080882 that is accurate. That is the refined version that we, I think, didn't have available when we spoke with you. We didn't present it to you. I think we had a relatively much less detailed version.
Yeah. So this is not changing based on any of the amendments?
Okay. I'd like to go back to Councilman Goode's first question, which has to do with PILOT agreements. So are you saying the City will not be a party to PILOT agreements with the people who would get this benefit and we'll have no ability to enforce the PILOT agreements to make sure that the revenue comes in to us and then is forwarded to the School District?
As I sort of noted in my testimony, there is a certain amount of projected sort of taxes that the City would forego in the case of -- 52 12/3/08 - FINANCE - BILLS 080791 and 080882
But I'm not asking about that. I'm asking about the PILOT agreements.
The PILOT agreement would in fact be protecting us for those total dollar amounts, which in the scheme of things are not very great.
No, it is not. It is the School District which will enter into the PILOT agreement with the --
So we will have no ability to enforce the PILOT agreements?
Would you care to tell this body why the City will not be a party to the PILOT agreements?
They are specifically for the School District's portion of the receipts. I mean, if we were looking to sort of create a PILOT for the General Fund portion -- 53 12/3/08 - FINANCE - BILLS 080791 and 080882
Also, if a PILOT agreement is longer than a year and it's not subject to a case in controversy that is in court, we would have had to approve these PILOT agreements, and by going directly to the School District, you don't have to come to Council for PILOT agreement approval.
Is there anyone else here to testify on this bill? (No response.)
Okay. That concludes our public hearing. We will now move to our public meeting. The Chair recognizes Councilwoman Blackwell -- I will announce that we're going to hold Bill 080791. 54 12/3/08 - FINANCE - BILLS 080791 and 080882 The Chair recognizes Councilwoman Blackwell to move Bill 4 080882, to move the amendments first.
Madam Chair, I move that the amendments that were already circulated, all ten amendments, to Bill 080882 be adopted. (Duly seconded.)
It has been moved and seconded that the amendments to Bill 080882 be adopted. All in favor will say aye. (Aye.)
There being none, the motion carries. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam Chairman. I move that Bill 24 No. 080882, as amended, be reported out of Committee with a favorable 55 12/3/08 - FINANCE - BILLS 080791 and 080882 recommendation and also that the rules be suspended so as to permit first reading at our next session of Council. (Duly seconded.)
It has been moved and seconded that Bill 080882, as amended, be reported out of Committee with a favorable recommendation and that the rules of Council be suspended so that this bill can be heard at Council's next session. All in favor will say aye. (Aye.)
There being none, the bill is carried. Thank you all very much, and this meeting is adjourned. (Committee on Finance adjourned at 2:15 p.m.) - - - 56 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on December 3, 2008, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)