Committee Hearing, February 16, 2005

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, February 16, 2005 10:35 a.m. - - - - BILL 040789 - Amending Chapter 19-26000... BILL 040767 - An Ordiance amending Section 19-2604 of The Philadelphia Code... BILL 050007 - An Ordinance amending Chapter 12 19-1200 of The Philadelphia Code... BILL 050008 - An Ordinance amending Section 19-2604 of The Philadelphia Code... PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN JUAN RAMOS COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO V A R A L L O Incorporated 215.561.2220 215.567.2670 I N D E X WITNESS JOYCE WILKERSON, Chief of Staff...... DIANNE REED, Budget Director......... SEAN MCNEELEY, Policy Director....... 15 NANCY KAMMERDEINER, Revenue.......... 26 MARK SCHWEIKER, Chamber of Commerce.. 109 MICHAEL PEARSON...................... 120 STUART WEINTRAUB, Chamber of Commerce 140 BRETT MANDEL, Philadelphia Forward... 173 VINCENT DEFINO, South Philadelphia Business Association............. 177 AISAMAH MOHAMMAD, Lancaster Avenue Business Association............. 181 AL TAUBENBERGER, Greater Northeast Phila. Chamber of Commerce....... 185 KAREN GAIN........................... 188 JESSE FRISBE (ph), South Street West Business Association. .......... 190 ROBERT ZURETSKY, Phila. Parking Assoc.234 ALAN BLAKE, Central Parking.......... 239 KRISTA BARD, Center City Proprietors. 241 ANDREW CHIRLS, Phila. Bar Assoc...... 245 AL PERRY, Assoc. of Realtors......... 250 TONY BROWN, Assoc. of Realtors....... 253 STAN SHAPIRO, One Philadelphia....... 265 THOMAS CRONIN, DC 47................. 266 CATHY SCOTT, Local 2187.............. 282 SHARON WARD, PCCY.................... 298 JONATHAN STEIN, Community Legal...... 316 TAMMY GAVITT, NOW.................... 323 MAURICE SAMPSON, SBN................. 327 BETH MCCONNELL, Penn PIRG............ 338 ANDRE BUTLER, One Philadelphia....... 346 ENRICO SCUILLI....................... 355 DAVID RECH, Scribe................... 358 JOSEPH HANLEY, BOMA.................. 369 FRED MURPHY, CCRA.................... 374 3 02/16/05 - WHOLE - 05007, 05008, 040767

Good morning, everyone. This is the public hearing of the Committee of the Whole regarding Bill 5 Nos. 040767, 050007, 050008, and 040789. I would ask Mr. McPherson to please read the title of the bill.

Bill NO. 040767, an ordinance amending Section 19-2604 of the Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions. Bill No. 050007, an ordinance 16 amending Chapter 19-2100 of the Philadelphia Code, entitled "Parking Tax," by establishing a rate of taxation of parking transactions for Fiscal Year 2006 and thereafter and making such rate contingent on certain decreases in business privilege tax rates. Bill No. 050008, an ordinance 23 amending Section 19-2604 relating to tax rates, credits and alternative tax computation by reducing certain tax rates and making such 4 02/16/05 - WHOLE - 05007, 05008, 040767 reductions contingent on an increase in the parking tax. Bill No. 040789, amending Chapter 5 19-2600 of the Philadelphia code, entitled "Business Privilege Taxes," to provide for an exemption from the tax on gross receipts for certain new businesses, under certain terms and conditions.

Ms. Wilkerson.

Good morning. I am Joyce Wilkerson, Chief of Staff to Mayor John Street. The testimony is going to be given by Dianne Reed, the Budget Director; and Sean McNeeley, Policy Director for the Administration.

Good morning, Council President Verna and Members of Council. I'm Dianne Reed, Budget Director of City of Philadelphia. Thank you for the opportunity to present testimony on Fiscal Year '06 tax measures that are currently before Council. I would like to provide you with a brief written testimony before we discuss the attached 5 02/16/05 - WHOLE - 05007, 05008, 040767 presentation Power Point, which is Exhibit 1. The Administration remains committed to responsible tax reduction and reform, despite the City's ongoing challenges and stresses. 6 million, the negative year-end General Fund balance in 9 years. In order to offset the structural 10 problems faced by the City, including 11 projected growth in benefit costs that exceeds 12 the projected growth in tax revenue -- pension costs alone are 800 million higher in the proposed '06-'10 plan than in the '02-'06 plan -- the Administration has undertaken numerous initiatives and across-the-board budgets reductions to provide balanced budgets while maintaining the City's tax reduction program. The Administration is drastically reducing the workforce through a variety of means, including layoffs, curtailing the purchase of services by non-reimbursed departments, and pursuing a series of management and consolidation initiatives to maintain service and reduce staffing levels. 6 02/16/05 - WHOLE - 05007, 05008, 040767 These steps are described more fully in the introduction to the Five-Year Plan. 1 billion to taxpayers through 7 consecutive years of tax reductions, including 8 over 200 million this fiscal year. No other 9 state or local government in America can lay 10 claim to this record of sustained annual tax reduction. The City's resident wage tax rate is almost percent lower today than it was 13 when the reduction program began in 1995, and the non-resident portion is over 11 percent lower. The gross receipts portion of the business privilege tax is over 40 percent lower today than it was when the program started in 1995, and by next year it will have been cut in half if the Administration's proposals are implemented. 1 billion in future savings from the rate reductions that were already enacted between Fiscal Year '96 and this year. This projection assumes the continuation of the annual reductions in the gross receipts portion of the business privilege tax as well as the annual wage tax reductions passed in Bill No. 040607, and the low income wage tax credits passed in Bill No. 11 040397, but it is does not include the value of the wage tax relief that will be provided when the benefits of state-wide tax reform take effect. The impact of the wage tax reductions and credits enacted into law increases sharply beginning in Fiscal Year "10 when the size of the wage tax reductions increases and the phase-in of the tax credits begins. The proposed Fiscal Year '06 to '10 Five-Year Plan estimates that the tax revenues will increase by only 7 million in Fiscal '10 due to these impacts compared to annual projected tax revenue increases of over 50 million per year in '07 through '09. The Administration strongly believes 8 02/16/05 - WHOLE - 05007, 05008, 040767 that faced with accelerated levels of tax reductions and credits that could lead to flat or declining general tax revenues in the next mayoral administration, any tax reductions beyond those already planned should be offset by a specific funding source. At the same time, further affordable adjustments to business taxes could improve Philadelphia's economic outlook. Accordingly, the Administration proposes a gross receipts tax base for 06. The Administration proposes an expanded gross receipts rate reduction in '06 to be funded by a budget neutral increase in the parking tax rate. Bill No. 5 mills, a percent reduction.

18 This reduction, which is more than twice as 19 the one previously scheduled, would provide 20 $71 million of business tax relief over the 21 life of the plan, in addition to the 109 million in relief already planned through the continuation of the existing BPT reduction program. 125 mill in later years, the bill would place the City on pace to eliminate the gross receipts portion of the BPT by 2018. The BPT tax rate reduction proposed in Bill No. 050008 is contingent on the passage of Bill No. 050007, which would increase the parking tax rate from percent 9 to 20 percent, generating 13 million in net 10 additional parking tax revenue. These two 11 bills create a budge neutral tax shift that is 12 consistent with a report of the Tax Reform 13 Commission which suggested that an increase in 14 the parking tax to 20 percent would be one way 15 to change Philadelphia's tax mix to fund wage and business tax reform. The Commission's report noted that Philadelphia's parking tax rate has been as high as percent in the 19 past, and at this rate would still be lower 20 than the City of Pittsburgh rate which is currently 50 percent. " The expanded gross receipt rate reduction proposed 10 02/16/05 - WHOLE - 05007, 05008, 040767 in Bill No. 050008 is the full amount of tax relief that can be funded from this suggested increase in the parking tax rate. The Administration believes that the proposed shift from the BPT to the parking tax represents sound fiscally responsible tax policy. Research has shown that the gross receipts portion of the BPT is an impediment to economic growth in Philadelphia. Accelerating the proposed reduction in this tax is an investment in economic development. If done in a way that does not cause deficits or service reductions that would undermine the value of the tax reductions. By contrast, there is little evidence that the parking tax is a major deterrent to business location in the City. Further, economists believe taxes on activities with social costs, in this case road maintenance, traffic congestion and pollution, are efficient because they can generate public revenue that offsets the social cost of that would otherwise go unpaid by the consumer. Increasing the City parking tax could encourage greater use of public 11 02/16/05 - WHOLE - 05007, 05008, 040767 transportation, reduce road congestion, improve air quality in enhanced SEPTA's revenue base over the long term, and we are all aware that SEPTA needs all the help it can get at the moment. In short, the proposed shift from the BPT to the parking tax should result in significant economic benefits to Philadelphia with no net impact on City revenues or services or the City's fiscal stability. Bill 040767 would enact 12 years of rate reductions in both the gross receipts and the net income portions of the BPT with a goal of eliminating the BPT by 2017. The bill 16 would layer annual reductions on top of those already scheduled. The bill is projected to cost 207 million in foregone revenues from '06 to '10, compared to the proposed plan which would create a revised Fiscal Year '10 fund balance projection of a negative 142 million that would have to be offset by service cuts or workforce reductions in order to present PICA with a balanced plan. This cost projection reflects only the bills proposed 12 02/16/05 - WHOLE - 05007, 05008, 040767 reductions for the net income portion of the tax, as the proposed plan assumes lower gross receipts rates than those contained in bill 5 040767 through Fiscal '10, contingent on passage of Bills No. 050007 and 050008. 7 million in revenue loss in Fiscal '10 which is greater than the combined budgets of the free library and Recreation Department in that year. As with the tax reductions and credits already enacted by City Council, the cost of Bill 040767 would escalate in future years. The bill is projected to cost 713 million from Fiscal '11 through '15.

The combination of Bill 040767 and existing tax ordinances projected to cause annual declines in tax revenue beginning in Fiscal '11. 5 percent is carried forward into future years, the annual growth and the base is projected to be smaller than the combined impact of wage and BPT tax rate reductions and the phase in of the low-income 13 02/16/05 - WHOLE - 05007, 05008, 040767 wage tax credits. This would cause tax revenue to fall each year. The next mayoral administration would then have almost no 5 ability to fund increases in the cost of wages, health insurance, or pension benefits for its workers, let alone expand services, respond to emergencies or meet inflationary cost increases for services and materials. Bill 040767 would almost certainly cause drastic tangible service reductions over the Five-Year Plan period and would significantly impair the next mayor's ability to operate the government. The Administration cannot support this bill. Bill NO. 040789 would effectively exempt businesses from paying the gross receipts portion of the BPT during their first three years of operations in Philadelphia. " Some exceptions to this rule exist at the state and local level under varying authority, but it is not clear this is the type of exception that would be legal. Furthermore, the definition of new businesses used in the bill is unclear and could lead to additional legal uncertainty as well as the possibility that existing businesses would manipulate their legal and organizational structures to qualify for the bill's exemption. 9 million over the life of the '06 to '10 plan. Passage of the bill is projected to cause negative fund balances in '07 and '08. The Administration believes that any tax reductions beyond those already planned should be offset by other funding, but furthermore would prefer allocate scares tax reduction dollars toward across-the-board relief to all businesses which seems to be the fairest and most economically productive use 15 02/16/05 - WHOLE - 05007, 05008, 040767 of those dollars.

We've prepared a power point presentation. The numbers begin to converge at some point, and Mr. McNeeley is going to step through a Power Point presentation that provides graphic explanation of some of the risks that the City faces, and that's attached to the back of the testimony.

Good morning. Sean McNeeley. As you know, the City finished FY '04 with the first negative fund balance in 12 years. The first page of the presentation projects the fund balance through the life of this proposed FY '06 to '10 plan. In FY '06, FY'07 and FY '08, the fund balance is projected to be less than 1 percent of expenditures and then our anticipated PGW repayment kicks in in FY '09. Passage of Bill No. 040767 is projected to result in negative year-end fund balances in each year beginning in FY '07 and would require corrective action in order to present a balanced plan. 16 02/16/05 - WHOLE - 05007, 05008, 040767 The next few pages give some context for what we're doing other areas of the budget. covers deficit cutting actions. The Administration used a combination of across-the-board budget reductions targeted initiatives, a hiring freeze since November 2001, position eliminations and layoffs to offset recurring operating deficit projections. These across-the-board reductions were applied in a number of the past few years. It's identified there. In order to reach the FY '06 target by July 1st, the City was forced to implement layoffs and positional eliminations. The initiatives we've pursuing over the last few Five-Year Plans are all identified in the introduction of the Five-Year Plan. The City's workforce is currently at 23,297 general fund positions. That's the lowest in decades. The FY '06 budgeted level is even lower at 22,653. That represents an 11 percent reduction from the '03 budget and an 8 percent reduction from FY 2000 when the 17 02/16/05 - WHOLE - 05007, 05008, 040767 Administration took office. The increase between 2000 and 2003 is mainly due to DHS and prisons staffing increases. The chart at the bottom shows that the City has cut the size of the workforce in proportion to the City's population on a per capita basis. The City's workforce in the FY '06 budget will be at about the same level as it was in FY '65, higher than it was in FY '55, but if you control for mandated county functions like courts, DHS and prisons, it's roughly the same as it was in FY '55 and lower than any point since then. About 32 percent of the City's FY '06 budget is for purchase of services. That includes a lot of different types of things. Payments for the care of individuals, adoption subsidies, placement for juveniles, and other reimbursable social service expenditures account for more than half of that total. Fixed debt payments and the mandated SEPTA subsidy account for another 12 percent, and then basic operating expenditures and unavoidable expenditures account for another 18 02/16/05 - WHOLE - 05007, 05008, 040767 13 percent. So there's relatively little that we would consider to be discretionary in that purchase of services budget. Nevertheless, purchase of services budgets for most departments have been cut or held constant starting in FY '03, and in the Five-Year Plan they are projected to remain flat over the plan period. The. Chart shows what happens if you adjust the City's actual purchase of service obligations over the past few years for inflation, and you see that since FY '02 those obligations have dropped in real terms. They've also dropped from FY '02 to FY '04 even without controlling for inflation. In addition to what we're doing on the expenditure side, with City Council's help and the help of the General Assembly, the City's been pursuing a number of non-tax-related revenue enhancement initiatives. Those are expected to generate over $210 million in additional revenue to balance the plan that was presented to you. And those initiatives are detailed, and we 19 02/16/05 - WHOLE - 05007, 05008, 040767 covered a lot of those Monday. gives you an overview of where we have been with taxes, where we are and where we're going.

It's a lot of numbers on the page, but basically the plan assumes up to 4 percent gross growth in wage and business privilege tax bases and about 2 and a half percent inflationary growth in all the other taxes. 7 percent annually. Stepping through the table a little bit, you can see that in FY '02 overall tax collections only increased by half a percent, and that's even after adjusting for some one-time revenue received in '01. The wage tax grew very slowly in '02, and the BPT and sales tax fell. In FY '03 the wage tax again was pretty flat. It was flat after the effect of the tax reductions, and once again BPT and sales tax fell. Overall, the City's tax revenue fell in FY '03 but largely as a result of the millage shift to the School District. In FY '04, we started to experience 20 02/16/05 - WHOLE - 05007, 05008, 040767 strong recovery. Wage taxes grew by percent. The wage tax base grew by percent. 4 The BPT came back strong. And as you know, 5 the transfer tax went through the roof. Then going forward, you can just see the assumptions for each tax. just gives you the table showing where we're going with the wage tax, what's already in law, and what those reductions are compared to when we started the tax reduction program in 1996. In addition, if when we get the state-wide tax relief for gaming, that would push the resident wage tax rate below 4 percent. So that would be in addition to what you see in the table there.. On the BPT side, the proposed plan assumes passage of Bill Nos. 050007 and 050008, which is a budget neutral tax shift, that increases the parking tax in return for an accelerated reduction in the gross receipts portion of the business privilege tax. The proposed shift would result in 21 percent reduction in the first year, providing about $13 million in business tax relief and would 21 02/16/05 - WHOLE - 05007, 05008, 040767 put the City on a permanently lower track in its gross receipts tax reduction plan until by FY '18 it would be completely eliminated. As we commented in the testimony, the tax cuts and tax credits that are already enacted are projected to escalate sharply and impact beginning in FY '10. If Bill No. 9 040767 were passed, that effect would be even more dramatic. shows the annual impact of tax reductions in each year as they're passed going back to '96. And you can see that between FY '96 and this year, the impact of the tax reductions has been within a range of 12 to 30 million dollars in each year. In FY '06, that includes the shift to the parking tax. And then beginning in FY '07 you have higher impacts than any year tax of the ten-year tax reduction program. Starting in FY '10, you really double the size of the impact in that year, and then it continues to escalate after that. It increases sharply in FY '10 because the wage tax rate reductions increase in size beginning in FY '10 and also 22 02/16/05 - WHOLE - 05007, 05008, 040767 the low-income wage tax credits that were passed begin to be phased in in FY '10. The City's tax base in projected to grow by an annual average about $62 million, and that's represented by the dotted line on the chart. When the impact of the tax cuts is greater than that line, then that means the City would lose tax revenue from year to year. That's illustrated a little more on . You see that in FY '06 tax revenue is projected to be flat, and that's mainly we assume that the transfer tax is going to slow down. Between FY '07 and FY 'O9, the plan assumes about $50 million with tax revenue growth each year. In FY '10, the plan assumes only $7 million in tax revenue growth because of the impact of wage tax reductions and the low-income wage tax credits. If Bill No. 20 040767 were passed, we project that we would see annual losses in tax revenue beginning in FY '10. And for years after FY '10, we're just carrying out the same basic growth assumption that we have in the Five-Year Plan.

So not only do the tax revenue start to show a 23 02/16/05 - WHOLE - 05007, 05008, 040767 loss, but you see the impact of the tax cuts increasing on the line. The City's tax reduction program was begun years ago on the premise that 6 moderate tax reductions each year could be 7 incorporated into a balanced City budget that 8 maintains City service levels by generating 9 efficiencies and taking advantage of economic 10 growth. For Mayor Rendell and Council President Street adopted this premise after consultation with Professor Inman of the Wharton School of Business who's performed numerous studies and models for the City's finances and tax structure dating back to 1987. As I mentioned on the other chart, the annual impact of the City's tax reduction program has averaged about $20 million per year to date, and that's roughly at a level that could be incorporated year to year through the kinds of things I just mentioned: Efficiencies, cost containment, economic growth. The reductions that are already enacted for future years and that could 24 02/16/05 - WHOLE - 05007, 05008, 040767 potentially be enacted if Bill 040767 is passed are far beyond that level of manageable reductions with an annual impact as much as 5 times higher than the previous average. The 6 potential FY '10 impact of $76 million when included Bill 040767 is greater than the budget of 40 out of the 47 City operating departments. To touch on supply side a little bit, Professor Inman periodically does a report on taxes and the economic future of Philadelphia. On his 2004 report estimates that supply side improvements in the economy return only a fraction of the lost revenue from tax cuts to the City. And the quote there is, "Lowered City tax rates will mean less City revenues. " And he was referring to last year plan. The plan's proposed reductions in the City's gross receipts tax rates in 25 02/16/05 - WHOLE - 05007, 05008, 040767 resident and non-resident tax rates will stimulate additional business activity and new City jobs, but the resulting increases in tax base will lead to additional revenues which are likely to offset only to percent of 7 the projected decline in revenues over the 8 life of the plan. Not only would we not get 9 part of the revenue that we cut through the 10 reduction, but Professor Inman also noted that 11 if you have to run deficits or cut services as 12 a result of tax cuts, that can undo the 13 initial economic benefits of the original tax 14 rate reductions. 15 So in other words, if tax cuts are 16 so large they force reductions in City 17 services, then lasting increases in business 18 activity and jobs will not materialize. 19 If the supply side effect is 20 proportional at, say, 15 to 20 percent, then larger tax cuts mean larger revenue losses for the City. Assuming the 20 percent supply side effect, then $1,000 tax cut causes the City to collect $800 less revenue. A $2,000 tax cut causes the City to collect $1,600 less 02/16/05 - WHOLE - 05007, 05008, 040767 revenue. So the larger the tax cut, the less to the revenue. The Administration believes that the tax growth assumptions in the proposed plan are already pretty aggressive. We also believe that any supply side effect in the nine years of tax reductions already made is reflected in trends in the City's tax base growth, and we use those trends as a basis for our future projections. The tax growth projections in the proposed plan are on average the highest assumed in any of the City's 14 plans and exceed inflation estimates, as shown in the chart. The chart has the Five-Year Plan wage tax growth estimates from different points in time, the first Five-Year Plan and then roughly each five years after that. percent. 2 percent and 4 percent 27 02/16/05 - WHOLE - 05007, 05008, 040767 means that we have to either generate additional employment or generate 2 percent per year growth in real wages. I would like to conclude with a summary of each bill before us today. Bill 7 No.

050007 increases the parking tax rate, and you the '06 impact as generating $13 million in net revenue in the FY '06 to FY '10 impact. That bill is assumed in plan. O50008 reduces the gross receipts portion of the business privilege tax contingent on the passage of the previous bill 14 but, again, those two bills roughly offset one another and they're both assumed in the plan. Bill No. 040767, which would reduce the net income portion and the gross receipts portion of the BPT is projected to cost $11 million in the first year and roughly $207 million over the plan. It's not assumed in the plan. And Bill No. 040789, which exempt businesses from paying the gross receipts portion in their first three years, projected to cost about $4 million in the first year and 28 02/16/05 - WHOLE - 05007, 05008, 040767 then escalate each year after that to the full annual cost of $12 million or a Five-Year Plan cost at $50 million. That concludes our testimony.

Thank you all very much. At this time the Chair recognizes Councilman Goode.

Thank you, Madam President.

I'm sorry. Councilman, before you start, there are a number of Councilmembers that want to recognized, so for the first go-around each Councilmember will have five minutes.

Thank you. Good morning, Ms. Wilkerson. A couple days ago on Monday, I addressed the tax reform policy shift by the Administration from a single sales factor apportionment to a gross receipts tax cut in Fiscal Year '06 and asked what accounted for that shift in policy. Can you better address that today?

The Administration 29 02/16/05 - WHOLE - 05007, 05008, 040767 last year proposed the single factor shift and proposed to offset it with the parking tax that was not -- that proposal was not accepted by City Council. And so we did not -- despite the fact that it had been recommended by the Tax Reform Commission. The Administration has long advocated support for a reduction on the gross receipts tax. We believe that it is particularly onerous and discourages the creation of new businesses, and this year we decided to take another stab at that. We understand that you have long supported the reduction in the gross receipts tax. I think your position has been shared by a number of other people in this Council and thought that not only did it make good sense for the City, not only would it be a stimulus for business growth, but it also might enjoy political support that at the end of the day it takes an order to make ha happen.

And I support the bill and won't change my mind on the bill and believe that we should target gross receipts first and then look at net income, but I'm not 30 02/16/05 - WHOLE - 05007, 05008, 040767 sure that you necessarily changed your policy position because of me. So my question is, why did you move from single sales apportionment to gross receipts? And is one better than the other? Is that the Administration's position that one is better than the other?

Our position is the gross receipts tax is probably the most onerous in limiting job growth, even more so the wage tax or some of the other taxes. In 1903 or 4 -- I forget now which it was -- we had proposed slowing the rate of reduction of the wage tax in light of the City's overall financial condition and had proposed focussing instead on a more aggressive reduction in the gross receipts tax. That did not happen, and so was born some of the tax reduction discussion.

Let me ask another question. Did you get any specific tax reform policy message out of the Economic Development Summit? What did the Administration the draw 31 02/16/05 - WHOLE - 05007, 05008, 040767 from the Summit in terms of tax reform policy?

I'm not prepared to comment on the specifics. I think there was expressed substantial support for tax reduction. I think the Summit participants thought that the City's overall taxes were a major deterrent to growth.

But do you believe there were any specific recommendations that came out of the Summit related to tax reform?

I can't -- I don't have that right at --

Can we have someone comment on that today?

I'll get somebody to comment before the end of the day.

Thank you. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Nutter.

Thank you, Madam 32 02/16/05 - WHOLE - 05007, 05008, 040767 Chair. Madam Chief of Staff, I need to go back over a statement that you made in a response to a question raised by Councilman Goode. I thought I heard -- and if I'm incorrect, you'll correct it. I thought I heard you state that in last year's discussion about a variety of tax measures that the Council did not pass the single factor apportionment bill? Did I hear you say that?

I misspoke, because that does not require Council passage. But the Administration proposed coupling the move to single factor apportionment with the parking tax. The revenue from the parking tax was necessary in order to offset the loss. As that conversation evolved last year --

And we passed the parking tax.

It was tied to the wage -- the reduction BPT and so it wasn't available to offset the loss revenue from moving to single factor apportionment. The Administration had the right to do that -- 33 02/16/05 - WHOLE - 05007, 05008, 040767

Well, wasn't that because the Mayor vetoed the BPT bill? That did happen, right?

The Mayor vetoed the BPT in part because with the bills that were on track, the City was moving towards a loss of revenue that we didn't feel could be sustained and so we did end up vetoing that, yes.

Which is why the parking tax revenues weren't available to you?

That revenue wasn't available nor were the revenues lost from the more aggressive reduction in the BPT.

Let me ask a couple of -- what I had planned to ask. Two things for the record. Is it correct that the Mayor signed Bill 020092? That would be the wage tax bill from 1992.

Yes.

The Mayor signed that bill.

Yes.

And is it 34 02/16/05 - WHOLE - 05007, 05008, 040767 correct that the Mayor signed bill 040607?

If you could give me the title.

That would be the wage tax bill from last summer with the 10-year rate reduction.

We did not veto them.

No, I believe the Mayor signed it.

Then he signed them.

So the Mayor signed both the wage tax bills which are often the topic of discussion about wage tax reductions or proposals by this City Council. The Mayor signed both of those bills, correct?

Yes. I'll take your word for it, yes.

I'm sorry?

Yes.

What's the unemployment rate in Philadelphia?

Just a minute, we'll get that. 35 02/16/05 - WHOLE - 05007, 05008, 040767

For November, it was 7.2 percent.

I'm sorry?

In November, it was 7.2 percent.

And do you have any demographic breakdowns of that?

Not with me, no. 10

I'm sorry?

Not with me, no. 12

What's the national unemployment rate?

I don't have that with me, but I would guess somewhere in the range of 5.

Five even, 5.1, 5.2?

It's a guess. I'd have to get back to you.

It's 5.2, right?

Could be. I would add that 7.2 percent is down from 8.2 which we hit in 2003, 2002.

And I know -- 36 02/16/05 - WHOLE - 05007, 05008, 040767

I'm sorry, Councilman. Would you mind repeating? Because I don't even know if the stenographer heard you.

No problem. 7.2. percent for November is down from 8.2 percent that we reached in a couple points in 2002 and 2003.

And according to the Department of Labor, Bureau of Labor statistics, how many jobs did we lose last year?

That's an interesting question because there are several different BLS sources of data. The one that the City usually uses is current employment statistics which shows the City losing about 10,000 jobs. There's also another source which some other people use, the Quarterly Census of Employment and Wages which actually shows a much higher loss. But part of that is what's called a non-economic loss which has to do with reclassifying --

Ms. Reed, do me 37 02/16/05 - WHOLE - 05007, 05008, 040767 a big favor. Just move it over.

Non-economic reasons which have to do with classifying businesses in the wrong location. So it was quite a large adjustment there. Now, all of these data that we have --

Would you say it's fair to indicate that it's somewhere between either the 10,000 or 10,600 that was reported about a week or so ago?

No, actually the fourth quarter CES data shows that the loss may only be about 3100 jobs. The thing about all of the numbers for last year is at this point they are preliminary, and it's really the matter of the rate of loss that's more important than the absolute numbers, painful though every single job is, of course, because we actually are improving with respect to this kind of a measure. We were losing in the 4 percent range in the '80s, and we're now down to about 1.2 percent. And, you know, we are experiencing wage tax growth too, so those are just a few perspectives on that. 38 02/16/05 - WHOLE - 05007, 05008, 040767

We're experiencing wage tax growth?

Yes.

Even as we cut the wage tax?

In FY '04, the wage tax base grew by 5 percent. And after the effect of the tax collections grew by about 4 percent.

Okay.

We're currently reviewing the numbers from both sources and trying to reconcile it with what's going on with the wage tax. We also -- another thing that factors in, one of the segments that's experienced the largest decline is actually government. And these numbers reflect the fact that the City of Philadelphia will have lost over 2,000 jobs. And so we contribute to the loss in employment that we're talking about.

I think the bell rang, so I'll come back.

Yes, it 39 02/16/05 - WHOLE - 05007, 05008, 040767 did.

But it is interesting the hear that the tax receipts are up.

Thank you.

Thank you.

Ms. Wilkerson, I guess we can give many reasons why we're in the financial position we're in; however, it's hardly if ever mentioned that the State mandates programs, however, many of those programs are never funded by the State. Do we have any indication as to how much it costs for these mandated programs that are not funded?

I don't have -- I can get an aggregate cost for all the programs. We know that there are any number of expenses, for example, the whole court system. If we had the more than hundred million dollars annually that we spend for the courts that the State Supreme Court has opined is not our responsibility, the tax reductions we're talking about would not be an issue. 40 02/16/05 - WHOLE - 05007, 05008, 040767

I think the Supreme Court ruled on that at least six years ago.

More than years 6 ago. 7

Oh, my. 8 Time goes by when you're having fun. 9

They remain real 10 constraints on City's ability to reduce its 11 cost, but we will get an aggregated number. 12

What, if 13 anything, are we doing to try to get these 14 state revenues? 15

The Administration, as I testified on Monday, is pursuing either the revenue or turnover of the responsibility for the state roads. As the conversation on Monday made clear, although the legal obligation is clear, actually getting the State to assume the responsibility is a different matter. We are working with the State trying to get the State to use its federal dollars to assume costs for the prisons. So we're pushing these initiatives. 41 02/16/05 - WHOLE - 05007, 05008, 040767 Some of it has a greater likelihood of happening. We don't have the federal judiciary cost on the front about burner. It's our assessment that if we get that, we'll loss other revenue, other discretionary revenue that might come to the City. We also are working aggressively to try to manage the court costs. This year, the Administration's proposed a Five-Year Plan that reduces the first judicial District's costs by the same percentage that the rest of City government is being asked to absorb. We're also working -- just yesterday, I heard about an unfunded mandate for the computer systems for the courts. We'll be pushing back on something like that so we're not continuously burdened with these expenses. But we have things that have been legislative with respect to benefits for City workers that end up being cost to the City. And we have advocated aggressively against those, but we're not always successful. And they are the kinds of initiatives that further limit our ability to use resources in ways that might 42 02/16/05 - WHOLE - 05007, 05008, 040767 stimulate the growth of our economy.

I think it would be very interesting to know how much it's costing the City for these mandated unfunded programs.

The Five-Year Plan actually has a discussion of it. In the fiscal stability portion of the plan it identifies those kinds of burdens that the City has that are unusual for the City in comparison to other counties but also in comparison to the other jurisdictions in the country. We're frequently compared to other major cities, but those major cities aren't also counties and don't have all the burdens that we have that we have to fund out of our tax base.

And you mentioned about the Supreme Court's ruling regarding the courts. I believe, and correct if I'm wrong, my memory is that approximately six employees were put on the state budget; is that true? That was some time ago.

I don't know the 43 02/16/05 - WHOLE - 05007, 05008, 040767 exact number. This is before my time. But I think they proceeded with a phase 1 of a several phase plan.

And phase 2 never arrived.

Right. In FY 2000, which is also before my time, we zeroed out the First Judicial District out of the budget and I think we passed a budget that didn't have them in it and then they just took up us to court, and that didn't work.

Okay. Councilwoman Tasco.

Good morning. On of your Power Point, you show in Fiscal Year '07 and out, there's an increase in the wage tax collections, and it seems to be that way -- first, let's go to '05. What do you attribute the increase of collections in the various taxes in '05.

Well, first of all, trends through the time we were preparing, so our actual collections year to date as of 44 02/16/05 - WHOLE - 05007, 05008, 040767 November, December. And then second of all, the reason that those collections have been at those levels, we think, is a strengthening economy.

I can't hear you.

We think that the reason for those increased collections is a strengthening economy and our natural participation in the strengthening of that economy.

So these trends will have an impact on the growth of all of these collections throughout Fiscal Year 10?

Yes. I think we have aggressive assumptions for the wage and business privilege taxes going forward that we think reflects all the investments we're making, both in the investments in tax reductions, the investments in NTI, the investments in our schools, so we think that that combination of things along with assumes stability in the national economy leads to those projections. 45 02/16/05 - WHOLE - 05007, 05008, 040767

Okay. Thank you.

Point of order.

The Chair recognizes Councilman Nutter for a point of order.

This is Mr. McNeeley?

Yes.

You were over on Monday?

Yes.

I think you have surpassed now your mentor in the ability to lay things out. You made a comment in response to Councilwoman Tasco that part of the growth was attributable to the natural order of participation in the economic growth or something. Could you say that again?

Yes. What I meant is that as the national economy improves and grows, we gain some benefit from that. And that happens year to year. As the national 46 02/16/05 - WHOLE - 05007, 05008, 040767 economy declines as it did in '01 and '02, then we suffer from that.

So we're just kind of riding the wave of whatever happens?

That comprises the greatest factor in our local economic growth or decline, but there are also other long-term structural issues and there are things that we're doing to change that picture incrementally and change how we participate in the national trends.

That would be the universal week, right?

Yes.

Councilman Goode has a point of information, Councilman.

I'm done.

Councilman Goode.

Thank you, Madam President. Mr. McNeeley, you testified in response to an earlier question by Councilman Nutter without giving specifically updated 47 02/16/05 - WHOLE - 05007, 05008, 040767 unemployment data to the fact that the City is performing below the rate of the national economy. The City's unemployment rate has persistently been two points lower than the regional and national unemployment rates. So we're not just riding the wave of the national economy, and it's not just natural participation in the national economy. And in terms of growth, our stagnant revenue growth and our stagnant economic growth is because of a local economic environment. Is that not true?

What I said is that as the national economy changes, we reflect that change. We may not get the full benefit, we may not get the full rate of return --

And the question is, it's not natural participation in the national economy if you don't get the full rate of return in terms of what's happening in the national economy. And the question is, what contributes to the fact that our unemployment rate is persistently two points lower than the regional and national level? 48 02/16/05 - WHOLE - 05007, 05008, 040767 And what contributes to the particular fact that our local economic performance is not as good?

I think that there are a number of long-term trends and demographics.

Be specific about those long-term trends and demographics that lead to the fact that our local economy is not performing at the same rate as the regional and national economy. You can't just tie us to the national economy because that is not statistically accurate.

You can -- in of the Five-Year Plan, we show that we are becoming much more like the national economy over time. If you track from 1970 all the way up through last year, we've gotten much more consistent.

And that's probably because of the improvement of the regional economy and whatever spillover effect it has on local economy. I'm asking you to account for still what makes us locally 49 02/16/05 - WHOLE - 05007, 05008, 040767 perform under the region? Let's not even deal with the national economy. Why are we performing -- why do we have lower performance economically than the region's?

I think those are issues that are faced by many older, big cities. I think it has to do with population loss.

I'm talking about this City and this region.

I think that it has to do with trends over time in terms of people moving out of the City, moving to the suburbs, moving where they can economize on land, buy greater size of the house than the land they live on, and just sort of those long-term trends that have impacted all cities in America.

It's not all cities in America because the City's unemployment rate and job loss is not comparable to any place else other than probably Detroit. So it's not all cities in America. 50 02/16/05 - WHOLE - 05007, 05008, 040767

I don't have the numbers here. I think that it is typical for central cities to have a higher unemployment rate than their surrounding suburbs.

But is Philadelphia's higher than any place else; and why is that? Why do we have more job loss? Why do we have a higher unemployment rate? It's not that places haven't suffered losses, but we've suffered greater losses. Why is that?

I think part of it -- we acknowledge that part of it is our tax. The City does suffer disproportionately because of our tax structure. The Administration has acknowledged that all along. The question is how do you begin correcting that. And we have supported -- I mean, there have been fights along the way, but have supported the initiative to reduce the taxes in order to make the City more competitive. The question is how far can we go and how far can we go in light of all the other constraints. Part of the reason is that 51 02/16/05 - WHOLE - 05007, 05008, 040767 we can't go much further without doing it through shifts is because of all the other burdens that we have that the other cities don't have.

But you would agree --

But I agree that -- and I don't Mr. McNeeley disagrees, that taxes have something to do with that.

Has a big part to do it. You would agree that it's not fair to say that Philadelphia goes as the national goes because the truth of the matter is is that Philadelphia is not even performing at the regional level.

We go more slowly. I think it's true to say that we move in that direction but we don't move as aggressively. So when the national economy goes up, we don't benefit to the extent that the rest of the nation does. But I think what we see is that we move in the same direction.

I'm simply just asking you to pinpoint that reason. 52 02/16/05 - WHOLE - 05007, 05008, 040767

And I think, once again, it's in part because of the taxes.

Thank you. Thank you, Madam President.

You're welcome.

Based on the discussion, if you have an increase in your wage taxes, on what do you base that growth. If the economy does well, people increase -- they get raises and it doesn't have anything to do with increase of the decline and the jobs moving out of the City. You expect more jobs to move into the City.

The Five-Year Plan has, as I said, 4 percent growth in the wage tax base. We kind of put all that in the category of increases in salaries and wages in our plan assumes that employment stays the same, doesn't assume a net increase in jobs and it doesn't assume a net decrease in jobs. So we assume we kind of stay flat and people get 4 percent average increases in their wages. There can be differences between those 53 02/16/05 - WHOLE - 05007, 05008, 040767 two, and we think we'll still end up around percent.

Okay, let me ge the transfer realty tax. You have a collection of 165 million. What's the cause for the decline in the out years except for '09?

We have reset the realty transfer tax in '06 to 140 million because the receipts that we expect to get this year, which is about 165 million, is a historical high level. The '04 level was more in the 140 range, so we thought it would be appropriate to reset our expectations at a level that has some historical basis and is not too high because, of course, there would be spending authorization which would go along with a higher level of estimate, and we don't want to overshoot.

And what accounted for the 165 growth in the real estate transfer tax?

Well, we have been thinking about that quite a bit. It could be 54 02/16/05 - WHOLE - 05007, 05008, 040767 the tax abatement program. There has been an enormous number of new high cost units added into the City because of that. We also have had an absolutely fabulous effect of the Neighborhood Transformation Initiative in terms of raising property values all over the City. Interest rates have improved. There are some materials that were prepared by the Office of Housing and Neighborhood Transformation which show that the areas where NTI has made investments have improved their values in just in three years.

I think one of the reasons, though, that we taper off the real estate transfer tax is the interest rates aren't going to stay where they are forever. Some of the numbers trend rather slowly. This is one that can drop precipitously. So rather than go to the outer limits in our revenue projections, we've chosen to be more conservative, recognizing the fact that this is extremely sensitive to what's happening with the interest rates and that we could use lose this extra revenue quickly. 55 02/16/05 - WHOLE - 05007, 05008, 040767

Thank you.

You're welcome. The Chair recognizes Councilwoman Blackwell.

Thank you, Madam President. I want to piggyback on some things that have been asked and talk about a few things. On of the Five-Year Plan, we talk about the rapidly escalating pension costs. And in your testimony, Ms. Wilkerson, you stated that pension costs are $800 million higher. The Five-Year Plan says that the fund has meet its 9 percent goals in the past four fiscal years, losing 6 percent in '01 and another 5.2 percent in '02. What are we going to do about meeting our goals? Or do we have new investment strategy? What are our plans from here on to make life better for us?

Ms. Bell testified -- Gwendolyn Bell testified on Monday that the Pension Fund is looking at its investment policy, is evaluating taking on investments 56 02/16/05 - WHOLE - 05007, 05008, 040767 that would return a higher yield. It would involve more risk for the fund. It does periodically evaluate its managers. It's also looking at making changes in its managers as it makes changes in its policy. I can have her respond during the course of the budget hearings more particularly, but this continues to be a challenge. Mr. McNeeley explained on Monday that although the pension fund is exceeding the 9 percent return, that it assumes -- although it's exceeding that now, there were years when in '01 and '02 when it underperformed, but because there's a five-year rolling average, we'll continue to suffer from those years of under-performance for several more years. Hopefully, though, we'll come out of the woods. Probably not during the course of this plan, but perhaps in future years and so it won't be as large a burden. We will be underfunded, substantially unfunded, and it's going to remain a challenge.

Yes, we did 57 02/16/05 - WHOLE - 05007, 05008, 040767 hear that and we appreciate any further level of detail as it is available. On , you talk about the structural financial challenges, and we continue to be frustrated as well about the issue of social services and high crime and poverty rates going up, but yet the whole issue of the City facing identifying budget reductions, including services that result in high poverty and crime rates. And we just wonder how we see it. The President has talked and others have today about the cost of doing business and what areas we want to give over to the State and what we're going to do about crime here. We know that we can't reduce jobs, maintain service levels, and not have the State pay its share. Do you have any creative ways that we're going to deal with this whole area of employment, especially as it relates to minority inclusion?

We're looking at a number of initiatives to better focus the resources of the Administration to support job growth. We're looking at -- and it will be in 58 02/16/05 - WHOLE - 05007, 05008, 040767 the Blueprint that the Mayor announces, looking at ways to make better use of City job opportunities. For example, the NTI program was extremely successful in trying to create business opportunities and job opportunities for minorities and small businesses out of the demolition program that we operated. We want to try to expand that model in order to make sure that we do as we can do to create more opportunities. The Administration is going to -- there are ongoing conversations about trying to get the State to pick up its share. For example, we worked through the whole SEPTA discussion. SEPTA funding involves some kind of local match. That's an area where we have an annual expenditure in excess of $59 million. We pay more to support this transit system out of our General Fund than almost any other major City in the country. As we talk about adequate funding for SEPTA, the Administration is interested in trying to correct some of that formula, find funding resources for SEPTA that don't drain as 59 02/16/05 - WHOLE - 05007, 05008, 040767 heavily on the General Fund. But I think a lot of fixing Philadelphia is going to turn on getting the corrections at the state level. And, from my perspective, part of the problem with the tax conversation we're having to do now is that we look to do it all internally without trying to get some of the correction at the state level.

My time is up already?

Believe it or not.

I'll come back because I specifically want to talk about SEPTA a little bit and the parking tax.

The Chair recognizes Councilman Clarke.

Thank you, Madam President. Good morning. I'd like to ask a couple questions about 040789, the abatement bill. I actually got a solicitor's opinion yesterday that talked about some Constitutional issues, and 60 02/16/05 - WHOLE - 05007, 05008, 040767 I'm not prepared to challenge that at this point because we have some of our staff looking at the constitutional issue, so I won't deal with that at this point. With respect to your chart and the projections, the impact 3.8 million in the first year and 49.9 in the Five-Year Plan. How were those projections made? And did you include the fourth year in the initial business starts as it relates to additional revenue?

Bring up the Revenue Commissioner in terms of the logistics, but kind of briefly, there's a first-year impact is that new businesses get the credit and then they get it in the second year, and then other businesses get it in their first year and so it kind of layers in. COMMISSIONER KAMMERDEINER: Good morning. Nancy Kammerdeiner, Revenue Commissioner. What Sean was outlining was basically what we looked at. We took information from new businesses that were created in a given period, looked at what they 61 02/16/05 - WHOLE - 05007, 05008, 040767 paid in the gross receipts tax. That was essentially $4 million. And that was in their first year of filing. And every time another group would come on in that three years, you would add essentially another $4 million, on average, in terms of the first year filing. We chose to be conservative here and not expect that businesses would grow dramatically, that their business level would be approximately the same in each of the following years as they were in that first year.

Why would you make that assumption, that there would not be any increase? If we pretty much concur to various degrees that the gross receipts tax is probably the most problematic business tax, if a business now doesn't have to pay that tax in the first three years, why would we assume that people now wouldn't take advantage of that? COMMISSIONER KAMMERDEINER: I'm saying that a given business, some of them 62 02/16/05 - WHOLE - 05007, 05008, 040767 will be successful in their second and third year, they will have higher gross receipts than they had in their first year, but others will have a lower gross receipt in their second and third year. So for purposes of this analysis --

But I'm talking about your assumption that there will not be any additional businesses created as a result of this incentive. COMMISSIONER KAMMERDEINER: Again, this is the conservative piece. To the extent that more businesses are created, to the extent that either this bill itself or the other bills that have already been enacted or may be considered will encourage new business come into Philadelphia, these numbers go higher. This is the --

Don't you think that that's a likelihood? If the gross receipts tax is the most onerous tax, why would you think that it would remain flat? Or is it that you just couldn't figure out how to estimate that? 63 02/16/05 - WHOLE - 05007, 05008, 040767

No. In fact, something that we prepared in terms of looking at this, the very next point is to the extent the other economic stimulus programs are successful in bringing new business to Philadelphia, the cost of this bill will increase. So we certainly did look at that as something that is very likely to happen both because of the potential success of this measure if it were enacted and creating new businesses.

The cost of the bill will increase based on addition businesses that will created as result of this bill, but in the fourth year -- or I'll give you the fifth year, assuming that the first year doesn't take off as dramatically as I think it will. Then we will have a drastic increase in revenue. COMMISSIONER KAMMERDEINER: We looked initially at what the cost would be in the first three years. And then as you go on, we would need some experience from this to really get a better sense of what the overall 64 02/16/05 - WHOLE - 05007, 05008, 040767 impact would be. And so the basic analysis was done --

But you say in your statement just now is that the cost of the bill would increase dramatically, assuming that the number of businesses increase dramatically. But yet you don't take into account that the revenue would increase dramatically. You can't have it both ways. You can't say that businesses are going to be created, if they're created dramatically then the cost will be more but not acknowledge the revenue side of it. COMMISSIONER KAMMERDEINER: As you get out into that fourth and fifth year, there would be some benefit from having these new businesses there. But at this point, we don't have a sense of what the value of that would be. And we're not yet ready to put a dollar figure on that.

I think we can't tell how many businesses would be created that would already have been created without the bill that we already assume in our Five Year 65 02/16/05 - WHOLE - 05007, 05008, 040767 Plan and how many businesses would be created specifically due to the bill. So to be as conservative and basic as possible, we don't assume any of that and we don't assume that the cost would be any higher either.

All right. It would probably be nice if you had like a question mark in this chart. Because, I mean, you're assuming the worse, and I think that assumption is, frankly speaking, a little ridiculous.

It could be worse -- there's a balance. It could be worse in that if these businesses do really well --

How could it be worse? You're assuming because the gross receipts tax are eliminated that we're going to create less jobs? I mean, come on. Less new businesses? How could it be worse?

In the short term, it could be worse. In the long run, if the incentive is effective, then you end up --

How can it be worse in the short term? How could you sit 66 02/16/05 - WHOLE - 05007, 05008, 040767 here and say that there will be less businesses created as a result of the elimination of the gross receipts tax? How can you say that? Based on what?

There are business created every year in the City of Philadelphia. There are over a thousand new business privilege licenses issued each year.

But not they're not going to start a business because we eliminate the gross receipts tax?

They won't be paying taxes. Business that currently are started won't be paying these taxes.

And that's what you assumed in the chart.

Councilman Clarke, excuse me, please. I believe Councilman Goode has a point of information.

Thank you, Madam President. Thank you, Councilman Clarke. Mr. McNeeley, you know I'm very familiar with this whole argument about the 67 02/16/05 - WHOLE - 05007, 05008, 040767 natural ebb and flow of jobs, because at one point the Administration tried to use it against one of my job creation tax credit bills. My question is, following your line of reasoning, why you would try to cut the gross receipts tax at all?

I think it is a little bit different line of reasoning. What we're saying as far as the cost to this bill 11 is that we assume that a good portion of these businesses would be created anyway, so that's already assumed in the Five-Year Plan. This would be giving an abatement to a business that otherwise would be paying tax and would start without the passage of the law.

So what is the tangible benefit to your tax cut?

The tangible benefit is that in the long run we get to our rates to levels more like surrounding areas in other big cities.

So you can't define what the actual benefit from your tax cut is? You've done no job projections based 68 02/16/05 - WHOLE - 05007, 05008, 040767 upon your tax cut?

I think that there are different models we could use to do that, and if we budget conservatively --

Have you used any? You can go through the different models you may have used to determine based upon your tax cut how many businesses and jobs will be created. I'm just asking did you do any quantifiable analysis?

We have not explicitly done that.

So you don't know the economic impact of your own tax cut?

I don't know that that's true.

Tell me what it is. If you know what the economic impact of your tax cut is, just describe to us what's the economic impact in terms of creating businesses and jobs of your tax cut.

We have not explicitly identified a number for the creation of businesses and jobs as a result of 69 02/16/05 - WHOLE - 05007, 05008, 040767 the tax cut. We implicitly assume optimistic --

So you don't know the economic impact of your tax cut?

We have not explicitly identified it.

Is that a yes or a no? Do you know the economic impact of your tax cut? Do you know what it's going to do?

No. 12

Thank you.

Councilman Clarke, your time is up so I'll give you an opportunity to ask one last question.

The next part of my question, it will take more than one question because I want to talk about the real estate abatement.

All right. Can we wait for the second go-around, please?

Yes, Council President.

At this time, I recognizes Councilman Kenney. 70 02/16/05 - WHOLE - 05007, 05008, 040767

Thank you, Madam President. I share the same frustration with Councilmembers Clarke and Goode and their line of questioning. I mean, it seems based on the reasoning at the table that we're better off increasing taxes, maybe it will increase jobs. I mean, the scenario that's being painted is the worst case scenario with no job projections, no growth, to make it look as bad as possible so we're forced into voting for something that we don't even have the analysis of from the Administration. You want it all ways. You want to give us the worst case scenario on the tax reductions, on Councilman Nutter's bill; you want to add no growth in jobs or anything else, and then you want to look at service cuts and all those other kind of things to paint a scenario that is the most dire consequence. I mean, that's not the way we should be attacking this problems.

Councilman, if I may. The earlier questions -- there were earlier questions that addressed recent losses in jobs 71 02/16/05 - WHOLE - 05007, 05008, 040767 in Philadelphia. Philadelphia added jobs in three years, in, I think, the last 10-plus year. Our Five-Year Plan assumes flat employment, so we're assuming we don't lose jobs. That's better than what we've been doing.

Why do you assume that? This is the same question that these two Councilmembers are asking. You assume no job growth as a result of lower taxes, so in that regard, what's the sense of us lower taxes at all?

We assume that we don't lose them anymore.

That's right. The City has been doing better in terms of job losses --

So this is a break-even exercise?

Conservatively, we assume we do at least that well. We do at least that well that we stop the flow of job losses. And then if we do better than that, then we restore our fund balance and get back 72 02/16/05 - WHOLE - 05007, 05008, 040767 to a healthy range.

Well, I find problems within your analysis and your approach, and I think other Members of the Council also do. Let me go back to an issue that came about in the Five-Year Plan. House Bill 2330 and Senate Bill 100 provided for state-wide tax reform. It's said in your plan that it's essential for the City's overall tax reform strategy. Could anyone at the table explain to me what our actual overall tax reform strategy is? I just really never heard it quantified.

The Administration supports the reduction in both the wage and business taxes. The Administration's approach, though, is to balance tax reductions with what we feel are the other ingredients in growing a healthy economy. And those are quality services. I think a lot of people writing about tax reform also note that you don't get the benefit of tax reform if you gut your City services. So the Administration has 73 02/16/05 - WHOLE - 05007, 05008, 040767 been adamant in its position that tax reduction has to be balanced with the need to commit to quality City services. The Administration also feels that it's essential that we be in a position to make strategic investments. And that we have done through our NTI program. We hope to make strategic investments in the New River City Program. The City has wonderful assets or wonderful assets that we don't take benefit from because --

Why does the City continue need to be the incentive for development? Wouldn't it make more sense to have a tax structure and a tax environment that allowed for private sector development without River City, without NTI, without putting tax money into programs that the private sector, if the environment existed here, a progressive tax environment, a good tax environment for business, wouldn't private sector companies be making this investment? Why would you take money out of the Water Fund for River City or out of our borrowing for NTI 74 02/16/05 - WHOLE - 05007, 05008, 040767 when if we had the right tax environment here in the first place, we would have private sector investment and not government sponsored investment.

Well, I think it happens sometimes. For example, Denver that has a more advantageous tax structure in Philadelphia, finds itself in the position of having to give incentives when they were trying to lore Comcast away from Philadelphia, Denver was throwing cash at Comcast.

I don't think that's exactly relevant. It's a battle over trying to steal a company as opposed to creating an environment where people would want to come in and develop the waterfront on their own without being incentivised to do it because they need the incentive because the tax structure is so terrible.

And I think that tax structure alone doesn't get it done, that businesses respond to a whole host of factors. I think that with respect to the waterfront, it is our feeling that you have to make some 75 02/16/05 - WHOLE - 05007, 05008, 040767 of these incentives, particularly formerly industrial areas where a lot of times developers encounter environmental costs, they encounter infrastructure costs like at the Navel Yard where you have flooding that happens. There are a lot of reasons why you end up having to level the playing field, reasons that don't necessarily have anything to do with the tax structure.

I would argue that the playing field is particularly out of kilter as a result of the tax structure, not as a close of flood lands at the -- What is the Administration's fall-back position on tax reform if the City does not receive the estimated $101 million from the State for wage tax relief beginning in 2007?

We would continue with the land reduction that are in the Five-Year Plan. That's a one-time decrease that has suggested as a source for the City.

I'll come back, Madam President. 76 02/16/05 - WHOLE - 05007, 05008, 040767

Thank you. The Chair recognizes Councilman Kelly.

Thank you, Madam President. I just want to know very briefly how many new businesses have been started in Philadelphia over the last five years?

I can get that number. I don't have it.

I also want to know how many have left Philadelphia in the last five years.

I'll get that number.

Because I think Councilman Kenney has just touched on an important nerve in your testimony this morning, and that's your dim view on the supply side economics due to these tax cuts.

Just to follow-up, the presentation --

I mean, your estimates are very, very low.

The presentation 77 02/16/05 - WHOLE - 05007, 05008, 040767 attached to our testimony, the Power Point, of that presentation shows that these wage tax growth assumption are the highest of any of the City's Five-Year Plans. So we don't feel that this is a worst case or pessimistic. We're projecting 4 percent growth in the wage tax in the out years. 4 percent in the BPT. And the federal government tells us that inflation is only expected to be 2.2 percent. So somewhere in there, you know, there's some real growth.

I agree on one point. I think you're going in the right direction when you're talking about reduction of the gross receipts tax. That has to be probably the worst tax in the world, in my opinion. The sooner we get rid of that tax, I think the better off we're going to be in this City than we can be.

I think the conversation ends up being skewed if we just limit it to a conversation about tax reduction. When I was here on Monday testifying, the question was about why do you 78 02/16/05 - WHOLE - 05007, 05008, 040767 have to cut this service; why do we have to get rid of white metals; why can't we collect those anymore; what about the library; why do we have to pare back the library hours? You know, you may have created a program that you say is okay but we know that in the end is less. What I'm not hearing is what services the City is willing to forfeit in order to fund these tax reductions. That gets to be the critical question for everybody. Nobody disagrees with the premise that tax-free Philadelphia would be a more competitive Philadelphia. What I'm not hearing from people is, what services are we willing to forfeit? People have said, generate revenue. We have tackled every proposal that was put forward and are bringing in over $200 million in new revenue under this Five-Year Plan. We were told manage more effectively. We came up with a proposal to manage better, and what we were faced with is fighting in court, fighting in arbitration, challenging our plans to manage more effectively. We've come forward 79 02/16/05 - WHOLE - 05007, 05008, 040767 with proposals to downsize our facilities, and what we're met with is in some cases we're able to agree and collaborate, in other cases there's resistance. If we're going to have tax reduction, then we have to be willing to do less than what we're doing now. The other part that isn't addressed is what was underpinning a lot of what the tax Reform Commission proposed. It did not propose simply reducing taxes. It proposed shifting the taxes in Philadelphia, reducing the business taxes and moving it on to the real estate tax. And what I have not heard is anybody call for an increase in the real estate taxes in order to fund all these very aggressive business taxes. That's the fundamental premise of the Tax Reform Commission. And if we're going to have a conversation about tax reform in Philadelphia, we ought to talk about the whole proposal for tax reform, not simply a program for tax reduction.

Point of information. 80 02/16/05 - WHOLE - 05007, 05008, 040767

The Chair recognizes Councilman for a point of information.

Madam Chief of Staff, based on your last statement, are you suggesting that the Administration is prepared to support an increase in real estate tax?

Nope. The Administration has come forward with a proposal to reduce the gross receipts tax and to offset it with an increase in the parking tax. The Administration, under the current real estate tax environment, is not prepared to support an increase in the real estate tax. That's why we've come forward --

Madam Chief of Staff, you just complained that no one has put forth such a proposal in accordance with the dictates or proposals of the Tax Reform Commission. So if you like that idea, why didn't the Administration put forward that proposal?

What I'm saying is that for those who are proposing massive tax 81 02/16/05 - WHOLE - 05007, 05008, 040767 reduction there ought to be a matching proposal to either increase revenue to the City through other taxes or begin to identity those services that ought to be eliminated. That's what's missing from this conversation. Everyone agrees that tax reduction is good for the City. The question maintains --

I think there are 28 recommendations in the report. I'd love to hear the Administration on the other one, where are cost-cutting proposes, not just what programs can be eliminated. Where would you find in the Five-Year Plan a layout of all the cost-cutting measures that have been put forward?

If you look at the introduction of the Five-Year Plan, we go through all the budget initiatives -- almost all the budget initiatives that the Administration has pursued. We've reduced the personnel costs or reduced the operating costs of every department by approximately 5 percent. We've eliminated -- we were talking about some of them on Monday. We've had 82 02/16/05 - WHOLE - 05007, 05008, 040767 changes in the Streets Department. We're standardizing trash collection. We are -- everything from limiting the hours, we have drawbridges manned to reducing the number of districts that we have.

We actually have a hundred million dollars of initiatives in Fiscal '06.

What page are you on, Ms. Reed.

I'm on of the introduction.

Of the Five-Year Plan?

Yes.

Okay.

But as we look at all the initiatives that we have both on the revenue and expenditure side, they do total 103 million for Fiscal '06 and add up to 577 million over the life of the plan. And we did discuss some of them on Monday.

Are you talking about what starts on small number 6 83 02/16/05 - WHOLE - 05007, 05008, 040767 initiatives for FY '06 to '10 budget?

Yes.

And you're saying within these introductory pages that you've got $100 million in savings?

Yes. That's a summary that's probably not every single one of them --

I'm sorry, I didn't hear you.

Some of them are revenue. Some of the initiatives are revenue initiatives.

Are revenue initiatives?

Yes.

And the others are cost-cutting?

Right, most of them.

And you have a figure that goes with each one of these?

Yes.

Okay, I'll come back. It's just a point of information. 84 02/16/05 - WHOLE - 05007, 05008, 040767 Thank you.

Councilman Kelly, you will be recognized, but Councilman Goode has a point of information.

Just for clarity of the record, Madam President, I want the Chief of Staff to clarify what she said regarding the Tax Reform Commission report, whether it actually called for an increase in property tax revenue to offset business and wage tax cuts or an increase in property tax rate? I believe it called for an increase in property tax revenue, not rate.

I don't remember the exact language.

But it is a huge difference, because essentially, the Tax Reform Commission assumed that property tax values are going to rise, the property tax revenue was going to increase and, therefore, that, along with the parking tax would pay for wage and business tax cuts.

We've got to be 85 02/16/05 - WHOLE - 05007, 05008, 040767 willing to take the revenue from the increase in the property tax. When property taxes went up a few years ago about percent, we on 5 average -- or less than 10 percent, we were 6 engaged in an active conversation about 7 capping the increase at 4 percent. 8

But I'm simply 9 trying to clarify the record in terms of what 10 you believe the Tax Reform Commission said, where they, in fact, called for an increase property tax rate or just assumed an increase in property tax revenue based upon increasing real estate values, which you take a whole lot of credit for in terms of NTI.

Volume 1 of the Tax Reform Commission report, says, "The Commission considered that if all the revenue-generating failed and there is no 20 other way to fund the Commission's package of tax reform, the City could increase property based tax rates."

Could.

That's the suggestion. 86 02/16/05 - WHOLE - 05007, 05008, 040767

No, it's not a suggestion. It's an analysis. The Commission had several recommendations where they actually even developed bills patterned to those relations, and none of those recommendations called for property tax rate increase. So if the Commission wanted to call for property tax rate increase, it would have done so formally in the form of a recommendation. Then it would have crafted a bill based upon that recommendation. They did not do that. They did not call for a property tax rate increase.

I just read to you from the report the Commission was not charged with identifying ways of funding its recommendations, so it did not present what I just read to you as a formal recommendation, but it's there.

There were several scenarios laid out: A scenario if you invest a hundred million dollars and cutting this tax and that tax. There were several different analyses done. But the question is, 87 02/16/05 - WHOLE - 05007, 05008, 040767 they never, ever said that what they were doing were predicated upon a property tax rate increase. And so are you here to suggest that they assume property tax rate increase or property tax revenue increase?

They didn't assume anyway to pay for it because they didn't have to. What they recommended were ways to reform the tax structure. They have a chapter called the Financing Tax Reform and I read to you a sentence from that chapter.

So the parking tax rate increase is your idea?

The parking tax rate increase is one of the things that was proposed by the Tax Reform Commission as an alternative. I think whether you get it through national growth in property values or increasing the tax rate, I think what's essential is that the Tax Reform Commission recognized that you may not be able to fund all the proposed reductions simply by cutting City expenses, that there would come a point in time at which there would have to be 88 02/16/05 - WHOLE - 05007, 05008, 040767 additional revenue. It's either going to come out natural growth in the real estate tax or it's going to come from increasing the rate to generate additional revenue off the real estate tax.

But there was no 8 specific recommendation for a real estate property tax rate increase.

I disagree with that reading of the Reform Commission's report.

They made specific recommendations and crafted specific bills based upon those recommendations. None of those recommendations and none of those bills they crafted called for property tax rate increase. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Kelly.

Thank you, Madam President. I would like to know if the 89 02/16/05 - WHOLE - 05007, 05008, 040767 Administration would still consider the Tax Reform recommendations that were put in, especially if the taxes on property were included.

Would we consider additional --

Yes.

If there were additional revenue, would we support shifting from business taxes on to property taxes in order to more aggressively --

Right.

I think the Administration has concerns about the senior citizens in Philadelphia and the people who are in neighborhoods that are experiencing particularly aggressive growth, and there would have to be something that would provide abatement so that we don't end up with people being pushed out of their homes. When the Mayor was in City Council, he, in fact, sponsored legislation that created the senior abatement that exists currently. That is something that -- that 90 02/16/05 - WHOLE - 05007, 05008, 040767 approach we think is essential, particularly when you have property values increasing. You've had good growth in neighborhoods. That growth is a good thing. We have to be willing to capture it. But at the same time, there's got to be a recognition that there are people on fixed incomes, people who live in neighborhoods that can't keep up with the growth in taxes, and it's our position those people shouldn't be forced to lose their properties.

So you wouldn't consider that.

We would consider that.

You would or wouldn't not.

We would if there is adequate protection for those who are vulnerable as a result of the increase in values in property. But, you know, a lot of what we're doing, a lot of what we're doing with our neighborhoods, a lot of benefits that's supposed to come from tax reduction is 91 02/16/05 - WHOLE - 05007, 05008, 040767 the result also of an increase in real estate values, and we have to put ourselves in a position to capture some of that increase in value.

Actually, specifically, sir, the estimates that were made last year were something like an $11 million property tax increase effect as a result of tax reform, and that translates into a sort of natural growth of about 11 --

This was the recommendation of the Tax Reform Commission?

This is some analysis by E Consult. It was part of the report that there would be a resulting 11.7 percent increase in the average property tax bill in 2010 going up to maybe 34 percent by 2017. So property tax, as the Chief of Staff said, is assumed.

Thank you. Thank you, Madam President.

You're welcome. I'd like to let the record reflect 92 02/16/05 - WHOLE - 05007, 05008, 040767 that I certainly instigated the freeze on senior citizen taxes if they were under the PACE guidelines. Ms. Wilkerson, on of your testimony, you indicate that "Research has shown that the gross receipts portion of the BPT is an impediment to economic growth in Philadelphia. Accelerating the proposed reduction in this tax is an investment and economic development if done in a way that does not cause deficits or service reductions that would undermine the value of the tax reductions." What do you determine what the optimum reduction is before you begin to undermine the value of the reductions?

Undermine the value of?

The reductions.

I think it's when you begin seeing an erosion in City services, in City amenities. What we know is that as important as taxes are, there are a lot of 93 02/16/05 - WHOLE - 05007, 05008, 040767 other things that go into businesses deciding to locate here and grow here. Schools are important. Amenities are important. The cultural amenities in the City are important. The cleanliness of the streets, the safety of the streets are all important things in companies deciding to locate here and grow here. When you begin to find yourself in a position that you can't fund the amenities like you really think you ought to, when you get to the point that you've got to begin constricting the library hours, the art museum funding is cut, when you start limiting the trash pickup, those are the kinds of things that reflect a degradation in the quality of life in the City. And they can reach the point that they become a disincentive for people to come here. I don't know that there's a magical number. I think it is an evaluation of the quality of life. Fortunately, one of the things that the City does is a citizen satisfaction survey. Every July, I believe, we're out surveying residents about the quality of life and we measure 94 02/16/05 - WHOLE - 05007, 05008, 040767 things like trash pickup and library and recreation services. So I think we will begin to have a barometer that tells us when we're doing well and when the residents don't think we're doing as well. One of the questions we started asking in the citizen satisfaction survey a couple years ago was "Would you rather have services or tax reduction?" And one of the things that residents told us is that they wanted services. It wasn't a huge margin. They didn't like paying taxes either. But they made it very clear that services in the City were fundamental. It's the kind of things that allow people to stay in our neighborhoods.

Was that survey also taken for the business community?

It's just residents. I don't know that we surveyed businesses. That would be interesting thing to begin surveying businesses in addition to just residents. We certainly can do that.

I think it 95 02/16/05 - WHOLE - 05007, 05008, 040767 would be very interesting. Ms. Wilkerson, is it safe to assume that the Administration's position that overall parking rates in Center City do not impede businesses?

I think they're probably -- there may be a point at which parking rates impact. We have not done a study to determine that with specificity. But there are a lot of aspects to parking. There's the on-street parking that is not impacted by this. There's valet parking. There are a lot of things that go into --

But what infuriates me, you talk about valet parking. I consistently complain about this, and I don't know if anything is ever done about it. You valet park. You go to a restaurant. You're on Walnut Street. You walk out of the restaurant and low and behold you have paid $17 for valet parking and low and behold there your car sits on Walnut Street. That's really very, very unfair.

I will make sure to 96 02/16/05 - WHOLE - 05007, 05008, 040767 point that out to the Managing Director. I share your frustration.

It's all over the City that this happens. I think it's truly, truly unfair to people coming into Center City wanting to go to the theater or to a restaurant, wherever they're going, to pay that kind of money when they have could have very easily parked on the street themselves.

I think that valet parking -- I remember when valet parking was enacted. I think that it is something that probably needs to be revisited in the City.

Whose responsibility is that? Is that police?

L&I in involved in -- I think is responsible for the enforcement of it. But I think that the whole policy -- some blocks on Walnut Street in particular there's almost nothing but valet parking. And I know that some firms have lost their licenses to do valet parking because they've been violating law.

97 02/16/05 - WHOLE - 05007, 05008, 040767 Restaurants on Front Street or Market Street, it's the same issue. I think it truly infuriates people.

I will raise that with the Managing Director and get back to you so by the time L&I comes, we'll have something.

Point of information, Councilman Rizzo.

Madam President, this is what -- and I don't want to use the word upset, but this is what concerns me. You have brought that up, that same issue, time after time after time. If you played back the tape from a year ago, a year ago before, you said the same thing; I said the same thing. Today we hear, "Well, we're going to let the Managing Director know." Why do you have to let the Administration know that they've got a problem where valet parkers take your car around the block, put it at an expired meter. The parking authority gives it a ticket. The valet parker goes back, sees that it got a ticket, throws the ticket down the inlet. Two 98 02/16/05 - WHOLE - 05007, 05008, 040767 months later you get a summons in the mail. You paid bucks. We have to tell them to 4 manage valet parking? That's a disgrace. 5

I'd like to have the 6 Managing Director come and respond to that. 7 I'll try to get him, because I think that 8 there has been enforcement. I think the 9 problem may be with the underlying policy that 10 supports valet parker. 11

I had the point 12 of order, Madam President. Again, what 13 concerns me is it's like talking -- I used the 14 analogy yesterday -- to that pillar there in 15 some occasions trying to get messages across. 16 And you get patronized by saying, "We 17 appreciate your suggestions, they're good ones." Well, if they're good ones, they should be doing it. They should be policing the valet parking, which I believe is also -- they took a shot at the Parking Authority earlier in the process. It is the Parking Authority's responsibility to manage that. And if we have a problem with the way valet parking is run in this City and people are not 99 02/16/05 - WHOLE - 05007, 05008, 040767 coming back -- and you said this, not coming back because I know people that have gotten that ticket where instead of it going in a garage, it goes around the corner in a bus zone, gets the ticket, and obviously they don't want to let the person know that they got the ticket, they rip it up or throw it away and then you get the summons two weeks later. They're coming back? I don't think so. Thank you.

Thank you.

Point of information, Madam President.

Yes, the Chair recognizes Councilwoman Blackwell for a point of information.

Thank you. I agree with what you said. And also perhaps -- I don't know if Ms. Wilkerson, but since you said the Managing Director is coming back on the very issue you mentioned, I don't know how, given all the problems with SEPTA, that it increases SEPTA ridership instead of decreasing it. If you've got to get a bus to 100 02/16/05 - WHOLE - 05007, 05008, 040767 come into Center City, as you mentioned, and pay more for parking, I absolutely don't know how that increases SEPTA ridership. And also, the other part of my point of information is that according to the Five-Year Plan, an increase from to 8 percent in this tax leads to a 32 percent 9 increase in collections. I don't know what 10 that means. What's the number on this small 11 reduction in tax base and how did they even 12 come up with this 32 percent increase? 13 None of these make sense. And those 14 are my issues and point of information. 15

The increase in the rate 16 of the parking tax is based on the experience 17 of the yield from the tax. You know, 15 18 percent yields a certain amount and therefore 19 the increase yields the higher amount. It's 20 possible there would be some decline in the usage of parking as a result of the increase, but it is not a very great increase and doesn't put Philadelphia parking out of line with a lot of other places.

I don't 101 02/16/05 - WHOLE - 05007, 05008, 040767 understand that. Tell me how it increases SEPTA ridership.

Because it may create some disincentive for people to drive into the City because they'll have to pay parking. They may in turn -- some of the people may in turn choose public transportation. I think to put it in perspective, if you have a $20 parking bill, this would increase your parking bill by a dollar. This is being proposed as a way of trying to do more in terms of tax reductions. And if we want to fund tax reductions, we've got to come up with ways of doing that. And there are only so many areas that are viable for taxation. The parking tax, we think, does not create a disincentive for business growth in Philadelphia. We believe that the gross receipts tax does, and so we propose shifting from a tax that we don't think creates a disincentive -- shift from one that creates a disincentive to one that doesn't.

Well, we 102 02/16/05 - WHOLE - 05007, 05008, 040767 still agree that it will not increase SEPTA ridership. That still just doesn't make sense to me, Madam President. Thank you. That's the end of my point of information.

You're welcome. We're still in the first go-around. The Chair recognizes Councilwoman Brown.

We've given considerable amount of discussion of the taxes on the small business community and we should. I want to shift it just for a moment to regular households. Do households default and utility bills increase when families face sharp increases in real estate taxes? What impact might increased real estate taxes have on both PGW and Water Department Revenue?

We've not done an analysis of that. Common sense would tell you at some point we are sucking a lot of income out of households. We know that -- I forget exactly what the time parameter is, but since gas costs began to increase dramatically, 103 02/16/05 - WHOLE - 05007, 05008, 040767 about $1.2 billion will have gone to pay the increase in the cost of gas. That takes enormous revenue out of the local economy. It takes a lot of money out of families' household, and there are concerns about that. So we keep going into the same well. We keep drawing from the same well, and I would expect that at some point people are not paying tax bills; they're paying their gas bills. Common sense tells you that that's happening in some instances.

And those instances are principally anecdotal; there's no hard data?

No. We might be able to figure out a way of trying to measure that. We could probably figure out a way to begin trying to measure that.

Back to the discussion around the impact of these potential tax measures on small businesses. What services to small and neighborhood businesses might be in jeopardy if the revenue losses from further cuts in the business taxes 104 02/16/05 - WHOLE - 05007, 05008, 040767 are not made up by the increases in the other taxes? I mean, the kinds of services that small neighborhood businesses require and deserve local police protection, street lighting, et cetera. Even garbage and trash pickup. So what is the Administration's view with regard to that?

You're asking the question -- I'm just trying to make sure I understand it -- what services will be lost --

Might be in jeopardy as a result of the revenue losses.

Probably Licenses and Inspections for food licenses, the turnaround on that is going to be slower for any kind of inspection. Turnaround on that would be slower. For those for whom the condition of the street and the curb are important, all of that slow down. It will not stop, but it will be slowed down.

I think the other area that is at risk that particularly would impact the business community -- we've done a lot to try to put e-billing, for example. You 105 02/16/05 - WHOLE - 05007, 05008, 040767 can pay a lot of bills on-line now that you previously had to come into the City to pay. We're trying to permitting on-line so that business people don't have to come into the City and wait in line in the concourse. That reorganization or change in how we provide services is enormously expensive. All these IT initiatives cost a lot of money upfront. They cost a lot of money in order to sustained them over time. Those are the kinds of things that make Philadelphia more business friendly, but they're also the kinds of things that cost money. Historically, we funded them out of the Operating Budget. It may make sense to fund some of them out of the Capital Budget, but when we go to turn there, we've got constraints in our Capital Budget as well. I think it would be those kinds of initiatives that would impact businesses more disproportionately than the rest of the community.

How far along are we with this E -- what did you call it?

E-Government, 106 02/16/05 - WHOLE - 05007, 05008, 040767 electronic government. We've got e-billing. For example, you can pay your water bill 4 on-line. You can pay taxes on-line. You can file taxes on-line. There are a lot of real estate related documents that are available on-line through the Records Department. When Diane Neff, the CIO, comes, she can talk about it in more detail. But there any number of initiatives that the Administration has pursued in order to make it easier and more convenient. I think to the extent particularly a small business person doesn't have to close down the business in order to come to the City to transact business is a big help.

My final question is, what is the ratio and gender makeup of the City workforce and what impact does it have on employment opportunities for minorities and women when the City is forced to reduce its workforce as it is doing now?

I will get you that information.

And the 107 02/16/05 - WHOLE - 05007, 05008, 040767 follow-up question could be what measures or protocols are you considering to retain or maintain a balance, if you will, of diversity in the workforce?

The Managing Director has those numbers.

Thank you. Thank you, Madam President.

You're welcome. If I can have my colleagues attention for just a moment. We have a very, very lengthy list of witnesses that will be coming in starting at 1:15. Our schedule indicates that we would be breaking at 12:30 to 1:15. I see that there are a number of Councilmembers that still want to be recognized. We have a choice. We can either just take a 15-minute break or we could have the Administration come back at a later date. What is the feeling of the Members? So we will stand in recess then until 1:15, and the Administration will come back at a later date. Thank you very much. 108 02/16/05 - WHOLE - 05007, 05008, 040767 (Hearing recess.) - - - -

Good afternoon, everyone. This is a continued public hearing of the Committee of the Whole on Bill Nos. 040767, 050007, 050008, and 040789. We do have a very, very lengthy list of witnesses that want to testify, and we certainly want to give everyone the opportunity to do so. In order for that to happen, I am setting some ground rules, and that will be that individuals testifying will be given five minutes. If there are panels to testify, they will be given 15 minutes. So with that, I would ask Mr. McPherson to please call our first witness.

Mark Schweiker, Greater Philadelphia Chamber of Commerce.

Good afternoon and welcome.

Thank you so much for the opportunity to visit and provide some thoughts. For the record, I am Mark 109 02/16/05 - WHOLE - 05007, 05008, 040767 Schweiker, President and CEO of the Greater Philadelphia Chamber of Commerce. It is indeed a pleasure to be able to testify on the proposals that you already mentioned affecting the business privilege tax as well as the proposed changes to the parking tax. First, I'd like to point out the progress we have made in just the past year on the issue of the business privilege tax. Both the Mayor and Members of City Council have come to recognize that this tax is one of the main culprits which restrain the growth of business in our City. In Philadelphia, our leaders are discussing tax cuts, a message that we need to shout to the rest of the country. After all, wage tax cuts were accelerated last year, and the cuts will continue as gaming is put into place. Our members have always felt that the business privilege tax was one of the biggest points of contention that they faced in doing business in Philadelphia. It is a tax that hampers small businesses from growing and often causes other businesses to set up shop 110 02/16/05 - WHOLE - 05007, 05008, 040767 in suburban locations. The Bureau of Labor Statistics within the federal government last month once again cited our City as second in the nation behind Detroit in job loss with a downturn of almost 10,000 jobs. And if I could just direct the Chamber's attention to some illustrations we have to my right, especially the chart to the left which illustrates -- and certainly it's an alarming trend line. It illustrates the loss of jobs which have been sustained by this City since 1969. I won't go into all of the details, but you can see with the blue line heading south, so to speak, is in 1969 this City enjoyed close to 938,000 jobs. According to the Bureau of Labor Statistics, ending in mid-2004 with that 10,000 job loss that I mentioned in the last year alone, we are now at 679,000 jobs. Make no mistake, the tax model and the prospects of job growth which were hampered as a result of unattractive tax models do lead to this drop in job growth. And I might add very quickly for the 111 02/16/05 - WHOLE - 05007, 05008, 040767 record, to the right the one chart illustrates the job growth that is being enjoyed in the outlying suburban counties in the red line. Certainly, a very positive direction in the red. And you'll see in contrast the blue line which represents that which is experienced in the City of Philadelphia, obviously, going in the wrong direction. And thus speak to the business privilege tax and what it means to investors, entrepreneurs, business people and job growth. I know you will agree that this phenomenon must be reversed if we are to attain the long-term growth that all of us desire. We have many things going for us: New market rate housing is being built throughout the City. Two new office towers are being built downtown. Our sports franchises are having banner years. Bio 2005 is coming in June. The Barnes relocation is now a reality, and the Fox Chase Cancer Center is proposing expansion plans -- and I want to say this slowly because it bears emphasis -- that include 4,000 new City jobs over the next 112 02/16/05 - WHOLE - 05007, 05008, 040767 years. And the promise of both gaming and Convention Center expansion are on the horizon. Still, we loss residents and jobs in both our household and per capita income remain behind the median income in the rest of the Commonwealth. One is left to conclude that despite all of our assets, the cost of doing business in Philadelphia remains an anchor from which we must be freed. If the business privilege tax only affected the largest of businesses, we could make a strong argument that it must be reduced and eliminated. The fact that small neighborhood businesses must bear the burden makes this call all the more critical.

18 Small neighborhood businesses are 19 the heart of neighborhood economic 20 development. If these businesses fail or move out of this City, it cost jobs in the neighborhoods and leads to the deterioration that many neighborhoods have experienced. It is truly important that neighborhood businesses in Philadelphia enjoy the same 113 02/16/05 - WHOLE - 05007, 05008, 040767 competitive landscape as those in suburban communities. Having said this, the Chamber was pleased to see both the Mayor and Council recognize the need for addressing the business privilege tax. We recognize that each of the approaches begins to make the competitive landscape more level. As we look at the components of the tax, we believe that Bill 040767 is the better approach. Our assessment is based on the fact that over the long term it addresses both the gross receipts and the net income portions of the tax while Bill 050008 only addresses gross receipts. Let me point out that there are gross receipt taxes leveled in neighboring suburban communities. And we've done some research on this count. In 2004, there were 19 communities in Delaware County, 16 in Montgomery County, 10 in Bucks and in 23 Chester with some form of business privilege 24 or mercantile tax. None of these 25 jurisdictions imposes a BPT on net income. 5 percent is higher than the wage tax. And each of you know well, the damaging effect that the wage tax alone has had on the City's economy. 5 percent, the business privilege tax puts the City at a major competitive disadvantage. Therefore, it is our belief that by reducing both portions of the business privilege tax and by seeing its eventual elimination, jobs will be created both downtown and in the neighborhoods. And if I could, Council President Verna, just for the moment depart from an abstract discussion of the mathematics in talking about the business privilege tax. I'd like to describe a firm which does business in Yeadon literally 51 feet from the city line. This company, Union Packaging, is a manufacturer and is in the business of providing packaging for the fast food industry, $19 million in payroll, 78 employees, many of them from the City, and 4 million in wages. Now, from a distance I'm going to 115 02/16/05 - WHOLE - 05007, 05008, 040767 point to the corner of the Chamber and ask Mike Pearson to take a place there and he'll begin to walk over here and travel what is 51 feet from that point to the chair behind me. This gentleman is significant for a lot of reasons. We represent him, so to speak. We represent small business. Mike is a born and bred Philadelphian out of West Philly, employs 78 people. He's got the guts to give it a go, build his business. And unfortunately, because of the intimidation -- I shouldn't say intimidation. His concern and the lack of appeal in the business tax model, ended up in Yeadon 51 feet -- literally, his business, his front doors are 51 feet from the city line. And so for all of those who believe this discussion is simply about mathematics and balancing City budgets, I want to go past the abstract and see the concrete. This is the kind of gentleman, given his heart and where he was raised, would love to do business in this City and employ more Philadelphians, and it's about to grow. Wouldn't it be nice that that business, Union Packaging, be here 116 02/16/05 - WHOLE - 05007, 05008, 040767 in the City of Philadelphia. Now, it isn't my privilege to ask Mike to comment because I know we're mindful of time. But I thought it was our obligation as a representative of small businesses throughout this region and City to at least give all in this Chamber the firsthand opportunity to see someone that has a business and they're doing business and literally only 51 feet from the city line.

And in the short time it took him to walk that 51 feet, wouldn't it be nice if we could boast a tax reform a more affordable business privilege tax so that the Mike Pearsons of the business world come into Philadelphia to do business here. So I just wanted to acknowledge Mike and his entrepreneurial nature and his background. I appreciate the privilege to do just that. Having said that, I recognize that as public officials you are faced with the challenge of producing a budget which is balanced and addresses the needs of the citizens of Philadelphia. That responsibility 117 02/16/05 - WHOLE - 05007, 05008, 040767 must force you to look at factors which have led to the loss of jobs and seek ways to reverse that trend. It is incumbent upon us to grow our population which will in turn provide more revenue to the City to pay for services for the residents. History has shown us that each time that we have reduced the rate of the wage tax, and you can go to the numbers, that the revenues have increased. That is good for our City and demonstrates that the trend should continue. Just a question, had we stopped those rate reductions or not begun them at all, we might have been facing an even faster exodus of citizen from our City. I would note notwithstanding gradual gross receipts reduction experienced during the past five years, the Fiscal '05 business privilege tax revenue forecast reflects a greater yield than Fiscal '01 revenue. Tax reform works. We also believe that it is shortsighted to look to the parking tax as a means of generating extra revenue. Most would agree that the hospitality industry has been a 118 02/16/05 - WHOLE - 05007, 05008, 040767 source of growth in our economy over the past decade. Many of the jobs created in the industry are held by neighborhood residents. By raising the tax, we risk jeopardizing the many restaurants and entertainment venues that are supported by non-City residents who have helped to fuel our hospitality boom. As you remember, the Chamber opposed plans to raise this tax last year and remain in opposition of the current plan to increase parking taxes this year. Last year I cited the impact not only on hospitality but also on sporting events and on the retail sector as a whole. Nothing has changed. Nothing has changed. Suburban malls still have plentiful and free parking. While this tax may seem like a short-term fix, it can only serve to lessen the attractiveness of our retail and hospitality sectors. The increase in the parking tax would cause the City to lose revenues as well from the amusement tax and the liquor by the drink tax as fans and 119 02/16/05 - WHOLE - 05007, 05008, 040767 restaurant patrons seek alternate venues outside the City limits. An increase in the parking tax will only further the perception of the high cost of doing business in the City. In closing, we for our part at the Greater Philadelphia Chamber of Commerce are continuing in our efforts to market this City and region to business leaders around the country. Through the efforts of select Greater Philadelphia, we have raised more than million in marketing and business 14 development funds and have continued with the placement of promotional ads and materials around the country. Recently these adds recognized the advancement represented by the Comcast tower construction commitment as well as our competitive real estate rates. We will continue such efforts and believe that they will lead to the attraction of more businesses to this City and our region overall. And might say thank you to the Council for supporting the City's commitment 120 02/16/05 - WHOLE - 05007, 05008, 040767 to that Select Philadelphia endeavor as well. In conclusion, your efforts to make Philadelphia more business friendly are critical if the City is to realize its share of new business coming from these efforts. With that, I thank you for the opportunity to address the business privilege tax proposal as well as the parking tax.

And again, I want to thank Mike for spending a few minutes with us as well.

Mr. Pearson, before I recognize any of the Councilmembers, is there a statement that you would like to add to what the Governor has already said?

I think he really represents all of the Philadelphia businesses in regards to the tax situation. But I love the City. And to make it a vibrant City and create career opportunities for its residents, I think it's necessary that we address the tax issue.

Thank you. At this time, the Chair recognizes 121 02/16/05 - WHOLE - 05007, 05008, 040767 Councilman Goode.

Thank you, Madam President. Good afternoon, Governor. The questions I will ask you, just a few, are similar to what I asked last year. The first is, do we actually need to eliminate the net income tax in order to be economically competitive?

I think ideally, if we could get rid of it, there is no greater accelerant, from my standpoint, than that prospect. To be able to say to a perspective business -- I might add, 70 percent of the new jobs come from existing firms who choose to grow here. They are certainly going to love it. And I do think there is a connection between its ultimate elimination and job growth, yes.

But do we need to eliminate it in order to be competitive?

Yes.

Homeowners pay taxes, employees pay taxes; why shouldn't 122 02/16/05 - WHOLE - 05007, 05008, 040767 businesses pay some tax?

I don't know of a business person, be they in the City or around the region, that resents having to pay taxes of whatever form. It's the height of those taxes that begins to act as a retardant and stifles job growth and business expansion. I think they're willing to pay their fair share, but I think when you take a look at the fairness aspect, business people in the City of Philadelphia believe that it's gotten to the height where it's not fair. But keep in mind, we're talking only about one tax. Today we're talking about the nets profits tax as relates to the BPT. But their employees are paying the wage tax. So they're paying, whether it's coming out of the company treasury or from the paycheck from the employee.

At what point during the elimination of the BPT or in what year do you thing we would actually be competitive?

I don't have a 123 02/16/05 - WHOLE - 05007, 05008, 040767 specific year that I could circle, Councilman Goode. I'm here trying to give voice to many concerned and frustrated business people, many of them small business people that just believe that when you take a look at the rather large bite that comes from the net piece of the business privilege tax, it's just staggering and it does prevent job growth and just want you to know that. I think it's safe to say, and I've tried to quickly make that point during my remarks, that as the City's tax model becomes more affordable, literally lower, you're going to get job growth. We're seeing it when it comes to wage taxes. You lower the wage tax and collections do continue to come in.

We're in complete agreement philosophically on that. Where we differ is whether we need to eliminate it. My final question is, we also agree that small businesses create jobs. But what's the biggest obstacle for small businesses owned by minorities and women? Is it actually the tax burden or is it ratio and gender and 124 02/16/05 - WHOLE - 05007, 05008, 040767 geographic discrimination that exists in terms of small business lending?

That's certainly a question that should be asked all the time. It's probably excess access to capital. That's probably a colorblind kind of moment too. Small business people, whether they're people of color or women-led businesses, they're not short on ideas. They're not short on a place to locate a company. And as a parenthetical, we didn't prep Mike here. He was born and raised here and would like to do business here. Many of them would like to be in the City. I think it's access to capital. And I'm happy to tell you that through the supplier network at the Chamber, we're working to remedy that. I won't expand on that, but we hear that cry loud and clear. I'd kind of circle that one, Councilman.

So as the Mayor presents his economic develop blueprint to the Chamber, you will be lobbying both for reducing the tax burden and access to capital 125 02/16/05 - WHOLE - 05007, 05008, 040767 for minorities and women?

That will not be a new position or aspiration for us. The Greater Philadelphia Chamber of Commerce has been persistent on that count for a long, long time. We have 6,000 members, I might add, and half of them, close to 3,000 right here in this City. So that has been their preference for a long time.

Thank you, Governor.

You're welcome.

Thank you, Madam President.

Thank you. The Chair recognizes Councilwoman Blackwell.

Thank you. Good afternoon, Mr. Governor. What about the issue of or the possibility of some kind of phased-in reduction in increments, how do you feel about that, like maybe 5 percent and then maybe 10 percent? 126 02/16/05 - WHOLE - 05007, 05008, 040767

A percent drop in it?

Phase it 5 out. If we're trying to reduce this tax, how 6 would you feel about doing it in some 7 phased-in way? 8

Well, depending on 9 the pace of reduction. We would be likely 10 encouraged. And I do believe that that is part and parcel of the outline; is it not?

Absolutely. Thank you, Madam President

That would be sound.

Thank you.

Thank you. Are there any other questions or comments from Members of the Committee? The Chair recognizes Councilman DiCicco.

Thank you, Madam Chair. Good afternoon, Governor Schweiker. In your testimony on you speak of the parking tax and you say that 127 02/16/05 - WHOLE - 05007, 05008, 040767 "Most would agree that the hospitality industry has been a source of growth in our economy over the past decade." What other business entity when we think of Philadelphia could we say is a growth industry? I mean, we have the medical institutions which are here. What I'm getting at is -- I was at a breakfast meeting a couple days ago with some developers and there was an economist who was there speaking about the regional economy, national economy, and he made a point I found quite interesting. I'll try to paraphrase him. He said, when you look at the national trend and a declining growth nationally, sometimes Philadelphia doesn't factor into that because we really don't have any major industry that is affected on a national level, for the most part. I mean, there are small cottage industries that may have some connection to what happens with General Motors or Chrysler Corporation, but --

Where they take a big hit when there's a downturn. 128 02/16/05 - WHOLE - 05007, 05008, 040767

Right. We don't take that big of a hit, which is a good thing but --

We used to be that way.

We were. We're no longer there now. But on the flip side of it, the bad thing is that we don't have any industry or industries that are that global that we could sustain some decline in other areas but yet still stay above the water. So for me, in my opinion -- that's why I'm asking you -- aside from the hospitality industry, we really don't have a major industry, correct me if I'm wrong, that we can look to as far as growth.

Well, with all due respect, I'm going to quarrel with you on that.

I'm trying to be argumentative, I'm just trying to get to a point -- maybe I'm wrong and I'd like some clarification on that. 129 02/16/05 - WHOLE - 05007, 05008, 040767

Part of the Chamber's job is to create an economic literacy about where is the growth. Put it to you this way, after Boston and San Diego when it comes to biotech and life sciences, there is no region more splendid than ours. A case in point, there's only two regions in the country with four national cancer institute centers. The reason I mention that is, one, we have the distinction; and two, the medical and commercial good that comes from that research begotten by NCICs is immeasurable and creates companies and jobs. We don't know it all the time because we don't follow the chain of events. But there's a big economic payoff there. And so to answer your question, I happen to believe that biotech and life sciences and big pharma, it is an industry sector that will enjoy accelerated growth. In fact, we can prove that it is. 80 percent of the world's pharma companies are within a 25-minute ride of us right here. I mentioned -- 130 02/16/05 - WHOLE - 05007, 05008, 040767

But they're not Philadelphia-based.

Many Philadelphians work there, though. To some extent, we are restricted sometimes by our perspective and believe the City is in it alone, that the economic well-being the City and its residents is tied only to what goes on economically within the City limits. It's not true. It's not accurate. And the unit of competition in this day and age, Councilman, is the region, not a City along. And I'll venture to say that an awful lot of the employees in those businesses, whether big like GSK to smaller firms that are around and have been begotten by the University City Science Center are employing Philadelphians. So it is growing, and I think we can demonstrate that. I might tell you, the largest recipient NIH funding, National Institute of Health funding in the country is just a few miles west of here at the University of Pennsylvania. And, friends, it's not just a 131 02/16/05 - WHOLE - 05007, 05008, 040767 remark about university research. Not far removed from that research are start-ups, commercialization, companies, jobs and paychecks. So you may see white robes, but business people ultimately see big paychecks in those white robe pockets. They're there.

And I appreciate your explanation. Maybe you're misunderstanding where I'm going with this. And I appreciate the work that the Chamber does not only for Philadelphia but for the region. But we're dealing with issues on tax reduction that will apply to Philadelphia and what we can do to keep businesses here and encourage businesses to move in. No 17 disrespect to the outlying areas. I mean the gentleman sitting to your left is a perfect example. Fifty-one feet away from the City borders is where he set up his business. How do we make a gentleman like him and others come over to the other side 51 feet the other way? So in that context, what I was saying is that as far as I can see, the growth 132 02/16/05 - WHOLE - 05007, 05008, 040767 industry, if not the top growth industry, it's probably up there in the top three is the hospitality industry. And that's my lead in to the next part of my question about the parking tax. The growth industry for the most part one of the top three is hospitality. The negative effect is what I'm asking for. What do you perceive as a negative effect on the hospitality industry as a result of any increase in the parking tax? Because on the one hand we're saying we're going to reduce your taxes here but we're going to raise them somewhere else. And most of the people who work in the hospitality industry in Philadelphia, I think it's something like 85 percent are Philadelphians. So I just wanted a little bit more detail, if you can, elaborate a little bit more on what your opinion is about the parking tax.

I think it slows retail activity. And certainly for a few businesses, the idea of higher parking tax means that they may not buy the tickets to the 133 02/16/05 - WHOLE - 05007, 05008, 040767 games. And so you damage -- you lower the prospect of the City collecting amusement tax revenue or the liquor by the drink tax. I mean, someone goes in to have a bottle of beer or someone goes in to have a drink, it's that prospect, I think, is diminished if they've got to go and pay a higher parking tax. So probably the easiest thing to do is just take a look at some of the folks -- perhaps a woman buying a dress at the King of Prussia Mall on Saturday and gets it for 200 bucks. And in the City, I know it's not going to be 200, but that's a whole other matter. The parking tax/surcharge, even though it's not a surcharge per se, they're going to pay 17 bucks just to park their car. So the dress 18 has gone up by 10 percent. So the question 19 is, is there any question that the fate that 20 awaits a bigger parking tax is lessened retail activity. And the place is cranking. I mean, some neighborhood streets are just cranking. And I think if you talk to restauranteurs, I think depending on the restaurant, take a look 134 02/16/05 - WHOLE - 05007, 05008, 040767 at suburban billing, maybe 50, 60 percent in some of these places. You could cut that down if all of a sudden for someone to take your keys and put it in a parking spot, they're out 20, they're going to rethink the idea of going in to have dinner some night..

Fortunately, at least for me, I haven't heard anything from the bar owners, restauranteurs in the City about this tax. I've been hearing from, obviously, the managers and operators because that's their business. But I think it would be important for them to speak out a little bit more. Them, meaning the restauranteurs and tavern owners about what they perceive as the negative impact on their business if this parking tax were to pass.

If I can mention one other thing, Councilman. On June 19th, if I could just mention this to your question about what industries are burgeoning. This biotech and life sciences, June 19th to the 21st, 20,000 of the world's leaders, entrepreneurs researches, technologists, venture 135 02/16/05 - WHOLE - 05007, 05008, 040767 capitalists, the entire leadership corps of that worldwide industry is coming here. They were in San Francisco last year. They had 18,000; 20,000 coming here. This is an example Select Greater Philadelphia and the industry and we have to turn out like we did for the Republican Convention, maybe not to that scale, but to be welcoming to these folks because they need investment ultimately and attention for our region and city and jobs for your constituents. And as I said, this isn't like having 20,000 chiefs of police come in who are looking to eat dinner every night for three nights. These are people who move operations, capital, and ideas around the planet, and they're coming here. And so enlighten regions and cities have to have their act together, and that what Select, in part, is meant to do. But that is an example. I think it's a confirmation that we are a hidden jewel as far as that industry that they've chosen to come here and says it's going to grow and even more.

Just the other 136 02/16/05 - WHOLE - 05007, 05008, 040767 morning, I expressed my concern that even with the best intentions when we talk about under the Administration's plan to reduce the gross receipts tax, you're still looking at 2018. I just can't imagine like waiting years to 7 get the tax down to the level they're 8 proposing. I mean, that's a lifetime. 9

Some of these folks 10 are seeing a mixed bag. 11

I will 12 certainly be retired by then. 13

Maybe you're not going to do it this spring, hopefully in springs to come. You know, the Governor deserves some credit, Governor Rendell, for expanding and then operating a loss carry forward. I don't have to get into the economics of it, but it just makes these businesses that -- according to the pro forma this is what happens when you're trying to discover new therapies and new drugs. They're going to lose money. And if they can carry forward those operating losses and diminish their tax obligation, they can live with some 137 02/16/05 - WHOLE - 05007, 05008, 040767 of that. So it's a mixed bag. They may see the net piece of the BPT as unattractive, but they see a Governor going to bat for that. That helps. It's kind of a mixed bag.

Thank you. Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Good after, Governor. One comment and one question. First, thank you for your testimony and your participation and strong leadership in representing the variety of business sectors, small, medium, and large businesses throughout Philadelphia and the region. And I appreciate your continued support and efforts to try to change the onerous tax system in Philadelphia, which at times is stifling to growth and opportunity and making sure that people have jobs here, well-paying jobs here in the City. 138 02/16/05 - WHOLE - 05007, 05008, 040767 I did want to ask you, with regard to the measures in front of us, the Administration tax bill, in essence, covers Fiscal Year 2006 with, I would acknowledge, a significant reduction in the gross receipts portion of the business privilege tax; but by the legislation, it is only for one year. The other measure, and I think Councilman DiCicco is certainly correct at least in that bill, I have not seen anything that takes the tax out to 2018, but for Bill 767 has a much longer schedule but it lays out what those reductions would be on a year-by-year basis. I'd like to get your perspective and certainly the perception by both the local, regional, if not national business community on the choice between a significant one-year, but one-year-only cut, versus longer term schedule.

The second.

I'm sorry?

I think they prefer 040767 is the Bill number.

Is that 139 02/16/05 - WHOLE - 05007, 05008, 040767 primarily based on you at least know where things are going in a scheduled fashion?

I probably could not adequately voice the varied reactions on why they prefer it, but I do think -- in a moment I may ask Stu to comment, if I may, because he is a tax expert and specialist. That I think the certainty that is part and parcel of that model is encouraging to business people and investors. They know their costs and, more importantly, they know it's going down. You're looking at someone, whether it's in another part of the country or in the region, my job is to sell the promise, so to speak, of the region and the City. When I can talk and say, "Well, the wage tax is going down, it is soon to experience a downward trend," it perks up interest. And likewise, if you can talk about the BPT ultimately disappearing and with the certainty that Council Bill 040767 exemplifies, then it's just attractive. Stu, do you want to add something there? 140 02/16/05 - WHOLE - 05007, 05008, 040767

For the record, my name is Stuart Weintraub, and I am one of the co-chairs for the Chamber's State and Local Tax Committee. I would have to concur with Governor Schweiker just said. When I receive calls almost weekly from clients or perspective clients who are making business decisions on where to locate or expand their businesses and we start talking about the tax model in Pennsylvania, and when I tell them for Pennsylvania purposes the capital stock tax is being phased out over a specific schedule, they're very encouraged by that. When I tell them that in Philadelphia we have a specific taxes on track and people are talking about reducing the tax, the question I get is, "Well, how certain is it that it's going to happen?" And when I say, "I can't answer that because it still subject to this process and no one knows what will happen, I get very bad reactions from them. So the idea of certainty is a key component of a business person's decision of expanding or relocating the business. 141 02/16/05 - WHOLE - 05007, 05008, 040767

Councilman Nutter, Mike Pearson is a business person.

This is also an important issue small and mid-size businesses. As we expand and as we alluded to earlier, capital is an issue, you're doing a five-year pro forma projecting what your business is going to be like. Banks like certainty. Any funding source likes certainty. So if I can put together a plan and I can justify my expansion, which in my case may be another 40 or 50 jobs, the certainty of looking at a five-year projection and knowing what my costs are going to be, adds value to that proposal that I've just given to whatever banking representative I'm speaking to.

Thank you. One last question. And if you don't have a complete response, certainly when you get back to the shop. One of the things that happened, I guess, about 12, 13 years ago, there was an effort by the Administration at that time to not only try to stabilize the City's finances -- we've come a long way and 142 02/16/05 - WHOLE - 05007, 05008, 040767 some of the these things do operate in a bit of a circular fashion. But in the early '90s, not only did we need to stabilize our finances -- obviously, we weren't talking about tax cuts. The City had just come off of a series of tax increases. But the opportunity to utilize additional expertise in looking at management efficiencies, productivity, opportunities, ways that have been shown not only to grow the revenues but cut the cost. Now, obviously, a significant part of the cost of government are in our personnel. And there's already been a significant amount of uncomfortable shake-up in that regard, but there are systems and processes and functions that we perform, and I wonder if the Chamber would at least entertain the prospect of working with us on identifying ways that we can either do things better or cheaper, not primarily on the personnel side, but in the cost of goods and services and how we spend the precious dollars that we have. Could you give us any thought or suggestions on how we might gain some of the expertise of 143 02/16/05 - WHOLE - 05007, 05008, 040767 people in the business community to help us on the business side of government?

Yes. You could consider it to be a standing commitment of the organization that I represent to provide the expertise, individuals, candidates for commission and advisory, whatever you want to call it, to help in the endeavor to make more efficient the operation of City government. I mean, there are any number of opportunities to make that connection, and there are a number of measured steps that could be considered. Some that I know have been discussed in this Chamber that certainly bring about the efficiencies that you cite, and I do believe would serve to lower the expense pressures that make it tough to balance current revenues with current expenditures; and we'd been glad to do that. We've got plenty of thoughts. I mean, I had someone stop me in the hallway here, "Hey, talk about overtime. Talk about overtime." So it's not our intention to speak at any length about that, but that was one of those some years back observers within 144 02/16/05 - WHOLE - 05007, 05008, 040767 government said couldn't be done, but I do believe aren't we down around 122 million, I think, is what we're coming out of this operating year with? It's a reduction from 136, and I say it not so much to squabble over numbers, I'm just saying that someone said it couldn't be done. It is being done.

And I think there have certainly been a number of efforts by this Administration to deal with overtime issues. And I think it should be stated at the same time for the record that in many instances or under certain situations it is beneficial to the City to pay overtime to a worker that is already on the workforce as opposed to bringing in additional people. There's an additional cost to having a new employee as opposed to paying overtime to the person that is there.

At times. It has to be discussed categorically. There are times when it makes sense.

So at times, overtime gets the highlighted negative 145 02/16/05 - WHOLE - 05007, 05008, 040767 attention, whereas from a management standpoint, sometimes overtime is a better use of the dollars in certain situations. Thank you for the agreement to be supportive, and I'd like to follow-up with you on that.

Wonderful.

Thank you. Thank you, Madam Chair.

You're welcome. The Chair recognizes Councilman Kenney.

Thank you, Madam President. Thank you for your testimony and for your continued diligence in addressing this issue year after year, and our successes have been largely in part of your help with framing the issue. Part of the philosophical issue of this tax reduction in many ways for me is government will not, as Councilman Nutter has talked about, find the efficiencies, do things 146 02/16/05 - WHOLE - 05007, 05008, 040767 differently, try to reduce the cost of government unless in some ways they're forced to do it. And reducing the amount of revenue that the government, any government, has at is disposal to spend forces the hand of the government and the community together to figure out different ways of doing things and providing services. And that's why in some way it's frustrating to listen to testimony about the support now for reducing the gross receipts portion of the business privilege tax while at the same time requesting an increase in parking taxes so that we can continue to operate in a lifestyle we've become accustomed to. Businesses don't do it that way. And I understand that government has a much different mission than business. But it's still not antithetical for government to try to work in an efficient fashion as it is in business. We have other social service needs that we have to provide for and other issues we have to deal with. But if there's no tax base left and there's no opportunity to employ people -- and when I look at that chart, it's 147 02/16/05 - WHOLE - 05007, 05008, 040767 the most frightening chart of all. And while I recognize Chamber's need to market this region, and it is a jewel of a region and probably an untapped jewel of a region, there's this problem in the middle of it. And the problem in the middle of it is the one we face every day because when we're on the same list in the '90s, as Philadelphia and Detroit are the only two major cities in the country that lost net population in that decade. I don't want to be on that list. I like being on the list where the Cezanne exhibit, the three cities, Paris, London and Philadelphia. I like being on that list better. But unless we fix this tax issue and are forced to take the necessary steps to fix the government's efficiencies because we don't have any revenue to do anything else, it's the only way the government is going to change. And we need you guys to continue. Here's what I'd like you guys to think about it. I was disappointed today from testimony from the Administration that in their tax revenue collection projection they 148 02/16/05 - WHOLE - 05007, 05008, 040767 put no factor in for job growth. None. So that the view we get in the testimony today was skewed by the fact that we're going to get less revenue in, we're going to be collecting less revenue in the next 5, 7, years but 7 never factored in any job growth at all. Is 8 there some formula or some process that you 9 could employ to try to project -- and I get 10 it's not an exact science. That try to project what job growth there would be as a result of this incremental but definite yearly tax reduction? Again, I'm not an economist. I'm not an academic. I don't really have the skills to do that and I don't think our staffs do either. But if is there some way to kind of counter the argument that this tax reduction and future tax reductions is simply continuing a negative result -- I don't think it's realistic it is a negative result. I think it's a positive result, but we need to have some type of figures to kind of bolster that philosophy.

I'm going to have 149 02/16/05 - WHOLE - 05007, 05008, 040767 Stu comment in a second. Is it possible to produce a dependable reference as far as job growth in the future? Yeah, we can do that.

I think it would juxtapose the testimony of the Administration that somehow what we're doing here is not in the best interest of growing jobs in the City. And I think it's wrong, their position. But I do think that we need something to quantify potentially what we're looking at if we take the steps that's being recommended.

Councilman Kenney, if I can just more particularly respond to your question. Two and a half years ago, the voters of Philadelphia approved an amendment to the Home Rule Charter that this Council passed creating a Tax Reform Commission I was privileged to sit as one of the Commission members on that Commission. When we go to the report that we issued in November of 2003, it was either the second or third volume of that report -- I forget which one it was -- was included a 150 02/16/05 - WHOLE - 05007, 05008, 040767 report prepared by E Consult, a group that is well-known to this Council because this Council has used them in the past to provide this type of economic data in which they analyzed the proposals of the Tax Reform Commission and looked at the type of job growth that the recommendations of the Commission would generate. So E Consult has done that kind of an analysis and is already part of the Tax Reform Commission report.

Governor.

I would just say, as you began to amplify your question, what popped into mind was saying I saw on the wall halls of government by a budget director some years of some representations that said "Nothing stimulates the imagination like a good budget cut." So I think you make a fair point and probably voice the sentiments of an awful lot of people that they'd like to see more aggressiveness underlie the efforts to balance the budget and reduce taxes and want to take the prudent step that it requires to engender job growth, which I think is your 151 02/16/05 - WHOLE - 05007, 05008, 040767 point. So we'll take a stab at it. You know, we certainly -- this is not a place for deep economic discussions. We don't have the time for that and I realize that, but --

Maybe it should be, though.

It always should be, not only because of the humanitarian dimensions of what a municipal government means to the well-being people but ultimately to the well-being of businesses and making sure that those people and residents have decent jobs and paychecks. That being said, I would only point to the chart just a few feet from Council President Verna's shoulder and see other than that stretch from '85 through about '89 this City is seeing decline in job growth after 1969. I don't think you need to be schooled in the Samuelson model of economics to know it's the wrong direction. And does anyone quarrel with the notion that there's a connection between an intimidating tax model and lack investment and a result in 152 02/16/05 - WHOLE - 05007, 05008, 040767 job growth? I don't think so.

There was today. I think some of the testimony today from the Administration was basically, you know, the only reason -- taxes are not the only reason that that line is going that way. But I think taxes is probably the primary reason the line is going that way.

You can quarrel over the factors, the loads of it as to what causing it, but the point is this is illustrative of economic decline. Now, we've got growth in some little, as Councilman DiCicco said, cottage industries and we're grateful for that. But we want to hold on to those firms. They get their shot here and are incubated, to use the fancy term, and then all of a sudden they see what it takes to be an ongoing business and they head north, south, east and west literally. And we want to keep them here, I think they want to do just that.

Just one comment on the parking tax. I liken the parking tax recommendation to what happens at SEPTA, that 153 02/16/05 - WHOLE - 05007, 05008, 040767 every time there's a fare increase, a certain segment of the SEPTA ridership decide that they no longer want to use the system and hop back in their cars. Every time we make it more inconvenient for people to come to the City and more aggravating, because there's nothing more aggravating than coming in the City, using one of our hospital facilities and being there two or three hours and come out and cost you $20 to park your car, to make that worse, to me, is absolutely nonsensical. And if you read Philadelphia Magazine and some of the other regional magazines, you see the growth of restaurant industry in the suburbs now. There are high-end, high-class, well-known restaurants, highly-rated restaurants in the surrounded counties growing every day with free parking. And whether that's coming in to a cultural event, coming on to a show, coming in to a restaurant, coming in to shop, which is hardly happening at all these days because of, again, free parking at the malls, to make it even more inconvenient and more aggravating for 154 02/16/05 - WHOLE - 05007, 05008, 040767 suburbanites and locals to come here with her car is just insane. And I see no benefit to it whatsoever other than allowing the government to continue living the life it's become accustomed to by cutting one tax and raising another.