Committee Hearing, February 16, 2005

Thank you, Councilman. The Chair recognizes Councilman Cohen.

Thank you, Madam President. First, let me say I'm concerned by the fact that for the first time during the day there is a real discussion going on about the advisability of this bill. Up until now, the testimony has been either proposals supporting it or by individual businesses that are adversely affect. But the panel gathered before us, I know from my personal experience, knows more about City government, more about what proper tax policy ought to be for citizens than any group that's testified so far today. They represent a broad section of opinion, and I want to ask the President to consider what we can do. Again, I find they're at the tail end of the testimony. All 290 02/16/05 - WHOLE - 05007, 05008, 040767 day long they've --

Councilman, they're not --

Please, Madam President. I'm not making any criticism of your office. But I'm saying we've got to reconsider how we schedule things, because right now what's happening is we're talking to ourselves. The only people here are people opposed to this bill, and the other people are not being exposed to testimony which I believe is very relevant to the issue. And I would like to ask that if this group feels that it needs more time later to discuss this at a time early, that we ought to recognize their request. I'm concerned that what, to me, is the soundest view being presented all day long is occurring at the end of day. Now, I'm told that our procedure, and we try to be fair here, is that people are named in the order in which they're called for discussions. But the fact that is that when a sponsor of a bill, he is in the best or she is in the best position to know when the hearing 291 02/16/05 - WHOLE - 05007, 05008, 040767 is going to be held first and to occupy the prime seats. It takes a while before the public gets to know what's going on and request a discussion at the table. So I'm just asking the President if we can reconsider some methods of scheduling so what, to me, is the important testimony does not take place in a room where we're talking to the people who just believe us. All day long we've listened to those that are trying to convince us of something we believe is bad and wrong. But when it comes time for us to express our concern, we talk to ourselves here. That's not the purpose of public hearings. The purpose of public hearings is to have an exchange of views, let each side try to influence the other and that's how we'll know better. Now, I'm having great difficulty understanding the difference between the proposals in this bill and the President Bush give-away of the trillion dollars of taxes to the rich and to businesses. What's the difference between making a tax cut later and 292 02/16/05 - WHOLE - 05007, 05008, 040767 giving people back tax money, which no longer is their money but you call it their money just to make it look better, and cutting the tax in advance? I can't understand any difference between this proposal that exists today that's being argued for in this bill and the Bush give-away bill so that he now is in a position -- the President says we have no 10 money for domestic needs or for things that are not absolutely essential as he sees it. He's stripped the treasury of the ability to do services. I find the same thing happening, because what happens when these taxes get cut is nothing happens to business. Nobody says we're going to cut down on economic building of any kind. In fact, they use the cut as a further reason to give more money to economics, but what they begin to cut is human services. The fact that the cutting already has occurred to the point where it seemed reasonable to suggest to somebody and seemed reasonable to the Mayor to accept this view about the City giving up, for example, bulk 293 02/16/05 - WHOLE - 05007, 05008, 040767 removal. " And they say it to older people who have no means of doing anything and become victimized by scavengers or else we're going to have our lots loaded with refrigerators that are going to be dangerous to the lives of kids. Now, for a City to even propose that is out of this world. Now, it seems to me that we want to reschedule things differently, but I'd like somebody to explain to me the difference between Bush's give-away to the rich, to the business corporations, the trillion dollars in taxes already collected and our refusing to collect money from business. I can't see any difference between the two. If any of you have any thoughts on that, I'd love to hear 294 02/16/05 - WHOLE - 05007, 05008, 040767 them. Tom Cronin, let me address you first.

Let me just say that recently I just down loaded our international's research on the proposed 2006 Bush budget in every category, whether it's worker training, whether it's housing, whether it's medicine. It is just devastating. And the part of it that gets to me is, what is the impact? I think another question has to be raised is if percent of that Bush budget 14 goes through, is enacted, the 2006 budget, 15 what is going to be the impact on the City of 16 Philadelphia? Because there is going to be an 17 impact. 18 At the same time that you continue 19 to cut taxes, what's going to happen? Well, 20 in our opinion, again, based on the analysis 21 not that I did but other people did it's going 22 to devastate the City of Philadelphia in so 23 many different ways. It is unbelievable. 24 I'll be more than happy to share that analysis 25 with you. I've raised it with the AFL/CIO, 295 02/16/05 - WHOLE - 05007, 05008, 040767 saying not only should we be here and being critical, we ought to be in Washington and being critical about this, because this is taking our country down the tubes. You know, whether it's transportation that we're facing again very shortly or all of these other things, housing, some of the these other programs that different Councilpeople here involved with. It's just devastating. And there isn't much of a difference. To me, what seems to be a Bush program that's being enacted all over the country, and it's insane. Nobody wants to pay, but everybody wants the services. How are you going to do that? And people say, well, you know what, if we cut back on overtime. I heard that being said earlier. Well, why is there overtime? Why is there? Well, one of the reason is there's not enough people because one of the Councilpeople said it right, that if you begin hire a new employee, there's certain cost to that. Maybe you have to pay healthcare. Somebody else talked about -- one of the business people 296 02/16/05 - WHOLE - 05007, 05008, 040767 talked about personnel cost being so high. Well, what are the health and welfare care costs because we're not getting rich in terms of the wages that we're picking up in the City of Philadelphia. And those wages that we are getting through hard bargaining, as you all know here, are being eaten up and taken away by the healthcare costs which we have very, very little control over. In fact, you guys have said that we're the best run health and welfare operation in the City of Philadelphia in terms of how efficient we are.

The facts very clear and the City Administration has recognized that fact. But what I'm concerned about is I think that there is an idea in the United States to go back to the pre New Deal days. I think the President seeks to dismantle every element of service to the human people and to go back where each of us have to depend on our own resources to manage to live. And the New Deal is being dismantled step by step. Social Security in the process of being endangered 297 02/16/05 - WHOLE - 05007, 05008, 040767 and threatened. Now, I think the same thing is happening here at a local level. And to my colleagues from the Republican Party locally, I appreciate what Councilman Kelly said before. I think he's dedicated to maintaining services and I think we've all got to ban together apart from parties, work across party lines to work together to see that human services are maintain and where necessary are increased. The thought of moving back on human services is a terrible thought, and I want to fight that every inch of the way. Therefore, I am led to the conclusion that this bill is premised upon the same economic theories that govern President Bush in his give-away of the tax trillion dollars that he gave away in order to have an excuse to people that there is no money for anything for human services. And that's the reason I've been waiting all day to hear for explain differently, but I don't see any difference between the two. Thank you, Madam President. 298 02/16/05 - WHOLE - 05007, 05008, 040767

You're welcome, sir. Who is going to testify next? Please identify yourself for the record.

Council President Verna, thank you for the opportunity to speak. My name is Sharon ward. I'm the child care policy director and coordinator of advocacy for Philadelphia's Citizens for Children and Youth and I am a co-chair of One Philadelphia. To PCCY stands in opposition to bill 14 040767 which would completely eliminate the City's business privilege tax by 2017. We share with all of you a belief in the need strengthen the City's economy, but we found total elimination of the BPT as a misguided approach which we fear with impede rather than enable the City to move forward our shared goal. The proposal is too costly and will lead to the continual erosion of City services and diminish the quality of life for residents, workers, and businesses. There is strong evidence to suggest that elimination of 299 02/16/05 - WHOLE - 05007, 05008, 040767 the taxes will not produce the economic impact that proponents claim. The City's economy is complex, its problems are complex, the impediments to economic grown multifaceted. Eliminating the business privilege tax will do little to improve the City's economy and will instead rob the City of the resources it needs to support policies that will over time grow the economy and improve the quality of life. The first real issues s are tax cut real strategy to economic growth. Councilmembers have received a copy of a book by Dr. Robert Lynch, a Maryland economist called, "Rethinking Growth Strategies," and Dr. Lynch is one of a growing number or economists who have challenged the effectiveness orthodoxy of tax cuts as an approach to business development. Let me just highlight a couple of things in it. Dr. Lynch concludes that state and local taxes are a very small portion of bliss cost less than percent. 5 percent, it looks very high. But when you put 300 02/16/05 - WHOLE - 05007, 05008, 040767 that into the total cost of doing business which include a lot of things, including services like security services and other, it's a very percentage of business cost. He also argues that the things that really have generated economic development in cities are spending money, not reducing our ability to do so. Investments in public service such as public safety, education, and infrastructure are a better way to go. I just want to remind you that Andy Castle, columnist for the Philadelphia Inquirer just last week quoted another economist from another university saying essentially the same thing. Businesses don't make decisions based on their tax burden and the quality of investments in services really make a big difference in bringing people into a municipality. Dr. Lynch came at this like other economists thinking that reducing taxes stimulated economic growth. He was surprised and so were most economists to learn that that didn't happen. The further analysis showed 301 02/16/05 - WHOLE - 05007, 05008, 040767 why. When cities cut taxes, they cut services and the resulting shrinkage in economic investment undermined the economic growth. He argues that current economic analysis, and I add E Consult's analysis for the Tax Reform Commission, will only find a statistically significant effect on business activity if public service levels are held or officially constant. Well, we know in the City of Philadelphia public service levels are not held constant. They're diminishing. In the economist world, you can make a neat assumption and make a neat model, the strategy works. In the real world, declining tax revenues results in declining services. Let's say for argument sake that Philadelphia can maintain service levels. Timothy Bartic (ph) is a senior economist for the Upjohn Institute found that a 10 reduction in business taxes will generate a 2 1/2 percent increase in business activity. So what does that mean for the City? Well consider it this way, you set aside $10,000 302 02/16/05 - WHOLE - 05007, 05008, 040767 for your child's college education.

And when it's time to send Junior off to school, you're left with $2500. Not a good investment. In the end, you have to find the over $7500. Another way to put it is this: For every dollar in new economic growth that will come in from cutting taxes, the City of Philadelphia is going to spend $3. We've talked and heard a lot about efficiency today. How efficient is it to spend $3 to make one dollar? We think not. In Philadelphia's case, we'll make up the difference in two ways, through further erosion in services and quality of life or through the increase in property taxes for our residents. Dr. Lynch makes one final point that I really want to highlight because it's relevant today. Empirical evidence looking at studies what happened when cities did cut taxes found that within metropolitan regions like Philadelphia and Montgomery County that tax cuts were effective in moving businesses from low-education, low-growth communities to high-education, high-growth communities like 303 02/16/05 - WHOLE - 05007, 05008, 040767 Lower Merion, but the reverse isn't true. In short, tax cut strategies haven't been successful in moving businesses from the suburbs to the cities. While individual businesses might suggest that declining taxes will draw them over the line from City Line Avenue, the evidence suggests that they just don't make leap. I also want to point out that I looked at the chart that Governor Schweiker had put up earlier today that showed comparison between job growth in the City of Philadelphia and job growth in the surrounding counties. I spent years in Albany, New 16 York, including 8 as a member of City Council 17 there, and I can tell you that if you put that 18 chart in the City Council Chambers in Albany, 19 you would see exactly the same thing. Jobs 20 went down in the city, growth occurred in suburbs. And Albany has no wage tax and it has no business tax. The point is that the problems of older cities are unrelated to their tax structure. The second question I want to 304 02/16/05 - WHOLE - 05007, 05008, 040767 address, and then I'll move on and let our other speakers talk, is really a question about whether or not we can afford to eliminate taxes on business. I just want to point out the business privilege tax will generate about $309 million. That's 8 percent of all locally generated revenue and 9 that's greater than the budgets of the Free 10 Library, the Fire Department, Fairmount Park 11 and the Streets Department. Even the gradual 12 phase-out of this tax will leave the City 13 scrambling just to pay for the cost of those 14 services and leave no room to meet emerging needs. One of the questions that's been asked is how many jobs have we lost in the public sector. According to the US Department of Labor, City of Philadelphia has lost 10,000 public sector jobs since 1994. We've heard an argument today that the decline in services isn't related to previous tax cuts, but the City has already spent more than a billion dollars in tax cuts and it seems we have very little to show for 305 02/16/05 - WHOLE - 05007, 05008, 040767 it. So what's the impact on our budget? New classes for police and fire service have been suspended. And when constituents ask you why the City is no longer recruiting and training new first responders, it would be fair to say to them, it's because we need to pay for the tax cuts. The greatest impact of the tax cuts will be felt on the City's property owners. The tax cut proponents acknowledge that their plan is a shift, a shift in the cost of paying for City services from businesses to property tax owners. Those taxes are expected to increase 40 to 50 percent, maybe more, over the life of the plan. When seniors and lower income families ask you why their property taxes are increasing, it would be fair to tell them, it's because we're paying for the tax cuts.

In 2004, the majority of Pennsylvania counties had to raise local property taxes linking the need for additional revenue to fund mandated services like we've heard about today and to address shrinking 306 02/16/05 - WHOLE - 05007, 05008, 040767 federal resources. Yet under this bill, we have no ability to increase taxes, and every dollar that we have will go to pay for the tax cuts. The federal budget -- and this is to address Councilman Cohen's question. The federal budget for 2006 and beyond includes cuts to housing, Amtrak, education, child care, head start, a total 158 programs. Congressional budget committees are expected to recommend cuts in entitlement programs like Medicaid and food stamps and to put caps on other domestic programs. Why? To pay for their tax cuts. There really is no difference in what's happening at the federal level, the state level, or in Philadelphia. At every level, federal, state and local businesses want out of taxes. They don't want to pay for the shared cost supporting our nation, our state, or our City. In some states like Iowa, business taxes are so low, there's barely anything to cut, but lawmakers are still looking for ways to cut taxes. Reducing business taxes is an idealogical strategy to 307 02/16/05 - WHOLE - 05007, 05008, 040767 reduce the size of government. It's not a sound approach to economic development and it's not fiscally responsible. One Philadelphia believes the City overall economic development policy should strengthen our economy, create quality jobs, and build a livable neighborhood. But we think the tax debate has been taking place backwards. We have five goals for this year that we believe the Council and City ought to be engaged in. First, we think the debate shouldn't be limited to simplistic solutions around tax cuts. We want to broaden the debate about the City's future to include services, investments, and tax fairness. Second, we need to engage the community in discussions about improving the environment for residents and for businesses. Third, we need to have an accurate and forthright discussion and examination of the impact of revenue reductions on property taxes and services. Finally, we need to address 308 02/16/05 - WHOLE - 05007, 05008, 040767 alternatives. Strategy investment and services and improvements will do a better job, we believe, in building the City's economy. We believe that we should stop enactment of the tax cuts until we've had that dialog, we've looked at the alternatives and we understand the impact. I want to thank you on behalf PCCY and One Philadelphia and urge you to vote against Bill 676.

Thank you very much. (Applause.)

The Chair recognizes Councilman Kenney.

Thank you, Madam President. Is it fair to characterize your testimony that you believe that the main reason that someone decides to stay in a city or leave a city is the level of services?

I think if you talked to people who left the City of Philadelphia, many 309 02/16/05 - WHOLE - 05007, 05008, 040767 of them would tell you it's because of services, mainly schools, for example.

So if I follow that to its logical conclusion, it would probably be in our best interest, in your opinion, to raise taxes and provide levels of services that are unheard of around the region and everybody will come back.

Well, I think what you need to do is be fiscally responsible. And I think what you need to do is to have balance. I think it's pretty clear that people make decisions on a complex set of things. They make their decisions on public safety, they make their decisions on quality neighborhoods, they make their decisions on the cost, whether it's an individual or a business. And I think you just have to address all of those things.

But if the level of services are not adequate now to retain or attract citizens, then we have to improve the level of services. And the only way we do that is by raising more revenue, i.e., taxes in order to do that. I mean, that's the 310 02/16/05 - WHOLE - 05007, 05008, 040767 logical conclusion. If I decide to leave the City because I don't like the schools and the schools need more money, I should raise the real estate tax to provide more money for the schools and then therefore I would stay.

I think that investment strategies economist would say work, and I can't tell you where you're going to get that money from, but there are a variety of examples of states and cities who made investments in infrastructure and workforce development, and those are things that actually generated a better return.

But didn't we raise wage, real estate, and business taxes for a 20, 25-year period and saw a commensurate loss of about a half million people? I'm willing to accept your premise, however, the facts would indicate otherwise because we raise taxes, provide services, and we still lost people. And now you're saying that by reducing the tax burden we're going to decrease services and therefore -- what do we 311 02/16/05 - WHOLE - 05007, 05008, 040767 need to do? At the end of your testimony, the only logical conclusion is I should raise taxes and have the best services there are in the region and everybody will move back in.

Well, let me just say this, I think that your linking between cutting taxes and cutting services is probably authentic, but --

That's not my link. I said earlier, the reason that we're in the service situation we're in now is not tax cut, it's run-away spending for five years. That's my personal opinion. It doesn't mean I'm speaking for -- I'm not speaking for any member of Council, I'm speaking for myself. I think we spent -- there's nobody up here complaining about the $100 million or more we were spending in overtime for police when Operation Safe Streets, which is a questionable program as to whether or not it was even successful, but nobody said, "Wait a minute. What are spending all that money there for? We should be spending it on schools or we should be 312 02/16/05 - WHOLE - 05007, 05008, 040767 spending it on other services."

I think, Councilman, what we're trying to say is that it's not such a simple proposition. People left the City of Philadelphia for a variety of reasons. One of the ways in which cities responded to try to address and that was to increase investment. And in some cases they've had success, and in some cases they haven't.

Increase investment means increase taxes?

Well, if you increase taxes and you spend it on putting police in neighborhoods so kids don't get shot, yeah, that's an increased investment --

But the problem was the investment we made in that particular -- the murder rate went up. We have to quantify the results at some point in time. The murder rate is higher after a hundred or more million dollars were spent. But that's not your problem or your issue because you didn't do it. My point is, at the end of your -- the conclusion I would have to raise is it 313 02/16/05 - WHOLE - 05007, 05008, 040767 would be okay for us to raise taxes to improve services because that would keep people here and attract people here.

I think what we're trying to say is that you need to maintain the quality of life for citizens and businesses because even if you eliminate all of the taxes, they won't stay.

Theoretically, you believe that if this was a tax-free city people would move?

I'm suggesting that if you eliminate all business taxes and you concomitantly reduce police services, don't pick up the trash, you will have no business taxes and you will have no businesses.

I think the purpose of us trying to fix the tax structure is to have more people employed in the private sector than we do now, and that's the problem. Employment is important, it's valued, and it's dignified, it's a good wage, and people make a living; however, I think when you have a city where the majority of people are employed in 314 02/16/05 - WHOLE - 05007, 05008, 040767 the public sector as opposed to the private sector, I think you have a recipe for disaster. And in this city, the largest employers, I think, are the University of Pennsylvania and the City of Philadelphia. And that is not a good formula for success.

I think, Councilman, that's true. But I do want to go back to what Governor Schweiker said earlier, which was part of this is a regional issue. If I work in the City of Philadelphia and jobs are created in Lower Merion and I work there, I still pay wage taxes here, so job growth outside the City can benefit the City. 16 percent of the residents of this City work in 17 other counties. 18

Job growth in 19 the City benefits the City too. 20

I think that that's true. 21 I'm simply saying that it's a somewhat more 22 complex issue. 23

Respectfully, I 24 think this comes down to a philosophical 25 difference in economics. There's one side 315 02/16/05 - WHOLE - 05007, 05008, 040767 that believes that raising revenue and spending it in a good way is the recipe for success; and the other side believes that giving business the ability to grow and expand and move here and employ people in the private sector to expand that tax base is the way to go too.

I think what we're saying is that we need to have a broader discussion because taxes may play a role in things, but services and the ability to fund those services play an equally important role. In fact, the evidence is such that we've seen that the taxes play less of a role than you have heard today.

The problem is -- I will agree with you on supply side philosophy it does not work nationally, because no one's moving to France because they don't like their federal tax rates or to Canada or to Mexico. However, I think in a local argument, I think supply side does work because it's easier to move across that City Line Avenue and the reap the benefit of having 316 02/16/05 - WHOLE - 05007, 05008, 040767 a better tax environment. And I think the supply side -- we need to be on a level playing field with them, and I don't think we're ever going to turn the corner unless we come back that way.

I think intuitively that's true, but the evidence of the economists who have looked at it have found that that's not as true as you might believe.

And there's probably an equal number on the other side. Okay, thank you.

Mr. Stein, how are you? Please identify yourself for the record.

I'm Jonathan Stein, general counsel at Community Legal Services and also a former member of the Tax Reform Commission. I strongly believe -- and I have copies of my written testimony which I won't read all of. I strongly that Bill 040767 is a fiscally imprudent measure and, although well-intended, would fail to achieve its 317 02/16/05 - WHOLE - 05007, 05008, 040767 objectives while depleting the City of needed revenues for essential services. Last Saturday I attended the funeral and memorial services at Greater Ebenezer Baptist Church of one of the noblest of anti-poverty and human rights warriors in our City's history, Louise Brookins. Mrs. Brookins was for the past 30 years the director of the Philadelphia and Pennsylvania Welfare Rights Organizations. She followed her father's counsel who advised, no man can ever ride your back if you don't bend over. And was especially for those in government the beacon shining her light on the needs of the least fortunate in our society. I was thinking that if Louise Brookins was here today and heard Mr. Schweiker and Brett Mandel and others speak earlier in the day, what would she say at this hour about the testimony she just heard and a proposal in this City Council to end any responsibility for business to pay their fair share for needed government services. Mrs. Brookins would have known that her own niece, 318 02/16/05 - WHOLE - 05007, 05008, 040767 a Philadelphia City Health Department employee with a distinguished 13-year record of service for the health needs of children and pregnant mothers had just three weeks ago been laid off due to City budget cutting. But I don't think Mrs. Brookins would have pressed upon you today this personal story from her own family. Rather, she would have asked broader questions that relate what is the purpose of our government, what kind of City do we really want to live in, and why have you been elected to your offices here? Ms. Brookins, if here, would have asked, how can you think of totally eliminating the business privilege tax when currently a health uninsured woman with suspected breast cancer may wait for up to three months to get a medical appointment at a City Health Department district right now? Ms. Brookins would ask, how can you think of totally eliminating the business privilege tax when currently it takes two to three months for the L&I Department to do a housing code inspection when there's a ceiling 319 02/16/05 - WHOLE - 05007, 05008, 040767 falling in, exposed wiring or lack of water, all of which threaten life and health; and when the L&I Department no longer take re-inspections of such houses to ensure violations are corrected? Ms. Brookins would ask, how could you think of totally eliminating the business privilege tax when currently library 10 branches are being closed in the mornings for 11 senior citizens and others and with no 12 professional librarians planned to ever staff 13 those branches? 14 Ms. Brookins would also ask, how can 15 you think of totally eliminating the business 16 privilege tax when currently in a 17 multi-billion-dollar City budget the City just 18 spends and spreads out $2 million to 225 arts 19 organizations when many of these are the only 20 ones serving the poorest areas of our City? And Ms. Brookins might finally ask, how can you think of eliminating the business privilege tax when we know, as acknowledged by the supply side economists who had advised the Tax Reform Commission that, quote, supply side 320 02/16/05 - WHOLE - 05007, 05008, 040767 effect of these tax cuts will surely be an increase in the real estate taxes? I'll repeat that, an increase real estate taxes that will come from these tax cuts paid for by the elderly on low fixed incomes and other homeowners in the City. Now these questions could continue. But the point it obvious. The state of current city services is so failing and so fragile that they're already on the edge of the precipice.

Do we seriously want to end a entire revenue stream to the City that ensures further declines in City services and the quality of life in the City? Have we so quickly forgotten the warnings of the advisors and Professor Inman at Wharton who advised the Tax Reform Commission that whatever hypothetical supply side benefits the City could reap from tax-cutting, all these benefits vanish when public service and infrastructures are weakened. Well, perhaps for some who do not need health centers for their cancer detection or do not need L&I to ensure that their water 321 02/16/05 - WHOLE - 05007, 05008, 040767 is flowing or their ceilings, they might argue that the means, that is the drying up of City revenues and the depleting of City services, is worth the end, that is assume job creation and economic development. Fair enough, this dream. But at least this rosy assumption should be subjected to our critical thinking and analysis. Unfortunately, these special interests in the City have heretofore monopolized this debate and prevented a fair and objective scrutiny of the tax cuts to economic development hypothesis. I saw this personally on the Tax Reform Commission when my request to obtain more objective research of the pros and cons of these tax cuts from academics outside the City were quietly deep-sixed by the Tax Commission. But it's not too late to hear another side and ponder whether or not in fact this tax-cutting emperor indeed wears no clothes. Professor Robert Lynch and Sharon Ward just said as one such voice and appended ed to my testimony is Op Ed published in the Inquirer last month -- his book has been 322 02/16/05 - WHOLE - 05007, 05008, 040767 distributed to all in City Council. And he says in summary is hundreds of studies confirm that local taxes are not a significant consideration when businesses decide where to locate and invest. More important, and this comes from businesses themselves, are availability of qualified workers, proximity to customers and business markets, and access to raw materials and supplies. Public services, he says, also matter, including schools, transportation, healthcare, police and fire protection, recreation and cultural amenities, and institution of higher learning. He reports that research shows that business may invest only a small part of a tax cut they receive and not necessarily in the City that gives them the tax cut. He concludes of the public spending reduction caused by the tax cut isn't necessarily replaced by private investment. And he suggests instead of wasting money on tax incentives and tax cuts, the city can invest them in real services and infrastructure that will really in the end support businesses in the City. 323 02/16/05 - WHOLE - 05007, 05008, 040767 So whether one looks to Professor Lynch's counsel or hears the voice of Mrs. Louise Brookins in this room, the ending of a business privilege tax would work against the whole purpose of having a government to protect people and maintain a decent quality of life in the City. And we urge that this bill does not get passed by the Council and that other means to promote business growth are pursued and studied by the City Council. Thank you.

Thank you very much. Our next witness, please. Good evening. Please identify yourself for the record.

My name is Tammy Gavitt, I am Secretary of the Philadelphia Chapter of NOW. I'm also the Chair of the Reproductive Rights Health Committee for the chapter and the newsletter editor. I am also a Democratic Committee Person in Ward 23, Division 4. Thank you, Council, today for 324 02/16/05 - WHOLE - 05007, 05008, 040767 listening. Tax reform in Philadelphia is most certainly an important and significant issue for the National Organization For Women. Women in Philadelphia compose over 50 percent of the taxpayers in the City. We're te workers, the heads of households, the providers, and the caregivers. The belief of the Board of Philadelphia Now is that such a seemingly bold and rash move as to cut the business privilege tax in its entirety could have severe and dire consequences in the immanent future for the residents of Philadelphia. With the elimination of the business privilege tax, cuts in vital City services most certainly will follow. Even without the elimination of such a tax, we already feel the pains of our services being cut. For example, the recent elimination of librarian jobs and the scaling back of hours of several libraries as well sa the proposed cuts in the police and fire departments. While we believe that a significant tax burden is bore by the ordinary, typically 325 02/16/05 - WHOLE - 05007, 05008, 040767 non-affluent residents of the City, we believe that Philadelphia's tax structure is not entirely to blame for the supposed shortcoming of not being able to attract businesses and residents to the City. Several studies over the years have specifically delved into the reasons for the exodus of populations from major cities, and not just Philadelphia, to outlining suburbs. Quality of life, better schools, and more services were definitely factors for many who relocated to the suburbs. Another grave concern to our organization is increases to the real estate tax. Based on an economic model, it has been proposed by the Commission that it would make up for the cuts in the wage and business privilege taxes through increases in the real state taxes resulting from higher real estate values. However, such increases would be quite a burden for Philadelphia's large early and poor populations. Even now, some long-time residents live in the neighborhoods that have experienced gentrification note that 326 02/16/05 - WHOLE - 05007, 05008, 040767 they have seen a 100 percent increase in their real estate tax. For instance, I live in a very changing part of the neighborhood in Philadelphia. There are many households run by single mothers and elderly who could not really afford an increase to the real estate tax. Clearly, the tax issue and structure in Philadelphia is complex and, like all things being complex in nature, requires thorough examination and consideration before any tax hikes and/or decreases are implemented. We are not opposed to all tax increase and/or decreases. We realize that in order for Philadelphia to gain a competitive edge, tax reform is necessary. For example, women compose nearly 50 percent of privately-owned business in the nation, with 1 in 11 women in the US being a business owner. The business privilege tax is a significant burden on women wanting to do business in our City, and we most certainly want more women-owned businesses operating in Philadelphia. However, what we would like to 327 02/16/05 - WHOLE - 05007, 05008, 040767 see and what all Philadelphians we believe would like to see is fiscally responsible tax reform, a harmonious balance being struck with tax increases and decreases while maintaining City services. We believe a prudent -- that City Council weigh these considerations as well as those offered by the other individuals in today's testimony and implement those tax reforms that best meet the need of the population of our City. Thank you so much.

Thank you. Our next witness. Good afternoon, President Verna.

Good afternoon. Or should we say good evening.

Almost. My name Maurice Sampson, II. I live in Mount Airy. I'm the President Niche Recycling Waist Reduction Systems, and I'm here today representing the Sustainable Business Network of Greater Philadelphia. I want to thank you first for letting me speak today. I'm going to brief. I also want to 328 02/16/05 - WHOLE - 05007, 05008, 040767 make clear that the Sustainable Business Network is not a member of One Philadelphia. And I'll make that clear in just a moment. The Sustainable Business Network of Greater Philadelphia is a network of local business people, professionals, social entrepreneurs, investors, not-for-profit leaders, and government representatives. Members of SBN are committed to a triple bottom line: People, planet, and profit. We measure the success of a business by its contribution to the community and its impact on the environment as well as by the money it earns. Together, we are dedicated to building a local living economy, an economy that ensures economic power, resides locally, sustaining healthy community life and natural life, as well as long-term economic viability. A living economy is guided by a set of principals that I'm not going to go into here, but I have attached the seven principals to my testimony for your review. As Chair of SBN's Policy Committee, I have been asked to facilitate discussion 329 02/16/05 - WHOLE - 05007, 05008, 040767 among our members to take a position on tax reform in Philadelphia and, specifically, the elimination of the business privilege tax. As I come here before you today, that process has been underway since September. Over the next month, members have SBN Policy Committee will be meeting with former members of the Tax Reform Commission, Philadelphia Forward and One Philadelphia, seeking from each to understand how their vision of tax elimination and tax reform supports the principals of a living economy. In April, we will be holding a meeting of our members and feature a forum on tax reform open to the public to hear presentations and discussion among these very same representatives. It's from this process that our steering Committee will take a position on this legislation. It is our hope that our timetable to explore this issue and yours to move this legislation will allow you to consider our position. The subject of tax reform is very complex with serious long-term implications 330 02/16/05 - WHOLE - 05007, 05008, 040767 and, from our perspective, is proceeding with disturbing speed. We urge caution in the time to better understand the issues before you vote. We also want to invite each of you and the public to our April meeting, date and place to be announced. Now, while today I haven't bought a position as an organization, I do offer this perspective from Judy Wicks who is the Co-Chair of the Sustainable Business Network of Greater Philadelphia and the owner and operator of the White Dog Cafe. She says, "I look to our local economy as I do my own business. To increase profitability, I look at both to decrease expenses and increase sales. If we look at only decreasing expenses, in this case decreasing taxes, we miss the other side of the equation; increasing sales. Decreasing taxes could actually end up decreasing sales and, therefore, profitability by decreasing services all businesses depend on. As a business owner, I pay little attention to taxes and concentrate instead on how to 331 02/16/05 - WHOLE - 05007, 05008, 040767 increase sales. I am happy to pay local taxes that improve the quality of life in our City because this brings more people to live, visit and do business here, and that increases sales for my business and builds our local economy. I believe the City should focus less on decreasing taxes and pay more attention to increasing sales for local businesses.

This can be done by improving services and also by launching a Buy Local Campaign to directly increase the sales for locally-owned companies, a strategy other cities have launched successfully to support local business ownership and enhance local economies. Philadelphians are best served by policies which benefit locally-owned businesses yet large publicly-traded corporations are often given tax incentives which provide an unfair advantage over local companies. Let's cut out those tax breaks and be sure that large corporations pay their fair share for services we all depend on to do business in the City. Tax reform should benefit local business ownership where cutting 332 02/16/05 - WHOLE - 05007, 05008, 040767 taxes across the board would only rob our City of income Philadelphians deserve and need. " Thank you very much.

Thank you. Are there any questions or comments of this witness? Councilman Ramos.

Thank you, Madam President. You're saying that you're a business person, right?

Yes, I am.

And you represent a business group?

Yes. Sustainable Business Network is a business organization, yes.

I think you're the first entrepreneur that's come here today 333 02/16/05 - WHOLE - 05007, 05008, 040767 -- I could be wrong, Madam President, because I was gone for about an hour in the beginning. But I think you might be the first entrepreneur to come here and say that we should be careful with the reduction of the BPT; is that so?

Yes, that's so.

Could you explain to me without reading your statement, can you again reiterate in very simple terms why you're against the tide of what we have heard a number of hours earlier today?

Actually, I have to make the distinction between Judy's comments and what I said. The Sustainable Business Network is in the process of looking at this issue. We got into it in September because Brett Mandel came to us from Philadelphia Forward and asked us to support the elimination of the business tax. Within our organization, we feel the necessity to discuss this among our members. So I started looking into this subject as this train felt like it was pulling out of station because it was 334 02/16/05 - WHOLE - 05007, 05008, 040767 almost a vote on this before we even had a chance to explore it. What I said here was, what we are doing is looking at all of the issues, that in the next month a member from One Philadelphia, Brett from Philadelphia Forward and also someone from the Tax Commission is all coming to talk to us. And we're having a meeting of our members to discuss this. As an organization, we haven't taken a position. I will tell you that there was an immediate concern when this first was brought to us because we had a sense that there was some level of responsibility that we have as business to support the City. And we didn't understand what was presented to us, what we were asking to do consider when we were asked to eliminate business taxes. The subject just was complicated for us to simply make a decision without looking into it. So what we are doing now is looking into it. The part of the speech here you heard about the desire and the willing to pay taxes is Judy Wicks' perspective. Her point 335 02/16/05 - WHOLE - 05007, 05008, 040767 is that the quality of life that is afforded by paying business taxes, in her opinion, is what makes me want to come to the City and it helps drive business to her business. And she is willing to pay that cost if it's going to benefit and give that kind of -- that's going to meet a need in her business in order to be profitable. And that is Judy's unique perspective. I had hoped to have actually gotten her to be here. This speech actually represents a compromise. I didn't want to come. One Philadelphia --

I'm glad you came. You sure have given us a different perspective from a business person and being in a business association. That's very important to us because I believe this is the first time I've heard all day that a business person has come forward and say, you know, we need to take a closer look at this. And I've heard what you just said put differently, you know, if you want to live in this good City of Philadelphia, then there's certain things that 336 02/16/05 - WHOLE - 05007, 05008, 040767 come with the it because of conditions. I think we're all -- I know no one wants more taxes. I don't hear anyone say, "Yeah, I want more, give me more taxes." People are all for lower taxes, and that's what this debate is about, how far should we reduce taxes.

I think the debate within SBN is, what is our responsibility? Would we like to pay less taxes? Of course, we would. Would we like to have less cost? Of course we would. But what is our responsibility? It doesn't help if what we do is eliminate taxes and kill the goose at the same time. We live here. The viability of our business as local, small business people is the viability of the City. What we want to make sure of when we take a position on this is that we take a considered position on this. And quite frankly, the information that we started with, very thorough, very detailed from the Tax Reform and from Philadelphia Forward, left us with wanting. We just felt there was more information that we needed to know. 337 02/16/05 - WHOLE - 05007, 05008, 040767 My engagement came as they were being formed and I was out looking for information because they were asking some of the same questions. And then as this organization formed, I stepped back in order to get the process moving within our organization. What we would really like to see is in April -- and it's a date that we will announce. We would love to see as many of the Council will come out because what we're going to do is put all the people on the panel so that we can hear them discuss this. It's not so much a debate among the issues. We have principles that are based on what we refer to as a local living economy. The idea that a business in this City should support people, the planet and profits. And a business without profits is not a business. So this is not pie in the sky. In fact, I think if we could all be as successful as Judy, we would all be very happy. It is a philosophy on which she runs her business. What we would hope is that you would 338 02/16/05 - WHOLE - 05007, 05008, 040767 come out and listen to this bounce around. Let's listen to this information so that we have all the information that we need both as business people and as elected officials so that we can make the right decision. We need to make certain that as we move forward we're not shooting ourselves in the foot; and that, I'm sure, is something we all agree with.

Thank you for your testimony. Thank you, Madam President.

Thank you. Anyone one else on the panel to testify?

Yes, ma'am. Two more and then I will make a brief statement.

Good evening.

Good evening.

My name is Beth McConnell, I'm the Director of the Pennsylvania Public Research Group, Penn PIRG, a statewide consumer and taxpayer advocacy organization. I should also mention to you before I start my comments, Penn PIRG also 339 02/16/05 - WHOLE - 05007, 05008, 040767 partially owns and operates a small business here in Philadelphia called PIRG Fuel Buyers. It's a home heating oil cooperative that does pay business privilege tax in the City. We're happy to do so. And I can guarantee you that eliminating won't make any significant difference in the ability of us to do our job and run our business in Philadelphia, although we certainly are concerned about the impact. Penn PIRG opposes Council Resolution 12 040767 as drafted which, as we know, eliminates the BPT between now and 2017 because we are concerned about eliminating important revenue streams from the budget at a time of fiscal uncertainty, not only at the local level, but also at the state level and national level. The proposal would fail to replace lost revenue in the current year, of course, as we know, leading to further cuts in City services and thus is likely to make ineffective the benefits of any tax cuts. Penn PIRG also questions whether investments in quality of life improvements are a more an effective way to attract and 340 02/16/05 - WHOLE - 05007, 05008, 040767 retain businesses, residents, and spur economic growth. We urge Council to look more closely at this question in the coming weeks. I'd like to make a few brief points, and of course, I have submitted written testimony and some supporting materials to Council. First, as we've heard an awful lot today that -- or certainly from this panel that tax cuts, we believe, are not likely to work to retain and attract businesses if quality of life decreases at the same time. Indeed, the studies that we referred to earlier that purport to show the benefits of tax cuts assume that City services will remain at current levels which, of course, ignores a fiscal reality. When less money raised through taxes, the City will be forced to cut services while waiting for the economy to recover. The Tax Reform Commission actually recognized this tension, and Commission's recommendation offered several policies to replace lost revenue. The bills pending before City 341 02/16/05 - WHOLE - 05007, 05008, 040767 Council, as we see them, particularly 040767, does not include any of those revenue-raising ideas, particularly increasing the rights-of-way fees used by cable and telecommunications companies which could be one way to offset any loss in revenue from cutting taxes. Without a plan to make sure that our City can keep services at current levels or better, proposals to eliminate the BPT may not work to make our economy grow. I'd also just like to touch for a second on the impact of federal cuts and state cuts on the City. We, of course, know that the Bush Administration's tax cuts are leading to significant revenue shortfalls and cuts in programs that will have an impact on Philadelphia. When the federal government cuts aid to the state, the state cut services. Indeed, Governor Rendell's budget for 2005-2006 includes painful cuts in medical assistance programs. That will lead to more Philadelphians looking for help from the City and creating economic hardship for too many of our City's most vulnerable. To eliminate 342 02/16/05 - WHOLE - 05007, 05008, 040767 important funding sources and cut City services in the face of these federal and state budget cuts could be a very dangerous plan. As we've also heard earlier, most economists agree that taxes are a factor, but a small factor of a business decision to pick one city or township over another and that the quality of life is also a very significant factor. 's own Tax Reform Commission in 1999. They reviewed many economic studies to determine how much impact taxes truly have on business location and job growth.

They found that the economic effect of taxes tends to be both small and less important than other factors. Labor force availability and quality appear to be more important for explaining differences across locations and economic activity. And they argue that studies do make it clear that a policy of cutting taxes to induce economic growth is not likely to be efficient or cost effective. 343 02/16/05 - WHOLE - 05007, 05008, 040767 Similar research by economists at the Federal Reserve Bank of Boston, Washington College and others have shown that state and local taxes account for a small percentage of firm costs, as little as less than 1 percent. They argue that location decisions are based more on access to markets, skilled workers and even where the CEO of the company wants to live. In fact, even City Controller Jonathan Saidel acknowledged this in a 2001 report stating, and I quote, the answer to how much should the City tax does not have to be less than any other locality or even less than most cities, so long as a city is able to offer benefits, high-quality labor and municipal services in a thriving marketplace and good neighborhoods to attract and retain employers and residents. While we certainly need to invest in our City to attract and retain residents and businesses, it's important to keep in mind that Philadelphia is not dying. And by some factors, it's actually doing quite well compared to other cities. Specifically, 344 02/16/05 - WHOLE - 05007, 05008, 040767 Philadelphia has the second highest homeownership rates of any other City in the country which could be a result of having affordable homes, affordable properties. Also, a look at unemployment rates of major cities over the last three years also shows some positive signs. Just looking at the top largest CITIES for 2002, 2003, and 2004 10 showed that Philadelphia had a lower unemployment rate than New York City, Chicago, Houston, Dallas and Detroit, and our unemployment rates during this period of time were also lower than other well-known cities, distension cities like Atlanta and Portland and also Baltimore and Cleveland. And as I wrap, I just want to make one point. I'm sorry Councilman Kenney is not here to specifically talk about the point that we don't have a resident raising problem but a spending problem. I was privileged enough to hear five years ago when City Council was considering what amounted to, I think, billion dollars over 30 years to build two new sports stadiums in Philadelphia. And at that 345 02/16/05 - WHOLE - 05007, 05008, 040767 time, we raised some serious concerns about the impact that investment would have on our economy, whether or not we could afford to do it and would be faced with a situation in a few years where we would have to be cutting City services or other parts of the budget to pay for these new stadiums, whether or not that investment was going to lead to economic gain for Philadelphians. I also want to point to a letter that we circulated about a month or two ago raising serious concerns about a proposal that ultimately was passed that gives about $43 million in subsidies to Comcast. And I understand Comcast is seeking additional subsidies. And I would raise some serious concerns about whether or not we do have a spending problem in that area. Maybe we need to take a closer look at those sorts of policies and those sorts of programs and question whether those should be eliminated to ensure that we have the revenue public services and public good. Thank you very much. 346 02/16/05 - WHOLE - 05007, 05008, 040767

You're welcome. Our next witness. Good evening. Please identify yourself for the record and proceed with your testimony.

Thank you. Good evening, Madam President. I am Andre Butler. I am a member of One Philadelphia and I'm also a member of the Philadelphia Unemployment Project. And we, as our name says, help people not just in the City but in the region to find jobs, whether they are unemployed or whether they want to get a job in better field than what they are. We also offer mortgage assistance and people that need help that are behind in their mortgage or behind in their rent. So we see basically the grass roots, quote/unquote, bottom level of the citizens of this region and especially this City. Number one, let me say for myself I'm privileged to sit in Council Chambers for the first time and as my first time having the privilege to testify. I just hope I had been here under different circumstances. 347 02/16/05 - WHOLE - 05007, 05008, 040767 But it's a bit of a sad day for me because I've lived in Philadelphia every day of my life and I was raised to know that this City was supposed to be the City of brotherly love. And I want to know you reduce the business privilege tax, where is the brotherly love because the people are supposed to get the services of this City are going to be affected and they won't receive any brotherly love. We heard today a lot of talk from what I'd like to call the big boys, the business people, the lobbyists. They're the big boys of this City. They're not the grass roots, the people that make the City work. That wasn't them talking today. And we have to speak for them, and myself included, because at the Philadelphia Unemployment Project, we have a saying that we like to speak for those who cannot speak for themselves. That's what we're hearing today because some of them can't come or don't want to come to face City Council. But that's the what we're doing today because the grace roots 348 02/16/05 - WHOLE - 05007, 05008, 040767 lower level people have no voice to really speak feel they have no say in City government. So I'm going to say a few words for them right now. We heard from Mayor Street that he wants to eliminate the business privilege tax and raise parking tax. That's still going to leave the police serving as I believe lowest levels in City history. And how do you expect to increase revenues and increase jobs and increase businesses in the city if you're going to reduce the police force? How safe are they going to feel getting employees to come in and work for them if they have no 16 police to protect them. I ask again, where is the brotherly love? Councilman Kenney raised a point. I wish he was here to listen to this. He raised a point that the tax reduction is not the cause, why we're in this position today. I would also venture to say that the tax reduction is not tax reform. Tax reform means that you have a discussion of how you can better use the tax base that you do have and 349 02/16/05 - WHOLE - 05007, 05008, 040767 that you use that tax base. You don't eliminate taxes. That's not tax reform. If you raise the parking tax, all that's going to do is make less businesses want to come in the City and make our job at PUP harder because with all of the tax breaks that people received, we have received no 9 reduction in people coming to us to get help, to get a job. We haven't received any relinquishing of that at all, so we see no 12 benefit of, for example, the stadiums at Beth McConnell just spoke about. It didn't make our traffic flow any less. We had the same people coming in wanting jobs, wanting help. And we can't tell them now to go use the computer at the library because they're being closed. So much of what we see as the low level or the small people, so to speak, in this City is just going to be compounded, if not totally mind-boggling. Councilman Clarke asked a question earlier today, he asked one of the panel members or somebody up here before, if we vote 350 02/16/05 - WHOLE - 05007, 05008, 040767 for or reduce these business privilege taxes, what do we do to make up the gap?

Well, the first thing you do is you don't vote for the business privilege tax. That's the first thing you don't do, because that's an obvious thing that is making the revenues less. The Chamber of Commerce was here today, and the governor was asked, how do we make up the gap and the difference in revenues? That's the wrong person and the wrong entity to ask. That's the big people. They're not the ones that are here at the low level. So that's the wrong person to ask, those people. Somebody else mentioned about reverse mortgages. All that does is put senior citizens basically in debt to their house. And when somebody else mentioned about the real estate values have been increasing, as we all know, some of that is not so much that the real state values have increased, it's just basically making the house increase in value to bring more taxes in. It's not so much that the property taxes have gone up, 351 02/16/05 - WHOLE - 05007, 05008, 040767 they've gone up because they've been put up to increase the revenues. So reverse mortgages wouldn't help for the senior citizen people. And also, since we help people that are behind in their mortgages and behind in their taxes, you have two tax liens now in this City. There was one a month, but now there's two tax liens a month. And it's at least a hundred people per tax sale whose houses are being sold because they can't afford to pay their property taxes. That's not even counting the 1,000 people a month that are being foreclosed on in the regular sheriff sales. And many people escrow their property taxes into their mortgage payments. So the people that would be adversely affected by having their property taxes increased would be totally, completely astronomical to this City and to the regular lay people of this City. To what Councilman Cohen said, Bush tax give-way and what this City wants to do is the exact same thing. It's no real difference. 352 02/16/05 - WHOLE - 05007, 05008, 040767 And yesterday there was a report that somebody, I'm sure, heard it more than I did that the City basically region only increased about 5,000 jobs in the past decade. I think it was a decade. Which makes Philadelphia looks like it's terrible. If you can increase jobs more than 5,000 for the past years, that was not a good thing to 10 actually hear. And as Councilman Cohen said, hopefully we can reconvene this at a time when more people can be here from Council because this is a vital issue to the entire City and it's important that, I believe, everybody in Council hears. Not just reads our testimony, but hears it from our mouths each as we speak it that it's important not just one side be heard but all sides be heard and be sure that whatever is done in Council is done and everybody listens to it and make a true and rational correct decision. Thank you.

Thank you very much. Mr. Shapiro, you wanted to other 353 02/16/05 - WHOLE - 05007, 05008, 040767 statements?

Stanley Shapiro. A few of you probably recognize me. It's nice to be here. It's kind of unfortunate. I was hoping my first time back as a, quote, private citizens would be one of which I could support Council initiatives. This doesn't happen to be that circumstance. I want to further say, this panel has been a tremendous panel. I'm so proud I had anything to do with putting it together. I know how great it is because they stole every single one of my great lines. And so I have virtually nothing left to say except that I do hope, and Mr. McPherson and I have talked about it a little bit, that we can find a way when the Administration comes back perhaps to have this kind of testimony presented because I think really in the last two years it hasn't been part of the record, it hasn't really been part of the debate, and it's really incredibly important. If we're getting ready to give up $300 million of City revenue that a few qualifications be offered to that. 354 02/16/05 - WHOLE - 05007, 05008, 040767 My main qualification that I want to offer is that the notion that it's okay to give up the $300 million as long as we do it slowly kind of brings to mind what the lobster might be thinking as it's dropped into the pot of water and the flame is slowly turned up and its quality of life is slowly turned down. And it's just feeling to me like the lobster really doesn't care how slowly its quality of life is being turned down. Pretty soon, it's not caring about anything. And I'm sort of hoping that doesn't happen to us. So that's it from here.

I will note that on the news last night they talked about that very subject, and they said that lobsters feel no pain. So I don't know how you want to integrate that into this conversation. That's what the newscaster said, at any rate.

Thank you.

Thank's Mr Shapiro. Are there any questions for members of this panel? 355 02/16/05 - WHOLE - 05007, 05008, 040767 (No response.)

We thank you all for your testimony and your commitment.

The next witness is Enrico Scuilli.

Thank you all very much. Thank you for patiently waiting and we appreciate it. Please identify yourself for the record.

My name is Enrico Scuilli, and I've been in business for 38 years, since I was 15 years. I walked down City Hall Municipal Services Building to get my first business license from the City of Philadelphia. It's been many years and struggle with the taxes as more time passes. And I see it that not only me but I also represent people that couldn't make it here today because they can't leave their business. I was fortunate that I have a brother that we both run the business I was able to come up here and testify. 356 02/16/05 - WHOLE - 05007, 05008, 040767 This business privilege tax at the end of each year, it's a pain. It hurts. And unless your's in my kind of shoes and the type of business people that I'm in, we know what the pain is. When we factor our prices into our product that we sell, we can't afford to factor the taxes at the end of year. We hope that make so that we can pay the City a year or two at a later date. So we do the best that we can and then try to pay the bills. It's like you rob Peter to pay Paul. It is a struggle. So I'm speaking on my behalf and on behalf of the people that couldn't make it here day that if the City would do that, the City of Philadelphia will flourish, will grow. It's just like someone having a sale. People will be moving back to Philadelphia at a greater number because of the fact when they don't have to worry when it comes to the 15th of April to pay the BP tax. It would be nice when you know it's not there because the City becomes -- the City is a partner the whole year around. When the comes to the end of the year, this City is another partner waiting for 357 02/16/05 - WHOLE - 05007, 05008, 040767 that big lump sum. There is no lump sum. You don't know how hard it is to dig it up. So I've been here for many years. Now, it's going to take up to the year 2017. Who knows. That's another 7 years from me. I'm 53 years old. I'll be 65. 8 Hopefully, I'll still be in business and 9 struggling. But that's all we've been doing 10 is struggling. And a lot of our people, 11 little guys, we struggle every do, so we 12 appreciate it if it can be taken away. And I will close that as my last remark.

Thank you. And I know what a hard-working gentleman you are and how much you put into your business. And I know you've sitting here all day and I want to thank you for coming in to testify. Thank you so much.

Thank you and good evening, everyone

The next witness is David Rech.

Good evening. 358 02/16/05 - WHOLE - 05007, 05008, 040767

Hi, I'm David Rech, R-E-C-H. In addition to being in the business which is why I'm here, I also run Friends of Dickinson Square and we operate in your district. First of all, good afternoon -- or at this point, good evening. I'm David Rech, president of Scribe a publishing services company located here in South Philly, and I'm here to urge Council to repeal the business privilege tax. The point of my testimony today is not to remind of what you already know, that small and medium-sized businesses are the backbone of Philadelphia's economy or that the vacancy rate of commercial space in Philadelphia is incredibly high, that small businesses pay more than our fair share of the tax burden, or that the loss of businesses and population is astounding. D you know that, and frankly, I can't tell you how to answer that. And despite the apparent egotism that would seem from the following statements, I have a much more important story to tell you. 359 02/16/05 - WHOLE - 05007, 05008, 040767 I represent to Philadelphia both its greatest hope and its bleakest look into the future. I am, as you will hear, a statistically ideal Philadelphia resident, the person who represents the answers to Philadelphia woes. And I'm also Philadelphia's most depressing story, a bleak and depressing look into your future or our future. I moved to Philadelphia from Miami to attend graduate school here at the University of Pennsylvania. My intention was to stay here for four years and never to live through another winter again. Fourteen years later, I have live on the 100 block of Bainbridge Street and I plan to remain here for the rest of my life. My joke is that I am going out horizontally. I'm active in the community. And while Frank DiCicco and Jim Kenney are not here, they will tell the rest of Councilmembers both what a pain I can be and also that everything I'm about to tell you is true. I love Philly, and if the weather were better, I'd be a little happier; but I 360 02/16/05 - WHOLE - 05007, 05008, 040767 would not ever planning to think of another place where I'd rather live. And I'm not bragging, I'm just saying this as a statement of fact. In terms of statistics of the City of Philadelphia, I'm a model citizen that Philadelphia government members should value. In 1999, after attending graduate school here and working consultant, I started Scribe, a company that offers editorial production services for what we call multi-purpose publishing. We work for over 40 publishing companies, and our books can be found all over the world. Since our inception, we have had an annual growth of about 40 percent a year with no foreseeable end to that increase. I employ people. 18 The lowest wage that I pay to any of the 19 members of our staff is $9 a hour. To 20 undergraduate interns who are paid interns at 21 my company, the average employee earns over 22 $35,000 in my company. Everyone who is a 23 full-time employee has full health benefits. 24 They have an option for a simple IRA participation, and we have a very good quality 361 02/16/05 - WHOLE - 05007, 05008, 040767 of life for my employees.

I'm sorry, how many employees did you say you have?

Twenty-four. I hire a diverse and significant cross-section of the population here in Philadelphia. Included in my employ are part-time college students, welfare to work mothers, people with disabilities, and recent college grads who stay in Philadelphia because they are employed by my company. Over half of my employee live in the City of Philadelphia. And I don't need to tell Council the economic benefit of that. Four people in my employ moved specifically to Philadelphia in order to be employed by my company. Our company is an outsourcing company, that is, larger companies come to us for services. And as you know, this is the current buzz. Outsourcing is the future in the service industries. Our business is a service company to which publishers outsource. And through the use of technology and efficient process management, we are able to 362 02/16/05 - WHOLE - 05007, 05008, 040767 compete with off-shore businesses that are located in India, China, and the Philippines. Scribe represents for Philly a significant model for long-term business development because our of technological advances and because of the quality of life and the rising incomes we have for our employees. In fact, at a professional conference which will be held here in June, the American Association of University Presses, an announcement will be made declaring Scribe's business model to be stronger than any off-shore model that is existence today. In addition to helping Scribe to expand, the fact of that should confirm pretty much every statement I've said here so far. So I'd like to say I represent the hope of Philadelphia. But I also represent the bleak future that Philadelphia might have. I just want to tell you a couple things about the City of Philadelphia. I don't know if you all know this, but in the not-so-distance past Philadelphia was the 363 02/16/05 - WHOLE - 05007, 05008, 040767 center for English language publishing, superior to New York and to London. And when I began my business, there were nine competitors in the region to my company, Scribe. Of course, we were a one-person operation that has grown to 24. There are no 8 other competitors left in the City of Philadelphia. The last one just moved its operations -- and you can read about this in the Philadelphia Business Journal -- to the Philippines. Though publishing is thriving as an industry, our business is experiencing a downward pricing pressure. While revenues have increased, profits in the form of my salary have remained flat for that last two years running. And finally -- and this is a statement that I wish every Councilmember could hear, and they will because I have written letters all of you. Scribe has made a decision that the only way to remain economically viable is to move the operations of our company outside of Philadelphia. Now, if I were moving to India or the Philippines 364 02/16/05 - WHOLE - 05007, 05008, 040767 then you could dismiss me and wonder what my testimony has to do with the business privilege tax. Like I mentioned, the off-shore model, however, is not a viable one for us. Scribe requires a well-educated workforce. We benefit from the presence of large numbers of high education institutions. We prefer an urban area with the cultural and arts that accompany it. , and Nashville, Tennessee. I find cultural diversity also to be important because it aids in the success of my business. In other words, Philadelphia is a potentially ideal location for my business. But, like every other business person, the most important thing to me is my cost of operations and, frankly, my salary. And I'm not talking about -- and in order to do that in order to increase revenues, in order to increase profits, in order for me to continue to have a viable business, I must move my business out of the City of 365 02/16/05 - WHOLE - 05007, 05008, 040767 Philadelphia unless some kind of change is made soon.

And the business privilege tax elimination between now and the year 2014 represents that. I'm not talking about a huge reduction in cost that my business needs to remain here. Our business operates on approximately a percent margin. A change 9 in only a few percent of our cost will make so 10 that moving our operations would not be necessary. A change of a few percent of the business operating expenses would mean that Scribe would not institute a hiring freeze that we will have operational as of March 1, 2005 despite our need for additional people. A change in a few percent of our operating expenses would mean that we wouldn't have to shrink our Philadelphia operation from 19 current employees to 8 over the next two-year 20 period. That is our plan. A change in a few 21 percent of our operating expenses also means 22 instead of moving out of Philadelphia, we 23 could continue to grow here. Instead of 24 Huntsville, Alabama; Columbia, south Carolina; Jackson, Mississippi, Fort Lauderdale, 366 02/16/05 - WHOLE - 05007, 05008, 040767 Florida; or Charlotte, North Carolina -- and I hope you heard that I am not mentioning any suburban or off-shore locale. Those are our finalists. A change in a few percent here would mean that Scribe would continue to have a long and vibrant, I hope, future in the City of Philadelphia. While I understand the need for the City to raise revenues and would be lying to you if I told that the BPT is the sole reason why we must move our company, I can tell you that it is only a few percent that we are moving. My growing, thriving, technologically-based, environmentally-friendly, culturally-enriching business out of this City, Philadelphia, that I love. And while I would urge a complete reworking of the tax codes, the BPT represents that small percentage. Thanks.

I recall your coming into Council many times, I guess, when you first graduated and started your business. And when you started to talk, I thought how wonderful. This is truly a 367 02/16/05 - WHOLE - 05007, 05008, 040767 success story. I can tell you that Council cannot do anything about the weather, but perhaps if you stay with us, hopefully we will be able to do something about the tax issue. We definitely need people like you to stay in the City. For you to be as successful as you have been, I applaud you. I think it's wonderful. And as I said, I think you've got to give us a chance to try to help you.

And we're not intending -- I mean, look, I'm going to stay here the rest of my life; this is a great City. The problem is it's a very simple equation. You just have to figure out what your cost of operations are and you have to be able to be competitive.

Well, as the young said before you, as hard as he works, by the time he adds up what the taxes are, he has very little profit left.

And that's the same for almost every small business, as you know. I thank you. I appreciate you're listening 368 02/16/05 - WHOLE - 05007, 05008, 040767

I believe Councilman Rizzo would like to be recognized.

I echo the words that President Verna said. If we lose you, we're going to lose another, another, another. I think we're really trying here to do something to make it better. If you could hang in with us -- I'd be the first to tell you that if it doesn't get better than go. But give us an opportunity to work with you a little longer, lease.

Okay.

Thank you.

I hope you don't have to come back before us again and tell us that you're going to be leaving.

Well, I hope so too. Thank you very much.

Thank you.

Joseph Hanley.

I know that this has to be very important to all of you to be so patient to sit here to wait to be heard. And I want to know we really 369 02/16/05 - WHOLE - 05007, 05008, 040767 appreciate it. Thank you all so very much. Mr. Hanley.

Thank you, Madam President Verna. And we do appreciate your patience with us. I do have written testimony, and I'd like your permission to give you the cliff notes version of my written testimony.

That would be wonderful. Thank you very much. And we'll make certain that the stenographer gets a copy and it will be transcribed in full.

I am here today as the president of Builder Owners and Managers Association of Philadelphia, commonly known as BOMA. With my is Cathy Garra (ph). She's our executive director.

Welcome.

BOMA member buildings provide 51 million square feet of office space and over half a million in office workers throughout the City of Philadelphia. The assessed real estate valuation represented by BOMA member buildings exceeds $1.6 billion, 370 02/16/05 - WHOLE - 05007, 05008, 040767 providing real estate tax revenue for the City of approximately $133 million. In addition, BOMA member buildings and occupants pay revenue to the City for wage tax, business privilege tax, use and occupancy tax, as well as Center City District assessment, totaling $1.6 billion annually. Total revenues received by the City from BOMA member buildings and their tenants exceeds 1.29 billion annually. Our industry as a whole represents 70 percent of the tax base of Philadelphia. As real estate professionals in the Philadelphia area, BOMA members work with two types of companies and organizations. First, tenants already in the City who struggle with the decision of whether to stay or relocate to the suburbs or other locales; and secondly, prospective tenants that are in consideration of possibly moving to the City or region. The No. 1 issue that we hear about is that businesses located within the City bear a tax burden that businesses outside the City do not. And it's a current inequitable tax 371 02/16/05 - WHOLE - 05007, 05008, 040767 structure is a major barrier to future growth and prosperity within the City of Philadelphia. In our opinion, this bill is the exact type of legislation needed for achieving growth and prosperity for the City and the entire region. This tax reform will lead to meaningful job growth which, in turn, will result in new companies moving into the City. With more City residents working, there will be higher wage tax revenues, greater occupancy in central business district office buildings, increased real estate values, both commercial and residential the higher real estate revenue, higher use and occupancy revenue and greater contributions to the Center City District and a more vibrant retail sector. Some may ask if it's fiscally prudent to enter into such reforms at a time when the City is facing deficits and contemplating cutbacks in City services. We respectfully suggest that now is the time. The cost of these reforms will only get more expensive as time goes by, not to mention the 372 02/16/05 - WHOLE - 05007, 05008, 040767 opportunities will be lost if you do not act boldly and progressively now. We suggest that you pass this vital bill. Thank you.

Mr. Hanley, what is the occupancy rate at the present time.

Our unoccupancy space is approximate percent, so 84 percent, I 10 some way. 11

How does 12 that compare to, say, five years ago? 13

I'll have to refer to 14 Cathy on that one. 15 Cathy, do we have that information? 16 Can we get back to you on that?

Yes. And do you anticipate that it will be getting better or worse?

Well, right now we thing we're going to be on the down slide. As you know, the KOIZ controversy was just pushed aside, but it was the monies dedicated from the State and the City for the Comcast tower. That will essentially empty out the east tower 373 02/16/05 - WHOLE - 05007, 05008, 040767 of Center Square Building. So when Comcast moves over to that building, there will be a large chunk of real estate that's now available for occupancy. And there's nobody knocking on the door to come and occupy that space. So for the immediate future, we do see that the unoccupancy rate is going to increase.

Are there any questions or comments from Members of the Committee? (No response.)

Seeing none, again, I want to thank you very much for your patience. I know how important this is to you if you stayed here all day to testify.

Thank you. We'll get back to you on that point.

I'd appreciate that. That would be great. Thank you.

The next witness is Fred Murphy.

Mr. 374 02/16/05 - WHOLE - 05007, 05008, 040767 Murphy, you too have been extremely patient.

My name is Frederick Murphy. I'm here representing the Center City Residents Association. And a little background, we did a tax study at CCRA a few years ago, and I also was an advisor to the Tax Reform Commission, so I've been following this issue for a while. Now, the basic principle of taxation is if it can't move, tax it; but if it can move, don't tax it. We're in situation now where companies can move anywhere and we've seen it happening in manufacturing. We've lost so many manufacturing jobs because of the interstate highway system. Now what we're seeing is with the Internet, we're losing a lot of those service jobs. I see it in my job. I don't use the regular mail anymore. I communicate with people around the world regularly, and we do work together and we're not even in the same country. And what's happening is that the pipeline is growing and more and more business is moving away just because of that. 375 02/16/05 - WHOLE - 05007, 05008, 040767 And so if you look at Philadelphia and you compare it to other places, in Ireland they cut the tax rate, the national corporate tax rate to percent. Ireland is the 6 fastest growing country in western Europe. If 7 you look at Poland. Poland's tax rate is now 8 19 percent. If you add up the City and State 9 corporate taxes, you're talking something 10 that's higher than what Ireland charges. And 11 then we have the federal taxes on top of that. 12 Now, Poland -- there's an article in the Wall Street Journal. Poland hosts a half dozen facilities for a company called Delphi Corporation. Delphi Corporation is the parts division that was spun off of general motors. And now what's happened is they've moved to Poland out of Germany because of tax wage and, of course, wage rates. But mainly tax rates. Now, Ace, one of our big companies here is headquartered in Bermuda. And my academic professional society -- I wish the previous speaker had stayed around. We're a small society. We have a $6 million annual budget. And what we've done is we've moved 376 02/16/05 - WHOLE - 05007, 05008, 040767 the composition for our publications to India and we do everything over the internet. So what made the central business district work with people have to be together to be able to talk together is now diffusing. And so it's the value proposition. What does the City provide as value? That previous panel was talking about the value of services and all that. And it's the value of the City to a business for communication and services. That's dissipating with technology and, yes, services count, but now it's becoming taxes because what's happened is that companies have lost pricing power so everything is very thin, margins. General Motors, which used to have a 50 percent share of the auto business, is now down to 29 percent. And they're being squeezed. Their profits are negligible now. And their bond rating is being cut. So that's the business environment that we'll dealing with. So we have to be very conscious of the impact of taxes on those business decisions. Now, another aspect is that the 377 02/16/05 - WHOLE - 05007, 05008, 040767 revenues garnered from the business privilege tax are grossly overstated. The number that has been quoted, the $300 million, is the tax take, but it doesn't net out the cost of that tax take. The $40 million for Comcast, the enterprise zone for the Cera Center, all of that is expenditures that are compensating for the business privilege tax. So the true business privilege tax is much lower and it would be good to have your people actually calculate what that true number is, what you really gain in net revenue from it after you've had to do all these give-aways. You'll find out that cutting the business privilege tax and cutting out of give-aways would mean that do you not have that big a net loss in revenue.

Now, the other aspect is that the business privilege tax -- as a college professor, I have a small consulting income, averages about probably $5,000 a year, so I have to deal with the business privilege tax and do it myself because why pay an accountant more than I make in income. And what I find 378 02/16/05 - WHOLE - 05007, 05008, 040767 is that the forms are indecipherable. That's one issue I kept raising with the Tax Reform Commission, but they truly are impossible to deal with when you have to do it on your own. " And the handling of the business privilege tax is unfair. I made a mistake in the way I filed my taxes for this past year. I overpaid my net profits tax and underpaid my business privilege tax. So I wind up having to pay the penalty for being late on paying what I was short on the business privilege tax, but I got no equivalent credit for my net profit tax. "

Have you been in touch with the Revenue Commissioner?

No. 24

Why not?

Because I lead a busy 379 02/16/05 - WHOLE - 05007, 05008, 040767 life. I've got sick parents that I'm trying to help, and I don't have the time to deal with it.

Was this last year?

It was last year's business privilege tax and it got resolved --

Did you get your money back?

I don't know. I haven't gotten any information on that yet. But this is really remarkable.

If you want some help, call me or the president.

Now, the question everyone raised is do you have to cut services. Well, my belief is very simple. If we have the most efficient city government in the world, we would have to cut services to cut taxes. I'm a professor of operations management in the business school at Temple University. When I use examples of how not to do things, I use city operations. As a example, in this last snowstorm, for every 380 02/16/05 - WHOLE - 05007, 05008, 040767 half inch of snow that fell, a plow came down my street. Why aren't the plows routed properly so they get the snow removed and don't waste taxpayer money?

If any of my constituents are listening, they'd love to know where you live to get that kind of service.

Pine Street. So in summary, CCRA view is we strongly endorse the Tax Commission's position on the BPT, their recommendations, and we strongly endorse the reductions because what we see is we need to grow the City. And the final comment, in the panel they were talking about how the economists came up with those analyses that did not show City taxes affecting jobs. As someone who's been involved in public policy analysis for 30 years -- my expertise is in energy and my consulting is with the Department of Energy and Energy forecast. My experience is that you have to read those kinds of studies very carefully and look at the details. There are 381 02/16/05 - WHOLE - 05007, 05008, 040767 technical issues with the data cross-sectional, was it time-seriesed? The E Consult model was a time series model using Philadelphia own data. It's not a model that compares Detroit to Philadelphia. And that's important. Detroit is shrinking because the US manufacturers in the auto industry are shrinking. Productivity improvements to try to compete with the Japanese and the Koreans and the Chinese have meant major reductions in labor, and that's a one-industry town. So that's why Detroit is shrinking. We're in a metropolitan area with many diverse business. We are the index economy, if you wish. David Thornberg has used that term. That we're shrinking means that we're not running things right here in terms of taxes. And if you have a regression with a hundred data points, and the wage tax -- take the equivalent of the business privilege tax or the wage tax. If it's percent in the suburbs and 1.2 in the city, you won't see a difference. But you're talking at least in the wage tax of it being 382 02/16/05 - WHOLE - 05007, 05008, 040767 percent in the suburbs and over percent in the city. It's when the numbers get big that you get the cascading effect. So the kind of cross-sectional regression analysis in those other studies don't necessarily provide valid information. I haven't read those studies, but be very careful in using them.

I found your testimony extremely interesting. And you did hear testimony from one of the panels about their fear that if, in fact, we were to reduce taxes, their concern is that we would also lose City jobs and services.

Well, if you cut services that are important to the businesses that locate in the City, they are right. But in fact, the bulk of the services that are important to the businesses in Center City, for example, come from the Center City District, not from the City. And we're not talking about cutting that, so we're not going to be cutting those serves for clean streets and things like that for these businesses. So you don't have to fear that. 383 02/16/05 - WHOLE - 05007, 05008, 040767

I don't know that they're referring simply to businesses. I think they're more concerned about the residents.

Now, you have to talk about which residents. The taxpaying residents like the person who talked before me, they don't demand a lot of city services. Basically, what we get is our trash collected and the general police protection. We don't make any other demands on the City. So you have to ask which services are important. And when people move to the suburbs for services, it's the services for those middle class people, not the services for the poor. At the same time, the E Consult model shows that revenues for the City are restored and it comes from real estate taxes mainly from people like me who have houses that have gone up dramatically in price in Center City. And you can solve the problem for the elderly and the low income people, the low-income elderly especially, by allowing them to defer the taxes until their home 384 02/16/05 - WHOLE - 05007, 05008, 040767 becomes part of their estate and collect it then. That's not a big number. The big number in terms of real estate is Center City, Chestnut Hill, the growing area of West Philly.

Okay. Are there any questions of Mr. Murphy by members of the Committee? (No response.)

Thank you again for your patience. Mr. Murphy, at some time, can I feel free call you. I would like to get some of your input.

Okay.

Thank you. Do we have anyone else to testify? (No response.)

This Committee will stand in recess until Wednesday, February 23rd at 10:00 a.m. Thank you very much. (Hearing recessed at 6:35 p.m.) - - - - 385 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, February 16, 2005, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE OF THE WHOLE _________________________ Lisa C. Bradley, RPR