-- especially as presented this by this Council and this administration. And the Five-Year Plan that goes to PICA, this is using the unanticipated and excess revenues and the unanticipated excess surpluses that this Council and this administration have conservatively and strongly fought for in its budgeting practices, you know, to make available for the future generations of the citizen of Philadelphia.
Well, it's my view that if this bill were effective -- that is, if it could be enforced -- it would be directly in violation of the Home Rule Charter because it would take away appropriating power from the Council. The Mayor's Office may feel it does something with the executive -- I don't know about that, but I know -- I believe it would violate the Home Rule Charter. Secondly, I believe the reason it does not probably violate the Home Rule Charter is that from what I see, there is no effective mechanism so that if the executive decides to pay no attention whatever to this, the executive is free to do so, in 79 10/24/01 FINANCE - BILL 010492 which case, we're just spinning our wheels.
Well, Councilman, I know you've litigated many issues in which you said the executive has failed to pay attention to Council, you know, the Council bills and mandates, you know, going way back, you know, to the '70s and '80s.
You know, I would hope that all administrations, you know, even if they disagree with legislation that's passed either without their signature or over their veto, they would listen to the appropriate legislation. What this bill does is appropriate, is fund a Rainy Day Fund on a continuing basis, given a specific formula up to a specific maximum. And if I may digress and go back to a question that Councilman Kenney asked all of the other speakers but me -- and I wish you had asked me. I would have to say that Councilman Kenney was wrong in how much money from 1990 would be in this Rainy Day Fund. If there no limit, it would be double the 100 million; it would be 200 million. But with the limit that is on this bill, it would be, given what the average would be, it would be 80 10/24/01 FINANCE - BILL 010492 between 130 and $140 million, plus accrued interest for that period of time so much so that the interest earned may keep the fund maxing out without any further contributions from the City General Fund in any way, shape, or form, whether there is unanticipated revenues or unanticipated savings as a result of the General Fund.
And, God forbid, that should be available for the schools.
It would be available through the appropriate appropriation methods of City Council --
Well, why did this Council have the right to limit the appropriating power of the next legislative body?
Maybe the citizens have to suffer through with this particular Council, but why should we have the power to limit the appropriating power of the next Council that --
The way I read the bill, it does not do that because it's only dealing with unanticipated revenues, revenues that this Council 81 10/24/01 FINANCE - BILL 010492 already ordained were not in the Operating Budget and not subject to --
Well, maybe the next Council elected in 2003 will have a different notion. Why shouldn't it be free and not be bound by the legislation, if this legislation --
Well, then you could say, Why is a future council bound by the spending of a prior council? I mean, you spent money already. The money's been appropriated and spent; it's been spent -- it's been allocated to what is called the "Rainy Day Fund," but in a technical sense, it's still been spent, it's still been expensed by the City on its books. It's in a restricted fund but it's still been spent out.
In that regard, why should we borrow money? We're being asked to borrow $250 million on a blight bond encumber the citizenry for the 20 years. We shouldn't do that because the next council may not want to do it. You can make that argument on every borrowing we make.
Look how much we've been asked to borrow for the stadiums, much more than the 250 million for the blight. Evidently, 82 10/24/01 FINANCE - BILL 010492 stadiums are more important than blight.
Whatever we borrow, we're encumbering the future citizens and the future councils of this city over the next years. 6
Well, let me say 7 that I think this issue -- and in fact, all three 8 bills on the calendar today really get to the heart 9 of the philosophy of Councilmembers of this 10 legislative branch on our authority, on the 11 executive branch government's authority, and on 12 certainly what the role of government should be. I 13 think this is a great example to explore those 14 issues. And I would submit that I suspect that 15 discussion is not over on any of these issues and 16 that we'll be discussing them at least until it's 17 time for a vote. 18 So certainly we are -- I think they're 19 very, very important issues to examine our 20 philosophy.
Madam Chair, may I respectfully say that I think the third bill by Councilman Goode stands in a different position entirely; that's a very specific bill which is going to help strengthen neighborhoods because community 83 10/24/01 FINANCE - BILL 010492 development organizations live in neighborhoods. In my judgment, it is a very sound bill. The other two bills are in an entirely different category. But I agree they're going to be providing a wealth of debate for quite a while.
Thank you, Councilman DiCicco. On Bill 010508, Nancy Kammerdeiner, the Revenue Commissioner; Diane Lucidi, Association of Realtors; L. Gerald Rigby, a resident; and Dave Glancy, Board of Revision of Taxes. You want to come forward. I'm sorry, we're going to ask everybody to hold up and ask Mr. Dubow to testify on this bill. Then on the next bill, we'll ask those people who are here if you want to testify, then certainly we'll come right up. Is Rick Sauer here? Oh, there you are, certainly. Sorry to hold you up. Thank you for your patience. (Witness comes forward.) 84 10/24/01 FINANCE - BILL 010492
Thank you, Mr. Dubow. So we assume you are Joyce Wilkerson.
I am Joyce Wilkerson for the morning. Actually, I'm Rob Dubow, the City's budget director, and I'm here to offer testimony on Bill 8 No. 010492, which would establish the Rainy Day Fund. As we've testified before, the Administration supports the goals to be accomplished by the establishment of a Rainy Day Fund; however, we can't support this bill as it's proposed. Any such measure needs to be structured within the frame work established by the Charter and be sensitive to the City's current fiscal needs. Unfortunately, we think that Bill No. 010492 is not. We think the bill could actually hurt the General Fund at the precise moment when it needs help. Conversely, at times when we most need funding, the bill would make it very difficult to access any Rainy Day Funding. We believe that the bill has the following flaws: It's structured in a way that would 85 10/24/01 FINANCE - BILL 010492 encourage the administrations to inflate their revenue projections; its required contributions can be far too large; and its conditions for withdrawals are too restrictive. There are also various legal problems with various aspects of the bill, and I handed to the Sergeant-at-Arms a memo from Ken Trujillo stating some of the problems that he sees with the ordinance. I'm going to skip the part of the testimony that goes through the components of the ordinance 'cause I think you all know that. The situation the City finds itself in today provides an example of the problems the proposed ordinance would create. Under the ordinance, the City would have to deposit into the fund percent of its fiscal '01 ending fund and 50 21 percent of unanticipated revenues. Based on the 22 City's preliminary actual results for FY '01, our 23 fund balance was $230 million and our unanticipated 24 tax and locally generated non-generated revenues 25 were about $131 million. 9 million into the fund. As you're all aware, we'd be making that extraordinarily large deposit at a time when the City's facing severe fiscal challenges. The City's been losing jobs since the beginning of the year, and as a result, wage tax collections have slowed considerably. In fact, during the first quarter of FY '02, there was essentially no growth in wage tax revenues. The budget assumed the wage tax revenues would go to about 3 percent this year. If those patterns continue for the full year, our wage tax collections will be about $25 million lower than the amount included in the budget, even after adjusting for the higher base that we had in '01. At the same time as we're suffering through the slowing of our revenues, we're facing increased costs. As a result of the terrorists' attack of September 11th and their aftermath, the City has incurred a series of security costs. While we're still collecting complete data from departments, we anticipate that in FY '02 alone, we will have millions of dollars in additional costs 87 10/24/01 FINANCE - BILL 010492 directly related to enhanced security. Moreover, while the bill would require us to make extraordinarily large contributions, it would make it exceedingly difficult to access that moon when it's needed. The restrictive Rainy Day Fund provisions means that the earliest we could have access to the Rainy Day Fund would be in March, when the budget's passed. And even when expenditures -- even then, expenditures would be only possible of two-thirds of City Council approved. Additionally, since expenditures from the fund are tied only to revenues, we would not have access to the fund to cover any unanticipated increase in expenditures. In addition, the practical problems that the City's current fiscal condition make clear, there are some long-term problems with the proposed ordinance. The proposal that we deposit 50 percent of unanticipated revenues into the Rainy Day Fund is problematic.
Since, as I've discussed, the Rainy Day Fund is largely beyond the control of the Administration, the administrations may prefer to 88 10/24/01 FINANCE - BILL 010492 keep money under their control rather than to see it go into a Rainy Day Fund. The best way to for the Administration to prevent money from going into the fund would be to increase revenue estimates. This is because by increasing those estimates, a mayor would reduce unanticipated revenues. As you know, inflated revenue projections often lead to downward spiral of overspending and deficits. The proposal that we base the deposit on prior year's ending fund balance also creates a problem. By the time we have the unaudited financial results of the prior year, we'll have completed one-third of the current fiscal year. And, as has happened this year, our financial position may have been changed substantially. The criteria for making withdrawals from the fund also could inadvertently give the administrations incentives to inflate revenue projections. As structure, the ordinance does not tie access to the Rainy Day Fund directly to budget results, but instead, ties access only to revenue shortfalls, which again increases the incentive to inflate revenue projections. By increasing revenue projections, and 89 10/24/01 FINANCE - BILL 010492 administration would increase the likelihood that actual revenues would fall 1 percent short of projections, and as a result, make it more likely that the administration would be able to draw money from the Rainy Day Fund. The ordinance also ignores the possibility that a budget crisis could be created by expenditures that are higher than original projections and created by factors independent of the local economy. The fund, for example, would not be tapped to help cover expenditures resulting from the events of September 11th absent a decline in revenues. The requirement that two-thirds of the members of City Council approve any expenditure from the Rainy Day Fund also impedes appropriate access to Rainy Day dollars. The requirement would mean that even if the majority of City Council and the Mayor agreed that the time to use Rainy Day Funds was upon us, a minority of Council could stop that from happening. Our Home Rule Charter does require two-thirds vote of Council, but only when the executive branch and the majority of the legislative 90 10/24/01 FINANCE - BILL 010492 branch have disagreed. Here, there would be agreement between a majority of City Council and the Mayor. There is no need for an additional check and balance. See no reason to depart from the standard of the majority approval imposed by the Home Rule Charter with respect to the Council's adoption of the Operating Budget and subsequent transfer ordinance. The Administration requests this matter be held to enable the Administration and Council to explore more fully workable solutions. Hope these comments have been helpful, and I'd be happy to answer any questions.
Mr. Dubow, with all due respect, I know this is not your -- you're basically reading testimony that was provided to you. The most troubling part of the testimony and the position of the administration is not one of the mechanics of this bill; it is simply almost an admission that the budgeting process and this administration would be encouraged to be dishonest, that basically the passage and implementation of 91 10/24/01 FINANCE - BILL 010492 this bill would create a circumstance for you to lie about revenue estimates --
-- and lie about -- basically what you say -- basically what it says is --
Because basically what you're saying is that this bill, which is trying to impose some fiscal discipline, would encourage, encourage you to be dishonest in your numbers. And to me, that is more troubling than your opposition to the bill, because what you are basically saying is, Look, pass this bill and we're just going to give you different numbers to make it unworkable. And to me, that is insulting, and I think it's terribly unfair. And I really do believe it speaks to this administration's inability to cooperate with anything. And let me tell you, I get a letter here today to Councilmember Blackwell this morning -- 92 10/24/01 FINANCE - BILL 010492 this issue has been on the agenda since January. We had extensive hearings with extensive numbers of witnesses who are experts in these fields, who testified in favor of this bill. Not one word has been talked about by this administration on this bill till this morning when Joyce Wilkerson hands Chairman Blackwell a letter saying, Please recess and we'll talk about it later. You guys only want to talk about something when it gets finally on the agenda. Where was all of the discussion prior to this? And for you to sit here, with all due respect, and tell me that this bill is going to create a situation where you guys are going to be forced lie about your number of times, I think that's a disgrace, I really do. And while we're at it, while we're at it, depending on Mr. Trujillo's position that somehow the establishment of this fund is outside the scope or the ability of the Charter, well, do you want to explain to me what a contingency line item is and who created that and what act of Council or act of the Charter allowed for a contingency line item so administrations -- this past one and this one -- can 93 10/24/01 FINANCE - BILL 010492 hide money when they want to hide it and use it for when they want to use it for, but are not willing to institutionalize a process to put money aside for when this economy goes down the tubes and we're back looking at 1991 again. I mean, I'll tell you what, it is very troublesome to hear an official of this government say that a bill passed by this Council is going to force them to lie about their numbers. It's a disgrace.
-- to each part of what you said. We are not saying we would lie about our numbers.
What we're saying is that there's a reasonable range of what you can project for revenues.
"Inflate the number" is what you said. "Inflate" means putting forward something that's not accurate, that's an inflation. You deflate it and you inflate it. 94 10/24/01 FINANCE - BILL 010492
Our revenue estimates still have to be within a reasonable range or they wouldn't be approved by PICA, but our estimates would probably be higher.
You're basically confirming my concern and suspicion that somehow, you're going to thwart the efforts of this Council if this bill passes by simply giving numbers that aren't accurate.
The incentive for you should be -- is to be as tight and honest and forthright as possible. Not to figure out way to jerrymander the numbers and move it around so it makes it look better. I mean, the whole budgeting process is of concern to me based on your position.
Councilman Kenney does 95 10/24/01 FINANCE - BILL 010492 not express everybody's view, saying that what you're trying to do --
You interrupted me. You followed my statement As I understand it, you are saying that you need certain unlimited powers, or at least not limited in the way in which the Rainy Day Fund would limit it, but you need certain powers to be free to arrive at estimates in your budget message, and that this bill would be a restraint on you beyond reasonable limitation. That's what I take basically from what you're saying. Is that accurate?
I think you have a right to it. I don't think we ought to artificially limit you.
And when it comes from fiscally conservative sources, I am very, very suspicious that the purpose of this bill is to make less services available to the people of Philadelphia. Let me be as frank and as open as I can possibly be on that. 96 10/24/01 FINANCE - BILL 010492
Well, I don't agree. I think that the purpose of the bill -- I don't agree that the purpose of the bill is intended to limit the services provided to citizens of Philadelphia. I believe that it's provided -- it's intent is to --
It's fiscally responsible, and the Administration supports the concept of a Rainy Day Fund; we just don't support the way that it's structured here.
That's what we want to work with the Council on. 97 10/24/01 FINANCE - BILL 010492
You know, I don't mind working with anybody but, Rob, in all due respect, this thing has been out there, and I believe that this offer to work with the Council is an offer to delay the process and to put it on the back burner until we get around to it. I think that the time is right to start this savings putting $122 million away in an account that allows us the kind of cushion that we need this year and in the next year will create a situation that we may not have to cut services, we may not have to raise taxes four or five or six years from now if we find ourselves in this condition. And the thing that is totally inaccurate about Councilman Cohen's characterization of this bill is that go through a budget process, we get the budget from the Mayor, we examine that budget, we agree with it, we pass it or we change it and pass it. And all of those services that we agree to are all funded for that particular fiscal year and for the Five-Year Plan.
Councilman, let me 98 10/24/01 FINANCE - BILL 010492 finish, let me finish.
-- we're always unhappy with the budget in certain areas and we finally accept it.
I'll wait, I'll wait and see if I can finish. Am I allowed to?
All of those services are budgeted. No money -- as you know, no money goes into this fund unless revenues are exceeding what we anticipated in budgeted for. So to characterize this bill as somehow taking away the ability for the government to serve its citizens is inaccurate because we pass the budget and we all agree to the level of services being provided in that particular budget. Come the first quarter, come the second quarter, come the third quarter, we 99 10/24/01 FINANCE - BILL 010492 have more money than thought we were going to have, so why not be prudent and take a portion of that money and put it aside for the time when don't have the money that we anticipate coming in. To me, that is not trying to hurt the citizens of this city; that's trying to create a fund to protect the level of services that we're providing to date and be able to extend those level of services into the future. To say this somehow that this is taking money away from social programs and other things, first of all, the social program mandates are what they; they're mandates, and we can't take it away anyway if we wanted to. But the point of the matter is that this is money that gets put aside as a result of unanticipated increases in revenue, and if there are no anticipated increases, nothing goes into the fund. And I don't see how anybody could be against saving, I really don't.
Well, I agree. I'm in favor of saving. I'd also say that a part of the cushion that we have is our fund balance that we have built 100 10/24/01 FINANCE - BILL 010492 up over the years.
It's decreased in '01, that's right, and that would have happened whether we had a Rainy Day Fund or not.
No, but if we had a Rainy Day Fund, we would have that cushion, even though the fund balance was decreasing. You still need to explain to me the legality of the contingency line item.
Yeah. It's just a matter of where that -- being in the Rainy Day Fund instead of being in our fund balance is really what it would amount to.
The legality of the contingency line item, how it got created, why it's there, and how does it serve the taxpayer? 101 10/24/01 FINANCE - BILL 010492
I don't know how it got created 'cause that was before I was budget director. I mean, it serves the taxpayer in the exact same way you're saying the Rainy Day Fund does. It gives us a cushion, against, you know, future years' contingencies.
We agree, I agree that there should be Rainy Day Fund. What we want to talk about is the best way to do it. And to go to your -- I'd be happy if we set a specific date for the next hearing so that -- to ease your worry that we're just trying to delay.
Well, it's been my experience -- and with all due respect to you because you've been -- we have had discussions about this and you've been honest with me. I think that many of these efforts to delay legislation is simply that; it's to delay it, it's not to discuss it. So, I mean, I understand your position and it's for the record, but I have very little faith in the ability of this administration to deal with this Council on many issues, including this one. 102 10/24/01 FINANCE - BILL 010492
The other thing I'd like to talk about is the specific example you're giving of the School District money. This year, in theory, that would work. You could access the fund if there was an agreement with the State and we came up with an amount that should be transferred to the School District. If revenues weren't going down this year, we couldn't do that; you could not access the fund the way this bill is structured.
So what you're saying is it's -- I would say it's better late than never, and you're saying we're too late so we should never.
No. What I'm saying is that the -- the example you're giving of helping the School District only works this year 'cause revenues are down. But if revenues were up and we still had an extraordinary expenditure that was not budgeted, even if everyone agreed that we want to spend that money, we wouldn't be able to do it the way the bill 22 is structured.
That was the point I was trying to make. 103 10/24/01 FINANCE - BILL 010492
Do you have questions? Councilman Cohen, do you have anything?
One other thing about a withdrawal from the Rainy Day Fund if there were $100 million in there and we decided we wanted to move that over to the School District, that would become a recurring obligation under Act 46, which has been our concern all along. So it wouldn't be just a 100 million; it would be a 100 million year.
Well, let me just spin my opinion and dispel any notion that any solution to the School District coming from Harrisburg will not include a one-time only payment from the City. That I can almost -- I mean, from every element of Harrisburg -- the legislature, Governor's Office -- that I've had access and been able to talk to, whatever our number is going to be, it's going to go recurring, so we better plan for it. And if we're going to prioritize City services, I don't think anyone in this Council would argue that probably education is number one. And if we've got to figure out a way to fund that because that's the solution to the problem, then you better get ready to have it be recurring. And that's -- I 104 10/24/01 FINANCE - BILL 010492 mean, there's no scenario that I can see where it's not going to be a recurring obligation. And for us to walk around here saying, "Well, we think we may be able to stop it from recurring," it's fantasy.
I don't disagree. But I also think if we're talking about 100 million, I think that's way above the level of where it would be recurring.
I wasn't saying we needed to take the whole 100 million; I would have been happy with 75.
Yeah, but, Councilman Kenney, for playing poker, don't you demand the other side to come forward first? Everybody knows that whatever we may pay in addition from the City is going to be small compared to what the State has to pay if we're to have an effective school system.
Well, there's no way of solving the schools' problem on an equal basis, there's no way the City of Philadelphia can pay half of what's needed.
Well, when you're 105 10/24/01 FINANCE - BILL 010492 playing poker with Harrisburg, they're holding four aces and you're holding a pair of deuces.
Well, then you've got to be open and say that Harrisburg is defaulting on its obligation. They've got to come first.
No, I don't disagree that Harrisburg is falling down on their obligation; I think you have to look at the reality of situation, which is you don't hold the cards -- we don't hold the cards here.
No, we can't have two sides bidding with Harrisburg, each side offering. The Mayor has been given the power, against my choice and my will -- and I may have been the only one that voted against that ballot question -- maybe it was a second vote. I did not think the Mayor should be given the total responsibility, but when he was given the control of the School Board, then I think we've got to let it to the Mayor to make the first move on money. I don't think it appropriate for the City Council to do that under those circumstances.
Councilman, you're making two separate -- you're making two opposite 106 10/24/01 FINANCE - BILL 010492 arguments in the same --
On one hand, you're saying that this bill, 492, takes away your appropriations power; and on this argument, you're making it that we shouldn't have the appropriations power and we should leave it to the Mayor. Which one is it?
On the School Board in negotiating with the State, the Mayor has been given a special responsibility. I disagree with his having that responsibility, but the Council in its wisdom decided he ought to have it, and I think if you give it to him, you got to let him exercise that initiative. And if we disagree with him, we ought to let him know, but privately. I think the City has got to adopt a uniform policy, and that's why I welcome the meeting that I understand is finally going take place between the Council and the Mayor to have unified approach to this threat that came from Harrisburg's legislation yesterday.
What kind of a legislative is it that in a single day introduces a bill and passes the bill through both Houses?
Mr. Dubow, thank you for your testimony. Anyone else to testify on Bill 492? (No response.)
Bill No. 508: Nancy Kammerdeiner, Diane Lucidi, Gerald Rigby, and Dave Glancy. You can come up as a panel if you'd like. (Witnesses come forward.)
Just for the record, Bill No. 508 is an ordinance amending Section 23 19-1303(4) of the Philadelphia Code, entitled "Authorization to Offer Exemption From Real-estate Taxes on New Construction of Residential 108 10/25/01 FINANCE - BILL 010508 Properties," by expanding the time to make an application for an exemption, under certain terms and conditions.
Councilmember DiCicco would like to put into the record a proposed amendment to Bill 508 so that the people testifying have an opportunity to testify based on the proposed amended bill.
Thank you, thank you Mr. Chairperson. Proposed amendment to Bill No. 010508: Section 1, Section 19-1303(4) of the Philadelphia Code is hereby amend to read as follows: Authorization to offer exemption for real estate on new construction of residential properties. Procedure for obtaining exemption, subsection 1. At the time a building permit for residential construction is applied for, the Department of Licenses and Inspections shall notify the applicant by a printed notice of the possibility of a tax exemption under this ordinance within 60 days of the date that the building permit is issued, or (scratch 180 days) 365 days of the date that the certificate of occupancy of the property is issued 109 10/25/01 FINANCE - BILL 010508 provided that the certificate of occupancy is issued after (strike December 17th) March 1, 2000 and prior to June 30, 2002, the applicant shall apply to the Board of Revision of Taxes for an exemption. The application shall be forms prescribed by the Board of Revision of Taxes and must be filled within the specific period of time. Section 2, the effective date of application. This ordinance shall take effect immediately. Thank you.
Thank you very much. That's for the record. Who would like to lead off with their testimony?
Could I ask the Councilman if he would, in normal English, explain what this amendment does.
Well, under the bill 21 that we previously passed that provides for a ten-year exemption on new residential real estate construction, there was a lot of confusion at the time that bill was passed -- well, there actually were two bills. There was a bill that was passed 110 10/25/01 FINANCE - BILL 010508 and signed into law on December 18th of 2000, which was the bill that was agreed to under the Rendell Administration, and that was a ten-year abatement on a sliding scale.
December of '99. Because one District Councilperson had requested that his particular district be excluded from that legislation, it was found to be, under the Uniformity Act, invalid; the legislation was null and void. Under the Street Administration, I proposed a new bill that provided for a flat ten-year exemption for new residential real estate construction, which this Council passed on June 22nd of 2000. The Mayor, I believe, signed it in September of 2000.
Enacting legislation was passed on December 17th or 18th of 2000.
On the 18th. Excuse me. I'm David Glancy, Board of Revision of Taxes. 111 10/25/01 FINANCE - BILL 010508 The legislation passed Harrisburg, Councilman, on the 11th of October of 2000.
2000. The Governor signed it on the 18th of October of the year 2000, but the legislation said that it took effect 60 days from the date that the Governor signed the bill. So the effective date of that legislation was December 18, 2000.
And as a result of that, there were a number of individuals who, because of the ten-year abatement, purchased new homes in the City of Philadelphia, and developers began developing those new homes because they saw the benefit to the ten-year abatement. There were a number of people who were not included who are not being able to take advantage of the ten-year abatement because of the timing. They were under the impression that when Council passed the bill in June of 2000, that they, in fact, would have been entitled to the abatement. And under the current process -- and, Mr. Glancy, you can correct me if I'm wrong -- it is the developer who needs to file for the tax 112 10/25/01 FINANCE - BILL 010508 abatement and subsequently, in turn, transfers that abatement to the buyer of the home. What that in effect has done there -- as an example, I know some people who put deposits on homes in April of 2000. They moved into their home in September or October of 2000 and they're excluded from the ten-year abatement because of the timing of the legislation that came out of Harrisburg. And we if rolled it back 60 days, they still would not be able to -- we still would not capture those folks in the ten-year abatement. So discussions with the Board of Revision of Taxes, with the Administration -- I believe Nancy Kammerdiener will testify in support of this bill as well -- and the Board of Realtors and a number of other folks, and they all agree that this should be rolled back, in fairness, to a date prior to June of 2000, and also to change the process by which one applies for the application for the abatement and offer that opportunity to the buyer as opposed to the developer. Because in some instances, we've found developers were lax in making application for that exemption, even though people were under the impression that they thought they would get the ten 113 10/25/01 FINANCE - BILL 010508 years.
That's a fair statement, Councilman; I think you said that very well. If I could just add, however, that it really -- my understanding of this amendment really is one of equity. These folks who were caught in what I'll call "the transition period" are homeowners where the intent of Council was that they should, in fact, get this ten-year abatement. That is my understanding of this. And what this amendment attempts to do is to rectify that situation so that all of those homeowners who thought they were going to get a ten-year abatement -- and, quite frankly, maybe there were some who didn't really realize it, but most of them thought they were going to get a ten-year abatement, didn't get it because of the vagaries of the legislation passing here and then having enabling legislation pass in Harrisburg.
Do we have any idea of the number of people involved? Do we have a number? 114 10/25/01 FINANCE - BILL 010508
Yes. We have approximately -- and I'm getting a better count. What we did in my office was go back to January 1st of the year 2000 -- we just picked that date as a reasonable date. And from January 1, 2000 up to December 18, 2000, the effective date of the legislation, there are about 285 applications for a new residential abatement. So those folks would automatically, if this legislation were passed, if this amendment were passed, those folks would automatically get a ten-year abatement, because when you file for an abatement, you simply file for a -- we call it a "1456A," which really amends Section 19-1303(4) of the code. You're attempting to get an abatement. You don't say, "I want a three-year" or "I want a 10-year"; you want the abatement that's in effect at the time you file roughly. And those folks who file, if this takes effect the way it is written -- and I it is fair the way it is written. If it takes effect March 1st of the year 2000, which really is -- cutting through all the language, that is what's going to happen. Instead of it being an effective date of 12/18/2000, 115 10/25/01 FINANCE - BILL 010508 it will be really March 1st of the year 2000. All of those folks who have filed for and got a three-year abatement will, in effect, automatically get a ten-year abatement. Your next question, I'm sure, is: What does that cost? I would think the answer to that question is about -- again, we're rough on this and I know we'll have better numbers probably later today, but the cost is probably no more than 3, three, $3.5 million over 7 years. So it's about $500,000 a year to the real-estate tax base.
Thank you very much. Whoever's ready to go first, please proceed with your testimony by identifying yourself for the record.
Diane, you have to pull that microphone real close to you and Speak directly into it.
My name is Diane Lucidi, Greater Philadelphia Association of Realtors. I'm 116 10/25/01 FINANCE - BILL 010508 here to support this amendment to Bill No. 010508. First of all, let me say that we commend City Council for your continued support and efforts to promote and stimulate home ownership in Philadelphia. You all have a copy of the testimony, which we're not going to go through; we just want to be as brief as possible on this. This proposed amendment basically is a clarification on the original Bill No. 226, which was proposed as a thank-you, a thank-you to those Philadelphians who chose to stay in Philadelphia and to invest their money in the City. And they did what they were told to do: They stayed. So they're entitled to this abatement for the 10-year -- the 10-year real estate tax abatement. This bill adds clarity to the time frame of the application and to the effective date. And with that being said, you have our support, we support this legislation and hope that City Council does as well.
Thank you very much for your testimony. Whoever is next.
I'm up here to answer any 117 10/25/01 FINANCE - BILL 010508 questions, but I concur with this testimony, which is a clarification to 226.
Barbara, you have to identify yourself for the record.
I'm Barbara Capozzi, and I'm a Realtor in South Philadelphia. This amendment clarifies Bill 226, which I thought was clear, but there was some interpretation questions. It clarifies that, and we're thrilled about it. Thank you.
Nancy Kammerdiener, Revenue Commissioner. With the amendment amendments that have been placed on the floor to clarify -- or to make this amendment tighter and easier to implement, we have no objections to it moving forward.
Thank you. Any questions for Miss Kammerdeiner? (No questions.)
Thank you very much. I'm sorry. Councilman Cohen? 118 10/25/01 FINANCE - BILL 010508
Mr. Chairman, I gather it's your feeling that this abatement program was important to encourage the building of homes in Philadelphia.
Well, to whoever of the panel feels it appropriate to reply.
Yes. Well, it seems to me that we ought to go deeper and find out why there is so few construction of new homes that we've got to go to the point of giving tax abatements to encourage people, 'cause instead of the tax abatement being paid by all of the taxpayers in Philadelphia -- that's the effect of the tax abatement -- it seems to me that those who artificially create the extraordinarily high cost of building in Philadelphia ought to be the ones that are responsible for covering the costs of this abatement. And so I'd like to know -- Mr. Glancy, I address this one to. Does your board have any information that would be helpful to the Council to 119 10/25/01 FINANCE - BILL 010508 discover why it's necessary for us to adopt this extraordinary method of ten-year tax abatements to encourage the building? Do you have any thoughts on the matter or any information that could help this Council develop programs that would make abatements unnecessary or put the cost of the abatement on the people that 'cause the inflated costs associated with building in Philadelphia?
I surely have thoughts and I'll share them with you. As to empirical evidence considering the fact that we never really had a ten-year abatement that was used in any great way until October 4th of the year 2000, I would kindly ask if you could give us, say, another year to gather that information and then make recommendations based on that empiric evidence to see: A, if the ten-year abatement has, in fact had an effect in encouraging development; and B, what kinds of development have been encouraged by that. Is it residential or is purely commercial? And just kind of make some analyses that way. I think we can do that, and we will do that 'cause we were intending to do that anyway, and we'd be very happy to share that with City Council. 120 10/25/01 FINANCE - BILL 010508 As to my own personal thoughts about tax abatement, at one time, Councilman, to be very honest with you, I thought that they were -- I won't use the word "toy," that's been used too much here today. I thought they were giveaways that maybe really didn't incent [sic] anything, and this is not that long ago -- I would say ten years ago. It has been my experience -- now, this is more anecdotal, obviously, as opposed to having empiric evidence, but it's been my experience that given the very, very intense competition, not only across the country, for businesses and for residences, but certainly in our own backyard, the intense that we fight every day with the five-county suburban area, plus the other two or three counties in New Jersey, that if we don't have in Philadelphia something to offer folks by way of financial incentives -- we many amenities that we can offer somebody who wants to live in Gloucester County. We can say, Why would you do that? Philadelphia has so many other amenities. And that's true and people do listen to that. But where it comes to financial amenities, I think that -- it has been my experience 121 10/25/01 FINANCE - BILL 010508 anecdotally that the three- and five-year abatements have been looked upon as being rather nice but not something that has moved somebody to make a financial decision. Developers will say -- I use this example, and I've said this all across the country when I've about abatements, and I have spoken in other cities. I have said that -- what I hypothetically call "the California test," where a developer is sitting in California -- and this is truly hypothetical -- and is studying every abatement in the country or every place in the country where I want to build my development, and when I have looked at Philadelphia in the past seen, and I've seen a three-year abatement for new residentials and a five-year abatement for some commercial properties, I say, Hey, that's great, that's nice. But that doesn't make me move, it's not a deal-maker. But a ten-year abatement -- and, again, this is purely anecdotal, because we still have to work on the empirical evidence. A ten-year abatement, however, I believe that theoretical developer sitting outside in California or really in Montgomery County, if we look at it, you know, very 122 10/25/01 FINANCE - BILL 010508 closely, says that ten-year abatement, that makes some sense for me when I crunch the numbers for all of the other things I have to do and all the other places I have to do it. So, again, it is my sense -- and these are my thoughts -- that a ten-year abatement does in fact bring in businesses, bring in residences. And then what we have to do is to see if we theoretically are losing some real-estate tax base -- and we are, it's not the full amount of that development, but over time we are. How does that balance out with other revenues and other taxes and other things that new people into our city bring. I've seen studies by the Center City District, and I'm sure you have, that really says that other taxes absolutely outweigh what you give up in the short-term dismissal of real-estate taxes.
So, I mean, I'm being a little wordy, and I don't want to, you know, spend a lot of time with it, but that's really my sense on this, those are my thoughts, and we'll be real happy to put together some empirical evidence, but I think we need to see it first because we've just really started this project with October 4th of the year 2000. 123 10/25/01 FINANCE - BILL 010508 One final thing I should add is that in '97, this Council passed the ten-year abatement for the conversion of old office buildings and old institutional buildings into apartment buildings roughly. I got to tell you, we had about 35 applications or 40 applications where those conversions took place, and I am convinced that that would have never happened but for the ten-year tax abatement. Those office buildings weren't going to be office buildings anymore; you know, nobody who had -- who wanted to rent office space was going to rent space in those older office buildings, it wasn't going to happen. And I believe that that ten-year incentive really did, in fact, make a difference. That's why I think that these ten-year incentives will, but I would still like to see the empirical evidence. Thank you.
Could I just summarize. Briefly tell me if you think it's all wrong or partly wrong or partly right or all right. What you're saying adds up to me to indicate that when you make the financial incentive high enough, you attract people who you otherwise don't attract, and 124 10/25/01 FINANCE - BILL 010508 that the difference between three and five years and ten years seems to represent a substantial change, an increase in the financial incentive, and that induces people to move.
All right. Now, wouldn't there also be another way, if we could lower the cost of the original acquisition by doing something about the labor costs, the materials required in the building, if we could investigate why is it that the cost is so high in Philadelphia and find a way of cutting down the costs so the costs in Philadelphia County for building is no 16 greater than in the suburban area. That would seem to me to reduce the need for this other incentive. Maybe not eliminate it, but maybe reduce it.
I think what you just said at the end is really where I come down. I don't see it as being either/or. I agree with you that -- I mean, I've read the same articles about our brethren and the construction rates, charging a higher rate in Philly than they do in the 'burbs.
Well, that could be 125 10/25/01 FINANCE - BILL 010508 part of it, but I understand that in the City, there are all kinds of materials required for building that are not required in the counties. Maybe there's justification for it, maybe there's not, but I think it's time we investigate every aspect of building costs in the City.
I would agree. But, again, I would tell you, I think it's not an either/or; I think it's both. If we can lower the costs of living in the City and still have financial incentives to bring in new folks, I think it's a win/win.
Thank you very much. Any other questions for these witnesses?
Just for the record, we were supposed to have testimony from a Mr. Gerald Rigby, and with your indulgence, Mr. Chairman, I'd just like to summarize some of his comments, and I think they will go to some of the questions that were raised by Councilman Cohen.
The letter is 126 10/25/01 FINANCE - BILL 010508 addressed to me and it goes as such: "I write to express my appreciation for your sponsorship of a proposed amendment to the above-referenced bill, Bill No. 010508. As empty-nesters, Helen and I decided to sell our large house in the suburbs and move to a new smaller residence. The discussion among us as to whether to move spread over two years, largely because of our desire to move into the City, which was not shared by Helen. "In December of last year, we ultimately agreed to purchase a new home being built on Lombard Street in your district, in the 1st Councilmatic District. In the discussions leading to our signing the agreement of purchase, we were advised that the property at 230 Lombard Street had a three-year tax abatement, but that a bill then pending before City Council would likely extend the abatement to ten years. The ten-year abatement possibility was a factor in our ultimate decision to relocate to Center City Philadelphia. "Our home is one of 48 homes being built on the site of the former Abbott's Dairy. I understand that 42 of the homes will, in fact, 127 10/25/01 FINANCE - BILL 010508 receive ten-year abatement." Mr. Rigby's home being one of the pioneer first six homes may not qualify for the ten-year abatement because of the original building permit for the home was pulled subsequently before the enactment of Bill No. 010508. So I think this letter addresses a couple of things. One, it addresses that this family decided to make a move because the ten-year abatement was incentive and also the fact that I think that people like this should be entitled to it, and it's important for us to roll back that date to capture those folks in that abatement process. Thank you. Thank you, Mr. Chairman.
Thank you very much. Thank you for your testimony. Anyone else to testify on Bill No. 508? (No response.)
Seeing none, we will now move to Bill 010541, an ordinance amending Chapter 19-2600 of the Philadelphia Code, entitled "Business Privilege Taxes," by establishing a pilot program under which a credit against business privilege taxes will be given to certain business 128 10/25/01 FINANCE - BILL 010541 that contribute monies to community development corporations undertaking economic development activities within the City of Philadelphia, all under certain terms and conditions. Mr. Sauer, please. (Witness comes forward.)
My name's Rick Sauer. I'm the Executive Director of the Philadelphia Association of Community Development Corporations, which is a citywide association of 78 CDCs and other organizations involved in neighborhood revitalization activities. I'm here this afternoon to voice our strong support for Bill 541. Just a little background. The State of Pennsylvania's Department of Community Economic Development currently administers the State tax credit program locally known as "the Philadelphia Plan" to encourage businesses to enter into a ten-year partnership with community-based organizations to undertake neighborhood revitalization activities. The program has a strong track record, with eleven partnerships currently in 129 10/25/01 FINANCE - BILL 010541 place between businesses and CDCs here in Philadelphia. The benefits of the program go beyond the annual transfer of funds between the business and the CDC as the partners work together to advance mutually agreed upon goals for neighborhoods revitalization. Bill 541 builds on this effective State program to further stimulate private-sector investment and neighborhood revitalization here in Philadelphia by establishing a pilot program that's been alluded to. A growing number of CDCs are undertaking economic-development activities as part of their comprehensive approach to neighborhoods revitalization. They recognize the important roll that economic development plays in the process of the neighborhood stabilization and growth. Out of our membership, about 18 CDCs are currently actively involved in economic development and the activities cover the gamut, from supermarket and other retail development to commercial development, other efforts to strengthen local business associations in commercial corridors, to 130 10/25/01 FINANCE - BILL 010541 creating jobs. Many of the groups, too, are also linking their housing development, their workforce development, and their other community development activities to economic development in order to have greater impact on the neighborhoods. As you know, sponsors of economic development housing projects, etc. have the daunting task of assembling a wide range of financing to make a project happen, whether it's from local, state, or federal sources, whether it's through banks, other corporations, private foundations. It's a very complicated process, but a key to the success of one of these projects is actually their ability to leverage private-sector resources into the projects.
We believe that Bill 541 strongly recognizes the important role that CDCs have to play in neighborhood economic development and help ensure that there's a steady annual flow of funding to support that work in this area, and we strongly urge you to release the bill from committee today. Thanks for the opportunity to testify, and 131 10/25/01 FINANCE - BILL 010541 we certainly look forward to work with the City as well as other businesses in Philadelphia to make this successful pilot program. Thank you
I have one question. Mr. Sauer, I understand there's some legislation, and I don't know whether it's federal or state -- I don't believe it's City -- that provides that where a community development organization participates, whether it's a partner or plays some role, say, in the opening of a business together with a person in the private sector or a corporation and the private sector, that there's some special funding arrangements available. To your knowledge, is there such a possibility under existing law?
Well, there's certainly a number of incentives, tax incentive to businesses to open businesses in lower-income neighborhoods. You may be referring to recently passed federal legislation (inaudible) tax credit that does provide -- encourage further private-sector investment in lower-income neighborhoods around that, and that program is just becoming operational now, and funding will hopefully be available for it 132 10/25/01 FINANCE - BILL 010541 longer.
Well, I'm specifically thinking of a situation. We've had an empty supermarket site at the Broad and Godfrey -- Broad and Stenton in northwest Philadelphia. The place has been vacant, and efforts at obtaining private supermarket stores have been unsuccessful, except that there was a local businessman about a mile away who is prepared to open but does not have sufficient financial resources on his own. He's been told that if he accepts as a partner a local community development organization, there may be more funding options available possible to achieve sufficient finances to permit that may make it possible to achieve sufficient finances to permit that partnership with the community development, plus the private operator to open the supermarket. Does that sound like a fanciful tale, or does it sound like a possibility?
There are a number of cases where a local CDC has partnered with a for-profit corporation to enter into a business venture.
I'm sorry, I'm having such trouble hearing you. 133 10/25/01 FINANCE - BILL 010541 Is there anything wrong with the microphone?
There is certainly a number of examples where such a partnership has been successful. The CDC can oftentimes access resources that a particular for-profit corporation could not, so by creating that effective partnership, you could create a supermarket or open another business venture opportunity, yes.
Thank you, Madam Chair. I want to thank Mr. Sauer for being so patient today; he's been in Council for the last couple of weeks on a number of different issues, and I'm sure he'll be here in the future. And I just want to thank him also for convening a policy committee to look over this bill and other bills, and I've really enjoyed the process. 134 10/25/01 FINANCE - BILL 010541 Thank you again.
Thank you. I want to make some other comments about this bill, very quick comments. One of them was that this bill, in terms of technical view -- (Interruption.)
I wanted to make other comments about this bill, one of which was in terms of its technical review. This bill was reviewed by the policy committee of PACDC, the Philadelphia Association of Community Development Corporations, a citywide association of 78 community-based organizations. It was also reviewed by the Tax Policy Committee of the Greater Philadelphia Chamber of Commerce. It's also a bill that was drafted by the City Council technical staff, and I again thank the Council President and her staff for that support. The purpose of this bill was real clear: It's financial support for CDCs, it's incentive for private investment, it has a focus on community-based economic development. The meaning 135 10/25/01 FINANCE - BILL 010541 of this bill is to create a flow of private dollars of big business to nonprofits (inaudible) to neighborhood=based small business and economic developments. The private investment will come from several different areas. It will start with big business, it will then go from private nonprofits, and it will end up impacting small businesses. These type of ten-year partnerships have had and encouraged major private investment. The Philadelphia Plan has been noted as an example. I think this is a good model, it can be worked on as a pilot program. And once again, I thank PACDC for their support and the Chamber of Commerce. Thank you.
Thank you. Thank you very much. This will end our public hearing. - - - 136 10/24/01 FINANCE - PUBLIC MEETING
We will now enter into our meeting portion of this hearing. The Chair recognizes Councilman Kenney before we do that.
Thank you very much, Madam Chair. On Bill No. 010492, based on the Administration's testimony on their philosophical support for a Rainy Day Fund, I would, with the Chair's agreement, which we have discussed previously, that the bill will be moved out of the committee with this motion, but I will engage in conversation with the Administration and hold the bill until we come to some conclusion, holding the bill on the calendar. So I would like to move Bill No. 010492 out of committee with a favorable recommendation. (Duly seconded.)
All in favor? Opposed? The ayes have it. Therefore, Bill No 23 010492 is being reported out of this committee with a favorable recommendation.
With one no-vote, and that is from Councilman Cohen for the record. I will now entertain a motion for the amendment to Bill No. 010508.