Committee Hearing, October 27, 1999

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, Oct. 27, 1999 10:55 a.m. - - - BILL 960662 - Withdrawn at request of sponsor. BILL 960663 - Withdrawn at request of sponsor. BILL 970214 - Amending Philadelphia Code section 9 entitled "Authorization to Offer Exemption From Real-Estate Taxes on New Construction of Residential Properties". . . BILL 970652 - Amending Philadelphia Code section 11 entitled "Real-Estate Taxes". . . BILL 980303 - Amending chapter in Philadelphia Code entitled "Realty Transfer Tax". . . BILL 980927 - Amending chapter in Philadelphia Code entitled "Realty Transfer Tax". . . (Full text of all bills appear within body of transcript.) PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK DICICCO COUNCILMAN BRIAN J. O'NEILL COUNCILMAN RICHARD T. MARIANO COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 10/28/99 COMM. OF THE WHOLE I N D E X Bill 970652 Michael Nadol, City Director of Finance. . . . 4 Paul Levy, Executive Director. . . . . . . . . 30 Central Philadelphia Development Corporation Robert Dubow, City Budget Director David Glancy, Chairman . . . . . . . . . . . . 48 Board of Revision of Taxes David Perry, Deputy Commissioner . . . . . . . 84 Construction Services, Licenses and Inspections Bill 970214 Michael Nadol, City Director of Finance. . . . 89 Bill 980303 and 980927 Michael Nadol, City Director of Finance. . . . 103 Frank Piva, Jr. . . . . . . . . . . . . . . . 123 Divisional Deputy City Solicitor, Joseph Vignola, Executive Director, PICA . . . 133 Lindsey Johnston, President. . . . . . . . . . 136 Greater Philadelphia Association of Realtors 3 10/28/99 WHOLE COMM. - 970652 P R O C E E D I N G S

Would all Councilmembers please report to the chambers, would all Councilmembers please come down to the chambers so that we can get started with our public meeting. Thank you. - - -

Good morning. This is the public hearing of the Committee of the Whole, and I apologize to everyone for the delay. I would ask the clerk to please read the titles of Bill No.'s 960662 and 970652.

Bill No. 960662, an ordinance amending Section 19-13022 of The Philadelphia Code, entitled "Authorization to Offer Exemptions from Real-Estate Taxes on Improvements to Residential Property," by increasing the exemption amount to the maximum amount authorized by law, and by changing the exemption period from five years to ten years, all under certain terms and conditions. Bill No. 970652, amending Chapter 25 19-1300 of The Philadelphia Code, entitled 4 10/28/99 WHOLE COMM. - 970652 "Real-Estate Taxes" by amending the section 3 providing for the exemption from real estate on improvements to residential properties to expand the scope of the exemptions.

I would ask that Michael Nadol, the Director of Finance, and Robert DuBow, the Budget Director, to please take the witness table. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. I am withdrawing Bill No. 960662 at this time.

Thank you.

960662?

662, 960662 is being withdrawn at the request of the sponsor. (Messrs. Nadol and Dubow come forward.)

Good morning, gentleman. Gentleman, gentleman, good morning.

Good morning, Council President and members of the committee. I am Michael Nadol, the Director of Finance for the City of Philadelphia, and with me is Rob DuBow, 5 10/28/99 WHOLE COMM. - 970652 the City's Budget Director. We have submitted extensive written testimony on the various tax-change proposals before the committee this morning. We very much appreciate this opportunity to share our thoughts and to continue to work with Council on tax- restructuring initiatives. With the pleasure of the Chair and the committee, we would be happy to summarize our written testimony in terms of certain general principles that we believe are important, and then focus on the two specific bills that have been introduced.

And that would be fine, mm-hmm. So at this time, you're only going to be testifying on 970652?

Correct, thank you. I would like, as a preface to testifying on that particular ordinance or bill, to make a few general -- to state a few general principles that are important to the Administration. There's no question that reducing the tax burden borne by Philadelphia's residents and 6 10/28/99 WHOLE COMM. - 970652 businesses is one of the most critical priorities that we've faced over these last seven-plus years and that the City faces going into the future. The need to reduce our tax burden is an important part of the coming more competitive as a place to live and as a place for people to work. But at the same time, we need to balance that imperative with the ongoing need to sustain the critical services that are also important to the quality of life in Philadelphia and the people's decisions about whether or not to locate here. So, in that spirit, we will be trying to present the Council in our testimony our sense of some of the costs in terms of lost tax revenues from some of these proposals, as well as some of the benefits that we would see either from tax reduction in general or, particularly in the case of abatements, the nature in which abatements and targeted incentives can stimulate new economic activity that would not have happened but for those specialized programs. Certainly in the last few years, we've seen the benefit that abatement programs can have and the City already offers a set of multiple tax 7 10/28/99 WHOLE COMM. - 970652 abatements that do help in many ways to encourage positive investment and activity in the City. Our 1997 partnership in conversion abatements has stimulated unprecedented levels of new investment in taking formerly abandoned facilities and creating new residential investment in the City. So with all of those thoughts in mind, we will turn first to the specific ordinance, 970652.

Excuse me, Mr. Nadol.

Yes.

Councilwoman Miller, do you want to be recognized?

Yes, I do. Thank you, Madam President. I need to be excused from this hearing and will return, to take care of some of the Council business. Before I -- if I don't get a chance to return before voting happens, I'd like to at this time leave my vote of aye for moving Bill No. 980303 out of committee.

Thank you.

Thank you. 8 10/28/99 WHOLE COMM. - 970652

Mr. Nadol?

Okay. This bill would modify an existing City tax abatement program for residential improvements. Under the City's current abatement program, we already provide a five-year phased-out real-estate tax exemption for residential property owners who make improvements to their properties. The program's limited to owner-occupied residents with not more than three units and to properties with an assessed value below $15,000 per unit, except in certain limited circumstances. This abatement is further limited in terms of the portion of additional assessment that can qualify. Any improvement is capped at $10,000 per dwelling unit for the purposes of exemption under this abatement program. This bill that's before us today would modify this existing program in several ways: it would extend the existing abatement from five to ten years; and it would raise both the eligibility cap in terms of how expensive a property, a home would qualify for the program and in terms of how much of an improvement could be abated and exempted under the abatement program. 9 10/28/99 WHOLE COMM. - 970652 We've taken a look at the potential costs of each of those factors and have done what I would consider something of a worse-case analysis of what the potential costs could be in terms of foregone City revenues. Now, I say "worse-case" because we assumed that, based on current levels of L&I permit activity, that everyone taking out a Licenses and Inspections permit for residential improvements would both apply for the program and have their assessment immediately adjusted as a result of the improvement had they not applied for this proposed new abatement. And based on those assumptions, the worse-case cost impact of this program would be, in its early years, just over $400,000 a year. And as the program fully phases in, rise to just over $2 million. Of course, as with any real-estate tax abatement program, that cost impact would be split between the School District and the City, with slightly more of a burden falling on the School District. For the individual homeowner, the benefits over a ten-year period, assuming an 10 10/28/99 WHOLE COMM. - 970652 average improvement cost of just over $25,000, would be over $2,000 per homeowner. In terms of the Administration's perspective regarding this proposal, we recognize that these caps, as set forth in the existing abatement program, have not been modified in more than twenty years. As such, they have certainly, as inflation and other housing costs have risen, they've certainly served to exclude more and more people from the program than was originally intended when the program was first put in place. And in that regard, we believe that some adjustment to these caps could have a positive impact in terms of promoting participation in this program and thereby promoting greater investment and improvements to our residential housing stock.

Excuse me.

Sure.

Does that all mean that the Administration is supporting the bill?

Not in its entirety. Or, rather, we would propose that Council look closely at what the optimal caps and limitations would be 11 10/28/99 WHOLE COMM. - 970652 in adjusting them upward. We do support the initiative to lift those caps, and we do support the proposed cap in terms of the value of improvement that would be set forth under this proposal. Where we would suggest that Council look a little more closely would be with regard to which properties qualify. As it's currently proposed in moving the eligibility level for this program up to an assessed value of $61,800, in terms of actual market value, this would render relatively high-end homes eligible for the program. Even in BRT market value, you're talking of homes of nearly $200,000 in BRT market value becoming eligible for this program. And given the BRT market value typically falls significantly below actual sales prices, this program, as currently proposed, would become available to quarter-of-a-million-dollar homes. We believe that the primary emphasis of a program such as this would be best served, particularly in light of the potential fiscal impact, through targeting towards middle-income and lower-income residents, and we would suggest a 12 10/28/99 WHOLE COMM. - 970652 more modest cap, perhaps more in the area of $25,000 in assessed value, which equates roughly to a little more than a $100,000 home. That would still make the program available for 95 percent of the City's homeowners. It would, we believe, significantly expand who could take advantage of the program, and hopefully thereby encourage more participation in the program, but it would help to minimize the fiscal impact on the City and also serve to target our resources again towards middle-income and lower-income residents.

I didn't mean to interrupt you of your testimony, but I didn't know exactly what position you were taking as far as the Administration was concerned.

Yes, and I appreciate that and I --

So would you continue with your testimony. Councilman Kenney, please wait until he's finished.

With the Chair's assistance in focusing our comments, I think that I've 13 10/28/99 WHOLE COMM. - 970652 concluded our primary testimony on this matter, but would certainly be happy to -- Rob and I would certainly be happy to address questions that members may have.

Is the only area of concern regarding the assessed value? And do you have proposed amendments that you're willing to offer?

We do not have an amendment prepared today. But, again, in terms of our area of concern --

Well, Mr. Nadol, the hearing's's today. I mean, if we don't have the amendment prepared today, when are we going to have it?

Um, I understand --

Is that the only bone of contention, the assessed value?

From the Administration's perspective, yes. That's the one area where we would suggest that further consideration be given.

So if we like, you could offer that amendment today, could you not? 14 10/28/99 WHOLE COMM. - 970652

We would be -- we would certainly be prepared to try and get that together, yes.

All right. Mr. Nadol, can the City abate only the City's portion of the real-estate tax and not the School District's portion?

As I understand the proposal before us today, it would not do that, and none of our current abatement programs do that.

Well, I don't think that's my question.

Okay, I'm sorry.

Can the City abate only the City's portion of the real-estate tax and not the School District's portion?

From a legal perspective, I would want to confirm this with the Law Department. I don't believe there would be any constraint in terms of Council's ability to do that legally. From an administrative perspective, it would be a difficult challenge. It would require 15 10/28/99 WHOLE COMM. - 970652 extensive reprogramming of our computer systems that are used for collections and enforcement purposes, and there would be a significant cost associated with doing that.

Mr. Nadol, can you tell us why you think so few residents participate in the existing abatement program? And does the City actively advertise or publicize the program?

I think one of the constraints on this existing programs is that the thresholds for eligibility were set over twenty years ago and have not been adjusted upward. I think beyond that, it probably is an area where promoting the program more effectively could increase participation. I think, from a practical perspective, a great deal of taxpayers may not wish to draw attention to the improvements that they've made and may fear that by applying for the abatement, they will draw undue attention that that will lead to increased assessments.

So what you're saying is that perhaps many of the people 16 10/28/99 WHOLE COMM. - 970652 doing the necessary repairs are not getting L&I permits; and if in fact they are, L&I does not let the people know that the abatement is available to them.

I would apologize to the committee. We did not ask a representative from L&I to be here, and I have not spoken to them in detail about the type of notice and outreach that they conduct. We'd be happy to go back and provide that information to the committee. But it's I really don't know that I can speak to how much promoting of the program L&I currently does. There are many more people who do apply for L&I permits than who choose to participate in this program. That's certainly the case.

But do they know about it? That's my question. If they know about it, don't you think they would take advantage of such a program?

I -- I'm -- I'm not sure why individual homeowners make the choices that they do.

My feeling is, they don't know about it, nor are they being 17 10/28/99 WHOLE COMM. - 970652 told.

There is notification on the back of the permit. I mean, there is a formal notification that this abatement program is available to homeowners. Beyond that, I hope that forums like this and maybe even programs beyond that could help to further educate people about this opportunity.

Thank you. In your testimony on , you state that City Council may wish to carefully consider just where to draw the lines in terms of the level of improvement and the maximum assessed value of properties that will qualify for this abatement. What does the Administration recommend as the point that the City draw that line?

I believe that we would draw -- we would recommend that that line be drawn at $25,000 for the assessed value. And, again, our thinking is that that equates to just more than -- a little better than a $100,000 house, which is significantly more expensive than the typical home in Philadelphia. It would let us 18 10/28/99 WHOLE COMM. - 970652 target this program towards working families, towards middle- and lower-income residents, and that that would be a good rough place to draw the line. In terms of the level of improvement and the cap in that regard, we would be comfortable supporting that aspect of the bill as drafted and supporting the time the City's program to the State cap, which is in the low $40,000 range.

Mr. Nadol, what would be the revenue impact to both the City and the School District at that proposed amendment value and the number of years of the abatement?

I'm sorry, I didn't quite follow the question. I apologize.

All right, I'll repeat it. What would be the revenue impact to both the City and the School District at the proposed assessment value and the number of the years of the abatement?

In our written testimony, we did provide a table that details a five-year, a ten-year breakdown of our estimated impact. As 19 10/28/99 WHOLE COMM. - 970652 previously noted, this would be -- these are worse-case numbers on the order of magnitude as the program fully phases in of about $1 million a year for each budget. But, again, I think those are worse-case scenarios.

At what assessed value are we talking about? I mean, if you're going to the $25,000 --

Okay, at that level? By reducing the eligibility threshold to $25,000, you would capture about 95 percent of the property owners in the City but only about 80 percent of the total market value. The reason being that the 5 percent excluded would have relatively more costly, more valuable properties. So you could discount the worse-case numbers that we have provided by about percent 19 to come to a reasonable estimate of what the 20 impact would be. So instead of a worse-case impact on the order of magnitude of a million dollars a year, I think the worse-case impact would be on an order of magnitude of $750,000 a year for the City and a comparable impact on the School District. 20 10/28/99 WHOLE COMM. - 970652 Again, though, I think those are worse-case numbers. And the actual experience would likely be far lower. Our current experience, under the current program -- admittedly, the current program has its weaknesses -- is almost de minimis.

Thank you. The Chair recognizes Councilman Kenney.

Thank you, Madam President. Mr. Nadol, I'm curious as to why the need or recommendation for a cap for a capital -- (Microphone malfunction.)

Did you hear my question? For the residential property inside the City limits of Philadelphia, one would think that you would want to maintain and keep, regardless of the price of caps, those residents living in Philadelphia. And my argument, I guess, is, based on the fact that wherever the City does an analysis on this type of approach based on the potential loss of revenue as it relates to the assessment but not the retention of revenue, as it relates to wage tax, as it relates to spending and 21 10/28/99 WHOLE COMM. - 970652 sales tax, as it relates to just neighborhood betterment because individuals are deciding to stay and fix up their property, as opposed to moving. So if I have no (inaudible), then potentially a resident living in a half-million- dollar-house who makes improvements to that house, they are making a commitment to stay here for a period of five, seven, ten years. And with that comes the ancillary benefit of their wage taxes, of their sales taxes, of their buying power, and everything else. So I think it may be more subjective or more difficult to figure out, but instead of looking solely at the $1 million, the $750,000 loss to the School District and to the City per year, maybe we should be looking at what it is we're retaining and try to offset that number (inaudible) with those figures, 'cause I don't think we do. (Inaudible.) I don't think when we look at these issues, we do the comprehensive analysis necessary to determine the overall picture of what retaining that resident in the City means. It's simply not 22 10/28/99 WHOLE COMM. - 970652 just a loss in the increased taxes.

No, I think you've raised some very legitimate public-policy questions, and, you know, there's a great deal of merit to the perspective of the position that you've just articulated. And I think the question in part becomes one of how much of a difference do we think this will make for someone who has that half-a-million-dollar property. Is this going to provide a meaningful incentive for somebody to make that kind of location decision or not? Our feeling is that it --

Excuse me.

Sure.

Perhaps a half-a-million-dollar property is too high. Perhaps looking at a $250,000 or a $300,000 property -- there are properties in South Philadelphia that you wouldn't believe would sell for 250,000, 275,000, even 325,000 in a townhouse, rowhouse setting. So, I mean (inaudible.) But in the area of over a $100,000 are the people that have spending and buying power and that are also a 23 10/28/99 WHOLE COMM. - 970652 wage tax base.

Again, I think that's a valid position. Our position varies only in that we would put a focus on assessing the middle- income and lower-income residents of the City. If you look at the initial 1970s-era State and City ordinances that created the program that we're contemplating modifying today, the initial focus of this legislation was on deteriorating-blighted-areas-under-urban- redevelopment kind of philosophies. So in the same spirit as the original City Council ordinance 14 that's creating this program, our thinking is to focus the program on, you know, middle-income and lower-income owner.

I know the Administration is coming to end soon and it's sad to see that happen, but perhaps the philosophical change in mindset should be more concern about retaining those middle- and upper-middle-income residents who are the bulwark of our tax base that we've been losing steadily over the past. (Inaudible) lost 150,000 of those people, perhaps that kind of abatement and perhaps some other 24 10/28/99 WHOLE COMM. - 970652 issues would have made them make decisions to stay as opposed to leaving and then invest money in their own properties. That's just what I believe. I'm wondering -- you touched on the L&I issue -- whether or not there would be any increased volume in permits based on the expansion of this abatement program and its increase in the number of people that are able to participate, whether or not we would in fact have more (inaudible) as opposed to doing the work and waiting for (inaudible), which at some point would make a better and a safer city because of that work inspected and approved and done by contractors, number one. And, number two, you would probably have some (inaudible) in revenue as a result of these permits being issued, because I understand that permits based on the amount of work they're doing, the square footage, and the cost of the work involved. And maybe there's a positive revenue stream that comes as a result there being more permits issues.

I think that could very well be. I would like to think that our residents don't do things off the books or under the table. 25 10/28/99 WHOLE COMM. - 970652 But human nature being what it is, changing the environment in which those kinds of decisions are made could very well have the kind of positive impact that you're talking about.

I suggest you sit on a Saturday (inaudible) in a parking lot and determine what's going on without permits. (Laughter.)

It is my understanding that -- I just received a phone call from --

We believe that some of our inspectors do so, as a word to the wide.

I just received a phone call that the deputy commissioner of L&I is supposed to be on his way to testify.

I do have one final question, Madam Chair. What is this Administration's opinion or its sponsor on improvements that take place to a home that's currently under the abatement program now in the fifth, sixth or seventh year. Is there extrapolation on that of the increase in the value of the property there? Or is it based on the work 10/28/99 WHOLE COMM. - 970652 done one time? 'Cause I could see over the period of a decade, someone may want to develop, expand, improve, fix the front or do something different to that property during the course of a ten-year abatement, and taking advantage of (inaudible).

Thank you. That wasn't something we had talked about in our preparation, but I've just been advised by the representative from the Law Department who we have with us that each improvement would qualify separately so that the taxpayer would be able to enjoy the abatement benefit of making a later improvement, even if it falls within the period still covered by the first improvement.

Thank you. Thank you, Council President.

But is it limited to the $41,200, as it appears in the bill?

I think we'd need to take a closer look at that and ask the Law Department to let us know, and we'll certainly pass that on to you.

You know, this bill was introduced in 1997, and I would have 27 10/28/99 WHOLE COMM. - 970652 thought that by the time we had a hearing that people would have certainly have had answers. However, at this time, I would like to recognize Councilman DiCicco.

Thank you. I actually almost forgot that I introduced this bill, it's been so long.

It's been so long, huh? (Laughter.)

Some people are asking me questions for the last two days about this bill and several other bills that were issued as far back as 1996. I didn't want to sound like I didn't know what I was talking about, but I kind of forgot what I was talking about. (Laughter.)

I just want to pick up on some of the comments that the Council President and Jim Kenney made, and I certainly support Jim Kenney's comments that I think the emphasis here is to do what we can to retain residents. Paul Levy will be up shortly to 28 10/28/99 WHOLE COMM. - 970652 testify, and I think, in his testimony, which I had the opportunity to read yesterday, he will address some of those issues on retention and what that means to the City when people stay here and we collect sales-based taxes and other taxes from them. The intention -- at the time when I introduced this bill, my intent was to basically not penalize people for staying in Philadelphia and reinvesting in their homes and in our community. And all too often, that is the attitude that people think that government has towards them. And I also agree with the Council President, and it may be written on the back of the permit -- and I trust that it is there, but I don't know how many people take the time to read that -- if in fact, they even take out a permit. But generally in the neighborhoods where I've been very active for the last 32 years, people will typically go forward and do a rehabilitation of their house, do some rehab work, and look not to take out a permit because the first thing out of their mouths is, If I do this and take out a permit, I'm going to be 29 10/28/99 WHOLE COMM. - 970652 reassessed. So in effect, they would be penalized for that reinvestment. I have had some conversation with the Administration on the numbers and see if we would be looking to reduce them, but I'm having second thoughts about that because I want to see people who can afford a $500,000 house either stay here or move into the city. The housing stock in Philadelphia, for the most part, is very old, and there aren't many homes, unless it's a new home, that you can just move into. So in addition to purchasing the home, there also is a significant amount of improvements that need to go into the home when you move in. When I was married in 1968, I bought an old house and I probably put, at that time, over the course of two or three years, $80,000 in improvements -- for a house that I only paid $6,000 for. So, again, I think we need to really look at the numbers. I think that the numbers we originally incorporated into the bill are probably the correct way to go, but I'm open for discussion before we vote on this bill. If there is someone 30 10/28/99 WHOLE COMM. - 970652 that could convince me that it should be reduced, we'll look at that. Thank you. Thank you, Madam President.

You're welcome. Are there any other questions from Councilmembers from Mr. Nadol or Mr. Dubow? (No further questions.)

Thank you, gentlemen. Is there anyone else that would like to testify on this bill? (Paul Levy comes forward.)

Mr. Nadol, maybe could you stay where you are. And maybe you could just pull up a chair, Mr. Levy. Good morning. Please identify yourself for the record and proceed with your testimony.

Good morning. My name is Paul Levy. I'm here as the Executive Director of Central Philadelphia Development Corporation. I have copies of my testimony, and I will obviously edit my remarks from the testimony. What I'd like to do in my remarks, is, with Council President's permission, address more 31 10/28/99 WHOLE COMM. - 970652 broadly the tax abatement issue, because we have more than one abatement ordinance in front of us, and I'd like to testify first in favor of the expanded use of tax abatement to stimulate new construction and renovation in all neighborhoods in the City, and offer some suggestions on how we might amend the bill in front of us. I think the challenge which Councilman Kenney just raised was the need to both retain existing residents and attract new residents, and I think in the absence of federal funds, which we used to have, abatements can become a very, very powerful tool. What I'd like to do is very quickly review some analysis that we did with the cooperation of David Glancy and his staff at the Board of Revision of Taxes, looking at, one, how many properties in the City of Philadelphia at this moment are enjoying any and all abatements of all types, the geographic location of those type of abatements, the trends over the last decade, and some analysis we have done on the fiscal impact. In my testimony -- I'm on of my 32 10/28/99 WHOLE COMM. - 970652 testimony and I'm going to be jumping back and forth to a series of maps and charts that are at the back. But I think the first thing to note, because I think there's always concern that with abatements, somehow or other, we're giving away the store from a revenue side or we're giving it away to developers, or somehow or other taking advantage of City. And the reality, based on all of the abatements that are currently in existence today, is that their use is incredibly minimal. There are only 628 taxable parcels in the City out of 538,000 parcels which are taxable. Only 620 or enjoying an abatement of any type -- residential or commercial. That is less than 1/8th of 1 percent of the properties. The total abated assessed value is less than 1 percent. And I think, as something that Councilman Kenney was just alluding to, since the real-estate tax is only 20 percent of the source of locally-generated revenue, and fully 70 percent is coming from wage earnings and sales tax, the theory of a real-estate tax abatement is that if you abate the real-estate tax, you can get an 33 10/28/99 WHOLE COMM. - 970652 upside on other taxes. I think the second trend that's important that you can see in the charts that we've provided is that the use of abatements in this city is declining -- not increasing, it is declining. Third, the primary beneficiary of all abatements in this city are the residents, not commercial properties. Eighty-one percent of the beneficiaries of abatements are residential properties. Fourth, abatements are primarily in neighborhoods, not in Center City -- which might be the mythology that exists. In fact, Center City has only 4 percent of the City's active abatements. We are seeing the use of residential abatements in this city in two areas: 1. Low- and moderate-income neighborhoods in North and West Philadelphia, where public subsidies are also at work; and 2. Portions of the far Northeast and Roxborough that are offering market-rate housing. I think what's interesting is that we've seen success with abatements in Center City, 34 10/28/99 WHOLE COMM. - 970652 we've seen success with abatements in North and West Philadelphia and the Far Northeast and Roxborough. But what we have not done, as I think Councilman Kenney has suggested, is try to look at the return on these abatements.

We were able, with the cooperation of two of the developers who took advantage of the bill that Council passed in 1997, the ten-year abatement on conversion of vacant offices to residential to do precisely that analysis of what have we abated in residential and what have we gotten on the upside. And without going through all the details, on , in the middle of , this is one of the properties that has benefited from the ten-year abatement in Center City, and because 72 percent of the people in those apartments have moved from outside the City into the City, we are dealing with a significant upside. In this case, it was a vacant office building that has now 162 apartments. As a vacant office building, it was paying $25,000 a year in real-estate taxes. What we abated in improvements -- what the City abated in improvements was a half a 35 10/28/99 WHOLE COMM. - 970652 million dollars in real-estate taxes in the very first year. In construction-generated wage and sales tax the, City got $514,000 back of revenue it had never seen. And in the first and second year, we got almost a million dollars in new wage and sales tax revenue. So the theory of the real-estate tax abatement here is very clear. By abating the real-estate tax, in this case, we are getting people with incomes that are generating other activities and it is more than repaying the abated value. I think the success I think that we've seen in the far northeast an Roxborough can be reproduced citywide, and I would suggest that Council look broadly at a ten-year abatement for improvements to owner-occupied housing, to multifamily housing, that we look at the broadest possible flexibility so that we can create some significant incentives. What's interesting is that those areas of the City -- the Far Northeast and Roxborough -- that have had the highest use of abatements in market-rate housing are still losing population, 36 10/28/99 WHOLE COMM. - 970652 still losing population. So I would suggest -- I'm on my testimony at this point -- that we clarify Bill 5 970652 as well as or roll it together with the other bill that is in front of this committee, 970214, and have it broadly apply to residential construction, new construction, renovation for single or multifamily. That is a generous and broad definition. I would suggest that we go for 100 percent abatement for 10 years. I think the upside is very significant in terms of revenue that comes back in. I think clearly, as I know the Administration recognizes as well, we've probably got to reword these bills so that they can be consistent with the Commonwealth's Local Economic Revitalization Tax Assistance Act, and we are prepared to help devote some of the time of our attorneys pro bono to work with the City. But we think we want to clarify that that act can apply to new residential construction and improvements to existing. I think if you look at these charts, you will see that we are making minimal use of 37 10/28/99 WHOLE COMM. - 970652 abatements, and that I think -- as I think the Councilman suggested before, if you advertise these abatements, people will take advantage of them. I think there's an enormous opportunity for this Council to pass a series of abatements that can stabilize neighborhoods and attract new residents. So I thank you very much for this opportunity, and I would be willing to answer any questions that people in Council may have.

The Chair recognizes Councilman Cohen.

What is it -- Mr. Levy, what is the bill number you're specifically testifying on?

On Bill --

970652.

Councilman, in my opening remarks, I asked your indulgence that my remarks be addressed not only to 652 but another bill that will be heard today, which is 970214. I think they are related bills --

That's the new commercial -- 38 10/28/99 WHOLE COMM. - 970652

One is for new construction and one is for existing renovation. And what I'm suggesting is that rather than split hairs, let's talk about stimulating both new construction and renovation and do this broadly and really send a very clear message that we want to retain residents and attract residents. So I took a little bit of liberty to extend beyond the specific bill to focus on both bills.

What's the number of the other one?

The other one is 314. One addresses new construction, the other addresses renovation.

But do both relate solely to residential properties?

Yes.

Yes. That is my understanding.

And do they refer to residential properties consisting of both single-home ownership, duplexes, as well as larger 39 10/28/99 WHOLE COMM. - 970652 properties?

Yeah. Certainly, my recommendation is that we focus on single-family, multifamily, duplex, condo, apartment, and that we not try to split hairs and that we would welcome residents of any and all type and any type of tenancy, and that that ought to be our goal.

And does it also apply to any and all income levels?

I was suggesting that we not impose any type of income levels, that we look at this more broadly because the upper-income people who would be getting their abated real-estate taxes would be paying higher sales taxes, higher wage taxes -- that was the experience in Center City. But rather than try to set a cap, which in this case, was twenty years out of date, I would suggest you just make it available to everyone who wants to renovate a house, buy a house, or be in an apartment.

Buy an existing house?

No, I think that -- and, again, I'm not the author of these bills, but I 40 10/28/99 WHOLE COMM. - 970652 think the spirit was new construction or substantial improvements to an existing property.

Councilman, just to clarify.

Yes.

I'm Michael Nadol, the City's Finance Director. The first bill regarding home improvements only applies to owner-occupied residences of up to three units. The other bill 12 under consideration for new residential construction would apply to buildings with any number of units, including larger condominium complexes and the like, with the provision that the dwelling unit be owner-occupied. So it would not apply to residential apartment buildings, but it could apply to a large residential condominium development or row homes or the owner-occupied dwelling unit in a duplex.

And I believe that --

And that's -- I'm sorry. In both cases, that's consistent with the current abatement programs that are being modified -- 41 10/28/99 WHOLE COMM. - 970652 proposed for modification today.

Isn't there also a maximum, according to the bill before us? "The maximum cost shall be $41,200 per dwelling unit for improvements constructed"?

For the improvement bill, that's correct.

Mm-hmm. So there is a cap.

That's correct. It is a cap. Again, just to clarify -- I hope clarify.

I don't know that --

It's hard to clarify when you start talking about assessment value and market value.

I know. I didn't know if the Councilman knew that.

But that's a limit on the value of the improvement s and on the assessed value of the underlying property. It's not specifically pegged to income, per se. Although, of course, a lower-income person would not likely be able to afford an extraordinarily expensive 42 10/28/99 WHOLE COMM. - 970652 property.

Well, I --

That's not the cost of the property; it's the cost of the improvement that we're talking about. Is that not true, Mr. Nadol?

Well, I just -- I'm not sure I --

No, they're both -- they're each capped separately, with separate limitations.

Let me use my own home, 'cause it's in an old, established neighborhood.

Councilman Cohen, would you excuse me just a moment.

Yes.

So that I can recognize Councilwoman Tasco, who is late for an appointment.

Madam President, I ask to be excused for a moment to go take care of some Council business. I should return, but if I'm not back prior to the vote to report these bills out of committee, I would vote to report all 43 10/28/99 WHOLE COMM. - 970652 bills out of committee, with the exception of Bill 3 980927. But I hope to return.

Thank you. And you --

Bill 980927 -- I'm not voting to report that out of committee.

All right. And, Councilwoman, if there are amendments to any of the other bills, are you in favor of them?

Yes, ma'am.

Thank you. Councilman Cohen?

I live in either Logan or West Oak Lane, depending on whether you're buying or selling. And suppose I embark on a major improvement, suppose I embark on a major improvement on my home, say, at the cost of $10,000. And that would result normally in an increased assessment of $10,000 by the Board of Revision of taxes. Now, tell me what happens under the impact. Is there any impact on that? I'm a homeowner and I live there, I'm a long-term 44 10/28/99 WHOLE COMM. - 970652 resident, 48 years.

Is there an impact because of the bill that's under consideration today?

Is there what?

You're asking if the bill 7 under consideration today would change the --

It's that bill, Bill 9 -- 652 are the last three numbers. Does it apply to that situation?

I believe that it would so long as the assessed value of the property in question would qualify under the eligibility cap for the program.

And what is the eligibility cap for the program?

Today, the eligibility cap is limited to -- limits the program to those properties with an assessed value below $15,000 per unit.

Below what?

$15,000 per unit.

15.

Which, again, is assessed value, not actual real-world sales-price value. 45 10/28/99 WHOLE COMM. - 970652 Under the --

Yeah, well, I'd fail on that basis.

Under the bill that is proposed today, that cap would increase to $61,800. So I don't know if you would call qualify or not, but --

Give me those numbers again. You said 6,000 --

61,800.

Okay, 61 thousand. It would qualify into that.

Okay.

So that would raise it to homes that have a market value of presumably well over $100,000 very likely.

At that assessed value, you would be talking about homes with a BRT market value of close to $200,000. And in actual real-world market value, of closer to $250,000. The program, as proposed under the ordinance, would also extend the abatement from the current five-year phased-out abatement to a phased-out ten-year abatement. 46 10/28/99 WHOLE COMM. - 970652

What would be the rationale? When we talk of the Gas Works exemption for senior citizens, we talk about how there ought to be a means test. Why would there -- or should there be a means test in one area and not a means test in another area? I mean, what's the rationale behind giving an exemption to people whose market-valued property is $150,000 to $250,000, who obviously have the financial means to pay the real-estate tax?

To move.

What?

To move.

Well, everybody has the right to move if they so choose. I mean, are we in the business of kind of bribing everybody to remain here? I don't think Philadelphia's a terrible place; I think Philadelphia's a fine place. And I don't understand the panic about people moving. We've got a problem and we ought to work on it, but I'm not sure that giving away a lot of goodies is the way to maintain --

Councilman, if I may 47 10/28/99 WHOLE COMM. - 970652 clarify the Administration's -- --

I think they're going to more likely sell because they're now going to have something they're going to be able to advertise as a subject for sale.

Councilman, if I may clarify the Administration's position. Before you were able to join us, the Administration would be recommending that the eligibility cap be set at $25,000. There's not yet an assessed value. There's not yet an ordinance or an amendment to that effect before you. But our position is that the existing $15,000 cap, which has been on the books for over years, should indeed be raised upward to 17 capture more middle-income and lower-income 18 residents but that it should not necessarily be 19 raised all the way up to the level proposed in the 20 ordinance. And some of your colleagues, of course, take a different perspective and have their own rationale for promoting a different perspective. But just to be clear about where the Administration is, we would set it at a $25,000 48 10/28/99 WHOLE COMM. - 970652 assessed value, which equates roughly to a $100,000 home.

(Inaudible, off mike.)

I'm sorry, Councilman, we can't hear you.

Okay, just point of order. Could someone answer the question, what is the median price home in Philadelphia today?

I believe it's in the 50 to $60,000 range.

Dave Glancy, maybe?

Bear with me. (David Glancy comes forward.)

Mr. Glancy, please identify yourself for the record.

Good morning -- or good afternoon, Council President and members of the City Council.

Good afternoon.

My name is David Glancy, and I'm Chairman of the Board of Revision of 49 10/28/99 WHOLE COMM. - 970652 Taxes. I don't have an aggregate number, but I can -- this may even be more helpful. In 1998, the median price for a row dwelling was $40,900.

40,000.

40,900.

40,900 for a row home?

For a row home.

So the people that describe themselves as "row home candidates" ought to be living in homes of -- is that the market value?

That's the sale price, actually. These are actual sale prices for that year.

And would you have any idea of about how many homes are in that category?

Yeah. About 300,000.

300,000.

Roughly.

Out of how many?

Our total residential base 50 10/28/99 WHOLE COMM. - 970652 is somewhere in the vicinity of 450,000. We have 567,000 total parcels. About 450 are residential. And of that residential, I don't have the number in front of me, but I'm assuming it's somewhere about 300,000.

I think the 300,000, I think that makes a sounds basis.

A median price -- 1998 numbers are what I'm giving you. I have some historical numbers, but I think the 1998 numbers are relevant. For semidetached dwellings, twin homes basically, it is $80,000, which is a significant jump from rowhouses to semidetached houses.

How many fit in that category?

You know, Councilman, I don't have that number today. I can get that for you. What our total base of detached housing is -- or semidetached housing is? Sure. In fact, what I will do is, I will submit to Council the numbers on rows, semidetached, and detached.

Well, that would be very helpful very helpful. 51 10/28/99 WHOLE COMM. - 970652

I think you would have that universe. And in that, somehow we will also include condominiums 'cause I think that's important. They don't necessarily fall within those categories, but we'll give you those numbers also.

That would be very good.

Okay. So anyway, the semidetached dwellings, for the 1998 sales -- median sales price of a semidetached dwelling, we $80,000. And, finally, the 1998 median sale price for a detached dwelling, a single-family home, one single-family home, is $120,000. And these are all median prices. The mean prices are somewhat higher, but these are median prices.

What is the Administration's position with respect to the cap? Which of these groups would be included in and which would not be included in? By "Administration," I mean the Mayor's official position. 52 10/28/99 WHOLE COMM. - 970652

Right. The Administration's position is the cap would be best set at $25,000 an assessed value. That would equate to just over $100,000 in actual sales price, and it would apply to approximately 95 percent of the residential dwellings in the City.

It would include both the rowhouse category and the semidetached? Clearly, we don't have any figures on the detached.

I'm sorry, Councilman, I wasn't clear. The median sale price for detached was $120,000 in market value -- I'm sorry, in sale price. Now, $120,000 in sales price may equate -- "may," I say, to a BRT market value of about $120,000. Because, as you know, we're always a little bit behind of what the actual sales are. So it may -- and I think Mr. Nadol is absolutely correct when he says that we would capture mostly $100,000 and below homes when he's talking about the BRT market value. And I think he's absolutely right. 53 10/28/99 WHOLE COMM. - 970652

Are there any figures that have been submitted? If the Administration's recommendation were to be accepted, what would be the average annual loss in real-estate income? Have there been any studies made, say, over a five-year period, a two-year period, something where we could gage what we would lose in normal improvement work that's done or construction work?

It's a little hard to be precise about those estimates because current participation in the existing program is extraordinarily low. And there are really two ways of assessing the impact of this. Do you look at the worse case -- and we've done that and we've provided those numbers to you. Or do you look at the --

What are those numbers?

-- current participation in the program? If you look --

I don't mean -- yeah. 54 10/28/99 WHOLE COMM. - 970652

If you look at the worse-case numbers, which would assume that everyone who's now taking out an L&I permit for improvements chooses to participate in the abatement program and that if they hadn't done so, Dave and his troops would have caught up with them immediately upon the completion of their improvements otherwise. The order of magnitude of the impact is about three quarters of a million dollars a year for the City and for the School District each. That is a worse-case perspective. Looking at it from the perspective of current participation in our existing five-year abatement program, there are literally only a handful of homeowners who currently take advantage of this program and the current lost revenue, as a result of the existing abatements, is -- it's de minimis, it's under $10,000 a year. So I think the actual experience would fall somewhere between those two points. It would be real and quantifiable, but it would not be a serious threat to the City's overall finances. And if it succeeds in encouraging greater 55 10/28/99 WHOLE COMM. - 970652 investment and greater retention of our residential population within the City, then it could have net benefits for all of us.

Well, why doesn't the City accept the notion of unlimited cap, based upon what you're saying?

Again, we would -- we would propose focusing the program's resources on middle-income working folks and lower-income residents of the City. Our feeling is that it may not be as necessary to provide this kind of tax break for the City's more affluent residents. It -- you know, this is sort of a public-policy perspective that, you know, reasonable people can disagree about, but that is our position.

Councilman, I want to clarify. I'm not speaking, obviously, for the Administration, but I --

Please identify yourself for the stenographer.

I'm sorry. I'm Paul Levy with Central Philadelphia Development Corporation. I was obviously taking a somewhat different position from Mr. Nadol's. And I think 56 10/28/99 WHOLE COMM. - 970652 -- I very much respect the need to protect City revenues, but my point was that the real-estate tax accounts for only percent of locally- 5 generated revenue. And if in abating that, you 6 can attract people into the City who will be 7 paying wage tax and sales tax, then that loss of 8 real-estate tax can be more than recouped in other 9 taxes. 10 In the analysis that we have done of 11 two admittedly Center City project -- and that's a 12 different economy -- but the analysis we have done 13 of two Center City projects shows that those 14 projects in their first or second year more than 15 repay the real-estate tax abatement in wage taxes, 16 sales taxes, and other taxes that are generated by 17 bringing people into the City. 18 And so, as I think Mr. Nadol said, 19 there is reasonable grounds for disagreement, but 20 we think that a more aggressive program in the absence of a cap, which is the recommendation that I'm making, could be more successful in attracting people in, and then we could have an upside in revenue. But there is clearly reasonable grounds for disagreement here. 57 10/28/99 WHOLE COMM. - 970652

When you say that real-estate tax represents percent of the 4 revenue, do you mean the real-estate tax revenue 5 that the City gets or the amount of revenue that 6 the City plus the School District gets? 7

No, I was referring to City 8 revenues at that point, that's correct. There is 9 a separate issue that was raised earlier. 10

'Cause the School 11 District, in fact, gets more real-estate revenue 12 than the City does. 13

That's correct, that's 14 right. 15

I thank you, Madam 16 Chair. 17

You're 18 welcome. 19 The Chair recognizes Councilman Kenney. 20

Thank you, Madam President. Just two comments on two things that were said during the course of that discussion. With all due respect to Mr. Nadol and to the Administration, I think that that position that 58 10/28/99 WHOLE COMM. - 970652 this program should be intended to be directed at lower-middle-income and poor people, I think is absolutely off base. I think the problem that we have is that the middle- and upper-middle-income people are the people that we're losing. And as a result of Councilman Cohen's comment about not being panicked about the number of people leaving the City, I don't know what the Administration's position would be, but I'm certainly panicked over the fact that 150,000 of our middle and upper-middle-income residents have left the City over seven, eight year, despite -- despite the improvements that this Administration and this Council has made to government and to the Administration of government, we're still losing then. And I'm going to give you a good example in my own personal life as to why I think this an effective -- and Councilmember DiCicco's levels are even higher 'cause I'm an advocate of no cap. I bought a house about 10 years ago for $80,000. I think my house now may be worth $80,000, about the same, or 85 -- certainly no 25 more $90,000. 59 10/28/99 WHOLE COMM. - 970652 I have a link to the City because of my employment. Many people who leave the City obviously don't have -- they're not police officers, firefighters, or Councilpeople, so they have the ability to move, regardless of what it is they do for a living. I'm in a position now in my house where I need a new bathroom definitely. And in order to do a new bathroom, I really would like to extend my daughter's bedroom to the back rear of the house, 'cause we have a little kitchen roof, and I'd like to extend it all the way back there in order to make the bathroom bigger so that the bedroom could become bigger. And my wife would really like to have a new kitchen too because the tiles and the floor are cracked and broken, and she don't like the cabinets. And I figure the bathroom, on a conservative basis, $15,000. In order to move my daughter's room structurally back to the back of the house, we're talking perhaps another $25,000. And if I do a really modest renovation on my kitchen, perhaps $10,000.

That's cheap. 60 10/28/99 WHOLE COMM. - 970652 (Laughter.)

That's cheap. I'm giving a low-case scenario, a low-case scenario. If you take the value of my home at $80,000 or $85,000 and you look at between $40,000 or, say, $50,000 in renovations that I need to spend to make my house comfortable, without that incentive, this middle- or upper-middle-income person could leave the City and buy a new home in Washington Township for the same amount of money. And I think that the Administration needs to recognize, and I think they probably do, but they have other concerns as it relates to five-year plans and other kinds of things, and I recognize that. But there is a need for some -- not even drastic, some innovative action. We cannot continue going on worrying about the number of low-income people we have in the City because we have a lot of them, and they're not moving to the suburbs. And the middle-income people, in many instances, are not moving to the suburbs 'cause they probably can't afford it. It's the 40-year-old's and the 61 10/28/99 WHOLE COMM. - 970652 45-year-old's with and kids who are looking at their circumstances and saying, You know what? I'd like to invest this money in this house, I'm concerned about the neighborhood, I'm concerned about the schools, I'm concerned about other things. But I also know that if I invest this money in this house, I'm going to pay an increase in my real-estate taxes, so I might as well go to Jersey. I might as well got to Jersey, pay the increased real-estate taxes there and save the $6,000 or $7,000 a year that I'm paying in private-school tuition. And I'm out of here and I'm never coming back. And I honestly believe, and I think Mr. Levy has alluded to the fact that with Councilman DiCicco's efforts on the conversion legislation he did the, road map is there that is clearly successful. We've attracted people, we've retained people, we've renovated buildings that were not useful or weren't being used to their fullest potential. And I can't believe based on the road map that was set up on that conversion 62 10/28/99 WHOLE COMM. - 970652 legislation, we could not apply the same concept here and attempt to save our middle-class taxpayers that carry the burden of the poor. They are the people who carry the burden of the poor, and they're not carrying them anymore in Philadelphia. With all due respect, I know you have a position that the Administration is taking, and you have to articulate that. But I would take back to your administration our view -- at least my view and Councilman DiCicco's view and a couple others. And that is, if we don't figure out a way to save that upper-middle-class and that middle-class taxpayer, forget it, turn the lights out, it's over. Thank you.

Thank you. Are there any other questions from members of the committee? (No further questions.)

Council President, I would like to clarify one issue that was asked about earlier during some of the other discussion. Mr. Glancy was able to help clarify the matter of 63 10/28/99 WHOLE COMM. - 970652 whether each separate improvement, if you make more than one improvement in a period, would qualify for up to the maximum cap provided under the ordinance, or whether you have to aggregate those improvements and then bump up against the cap. As explained to me, the way the program's currently administered, each separate improvement will qualify up to the amount that's specified in the ordinance, whether it's the existing cap or some future cap that's higher. So under the new ordinance, if it's set at $41,200 if you made one improvement -- if you got the new bathroom and the bedroom extension this year and did the new kitchen right in a couple of years and spent 41,000 each time, they would both qualify so long as the overall assessed value of the house stays within the eligibility cap set with that part of the ordinance. And in practice, what often happens is that as more and more improvements are made, the underlying assessed value will bump the house up above the point where it qualifies under the existing limits. So, effectively, you may not be 64 10/28/99 WHOLE COMM. - 970652 able to do improvement after improvement; but technically, you could so long as you're not caught by the other cap. And I know that's a little confusing, and I hope that helps clarify it.

Thank you, thank you.

Mr. Nadol, let me ask a question on that, if I may. Let's say Mr. Kenney does all of the necessary improvements.

You mean Mr. Kenney's contractor because Mr. Kenney can't do it. (Laughter.)

Okay, I know. And he's there for three years and then decides he's going to sell. I buy the property. Am I eligible for that same abatement? Doesn't that come with the property?

Yes.

It does.

Yeah, it does carry forward. 65 10/28/99 WHOLE COMM. - 970652

For the record, I wanted that to be known. Councilman Cohen?

Does that 41,000 exemption -- let's assume that to be the cap. Is that the cap enter for one year?

Yes.

Or is it a lifetime cap for the property? What is the cap? How long does it extend? Suppose I do $10,000 every year?

You would be able to do that, and each improvement would be eligible separately so long as the underlying assessed value of the property itself is a result of all --

Why would that be able to do it?

I'm sorry?

Is it because the cap is an annual cap? Within what time limit does the cap apply?

The cap applies for each improvement that is done, each application that you make. Then under the current program, the abatements that follow from participation in the 66 10/28/99 WHOLE COMM. - 970652 program lasts for five years, and it's proposed to be extended for ten years.

Is it possible that an improvement can be partially exempt because half of it fits within the cap and half of it will be ruled outside the cap? Or does the whole exemption fail?

It -- the partial amount up to the level set by the cap would be eligible for the abatement under either the existing or the proposed new program.

So the real cap is the underlying value of the property as a practical matter, isn't it? Isn't that the real cap?

That certainly can be the real cap, yes. That certainly can prohibit abatements that otherwise would have qualified under the per-improvement limit.

And the only way that you could get a whole lot of work -- I mean, the $100,000 worth of work -- would be to buy a shelf a house, you know, buy a house that's totally dilapidated, and then have a series of 67 10/28/99 WHOLE COMM. - 970652 improvements until you improve it and put it in a condition of, say, worth about $100,000. Under the Administration's policy, under Mr. Levy's recommendation, you can buy a hulk of a house and just build a whole new house and then have it all come under the cap up to the $100,000 figure, right? I'm just trying to understand what you're talking about.

Yeah. Well, I think you said it correctly before. The real limitation is the value of the property.

It's the value of the property, right.

You could buy a house that's only -- you could put $100,000 into a house that's only worth $10,000 even after you've done it, based on other conditions, and the City can't give you an abatement for $100,000. The maximum is set by the value of the house.

And that would be true for new construction?

Absolutely. And that's why I suggest -- I mean, I just -- if you just think through the administrative nightmare of saying, I 68 10/28/99 WHOLE COMM. - 970652 did $14,000 this year, 12,000 next, does it add up, do people start misrepresenting what they're doing? That's why I'm suggesting having no cap whatsoever. The goal is to get renovation properties, to get new construction, to retain and attract residents, and I think upside is there in wage tax, sales tax, and it just -- not to take issue with Councilman Kenney, but if you keep middle-class people in this city, you also stabilize the value of low-income homeowners' properties as well, 'cause if middle-income people are leaving, then poor people are living in houses they own see their equity evaporating. So I don't think it's an either/or choice. The more middle-income and upper-income people we have in this city, the higher the value of low-income people's property is too. So I think we're benefiting everyone in this.

Well, without respect to whether abatement is a proper procedure as a means of keeping folks, I think it's very urgent to keep every level of people in the city. I think -- and I'm very disappointed that the 69 10/28/99 WHOLE COMM. - 970652 Administration has never carried out a campaign with all the businesses that it deals with to try to bring all the executives into the city. I think we have a huge housing market that is awfully good for every level of people. I don't know why it's assumed that people have to move outside the city as soon as they come to Philadelphia or bring their businesses here. I'm all for that. I'm just dealing with the abatement question, and I would like to translate into value, I'd like to translate into value -- into dollar value what the savings is. First, do we have any statistics as to the average cost of improvements over some time period that are now being done? What's the average improvement value, say, when people take out contractors, take out permits? Don't they usually have to take out permits to do the improvement work, say, the kind that Councilman Kenney talked about?

I think that most -- they usually -- it's always required to take out the permit. 70 10/28/99 WHOLE COMM. - 970652

All right. And there must be a database available to determine what the level of expenditure for improvements is per household.

Yes. We have -- in developing the estimates of the cost impact for this program that we're submitting to you, our staff did analyze actual L&I permit data over a six-year period.

And what would be the average cost of improvement?

I'm hoping I can put fingertips on that for you quickly.

Well, I'm going to ask Mr. Glancy to translate it in terms of tax savings that would occur. I'm just trying to think in terms of specific dollars that we're talking about.

The average, as we've identified it, would be just under $15,000 for a typical improvement, but there's a great deal of variation and there are many that are much more than that, and there are --

Many that are much 71 10/28/99 WHOLE COMM. - 970652 less.

And there are, of course, many that are much less. The range -- you know, the dollar value for improvements really -- it doesn't all cluster around that $15,000 average. There are significant groups at varying levels.

Well, if we get figures from Mr. Glancy at and and 20,000, 10 wouldn't that give us a pretty good idea? 11

I'm sorry, Councilman. I'm 12 pretty much -- 13

If we were able to 14 get from Mr. Glancy, the Chairman of the Board, 15 average tax dollars that are involved in improvement levels 10,000, 15,000, 20,000, you know, how much will that increase the real-estate tax on average? I realize that every case is an individual case. But then we can talk realistically of what we're talking about. Would that be possible, Madam Chair?

Certainly.

Councilman, we have done analysis working from our study of actual L&I permit data and certain assumptions about other 72 10/28/99 WHOLE COMM. - 970652 increased participation in the program as a result of changing the eligibility requirements for the program, and that information is submitted in detail in the written testimony.

Well, the way the information is submitted in detail and the ability of Councilmembers to comprehend it may be two different things. I'm asking from my ability to comprehend, and other Councilmembers may have their own questions to ask.

I'm sorry, Councilman. Having helped to author the testimony, I can tell you my ability to comprehend it is sometimes limited. The real-estate tax issues can become very complex. What specifically is your question? And we'll do our best.

Well, if someone puts in an improvement of $10,000, what increase in taxes is he likely to face now in real-estate taxes?

Councilman, you kind of threw me off 'cause I just did the $15,000 improvement, which you had talked about initially. At $15,000, assuming again, the assumption again 73 10/28/99 WHOLE COMM. - 970652 is that we capture that entire market value as a BRT market value, it's about $396 in real-estate taxes.

And, Mr. Levy, you think that kind of savings plays a large role? I can see why you think it plays a large role in a whole house at 50 to 100,000 in improvement.

You know, let me go back to the --

What would be Councilman Kenney's illustration? What would he save? I want to see whether the amount of an expenditure, how it corresponds to the tax.

What was the total added in your example?

50,000.

50,000?

That was your top figure, right?

Councilman, if I could go back to a question that the Council President had asked before. You know, when the ten-year abatement was passed here in Center City, in addition to the media coverage, we certainly were 74 10/28/99 WHOLE COMM. - 970652 in the business of publicizing that as a private- sector organization. And when you shine a light on an incentive, it attracts people to use it. And I think the economic incentive is part of a telling people that incentive exists, which we're not doing as good a job on, and I think we would all recognize that that would lure people, and they'd say, Oh, I can get a break if I do that. Everyone of us will go for a sale. And I think part of what we're talking about here is that advertising these abatements will attract people even if the cash value in some cases is small, but it helps equalize those disadvantages you can see for living in the city and the advantages elsewhere. So, again, my broad point here is simply that we are losing people even from the neighborhoods that have the highest volumes of construction in the city, and I think Council is in a position to take some dramatic actions here, which I don't think cost very much money, but which could begin to turn around and stabilize neighborhoods and attract people. 75 10/28/99 WHOLE COMM. - 970652

Well, my feeling is that the Administration's public policy determination is probably a good one. It will be awfully difficult, I think, to convince people in the rowhouses that people who buy homes at 100 to 200,000, 300,000 a year ought to get abatements. You know, I think there's a real element of fairness, and I suspect that that's what concerns the Administration as a public policy matter and, therefore, they don't favor an unlimited, you know, cap. They don't favor the removal of any cap. That, I assume, is what the public policy consideration is. But I find it interesting. What would be the cost? What would be the --

Yes, Councilman, to answer your question about Mr. Kenney's example, again, assuming that all 50,000 of the value added is captured by the board, it is about $1,322 per year. And I might note, parenthetically, that we have to remember, if this legislation were to pass, that would be a 10-year benefit. Even at the $396 a year, that's a substantial benefit for someone at the $15,000 level. 76 10/28/99 WHOLE COMM. - 970652

To clarify, it would be a 10-year phased-out benefit.

Right.

It would not be at that level each year. It would decline by percent a 7 year. 8

That's correct. I was 9 just getting at a 10-year flat, and that was 10 incorrect.

It reduces by 10 percent each year.

Correct, correct.

All right. I find that very helpful. Thank you.

You're welcome.

The Chair recognizes Councilman Kenney.

Thank you. Just one point on the issue of recapturing the value of the improvement. And this is something that we debate when we talk about TIFs. The improvement doesn't get done, so we don't capture the value of the improvement 'cause 77 10/28/99 WHOLE COMM. - 970652 if the person -- if I, in this particular situation, decided to move as opposed to improve, you don't capture anything. What you may capture is the continuing value of the property from me selling it to someone, but you're not giving away the increased value 'cause you never got it in the first place 'cause I'm out of here. I mean, I think that that's something that the Administration hasn't acknowledged. It may understand it but it hasn't acknowledged that if I don't do that improvement, if I do my calculations and decide it's better for me to pull the plug and go, you're not giving anything to me because I wasn't going to do it anyway; I was going to be out of here. So not only do you lose me but you lose my wage taxes and sales taxes and everything else.

Well, I think we certainly acknowledge that that can happen, and in many cases, does happen, and only in the TIF example but in the conversion abatement program. I think there's very little question that that program has stimulated activity that wouldn't have happened otherwise, and it's terrific. 78 10/28/99 WHOLE COMM. - 970652 For the purpose of developing our cost analysis and for our evaluation of this program, we did look at current levels of L&I permit activity. We did not assume any increase in that activity or in improvement activity as a result of an expanded abatement. To the extent that you're right, and this kind of an abatement program does stimulate that kind of new investment in the city. It would be terrific, and it would be a net fiscal benefit to us as well. That is not reflected either way in our numbers. Our numbers assume current levels of activity.

And by the way, just on Mr. Glancy's example of $1300 that it would cost me annually to do this, I know scores of people who have moved out of my neighborhood for $1,000 saving in auto insurance. So, I mean, that is a significant amount of money for a middle-class, upper-middle-class family with kids, that $1300 means something. Thank you.

Thank you. Are there any other questions? Councilman Cohen? 79 10/28/99 WHOLE COMM. - 970652

Is there any legal opinion on it? How does this fit within the uniformity clause in the State constitution?

The program already has existed and has been in place for more than twenty years with very much the same kind of parameters. All that's being proposed today is to adjust some of the eligibility thresholds upward. So it's --

I'm not asking that, I'm not asking that. Has there been a court challenge ever. The uniformity clause is often interpreted -- for example, how some new homeowner coming in, taking a shell of a house and building a house, isn't going to pay much of a real-estate tax for ten years, as against people who, you know, pay real-estate taxes constantly.

No, they would pay what they would normally paying.

And I wonder how the courts have treated the question of uniformity. They're usually very strict in Pennsylvania on that.

You're right, they usually are. In this case, the Law Department just 80 10/28/99 WHOLE COMM. - 970652 advised me that there's a specific exemption to the State constitution that provides for this type of abatement program, so that in this case, working within certain bounds that are set at the State level, we do have the flexibility to offer and to expand this type of program.

Okay. Thank you, Madam President.

Thank you. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. Just a brief statement. In this chambers over the four years that I've been here, I have had the opportunity to introduce, support, and help pass legislation primarily for developers in Center City. We've had a lot of discussion and debate on whether TIFs are the right way to go and, obviously, I had supported those. I think this is an opportunity for this Council to give the same kind of tax relief or tax incentives to working-class folks that we do to big business and developers. I mean, I'm still 81 10/28/99 WHOLE COMM. - 970652 for development, and I will always continue probably, for the most part, to support those tax initiatives, the TIF initiatives, but this is an opportunity to do the same type of legislation at a lower level for folks who are homeowners and who are not big developers. So I mean, I would urge that --

(Inaudible, off mike.) . . . homeowners that would be pretty affluent, not just for the rowhouses.

But it's for everybody. They're Philadelphians also.

Well, we've had that argument --

See, just because you happen to be able to afford a quarter-of-a- million-dollar home, I don't think you should be penalized.

Well, when it comes to senior citizens' exemptions, we don't say it's for everyone; we say it's wrong that it's for everyone. Certainly somebody that can afford to pay gas bills ought to pay the full rate and ought 82 10/28/99 WHOLE COMM. - 970652 not to get the discount. So why not here?

But I think the people at the upper end of the economic ladder are the people that are paying for the people at the lower end not to have to pay gas bills. And those are the people that we need to keep here.

Well, I don't -- I'm just troubled by that dichotomy of thinking. We argue that it's unfair to have any exemption for anybody and senior citizens because maybe somebody that's affluent may get that senior-citizen discount.

But this applies to everyone; it doesn't just apply to affluent people. That's a very small percentage of the population.

Well, the senior citizen discount applied to everyone, to every senior citizen.

Well, I think you're mixing apples and oranges here.

Yes, Councilman?

Point of order. 83 10/28/99 WHOLE COMM. - 970652 Didn't we recently eliminate the senior citizen percent discount on the gas?

Not that I'm 5 aware of. 6

Okay. I thought -- 7 I mean, the way Councilmember Cohen was talking, I 8 thought we had done something that eliminated that 9 and put a means test on it. And to date, as far 10 as I know, everybody collects it.

(Inaudible, off mike.)

I mean but there's no means test, or we didn't change anything lately.

There's no means test.

Oh, okay. I just thought that --

(Inaudible, off mike.) . . . just saying that there ought to be a means test, and I'm wondering why those folks need a means tests on a senior-citizen discount but don't require a means test here.

Well, maybe you 84 10/28/99 WHOLE COMM. - 970652 ought to ask the Gas Works about that.

All right, thank you.

You're welcome. Has the Deputy Commissioner of L&I arrived? (David Perry comes forward.)

We did have information provided by L&I. I don't believe, oh, I'm sorry, did you want to --

He's here.

We do have information confirming from l L&I that indeed information about the program is included on the permits that they issue. Beyond that, there is not currently an extensive effort to promote the abatement program.

And the question is, why not? Please identify yourself for the record.

Yes. Good afternoon, Council. My name is David Perry, and I'm Deputy 85 10/28/99 WHOLE COMM. - 970652 Commissioner for Construction Services for the Department of Licenses and Inspections. Currently, there's two methods that we use to notify people of the tax abatement program. The first method is with the building permit application itself. There's a message at the bottom of the application that talks about the tax abatement program, and it has a phone number and address for additional information.

In real small print. You'd have to really. . .

Yes.

Oh, I could really see it from here. Can I see that, please?

And the second one we have is on the actual --

Can I see that, please?

Oh, sure.

Would I be able to read it without my glasses? Nope, I need my glasses. That is a stamp, is it not?

Excuse me? 86 10/28/99 WHOLE COMM. - 970652

That's just stamped on, isn't it?

Yes, it is.

And it's really not very clear, is it?

The new applications that we have do have it printed on there. That was an older application, and we had to hand-stamp the tax abatement notice on them.

Could they do it in bold type? I mean, I think these are things that we should be advertising. I think we need to let people know about this.

Well, certainly with the next revision of that form, we will make that message far more prominent than it is now. I do agree that it is kind of buried in the boilerplate on the permit application, and we can definitely do that. We will make it larger and more prominent. The second method that we use to notify people of the tax abatement program is on the building permit form itself. It is listed on there -- again, the same information concerning 87 10/28/99 WHOLE COMM. - 970652 address and phone number.

My question was, why are so few residents participating in the existing abatement program? And why doesn't the City actively advertise that? And I don't think this is a very good example of what we're doing.

Of all the building permit applications we get in, I would say that maybe 200 of 'em would even qualify for this particular program. There's very few that are actually processed through L&I. The typical applicant that comes in to get the building permit is not the property owner. It could be the architect, the engineer, or the contractor who. Regardless of what information we give them, that may not get back to the building owner to even realize that they have a possible tax abatement to take advantage of.

Thank you. Are there any questions from members of the committee? The Chair recognizes Councilman Kenney.

Thank you, Madam 88 10/28/99 WHOLE COMM. - 970652 Chair. I want permission to leave the chamber on personal business. If any of the bills before us come up, I would like to be recorded as voting aye and any -- and also aye on any amendments that are agreed to by the primary sponsor.

All right, and --

And I shall return hopefully within about an hour and a half.

You'll back by what time? We're timing you.

2:15.

Okay, thank you. Are there any other questions on this particular bill? (No further questions.)

Seeing none, I would like the record to reflect that Bill No. 22 960663 is being withdrawn at this time at the request of the sponsor. I would -- I know that everybody here is waiting to hear on the transfer tax bill, but 89 10/28/99 WHOLE COMM. - 970214 there have been a number of Councilmembers saying that they will be back very shortly, and I think in all fairness to everyone, perhaps we ought to consider that as our last bill, if you don't mind waiting. The next bill to be considered is Bill 8 No. 970214. I would like Mr. McPherson to please read the title of the bill.

Bill 970214, an ordinance amending Section 19-1303, Paragraph 4 of The Philadelphia Code, entitled "Authorization to Offer Exemption From Real-Estate Taxes on New Construction of Residential Properties," by changing the period of exemption from three years to ten years, under certain terms and conditions.

Mr. Nadol?

Thank you. This proposed bill would expand the City's existing exemption for new residential construction. Currently, the City provides a three-year full abatement, and this bill would seek to change this exemption period to a ten-year phased-out exemption. The one important consideration here is that under the current State Enabling legislation 90 10/28/99 WHOLE COMM. - 970214 for this type of abatement program, we do not have the authority to implement this kind of a ten-year abatement period. So any action on this bill 5 would only be the first step toward putting the actual program in place. In terms of the potential cost of this program, in terms of the incremental loss in revenues over and above the existing three-year abatement, we estimate that the cost, with current levels of construction activity, would be relatively modest. In the aggregate, once the full program rolls into effect, it would only be approximately half a million dollars per year, which would, again, as with any of these property tax abatement, be split roughly evenly, slightly more by the School District, and a little less by the City. So the cost impact of this with current construction levels would be relatively low, and the average benefits to an individual homeowner would be significant over the full ten-year phased-in period of the abatement, assuming approximately a $75,000 market value property which for new construction -- a BRT market value 91 10/28/99 WHOLE COMM. - 970214 was the basis for our analysis. This would save the participating homeowner nearly $5,000 over the ten-year period, which we think might indeed provide a significant incentive to participate in the program and to make the kind of investment that the program is designed to encourage. In addition, we do strongly support the phased-in approach proposed under this ordinance 10 because in our Revenue Department's experience, there can be an assessment shock for people who experience the current three-year full abatement and then drop off the program abruptly. Under this phased-out approach, taxpayers would be eased into paying the full freight for their real-estate taxes while still receiving a substantial incentive beyond what's currently provided. So for all of those reasons, and in recognition of many of the issues we've already talked about in connection with the earlier propose ordinance, the Administration supports Bill No. 970214, which we believe could create a powerful new tool for generating increased residential investment in the City.

What happens if 92 10/28/99 WHOLE COMM. - 970214 somebody sells the house? How many years does the new owner get? Let's get it on the record. Well, isn't there somebody from the City Solicitor's Office that can give us an answer? I'd rather not speculate.

I certainly would not want to speculate on the record. We will ask the City Solicitor to clarify that point. (Mr. Nadol confers with colleagues.)

Councilman? I apologize for the delay in answering your question, Councilman. Councilman, I apologize for the delay. To answer your question, we did just review the original ordinance being amended, and this abatement does run with the property. If the property changes hands, the abatement nonetheless continues.

The abatement will what?

Continues. It continues with the new property owner.

With the new property owner? 93 10/28/99 WHOLE COMM. - 970214

Correct.

For how many years does the new property owner have the abatement?

Through the full ten-year term of the abatement.

Does it begin in the fourth year --

Yes.

-- if he purchased the proper after three years of abatement?

Yes, correct. The abatement runs with the property. So that abatement is on the property for the ten-year period, and it doesn't start over if the property is sold.

And is that the decision of the Law Department?

Yes.

That's their interpretation?

Yes.

Because, you know, if the language is loose, we run the possibility of creating properties that are tax-exempt 94 10/28/99 WHOLE COMM. - 970214 forever, you know, or partially tax-exempt. I'm just worried about -- incidently, is there any immediate urgency? I'm wondering why this bill, say, was scheduled for today, a week before the election, when Councilmembers are overwhelmed with all kind of commitments. Shouldn't we have had the hearing a long time ago, or is there any reason why it can't be heard right after the election? I don't hear anything about how anybody has a bank loan that has to close by October the 31st and, therefore, we've got to have the hearing this week. I mean, that's the reason we're having difficulty maintaining the --

Councilman, I think you're asking the wrong person.

Thank you.

These are not Administration bills; they're bills that have been introduced by Councilmembers, and I believe Councilman DiCicco would like to be recognized at this time.

Yeah, go ahead. I'd like to know why can't this bill -- 'cause there 95 10/28/99 WHOLE COMM. - 970214 seems to me -- the bill seems to have a lot of merit; it seems to also have a lot of rough edges. I'm interested in doing something that doesn't have all of these rough edges. The bill 6 seems to have some merit; I think it deserves a full hearing and not just speculative answers.

The Administration shares your feeling that this bill has an enormous deal of merit. We support this bill. The questions --

Well, why do we have to put it in --

The questions that you were asking pertain to sections of the existing ordinance that have been in place for many, many years, without problems arising out of those provisions. The portions of the bill that are proposed to be modified are relatively narrow and, I think, relatively straightforward and clear in their intent.

Well, but when you raise amendments to a bill, you raise again for consideration the whole bill. It gives the legislative body an opportunity to reexamine it. There may be things that we can improve in the 96 10/28/99 WHOLE COMM. - 970214 whole bill. You don't just consider the amendments; you've got to consider what the amendments are attached to. But I find all through this that there are many answers that people aren't certain about. You know, with due respect to Mr. Levy, who is very well informed, there were areas that he wasn't sure of. I think we ought to be sure of what we're doing. If it's a good thing, we're going to want to do it, and we're going to want to do it in the best possible and most effective way. But I really raise the question of why it's being pushed through now. I don't know why it can't be considered in the month of November.

Councilman DiCicco?

Thank you, Madam President. I have a question because I wanted to include multifamily dwellings, and I believe in the legislation, in Section b., under "Definitions," in parentheses, number 3, "Eligible dwelling unit means a dwelling unit 97 10/28/99 WHOLE COMM. - 970214 located in a single house, double house, duplex, townhouse, rowhouse, apartment building, condominium unit, or cooperative unit, where the dwelling unit is owner-occupied." My concern is -- I would like to see this legislation with Council's approval, obviously, relate to a developer for the development of multifamily apartment buildings, where the developer or the owner of the property does not have to reside in it. I mean, we do TIFs for -- we do TIFs for hotel and other high-rise developments. This is a way, I think, in which we can offer some abatement to the developer without having to go through the TIF process, and I want to make it available to developers. Now, what would need to be done in terms of an amendment?

On --

Same bill. 970214.

Unfortunately, Councilman, that is an issue that I think we would need to go back and look at a little more carefully. We did do our best to analyze the bill as presented. Our 98 10/28/99 WHOLE COMM. - 970214 cost estimates did not contemplate the type of expanded coverage that you've just expressed an interest in. And without being able to really look at those costs, it would be hard for us to take a position. In addition, we would need to have the Law Department look further at the State Enabling Act to see whether there might be conflicts there. Of course, as we've already noted, we'd have to change the State Enabling Act anyway in order to put this proposal into place.

Right. I was prepared to put an amendment to that effect at the end of the hearing.

But that might be another area of the State Enabling legislation where we're constrained. I'm not sure; it's something we just would have to go back and look at further.

Thank you. At this time, I would like to make a statement. The Council will stand in recess until 2:15. So, Mr. Nadol, if you would be back then, I'm sure there are a lot of other questions that we would like to ask. 99 10/28/99 WHOLE COMM. - 970214

Of course.

Thank you all. See you at 2:15. (Break taken.) - - - (Proceedings resume.)

We will now resume the public hearing of the Committee of the Whole. Mr. Nadol, you were giving testimony on Bill No. 970214.

Thank you, President Verna. I believe we concluded our formal testimony on that bill, but I would be happy to answer any questions.

I just have one question. Assuming that the State will make the amendment in the future, will homeowners who purchase a new house after our enactment of this bill, but before the date that the State does the necessary amendments, qualify for the abatement?

The Act, as I understand it, would not -- or rather, the City ordinance 25 would not become effective until the State law 100 10/28/99 WHOLE COMM. - 970214 would be changed. So the expanded abatement would not apply for the property owners that you just inquired on behalf of.

Okay, thank you. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. But they still would qualify for the three years.

Sure, they would certainly still qualify for the existing abatement program.

Do any of the Councilpeople have any questions regarding Bill 16 No. 970214? (No questions.)

There being none --

Madam President?

Oh, I'm sorry.

Let me go back to my earlier question before we recessed. Do I need to do an amendment or do I need to change the 101 10/28/99 WHOLE COMM. - 970214 language of the bill to be able to include multifamily dwellings, the entire multifamily dwelling as opposed to the unit in a multifamily dwelling? Do you have any suggestions or comments on that?

Yes. As indicated before the recess, that's something that will require more research both by the Law Department and on our part. We would like to further run the numbers to see what we think the fiscal impact of that would be. And we've not been able to do that during the brief recess that we just have had.

Again, I base my concern or my interest in possibly adding that language to the bill, or amending the bill, is that we probably could effectuate that through a TIF. However, if we make it part of this bill, it may make it a little bit simpler and easier to take advantage of an abatement as opposed to doing it by way of TIF. So it almost becomes almost a matter of right for a new development.

We'll certainly be happy to look at that. 102 10/28/99 WHOLE COMM. - 980303, 980927

Thank you. Thank you, Madam President.

Thank you. Are there any other questions of Mr. Nadol on Bill No. 970214? (No further questions.)

Seeing none, I would ask Mr. McPherson to please read the titles of Bill No.'s 980303 and 980927.

Bill No. 980303, an ordinance amending Chapter 19-1400 of The Philadelphia Code, entitled "Realty Transfer Tax," by decreasing the rate of the tax beginning July 1, 1999, by amending the definition of "acquired real estate company," the transfer of which is subject to the tax; and by limiting to individuals the exception for reclaiming purchase money deeds in lieu of foreclosure, all under certain terms and conditions. Bill No. 980927, an ordinance amending Chapter 19-1400 of The Philadelphia Code entitled "Reality Transfer Tax," by providing that only the transferor shall pay the tax due under this chapter, under certain terms and conditions. 103 10/28/99 WHOLE COMM. - 980303, 980927

Councilman Mariano, do you wish to be recognized?

Yes, Madam President. I have to leave on some personal business, and I would like to be stated as voting yes on all bills and any amendments.

Thank you.

Thank you.

We're ready for your testimony on these bills.

Okay, thank you. Both of the bills that we're now considering involve the City's real-estate transfer tax. As I think Council well knows, the City now collects a 3 percent real-estate transfer tax on top of which the Commonwealth gets a 3 percent transfer tax. While I am aware that there are changing market conditions, and we do sometimes see significant year-to-year changes in market conditions, this tax revenue represents a major component in each of the last two fiscal years. We've collected more than $70 million as a result of this tax. Bill No. 980303 would propose to cut 104 10/28/99 WHOLE COMM. - 980303, 980927 the City portion of this transfer tax in half, in turn cutting our revenues from this tax in half, which would open up a gaping hole in the City's budget. According to the projections that are built into our current approved FY 2000 through 2004 five-year financial plan, this proposed tax rate reduction would result in revenue loses averaging over $33 million per year over each of the next 5 years, with a total projected loss over the course of the plan of over $166 million. Given the size of the revenue loss that this tax rate change would open up, and given some of the serious budgetary challenges that we face over the course of that five-year period just ahead, this proposal represents a matter of enormous concern and is not something that we could support because of its fiscal impact. Moreover, while the Administration is certainly not enraptured by the real-estate transfer tax, if you look at the various taxes that the City now includes as key to our revenue generation and you look at the different taxes that might be reduced and that we've been working hard to reduce, it's not at all clear to us that we would get the 105 10/28/99 WHOLE COMM. - 980303, 980927 greatest return on our investment by making the real-estate transfer tax a higher priority for tax reduction. Time after time, study after study, the devastating impacts of the wage tax and the business privilege tax have been shown and well documented. However, in terms of the transfer tax, the connection between that tax and any actual economic activity in the City is not clear at all. We've looked at different years during which the transfer tax has either increased or decreased, and we have not seen a strong relationship between the rate that the City imposes and the actual home sale activity. , while of course, there may be some relationship, the much more dominant factors include interest rates, personal income levels, economic cycles, and other considerations that are really far more powerful in determining the choices that people make. So given the relatively minimal impact that we think this change would have in terms of the City's economy, given the crying need for further tax reduction in other areas that are much more harmful -- again, such as the wage tax and 106 10/28/99 WHOLE COMM. - 980303, 980927 business privilege tax -- and given the tremendous revenue loss that cutting the transfer tax in half would bring about, this bill is something that we do not support and that we view as a very serious threat to the City's financial health. In addition to cutting the rate for the real-estate transfer tax, Bill 980303 also does propose several amendments to the existing ordinance designed to close certain loopholes in the current transfer tax and in the City's ability to collect the current transfer tax. We believe that many of these proposals have a good deal of merit and, in fact, do address some real problems that we've seen in our efforts to enforce and collect upon this tax. But in contrast to the revenue losses that we would see resulting from the rate reduction proposed in this bill, the benefits of closing those loopholes are really de minimis and would come nowhere even close to offsetting the serious fiscal problems that this bill would create for us. In terms of Bill No.

980927, this bill 24 would seek to place the formal liability for payment of the transfer tax on the person selling 107 10/28/99 WHOLE COMM. - 980303, 980927 the property, the transferor, and not continuing the current situation whereby the law is really excellent, but it's traditionally and historically a tax that's split between buyer and seller. From a revenue perspective, we would consider this ordinance to be essentially revenue-neutral and not to have any significant impact on the City' finances. But the Administration's position is that in order to permit home buyers and home sellers the maximum flexibility to structure transactions in a way that they see fit, that we would prefer to continue the current status quo and not to explicitly shift this tax burden onto either party in a real-estate transaction.

Mr. Nadol, you have indicated how the Administration feels about the bills. Is it your opinion that the Mayor would veto either one of these bills if City Council passed them?

I don't want to --

Have you been informed of that?

These are certainly bills that we've looked very seriously at, and these are 108 10/28/99 WHOLE COMM. - 980303, 980927 certainly bills that the Mayor is well aware of. And in particular with regard to Bill No. 980303 and the proposed transfer tax rate reduction, this is a matter of grave concern for the Administration. I don't want to tie the Mayor's hands in terms of what he will do in the weeks ahead, but I can say that this is something we oppose in the strongest possible terms because of its fiscal impact.

Thank you. Are there any questions? The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Good afternoon. Is that Mr. Nadol and Mr. Dubow --

Yes.

-- is it? I'm sorry. Let me just ask a couple preliminary questions. And, Madam Chair, there are numerous people here from the general public and the real-estate community who wish to testify as well. And I think Frank Piva (ph.) is back with us to talk about some of the loophole provisions 109 10/28/99 WHOLE COMM. - 980303, 980927 that are covered in this particular bill just to put some examples on the record. Let me first just kind of get my bearings with you guys. Mr. Nadol, your testimony, the cover of your testimony indicates that you are now the Director of Finance; is that correct?