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THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, Oct. 27, 1999 10:55 a.m. - - - BILL 960662 - Withdrawn at request of sponsor. BILL 960663 - Withdrawn at request of sponsor.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.
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.
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.
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.
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.
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?
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.
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?
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, 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 --
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.
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.
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.
What is it -- Mr. Levy, what is the bill number you're specifically testifying on?
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.
The other one is 314. One addresses new construction, the other addresses renovation.
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.
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.
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.
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 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"?
That's correct. It is a cap. Again, just to clarify -- I hope clarify.
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.
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?
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.
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.
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?
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?
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.
Today, the eligibility cap is limited to -- limits the program to those properties with an assessed value below $15,000 per unit.
Which, again, is assessed value, not actual real-world sales-price value. 45 10/28/99 WHOLE COMM. - 970652 Under the --
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 --
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?
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.
Okay, just point of order. Could someone answer the question, what is the median price home in Philadelphia today?
Mr. Glancy, please identify yourself for the record.
Good morning -- or good afternoon, Council President and members of the City Council.
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.
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?
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.
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.
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 --