COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON HOUSING, NEIGHBORHOOD DEVELOPMENT AND THE HOMELESS - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, November 28, 2007 11:35 a.m. - - - PRESENT: COUNCILWOMAN JANNIE BLACKWELL, CHAIR COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN WILLIAM GREENLEE COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN JUAN RAMOS COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 071005 - An ordinance amending Title 7 of The Philadelphia Code, entitled "Housing Code," by adding a new Chapter establishing inclusionary affordable housing requirements... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good morning, everyone. May we have your attention. May we have your attention. We would like to begin the hearing. This is a hearing on Housing, Neighborhood Development and the Homeless. May we have your attention. Thank you very much. This is a hearing on Housing, Neighborhood Development and the Homeless. This hearing is with regard to Bill No. 071005, commonly called inclusionary zoning. We will ask the Clerk to read the title of the bill.
Bill 071005, an ordinance amending Title 7 of The Philadelphia Code, entitled "Housing Code," by adding a new Chapter 21 establishing inclusionary affordable housing requirements, by requiring that certain developments, consisting of a certain number of dwelling units, provide a certain percentage of those units for 3 11/28/07 - HOUSING - BILL 071005 affordable housing or provide other options for affordable housing, all under certain terms and conditions.
Thank you very much. We note that we have a quorum present. To my right is Councilman Ramos. Standing to his right are Councilman DiCicco and certainly we have Councilman Clarke here. We have Councilman Greenlee here. Councilwoman Reynolds Brown is likewise here. And so we will take advantage of the opportunity to ask those who are here -- and Councilman W. Wilson Goode is here. So we're going to ask people who are here if they will agree to -- we thank them for sitting in and we do have a quorum from members of this Committee. Thank you very much. We'll ask the sponsor of the bill if he would like to make a statement.
Thank you, Madam Chair. 4 11/28/07 - HOUSING - BILL 071005 Good morning. Good morning, everyone. Madam Chair, I'd just like to say that it's been a pleasure and it's been extremely challenging trying to craft a program that everyone agrees with and everybody says should happen, but the difficulties come -- and, as they say, the devil is in the details -- of how to construct a program that everybody can be supportive of when you have a broad spectrum that includes individuals and groups and categories and entities on all sides of the equation. Today I think we're prepared to offer a proposal after several amendments that addresses, to a degree, each aspect of all of those various categories. Will all of those proposals be a hundred percent what people want? Probably not. Will all of those proposals be on a timeline that everybody wants? Probably not. It has been my thought that 5 11/28/07 - HOUSING - BILL 071005 given the level of discussion that we have had over the last almost year now on this issue, that we will be prepared to come to a consensus that allows the process to move, and it is my hope that we take an action today that will further that process, understanding that there still needs to be work done. I want to say something, and this comes from years in government 12 and 30 years in neighborhood issues and 13 as a lifelong citizen of the City of 14 Philadelphia. The City of Philadelphia 15 is a wonderful place and I have had the 16 pleasure of living here all my life, and 17 I hope to stay here all my life, unless 18 you all run me out of here today, but 19 it's my dream to continue to live in this 20 wonderful city. But the one thing about 21 the City of Philadelphia, that it has 22 always been difficult to get change, and 23 I mean change in a meaningful way. I've 24 seen people talk about the fact that 25 they're not happy about the status quo 6 11/28/07 - HOUSING - BILL 071005 and they're not happy about this and they're not happy about that. When it comes time to come together and effect change, people get -- they kind of individualize themselves. Well, I effect change, but it can't affect me. And the reality is, if there's going to be significant change in this very important issue, then every individual, not only in this room but citizen of the City of Philadelphia, has to participate in the discussion, has to participate in the solution, and I think that what we're attempting to do and proposing is something that requires that everybody participate and everybody share a little bit of some of the difficulties and the challenges associated with what we're trying to do. We will hear significant testimony today, and the testimony will fall, I believe, from -- and I don't like to use the term "extreme" because it characterizes people, but from one end of 7 11/28/07 - HOUSING - BILL 071005 the spectrum to the other end of the spectrum. And as I said, we've attempted to address all aspects of that discussion, because we have genuinely heard everybody. We had a task force in place, and that task force has had members from all categories of the interested parties. So, Madam Chair, I would be very happy for you to chair this hearing and hear the testimony, and then we will offer some amendments, amendments that we think that, to a large extent, addresses all of the concerns that we will hear during the next several hours. Thank you.
Thank you very much. We will, as is customary, call on Kevin Hanna from the Office of Housing and Neighborhood Preservation. As soon as he testifies, we promised Mr. Dranoff that he could speak. He has to leave. And we will go down our witness list. 8 11/28/07 - HOUSING - BILL 071005 Let me say that we have talked to unions who have been in touch with me. We have a representative of 332 who is here. We heard from them yesterday. These are people who oppose the bill in its form. They're not opposed to the concept. But from the electricians, Local 332, AFL-CIO, the building trades and SEIU are all against this in its form, and all these union members or union leadership have been in touch with me with regard to that. So I put that on the record so we're clear as to where labor is in this town, and I'm happy to repeat that if I've left everyone out. District Council Local 332, building trades, AFL-CIO, SEIU and the electricians all are opposed to this bill in its current form. Let me also say before we call on Mr. Hanna that I have a list of panels. We will allow each panel ten minutes. You can talk as long as you want and have as many people as you want, 9 11/28/07 - HOUSING - BILL 071005 but after ten minutes, we'll call on the next panel. So that will be your prerogative to decide among you how you do that, but we will allow ten minutes for each panel. I think that's kind of where we are. I hope that is acceptable to everyone, but we've got to get through this and try to give everybody an opportunity. Are there any comments from members of the Committee or Councilmembers in the room? (No response.)
Thank you very much. The Chair recognizes Secretary Kevin Hanna.
Do I get my full allotment of ten minutes or is it just a third, given it's one person of --
Good morning, 10 11/28/07 - HOUSING - BILL 071005 Councilwoman Blackwell, other members of the Committee on Housing, Neighborhood Development and the Homeless and members of City Council. Again, my name is Kevin Hanna. I serve as Secretary of Housing for the City of Philadelphia. I am here today to testify on behalf of the Administration on Bill No. 071005, which establishes inclusionary housing requirements in The Philadelphia Code. Last spring, Councilman Darrell Clarke introduced Bill No. 060732, which proposed to amend the Zoning Code to create an inclusionary housing program in the City. The current bill, 071005, is the result of a working group established by the Mayor in response to testimony received on Bill 060732. The Administration supports Bill 071005 with an amendment to dedicate "in lieu of" payments to the existing Housing Trust Fund. Councilman Clarke and I co-chaired the working group, which met 11 11/28/07 - HOUSING - BILL 071005 several times this summer and fall to consider the terms and conditions under which an inclusionary housing program might be created in the City. Bill 6 071005 is the result of those discussions. Members of the working group included representatives from the private sector, including market-rate housing developers currently working in the City, community development corporations and others currently producing affordable housing, advocates for affordable housing, labor and City staff. I think it's fair to say that our discussions were spirited and thorough. While it may be impossible for any group with interests as diverse as these groups to reach a total consensus, Bill 071005 represents our best effort to craft a bill that remains true to Councilman Clarke's original intent, responds at least in part to testimony received on Bill 060732 and also is 12 11/28/07 - HOUSING - BILL 071005 practical and relatively realistic. The purpose of Bill 071005 is to help ensure that there is a full range of housing choices available for households of all income levels throughout the City. At the present time, federally funded housing programs administered by OHCD are generally available to households making up to 80 percent of the area median income, with some rental programs available only to households up to 60 percent of AMI. Since creation of the Housing Trust Fund, households up to 115 percent of AMI can be served, though the Housing Trust Fund legislation mandates -- and this is very important -- Housing Trust Fund legislation mandates that 50 percent of the total Housing Trust Fund earnings be used to benefit households with incomes of less than 30 percent of AMI. The intent of Councilman Clarke's original bill, still met in the present legislation before you today, was 13 11/28/07 - HOUSING - BILL 071005 to be able to assist households who earn too much to benefit from existing programs, but not enough to purchase or rent market-rate housing recently produced without government assistance. For example, two income households of, say, a police officer and a social worker are more or less shut out of the new units which are being built in many neighborhoods. Bill 071005 mandates that new developments of or more dwelling units 14 built for sale or for rent make ten 15 percent of those units affordable to 16 households at various income levels. 17 What is proposed is that half of these 18 units must be affordable to households of 19 up to 60 percent of the area median 20 income and the other half of these units be affordable to households with incomes of from 60 to 125 percent of AMI. As an alternative to producing the required affordable housing units on site, the developer can opt to pay a fee 14 11/28/07 - HOUSING - BILL 071005 to the City. This fee is designed to capture the difference in value between the affordable housing unit not built as part of the development and the cost to otherwise provide an affordable rental or homeownership unit.
Under the bill as drafted, this fee would go to OHCD. An appropriation authority would be created in each annual operating budget. The Administration supports the concept of an "in lieu of" payment as described in the bill, but requests that these fees be dedicated to the existing Housing Trust Fund as opposed to given directly to OHCD. It is my understanding that Councilman Clarke also supports dedicating these funds to the Housing Trust Fund and that he has prepared an amendment to that effect. The Administration supports the Councilman's amendment. The bill also mandates that affordable units created be comparable in size, bedroom mix and overall 15 11/28/07 - HOUSING - BILL 071005 construction quality to other units in the development. This provision is not intended to mandate that affordable units be identical in every respect, for example, in bathroom or kitchen finishes or similar amenities. However, the Administration would support allowing developers of high and mid-rise buildings to place the affordable units on the lower floors rather than on the typically more expensive upper floors of a given development. As part of the discussions of the working group, there was strong sentiment from the private development community that the City needed to offer offsets or incentives to reduce the financial impact of this bill on the cost of private housing development. The Administration acknowledges that the City should in fact share part of the burden of generating additional funds for affordable housing with market-rate developers. This bill states Council's 16 11/28/07 - HOUSING - BILL 071005 intent to develop programs to address these concerns, which might include elements such as modification to the current building code, the provision of land for development and the provision of credits against the business privilege tax. I anticipate that such programs will be introduced into Council by the effective date of the ordinance, which is in this legislation proposed to be May 31st -- I'm sorry; March 31st of 2008. In addition, the Administration recommends that Council also consider the following incentives as well: One, allowing developers to build the required affordable units elsewhere, yet within the City, with certain provisions; two, that we expedite permitting by allowing developers who choose to build on or off site the same flexibility provided to affordable developers with regard to the City's water and watershed permitting requirements; and, thirdly, flexibility on parking requirements. 17 11/28/07 - HOUSING - BILL 071005 This concludes my testimony. I'm happy to answer any questions that you or other members of Council may have at this time. Thank you for allowing me to testify on behalf of this bill this morning.
Thank you, Mr. Hanna. Are there questions for Mr. Hanna? (No response.)
Thank you very much. The Chair calls Mr. Carl Dranoff, then Mr. John Westrum.
Madam Chair, members of the Committee, thank you for allowing me to testify promptly, and I want to commend Councilman Clarke for his bill. It's a step in the right direction. It required a lot of work, a lot of collaboration and a lot of patience and perseverance. Unfortunately, it's a very flawed bill. 18 11/28/07 - HOUSING - BILL 071005 The bill as presently written would discourage or illuminate -- I'll use the word "moratorium" would be the result of the bill, because what the bill 6 does is impose a tax, in effect, on multi-family developers. It's not a revenue-neutral bill. It's a very costly bill, and right now the housing industry in Philadelphia and elsewhere in the country is on life support. You can read the Wall Street Journal, the Philadelphia Inquirer, any newspaper any day for the last six months and know that there's been a tremendous correction in the marketplace. Condominiums certainly aren't selling. Rental housing is very, very difficult to make work. I've been a developer in the City for 30 years. I've developed maybe 30 or 40 apartment buildings in the City, both rehab and new construction, and we've gone through some pretty bad periods in this City, and I'd hate to see us return to those bad periods when a 19 11/28/07 - HOUSING - BILL 071005 major construction project was when someone painted their front porch. We don't want to return to that. And this legislation, if it does cause a moratorium, would hurt the very people that it's intended to benefit, because ten percent of nothing is nothing. I believe that this is a goal that everyone wants to reach, builders, developers and others. We are committed to the concept of inclusionary housing, but as was stated earlier, the devil is in the details, and this bill is nothing but a punitive tax on developers, which would undermine the projects and make them unfinancable. I think we've got to work with Councilman Clarke and the rest of the Committee to make sure that the provisions that were talked about by Kevin Hanna are included in the bill so that if a bill comes out of Committee or gets voted into law, it has the right provisions in it. Otherwise, you will 20 11/28/07 - HOUSING - BILL 071005 basically freeze the construction industry, because you wouldn't be able to go in for financing or start a project not knowing what the fix for the legislation was going to be. And, again, a hundred percent of nothing is nothing, and ten percent of nothing is nothing. We don't want to cause that kind of a setback to the housing industry in the Philadelphia region. I thank you for your time.
Thank you very much. The Chair notes that Councilwoman Miller is here. Mr. Dranoff, would you remain for a moment.
And thank you for your participation in this issue. I just want to make sure that I heard you correctly. Is it your belief that if the recommendations on the incentive side of the, I'd like to say, Phase II, because I do believe this is a two-phase program, Phase II/incentive side of the proposal, the recommendations that Kevin Hanna made, if implemented, would allow this program to be implemented in a meaningful way that would not adversely affect the housing market?
Councilman, that is correct. If the provisions to make this bill a revenue-neutral bill so that developers didn't face additional costs in a marketplace where it's very, very problematic to get any project started because of market conditions, if the provisions were in the bill, I, for one, would be very comfortable with it, but the way the bill is written right now, 22 11/28/07 - HOUSING - BILL 071005 there are no offsets. There's just a lot of conversation and talk about potential. And I think that a lot of work has to be done to the bill to make it workable so that when it does become legislation, it's a workable bill, not just a work in progress that has to be fixed.
When you say -- because I didn't interpret Mr. Hanna's testimony as saying it was revenue neutral. You mean revenue neutral to whom?
To the developer, because when you're going to secure financing on a project, in effect, if you're imposing a tax on that project, the financing would disappear. You wouldn't be able to get it. You know, we went through periods like this in the past in this City where it became -- because of the high cost of development in this City, the high cost of land, it's very problematic to get new projects started. 23 11/28/07 - HOUSING - BILL 071005 I remember in 1997 when some people lobbied for tax abatement to try to jump-start our economy and that program was implemented and it worked, that it was a huge spark to our economy, and I thank Councilman DiCicco for introducing that legislation. Four years later it was amended to include new construction, and we've seen a boom in new construction in this City. I think that we're taking a step backwards right now. We're shooting ourselves in the foot. And, again, I believe in the goal. I just believe that if the legislation were revenue neutral so that it did not impose a tax on the project, then it would be a fine bill.
All right. I hate to belabor the point. When you say it should be revenue neutral to the developer --
To the project. The developer and the project are one and the same. The project has a certain 24 11/28/07 - HOUSING - BILL 071005 amount of income and a certain amount of expenses. If you take revenue away from the equation, the project then becomes unfinancable. A bank looking at the bottom line, the net operating income, when it's reduced, the loan goes down. When the loan goes down, the project could go off the chart and not be built.
So what would be the developer's contribution to the program?
Well, I don't think the developer should make a contribution. I think the developer should do what they do best, which is build buildings, and when the legislation is revenue neutral, they will continue to build buildings and there would be a ten percent set-aside for inclusionary housing.
So the fact that the developers get a ten-year tax abatement, as you said, was a significant incentive to building in the City of 25 11/28/07 - HOUSING - BILL 071005 Philadelphia and created a boom, you're saying that the development community should not contribute at all to inclusionary housing?
I think if you go back to 1997, you will see that the market conditions were very poor. We had many vacant buildings in the City. The economy was not particularly good and incentives were needed. They still are. If you take any project in the City where you have people moving in from the suburbs into Center City and you have a tax abatement program that, in part, offsets the additional cost of living in the City, it's been an immensely successful program for bringing new tax revenues into the City, and all the transfer taxes -- I believe the number was something like $70 million over the last year of transfer taxes that were brought into the City stimulated by these new construction projects. If these new construction 11/28/07 - HOUSING - BILL 071005 projects stop being built, you're going to lose a huge amount of revenue stream, not just from transfer taxes, but the other permit fees that are paid, the taxes that are paid during construction, the gross receipts and business privilege taxes, and then you have the new people that are moving into the City that didn't pay taxes in the City. I think it would be a horrible mistake to enact legislation that discouraged that type of development.
The Chair recognizes point of information, Councilman Goode.
Thank you, Madam Chair. Mr. Dranoff, we use the term "revenue neutral" quite often in government and I generally view it as a government term. I'm not sure it can be applied to the private sector. Revenue 27 11/28/07 - HOUSING - BILL 071005 neutral in the private sector essentially means that you will be receiving no 4 profit. I'm assuming that's not what you mean.
No. Revenue neutral means, in my definition, that the inclusionary -- that the cost of the ten percent set-aside, which is a loss of revenues, be offset by some reduced cost to the City. As an example, it could be permit fees, it could be transfer taxes, it could be something similar to maybe increasing the tax abatement period from ten to 15 years. And, by the way, another flaw in this legislation is that the ten percent set-aside period is for 15 years and the tax abatement period is only ten years. So there's a mismatch there, but things could be --
My question is, what does revenue neutral mean. It does not mean --
Revenue neutral 28 11/28/07 - HOUSING - BILL 071005 means that if you impose a cost on a developer, then you should offset that cost. Otherwise, it's nothing more than a tax. Why not go out and tax shopping centers or tax office buildings?
So if a decision this Council decides to make is that we want to move forward with an inclusionary zoning bill, maybe not this bill, and that we see the tax abatement program as also needing to be revised and we see your profit as being somewhat reduced on the tax abatement program by doing inclusionary zoning legislation, it's still not revenue neutral. You're still making profit.
Councilman, if there's not a profit on a market-rate project, then you can't build a project. You'd never get the financing for it. 29 11/28/07 - HOUSING - BILL 071005 All I'm saying is keep things revenue neutral with new legislation.
It's not revenue neutral. We can work through this over the next couple of minutes. I don't want to take too much time with this, but the term "revenue neutral" doesn't make any sense in this context.
Well, let me say it one more time, because maybe I wasn't clear. If you impose a tax on a developer that's specific to multi-family construction, you should offset that tax with some incentives.
Certainly. Let's say that when I developed the Left Bank in University City, that we had a ten percent set-aside, and because the rents were subsidized and we didn't collect -- we collected 80 percent of median income rents based on the subsidy, that we lost $300,000. Let's say that there's 282 30 11/28/07 - HOUSING - BILL 071005 apartments in that development. Twenty-eight of those apartments would pay lower rents, and there would be a loss of income to the project. That $300,000 would probably reduce the loan amount for that project by somewhere between $4 million to $5 million. It's easy to see that I wouldn't be able to build the project, because I would have less funding to build the project. Now, one thing I could do is, I could reduce the quality, I could try to build a lower-grade project. I'm not sure even that would work. So when you have a lower loan amount and you can't build a project, what good is a ten percent set-aside if the project never gets built?
You're making an assumption that the project can't be financed.
Well, I've been in the business for 30 years. I was the first person to develop a large building 31 11/28/07 - HOUSING - BILL 071005 in Old City in 1981, the Rubin's Furniture Store at 3rd and Race. I've developed 50 buildings in the City over that period of time, maybe more. I have a lot of experience in high rise, in mid rise in Manayunk, in West Philadelphia, in Old City, in South Philadelphia. I've developed in every region of the City.
And you were successful before we did the ten-year tax abatement?
We stopped developing at the end of the '80s because it wasn't profitable to develop in the City. It was only after the tax abatement program that we started up again, and that was in 1998. There was almost a ten-year hiatus in development in the City. And I wasn't the only person that was not able to develop. It was a bad period of time, and I don't think we want to go back to that.
So your experiences have been varied over that 32 11/28/07 - HOUSING - BILL 071005 period of time?
My experience has been that we developed a lot of buildings in the 1980s and starting in 1997, and there was a period in between that was very problematic.
But you've benefited greatly after 1997 in the ten-year tax abatement?
Well, I think the City benefited greatly. We built market-rate housing.
I agree, but you benefited greatly after the ten-year tax abatement.
Well, I'm in business to be a developer. I don't have to do it in Philadelphia. We could do it in other cities. I happen to have lived in this City and been born in this City and been here all my life, and I choose to develop in the City. I'm a proponent of economic development.
You choose 33 11/28/07 - HOUSING - BILL 071005 to develop in the City because you make money in the City.
Well, if you weren't allowed to make money, you wouldn't have business people in the City.
But you don't do business here because you love Philadelphia; you do business because you make money here.
Sir, I was in born in the City, raised in the City and I've been here all my life. I want to continue developing in the City. We're here to talk about this legislation. I'm offering my experience, and I'm saying that this legislation is flawed because it will discourage development and multi housing and, therefore, the ten percent set-aside. I think we should fix the 34 11/28/07 - HOUSING - BILL 071005 legislation and make everybody happy. Then we'll continue the development, the pie will get bigger, and there will be more inclusionary housing.
My question originally was around the issue of revenue neutral, and to be perfectly honest, there is no issue of the project being revenue neutral or there's no 11 project. If the project can't get financing, then it's not an issue of whether it's revenue neutral or not. If a project can move forward with financing, then the project is never going to be revenue neutral. You're going to make profit off of it or you're not. If you're not going to make profit off of it, you're not going to get it financed. So at no point in time were we ever talking about making it revenue neutral. What you're saying is that you don't want to reinvest in an inclusionary zoning program. That's what you're 35 11/28/07 - HOUSING - BILL 071005 saying.
I said that the legislation should be revenue neutral. I didn't say that the project should be revenue neutral. If the projects were unprofitable, we wouldn't even be having a hearing today.
So what you're saying is that as a developer, you do not want to reinvest in an inclusionary zoning program.
No. I never said that, sir. Not at all. I am saying that -- remember, I started my testimony --
Excuse me. I have the floor. I'd like to finish what I'm starting, sir.
But, 36 11/28/07 - HOUSING - BILL 071005 actually, I have the floor.
The question is, what does revenue neutral mean. If in fact --
-- you're trying to make money from a project, which we like, and there will be no 16 project unless you can get financing and unless there is going to be a profit from a project, so if there is financing for a project, that means there's going to be profit. So what does revenue neutral mean? It means you don't want to reinvest in an inclusionary zoning program. That's what it means to you and that's what you said.
I never said 37 11/28/07 - HOUSING - BILL 071005 that. Did anyone hear me say that I would never -- I said that I think that the legislation --
What do you want to invest in an inclusionary zoning program?
This is the question, though: What do you want to invest in an inclusionary zoning program?
Obviously you don't. But you can talk as long as you want if you answer that question. What do you want to invest in an inclusionary zoning program?
We would absolutely invest in housing that had 38 11/28/07 - HOUSING - BILL 071005 inclusionary components. I started off my testimony, Councilman Clarke, with complimenting you on all the work that you've done and the patience and perseverance all of the people that participated. I stated that I think it's a worthy goal. I stated that I think that this legislation should be passed in modified form. I'm here to say that the current legislation is flawed.
It will discourage new development and it will hurt the very people that it's intended to help.
And you still have not answered my question. What do you want to invest in an inclusionary zoning program?
I am fine with this legislation if the legislation in some part offers an incentive to a 39 11/28/07 - HOUSING - BILL 071005 developer to offset the costs of the legislation. Then the legislation would be what I call revenue neutral, which means that there's no additional cost saddled on a developer because of the legislation.
So the answer to the question is, you want to invest zero in an inclusionary zoning program?
Every one of my buildings that is in the pipeline can be included in the inclusionary program as long as the legislation doesn't cause an additional cost.
Right now the profits are minimal in the industry. It's a barely functioning business right now for all the reasons I stated before.
But it was not over the last ten years. It just became that way. 40 11/28/07 - HOUSING - BILL 071005
We're not here to talk about the last ten years. We're here to talk about this legislation. I'm offering my testimony and saying that I'm all for a corrected piece of legislation.
I see the legislation in the context of the ten-year tax abatement, so that's what we're talking about.
Well, you can eliminate tax abatement too and then we can all go back to the good old days when nothing developed in the City and stagnated. It's your choice.
You get to do -- I'm here to offer my advice and my testimony as a practicing developer who is committed to the City, has been 41 11/28/07 - HOUSING - BILL 071005 committed to the City, has probably built more multi-family projects in the City than everyone else combined in the last 30 years and wants to continue. I'm here to say that I think that the legislation's goal is good. A lot of work has been done, but more work needs to be done. It's flawed. It will have the opposite effect that was intended. It needs to be fixed. And when it's fixed, I can support it.
And it will be fixed when it gets down to zero investment by you.
You said revenue neutral. You used the term "revenue neutral."
I think it's very clear, unless the members of the Committee want me to repeat it. What I said now three or four times is that the 42 11/28/07 - HOUSING - BILL 071005 legislation should not pose a punitive tax on the developer. If it's going to cost money, there should be an offsetting incentive, and that's what I call revenue neutral.
All right. Maybe we can continue, if that is okay. That was a point of order. Councilman Clarke, you were speaking, and then we have Councilman DiCicco.
I think Councilman Goode pretty much took up the time on the line of questioning that I was prepared to ask, so I'm okay.
Thank you. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. I just don't know where to begin, but let me, without trying to belabor the record, I think there is -- and I don't think we have the time to do 43 11/28/07 - HOUSING - BILL 071005 it with this hearing. There is a misunderstanding, if you will, on the part of most of the folks in the general public when it comes to development. I think most people are of the opinion that developers are people who have untold amounts of personal resources, that they go and select a site that they want to build a project and put all their money into it and it gets done and then they make a profit. I think the piece that is missing -- and, again, we may not be able to clarify that. It's somewhat complex -- is that most development, if not all development, requires people, developers, to have to go to a bank and make a loan, in the simplest of terms. And that loan is dependent on being approved based on what the predictions of profits on the project would be and how those profits would offset or contribute to paying down that loan, and whatever is left hopefully, if the project is on schedule and building materials and other 44 11/28/07 - HOUSING - BILL 071005 issues with building trades and all are met, there would be a profit, because otherwise most projects wouldn't happen anyway. And if I hear you correctly, your concern is that when you go to the bank to borrow that money, when they look at the bottom line, which is the profit, that would be generated, assuming the project met all its timelines and the sales were at what you anticipate them to be, they base their loan on those figures, and anything that is taken away from that profit margin reduces the potential to get the loan or obviously certainly reduces the profit that would be realized when the project was completed. Is that fair?
You're exactly correct. COUNCILMAN DiCICCO: But I think most people think that developers are just folks who just walk in, dump $50 million down of their money, make a profit and walk away. They don't 45 11/28/07 - HOUSING - BILL 071005 understand the other issues that get a project from the vision and the inception to ultimately being built. And I'm much more familiar with it today than I was 6 years ago based on the number of projects 7 that were built in my district and 8 understanding that there were many 9 projects that were proposed and were 10 never built for some of those reasons, 11 the downturn in the market, interest 12 rates going up and what-have-you.
And the risk factors of going into new neighborhoods. When we did the Left Bank, as an example, there was no market-rate housing in West Philadelphia. It was a very risky project. You know, when banks look at the bottom line, they look at the profit levels and the amount of risk that's being taken. There's no guarantees. COUNCILMAN DiCICCO: And I think the other misunderstanding -- and I've been dealing with this since 1997, '98 when we did the first ten-year 46 11/28/07 - HOUSING - BILL 071005 abatement -- is that people believe that the abatement is to the benefit of the developer. The benefit, if there is -- the only benefit that I know of to the developer is the developer uses the abatement as a marketing tool, because ultimately when the condominium or the house is sold, it's the buyer who is entitled to the ten-year abatement, not the developer.
That's correct. COUNCILMAN DiCICCO: So it becomes a marketing tool, and I think that most people don't understand that. And I'm not going to go into what I believe the benefits are as a result of the abatement.
Councilman, 47 11/28/07 - HOUSING - BILL 071005 that depends on how the buyer is financing the project, and it probably varies from project to project. COUNCILMAN DiCICCO: The purchaser of the unit --
It depends on how the developer is involved in the financing in terms of the buyer.
That might not be totally true to the extent the developer is involved in the financing for the buyer. COUNCILMAN DiCICCO: It could be, but the buyer is the ultimate beneficiary of the abatement.
Depending upon whether the developer is involved in the financing for the buyer, the developer can also still benefit. COUNCILMAN DiCICCO: If the developer is holding the title, is that what you're referring to? 48 11/28/07 - HOUSING - BILL 071005
Yes. COUNCILMAN DiCICCO: But the tax abatement -- well, it could be. It could be. I assume it could be. I'm not familiar with that happening, but it may be. But, generally speaking, in the majority of the sales that I am familiar with, it is the buyer who benefits by the ten-year abatement.
I know of no -- COUNCILMAN DiCICCO: The seller benefits because he or she uses it as a marketing tool to sell the product.
I'm not sure we know to what extent the developer is also involved in financing for the buyers. COUNCILMAN DiCICCO: Well --
There's zero involvement at Symphony House. We just completed a condominium building, and the buyers received the tax abatement, not the developer. COUNCILMAN DiCICCO: Again, you 49 11/28/07 - HOUSING - BILL 071005 might be right, Councilman, but I would think that's probably a very minimal number of the units that have been built where the developer is, but it could be. I'm not going to argue with you.
I don't think we know. COUNCILMAN DiCICCO: Well, I don't think that would be hard to find out if we needed to, but I think it's a very insignificant number in relationship to the number of units that have been built and sold as a result of the abatement. And I just want that for the record, so that maybe some folks in this hearing today or who are listening to it are always -- many of them are critical of the ten-year abatement because they think it's some sort of a mechanism that developers are not only getting the profit on developing and selling it, but they're also taking the ten-year abatement with them. They're not. It's for the homeowner, it's for the 50 11/28/07 - HOUSING - BILL 071005 condominium owner, whoever is the buyer. In most of those cases, most of those buyers have been people from outside the City moving in. So we benefit. And I'm not going to go down that road, because we could be here for an hour. So I just wanted to note that. Look, I'm for inclusionary, and we've had some discussions about this and maybe there's some tweaking of the ten-year abatement, I don't know, going forward. But I understand full well what the role of the developer is and why the developers are asking for some incentives that would offset the cost, because it may be that if we don't have those incentives, it very well likely, based on my experience again, having overseen a lot of development, that the financing would be killed. They may not even get the financing to build in the first place. And if they don't, if you don't build, then there's no money to go into inclusionary housing. We got to find 51 11/28/07 - HOUSING - BILL 071005 that middle ground somehow that keeps the housing going and also which will ultimately result in monies going into the inclusionary housing fund.
Thank you very much. Any further questions? Councilman Clarke.
And it's not necessarily directed at Mr. Dranoff. I just want to make one statement. There are a couple of reasons why we made this proposal. One was we're probably the last large municipality in the United States that does not have an inclusionary housing program. So we're way beyond our time. We probably should have done this earlier, and it would have probably been a lot easier to get done, from the developers' perspective, if we had done it during the, quote/unquote, 52 11/28/07 - HOUSING - BILL 071005 the boom. And I can only speak about my district in this aspect, and fortunately and sometimes unfortunately my district pretty much covers every part of the City, because I go from the Northeast to Center City, North Philly, Spring Garden. So I've had to deal with all types of developers and development. And when there's a market-rate development proposed in a neighborhood that traditionally has been an affordable or moderate-income neighborhood, one of the first things that comes up in the discussion in the community meeting is, Why should we support that? We can't afford to get one of those houses. And the other part of the discussion that I've heard is, when a new development -- a single individual buys a lot, builds a new home in a regular -- and somebody referenced Fishtown earlier in the discussion. Somebody builds a four, five, six, seven hundred thousand dollar house in the little row home 53 11/28/07 - HOUSING - BILL 071005 community. The person works at the factory around the corner. They're struggling to pay their bills. And this person builds this house and they get a ten-year tax abatement, and they essentially have this relief over the period of ten years, where the person eventually starts seeing their property values escalate because the community is being developed and subsequently their taxes are going to go up, and they're upset because this guy is building this house getting this abatement, I'm having to pay more taxes. There's a certain level of unfairness in their mind. So I hear this on a consistent basis. Then there's the other thing. When the developer comes in to meet me and I have to sit down and negotiate an agreement with the community group or whomever ends up coming to the meeting, then I have to ask the developers to sign a community benefits agreement, because the developer either says they can't or 54 11/28/07 - HOUSING - BILL 071005 unwilling or whatever to deal with some of those other components. I'm not giving up my tax abatement. I can't build affordable housing because it just don't work. So what do I have to do? And they end up creating a fund for the local community group or they end up contributing a number of things to kind of get the consensus of the community. I believe that if there were market-rate developments in neighborhoods that had a serious affordable housing component in those new developments, most of this other discussion would go away, because people wouldn't feel that they're left out of the equation because they can't buy the new units. People would have some level of sensitivity, because somebody in that neighborhood might actually be able to buy one of those new units. And, frankly speaking, I'd rather not have to have that kind of discussion with the developers all the time, I have to have this back and forth about what 55 11/28/07 - HOUSING - BILL 071005 can you give to that group. I really don't want to be involved in that, to be honest with you. So that's why we said we need to do something, those particular issues. So that's why we're here today. And I understand and I've said earlier I agree that there should be appropriate incentives put in place, because no one category or individual should bear the full brunt of the burden of doing affordable housing, inclusionary housing. But I don't agree with the fact that the development community should not have to have any contribution. I just don't agree with that.
I've seen an instance where -- in a couple instances where developers have actually built market-rate housing and with minimal support from the government, they actually included affordable units in their development, and this was market-rate development. So we've seen it happen and I know it can be done. 56 11/28/07 - HOUSING - BILL 071005
If it were happening on a large scale, you wouldn't need this legislation. The legislation is needed because the economics really are not supportive of that kind of development. There's not enough of it. And I think if you single out multi-family developers, why not tax shopping centers and office buildings too? Why single out multi-family developers, the very people who are producing the housing?
But you're picking a specific group of people to tax. It's nothing more than a tax. And I'm saying that those people don't need to be taxed if the cost of the program is offset, which Kevin Hanna testified on, which you have also stated was going to be put into place, offsets to the costs. All I'm saying --
We have a 57 11/28/07 - HOUSING - BILL 071005 fundamental disagreement in that the development community should not have to contribute to inclusionary housing. I just fundamentally disagree with you. And I will never support a program, if it's mine or anybody else's, where the development community has to contribute zero. It's just not right, because at the end of the day what you're talking about is basically government provides all of the subsidy to the unit. So if that's the case, then why do we need a program. If government had the ability to fund all of the units that are affordable, then why do we need a program? The reality is, government doesn't have enough money to fund the necessary affordable housing because there's a shortage, obviously. And that's not your fault, but we're trying to come up with a strategy that enhances our ability to provide affordable housing, and we're asking everybody to share in the program. But if the 58 11/28/07 - HOUSING - BILL 071005 development community said they're not going to share --
If you push the project into the red and the project never gets built, what have you really accomplished? That's my whole point.
I don't believe that that's the case. I mean, I've seen it happen. And I think with the necessary incentives, I think that it can work.
If you pass bad legislation and we're here six months from now and nine months from now to correct a problem because construction has stopped and new projects aren't happening, that would be a horrible outcome.
I agree with you, but I don't think that's going to happen.
We will now call John Westrum, Westrum Development Company, and Bill Reddish, BIA. Thank you for your patience. Please identify yourself for the record and begin your testimony. Thank you.
I'm sorry. It's good afternoon. Good afternoon, Madam Chairwoman and members of the Committee of Housing, Neighborhood Development and the Homeless. I want to first of all commend Councilman Clarke and the Committee for their efforts on this bill 20 and want to state our opinion. My name is John Westrum and I currently reside on South 19th Street in Philadelphia, PA. I am Chief Executive Officer of Westrum Development Company. Our main office is located in Fort 60 11/28/07 - HOUSING - BILL 071005 Washington, but we have current Philadelphia offices in South Philadelphia at 3200 Davinci Drive. We have offices in Brewerytown at 3101 West Thompson Street, East Falls at 3701 Falls Circle, in Northeast Philadelphia, 2669 Southampton Road, and we hope to have more in the future. Today I'm here to testify on Bill No. 071005. As CEO of one of the largest residential real estate developers working in the City of Philadelphia, I feel an obligation to share my comments and recommendations on the inclusionary affordable housing bills currently being considered by City Council. First and foremost, we support and actively participated in the workforce inclusionary housing effort initiative by Councilman Clarke and mandated by Mayor John Street. This is evidenced by both our participation in the inclusionary housing working group and the affordable working housing 61 11/28/07 - HOUSING - BILL 071005 programs currently existing in Brewerytown and East Falls, as well as previous completed communities in Upper Roxborough and the Fox Chase sections of the City of Philadelphia. Our company has focused our efforts and targeted our products towards the teachers, the firemen, the police officers and other City employees that want to purchase a new home, but do not have the ability based on the high cost of new housing. We recognize that creating housing policies that take all Philadelphians into consideration is very challenging. However, we hope to demonstrate to you that this bill as written will not, and I repeat, will not significantly increase workforce housing. Instead, by placing a heavy additional tax on the industry that already faces significant hurdles, from excessive high labor costs, high tax environment in the City of Philadelphia, this legislation if passed will result in a dramatic 62 11/28/07 - HOUSING - BILL 071005 long-lasting negative impact on the local residential development industry. We ask that you oppose the passage of this bill as written and propose solutions that more clearly identifies the specific revenue streams to subsidize the development of inclusionary housing while not placing the entire burden of the many on the shoulders of a few; namely, those investing in the City of Philadelphia. If not, the unintended consequences of this, quote, "unfunded mandate" on developers will once again put a, quote, "closed for business" sign on the large-scale residential construction of Philadelphia, effects for which this great City will never recover, and in the end, all the benefits that result in terms of investment, city revenues and jobs will all be gone. So I beg you, please do not kill the goose that laid the proverbial golden egg. For your reference, I have 63 11/28/07 - HOUSING - BILL 071005 included a copy of the recommendations made by Bill Reddish and me to the working group on this subject prior to the introduction of the bills. However, those recommendations and other sources of revenue were not included in the proposed legislation. The November 9th letter containing those recommendations is marked as Exhibit 1. After decades of disinvestment and inactivity, market-rate real estate development has returned to the City of Philadelphia with the creation of the ten-year tax abatement. Mayor Street's Neighborhood Transformation Initiative produced additional benefits that have helped to expand Center City development into citywide neighborhoods.
From 1999 to 2005, housing starts increased from just over a hundred units, of which we were many in 1999, to 2,300 units in 2005, an increase of over 2,000 percent. However, what needs to be recognized is that these numbers still lagged any other 64 11/28/07 - HOUSING - BILL 071005 county in the Philadelphia metropolitan area. So this boom was not isolated just to Philadelphia. It was all over the country, but Philadelphia still lagged. Since 2000, even during a period that those in Philadelphia considered a, quote, "building boom," the number of new construction units built in Philadelphia County is less than every one of the 28 county extended service areas in the Philadelphia MSA. These statistics demonstrate that while policy initiatives such as the ten-year tax abatement and NTI have spurred some development, residential development in Philadelphia still remains extraordinarily challenging. D. " And this is the big quote. "We are in a city with Baltimore houses, St. " It is very clear that the current state of the large-scale residential development industry in Philadelphia is extremely fragile. Passage of this bill would totally eliminate new construction and development of market-rate properties. The following example -- and I think this is really clear and may address Councilman Goode's answers or questions -- demonstrates the effect on current policy on large-scale development in Philadelphia and will give you a clear 66 11/28/07 - HOUSING - BILL 071005 indication of why this bill cannot proceed as drafted. In my testimony I provided an Exhibit 2, which is a spreadsheet on the proposed affordable housing bill. On a 20-unit development in Philadelphia at three different housing price points, a $300,000 price point, $500,000 price point and a $700,000 price point -- if the Committee has that spreadsheet, I ask you to refer to it -- it shows a development pre-tax profit margin in all cases of eight percent, a margin that I can attest to in Philadelphia rarely exists and this time in the economic environment rarely exists anywhere in the entire country based upon the home building industry. Historical profit margins by large publicly traded companies are listed over a one- and five-year period in Exhibit to give you additional context. percent. percent. Exhibit 2 depicts the current tax burden of developing in Philadelphia versus any surrounding county or city. From a larger transfer tax, from the business privilege tax and the gross receipts tax, those taxes alone total approximately percent of the pre-tax profit on any development that would be built in the City of Philadelphia. If the new legislation is passed, it would add an additional 30 to 80 percent additional tax on any potential profits that may be available to anybody building in the City of Philadelphia. In the higher price units, a developer would pay over a hundred percent tax burden based upon the development as proposed in this legislation and would actually lose money on a pro forma going in. Clearly, no 22 investor would make any of these type decisions or take the risk knowing this information. More importantly, this is not 68 11/28/07 - HOUSING - BILL 071005 an income tax, but an obligation tax. It is irrespective of any profits that may be lost during a falling market condition, cost overruns or any other error. Based on these mathematical numbers, which have been undisputed, no 8 one will invest in real estate development and the entire City residential real estate market for new homes will shut down, which we believe is not the intent of this legislation. As members of this Committee, I do not think you want to support legislation that shuts down the investment in the City and causes a tremendous amount of jobs to be lost.
The letter attached in Exhibit 1 also suggests a number of alternatives that we have proposed in the working -- or the housing force working group that we had that was defining the need, demand and funding necessary to fund these sorts of funding gaps that we could have prior to enacting this policy. If those were 69 11/28/07 - HOUSING - BILL 071005 done, we would support the legislation. We feel that we should target the 80 to 150 AMI population, with additional credit for units targeted to the population below the 80 percent AMI. We also propose flexible options for the workforce and inclusionary housing versus hard percentage of units being built, because we thought that was more fair. We also said the sharing of the cost must be put in there versus having it lay all on the residential development community. It must be shared between the stakeholders of the residential development community, the City agency, housing advocacy groups versus just an additional tax or disincentive to the real estate community. Some of the proposals were that -- and these are tough decisions by everybody -- portions of the transfer tax, business privilege tax, gross receipts tax in the market-rate portions of mixed-income developments. They were 70 11/28/07 - HOUSING - BILL 071005 also allocation of a part of the revenue stream that will be coming online since the beginning of the existing ten-year tax abatements are concluded are being burned off. Also allocating a portion of any budget surplus that has been fueled in part by the revenues produced by the real estate industry and the boom that we've experienced previously. And also, as Mr. Dranoff said, an additional fee on all new building permits to be provided to the Workforce Housing Trust Fund, not just from the residential development district. We also support the City and City Council's support of efforts to reduce high costs of construction, including, but not limited to, the adoption of the PA statewide building code, code revisions to support lower labor costs, greater efficiencies in building materials; for example, PVC versus ductal iron pipe. Greater participation and the inclusion of 71 11/28/07 - HOUSING - BILL 071005 minority, women and disabled workers and contractors and subcontractors who live in the City who are developing residential housing. We also want to ensure that the resale inclusionary housing units remain affordable for a period of time, and we also want to identify and determine existing areas where units that could apply to the targeted market versus proposed construction of new units that expend precious City resources. There are many other sources that if challenged can be looked at. However, this bill does not do that. It puts the entire burden on the real estate development community and the investor community. In closing, we support a massive undertaking required by the Mayor's Executive Order forming the inclusionary housing working group and the concepts embraced by Councilman Clarke's initial inclusionary housing 72 11/28/07 - HOUSING - BILL 071005 bill proposal. " However, this bill as written is not the answer. Passage of this bill 11 will only compound the shortage of quality housing in Philadelphia by squelching the new residential construction industry, creating a loss of jobs, a loss of tax revenue and loss of investment in the City. We cannot allow that to occur. Thank you for the opportunity to testify this afternoon. I'll be glad to answer any questions.
Thank you. Are there questions for Mr. Westrum? Councilman Clarke. 73 11/28/07 - HOUSING - BILL 071005
Good afternoon. Mr. Westrum, I just wanted to make sure I heard you. Do you believe that the development community should make a contribution to an inclusionary housing program?
I think that the development community by building additional units is the investment within the City, that their proportion share of this affordable housing component and inclusionary housing component should be -- and I'm going to change what Mr. Dranoff said -- should be cost neutral. The cost of us is, we are investing significant monies in the City. By us investing the money in the City and by being available to build new market-rate homes, we will be able to have those additional units be built. 74 11/28/07 - HOUSING - BILL 071005 The fact of taxing us additional over and above will make Philadelphia uncompetitive, and builders like myself and others will go to different cities and build elsewhere. We won't build in the City, because there will be no 8 profit. We won't be able to finance it and raise equity.
I asked a real succinct question. Do you believe that the development community should make a financial contribution to inclusionary housing?
I think that from a dollars and cents financial contribution, if there is one, it should be very minimal. I think that what the contribution should be should be the fact that we are investing in the City, with all the regulations and the hardships in the market that we need to do to be able to sell houses in a very, very difficult marketplace and a very, very difficult regulatory area. 75 11/28/07 - HOUSING - BILL 071005 I have said to spread the wealth. We're willing to pay a portion, but right now the current bill has the entire amount burdened on the development community.
I just want to make sure, because Mr. Dranoff said that you should not pay a dime. And with the understanding we've had -- you and I have been talking a lot. You're a member of the task force, and you know the spreadsheet that you've given is not based on what the bill will ultimately look like, so those numbers are not what they should be, because some of the projections on the levels of the sales of the houses aren't consistent with what our eventual proposal will be. And I've indicated to you --
Based on what the 76 11/28/07 - HOUSING - BILL 071005 current bill is, it is.
I understand that, but you do know -- we have had these conversations as recent as yesterday and actually this morning -- that those won't be the final version. You do understand that there is going to be an amendment today that will push the effective date back, because I do understand that as currently proposed, the bill does not work, period, does not work without the Phase II of the bill, which will be the appropriate incentives, and I agree with pretty much all of the recommendations of Mr. Hanna that should be put in place before this proceeds. But I do believe that the development community should make some financial contribution to this proposal. All of the burden shouldn't be borne by the City of Philadelphia or the labor community. I think there should be some sharing in all of this.
As long as we 77 11/28/07 - HOUSING - BILL 071005 quantify what that contribution could be, we could discuss it. Right now it's a hundred percent on us.
Please identify yourself for the record, Mr. Reddish.
Bill Reddish, President of the Philadelphia Building Industry Association. Currently, the building industry has made a great contribution to this effort. Through deed recording fees, there have been almost $12 million put into the Housing Trust Fund. As a result, a residential development taking place in the City of Philadelphia. With the transfer tax fees that are generated through the sale of real estate, over a hundred million dollars has been put back into the City coffers to help balance and 78 11/28/07 - HOUSING - BILL 071005 create a surplus for the City's budget. So for the question to be what contribution are we going to make I think is an unfair question. I think the question should be what additional contribution are we going to make --
Okay. What additional contributions are you going to make?
-- to the middle-class housing, and what I've been asking this -- what I'm asking this Committee to understand is that we would like to have a position where this legislation is as cost neutral as possible, meaning the builders and developers don't incur any additional substantial cost to their projects as a result of having to meet the sale price that is given by the percentages based on this bill. Now, the builders have the same problems as the CDCs and other non-profits that are trying to build 79 11/28/07 - HOUSING - BILL 071005 units in the City of Philadelphia: the cost of land, the cost of materials, the cost of labor and the decrease in sale prices on units here in the City. So we're all dealing with the same problems. What we're saying is that because this is such a volatile market at this point in time, we cannot accept this legislation as it is written because we don't quite understand what the exact cost or benefit will or will not be to the developer if they get involved in this particular program as it is currently written. So we have already made contributions. What we want to make certain is that we don't have to incur additional costs that could drastically affect the budgets of various developments that are earmarked to be built in the City, thus affecting financing obligations and thus causing the developers to leave town and not build.
Just one quick follow-up on that is, our intention is to make Philadelphia a better city. We want to invest in the City of Philadelphia. I think any developer here who is sitting here wants to invest in the City of Philadelphia. I went through the Econsult information. The problem is, you've heard people pricing people out of something? Well, Philadelphia is costing itself out of investment. The costs are just basically simply too high. It's too high to -- construction costs are too high. Taxes are too high. Everything is too high, and the price that we can charge is too low and that -- because of all sorts of other things that the Council recognizes, the Administration recognizes. But to add another burden of taxing on the development community will shut the development community down, because we can't raise prices. You can't say, Well, add $10,000 a unit to everything, because you can't do it. I 81 11/28/07 - HOUSING - BILL 071005 mean, prices --
That's because of the downturn in the market. You can't lay all that on Philadelphia. I mean, the reality is, you guys --
With all due respect, you all have said that -- and I know that during the boom -- and it's not all attributed to the ten-year tax abatement, because I genuinely believe that the sales prices dramatically increased because people were being offered a ten-year tax abatement -- that things -- there was a significant number of units built in the City of Philadelphia in an unprecedented way. It was because of a strong housing market and we in fact had a ten-year tax abatement. So now the market has declined on the national level. So the difficulties associated with the City of Philadelphia -- and I acknowledge we do 82 11/28/07 - HOUSING - BILL 071005 have some challenges in terms of helping people build housing -- they weren't as much of an impediment when the good times were rolling. So we're prepared to address those concerns, because we understand that there are challenges, and I've indicated that we're prepared to address them in a Phase II bill, because we should do it anyway, because it's the right thing to do, but what we're simply asking is that the development community understand that if we're willing to change some additional things above and beyond the ten-year tax abatement, we're looking for some support on an inclusionary housing program from the development community also other than giving us the luxury of having you come into the City and building houses.
Councilman, speaking from experience, I developed in the suburban areas, I developed in other areas of the country. The City of 83 11/28/07 - HOUSING - BILL 071005 Philadelphia is the most costly city in the country to develop with the least profitability that exists currently. And the reason why there is no NVR, there is no Ryan, there is no Beazer, there's no 7 Hovnavian, why they all left the City of Philadelphia is because it costs too much to build in the City of Philadelphia. They refused to work with the trade unions. They refused to work because of how difficult everything is in the City. So this is just another burden. The developers have choices where to invest and the people who buy homes have a choice of where to buy homes. We just don't want to see Philadelphia, the passage of some bill, adding additional costs. There are other streams of revenue because of the investment and the boom that can occur that could make this cost neutral and allow for everybody to -- as they say, all boats rise in rising tides. Well, we don't want to see all boats go down and 84 11/28/07 - HOUSING - BILL 071005 sink because of lowering tides.
Thank you, Madam Chair. Good afternoon, gentlemen. As a follow-up, you say in the bill -- you say right now in the bill as it's written. Well, written in the bill on the last page, as you know, is Section 13 7-112, Development Assistance Programs. It talks about working with the development community foregoing to -- that will not cause the developer foregoing income, that kind of thing. You know what I'm talking about. And to steal Councilman Clarke's term, this is obviously Phase I. I think what the bill 21 is, when you get past all these seven pages, is saying that we want to try to include some people -- and there's going to be speakers saying we're not including enough, but we're going to try to include 85 11/28/07 - HOUSING - BILL 071005 some regular people, regular Philadelphians, in these developments. And I know a lot of developments -- and I think Brewerytown was included -- it did that, right? So I guess given that this bill 8 is not going to take effect right away, given that that section is in there, why are you still -- and this could go to either one of you, and I know we had this discussion ahead of time -- why are you still coming out just in total opposition?
That section has no quantifiable amounts in it versus what the quantifiable amounts are from the affordable housing component are based upon, five percent at 60 percent AMI, five percent at 100 percent AMI. Those numbers are very quantifiable. If you refer to my spreadsheet, on a $300,000 house, those numbers on a 20-unit community, those numbers would total $226,000 of lost profit basically or 86 11/28/07 - HOUSING - BILL 071005 additional costs. If you go to a $700,000 house, that expense is over a million dollars. The items that are listed and even discussed from Mr. Hanna in his testimony pale in comparison. They make things unfinancable. I could not go to a bank and say, Well, here's a bill that says they're going to do something by July 31st. The financial institution is going to say, You know what, when you get to July 31st and you find out what the numbers are, then we'll talk to you. What we're saying is, we support this legislation, we support the concept of this legislation, but we have to have all that information quantified and show where it's going to be as close to cost neutral to a level that we can agree upon. We can't go to the bank and say on a whim and a prayer, Oh, we think it's going to be cost neutral. They'd laugh us out of town, and then nothing gets built. 87 11/28/07 - HOUSING - BILL 071005
But the fact that the ordinance would not take effect until later, as you say, when you're going to the bank, the bill would not be in effect at that time, correct?
The bill takes effect irrespective if any of those things are not put in place. If nothing is put in place, the entire burden falls on the development community.
Well, I think you've gotten enough assurances from -- and you know how Council works, both of you. The sponsor of the bill and I think the sponsors have said that they would not ask for the implementation of this bill until all this is worked out. Am I saying that right, Councilman Clarke?
It doesn't work in its current iteration, but the 88 11/28/07 - HOUSING - BILL 071005 reality is, given the history of the City of Philadelphia, unless people are given timelines and deadlines, nothing happens.
We stand ready, willing and able to work with everybody to come up with an agreeable number and revenue streams that have to be. Because there are going to be tough decisions. No one wants to touch the transfer tax. No one wants to touch this. No one wants to touch that. Well, if we want to put this in place, it has to all be touched. We're willing to sit down and do all that, but we can't have a gun against our head to say if we don't touch all those other revenue streams, then it's all going to go a burden on you, which is basically what this legislation says.
I mean, again, you know how this works. If the sponsor doesn't want the bill to go forward, he doesn't -- or if the sponsor wants to push back the effective date, I think that's the way it's always worked here, it gets pushed back.
Pushing back the effective date makes it even more problematic for anybody to get any lending, because it just provides more uncertainty of what's going to happen in the future. So as we said, we stand ready, willing and able to talk. Bill and I provided a significant amount of potential revenue sources other than expedited building process, which never occurs, other than a couple other things that were talked about by Mr. Hanna, who, in all honesty, don't make a dent in what we're talking about with expenses here. 90 11/28/07 - HOUSING - BILL 071005 If we can come to something that is very close to cost neutral that we can provide that will allow for financability of future projects, we are willing to sign onto this bill, but until that information is done, until that date is there, it's impossible for us to agree to something on a whim and a prayer.
I don't know if it's a whim and a prayer, and we're going to go back and forth, so I won't belabor the record, but in a sense, you're saying that you don't really believe that this could get worked out and this bill might get passed anyway. I think a lot of us are saying if we don't push this issue, it will never get done. So I guess, in a sense, there's a lack of trust both ways.
Add the word "cost neutral to the developer" and we'll sign onto the bill.
Well, then we get into what does that mean. 91 11/28/07 - HOUSING - BILL 071005 All right.
We have a question or a comment from Councilman Goode.
Thank you, Madam Chair. Mr. Westrum, you might be surprised to find out that we actually are in agreement. I am not of the opinion, while I support inclusionary zoning, that this has to happen within the next 15 days. So my question to you is whether your testimony would be vastly different in a different Administration that was more aggressive about business tax reform and regulatory reform.
No. Our testimony -- again, I can attest to the following: Number one, in Brewerytown I built houses, and collectively Bill and I 92 11/28/07 - HOUSING - BILL 071005 are building affordable homes in that community next to market-rate homes. I have our East Falls site, Hilltop at Falls Ridge, side by side with PHA affordable housing. I am a firm proponent -- I'm working with PHA right now to try to integrate affordable housing units within our community. We stand -- we are not someone that says that we should have affordable housing in one area and market-rate housing somewhere else. We're willing and want to incorporate and integrate all of that. It just can't occur the way it's being proposed right now. So a long-winded answer to question, I will not change my position in the next Administration.
No, no, no. 22 My question is not about this piece of legislation under the next Administration. My question was about testimony regarding inclusionary zoning 93 11/28/07 - HOUSING - BILL 071005 if it's put in the context of comprehensive business tax reform and regulatory reform and if you're talking about cost and we're not talking about having to do this within the next 7 days, under another Administration, if 8 the new Mayor and new City Council looks 9 to lower business costs in terms of 10 business taxes and regulatory reform, 11 would that vastly change your testimony 12 with regard to inclusionary housing? 13
I'm not sure I 15 fully understand the question, so I want to answer that with reservations. I do not believe it would change my testimony.
If I could answer your question, the only issue that will change our testimony today is to have 94 11/28/07 - HOUSING - BILL 071005 included in this bill all of the provisions we need to make this bill a neutral cost bill.