Are you 90 2/27/06 - WHOLE - BILL 060006, ETC. saying that they pay the net income portion of the business privilege tax and the gross receipts portion?
Yes, they do, and they also pay the net profits tax, but they get a credit on the net profits tax for a portion of the net income part of the business privilege tax.
And is that at a rate that's higher than the regular resident wage tax?
So is it fair to say that notwithstanding continued reductions in the gross receipts portion of the business privilege tax, there are some business owners, small, medium and large, who end up paying a net income rate that is higher than the regular residential wage tax rate?
Is it fair 91 2/27/06 - WHOLE - BILL 060006, ETC. to say that the net income portion of the business privilege tax, which has not changed and it's presently at 6.5 percent, has a negative effect on businesses, depending on how your business is set up, even if you are a small business versus a large business?
Councilman, I believe the answer to that is yes. I think we've heard much testimony about that from actual business operators who have said just that.
Thank you very much. I have one comment, then I'll call Councilman Clarke. Your Tax Reform Commission document, and I read per quote, "Increase property tax revenues. If all other revenue-generating options fail and there is no other way to fund the package of 92 2/27/06 - WHOLE - BILL 060006, ETC. tax reform, the City could increase property tax rates. Evidence suggests that shifting from local business and wage taxes to property-based taxes will result in substantial increases in jobs, resident incomes, business activity and property values," end of quote. Now, we're trying to keep our residential community intact. We don't want to lose more people than we have in the past. None of us does. So I don't understand how you favor increasing property taxes for everyone when we run the risk of losing our population base.
The Tax Reform Commission's three-volume, 500report certainly says a lot more than that one paragraph, and I would direct you to read the previous couple of paragraphs where we offer other 93 2/27/06 - WHOLE - BILL 060006, ETC. recommendations in terms of where the City can find revenues to handle any short-term gaps that there might be from a tax reduction.
Why don't you just answer. We all know you're smart. We all know you --
Why do you do things like that? Why don't you just respond to our question? We all know you're a smart guy.
The Tax Reform Commission suggested that any shortfalls in revenue in the short run could be made up by finding some of the revenue that we don't collect in outstanding taxes --
Nor should you tell us what we could read. We know that, don't you think, Mr. Mandel?
Madam Blackwell, you read one paragraph of the Tax Reform 94 2/27/06 - WHOLE - BILL 060006, ETC. Commission's three-volume 500-page report to make it seem as if we're suggesting that we should raise the tax --
No. 6 This is your document. I quoted your document. If it can't be quoted -- Thank you, Mr. Weintraub. Maybe if Mr. Weintraub commented, we could get a little further, because his attitude is more friendly. Thank you.
Councilwoman, what you read is exactly what I said. At the beginning of the paragraph you read, it said, if all else failed to help fund the services necessary for the City that the Tax Reform recommendations would yield, then you could look towards the real estate tax. Now, all of the data that was in the report from the Commission, if you look at, I think it was, the second volume -- what you're reading from is the first volume, which was just the recommendations. The third volume had 95 2/27/06 - WHOLE - BILL 060006, ETC. all of the reports that we relied upon. In that third volume, among the information provided to the Commission was that by lowering the business taxes, by lowering the wage tax, we're going to create jobs in the City. By creating jobs in the City, a corollary to the creation of jobs in the City would be an increase in the value of real estate. At current rates, without changing rates at all, if the value of the real estate increased, that would generate additional real estate tax revenue to the City. We didn't recommend that that happen, because City Council has the right to come in and adjust that rate downward to compensate for the increase in the value of the real estate. But, again, as you read, which confirmed what my original statement was, this was an absolute last resort in the event all of the other ideas that the Commission put forward to help fund tax reform failed. 96 2/27/06 - WHOLE - BILL 060006, ETC.
Would you like to say any of the other recommendations we have?
Thank you, Madam Chair. I just wanted the record to be specific as it relates to real estate taxes. Mr. Weintraub, I guess I'll ask you this question because you brought it up. Are you referring to the recommendation, Recommendation 7, the budget-based property taxation?
It essentially says that the Commission recommends creating a system of budget-based property taxation by legislatively obligating the Mayor and Council to determine all annual real estate taxes after setting the budget and 97 2/27/06 - WHOLE - BILL 060006, ETC. reviewing the assessments; therefore, maintaining stable revenue. Essentially, we set a budget. If there is any shortfalls in the budget, then address the revenue associated with real estate taxes to either stem the increases or increase it to fill any potential budget gaps.
Councilman Clarke, the recommendation you're reading from is a different one from the one that Councilwoman Blackwell was reading from. Councilwoman Blackwell was reading from the section where we were talking about how to fund the revenue shortfall that the wage and business tax cuts would generate. What you are reading from is one of the recommendations that the Commission made to reform the overall real estate tax system that the City currently has in place.
And to that question, I think it's a question of 98 2/27/06 - WHOLE - BILL 060006, ETC. fundamental fairness. Right now the way the real estate tax system works -- this is the background to why that recommendation is there.
Let me stop you there, if I can. The reason I'm referencing it is because you tie it to the budget, and I remember at the time, there were some concerns that if there were any budget shortfalls, although you didn't specifically have that language in the recommendation, that potentially if there was a budget shortfall, you can increase the revenue from real estate to fill the budget shortfall, because at that time, the budget was a big part of the discussion. You had the pro and con tax cut, and people were concerned that if you continue to cut the budget as it relates to workforce and other things and expenditures on the City, that we would make it up on the real estate side. You've answered the first part of my question, you're not referencing 99 2/27/06 - WHOLE - BILL 060006, ETC. the same thing, but the second part is, do you continue to --
Well, Council can always adjust any budget shortfall by looking at the real estate tax rate. That's nothing new. I mean, I'm not telling you anything you don't already know about that.
The recommendation was really a question of fairness in the system itself. The way the system currently is in place, the assessments themselves are coming out after this Council does the budget and fixes the rate. So when the assessments come out -- and you'll remember back -- it was 2002 or I think it was summer 2003 when this Council was inundated by constituents who had very large assessments coming up after you had done the budget, and they were getting large tax increases, because their values 100 2/27/06 - WHOLE - BILL 060006, ETC. of their property were being adjusted upward by the Board of Revision of Taxes. What that recommendation was designed to achieve was, let the assessment process do its thing before you do the budget, so that when you do the budget and you fix the rates for the real estate taxes, you can compensate for any increase or decrease in value that the Board of Revision of Taxes might have. That way, this Council is fixing the rate as needed to compensate for valuation adjustments, and that's what that recommendation that you read was intended to adjust.
But you understand it could be construed as a potential budget gap filler?
I understand it can be construed that way, but that's not what was recommended.
I believe the 101 2/27/06 - WHOLE - BILL 060006, ETC. report expresses itself as this is clearly a question of trying to make the system more visible, more clear to be clearly understood and fair to the constituents, fair to the residents of the City.
Mr. Weintraub, Mr. Mandel, maybe you could answer this. As you well know, I'm sure it's no secret that we have a surplus of approximately about $160 million. Mainly it's due to the increase in revenue in the business privilege taxes, as well as the increased revenue 102 2/27/06 - WHOLE - BILL 060006, ETC. from the real estate transfer tax. Now, I'd just like to know, if we do nothing on these bills whatsoever, do you anticipate that we would still be generating the same amount of money or the same revenue if we do nothing with these bills?
I can't forecast. I'm not an economist, Councilman. I can't forecast what businesses will do from the standpoint of increased profits, increased revenue, increased jobs, more real estate turning over. Right now the real estate market in Center City seems to be still flourishing. I understand the Administration in its budget has projected increases, continued increases, in those revenues. I would hope they would, but I can't forecast that. That's not my expertise, if I might cop out on you.
I would add that based on our work that we performed for 103 2/27/06 - WHOLE - BILL 060006, ETC. the Tax Reform Commission, certainly all of the people that you heard from here today, there is nothing that we should expect in Philadelphia if we don't do something about our business tax structure that would be anything aside from we will continue to lag economically. The nation right now is growing jobs. The region right now is growing jobs. The City of Philadelphia continues to lose jobs. When the nation and region grow, we should be growing. We will continue to lag economically unless we address this problem.
In other words, what you're saying, in effect, is, if we continue to receive surpluses, what we may do with those surpluses is to reduce taxes, which would generate additional revenue for the City.
Well, certainly that's what has happened in each of the last 11 years that we've been reducing 104 2/27/06 - WHOLE - BILL 060006, ETC. tax rates. We have been increasing tax revenues. Mr. Weintraub has something illuminating on that subject.
If I can just add to what Mr. Mandel just said. Last week, on February 21st, Pennsylvania Revenue Secretary Gregory Fajt testified before the House Appropriations Committee on the Commonwealth's budget, and I have a copy of his testimony with me. If I could just read a couple of sentences from his testimony, I think it will be helpful to this Council. After saying that the Governor's proposal called for a fourth straight year of tax reductions, business tax reductions, Secretary Fajt went on to say, "I am also pleased to report that Pennsylvania's lower business taxes, along with a $2 billion economic stimulus program that you helped develop," meaning the General Assembly, "are jump-starting Pennsylvania's economy. In 2002, we ranked 41st out of the 50 states in 105 2/27/06 - WHOLE - BILL 060006, ETC. employment growth. Today we are 15th. Our unemployment rate is below five percent for the first time since 2001, and most important of all, 120,000 new jobs have been created in Pennsylvania since February 2003."
120,000. "In the same time frame, Philadelphia has lost jobs." So there was more than 120,000 jobs created elsewhere in the state, and Philadelphia's loss of jobs brought that down to 120,000.
Thank you, Madam Chair. Mr. Weintraub and Mr. Mandel, I want to go back to a question that Councilwoman Blackwell asked. I believe 106 2/27/06 - WHOLE - BILL 060006, ETC. that as wordy as you tried not to be, still there's a simple way to present this question. I'd like to address it in two ways. The first being, is it safe to say that the Tax Reform Commission concluded that businesses and workers were overtaxed and that property owners were undertaxed?
I didn't ask whether you said that. I asked whether you concluded that.
Well, then let me ask the question a different way. Wage tax cuts are locked in; is that correct?
This Council has now enacted ordinances to reduce the wage tax over a period of time, yes.
They're locked in to 2015; is that correct? 107 2/27/06 - WHOLE - BILL 060006, ETC.
I believe that's the year. I don't remember the exact year.
The Tax Reform Commission recommended that we lock in business tax cuts, and your preferred approach is to eliminate business tax cuts on a schedule that would go to 2015 or '16 or '17; is that correct?
The recommendation back in 2003 was for a ten-year cut, which would have taken it to 2015, I believe, and now we're a couple years down the road.
So while we would lock in wage tax cuts to 2015, lock in business tax elimination 2015, 2016, 2017, we would then have to adjust or potentially adjust the real estate tax rate based upon assessments possibly on an annual basis?
No. I disagree with your statement, Councilman. Number 108 2/27/06 - WHOLE - BILL 060006, ETC. one, at the time the Commission rendered its report, there were substantial issues, as Mr. Mandel indicated in his original testimony, of how do we fund it. Today there's a $140 million surplus in the budget. So the question of how you fund it is not the issue anymore.
So the point at which we complete the full valuation project, if it is completed and completed to our satisfaction, that beyond just going to full valuation, that those properties that were underassessed are more fairly assessed and those properties that were overassessed are more fairly assessed, are you suggesting that we lock in a property tax rate, the same as you're suggesting we lock in wage tax rates and business tax rates?
I'm suggesting that when you go to full valuation, this Council has an obligation to adjust the rate to reflect what is needed.
I understand 109 2/27/06 - WHOLE - BILL 060006, ETC. that, but I'm asking in terms of the long term. After the full valuation project, after we are satisfied with those properties that were being underassessed are being fairly assessed, those properties that were being overassessed are being fairly assessed, we've moved to full valuation, at that point, are you suggesting that we lock in real estate tax rates like you're suggesting that we lock in business tax rates and wage tax rates?
No. As a matter of fact, that was the recommendation that Mr. Clarke was talking about, was to create a budget-based system. Every year the value of real estate in the City will change. It will go up; it could go down. That's when City Council should take a look and say, What revenue do we want to get out of the real estate tax base. Real estate values can go up, the tax rate can go down, and we could still bring in more revenues. 110 2/27/06 - WHOLE - BILL 060006, ETC. Alternatively, the value of real estate might go down, and to maintain the same amount of revenues, you might look at adjusting the rates. So if you create a system that says we're going to be reducing the wage tax rate, we're going to be reducing the business tax rate, if the City is going to maintain its overall revenues, one of the places that you're going to be needing to look is real estate tax.
Workers and businesses could be making more money. You're not suggesting that we adjust the rate based upon making more money, are you?
If workers and residents are making more money, that should be reflected in the value specifically of commercial real estate. If the value of commercial real estate goes up, we can tax the value of that commercial real estate.
This is a 111 2/27/06 - WHOLE - BILL 060006, ETC. debate that we can keep simple or not, that in fact you're asking us to lock in wage tax rates, to lock in business tax rates, but not to lock in property tax rates, and your basis for that is that the value of property shifts, but corporate profits shift. The bottom line is income.
Councilman, I understand your question, and from a policy standpoint, that's the decision this Council has to make, and, candidly, I don't have a problem with it. It's not one of the recommendations that was made, but I don't have a problem with this Council doing that.
I'm contemporizing the discussion and asking right now, since we've already locked in wage tax rates and since this panel is specifically telling us to end it, not just mend it, to eliminate the business tax over a long-term schedule and to lock it in and address the Councilwoman 112 2/27/06 - WHOLE - BILL 060006, ETC. Blackwell's question, isn't that based upon increased property tax revenue, increased property tax values and our not locking in a property tax rate?
I don't think so. If you look at the history, the current rates on real estate taxes in this City have been the same for the last years. So if 15 years ago this 11 Council had chosen to lock in the current 12 rate that it is today and which have been 13 in effect for the last 15 years, we'd be 14 in the same financial position today that 15 we are.
Well, we would not if those properties that were being underassessed were fairly assessed.
The whole question of fair assessment. Fairness in the assessment process is a different issue from funding the budget. I mean, the assessment system should be fair in the first instance. It should be a fair system. That's one of the reasons why 113 2/27/06 - WHOLE - BILL 060006, ETC. the Commission was created, to recommend a fair system of taxation for the City, not just business taxes. We were charged with the responsibility of making recommendations for the entire City tax structure, and that's why we looked at real estate taxes. And what we concluded when we looked at real estate taxes was that the system itself was not functioning fairly.
Let me ask this question. I think it is fair to ask in the context of what Councilwoman Blackwell was trying to get to. Is it the position of this panel that once full valuation is done, that we should make it revenue neutral to the City's Five-Year Financial Plan?
Thank you, 114 2/27/06 - WHOLE - BILL 060006, ETC. Madam President. Mr. Weintraub, what was the time frame you referenced on the increase of jobs in Pennsylvania?
I'm not going to ask you this question, because you're probably not the person that should be answering it. One of the things I want to find out, this issue about reduction in City workforce, and it's been, I don't know, between 1,500 and 2,000, and somehow during the course of the discussion, it never really rises to the level. Because I think that the City municipal jobs are extremely important, given the fact that they're traditionally decent-paying jobs and 115 2/27/06 - WHOLE - BILL 060006, ETC. they're residents of the City of Philadelphia and they pay a higher rate as it relates to wage tax. And somehow that never seems to factor in the loss of jobs as it relates to the City. I'll ask you the question. If you don't know it, I will understand. What percentage of the job reduction in the City of Philadelphia can be attributed to the reduction in the municipal workforce?
I don't know the answer to that question, but I know that from the numbers that I have been told over the years, it has been much larger than the 1,500 to 2,000 jobs. We're looking at like 10,000 jobs a year. Each year 10,000 jobs or more have been lost. Governor Schweiker in his testimony last year before this Council when we were discussing the budget, you recall there was a chart over in the corner there showing the jobs lost in the 116 2/27/06 - WHOLE - BILL 060006, ETC. City and it was five figures each year.
Did he categorize the types of jobs? Was it that level of specificity?
Okay. That's all right. Thank you. Thank you, Madam President.
You're welcome. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. With regard to the old issue of tax cuts and the wage tax issue and real estate issue, we note that none of the major corporations we're talking about -- and I mention this to the panel -- the Wal-Mart, the Sun Oil, SmithKline, all of these folks who are expected to get and who you say need a big tax break, but none of them testified that if we cut 117 2/27/06 - WHOLE - BILL 060006, ETC. taxes, they're going to hire our City residents. So do you somehow have some assurances where we are with regard to that? Because if the whole issue is increasing jobs and that that will help increase our economy, what assurances can we have that that will take place?
I think when you're looking at the issue of cutting taxes, the big firms come into City Hall and get what they want whenever they want it. If they want a tax break, they get a tax break. If they want a tax rebuilding, they seem to be able to get a tax rebuilding. The panels that we brought for you today were small employers, people that can't walk into City Hall and ask for a break, people who can't walk into the Governor's office and ask for something special. The gentleman who started off our testimony would be in Philadelphia 118 2/27/06 - WHOLE - BILL 060006, ETC. but for the business privilege tax and his 300 jobs.
I believe that you brought these people in to try to give us the impression that you don't only speak for special interests and large businesses, but that you do in fact have some interest in small businesses, which I really don't believe you have any interest in. So I think you try to give us a different impression of who you are and what you believe than what you do. So I would suggest that you let Mr. Weintraub answer for me, and I'll probably feel that he has an overall view and an overall interest in understanding of our City's views and where we're trying to go and not just his personal interest and view.
With all due respect, what is it that Philadelphia Forward has done to give you the impression that we speak for large 119 2/27/06 - WHOLE - BILL 060006, ETC. businesses? The Tax Reform Commission released its report. Philadelphia Forward formed and created our organization, and we have directed people toward you. You have received e-mails, faxes, phone calls, letters from business owners and residents across the City. To my knowledge, the largest of businesses have not used our conduits to connect with you.
Mr. Mandel, you've Xeroxed things and had everybody sent us the same e-mail. We've been around too long not to recognize that, if you want to say that, if that's your response. Everybody knows when you get a rode answer, when it's passed around and everybody is told to send it in. That's nothing new. That doesn't mean we have a varied view by everybody.
Each of the employers that we brought to you today had a different story, had a compelling story. We really took no effort at all 120 2/27/06 - WHOLE - BILL 060006, ETC. to find them. These are people who contact us and say, My goodness, this business privilege tax is a terrible thing, how can we help you. I say, Come tell your story to City Council.
I would ask that Mr. Weintraub respond to my question about the issue of jobs and Philadelphia residents and large corporations in our City, because you have not begun to respond to that, and I would ask him that he respond to my concern.
Councilwoman, I cannot sit here today and tell you where the jobs would be, whether they would be in the Wal-Marts, the Suns, the Comcasts of our City or whether it would be small neighborhood businesses. I mean, that would be impossible for me or I think anyone else in this room to answer that question. All I can say to you is that if you cut -- if the business privilege tax 121 2/27/06 - WHOLE - BILL 060006, ETC. is repealed totally, and we've recognized on a phase-out or a scheduled reduction in the rates, we feel extremely confident that there will be an increase in jobs. I think the Pennsylvania Revenue Secretary's statement is indicative of that and supports our feeling on that. But to say to you that Company A or Company B is going to be the one to create those jobs, I mean, that would -- if I were to say that, I'd be lying to you, and I won't do that.
You're welcome. The Chair recognizes Councilman Ramos.
Thank you, Madam President. I feel just a little bit like Councilman Kenney, though I think now I'm tuned in a little bit better than I was earlier where we're at on this 122 2/27/06 - WHOLE - BILL 060006, ETC. discussion, or at least in a formatted way. So I would like, for the sake of clarity, if Mr. Mandel would tell us or tell me where you stand on these following bills, whether you're for or against them. There are five of them that we're taking up today. Or if your organization does not have a position, I will accept that reply as well. Bill No. 060006, where do you stand on that bill?
If you amend it to cut the gross receipts side and the net income side and provide a fixed legislated schedule to eventually phase out the business privilege tax, we're all for it.
Okay. If you were giving that answer to Jannie Blackwell, she'd be all over your case right now.
If it stands 123 2/27/06 - WHOLE - BILL 060006, ETC. the way it is before us, how would you vote? What would be your position?
As it stands before you, if I had to vote on this and nothing else?
You would not be for it the way it stands, right? So that's a no, unless it's amended. All right. How about 060007?
You're for 124 2/27/06 - WHOLE - BILL 060006, ETC. that bill? It strikes me quite ironic you stand -- you seem to have been taken aback by the idea that you only represent big business interest, but the only thing here that actually helps, although there will be debate on it, helps the working poor, you seem to be in favor of the repeal.
As I answered your question earlier, from the work on the Tax Reform Commission, the idea of creating a low-income tax credit locally sounds like it helps the vast majority of low-income workers, but the research shows that those kind of programs only help some low-income workers. Our recommendation from the Tax Reform Commission was to fund efforts through the Greater Philadelphia Urban Affairs Coalition to dramatically expand the reach of those programs so they're getting to people who right now don't get the benefit of those tax programs, as opposed to create more tax programs that 125 2/27/06 - WHOLE - BILL 060006, ETC. will only be accessed by a small percentage of low-income residents.
But you leave an impression that you're for all this tax reduction, wage tax at all the levels, but when it comes to furthering the wage tax reductions, something that's already in law, that you're not for, so, therefore, you support the repeal of that bill.
Well, I'm sorry if we create an impression that we're not trying to create, but fundamentally, if we're going to try to create jobs in the City, we want to phase out the business privilege tax. If we want to encourage residents of all income level to prosper in the City, we should be reducing the wage tax. Those are the fundamental conclusions of the Tax Reform Commission. If we want to specifically help low-income residents in the City, our recommendation was not that we should create a program that helps, again, a 126 2/27/06 - WHOLE - BILL 060006, ETC. certain portion who are already being helped by federal and state programs. We should try to expand the reach of those federal and state programs, the money that's left on the tables, literally dozens of millions of dollars, that could be going into the hands of low-income residents in the City of Philadelphia, but because they're not able to access the Earned Income Tax Credit and because they're not able to access the state's equivalent of that, that money goes uncollected.
You don't think there's a benefit in reducing wage tax for the working poor, meaning people under $15,000 a year? I see them a lot in my office. Don't you think that gives them an opportunity to pay a bill that they might not be able to pay because the wage tax is too much for them?
Absolutely, but, remember, the mechanism to do that as created by law would be to create another 127 2/27/06 - WHOLE - BILL 060006, ETC. hurdle for people to jump through, another form for them to fill out, another bureaucracy for them to deal with. It wouldn't say anybody who is making below $15,000 doesn't have to pay the wage tax. It says that you would have to know who to talk to. You would have to know who to call. Those programs already exist at the state and federal level, and what we've seen is that not everybody takes advantage of them.
The Chair recognizes Councilman Goode for a point of information.
Thank you, Madam Chair. And excuse me, Councilman Ramos. Mr. Mandel, very specifically, two things. One, there are state and federal tax credits that don't seek to help people, as you say, but basically 128 2/27/06 - WHOLE - BILL 060006, ETC. exclude them from paying taxes because of extreme poverty. Basically, the point of those tax credits is to suggest that they don't make enough money to pay taxes. To suggest that that shouldn't be the case on the local level because of a state and federal tax credit doesn't make a whole lot of sense to me, but on top of that, to suggest that that should not happen because the state and federal tax credits are underused still doesn't make sense, because those people who are taking advantage of the state and federal tax credit should also have a local credit. And so what you're denying then by asking for or supporting a repeal of that is saying those people who are being suggested that they take advantage of the state and federal tax, you're taking away a local credit as well and acting as if they couldn't use it, acting as if they are not in extreme poverished conditions.
They absolutely could use it, but I think that when we 129 2/27/06 - WHOLE - BILL 060006, ETC. looked at what we could do tax-wise with tax policy as part of the Tax Reform Commission, we thought we could do more to help low-income individuals by creating jobs and by creating across-the-board wage tax cuts that will help everybody and affect everybody whether or not they apply for it or not. Again, it was our experience in looking at what has been the experience with the federal EITC and the state level credit that when our advisors came to us and said what's happening with those programs, we said we could offer this program and it would make some people very happy, but it just won't reach fundamentally a lot of people. We wanted to expand the reach of the programs that aren't reaching them.
But people who are taking advantage of the state and federal credit need the local credit as well. They are that poor.
Well, I'm actually not supporting necessarily anything. You asked my opinion on the bill.
The question was asked of you by two or three different people, do you support the repeal of the Cohen bill or not.
Fair enough. Because we think we can do much more with tax policy by creating jobs and by expanding the reach of the federal --
So you can shift tax relief to someone else other than extremely poor people?
All right. I'm a big defender of the business community, but I'm not a defender of the business community at all costs, 131 2/27/06 - WHOLE - BILL 060006, ETC. especially when we have obligations to other sectors of our population. How about Bill No. 060089? Is your organization in favor of that or opposed to it?
You came here to testify on this discussion today. It's calling to adopt the accelerated gross receipt rate reduction.
We would urge you to amend it to reflect the spirit and letter of what the Tax Reform Commission had wanted. Reduce the gross receipts, reduce the net income rate, provide a legislated schedule that ultimately eliminates the tax.
We would urge you to amend it. 132 2/27/06 - WHOLE - BILL 060006, ETC.
All right. I'm going to pass these questions on to Councilwoman Blackwell. How about 060090?
All of these tax bills are certainly moving in the right direction. We need to reduce this tax. We need to fundamentally eliminate the tax. But the Tax Reform Commission that 80 percent of the citizens voted to create, that charged the taxpayers a half million dollars of public money, that took us almost a year of time to create, fundamentally said this is what we should do, cut both sides of the tax, ultimately phase it out.
How about 060014? Again, you're doing this. I appreciate you cooperating, to the extent that you're cooperating with me, on answering where you stand on these bills 133 2/27/06 - WHOLE - BILL 060006, ETC. that we're taking up today.
We support that bill. We just wish it would apply to all taxpayers in Philadelphia.
You're welcome. Are there any other questions from members of the Committee? (No response.)
Do we have anyone else to testify on this bill 16 or on the bills?
Mr. McPherson, who is our next witness? MR. McPHERSON: The Chamber of Commerce.
Good 134 2/27/06 - WHOLE - BILL 060006, ETC. afternoon. GOVERNOR SCHWEIKER: Good afternoon.
Mr. Schweiker, do you have copies of your testimony? GOVERNOR SCHWEIKER: Yes. I think they've been provided beforehand. Thank you, President Verna.
Do we have it? GOVERNOR SCHWEIKER: I think they've been circulated.
Please identify yourself for the record and proceed with your testimony. GOVERNOR SCHWEIKER: For the record, I'm Mark Schweiker, President and CEO of the Philadelphia Chamber of Commerce, and I certainly appreciate the opportunity to come before you today and the same goes for the Committee of the Whole. Having said that, it's nice to 135 2/27/06 - WHOLE - BILL 060006, ETC. be with you, as I have on at least four prior occasions in the last three years, to urge your collective support for reduction of the business privilege tax. As you likely know by now, our members have long felt that the BPT stands out as one of the biggest points of contention they face in doing business in Philadelphia. It is a tax that burdens small businesses. In fact, both of these gentlemen to my right and left -- and I might add as a parenthetic thought that I had other small business operators today, but they've got some obligations and the typical challenges that come with operating a small business and they could not remain. It is a tax that burdens small businesses in particular. It hurts neighborhood economic development and carries a devastating impact over the long term. If local businesses were able to hire more folks in their neighborhoods, creating paychecks, hope 136 2/27/06 - WHOLE - BILL 060006, ETC. and opportunity, there likely would be less crime on the streets of Philadelphia, as an example. Although, I greatly appreciate the opportunity again today, I must say that not much has changed since my last appearance just a few months ago on November 17, 2005. The Chamber remains staunchly committed to getting a multi-year bill 12 passed that cuts both sides of the BPT, the gross receipts portion and the net income portion. 415 in the year 2008 and then thereafter. However, we remain concerned that the Administration's proposal does not currently address the issue of making the City's tax structure more competitive. We believe that any 137 2/27/06 - WHOLE - BILL 060006, ETC. proposal which does not address both gross receipts and net income does not meet the competitive standard. Our membership feels that anything less is not real tax reform. Let me just take a moment to introduce to you the business people joining me today at the witness table. I do want to mention, and I know your testimony references, a Cassandra Hayes and Tim Durney. Both of those folks, and Connie, had to move on to other things. They operate small businesses, and an hour and a half out of their day affects their top and bottom line performance. But on my left is Jorge Lovera, who has got a small architectural services firm here in the City, and Michael Powell -- or Michael Pearson. Pardon me. Michael Pearson of Union Packaging. If they look vaguely familiar to you, they should. The Chamber recently spent a considerable sum on television and radio commercials that 138 2/27/06 - WHOLE - BILL 060006, ETC. aired in December just prior to the final vote, the recent vote, on the BPT on December 22nd. These fine folks, real business people here in the City who are motivated to hire City residents, although Mike's firm is Union Packaging just outside the City line, took time away from their busy days in businesses to appear in these commercials and are anxious for your help in reducing their tax burden. They run real neighborhood businesses, whose plans for growth and expansion are dampened by a tax structure that renders them unable to provide more jobs to the residents of the City. And I assure you as real business people -- and you can ask them yourselves -- their collective individual preference is to hire and bring more City residents onto their respective payrolls. Also joining me today and earlier had comments are Drew VandenBrul and Stu Weintraub, and I would point out they serve as co-chairs of the Chamber's 139 2/27/06 - WHOLE - BILL 060006, ETC. Tax Committee. You may also remember them, they were members of the Tax Reform Commission.
I would personally like to thank them for the tremendous amount of time and attention that each has paid to the single issue of business privilege tax reduction. And, finally, I would like to recognize Mike Pearson on my right of the Chamber's Small Business Board. As I've already mentioned, Mike is the owner of Union Packaging located in Yeadon just outside the City limits, and the primary reason he is not located in the City is due to the business tax structure in Philadelphia, although he would like to be here. I do want to thank them for their regular and consistent support of our efforts, both in presentations before the City Council and in other venues. Now back to the point of why we're here. Let me also say that in light of the City's $168 million surplus, I am hopeful that we can do a little 140 2/27/06 - WHOLE - BILL 060006, ETC. better than million in tax reform in 2007. billion budget presentation to City Council on January 24th when the Mayor offered several new initiatives in his Five-Year Plan. Plans to develop riverfronts, reduce youth violence, expand police overtime and infrastructure improvements are all very important to the economic well-being of this great City. But I would suggest that until we reduce the most onerous tax borne by the business community, we will not be able to retain and attract new business to the City, and that would be unfortunate given our current real estate boom, pending Convention Center expansion, new sports stadiums, Kimmel Center and the highly anticipated impact of gaming within the City. As you certainly know, more and more workers in the region are commuting to their jobs outside of the City where 141 2/27/06 - WHOLE - BILL 060006, ETC. companies find a more palatable tax structure. This region would be even more dynamic with a more economically competitive Philadelphia. We strongly believe that the City, too, can experience job growth and revitalize neighborhood business corridors to complement its remarkable housing boom if it makes business tax reform a top priority. As much as some would like for this issue to fade away, the need for business tax reductions continues to dominate the thinking of business owners in every neighborhood of the City. If anyone thinks that tax cuts no longer matter as much to the business community, then, respectfully, I would ask them to think again. I'll tell you why. Most important in consideration, with the City hemorrhaging jobs, 250,000 lost since 1970, we desperately need a commitment to reducing business taxes over the long term, and that is why in a letter I had 142 2/27/06 - WHOLE - BILL 060006, ETC. hand-delivered to each and every one of you last week, I made it crystal clear that business tax reform in Philadelphia remains the top priority of the business community and of the Greater Philadelphia Chamber of Commerce. In closing, let me again mention the presence of the small business operators here, and perhaps they would offer a brief reaction or two, and we're available to answer questions, but I do want to, as a forerunning remark, make it clear that they are interested in doing business in the City and would be hiring Philadelphia residents should the tax structure improve. So, Jorge, if you'd like.
I thank you for having us here, Madam President and Councilmembers. I have to correct --
I am Jorge Lovera from Agoos/Lovera Architects, and I'm a 143 2/27/06 - WHOLE - BILL 060006, ETC. founding principal of the firm. And I do have to correct Mark. We are actually a medium-sized architectural firm in Philadelphia. We presently have 35 people on staff, with actually about 7 percent of them really of other color and 8 gender. I mean, so that goes to 9 Councilman Goode. In fact, we've been on 10 a growing spurt, except that -- 11
The 14 Chair recognizes Councilman Goode for a 15 point of information. 16
I have not 17 addressed the issue of minority hiring. 18 I've addressed the issue of who is able 19 to start businesses and is able to hire 20 based upon the issue of access to capital and credit.
144 2/27/06 - WHOLE - BILL 060006, ETC. You're welcome.
And my wife and I live in Philadelphia. We have lived in Philadelphia for about years. But the 6 business privilege tax is, as Mark said, 7 a very onerous tax. It is one that 8 really hinders us from actually being 9 able to bring additional people on board, 10 because of the fact that it's just such a 11 painful experience. And whatever profit 12 you are able to make, it's something that 13 really hits me directly at the end of the 14 year and in such a way that it's just a 15 difficult thing to do. As a matter of fact, our accountant and attorney, who the attorney is actually in the City but the accountant is outside of the City, have for years really requested every occasion of the firm. We stand firm only because of the fact that about 50 percent of our staff is actually in the City, and it would be a very difficult thing for them to move. We have such a great staff, 145 2/27/06 - WHOLE - BILL 060006, ETC. that that is really what our reputation is about. So it would be difficult for them to make that move. But I would definitely urge all of you to recognize -- and I'm not saying that you don't, but I will go this far to say recognize the times we live in, and it is an extremely competent society that we live in. I'm not talking about just nationally, but also internationally. And this is a city that has a great opportunity. I mean, just what we are seeing or we have seen over the last couple of years regarding entertainment, regarding residential projects, just about any part of what makes this great city great has generally gone in the right direction, and this is just one more aspect of what it takes for us as united people to really get us up to the top, and I think that is critical for us to do so.
Thank you for taking the time to come in to 146 2/27/06 - WHOLE - BILL 060006, ETC. testify. We really appreciate it.
Please identify yourself for the record and proceed with your testimony.
Michael Pearson of Union Packaging and also a Board member of the Chamber's Small Business Board. Some time ago I had the inclination to start a business in Philadelphia, roughly 1999. My company now, Union Packaging, employs 80 individuals, 30 of which are residents of Philadelphia, which includes myself. I would have liked to have started that business in Philadelphia, but the tax made it prohibitive while I was in start-up mode. And now that my customer base -- some of those customers include the three largest fast food companies in the United States -- have graced me with more business, we're in expansion mode. So I could be as high as 150 employees 147 2/27/06 - WHOLE - BILL 060006, ETC. going forward, and I'm looking for a building, probably 150,000 square feet. Well, I'm here today because when I come to that point of evaluating additional space, I want Philadelphia to be a viable option. I love downtown. I love the City. But I am a business person, and that tax is somewhat prohibitive right now. And I would like to have those opportunities created so that we can look at a facility in Philadelphia in the future. And with that, I conclude my comments. GOVERNOR SCHWEIKER: I just wanted to point out, Council President Verna, we do appreciate the opportunity to provide remarks. I know these folks are busy, and I think it's important that they have the opportunity to be in the City's Council room to give firsthand their take on things. And the only thing I also wanted to mention is, at times I think there is some political handicapping that the Chamber presents 148 2/27/06 - WHOLE - BILL 060006, ETC. positions that are espoused only by the folks in the tall buildings here in the center of town. That's just not so. These are small business people that, in Jorge's case, have 50, 60 employees or an aspiration to be -- it's 50 and 60 employees, with 35 now. And whether it was our effort in December or to our presence here today, I just wanted to debunk that myth and give you one specific as far as the Chamber's makeup. Fourty-five percent of our businesses have employee counts of six and below. So make no mistake, the Greater Philadelphia Chamber of Commerce, while we have members from Princeton to Wilmington, 6,000 in total, 3,000 of whom have a City address, and most of them small businesses I've just tried to describe, and it is those folks who really don't have the time to come in hour after hour after hour to City Council Chambers and pursue this issue and ask for a business privilege tax 149 2/27/06 - WHOLE - BILL 060006, ETC. reduction. That's our job. But that's a picture I wanted to paint and deal with that back-channel assessment, that somehow the voice of small business is not associated and part of the Greater Philadelphia Chamber of Commerce. It's the farthest thing from the truth, and these kind folks I think drive home that picture today, and I wanted to thank them for their interest in being here.
Thank you. I see that there are a couple Councilmembers that would like to be recognized, and the Chair recognizes Councilman Goode.
Thank you, Madam President. Good afternoon, Governor, members of his panel. As you may have heard earlier, the issue of tax reform has been presented as being an issue of job creation, and my earlier questions 150 2/27/06 - WHOLE - BILL 060006, ETC. deal with the who, what and where of job creation. And acknowledging your testimony, it reads on , "If local businesses were able to hire more folks in their neighborhoods, creating paychecks, hope and opportunity, there likely would be less crime on the streets of Philadelphia." So the first question I ask will deal with the what of job creation and what type of job quality are you referring to in that statement and throughout your testimony. What is the Chamber's official position on the state minimum wage? GOVERNOR SCHWEIKER: The Chamber at this moment does not have one. Their feeling is, they'd like to know more about the impact, and they expect those involved in state government who are advancing that perspective to provide that information. But I think to some extent, there's a healthy subset, Councilman Goode, that are comfortable 151 2/27/06 - WHOLE - BILL 060006, ETC. with its elevation. It's to what level that they need to zero in on. But having said all that, formally speaking, the Chamber is without one formally established outlook.
I can't speak for the Chamber, but I can speak as an individual business owner. Part of my goal was to create positions that have sustainable wages so that people can educate their children, so they can become homeowners. I'm proud to say our starting or entry-level positions exceed $10 an hour. I provide 80 percent of medical benefits, and I offer tuition reimbursement.
Likewise, for my firm, the lowest income employee or salaried employee is about $35,000 a year. And of that also, as I was saying previously, about percent are 23 African-Americans and about probably 30, 24 35 percent of the overall population is 25 women. 152 2/27/06 - WHOLE - BILL 060006, ETC. GOVERNOR SCHWEIKER: Councilman Goode, if I can, as far as the jobs that -- as you know, you've been at this long enough, it's difficult to lay out cause and effect and say if you do this, you'll get this, but my individual opinion is -- and I think a lot of the smart people that operate the businesses in this City are determined to hire -- I think the growth would be across all industry sectors that define the City today. Just a matter of time. We've got to lower the business privilege tax.
My specific question in terms of "what" is, what type of job quality. My specific question is, what should the minimum wage be? GOVERNOR SCHWEIKER: I don't have that for you.
Second question is, let me sort of amend the statement you made in your testimony and rather than say if local businesses were able to hire more folks in their 153 2/27/06 - WHOLE - BILL 060006, ETC. neighborhoods, let me change that and say if minority businesses have better access to capital and credit and were able to hire more folks in their neighborhoods, creating paychecks, hope and opportunity, there would be less crime on the streets of Philadelphia, what does the Chamber intend to do about who creates businesses in Philadelphia and the fact that there is not equitable access to capital and credit? In fact, as we've stated in the past, and I've asked you this question in the past, where that is in fact a greater issue for businesses owned by minorities and women than tax reform. GOVERNOR SCHWEIKER: Yeah. Well, I can tell you on an everyday basis we operate what's called the Supplier Network. This is for small businesses who 90 percent of their folks are coming from the neighborhoods, their employees.
Are you addressing lending discrimination right now? My question is about lending 154 2/27/06 - WHOLE - BILL 060006, ETC. discrimination. GOVERNOR SCHWEIKER: No, I'm not. I thought you were asking me about what type of jobs.
My question is about lending discrimination and whether -- the lending discrimination has been documented in the City with regard to small business lending -- creates female borrowers, and the City is comprised of mostly women, and minority borrowers, and the City is mostly comprised of people of color, whether we are in fact creating an economic disadvantage for the City and possibly a greater economic disadvantage to the City than even our tax structure by allowing lending discrimination to the extent that it exists and, in fact, whether there couldn't be more businesses hiring people and affecting the issues that you claim you want to affect. In other words, I amended your statement to say that if minority businesses have better access to 155 2/27/06 - WHOLE - BILL 060006, ETC. capital -- GOVERNOR SCHWEIKER: I'm comfortable with that.
So what is the Chamber doing about it? GOVERNOR SCHWEIKER: I came here today expecting to be fielding questions germane to reduction of the business privilege tax and the City's tax model. So we can provide you with a formal response, but I believe you would find -- I don't know what the source of your research is, but --
I can tell you the source of my research. GOVERNOR SCHWEIKER: -- we can -- if you could just allow me to finish, Councilman. I know you raised the question. I'm trying to be respectful of your place here. I believe had we had the opportunity and had been informed ahead of time that you were interested in that kind of information, we could prepare the 156 2/27/06 - WHOLE - BILL 060006, ETC. answer, and we will do that.
I've asked that question in previous tax reform hearings. Not just in other hearings, but previous tax reform hearings. GOVERNOR SCHWEIKER: That may be so.
And your response then was that access to capital and credit is probably the primary issue for minority and women businesses. So I would expect that you would expect me to ask the question again, and I would expect that with all that's been said in terms of legislation in public policy recently and the fact that there is data out there that shows that less than a third of small businesses that make less than a million dollars a year receive loans in minority census tracts -- in other words, if you were located in a minority census tract, you only had access to less than a third of small business loans of the business that make 157 2/27/06 - WHOLE - BILL 060006, ETC. less than a million dollars a year, and that places the City at an economic disadvantage. But I'll move on to the third question, which is the where. Other than tax reform, what specific initiatives does the Chamber have with regard to neighborhood commercial corridors, which you referenced in your testimony? GOVERNOR SCHWEIKER: Well, I would cite -- thank you for your vigilance on this and how you describe it, at least in those three categories, but I would mention, and certainly Mike has some conversance with this as an active member of our Small Business Board, the Chamber on an everyday basis operates what's called the Supplier Network, and that is for those bigger firms out there that are looking to expand their pool of qualified vendors and suppliers, and all small businesses who would like to be big businesses some day -- and, yes, many of them are 158 2/27/06 - WHOLE - BILL 060006, ETC. minority lending. We track all that -- have the opportunity to understand exactly what these big firms want in terms of procurement, and it's a formal commitment required where they experience a lot of insightful education, certify that they can be a vendor or supplier for big businesses. They're all through the City of Philadelphia, or they have the opportunity to participate if they'd like. And through that channel, they come to know what's required for them to do business. That's the Supplier Network, and we continue to operate that.
My question was more related to not minority business development. That question was related to neighborhood business development and specifically neighborhood business districts, and as we are here talking about how to create a better environment for doing business in Philadelphia in general, we know some of the most challenging areas to do business happen 159 2/27/06 - WHOLE - BILL 060006, ETC. to be on the many neighborhood business strips and commercial corridors throughout the City. I'm asking whether the Chamber has any specific programs to make those business strips within low- and moderate-income and minority neighborhoods more attractive? Is that part of the Chamber's formal agenda? GOVERNOR SCHWEIKER: Yeah, I believe that it is, and I would again cite the Supplier Network as an example of our promotional effort that brings more -- our attempts at landing more business to bring them to the City so they in turn do business with the firms inside those corridors.
Can you name any members of the Supplier Network that happen to have their businesses located within a neighborhood business district? GOVERNOR SCHWEIKER: I can get that for you.
Thank you, 160 2/27/06 - WHOLE - BILL 060006, ETC. Madam President.
You're welcome. The Chair recognizes Councilman Kelly.
Thank you, Madam Chair. Thank you, Governor, Mr. Lovera and Mr. Pearson, for coming in here today. I just have a question for Mr. Pearson. You mention in your testimony that you're interested or you were interested in acquiring a 150,000 square foot facility. Could you tell me if you did purchase that facility, would you anticipate hiring additional employees?
Clearly, the goal is focused on growth and making that commitment to expand from where we're currently at about 80,000 square feet. Clearly, I anticipate growing the business.
Could you 161 2/27/06 - WHOLE - BILL 060006, ETC. give us an idea on where that facility would be located? Have you had --
I'm presently located in Yeadon, Pennsylvania. Obviously I am leasing a facility. The next move would be to purchase a facility. Initially when I started the company, I didn't have the capital to commit, because it's a capital-intensive business and I had a lot of equipment to buy. Now I'm at the point where that becomes a more realistic investment, and, again, I'm looking for access to transportation, not only mass transit so that my workers can get to work, but also trucking. I'm looking for ceilings. I'm looking for a solid building that does not have any hidden environmental challenges. And I think Philadelphia can offer me that opportunity, but, again, at the end of the day, it's got to make sense on a balance sheet.
Well, the question I have is, if you did hire 162 2/27/06 - WHOLE - BILL 060006, ETC. additional people, would they be from probably the same area that you would have the facility in or would they be from everywhere?
Generally that follows suit. A lot of businesses will give you anecdotal studies. If they draw a map of their business and they stick pins for every employee, generally those employees are drawn from those communities.
Okay. That's all I wanted to say. I find it very interesting, though, and I do have some other questions for you, but I'd rather address them with you personally, if I may. GOVERNOR SCHWEIKER: Councilman Kelly, I tell you, how close is his company to this City? As close as that exit door of the Council Chambers to this table. And they're in that location. And that's the difference as far as a place who does extract 6.5 percent on net 163 2/27/06 - WHOLE - BILL 060006, ETC. profits and one who does not.
Well, that's true. For the testimony that we've been listening to today, I think that many small businesses have said the same thing, and I think that the only thing that I can say is, it comes down to either you believe in supply side economics or you don't. If you believe that these tax reductions are going to really spur development, economic development, it's going to bring in new businesses, it's going to have new employees, then I think you're going to vote for tax reduction, but if you don't, if you don't think it's going to do anything, then I think you won't. I think if you stay status quo, if you think that's good, that's where we are in this Council. I think that we have to do whatever we have to do. I would rather take the risk, if there is a risk, in getting in some tax reductions so that we could really send a message out to the 164 2/27/06 - WHOLE - BILL 060006, ETC. business community that we are serious about gaining new businesses in this City. That's all I'd have to say, and I again thank you for -- GOVERNOR SCHWEIKER: Councilman, thank you. We're trying to accent the positive, and during my remarks, I did mention that we're pleased with Mayor Street, and we said so a couple weeks back, that that particular day we were happy to see the Mayor embrace the need for business privilege tax reductions. And I think with some of the legislative eagles that exist that have been circulated by members of this very Council, the opportunity to blend interest and outcome, possible outcomes, creates a positive opportunity, and by June, perhaps we have in place the reductions of which you speak. So one of the things, too, I wanted to point out to Councilman Goode, Cassandra Hayes was here today -- and this is relevant to your question 165 2/27/06 - WHOLE - BILL 060006, ETC. about -- and I know where you're going; that is, real jobs held by real people in the neighborhoods near these corridors and what the Chamber has done. Perhaps Cassandra Hayes would have been the most appropriate respondent. And she was here, but she runs a small business and to take two hours out of the workday hurts the top and bottom line. That's just the way it is. They can't hang out in City Council all day. But having said that, she runs Bodacious. It's a promotional gifts and basket production, small firm. I think it kind of epitomizes the kind of firm or company that's on your mind, small. And she would tell you about the Chamber's mechanical help and commitments so that she could thrive in business, but she had to take off.