Well, essentially for your own edification, according to our most recent study, there were 28,019 small businesses located in 166 2/27/06 - WHOLE - BILL 060006, ETC. minority census tracts. They only received 2,276 loans, small business loans. There were 33,792 small businesses that made less than a million dollars in nine minority census tracts. They received 4,636 loans. In terms of those businesses that make less than a million dollars, in minority census tracts, they received 32.93 percent, less than a third, of lending resources. So the anecdotal testimony would have meant nothing to me at all. Thank you. GOVERNOR SCHWEIKER: Hopefully we can work with you on improving that picture.
Thank you. Are there any other questions from members of the Committee? (No response.)
Seeing none, thank you very much. GOVERNOR SCHWEIKER: Thank you. 167 2/27/06 - WHOLE - BILL 060006, ETC.
Good afternoon. Nice seeing you, Stan. Please identify yourself for the record.
I'm Stanley Shapiro, coordinator of One Philadelphia, and I'm here with a panel of three of my colleagues from One Philadelphia to testify on the principles in these bills. I'd like to say that we have not yet had an opportunity to examine the details of the bills, so we can't comment on those precise items of legislation, but we do want to talk about the principles in the legislation.
And we're going to start off with a former member of the Tax Reform Commission, Jonathan Stein.
Good 168 2/27/06 - WHOLE - BILL 060006, ETC. afternoon, Mr. Stein. Nice seeing you.
Nice to see you, too. I'm Jonathan Stein. I'm general counsel at Community Legal Services. The testimony I have is in a written form and in fact in letters that I sent to each of the Councilmembers last week, and I have copies here for distribution. If you recall, the last time I was here in City Council, I was honored to participate in the memorial service for the late Councilman David Cohen, and I really thank both Council President Verna and other members of Council here who helped make that memorial service possible. I'm here today to solely speak against the repeal of the ordinance that was called the David Cohen ordinance, but is really the ordinance of this entire City Council. If you recall that memorial service, many people, both who spoke and those on City Council, took 169 2/27/06 - WHOLE - BILL 060006, ETC. great pride in the accomplishment of establishing, for the first time in the City's history, a tax credit for not only the working poor. That's how it's been described, but it's really any working family earning less than $32,000 would be eligible for some graduated credit. So that we're not only talking about working poor, but we're talking about what you might call working-class or low-middle-income families, tens of thousands of families across the City of Philadelphia. And that was not only the accomplishment of David Cohen, the late Councilman David Cohen, but I would say the accomplishment of this entire City Council. This is an achievement of City Council, and I think one of the greatest achievements of the last decades, to establish this working tax credit. And we're somewhat chagrined that this is even before you for repeal. This is probably the most significant piece of progressive tax policy that this 170 2/27/06 - WHOLE - BILL 060006, ETC. City and City Council has ever adopted in the last seven decades. And I'd like to just mention very briefly just in a few minutes the reasons why this repeal issue should really be taken off the table. The first and foremost is that there's no fiscal reason to repeal this ordinance. It's not going to affect next year's budget. We know its first year of impact is Fiscal Year 2010. It won't in fact impact Mayor Street's last year in office two years from now. And the only impact it would have is for Fiscal Year '10 or 2010 and 2011. And even there, even if you implemented the ordinance in those outer years to the Five-Year Plan, you'd still have a budget surplus, according to Mayor Street's figures that he supplied Council with in the Five-Year Plan fund balance just a few weeks ago. So there's absolutely no reason budget-wise or fiscal-wise why this ordinance should even be discussed for repeal, much less repealed. 171 2/27/06 - WHOLE - BILL 060006, ETC. Secondly, related to that is that because the tax credit would work by requiring people to apply for it, we know that it won't have 100 percent take-up rate, and those in the Administration that estimated the cost of the tax credit did not take into account that there will not be 100 percent take-up rate. In fact, the current federal Earned Income Tax Credit, or EITC, is one where the take-up rate is currently about 75 percent. So that the cost estimates of the City Administration are really way off in terms of what these costs will be down the road. On the merits of this ordinance -- and it's sort of strange to be able to have to defend a law that's already law that this Council overrode the Mayor's veto on just not too long ago, but the most important aspect of this tax credit is that it injects one element of progressivity and fairness in this City tax structure. We noticed our 172 2/27/06 - WHOLE - BILL 060006, ETC. tax structure is not a fair one across the board, but this says we're going to make a small dent for working families who have incomes under 32,000 a year to parallel what we have at the state level and at the federal level.
We also had economists who testified before City Council from the Keystone Research Center that made two main points I can summarize in two seconds. One is that unlike these across-the-board wage tax cuts, which help suburbanites who work in the City, this tax cut because it is focused on more working-class families is almost all going to Philadelphia residents and not non-residents. It also is one because of who would benefit that would go to people spending the money and not putting it off into investments or vacations in Europe or whatever. They would actually spend the money on City businesses and maybe even on some bills like those owing to the Water Department or the Gas Works. 173 2/27/06 - WHOLE - BILL 060006, ETC. So this makes a lot of sense impacting Philadelphia residents and on consumer demand in Philadelphia. And the last point I'll make before turning it back to Mr. Shapiro and Sharon Ward is really the legacy of this Council and the City of Philadelphia. This should be the pride of this City, an extraordinary accomplishment, made in a difficult way. Obviously, there are competing interests and budget problems, but this is a shining star of tax fairness and equity in this City. Councilman Ramos wrote in the Daily News it's the right thing to do, it's moral politics, and he added, We are strong and smart enough to do right by the poor and solve our deficit, too. And when he said "poor," he really also, I think, meant working-class and low-middle-income people as well. So we urge City Council to put this repeal aside and to take pride in this major accomplishment that you all 174 2/27/06 - WHOLE - BILL 060006, ETC. voted on within this past year. Thank you.
Good afternoon. Thank you for the opportunity to testify once again on taxes in Philadelphia. I'm Sharon Ward. I'm with Philadelphia Citizens for Children and Youth. When I came here today in writing the testimony, my sentiments did echo those of Councilman Kenney. Here we are again. Here we're having the same conversation and where will that bring us. And I think that my position today is that we've had a great deal of discussion and testimony about business taxes in Philadelphia, and I think it's been very helpful over the past three years, and I think today's hearing was 175 2/27/06 - WHOLE - BILL 060006, ETC. very helpful. Because the fact of the matter is that we are a City that still has tremendous needs and a great demand for services and we've had a good discussion around business taxes. And I think from hearing three years of testimony, what has become clear is that citizens in Philadelphia and City Council members have a variety of goals, and what I would submit to you today is that it would be a more productive use of Council's time at this point to begin to consider tax proposals that reflect all of those goals rather than just one. It is relatively clear, given the comments of Councilmembers and the issues of consideration today, that members of Council and Philadelphia residents value a number of things. We value the continuation of necessary services, whether they're police or fire departments or libraries or a variety of other things that have struggled over the past few years. We value affordable and 176 2/27/06 - WHOLE - BILL 060006, ETC. stable property taxes. We value a tax system that does not hit the lowest-income workers disproportionately. And we value job growth. I would simply submit to you that the conversations that we have had over the past three years about eliminating business taxes address one of those issues at the peril of the other three, and suggest that it is time for Council to consider some alternatives that would allow us to embrace all of those values rather than simply one. We're fortunate this year that we are in better economic times than we have had over the previous couple of years, but I do want to point out that we've really only begun to recover from the retrenchment and staffing and services that this City has experienced over the past four years. If this budget is enacted as proposed, Philadelphia will still have 1,200 fewer employees than it did in 177 2/27/06 - WHOLE - BILL 060006, ETC. 2001. We will have experienced reductions in staffing in every department in the City, with the exception of two, the prisons and the Department of Human Services. And while prison spending and positions have gone up considerably, even the Department of Human Services, which addresses our most vulnerable citizens, has only had a modest increase in positions. There are several areas where we have continued to fail to recover. This Council has raised the issue of police staffing levels. There are three other departments in particular that have experienced significant reductions in staffing. The Department of Licenses and Inspections, one that I will submit to you has probably an equal impact on the business climate in this City, as do its taxes, has had more than a 20 percent reduction in staffing, as has Fairmount Park, and the Department of Public Health now has about 18 percent fewer staff than 178 2/27/06 - WHOLE - BILL 060006, ETC. it did in 2001, and you can see that when you try and make an appointment to get services at the department. We know the business community doesn't like taxes. They don't want taxes. They've gone to great lengths to express how much they dislike paying taxes, and that's true here and that's true pretty much in any business community at any level, municipal, state or federal.
But I think -- and we want to point out again that in fact Philadelphia is a city that doesn't raise business taxes, hasn't raised business taxes, has in fact reduced business taxes on a predictable schedule for the past ten years and in fact has reduced business taxes by more than a third over that period in time. Unfortunately, the position of the business community is that only eliminating business taxes will do. So that's the proposal on the table. I think what your hearings and 179 2/27/06 - WHOLE - BILL 060006, ETC. this dialogue has introduced is simply the notion that Council can do that, you can eliminate business taxes, but we've learned two things. One is that it will cost a lot of money, $265 million when fully eliminated.
Excuse me a moment, please. The Chair recognizes Councilman Nutter for a point of information.
Thank you, Madam President. Ms. Ward, I sincerely apologize, but by the time I am able to actually come back, we'll be several pages into the record. I know we've been down this road so many times that it may be difficult for all of us to keep track of what's in front of us and what's not in front of us. I don't believe there's a bill in front of us that eliminates the business privilege tax. You've mentioned it a couple times. 180 2/27/06 - WHOLE - BILL 060006, ETC.
That's true, but I believe much of the testimony here today has been about the need to not to mend but to end the business privilege tax, so my testimony is simply following that vein.
Well, I understand that. I can't account for what people say. I just want to make sure that the record is clear and that your testimony is clear and doesn't potential lead to further confusion on the record. When you say definitively that we're talking about eliminating the business privilege tax, at the moment that is not true. There is no bill that does that in front of us right now.
That's true. And then I can modify my comments to say that there is legislation that would enact a one- or three-year reduction, further reduction, in the gross receipts tax on a schedule to eliminate the gross receipts tax in 2020. 181 2/27/06 - WHOLE - BILL 060006, ETC.
There is no 3 such proposal in front of us that does that either.
Can I just interject? My understanding, very quickly, is that people will propose amendments which would put such a schedule in place.
I believe that people have suggested, at least from this table, amendments that would put such a schedule in place. So I think that's why we're addressing it.
Again, people can suggest whatever they want, respectfully, at that table. There are only people at 16 of these tables that get to do anything about it, and I want to make sure that the record is clear and that people who are testifying are clear 182 2/27/06 - WHOLE - BILL 060006, ETC. that you cannot say at the moment that there is a bill or even an amendment that eliminates the business privilege tax in front of us at the moment. There is no 6 bill in existence --
-- in front of us at the moment that does any of that.
I just want to make sure that we're all speaking about the same thing. There have been. There have been many in the past. People have talked about it. People can talk about whatever they what to talk about. There is no bill that exists at the moment that does that.
Thank you, Madam Chair. 183 2/27/06 - WHOLE - BILL 060006, ETC.
We'll note that. There were some -- again, there's a conversation here about how to protect citizens and grow Philadelphia's economy. So let me suggest that there are three things that we should consider and we would urge you to consider that would enable the City to do so. First was the point that Councilman Goode has raised continually throughout the day, that taxes are not the only things that businesses worry about, that issues related to ability to get permits and access to capital are very important. We believe it would be productive if there were proposals that were considered and enacted that helped to address those issues. The second is, we would urge Council to look at the existing tax reduction and deferment programs better and to report back on how they are 184 2/27/06 - WHOLE - BILL 060006, ETC. working and if that's not a strategy that should be pursued. We have enterprise zones, opportunity zones where businesses can locate and pay few or no taxes, and I would submit to you that many of the individuals who are testifying here today might do well to move their businesses to those areas if they were concerned about business taxes, and that certainly would help them to thrive. The third is that we would urge that Council look at approaches that are more targeted to new and small businesses. The conundrum that's been presented is that the reduction in overall tax rates affects small struggling businesses and large thriving businesses, and in an area of scarce resources, it does not make sense to provide tax relief to large and thriving businesses if your goal is to attract and retain smaller businesses and businesses that grow. Simply, we'd urge Council to 185 2/27/06 - WHOLE - BILL 060006, ETC. change the debate and move the debate to make sure that we are protecting what's valued in the City and that we are not considering proposals that will do harm to the City's ability to continue to deliver services to its citizens. Thank you.
Good afternoon, sir. Please identify yourself for the record.
My name is Mark Stier. I'm speaking on behalf of One Philadelphia. Thank you, Madam President, for allowing us to testify on 186 2/27/06 - WHOLE - BILL 060006, ETC. this important issue. Over the last few years, it seems to me the debate about economic development in this City has been narrowing from a general debate about the kinds of things that improve our economy to a debate about tax reform, and now we seem to be focused almost solely on reducing one tax, the business privilege tax. I'd like to suggest that we take a little broader look at how to grow businesses in Philadelphia, and I want to draw on my own experience as President of West Mount Airy Neighbors and as a member of the Board of our community development corporation, Mount Airy USA. And I think we ought to start with goals, because there are a lot of different kinds of goals we can have from growing the economy. I suggest the most important goal is to grow businesses in our neighborhoods, to revitalize our commercial corridors, to focus on small 187 2/27/06 - WHOLE - BILL 060006, ETC. businesses. I think it's those small businesses that are most likely to employ Philadelphians and, in particular, to employ Philadelphians who are less skilled and who are very much underemployed and unemployed right now. I also think it's those small businesses that are most likely to contribute to the whole neighborhood by, for example, reducing the prices of goods and services, which are often far higher in our distressed neighborhoods than in our more affluent neighborhoods. Now, if that's our goal, what kinds of strategies should we adopt to attain that goal? I would suggest first our strategy should focus on investment in these commercial corridors. First we have to help businesses secure the capital they need to start up, and here I think I agree with Councilman Goode's eloquent testimony and questions about the barriers to African-Americans and to women in starting businesses. 188 2/27/06 - WHOLE - BILL 060006, ETC. I also think we need to focus on improving these commercial corridors, improving their streetscapes, cleaning the streets, providing an environment in which businesses thrive. And, secondly, after these investments in businesses and commercial corridors, I suggest we need to deal with the crime problem. One of the greatest barriers to crime, particularly in our distressed -- sorry. One of the greatest barriers to new businesses starting up in especially our distressed neighborhoods is the high rates of crime, and I think City resources need to be spent to deal with that problem. Third, I think we need to make the process of starting businesses much easier. D. who recently opened up a consulting firm in Center City and he told me that after three to four weeks of running from one agency to another and dealing with the morass that's the Department of L&I, he 189 2/27/06 - WHOLE - BILL 060006, ETC. D. or a consultant with that kind of expertise to start a business here. I think that's an important barrier to business development and it's one this Council ought to address. So those are the first three things I would start with. Then I would come to taxes, and I want to suggest a number of things that we need to think about when we think about taxes and business growth. The first thing, though, I suggest is, we need to worry about reducing revenue to such an extent that we can't make the investments in our commercial corridors and helping businesses attain the capital they need to start up, and improving streetscapes and improving the Department of L&I and the other departments that are such barriers to business development. If we cut our taxes to such an 190 2/27/06 - WHOLE - BILL 060006, ETC. extent that we don't have the funds to make these investments, I think we lose some of the greatest opportunities we have for improving our economy.
And just as a parenthesis, I want to say the model I'm suggesting for economic development is a community-based economic development model, one in which CDCs, other local agencies work with small businesses and with the City to grow our economy. And when one wants to find an example of how that could be successful, I'd say look at the South Bronx, which, despite the high taxes in New York and other problems in New York, has seen an almost miraculous recovery largely to due to the CDC movement and the community-based economic development movement. But let me come back to taxes. Suppose we want to focus on taxes as a way of growing our economy. Well, first I'd suggest we need to reduce taxes on low-income residents, and that means we need to keep the Cohen tax credit for the 191 2/27/06 - WHOLE - BILL 060006, ETC. working poor. If we want to grow businesses in our commercial corridors, we need to increase demand for the goods and services those businesses supply. Reducing taxes on our low-income workers is one way to increase that demand. It doesn't really make sense to invest in commercial corridors, particularly in distressed neighborhoods, if we're not at the same time giving our workers the means to buy goods from those businesses. Second of all, I suggest we have to deal with property taxes, because as neighborhoods improve, then there's the likelihood that gentrification takes place and that a greater burden is placed on residents who live through the bad times in the neighborhoods and really deserve to stay in the City for the good times. And after we deal with those two tax issues, then I suggest we come to the business privilege tax, and here I 192 2/27/06 - WHOLE - BILL 060006, ETC. may disagree a bit with my friends from One Philadelphia in that I actually truly do think the business privilege tax is a bad tax. Like most business taxes, it falls, on the one hand, on consumers, in which case it's really a more aggressive tax than our sales tax, which has exemptions for medicine and food, and it falls, on the other side, on capital, but it's a very unfair tax in that there's absolutely no progressivity and an important part of the tax is paid on gross revenues. So I suggest we do begin to reduce the business privilege tax as a way of growing the economy, but I would suggest we do it not by general cuts, but by focusing our cuts on small businesses, businesses with few employees and by focusing our cuts on start-up businesses. And I know there's some question about whether we can do that under the Uniformity Clause. We've consulted with attorneys who have looked over the case 193 2/27/06 - WHOLE - BILL 060006, ETC. law, and they suggest that in fact we can do that. It seems to me that's a much more equitable way of reducing the business privilege tax, and it's also a way that gives us more bang for the buck, that really helps support the small businesses that are the prime engine of economic growth and job creation in the City. Lastly, I would say when it comes to taxes, it's very important, at least in the short run, the tax changes we make are revenue neutral. While I want to see cuts in the business privilege tax, I think we need to do that without sacrificing revenues. It may well be that over the long term, cuts in the business privilege tax will lead to economic growth, will lead to higher property taxes and so forth, but my suggestion is, that is going to be a little longer than many people expect. Most of the econometric research on this question looks at -- was done at a time 194 2/27/06 - WHOLE - BILL 060006, ETC. when businesses were leaving the City, when there were trends in the City where people were leaving for lots of different reasons, when businesses were prepared to leave the City and at one point maybe another tax increase was the last straw.
Getting people back into the City I think is going to take a lot more than reducing the business privilege tax and it's going to take a little longer than most people expect. So the question I would think you would want to ask me then is, how do we have revenue-neutral cuts in the business privilege tax? I suggest we look elsewhere for revenues. Ms. Ward suggested some alternatives. I suggest we take a serious look at creating a personal income tax in the City. This was a proposal the Tax Reform Commission looked at quite closely. My understanding is, they came close to endorsing it, but they didn't have the data from the City that would enable them 195 2/27/06 - WHOLE - BILL 060006, ETC. to fully understand its impact. But one estimate suggested that by creating a personal income tax, we could raise an additional $70 million at the same tax rates that we have presently in place. Now, a personal income tax/revenue wage tax expands the tax to capital, to interest and dividends. I would suggest that would be a fair trade for a very large cut in the business privilege tax, which is also a tax on capital. It would be a much more progressive way, a much fairer way and a much more sensible way of taxing capital. And as some folks suggest, cuts in the business privilege tax would over time lead to growing economy, and the other proposals I've suggested would also lead to a growing economy. We could then gradually reduce that personal income tax to much lower rates, and, of course, we'd be able to reduce it anyway because we're going to get the gambling revenues eventually, 196 2/27/06 - WHOLE - BILL 060006, ETC. which would allow us to reduce that tax. So my suggestion then is, we take a very broad look at how to draw the economy and not focus just on taxes, but focus on the kind of investments the City can make to help our economies grow, to focus on the neighborhoods that really need the economic development in this City. Thank you very much.
You're welcome. Mr. Shapiro, are you going to --
Yes. Justice, equity, fairness, progressivity. These are words which should be central to any discussion of taxes in Philadelphia. Less than two years ago, this Council took those words very seriously when it enacted Councilman Cohen's landmark proposal to exempt low-wage workers from a major portion of the wage 197 2/27/06 - WHOLE - BILL 060006, ETC. tax. I hope that Council continues to respect those important words. Too many of our leaders, particularly in the business community, would have the Council focus instead on, quote, being realistic, unquote. To them, being realistic means viewing taxes solely as an economic development tool. Thus, we have heard today, businesses can march with their feet to wherever the tax price is right. We must retain and attract business. Thus, we must keep reducing business taxes. And that must be our first, if not only, priority in tax policy. But is that just? Is that fair? Is that equitable? Because poor and working people can't readily flee this City, that doesn't make it right to impose high wage and property taxes on them. I don't think we've yet adopted in this City the notion that people who are poor deserve to be poor. Thus, we need 198 2/27/06 - WHOLE - BILL 060006, ETC. not care for or about them. They are poor because industries and government have abandoned all cities, not just Philadelphia, and because jobs that are left are largely low-paying jobs. Traditional liberals, and I think that there are some of us left, believe that government's highest calling is to ease the burdens that a cut-throat economy imposes on the poor. So the question before the Council is whether a cold-blooded utilitarianism should be the only principle at work in making tax policy. This fundamental policy question is more starkly posed this year than most, since the Administration has put forward bills that would cut business taxes and raise taxes on the poor at the same time. Passing those bills would put Council in lockstep with Congress, where benefit programs for the poor were just cut in order to find room for tax cuts for the wealthy. There too, the 199 2/27/06 - WHOLE - BILL 060006, ETC. justification is, "Well, that's what works to get the economy going." One Philadelphia doesn't agree that business tax cuts do work. And we don't think anyone without a crystal ball can prove otherwise. All we know for sure when we cut business taxes is that we've cut taxes for business. And all we know when we cut taxes for working people is that we've reduced the burden of being poor. When this is all we know, the choice should really be an easy one. If there's money for tax cuts, let's help those who may otherwise need to choose between food and shelter. Apparently, the Mayor and the business community are clear that there is money for tax cuts. That leaves no 20 justification whatsoever for repealing the Cohen tax cuts and replacing them with business tax cuts. If some of the Cohen tax cuts are later found unaffordable, then let's look for other sources of revenue. We've heard 200 2/27/06 - WHOLE - BILL 060006, ETC. discussion of some of them from the previous witnesses. Perhaps we should look at an income tax, one which taxes all income, not just wages, and one which is graduated. Or perhaps we should look at broadening the base of the business privilege tax so that banks and others that now get preferential treatment pay their fair share. But let's not first impose burdens on those least able to bear them. Cities with class, whether world class or otherwise, just don't do such things. Thank you.
Thank you very much. Are there any questions from members of the Committee? The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. First let me say that I was 201 2/27/06 - WHOLE - BILL 060006, ETC. very pleased and proud to have played some role in the enactment of the bill 4 that's now under some measure of attack, having worked with Councilman Cohen on the legislation, developed a schedule and worked with him on moving it to a time that, as you indicated from the testimony, would not go into effect until 2010. And that was a fine piece of work by Councilman Cohen. It does strike me and it's been mentioned a couple times here this morning that we've been down a couple of these roads before. Although having great love of irony, I do find it quite interesting that last year the bulk of the testimony from the organization generally known as One Philadelphia was primarily targeted at trying to make sure that we did not take any action on taxes in any way, shape or form and you now find yourselves, I guess, with a bit of the shoe on the other foot, now finding yourself under attack for a piece of 202 2/27/06 - WHOLE - BILL 060006, ETC. legislation that you worked on, where you now feel that you have to fight to hold on to something. So I guess in the course of the last year, we've all pretty much had the same experience, just in different ways, and so it is an interesting irony that you find yourselves in this position this year. Why do you think this proposal is in front of us?
Why do we believe the proposal to repeal the Cohen tax cuts is before us?
You really would have to ask the Mayor that. I really certainly could not --
Well, I understand, and I often do ask the Mayor his opinion about different things, and he is never shy about letting me know, but since you're at the witness table, I thought I'd ask why do you think the 203 2/27/06 - WHOLE - BILL 060006, ETC. Administration sent this bill up here.
I really can't say any more than what the Administration has said. The Administration has said that --
-- in the Mayor's budget address that there was going to be a budget problem in the out years if the bill remained intact. That's what I recall the Mayor having said.
We did, Councilman Nutter, look at those numbers, and it's just not comprehensible. Because when you look at the estimated cost for Fiscal Year '10 and '11, even if you implemented the ordinance -- and I wouldn't call it the Cohen ordinance. I'd call it the City Council ordinance, because this body 204 2/27/06 - WHOLE - BILL 060006, ETC. voted for it, overrode a mayoral veto and should take pride in it. That ordinance, even if implemented in 2010, 2011, would still allow a budget surplus, a fund balance for those two out of years of the Five-Year Plan. So there's no rational basis that we see in this proposal. I'm not sure that answers your question adequately, but that's my response.
Not really. I mean, do you think the Administration has any concern that the lessening of those revenues or giving up those revenues would have any impact on our ability to provide services?
Again, you really would have to ask them. I believe they're going to testify later on, and I'll be very interested in that answer as well.
So is it the consistent position across One Philadelphia that the bill should not be repealed? 205 2/27/06 - WHOLE - BILL 060006, ETC.
We have not -- those of us who are here are speaking to the principles that we as individuals will be bringing to that discussion in One Philadelphia. One Philadelphia has not taken a formal position, and I did try to say this at the beginning, has not taken a formal position on any of these bills in front of us. We're talking about general principles. Some of us as individuals have very strong positions, which we pretty much articulated, and we are all grappling with this inside One Philadelphia, but we've not as an organization taken a position.
But, Councilman, I, speaking as general counsel of Community Legal Services who represents thousands of people in this group of lower-income working poor, I mean, in my mind, I have a very definite opinion that this ordinance should not be repealed.
I guess I'm 206 2/27/06 - WHOLE - BILL 060006, ETC. a little surprised that there would be, given the general focus of the organization as I know it, why would there be a dispute within the ranks of One Philadelphia about something like this?
I don't know if it's a question of disputes. There is discussion. There is a concern that there might be an impact on services if there are any tax cuts, either those that are scheduled to go into effect already or those that might be added on. And I think we are unanimous in One Philadelphia that we don't think the City can afford any further service cuts and that service cuts which have already been put in place ought to be turned around. So that's a concern that some of us have. Others of us feel that the tax cuts that are scheduled for low-wage workers will themselves have an extremely positive economic development effect on the City; that tax cuts for poor folks 207 2/27/06 - WHOLE - BILL 060006, ETC. and working folks, especially who live in the City of Philadelphia, get you the most bang for the buck; and that it may well be that as we get closer to the time when those tax cuts are actually scheduled to be implemented, we can find even more as a consensus that those tax cuts are not a threat to City services. But I think the discussion is really, as Jonathan pointed out, it's a very premature discussion. These tax cuts will not go into place until 2010. There is no need to enact -- there's no 15 one who has been able to --
But there is no 23 current impact that repeal of that bill 24 would have on the City budget. It is way premature to really even be looking at 208 2/27/06 - WHOLE - BILL 060006, ETC. that matter, and so we want to -- those of us who have that point of view want to put it forward.
Well, there's a word that was mentioned earlier which I always enjoy. I don't use it much myself, but it was the "conundrum" word. It seems like you find yourself in a bit of a conundrum with your argument, only in that I heard you say earlier that there's a positive economic impact by reducing this tax on a certain population of people, but you've argued in the past that you don't get virtually -- not just the past, I think in the current testimony -- that you don't see any economic impact from reducing other taxes. How can you have it both ways?
The overwhelming -- let me finish. The overwhelming majority of businesses in Philadelphia are small businesses. 209 2/27/06 - WHOLE - BILL 060006, ETC.
But that doesn't necessarily mean that the benefits that they get -- and we actually have been kind of clear that we think --
They're probably more likely to hire Philadelphians and neighborhood people since they're so small.
We do think that cuts in the business privilege tax, if they take place and if they are revenue neutral, should be focused on smaller neighborhood businesses. We've testified to that a number of times, including today.
Whatever we do with taxes, small neighborhood businesses get whatever their proportionate benefit are anyway, right?
Well, yeah, but 210 2/27/06 - WHOLE - BILL 060006, ETC. if the --
If the proportion is a small proportion or even a less than 100 percent proportion of a tax cut which is only needed for them, then it's sort of a waste of City revenue to also throw money at businesses which don't need that tax cut.
Well, you'd probably have to go through -- I mean, in 2003, tax year 2003, you had 79,000 filers.
79,000 filers on BPT. So unless you're prepared to go through and analyze each individual business's circumstances to see whether or not they, quote/unquote, need the cut, I mean, you're either going to do across the board or -- I mean, I've had some thoughts, and I'm sure other members have had some thoughts, about more targeted 211 2/27/06 - WHOLE - BILL 060006, ETC. rates or exemptions, first X thousand dollars of your BPT might be exempted, something comparable to what they do with real estate taxes on a homestead exemption or something like that. But, I mean, it's not that it may be true. It is true. The overwhelming majority of businesses in Philadelphia are small businesses. They pay a fairly small portion of the business privilege tax as compared to a host of other businesses. But in any event, as you've indicated, I do look forward to further explanation, but it's a wonderful opportunity to work together again. We look forward to what happens over the next couple of months.
I'd like to reecho the thank you in your role in making that Cohen ordinance law.
I appreciate that, and I didn't raise it 212 2/27/06 - WHOLE - BILL 060006, ETC. for that. I got my props a long time ago. I would say, though, gentlemen, you have crowded out Ms. Ward, who was up at the table first and now you guys have taken up all the room. So I'd love to hear her perspective on some of these matters. I know they all have generally better manners than that, Ms. Ward, but they've gotten beside themselves. What's your --
I think Stan has 213 2/27/06 - WHOLE - BILL 060006, ETC. told you One Philadelphia's position. Let me tell you PCCY's position, since I'm here reflecting that. Our overall position is that we are most concerned about the City's ability to deliver services to its citizens, and that our number one priority is adequacy of revenue. Within that context, we believe that our tax system needs to be fair and equitable and needs to allow individuals to be able to support themselves. So at this point, PCCY's position is that we oppose the repeal of the Cohen bill. We believe that based on our work with the state tax forgiveness and the Earned Income Tax Credit legislation, that the economic impact estimates are way overblown. We believe that they will have -- that the cost to the City is much less than is projected in the Five-Year Plan. We think that the impact, therefore, will not be as detrimental to the City's ability to 214 2/27/06 - WHOLE - BILL 060006, ETC. deliver services.
Given your concern about services, if the purpose of the bill, from the Administration's perspective, is because of their concern with regard to the impact on service delivery, what would your position be?
Well, I'm sure that's probably the case. As I testified today --
No. Councilman, as I testified today, the City and your efforts are around trying to balance a variety of needs, and I think what you've heard from One Philadelphia and from me today is that we believe that there needs to be the capacity to balance all of those needs and that we didn't think eliminating the business privilege tax would do that. As I indicated, if we want to maintain services, protect low-income tax 215 2/27/06 - WHOLE - BILL 060006, ETC. forgiveness and grow jobs, we simply thought that there were a variety of different strategies and that eliminating the business privilege tax is not one of them. Does that mean that there would be some loss of revenue if we have tax forgiveness for low-income workers? Certainly that's the case. We also suggested, as Mark did, in a variety of proposals that we've been discussing that might actually help to generate additional revenue for the City. Our position is for, at least on the business privilege tax side, revenue-neutral tax reduction, and we are happy to work with Councilmembers in identifying some strategies that might be able to do that.
This is my last question. Are you opposed to the Administration's BPT reduction bill?
The One Philadelphia position is that we believe that in the first year, it accelerates reductions in 216 2/27/06 - WHOLE - BILL 060006, ETC. the gross receipts tax. We're not opposed to that. We're concerned about elimination of the gross receipts tax over time. That's our position.
Okay. So you support the additional reduction in the business privilege tax and you oppose the repeal of the low-income wage tax bill?
Well, let me clarify our position, because I think I misstated it. Our position around business privilege tax reduction, I'm sorry, is that we would prefer to see more targeted tax reductions that don't cost a lot of money and that might help to address the needs of neighborhood and small businesses. Is that an accurate reflection of our position?
I 217 2/27/06 - WHOLE - BILL 060006, ETC. understand that, but there's going to be a bill that's going to come up for a vote one day, and I appreciate everything you said. Sometimes we get to make a comment or even a speech to the Chief Clerk, but she really kind of insists on a yes or a no when all of that is done. So you're in support of the Administration's proposed reduction of the business privilege tax. You're opposed to --
You're opposed to the Administration's reduction of the BPT. Okay. All right. Thanks. Thank you, Madam President.
You're welcome. 218 2/27/06 - WHOLE - BILL 060006, ETC. Are there any other questions from members of the Committee? (No response.)
Thank you all for coming in. Brian Carrigan. Is Brian Carrigan here? (No response.)
Philip Kelton. Is Mr. Kelton here? (No response.) MR. McPHERSON: Mr. Mark Merlini.
Good afternoon. Thank you so much for your patience. Please identify yourself for the record and proceed with your testimony.
Good afternoon, President Verna and distinguished members of Council who are still here. My name 219 2/27/06 - WHOLE - BILL 060006, ETC. is Mark Merlini, and I'm a partner and Vice-President of Brickstone Realty. Our company has developed nearly 4 million square feet of office and retail space on East Market Street, including the Wanamaker Building, the Lit Brothers Building, 1234 Market Street and City Hall Annex, which is now the 400-room 10 Marriott Courtyard. I am here today as Chairman of the Building Owners and Managers Association of Philadelphia, commonly referred to as BOMA, in support of the reduction of the business privilege tax. BOMA representatives have appeared before Council on a number of occasions advocating on behalf of meaningful tax reform. Our goal continues to be to work with Council and other interested parties to build a strong, economically vibrant Philadelphia by creating an environment which will attract and retain jobs within the City limits. By making Philadelphia an 220 2/27/06 - WHOLE - BILL 060006, ETC. appealing place to do business, the City will build a firm foundation on which it can grow and prosper. Creating the Philadelphia of the future should be a broad-based effort. The time has come to move beyond the stereotypes of yesteryear, big versus small business, Center City versus the neighborhoods, the business community versus private citizens. In one way or another, the City's tax structure affects us all. Furthermore, by working together, the various groups and coalitions within the City can rework the tax structure in such a way that it will be the catalyst for growth and prosperity for all. Several years ago, Council made a bold move to help stimulate the City by offering a ten-year tax abatement for new housing development and renovations. To this, we say kudos. It worked. Look at what's taking place throughout the City. We have a rejuvenated residential 221 2/27/06 - WHOLE - BILL 060006, ETC. marketplace, one that has had a profound impact on property values for all City residents. There are also new opportunities for small businesses and retailers who seek to cater to those living within the City. Furthermore, the quality of the labor pool has been improved, which in turn bodes well for attracting new companies. Now is the time for us to set the next bold initiative into motion. Now is the time to take the step in making Philadelphia great. The fact of the matter is, is that the current business tax structure in this City is not what it could be or should be. Within the business community, it is one of the significant factors cited by companies as they decide whether to locate their offices in Philadelphia or to locate them in suburban or other locations. The reality is, because of the business privilege tax and the use and occupancy tax burden, the 222 2/27/06 - WHOLE - BILL 060006, ETC. 97 per square foot greater than it is in suburban locations. To a 100,000 square foot firm, this represents almost a half a million dollars in annual tax burden. I ask if this were your company and you're faced with the decision, Location A, located in the City, which had an additional $500,000 annual cost, versus Location B, outside of the City, without the burden, which would you choose? You couple this with the factor that the more profitable your organization is, the greater the burden, this makes the decision all that much easier. You would probably opt for Location B. One of the ways in which we can better compete for jobs and employers locally and regionally is to change the public perception of the way in which business is done here. We advocate broad-based reform which will foster even greater economic growth. Your existing 223 2/27/06 - WHOLE - BILL 060006, ETC. constituents will be served by providing new jobs and greater economic opportunities.
A larger employee base will in turn increase City revenues through wage taxes, and a higher real estate tax revenue should result from increased property values due to higher occupancy. Thanks to Council's excellent management and the resulting flexibility in the City budget, now is the time to institute changes to the City tax code. Thanks, too, to all who have introduced business privilege tax reform legislation that will pave the way for new and improved Philadelphia. BOMA's position continues to be that legislation approved by this body must involve cuts to both the gross receipts and net profits portion of the business privilege tax calculation. In order to have a meaningful impact, these reductions must be multi-year in nature. Companies do not make business decisions on 224 2/27/06 - WHOLE - BILL 060006, ETC. single-year fiscal policy. Philadelphia cannot delay in its pursuit of increased business opportunities, jobs and revenue. By attracting the companies and industries of the future, the City will move forward towards brighter horizons. Meaningful tax reform today will ensure the City's future prosperity. As a body, you have the power to effect positive change and public policy. You have the power to give Philadelphia that competitive edge that will make its future bright and optimistic. Thank you.
Thank you, sir. Any questions from members of the Committee? (No response.)
Seeing none, again, I thank you. Our next witness? MR. McPHERSON: Stewart 225 2/27/06 - WHOLE - BILL 060006, ETC. Weintraub.
I suppose this is the proper time for me to deliver testimony for Councilwoman Blondell Reynolds Brown.
Thank you. Councilwoman Blondell Reynolds Brown is out today and I'm reading her statement with regard to Bill No. 060014, bookbinding BPT correction. It is my pleasure to offer Bill 20 No. 060014 to the Committee of the Whole today. Prior to the enactment of the BPT, the law allowed bookbinders to exclude from gross receipts the receipts they derive from deliveries outside the 226 2/27/06 - WHOLE - BILL 060006, ETC. City. When the BPT was enacted, the provision of the law allowing bookbinders to exclude from gross receipts the receipts they derive from deliveries outside of the City was inadvertently changed. As a result of this change, what had been a thriving industry in Philadelphia has suffered losses arising from small businesses either leaving the City or closing their doors. The result was the loss of neighborhood jobs in the City. This amendment is intended to restore the binding industry the exclusion to which they had been entitled prior to the enactment of the BPT. It is my hope that through this bill, we can correct a mistake from the past and assist this important industry to thrive in Philadelphia. Thank you, Madam President. And I'll make this statement as part of the record as well.
That would be fine. 227 2/27/06 - WHOLE - BILL 060006, ETC. Mr. Weintraub, thank you for your patience. Please proceed with your testimony.
Thank you, Madam Council President. I'm here today -- I guess this is the third time I've been up at this table this morning. This time I'm here as the attorney for Oxford Bookbinding Company, one of the affected taxpayers in the industry for which this bill has been introduced. My testimony was going to be basically laying out how we got to where we are today from a technical and historical perspective. Councilwoman Blackwell's reading of Councilwoman Reynolds Brown's statement basically incorporated most of what I was going to say. I may be repeating a little bit of it, but let me just say for the record, there was a provision in the old mercantile license tax, which pre-dated the business privilege tax, that allowed 228 2/27/06 - WHOLE - BILL 060006, ETC. the bookbinding industry and others to exclude their deliveries outside the City from gross receipts and now in the business privilege tax from net income. The definitions in the business privilege tax changed that interpretation of the law, and as a result, the City's position has been to deny bookbinders and others similarly situated the right to this exclusion. We are asking City Council today, just like they did ten years ago in 1996 when a similar amendment was made with respect to the dying industry, to restore the exclusion to gross receipts that the business privilege tax would provide. I have two witnesses with me today. One of them stepped out, and I know she will be back in a moment. Margaret Baumhauer, who is the Executive Director of the Graphic Arts Association. Until she returns, what I'd like to do is introduce Stewart Gritz, who is the 229 2/27/06 - WHOLE - BILL 060006, ETC. President and sole shareholder of Oxford Bookbinding Company, so he can explain to you how this tax as in its current structure affects his business.
Before Mr. Gritz testifies, can you tell us how many bookbinding companies we have in the City?
I can, but if I might, Ms. Baumhauer just arrived and that's part of her testimony. She will be answering that in her testimony. So why don't --
Ms. Margaret Baumhauer, who is the Executive Director 230 2/27/06 - WHOLE - BILL 060006, ETC. of the Graphic Arts Association, is going to describe for Council the structure of the Association, the demographics of the Association and how the Association has changed over the years.
Thank you. Good afternoon, Madam President and members of Council. As Stewart mentioned, I'm President of the Graphic Arts Association. We're the trade association for the printing industry in Pennsylvania, New Jersey and Delaware. I've been asked to give a brief summary of the binding industry section 16 within Philadelphia in the last 20 years. As far as I can tell from our records, we had 26 bindery members in Philadelphia in the early '80s. They employed approximately 800 people. I'm sure that there were a few companies that were not members of the Association, but I can't tell you how many. Of these 26, six have moved to Bucks County. Ten are now out of 231 2/27/06 - WHOLE - BILL 060006, ETC. business. Most of them moved and went out of business in the late '80s, early '90s. There are approximately ten binders left in the City. They employ about 250 people, total sales of about $22 million. And I just got a phone call two weeks ago from one of our members who wanted to know what they would have to -- some of the legal implications of moving to New Jersey.
And if we were to do this, how much would the City really be losing financially?
Madam President, I believe Commissioner Kammerdeiner, who is here and will be testifying for the Administration, has that information. What has been provided to me is that it is a minimal impact on the budget.
Okay. 232 2/27/06 - WHOLE - BILL 060006, ETC. Fine.
Now if Mr. Gritz can now proceed with his testimony, I'd appreciate that.
Good afternoon. Madam President and members of City Council, my name is Stewart Gritz. I'm the President and sole shareholder of Oxford Bookbinding Company. I'm here today to urge the passage of Bill No. 15 060014. Oxford is located at 3101 Red Lion Road in Northeast Philadelphia across from the Northeast Philadelphia Airport where 30 employees work in its 57,000 square foot plant. Oxford is in the business of binding and finishing printed matter, such as books, brochures, point of purchase displays, CD sleeves, et cetera, for a diverse group of end customers 233 2/27/06 - WHOLE - BILL 060006, ETC. throughout the Midatlantic region. We receive printed matter from commercial printers and bind and finish the product. We bind and finish products for major financial institutions, pharmaceutical companies, schools, sports teams, et cetera, within the region. Oxford is a very old Philadelphia company. It's been in Philadelphia for 140 years, since 1866. Almost 60 years ago, in 1947, my father purchased the company and he managed it with his brother, my uncle, until 1978. During 1978, my father sold the company to my uncle, who continued to operate the company with his son, my cousin, until 1994, when he sold the company to my cousin. In 1998, I purchased the company from my cousin. Mr. Weintraub has already described how Philadelphia's business taxes have developed and how they have been applied to the bookbinding industry. I would like to describe the unfairness 234 2/27/06 - WHOLE - BILL 060006, ETC. of the business privilege tax as it is presently being applied to the bookbinding industry. First, Oxford is being denied the benefit of the exclusion this amendment would restore solely because it does not own the paper upon which the printed material is printed. There is no 10 question that the printer who provides Oxford the printed material receives a benefit of the exclusion Oxford is being denied because it purchased the paper upon which the printed material was printed. Similarly, there is no question that the printer who prints the printed material and does the same thing Oxford does, binding and finishing the product, receives the benefit of the exclusion Oxford is being denied. In other words, we, the binders and finishers, are the only ones who are denied the benefit of the exclusion. Second, I must convey to you 235 2/27/06 - WHOLE - BILL 060006, ETC. why as a longstanding Philadelphia business owner and long-time paying Philadelphia taxpayer I find the situation so frustrating. As I noted earlier, Oxford is located near the Northeast Philadelphia Airport. Oxford's location is also directly across the street from the Keystone Opportunity Zone located in the Northeast Philadelphia Industrial Park and a short distance from the Philadelphia-Bucks County line. If Oxford bookbinder were to locate within the KOZ or across the county line in Bucks County, Oxford would have a significant competitive advantage, because it then would be able to operate without paying any of Philadelphia's business taxes. I am not here today asking for wholesale tax relief, nor am I here today threatening to leave the City. Instead, I am only requesting legislative relief from the blatant unfairness of this quirk in the business privilege tax law as it 236 2/27/06 - WHOLE - BILL 060006, ETC. is being applied. This is especially important to Oxford now. Since I acquired the company, I have been fortunate enough to see the business grow. Oxford has grown to the point where we have outgrown our current facility. I must now make a decision. I can expand Oxford's capital facilities and workforce or I can review my other alternatives. I can move Oxford to a Keystone Opportunity Zone or I can move Oxford a few miles away into Bucks County. I love Philadelphia. My preference would be to keep my business where it is and where it has been for several generations. I would like to expand Oxford's present facility.
Regardless of what I do, I must make a significant investment in my business. I also need to continuously analyze my costs so I can remain competitive with businesses in the suburbs and New Jersey. While your enactment of this 237 2/27/06 - WHOLE - BILL 060006, ETC. amendment will not totally level the tax playing field, it will at least demonstrate a recognition that the City cares about imposing a fair tax structure and that the City Council values the many small companies which make this City great. I urge the passage of Bill No. 9 060014.
Thank you very much. Are there any questions from members of the Committee? (No response.)
Seeing none, gentlemen, thank you. Could we have the Revenue Commissioner come up, please. Are you able to testify on this bill at this time? COMMISSIONER KAMMERDEINER: Yes, I am. I have some testimony that I can share.
Please proceed. 238 2/27/06 - WHOLE - BILL 060006, ETC. COMMISSIONER KAMMERDEINER: Good afternoon, President Verna, members of City Council. I'm Nancy Kammerdeiner, Revenue Commissioner. I'm pleased to be with you today regarding Bill No. 060014. As has already been stated, this ordinance will amend Section 19-2600 of The Philadelphia Code and it will add a new exception from the definition of "Receipts." Because of the precedent this bill would establish, the Administration does not support its passage at this time. This bill would add a new Paragraph 12 to the list of receipts that are excluded from the definition of "Receipts" for the purpose of calculating the business privilege tax. Beginning with tax year 2006 and in the tax years that follow, the receipts or portions of receipts attributable to the delivery of goods, wares or merchandise by persons engaged in bookbinding, tradebinding, sample mounting, postpress services and 239 2/27/06 - WHOLE - BILL 060006, ETC. other print finishing services to a location that's regularly maintained by the other party to the transaction outside the City would be excluded from the receipts that are taxable under the BPT. And let me add, and it's not stated here, that one of the concerns we have is just in how this definition is worded. We think it may be overly broad to deal with the issues that are before us and were presented by the previous witnesses. Perhaps it would help to clarify a little bit. The definition of "Taxable Receipts" in Section 19-2601 of The Philadelphia Code provides that receipts attributable to any sale of goods, commodities, wares or merchandise to a location regularly maintained by the other party to the transaction outside the limits of the City may be excluded when calculating the BPT liability. However, the receipts for services can 240 2/27/06 - WHOLE - BILL 060006, ETC. only be excluded if they are actually performed outside the limits of the City. Thus, services performed in Philadelphia are taxable for the BPT even if there's a resulting product that's delivered to a party regularly located outside the City. The businesses referred to in this proposed amendment process improve the value of the product, but do not manufacture the product. Under the current law, the receipts from all of these services are taxable for the BPT even if the finished product is delivered outside the City. The proposed amendment would permit these businesses to allocate receipts based on delivered products in and out of the City just as if they manufactured the entire product. Our records indicate that approximately 15 businesses are registered with us that have identified themselves as being engaged in this type of business activity. The total annual tax liability for this group of 241 2/27/06 - WHOLE - BILL 060006, ETC. businesses was approximately $100,000 in tax year 2003. We estimate if this bill 4 had been in place in that year, the tax liability of this group of businesses would have been reduced to $40,000 to $50,000, or a cost to the City of $50,000 to $60,000 in lost BPT revenue. The issue here is not lost value resulting from this particular exclusion. The concern is that this exclusion opens the door for additional special legislative treatment for other industries that can, and legitimately have, made identical arguments for exemption from the tax. The City is moving aggressively to eliminate the gross receipts portion of the tax for all businesses. We need to stay the course and not carve out exemptions on a piecemeal basis. This concludes my testimony. I'd be happy to answer any questions.
Thank you. 242 2/27/06 - WHOLE - BILL 060006, ETC. Are there any questions from members of the Committee? Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President. I'm a little bit confused and maybe Mr. Weintraub -- did we not have this exception or this exclusion in the past? If you would ask him to come back.
Please approach the witness table, Mr. Weintraub.
In the predecessor to the business privilege tax, the mercantile license tax, this exclusion was available. When the business privilege tax was enacted, there was a change in the definitions, which is now what is causing the problem. COMMISSIONER KAMMERDEINER: And so for approximately 20 years now, this definition has been in place, and it's the definition that I quoted in my testimony in terms of the way a service 243 2/27/06 - WHOLE - BILL 060006, ETC. is handled for taxation purposes. COUNCILMAN DiCICCO: Okay. I just wanted to be clear. I was a little bit tired here from being here this morning. I thought I was missing something. Okay. Thank you. Thanks for clearing that up.
Thank you. Any other questions or comments from members of the Committee? (No response.)
Seeing none, thank you very much, Commissioner. COMMISSIONER KAMMERDEINER: Thank you.
I would ask Mr. McPherson to please call our next witness. MR. McPHERSON: David Thomsen.
Good afternoon, Mr. Thomsen. Please identify yourself for the record. 244 2/27/06 - WHOLE - BILL 060006, ETC.
Yes. My name is David C. Thomsen, T-H-O-M-S-E-N. I live at 2328 Parrish Street here in the City. I've been in Philadelphia since 1965, and I'm a retiree of Sunoco. The reason I'm before you today is to speak briefly, and I hope I can be very brief, about my experiences with the Revenue Department. I'm amazed to see the Revenue Commissioner here. She'll understand exactly what I'm talking about. In the late 1990s, I had had a real estate business, but I got rid of all the properties, but I didn't file 17 required business privilege taxes after I had no business. Now, I'll read just a little bit -- because I'm a little nervous, I'll read a little bit of my testimony, which makes it easier for us all. If the proper papers are not filed to show that there's no longer any business being conducted, the Revenue 245 2/27/06 - WHOLE - BILL 060006, ETC. Department will take a business to municipal court, they will seek a fine of $5,000, and if there's not a response within 30 days, they will impose a judgment of $5,000. To get the judgment lifted, what you have to do is to file the tax forms, and in this case tax forms showing all zeroes, no income, no tax to be paid, and then the Law Department will reduce the fine to $500, plus court costs. And eventually there's papers filed in municipal court which will say that the judgment has been lifted. Now, when this started happening to me, I did not believe the Revenue Department was really serious trying to collect $5,000 from me for years in which I had no business whatever, but they did. And I am asking City Council to look at the Section 23 19-509(4)(e) of The Philadelphia City Code with a view to amending the provisions there so that there won't be 246 2/27/06 - WHOLE - BILL 060006, ETC. punitive fines imposed for years in which there is no business whatever. I'm willing to answer any questions from Councilmembers, but I hope that you don't pursue all my personal business affairs. I just hope to testify before you and prevent other innocent victims from falling into this kind of trap. And I don't know of anybody else that would try to impose a $5,000 fine for a year in which there were no taxes. Certainly the Internal Revenue Service in the state would not attempt to do that. That's my testimony. Thank you very much.
Thank you. Do we have any questions or comments from members of the Committee? (No response.)
Mr. Thomsen, thank you very much, and I'm sure that your problem had been addressed long before you came here. 247 2/27/06 - WHOLE - BILL 060006, ETC.
I hired an attorney to get it addressed. It took years and years, because he didn't do the job. I finally settled it myself. It cost me $2,500 in fees to the City and even more in legal fees. I really think that the City needs to think through their policy on this, and perhaps the Administration can do it administratively. But I brought it to you because you have responsibility for the Code and could change the Code.
Thank you very much, sir. Our next witness. MR. McPHERSON: Joyce Wilkerson.
Good afternoon. My name is Joyce Wilkerson. I'm Chief of Staff to Mayor Street. With me today are Nancy Kammerdeiner, Revenue Commissioner; Dianne Reed, Budget Director; and Sean 248 2/27/06 - WHOLE - BILL 060006, ETC. McNeeley, Head of Policy for the City. Thank you for this opportunity to present testimony on FY07 tax measures. The PICA statute requires the City to provide a Five-Year Financial Plan that balances in each year and provides procedures to avoid future fiscal emergencies. Although the immediate goal of the Mayor and City Council each year at this time is to enact the detailed operating and capital budgets for the upcoming year, the Mayor is also required to propose a Five-Year Financial Plan that meets with PICA's approval. 2 million, just one year after we finished FY04 with the first negative fund balance in 12 years. And this year's fund balance is projected to increase further to approximately $168 million. Although we are all happy at this turnaround in our fund balance, we 249 2/27/06 - WHOLE - BILL 060006, ETC. must be mindful of balancing the proposed Plan for a full five years. million before increasing in later years, mainly due to the assumed repayment of the $45 million loan made to PGW. I'd like to summarize briefly some of the factors driving the fluctuating fund balance projections as well as related risks. Employee benefit costs, mainly pension obligations and health and medical insurance, are projected to continue to grow faster than tax revenues, which provide 87 percent of discretionary revenue. This imbalance destabilizes the budget. Some relief is in sight, as the City's minimum municipal obligation for pensions is projected to level off beginning in FY10. However, as PICA has noted, more could be done to address the unfunded liability of the Pension Fund that is now currently only approximately 59 percent funded. 250 2/27/06 - WHOLE - BILL 060006, ETC. There are no wage increases assumed in the Plan after FY08. Scheduled wage tax reductions accelerate beginning in FY10, leading to tax revenue growth below the assumed rate of inflation. As a consolidated city-county in one of only in the country, we 10 administer our own child welfare 11 programs. We are increasingly at risk from proposed federal funding cuts to programs such as TANF and Title IV-E. These cuts increase the pressure on the Commonwealth to change funding formulas and increase local funding match requirements in order to maintain services. In November, I appeared before you to provide testimony on business privilege tax legislation. At that time, I testified the Administration acknowledges the higher-than-expected FY05 fund balance and tax collections provide an opportunity for further tax 251 2/27/06 - WHOLE - BILL 060006, ETC. reductions beyond wage and business tax reductions already planned or in law. I also testified that we preferred to make further reductions on a year-by-year basis and in the context of the annual budget and Five-Year Plan process. Bill 8 No. 060006, our proposal for accelerated action on the BPT, would provide an additional cut in the gross receipt portion of the BPT for FY07, on top of the reduction already scheduled in law. This additional cut has an FY07 impact of $5 million. 7 million, all of which is assumed in the Administration's revenue estimates. This one-time tax cut represents the amount that we believe we 252 2/27/06 - WHOLE - BILL 060006, ETC. can invest in additional tax reductions at this time, while leaving intact necessary fund balances in later years of the Plan. We ask for your support on this legislation. Bill No. 060089 would set the proposed schedule of gross receipts rate tax reductions assumed through FY11 in the proposed Five-Year Plan into law, including the rate reduction proposed in Bill No. 060006. As such, it would have no net impact compared to the net projections proposed in the Plan.
However, we do not support enacting new multi-year tax rate reduction commitments at this time, faced with numerous fiscal uncertainties, PICA concerns over the assumptions in the proposed Plan and accelerating wage tax reductions through 2015. Bill No. 060090 would implement new annual reductions to the net income portion of the BPT, while leaving the gross receipts rate at levels currently 253 2/27/06 - WHOLE - BILL 060006, ETC. set in law. If this bill is enacted as a stand-alone measure, while neither Bill 4 No. 060006 nor Bill 060089 were enacted, this bill would actually result in at least $18 million more revenue over the life of the proposed FY07 to '11 Plan than is assumed, because the gross receipts tax rate would be higher than is assumed in the Administration's revenue estimates. If Bill No. 060006 and Bill No. 13 060090 are both enacted, or Bill No. 14 060089 and Bill No. 9 million less revenue over the life of the proposed Five-Year Plan than is assumed in the Administration's revenue estimates. Again, we do not support enacting new multi-year tax rate reduction commitments at this time and so we do not support 254 2/27/06 - WHOLE - BILL 060006, ETC. passage of either of those bills. Current law calls for sharply accelerating wage tax relief even without considering projected additional wage tax relief through state tax reform. Legislation passed in 2004 scheduled the bulk of this additional relief beginning in FY10 after the Five-Year Plan period that was relevant at the time. This law is now increasingly impacting our ability to balance the Plan. The City's tax reduction program that began in FY96 was conceived and implemented as a moderate and affordable annual investment in our economy and workers. A ten percent reduction in the resident and non-resident wage tax rate took nine years to achieve through this successful program. The combination of the annual wage tax rate reduction schedule after 2009 and the phase-in of the low-income wage tax credit are projected to reduce wage taxes by ten percent in only two years. Taken together, between 2009 and 255 2/27/06 - WHOLE - BILL 060006, ETC. 2015, these two laws are projected to eliminate 30 percent of the City's wage tax collections, the source of the majority of the City's tax and discretionary revenue, without any plan to offset the loss of collections. The combined revenue reduction from wage tax relief currently scheduled in law is projected to be over $130 million in FY10 and '11 alone, increasing to 670 million from FY10 through FY15. And I've included in my testimony a schedule so you can see the impact of just those two tax measures by year out into the future. The PICA statute dictates that we take action now in order to balance the proposed FY07 to '11 Plan. This action is entirely consistent with the Mayor's warnings that the combined impact of these laws would be unaffordable in future years, as well as our preference for year-by-year rather than multi-year tax reform. Accordingly, Bill No. 060007 256 2/27/06 - WHOLE - BILL 060006, ETC. would repeal the low-income wage tax credits scheduled to take effect in FY10. Faced with the need to address the fixed, accelerating and unaffordable wage tax cuts, we have proposed retaining the rate reduction that provide relief to all workers in Philadelphia. If Bill No. 8 million to reflect assumed tax forgiveness and refunds. This would be even harder to accommodate in next year's Plan, which will be debated in spring 2007, when the combined impact of the low-income wage tax credits would be a projected $94 million in foregone revenue during the Plan period. This is a difficult proposal that is not made lightly. Unfortunately, these credits were not affordable at the time they were passed, which is why they were delayed for six years, and they are not affordable now. Bear in mind that 257 2/27/06 - WHOLE - BILL 060006, ETC.
the annual wage tax rate reductions and state tax reform will benefit low-income workers much more than other workers. Bill No. 0600 -- Do you want to take testimony on the school bills or just skip over that?
No. 10 We're going to continue them, as I said earlier in the day, until April the 4th at 10 o'clock. That will be 04 and 08.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Good afternoon, Ms. Wilkerson, Commissioner Kammerdeiner and Ms. Reed. Just a couple questions on the testimony. First, on Bill 060006, you're proposing to adjust the rates on the 258 2/27/06 - WHOLE - BILL 060006, ETC. gross receipts portion of the business privilege tax in what is referred to as tax years 2006, 2007 and 2008, and I know often there is back and forth between even some of the budget people and certainly the tax office and others about, of course, the difference between our fiscal years and our tax years. Just to touch on that, the tax year 2006 means that when people pay their taxes in, what, February or April of 2007, they use the rate for tax year 2006, right? COMMISSIONER KAMMERDEINER: Let me take that one, Councilman. Nancy Kammerdeiner, Revenue Commissioner. The tax year is a calendar year and so the rate would apply to business activity in calendar year 2006. However, the return that gets filed that deals with that calendar year is not due until April 15th of 2007, which is in Fiscal Year 2007.
Right. COMMISSIONER KAMMERDEINER: And 259 2/27/06 - WHOLE - BILL 060006, ETC. that's why we're dealing with this at this point in terms of the fiscal '07 budget.
Right. Which I guess makes it a little easier to even make an adjustment in the rate for a particular tax year, and especially in this particular case since it's anticipated to be lower, I guess no one is really going to complain about that when they -- COMMISSIONER KAMMERDEINER: Generally speaking, they don't complain when it comes down.
Yes. I'm sure we can find someone who will be upset. Now, the discussion around this particular bill, it's been mentioned on more than one occasion that it is a one-year tax cut, and, of course, this is in contrast to, as the Chief of Staff laid out on , I guess, of the testimony, that the Administration is not 260 2/27/06 - WHOLE - BILL 060006, ETC. in favor of multi-year tax reductions. Is that the current position?
Our position is, we don't support multi-year tax reductions.
Now, what I'm trying to understand is, if that's the position, this bill, 060006, has three years of tax cuts in the bill, which hopefully we can at least agree on is multiple years.
No. The Administration proposed accelerating the rate of reduction in the gross receipt tax, and it was against the backdrop of previously enacted multi-year tax cuts. In order to preserve what had been previously legislated, although we didn't support it, it was previously legislated, we --
Well, you 261 2/27/06 - WHOLE - BILL 060006, ETC. may not have supported it, but the Mayor signed it.
That's right. It was previously legislated. We were not interested in opening that whole issue up again. We thought that because of the fund balance, we were in a position to do more. In FY07, we proposed accelerating by $5 million and then adjusted the tax rates in the out years for legislation previously enacted as a way of previously enacted.
So that we wouldn't have been in the position of having to either repeal or minimize the value of what had already been enacted.
Right. Now, the current guaranteed schedule of gross receipts tax cuts, if there's no 22 vote on any bill, whether it's a bill 23 offered by the Administration or a bill 24 offered by myself, in the spring budget 25 cycle, either April into May, May into 262 2/27/06 - WHOLE - BILL 060006, ETC. June, somewhere in that time frame -- I think it may have been sometime in June of 2003 -- the Mayor signed a business privilege tax bill that had a schedule of five years of guaranteed cuts; is that correct?
And do we at least agree that that was a multi-year tax cut?
This bill 14 has the last three years of the original five years of multi-year tax cuts.
But it reflects -- that's right, but, as I testified earlier, the number is moved to reflect the acceleration in FY07.
Right. Or, I mean, you could have changed the tax 263 2/27/06 - WHOLE - BILL 060006, ETC. year 2006 rate from 1.75 just to 1.665. I mean, that would be a one-year tax credit.
What we tried to do is act in good faith, and that these have been raucous tax discussions, and sometimes we win, sometimes we don't. Sometimes we buy into compromises that we would not have proposed. But there was a multi-year tax reduction set. The rate of tax reduction was legislated. We looked at the budget, thought that we could do more this year and proposed doing more and, in good faith, tried to preserve the rate of 264 2/27/06 - WHOLE - BILL 060006, ETC. reduction that had been previously enacted.
That's why we end up in what has turned out to be, I think, the confusing position of appearing to endorse multi-year -- being all for multi-year tax. What we tried to do was act in good faith to preserve the rate of reductions that had been previously enacted.
Well, I understand that, and I appreciate that good faith. I mean, I guess maybe what I'm not understanding is, there would not be any confusion but for the fact that it was upon its announcement stated the Administration is sending over a business privilege tax bill, it is a one-year tax cut, while the plain reading of the bill -- I mean, there's no footnote, there's no other explanation -- it's a three-year schedule. It lays out what the schedule is of the cuts and it's for 265 2/27/06 - WHOLE - BILL 060006, ETC. '06, '07, '08 and every year thereafter for '08. So it is a three-year guaranteed tax bill.
What I've said is, we acted in good faith. What we didn't want to do was be in the position of appearing to repeal what had been already enacted. There was a lot of back and forth, a lot of trading that happens when these numbers are nailed into effect. We tried to make a good-faith effort at preserving what had been previously enacted, and in order to do that, we were going to have to restate the out year rates, and that was the basis for our action. I think that our underlying concern remains, and I think we're faced with that -- at some point, I'm sure we'll talk about the Cohen tax reduction where we do have multi-year tax reductions, and we're now faced with having to unwind what I've testified was not affordable when we enacted. As we 266 2/27/06 - WHOLE - BILL 060006, ETC. try to craft five-year financial plans, it becomes increasingly clear that it's not affordable, and I think we have cast before us a very clear example of what happens when you get into these multi-year reductions. I think we start down the road of sending exactly the wrong message, where we enact and then repeal and enact and repeal. As circumstances unfold, these various initiatives are not affordable.
Well, I mean, I think some of it may also just be in the explanation. I mean, we made an adjustment to the wage tax schedule, the ultimate result of which was moving from a fiscal year to a calendar year. I mean, the City ultimately was the beneficiary of doing that. It could have been characterized by some in a different fashion, but I think we got through that one. I know you made a good-faith effort. I agree with the effort. I 267 2/27/06 - WHOLE - BILL 060006, ETC. mean, the issue seems to be one of perception in how it's explained, is it a one-year cut or is it a three-year cut, and I think in the language that's been used in recent times, can't we just agree that this is a three-year tax cut bill 8 and you just accelerated the rate? Isn't that the way to characterize this?
No. I think that an effort -- I think that what the Administration did was budget $5 million in FY05, a one-time additional reduction, that plays out through the entire plan, and in order to reflect that in the tax rates, we were forced to restate it in each one of three years. I think that we have not retreated from what we've been articulating as a concern about locking in reduction of revenues, particularly in times when we have a lot of things going on in the budget. As Councilmembers know, we're faced with --
We got two over here. 268 2/27/06 - WHOLE - BILL 060006, ETC.