I don't have to worry about turning my back on them. I'll talk to the Council President.
As it may drive you crazy, you're kind of stuck with me over here at the moment. That's just the way it is.
We're faced with erosion of our federal and state support that is going to make it difficult. Just last week we were at arbitration testifying in the Act 111. There are a lot of risks and contingencies that I think make it imprudent to begin legislating locking in tax reductions in out years. I think we do our best to plan for that. I think it's imprudent to begin legislating, and I know the Mayor does, to begin 269 2/27/06 - WHOLE - BILL 060006, ETC. legislating those.
Why don't we say this on that, that the Administration's good-faith proposal to put additional dollars toward business privilege tax reduction supports a continuation of a three-year schedule of tax cuts. Is that accurate?
Okay. And should this bill pass, there would be a new rate for 2006. We would not have to vote on further reductions in the business privilege tax in '07 or in '08 as a result of this.
So you support the continuation of the three-year tax cut. Now, on the other hand, you do have a schedule of proposed cuts through 270 2/27/06 - WHOLE - BILL 060006, ETC. for the whole Five-Year Plan.
We have done what has been done since 1996 in this City. We have projected what appear to be at this point reasonable tax reductions in out years. What we do is take a look at that on a year-by-year basis. And if you'll recall back in the '90s, I guess, sometimes the cuts were not as aggressive, sometimes they were more aggressive by the time they were actually legislated. In just this year, we in fact have proposed a more aggressive cut than was previously thought to be feasible. So we are committed to tax reductions. We're committed to business tax reductions. We try to work with them in our Five-Year Plan, but make decisions about the rate of reduction on a year-by-year basis.
But having said that, either your memory or Commissioner Kammerdeiner's memory, of 271 2/27/06 - WHOLE - BILL 060006, ETC. course, could be better. Do you recall during any of those years, either the '90s or certainly in the last five or six years, that other than various proposals from members here or even now in this particular situation the Administration is proposing its own accelerated, for the most part, the rates have been the same from the Five-Year Plan that ultimately get enacted and I think the only big change has been reductions? Has there been a time that the rate went up? COMMISSIONER KAMMERDEINER: I can't remember which year it was, but I don't think it was the rate went up, but the amount of decrease was not as great as was proposed in the prior year's Plan and so there had been variations, as the Chief of Staff indicated a few moments ago, that the amount of decline from year to year, though there was a constant decline, was not always at the same rate as had been proposed in the prior year's Five-Year Plan. 272 2/27/06 - WHOLE - BILL 060006, ETC.
Do you remember what year that was? COMMISSIONER KAMMERDEINER: No, I don't remember which year, although Budget Director has some things. This is what was enacted. We'd have to go back and look at each Five-Year Plan and compare a Five-Year Plan to what was actually enacted in the ensuing year. It was early in the process of the reductions, if my memory serves me correctly, but I can't tell you which year.
So you think somewhere in the '90s? COMMISSIONER KAMMERDEINER: Yes.
Now, lastly on this issue of, quote/unquote, locking in, what is the significance, I guess, if any, to approving the Five-Year Plan with a schedule? Of what value is that if it's not some preview as to where we're 273 2/27/06 - WHOLE - BILL 060006, ETC. trying to go? And then, of course, we do a budget every year and as we need to make adjustments, we can do that. But, I mean, what's the point if we're not going to try to do our best to follow some schedule?
Well, I think it is a forecast. We forecast revenues. We try to make projections about what's going to happen with expenses, but from year to -- and I think it's been a good thing for the City. I think that all the rating agencies will tell you that it gives us a real opportunity to avoid huge problems, because we're always looking a little bit down the road, and most other jurisdictions don't do that. But there are a lot of changes that happen from year to year. I know that we've seen enormous changes in our pension obligation. We've seen big changes and are currently witnessing big changes in the level of support for human service programs. And so their 274 2/27/06 - WHOLE - BILL 060006, ETC. projections, things really don't begin to crystallize until you get much closer. I think that's why it's prudent to plan on a future of tax reductions, but to hold off until you begin to have a clear sense of what's going to happen, what's actually going to happen with revenues. I think right now we're particularly vulnerable, because we are as dependent on the real estate transfer tax as we are -- we've got a couple of taxes that are performing in ways that are completely unprecedented now that have the Plan carrying more risk than I think it's probably carried in the recent past. And I think that we need to be cautious about over -- we just need to be really prudent about the investments we make. We have to be prudent about the tax reductions we pursue, because we are working off of -- we're working at a time -- when I think back about the years I've been here, it's probably more in flux in a lot of ways than it's been for 275 2/27/06 - WHOLE - BILL 060006, ETC. a while.
Well, at the same time, if the rates are reasonable and you at least have laid out a schedule, not only do you, of course, have to be concerned about the revenue side, but it does impose some amount of fiscal discipline on the spending side --
-- on the expense side, because you know at least what you're anticipating. I guess where we might have a slight difference of opinion is, you've mentioned on a couple of occasions this concept of locking in rates. I mean, I know there was, I don't know, some bill at the federal level a bunch of years ago that required that once they locked in certain things, then certain cuts automatically happen and they were virtually irreversible. I mean, we don't find ourselves in that situation. We can change our taxes and their rates at least on an annual basis 276 2/27/06 - WHOLE - BILL 060006, ETC. in any way, shape or form we want to.
Well, I think it's going to be interesting to see what happens with the repeal of the wage tax credit. I think that's where we'll have the opportunity to see whether or not there's the resolve to undo things that become unaffordable. I know that the previous panel testified that --
It was proposed because it is unaffordable in the out years. The previous panel I believe testified, Oh, you've got a fund balance, there's no need to undo the Cohen bill. The fund balance, in large measure, protects against the possibility that PGW does not repay the $45 million. I think if you look in the year after that, it becomes even more apparent as the level of the wage tax credit is -- the funds diverted to that begin to really take 277 2/27/06 - WHOLE - BILL 060006, ETC. off. It becomes clear how unaffordable that is, and that if it's not going to be significant, you have to wonder why you start down that road at all.
Let me ask this question. I know the Administration did not support it, but to have any amount of insight into the inner workings of the operation, was there any discussion about either reducing the rates and simultaneously even stretching out the schedule as opposed to you reached the conclusion and the only thing to do is, well, I guess we just need to end it?
I think that the Administration's position has been clear since, I guess it was, 2004 when we attempted to shift from wage tax reductions to business tax reductions, although nobody seems to remember that. We think that there is more benefit as a result of business tax --
I think 278 2/27/06 - WHOLE - BILL 060006, ETC. that was 2002.
Yes. Time flies when we're all having fun here. COMMISSIONER KAMMERDEINER: We're having so much fun.
Which, by the way, is what started all this in the first place.
It's ironic now that we're the enemies of business tax reduction. I never will understand how all that happened. And so have preferred business tax reductions. I also believe that, in measure, as a result of the economic development summit, I think it put a finer point on the need not just to commit and invest in business tax reductions, but to also focus on other components of our economic development, 279 2/27/06 - WHOLE - BILL 060006, ETC. and that's why we have proposed an additional borrowing to support the arts and make additional resources available for the neighborhood commercial corridors, that we can't focus just on tax reductions, we've got to be broader than that. We do think that business tax reductions have a clearer benefit than the wage tax reductions that would have been affordable.
You had asked did we look at a lesser amount of tax. We don't have faith in that tax credit as --
Not at the levels that we were able to make it, and so chose instead to invest in more for business tax reductions and to make investments through a borrowing.
But how do 280 2/27/06 - WHOLE - BILL 060006, ETC. you address the whole issue of -- I mean, that particular bill does not go into effect until 2010.
2010 is not just a date in the offing. Particularly when you have numbers as large as the numbers proposed with the Cohen tax cut, if you don't want to have things cataclysmic happening in the delivery of services, you have to begin planning sooner rather than later; that if we're going to stay on course to absorb the kinds of expenses that Cohen triggers, we're going to have to start making changes in how we do business well before we get to 2010. Just otherwise we would be -- it would be like when we had the 281 2/27/06 - WHOLE - BILL 060006, ETC. $60 million problem a couple years ago. If it's not going to be cataclysmic, you have to take a longer run at it.
What I'm taking out of this is -- and the couple panels ago, there was mystery and intrigue and wonderment by those panelists as to why this is being proposed. I mean, the answer is because of potential cuts in services?
The numbers get to be so large, at this point, we don't see how you get to those kinds of savings. Nobody is projecting revenues sufficient to cover these kinds of increases. When I look at what could happen with some of the labor negotiations, I don't know how you get to absorbing one-year cuts 30 million, 47 million. I don't know how you get to those numbers without impacting services. You can't wait until FY12. You can't wait until FY11. You've got to begin changing how you do business well before 282 2/27/06 - WHOLE - BILL 060006, ETC. that. And I think service has become an issue. The other thing that I want to continue to emphasize is, we're headed in a direction with our state-derived revenue that leads me to believe there's going to be less, not more. They've changed to the whole Medicaid realignment that we first saw last year. I think it's going to continue. You see the federal government beginning to pull back on things like TANF. All of those things lead me to believe that we're going to have less, not more, and that we are going to see some changes in services. We're still working through the potential impact of the state budget, but I'm not seeing more on the horizon.
Last question. Bill 060089 mirrors the proposed rates in the Five-Year Plan. Is it my understanding from reading your testimony that because of that, there would be no financial impact to the 283 2/27/06 - WHOLE - BILL 060006, ETC. Five-Year Plan?
Those numbers would be anticipated already in the Plan. I think that depending on what happens with the Cohen bill, if that's not repealed, all bets are off, depending on -- but those numbers currently would be in there.
Just as a last follow-up, since they are exactly what's in the Five-Year Plan and you're asking us -- at some point, you're going to ask us to approve a Five-Year Plan with those same numbers in it. Why would you be --
I think Council is taking the position it doesn't approve the Plan?
No. I thought 284 2/27/06 - WHOLE - BILL 060006, ETC. that was the position.
No. I assume that we're going to approve a Five-Year Plan at some point.
Our position at that point would be if you were to have the repeal of Cohen, if the other numbers in the Plan don't change, our objection to that would be largely because it legislates on a multi-year basis, and we don't believe that's prudent.
But you already signed a multi-year reduction. You signed two of them.
Councilman Nutter, excuse me. I believe Councilman Rizzo has a question.
I just have a quick question. Chief of Staff, you just said about Council not approving. What were you referring to? What Plan?
I think I'm good. I mean, the position is, even if the rates are the same, the Administration does not want to support further extension of multi-year tax cuts, 286 2/27/06 - WHOLE - BILL 060006, ETC. notwithstanding the current situation involving --
-- multi-year bills that have already been signed in the past. Okay. Thank you, Madam Chair.
Thank you, Madam President. Ms. Wilkerson, many of us -- and as you well now, because you've been around here for such a long time doing this hard work, I get in my office, I've gotten over 2,000 people that have signed into my office alone, and I've been in office only a little bit over the two years. Around 50 percent of the people that come are very low-income families that are in need of a variety of immediate pressing things in their lives, and this wage tax reduction means a lot to low-income and poor working-class 287 2/27/06 - WHOLE - BILL 060006, ETC. families. In the numbers that you -- and I understand why you want to repeal. I'm note sure I agree with it, but you in your statement on , the number in FY10 in your graph says that there will be a total impact of wage tax relief of 48 million some dollars. That total is a combination of the wage tax reduction program that the City of Philadelphia has been involved in for quite a few years now. So the number of the Cohen bill, correct me if I'm wrong, is not actually that 48 million number, but the $15 million number. The impact that it will actually have will be an impact of 15 million additional dollars in our wage tax reduction. Am I correct?
So the impact that this would have starting in FY10 will be an impact of $15 million, not $48.9 million --
-- that's correct? And then we see that this continues to balloon in the out years. Is this Administration saying that we cannot take in this additional $15 million reduction by FY10?
We might be able to afford it in FY10, but we would have to jettison other things. That 12 million standing alone, yeah, maybe we 13 could do that, but there are other things 14 that -- you'd have to drop out $15 15 million of other spending or else show additional revenue equal to that. And that alone, it's our position that alone is not sufficiently significant. But when you begin to couple it with the other changes, an additional 31 million in FY11, it begins to build in such a way that we can't afford it.
I understand your point of view, but you very well also acknowledge the surplus that we have 289 2/27/06 - WHOLE - BILL 060006, ETC. at hand, that the surplus looks like it's going to grow. Hypothetically, if it continues to grow and we still are able to do, let's say, most of the things that the Administration has proposed that I thought were very well thought out and a lot of it I'm in agreement with, if this economic trend continues and all indications are thus far -- I'm not a financial expert by any stretch of the imagination or an economist, but it looks like our economy is going to continue to grow. Isn't there a way that we can work to make this wage tax reduction for the working poor possible?
I think, first of all, the fund balance doesn't continue to grow. It drops to only $4 million in FY08 and then begins to increase. We don't project that it will ever reach during this Administration where it is presently. So it's not all rosy. And I think that if the decision is made, if this is a priority, then we'll have to 290 2/27/06 - WHOLE - BILL 060006, ETC. talk about getting rid of other things. It may be getting rid of projected business tax reductions. It may be getting rid of proposed spending. It may be getting rid of the bond issue. But you will have to get rid of something, because the next several years, a $4 million fund balance is extraordinarily low, and when you take into consideration that we don't have all the potential increases in our labor costs, when you look at what we aren't doing for the pension fund, you begin to see how close to the edge we really are and that the conversation is going to have to change from constantly giving back revenues.
I'm very cognizant of that last fact, and I'm glad that we coincide with that thinking ahead in our obligations. I think that there should be a way that we can make this happen so that low-income wage earners will have some relief so that they can make ends meet, because that seems to be 291 2/27/06 - WHOLE - BILL 060006, ETC. the biggest problem with people that are at the bottom end of the wage brackets. I believe that we have an obligation as we go and reduce business privilege tax, which was a question that I posed to Mr. Mandel -- and I don't know if I got it in with the Chamber -- that as we continue to do business of tax reduction, which I think is a very good thing as long as we use some austerity and realize that we have a broader population to serve in this City as well, that we should be able to, in the same light as we're doing those type of tax reduction, that we treat the other bottom end of the economic ladder the same way, that if they need some relief, that we'll be able to give them some relief within some limitations. But I would like to continue to have this discussion with the Administration to see if there's a way that we can come to an agreement on this.
I think that 292 2/27/06 - WHOLE - BILL 060006, ETC. there are things. Part of what the gaming revenues are to support in Philadelphia anyway is reduction, further reduction, in the wage tax. We've all had conversations about doing things to protect people with lower income and fixed income when it comes to the property tax. I think when we engage in that conversation, we put on the table potential new revenues it's going to cost us, because we're going to have to do carve-outs to protect low-income people and to protect senior citizens on fixed incomes. But that does offer another opportunity for us to begin doing the kinds of things that you're talking about or that folk want to see have happen.
Thank you. Are there any other questions from members of the Committee? (No response.) 293 2/27/06 - WHOLE - BILL 060006, ETC.
Seeing none, I thank you. Thank you for your patience.
Do we have anyone else to testify on the bills before us? (No response.)
Seeing no one, the Committee will stand in recess until tomorrow morning at 10:00 a.m. Thank you. (Committee of the Whole adjourned at 3:00 p.m.) - - - 294 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on February 27, 2006, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)