There are many hundreds of millions of dollars that are being invested until the building construction program, which is really substantially behind schedule, gets moving. And that requires a redirection of resources of the office to work on that project. Controller Saidel had indicated that 96 percent of the office's time was completely committed to mandated routine work of the office, so the accomplishment of any of these new initiatives requires some growth in our budget. 91 FY '07 OPERATING BUDGET - 3/21/06 We are requesting that the number of auditor positions be increased to 82. And we have created both a fraud unit and a community affairs unit. And we are asking for funding in both of those departments, including the creation of some forensic audit positions in the fraud unit. Much of the work, the investigative work, done by our office has been in the area of residency and disability. And we are, really, required to be operating at a more sophisticated basis and at a quicker pace. We are investing in training of our investigators and of our other professionals, which is going to be requiring the use of certain professionals in law enforcement to come in and upgrade the skills of our staff. The bottom line is that we are respectfully requesting an increase of $450,000 in Class 100 funds and an increase of $180,000 in Class 200 funds, for a total requested increase of $630,000 above the Mayor's proposal for Fiscal Year 2007 budget. Thank you very much for this 92 FY '07 OPERATING BUDGET - 3/21/06 opportunity.
You are welcome. Mr. Controller, have you discussed your request for additional funding with the Administration? And, if so, what has their response been?
Yes. I met with the Mayor yesterday, and they are studying our proposed changes. They would like as much of it -- they would like to see us shift more of it into one-time expenditures, or into Class 200, and we are working to see to what extent we can accommodate that request. But, overall, I would say that we received very good response and I am optimistic of receiving support from the Mayor and the Administration on our request.
Very good. City Council and PICA have both raised concerns with regard to the city's pension fund. I see that you are asking for an additional hire to assist you with the pension-related issues. 93 FY '07 OPERATING BUDGET - 3/21/06 Can you tell us what these issues are and what benefits you believe will accrue to the pension fund?
I have just attended my first two Pension Board meetings since becoming the controller. And it has been my impression that the Board is operating under what I think is an unrealistically optimistic set of assumptions in making investment decisions, and that that is a potential danger. First of all, the high rate of return that the Philadelphia Pension Fund has traditionally operated on, 9 percent, is something that has not been achieved for a long time. And in a race to constantly catch up with that proposed rate of return, there is a requirement to take more risky investments than funds that are overfunded, such as California, do. California, I think, has a 7 percent expectation on their returns. I am concerned that we could -- we 94 FY '07 OPERATING BUDGET - 3/21/06 right now have a $4.2 billion pension obligation. I am sorry, we have $4.2 billion in pension assets. We have a $7.3 billion pension obligation. And there is a lot of pressure to try to make those figures come together. I am concerned that, in the race for higher and higher returns, that we risk substantial losses in taking a nonconservative approach. For the first time, the Pension Board has made investments in hedge funds, which we don't even know what the composition of the portfolio is. It has become popular now to push for investment in real estate, because there is a generally accepted view that Philadelphia missed -- Philadelphia's Pension Fund missed the boat on real estate investments, where many other large cities were riding that bubble. My concern is that we are coming in at the tail end, and we will be paying good money just before there is a slide. 95 FY '07 OPERATING BUDGET - 3/21/06 And in addition, I am raising this issue about corporate governance issues. No 4 one is paying attention to these proxy issues in Philadelphia right now. New York City is -- Philadelphia owns stock in large corporations. And, in conjunction with other pension funds -- other city governments, State of Pennsylvania, other state governments, and unions -- we have an opportunity to try to move corporate policy in a way that would be friendlier to American workers on issues like outsourcing or issues like the protection of workers' pensions in corporations. I think that entire area has been unexplored. And there is just a tremendous amount of activity that I have during the day. And when we go to a Pension Board meeting, that's a whole day a fair to begin with. It is going to require -- we are going to have to go over to the Pension Board and spend three days just watching them do what they do at the Board, three days watching the financial advisors do what they do, watch 96 FY '07 OPERATING BUDGET - 3/21/06 the fund managers, and so on, to really get an understanding of this. Right now we are very highly dependent on the advice of the financial advisors, and I don't think that we are living up to our responsibilities as pension trustees by doing that.
Thank you. I was wondering if you are familiar with the letter that City Council received from PICA that outlined their concerns of the Five-Year Plan with regard to speculative items that total $386.5 million and risks of almost $100 million, for a total in excess of $480 million, which doesn't even include or address future employees' pay raises. Would you care to comment as to the viability of the Mayor's proposed Five-Year Plan that is before us?
Yes. Our office does share many of those concerns, particularly in the period Fiscal Year 2008 and beyond. I mean, for example, there is an 97 FY '07 OPERATING BUDGET - 3/21/06 expectation or there is a projection that Philadelphia Gas Works will be paying us $45 million in 2009. We don't think that there is any basis for anticipating a reversal of the Gas Works' fortunes so that that is likely. The social worker reimbursement figure of $19.3 million is not in the Governor's budget this year. It is down here in the Five-Year Plan for 2009. I mean, there is no foundation for assuming that the Governor will have a change of heart in later budget years on that item. We concur pretty much with PICA's view of the gross dollar amount of the questionable revenue sources. But we are hopeful that the process will work as it has in prior years, and that there will be ongoing discussions between the Administration and PICA; and that the issues which are of concern will be narrowed, or hopefully eliminated, before the budget enactment.
Thank you very much. 98 FY '07 OPERATING BUDGET - 3/21/06 The Chair recognizes Councilman Rizzo.
Thank you, Madam President. Welcome to our Council chamber.
You are the new controller. Is there anything that we should know, or the public know, that you have changed or eliminated? I know there was a hotline for the controller to investigate various issues. Are you going to continue with that? Is there anything you think we need to know about changes in policy?
We trying to become more interactive technologically. We were successful in January in being the first office to get the campaign finance reports online, and we were able to do that within hours of the filing deadline. 23 That raised the number of computer 24 contacts with our office from 500 a day to 2,700 a day. 99 FY '07 OPERATING BUDGET - 3/21/06 We are interested -- some of you may remember Mayor Tate was in office. There used to be a TV program on Sunday mornings in which people would call in and tell him that they had a hole in the street or a problem in the neighborhood.
I was going to get to that. I was working it up chronologically. But in this era, we have something like 60 percent computer usage in the City of Philadelphia. We think that we want to make the internet more of a point of contact with city government, with our office, as a way of identifying whether there are systemic problems in some of the departments, and whether certain neighborhoods are getting preferential or discriminatory treatment in the provision of services. We are building a very substantial database of local community leaders, so that we can hook them in the loop with our office 100 FY '07 OPERATING BUDGET - 3/21/06 in terms of newsletters and communications. We want to be a better ear in terms of finding where the gaps are in service. We are -- we want to do more short-term turnarounds. Traditionally our office does a very thorough and professional job; but it takes a long time to do a thorough review and then to review it with the department and accommodate their comments. And, frequently, by the time the report is issued, it is not timely. It may be issued in the following year, the issue isn't a big issue anymore. We are interested in breaking these things down into smaller packages, also, so that we can quickly come to grips. And we will be doing some things in the next week with regard to traffic control, for example, that will be along these lines. So that we can identify serious hazards or problems for citizens in Philadelphia, and package it in a way that we can, hopefully, get a quick response and remediation of this, rather than just issue a report that might lie 101 FY '07 OPERATING BUDGET - 3/21/06 on somebody's shelf for a few years. We're not interested at all in doing that.
You are welcome. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. Good afternoon, Mr. Controller.
We wanted to only applaud you on the work you have begun. You really came on, you really came aboard moving quick, and fast and you have been very informed, and you have really dug into the jobs. I am looking forward to the reports we receive and how they relate to the issues in each department, and again wish you the best. And thank you for all you're trying to 102 FY '07 OPERATING BUDGET - 3/21/06 do.
I appreciate that, Councilwoman. That's very good to hear. Thank you.
Thank you, Madam President. I echo the same sentiments, Mr. Controller. On the person that will be your Pension Fund Board person, that person would not be the proxy, or --
Well, right now -- I usually attend the investment committee meetings personally. My First Deputy Harvey Rice is usually there for the disability meetings, and he continues to be my deputy or agent on the Pension Board. There is someone new that will be coming onboard, Mark Jones, who will be devoting most of his time to pension issues, so he will be another proxy.
So the additional allocation that you are requesting is to fund 103 FY '07 OPERATING BUDGET - 3/21/06 that person?
I know this proxy, I know that Pension Boards in the public and private sector are now very careful in selecting proxies. Because the proxy is supposed to be -- correct me if I am wrong -- more or less as the advocate, you know, for the pensioners on that -- on behalf of that group of pensioners through the Board. Do you think that we are doing a good job with proxies? Because I know that there are private entities that you hire to serve as your proxy. Can you enlighten me a little bit about that? Give me your thoughts on it.
I think the Pension Trustees are all trying very hard to do a really good job. I think they are all really interested in this and they put a lot of time in for the meetings. I think they need more support and for sophisticated advice, and not to be 104 FY '07 OPERATING BUDGET - 3/21/06 approached as a rubber stamp when presented with something because the financial advisor says, here, the choice is obvious. And they have to be helped to ask better questions. And I think my outlook is just a little bit different. I am kind of out of sync with my generation, I am kind of a depression baby in attitude. And it was that way when I got out of law school. I have always assumed that the economy will function more poorly than most people around me; and, therefore, I get nervous when there are a lot of optimistic assumptions. And I would say right now, since the stock market has been performing very well for the last three or four years, that that kind of optimism is occurring again. And the kind of points that we're hearing discussed at Pension Board meetings is, for example, that this manager has a good record because they had a good record last year or they had a good record two years ago. But what goes up, goes down. It is 105 FY '07 OPERATING BUDGET - 3/21/06 not a sufficient way of analyzing these problems. So I think eventually we could take some bumps with an overoptimistic attitude. And I also, as a lawyer, I always felt -- if we had an accident, I always went to the scene of the accident. I wanted to see where the person fell or exactly what happened, because I don't think reading about things or having them explained to you by somebody else is the same as getting your hands into it. So I think that the trustees could benefit by having more of that kind of sophisticated support. And I think they are all trying very, very hard -- they take very seriously their responsibility to the pensioners. But it is a lot. It is a lot of sophisticated data to process. And there are people who make a lot of money whose job it is to come in here and sell you whatever the flavor of the month is. And you need, as a Pension Trustee, to be equipped to meet them on an equal 106 FY '07 OPERATING BUDGET - 3/21/06 playing field.
I am glad you are looking into this issue, and you think that it is important enough to require having someone on your staff to be of help and to be of advice to our Pension Board. I Chair the Committee of Labor and Civil Service, and the Pension Board is one area that my committee can take a look at. So I have been, since I got here, studying and meeting with folks in this area of work. The most I have known is, I got a pension through my union. And I know I would take a look at it every once in a while, see how it is holding up. And people, as we -- you know, baby boomers like myself we are always looking, well, is my pension going to be around. So I am glad that, as the watch dog of our monies, that you are looking into this area. You also mentioned that you need a staff for, I believe you referred to it as, a forensic audit person?
One of the things the controller has done well in the last few years is, really expedited the process of payments. Small vendors particularly are hurt by -- you used to have to wait six months to be paid by the city, and right now that's down to six days. Our pre-audit department is doing an excellent job on that. But frequently the other side of the coin is that the unit gets wind of something or suspects a practice or they have seen a pattern before that makes them suspect that there might be fraud in that, but they don't have the evidence to really hold somebody's check or to get in the middle of it. One of the things we want to do is get our investigators retrained so that they are able to be more accessible as arms and legs for the pre-audit unit. They also need people who are specialized in looking at patterns by which -- 108 FY '07 OPERATING BUDGET - 3/21/06 fraud frequently happens, you will see the same kind of pattern from one city to the next, or the same type of pattern that is occurring in a business being applied in a government context. There is no need to have to have people rediscover the wheel each time. A higher level of education and skill in auditing and looking -- in all honesty, our office gives a lot of -- gives people a lot of the benefit of the doubt on a lot of stuff. And we are assuming everybody is operating above board and truthfully, but possibly not as efficiently as possible. But the reality is that there is also -- there is a significant amount of fraud occurring, also. And that takes skill and training and expertise. And we don't think that we should need the federal government in here to clean things up for us. We think we have got an adequate structure in the city government, and we have got to beef up our resources. If we can catch it before we pay the 109 FY '07 OPERATING BUDGET - 3/21/06 bills, if we can identify contractors that are not performing their work in a timely manner, or providing substandard work, or cheating us, we are better off accomplishing that before they get paid or disqualifying them before they stay on the city list, than we are catching that as a criminal problem later. So I need people who know what they are looking for.
So you are going to be hiring someone that will speed up the process of claimants; but also looking out for, you know, for fraud, that we --
The process of payment is already pretty speedy. But within that six-day period, we also want to be able to run down leads, without holding up checks. We want to be able to make a decision in that period as to whether there is reason really to investigate this further.
You are welcome. 110 FY '07 OPERATING BUDGET - 3/21/06 Are there any other questions or comments from members of the committee? Seeing none, I thank you very much. Thank you. We will now hear from the Board of Revision of Taxes. Good afternoon. Welcome. Please identify yourself, for the record.
Good afternoon, Madam President. I am David Glancey, Chairman of the Board of Revision of Taxes. And with me today is the Executive Director of the Board, Ricky Follia; Board Secretary Robert Nix, who is here every day, from what I can understand; and also Board members Jim Dentino and Harvey Levin. I might add that Board Member Cheryl Retta-Meade, our Vice-Chairperson, would be here, except she had some minor surgery on Friday and is unavailable. And we had hearings this morning. And board member Diveril Silverstein was suffering, just under the weather, and she 111 FY '07 OPERATING BUDGET - 3/21/06 begged forgiveness
I hope they are both feeling better. Mr. Glancey, the stenographer does have a copy of your testimony. It will be transcribed in full. I would ask, if you would, a -- we would appreciate it, really, the three of us, four of us, if you --
The testimony is lengthy, but I will be brief. I guess the first thing that we would say is that, from last year to this, there was an increase of about 3.5 percent in taxable market value from last to this. A couple of the initiatives I would like to speak about very quickly. We are still in the process of converting our old legacy deed of processing system into a new platform. It will be the repository of all of our information. The website 2 project that we are 112 FY '07 OPERATING BUDGET - 3/21/06 working on should be completed by the end of April of this year. And we will have kind of a soft launch of all of that; which would include documents, we will have a document library, some news links, and other things. We will be interactive, hopefully, before the end of '06. We have started our citizen service center. And last month, for example, there were about 1,900 requests that have been taken in by that group. And I am sure those requests will grow as folks understand we have a citizen service center. The abatement information is on the last page. And I can get to that, probably, after I complete the one final thing. I am going to do this very quickly, as well. There is a section, as you would well imagine, on our full valuation project. And, quite frankly, you can all read that section. But I know it is off the table for right now, because of kind of the reshaping of the goals that we had. However, our staff is 113 FY '07 OPERATING BUDGET - 3/21/06 still compiling and analyzing data. We have begun at least the training to begin modeling of the new values as they come in. We have begun training of the staff. We are utilizing, which I think is a very important part of that process, we are utilizing the redesigning government initiative that has been around for a while for our work flows and our organization. And it has the full support -- what we are doing has the full support of District Council 47 and Locals 2186 and 2187 in that district. Obviously it affects jobs, and that's why folks are very interested in being involved with this. We intend to have Council -- have values for Council review by the end of the summer 2006, a full year away from when it would really be necessary for valuations to go out. That's our intention, for Council and the Administration. That could be public at some time thereafter. 114 FY '07 OPERATING BUDGET - 3/21/06 And most importantly, I suppose -- and this is maybe I should have said it at the very beginning -- but this is not about raising anybody's taxes. We have no intention of implementing this project in the absence of property tax relief measures that are studied, debated, and considered by the legislature and by City Council. We will implement this project in a way to protect taxpayers, even as it encourages the setting of accurate property values. And, with that, I will conclude and answer any questions that you may have.
Thank you very much. When do you anticipate the completion of the full valuation of all, all city properties?
Right. We are expecting that that would be by the end of the summer 2006. And, again, we will give you those numbers at that time. We will give you 115 FY '07 OPERATING BUDGET - 3/21/06 those valuations at that time.
Once full valuation is completed, how do you propose to notify the property owners? And can you tell us, to the extent that a property owner disagrees with your valuation, what will their appeal rights be?
Sure. There are, really, two answers to that. The first answer is that unofficially -- and we will have that marked and disclaimed as many ways as possible -- unofficially we hope by the end of this year to put on our website the new value for all 569,000 properties that will have no impact whatsoever on the 2007 taxes. Again, we will make sure that everybody tries to understand that. So, that's one way of notifying taxpayers. The other way will take place in the traditional manner. Once again, slowly and methodically. And this is our time line: Once the legislature and Council have put in place property tax relief measures -- and I 116 FY '07 OPERATING BUDGET - 3/21/06 will repeat, we will not implement this without property tax relief measures -- once that is done, the notifications will go out in the mail, along that time line, approximately after the Council passes the budget in June of '07 for '08. So it would be the summertime of '08, that's the notification process. As to the appeal process, that won't change. The only thing that will change is, we probably will get a significant, many more appeals than we have had. Our biggest year was about 12 or 13 thousand. We have -- we will be prepared to handle appeals at that point in time. It will be free, it will still be the same way it has been. Folks will have their day in court. There will always be respect and all of the kind of safeguards that we have initiated as our Board. We may have to break up into panels, given if there is an extraordinary amount of appeals. We will do that. I mean, we will figure out a way to get that done. But the appeal process as a core 117 FY '07 OPERATING BUDGET - 3/21/06 won't change at all.
Okay. So I guess what I am hearing you say is that you do not expect to go to full valuation until FY '08 budget?
Thank you, Madam President. Well, I guess I just have to dust off my little note from last year and the year after that. But I just want to make sure I say this again publicly, because I think sometimes we take it for granted. That one of the best processes that I have seen in government, the reaction from the constituents that return after going through the process, they feel they have been treated well. And, as you know, I have had a staffer at most of the sessions. And I can just tell you that I 118 FY '07 OPERATING BUDGET - 3/21/06 personally appreciate how well all the Board, and you particularly, treat the people that come there. Because it is very intimidated. They come there -- one lady told me she didn't sleep all night before she got there. And she meant it. I guess we get familiar with the process. And all I say is, thanks, because most of the times you resolve things satisfactorily. You can't win them all, but in many cases -- in most cases people leave there feeling good that they have been treated well.
I appreciate that, Councilman. One anecdote I was at Action Alliance for senior citizens. And a lady came up to me, after I finished a presentation, and said one of the things about filing an appeal -- just as you indicated, she was very afraid and felt intimidated. She said, "Well, when I walked into your office just to file the appeal, I felt like I won the lottery, that's how I was treated." So, I mean, I think that's what we 119 FY '07 OPERATING BUDGET - 3/21/06 want to try to get into all of our employees, and that's what has happened.
It is one of the more human processes that I think exist in our government. And I think that, again, it has been a good experience for me.
Thank you, Madam President. Good afternoon, gentlemen.
I would like to also say that your department and yourself have been very good about being available for us in the community. I understand you were in the Francisville community.
Interesting community, so beware. And you have been very, very 120 FY '07 OPERATING BUDGET - 3/21/06 responsive, and I want to thank you for that. Actually, I just have a couple of questions. One, I want to get information on categories of properties that are assessed. In last year's testimony, or maybe at some point when we had a hearing relating to taxes, there was -- I brought up an issue with respect to properties being assessed, be it affordable housing versus market-rate housing, properties that were subsidized by government. Can you give me a category of properties and how they are assessed? Say, for instance, properties that are subsidized, properties that are market values, new construction versus rehabs versus traditional housing? Because then I can have a better sense of how all these things --
Let me try to break it does the way you described it. What we try to do is the very same thing an appraiser will try to do. We have an MAI on our Board with Mr. Levin. And what we 121 FY '07 OPERATING BUDGET - 3/21/06 attempt to do is always try to compare apples to apples. If it is subsidized housing, we are always going -- we are never going to compare it to market-rate housing, we are obviously never going to compare it to new construction. We will look for sales, generally, because I think that's the best way for housing, for residences, the best way to get a value, to extrapolate a value from that which sells to that which doesn't sell -- which is the hardest part of this job, is to try and get that value -- is always to look at sales. And we will try to find comparable sales within the subsidized housing category. And usually that can be broken down, Councilman, by the unit price. If there's 500 units in one and only in another, if you can see what the unit 21 prices are, you know, in a sense, if something 22 sells for a million bucks, and you figure out 23 how many units are there, and, therefore, what 24 the unit price is, that's really the unit of 25 comparison for subsidized housing. 122 FY '07 OPERATING BUDGET - 3/21/06 For market-rate housing, it is pretty clear that sale price -- the sale price of other market-rate properties is the best way to go.
Hold on a second. On the subsidized housing. In terms of the values, the appraised values, at what point do you no 10 longer appraise it based on the subsidization of that particular property? Say, for instance, a property is subsidized, and for a ten-year period that property must remain low/moderate income, that ten-year period passes. Is that property then assessed at a market-rate value?
That's a good question. You are talking about individually owned subsidized housing, not as a development?
A few years that subsidy is going to burn off. What happens?
Yes, it is a very good question. We try to not have that subsidy, once it is expired, really be part of the 123 FY '07 OPERATING BUDGET - 3/21/06 value. But the only way to do that is, if we can, is to find other individual units where the second mortgage has been forgiven to try and compare those apples to those apples.
So my question is, for an individual who purchases subsidized housing, low/moderate income individual, first period of time, after the ten-year tax abatement and the subsidy amortizes, so it is no longer a subsidized house, per se, you now say this value of this property is comparable to a property of, a market rate property that was sold in that area, does that property now have that higher appraised value; therefore, the much higher tax value?
Not really. I mean, the answer is yes and no. 19 If there are no other sales of those particular subsidized houses, then of course we are going to have to look at what the market says. But, there's always -- again, one of the tools that an appraiser uses is the ability, when they look at the history of a 124 FY '07 OPERATING BUDGET - 3/21/06 property, and they look at the intent of the sellers, is there some -- is there a discount, should there be a discount there. So the answer is, to that specific example you gave us, it could be that it is purely market rate, or it could be that there would be an additional discount put to that. So I think a lot of it depends on the circumstances of that sale or of the comparability of sales to the house that hasn't sold.
Because the neighborhood that you are going to visit on Monday, you will see examples of that. Because over the period of 10, 12 years, we have systematically supported affordable housing. And those properties, the second is getting ready to amortize. And in that particular neighborhood, as a result of the aggressive strategy of putting affordable housing, all of the sudden it is a very viable place for market-rate housing, so you now have properties four or five hundred thousand being built in 125 FY '07 OPERATING BUDGET - 3/21/06 Francisville. And the concern, you will hear it on Monday, is that, will my properties now be taxed at the rate that these $500,000 houses are.
There has to be some relief for that. I absolutely agree. I know you and some other Council Members are working on some ways to do gentrification in a laser-like fashion, as opposed to a citywide fashion. Because I think if you do it citywide, it is not going to result in the kind of relief that you are looking for, if it is able to be done on kind of a laser-like way. And we would be happy to supply whatever data or information, historically, that's necessary, and whatever expertise we can give you going forward with that. But I do think that that problem that you are describing really revolves around the gentrification.
That actually 126 FY '07 OPERATING BUDGET - 3/21/06 leads to my second question. On the first part, if you can just give me a list of those various categories, that will help.
Councilman Clarke, if I could have a point of information, please.
Mr. Glancey, how would you know if a property is subsidized?
Well, usually I think it is in the deed, isn't it? Or the settlement sheet. Yes, there is usually a restriction in the deed that would show that.
And sometimes it depends on who is doing the lending. If you can see the lender, you know that that lender is -- it is from the Delaware Valley Mortgage Fund, or something like that, you know that that second mortgage at some point in time really just -- as the Councilman said, it just dissolves. 127 FY '07 OPERATING BUDGET - 3/21/06 It is more of a loan -- it is more of a grant than it is, actually, a loan. It is usually ten years, too.
You are welcome. 9 Yes, if you could give me those 10 categories of properties that you appraise.
With the market to market, that's pretty obvious, you would take market rates. Subsidy market --
You don't have to give them to me now. If you could give them to the Chair, because I want to have something to reference.
Second part. Are you familiar with the bill that Senator Fumo passed that authorized -- on the state level 15, 20 years ago that was, for lack of a better term, called the gentrification bill? Are you familiar with that bill?
Yes, I am. It is, 128 FY '07 OPERATING BUDGET - 3/21/06 actually, state law now.
Correct. The definition -- and one of the reasons why I don't think it was implemented, because the definition of gentrification couldn't be determined in order to implement. Could you tell me, from your perspective, how would you define areas that were gentrified in relationship to that bill?
A couple of things. The initial -- about the bill 13 itself, I mean, it has no age -- it disallows any age or income qualifications, which I think has been the major reason why there has been no enabling -- that's enabled the Council to do things. But, without age or income qualifications, Council has not reacted to that. And, to a certain degree, the other side, I understand that we are looking at trying to help middle-class taxpayers, as well. I do think within those definitions, 129 FY '07 OPERATING BUDGET - 3/21/06 however, you can help lower-income and middle-class taxpayers. And I think that's a problem the way it is. Pittsburgh does allow that, the second-class counties allow that. So having said the little discussion about the bill -- about the law, I mean, my sense is that what has to happen for gentrification, really is to take -- let's take Francisville, or we can take Brewerytown or a place where anecdotally we all feel that there is gentrification going on. Okay? That's the anecdote.
Not Brewerytown yet, that's just some guy out there making a lot of noise about it. But, it didn't happen there yet.
Whatever. Back 19 years ago, it was Fairmount. Whatever it 20 might be. 21 My sense is that what has happened, 22 and I certainly understand it, our local 23 lawmakers feel that, why should that 24 particular area be in, and in my district 25 that's not going to be. I mean, it is a 130 FY '07 OPERATING BUDGET - 3/21/06 difficult problem for our local lawmakers. I must say, however, if you are going to have a successful gentrification program, you might have to bite the bullet and, as I said, to be as specific geographically as you can. The first thing you want to look at is what were the homes selling to prior to whatever the reason was that new people are now coming in. What were they? What is the home selling for today. Okay? And I think then you start to look -- you start to see some of the economic shift. I think maybe more important than anything is, are people moving out, moving in, because they are forced to. That is the piece of the data that no one can really answer definitively. People move in and move out all the time. If I were living in a home that was worth $25,000 when I moved in, and I can get $500,000 for it today, I may want to move out just to get the money. It doesn't mean I am being 131 FY '07 OPERATING BUDGET - 3/21/06 gentrified; it means I want to cash in on my house, and that's a good reason to move. But we need to kind of get more granular and see what happens under that. Is somebody in fact being forced out. I don't know how you do that. And maybe -- there must be some geniuses in this world that will be able to help us, but I would like to find out.
One of these defining terms, in your estimation, is folks being moved out of that area not necessarily by choice, but by the fact they can't afford no longer afford to live there, as relates to the gentrification language in that bill?
That would be a factor, that's for sure. Another factor is -- and, again, I am saying this kind of as an umpire -- that the nature of the neighborhood in fact has changed. It may be changing for the good. But as you know and I know from going to various civic meetings, folks who see it 132 FY '07 OPERATING BUDGET - 3/21/06 change for the good sometimes don't feel it changing for the good, they miss the old way. I think that's also a factor that has to be analyzed. So those are the kinds of things. I think another demographic is -- we don't collect this information -- what's the median income of the folks that were there before and the folks who are now moving in. Another piece of information that has to be done. But I think that this is really a think-tank kind of a question. I know Econsult was doing some of this. Or, I am sorry, not Econsult. The Wharton School was looking at this in some way. But it is a problem that I really believe can be answered 85 percent of the way by looking at data, as opposed to just going with what we feel in our gut. And our gut may be correct, but it would be sure nice to have the data to back up what we feel. But it does, I believe, have to always be within -- looking at a limited 133 FY '07 OPERATING BUDGET - 3/21/06 geographic area. If we say -- nobody is going to buy into the fact that the entire City of Philadelphia is gentrified. Values have gone up in the entire City of Philadelphia. That's not because of gentrification. Gentrification is an entirely different story.
Right. Okay. One last question. With respect to your appraisers, in an area where there are no recent sales, so, therefore, it is difficult to get an accurate appraisal, does your appraiser expand the scope of his appraisal to get a comp, or does the appraiser go back in time to see when a less recent sale? What's the process?
The ideal thing would be to try and stay in the location. What we have done in the past, and will continue to do, is to say our cutoff is three years prior to the current year. A sale that takes place three years ago could be helpful. I mean, you can then, depending on which way the market has gone 134 FY '07 OPERATING BUDGET - 3/21/06 over those four years, you can -- as opposed to making a discount as I talked about before, you can make additions to that. You can bring it up to what would this home -- this four-year-old sale, what would it sell for today. You can have a current-year addition to that. What we do in mass appraisals --
You are saying you would estimate what the property --
Sure. If you are going to estimate a discount, you can certainly estimate what the current year sale would be. And, again, you are estimating, but you are estimating based on real data; you know, what has been the percentage of housing cost increase in that given location. So it is real data that you are using. The other thing is, I think as a mass appraiser, what -- and I think other appraisers do this for a living. But, as a mass appraiser, I really would rather our folks simply use the most current three years, 135 FY '07 OPERATING BUDGET - 3/21/06 if at all possible. And that does mean that they have to -- if there is not a sale on your block, they have to go in concentric circles around your block to see where those sales are.
Not that far. I mean, it is not that we are going to go from North Philadelphia to Overbrook, that's not going to happen. Because there are plenty of sales. I mean, we have never run into the -- as far as I have been on the Board, we have never run into the situation where we have run out of sales. One thing that we have to be very careful about, and we have to have our evaluators be careful about, is housing types. You know, you can have sales on the block next to you, but it could be an entirely different property. In my street, sales of houses across the street from me are entirely different from my house because I am an entirely different 136 FY '07 OPERATING BUDGET - 3/21/06 house.
Let me ask you this: Give you an example. In Strawberry Mansion, we are looking at -- and I think it was for purposes of either disposition of property or condemnation -- there were no 8 recent sales in that immediate area. So -- but there had been some sales maybe six, seven years ago. The appraiser decided to expand the scope of his area. And he ended up appraising properties at 15th and Oxford, and came up with a number for a three-story apartment building of $300,000. And if you know anything about 15th and Oxford, it is clear that that is student housing in that apartment building. You try to use that number to justify a number in Strawberry Mansion over near 33rd Street, which is clearly not a reasonable basis to suspect that it is $300,000. So my -- I asked that question, does it make more sense to go back. If you can't 137 FY '07 OPERATING BUDGET - 3/21/06 find a comp in recent years, would you just go back in prior years to determine the most recent sale, or the less recent sale in that area, or just keep simply expanding to an area where there are clearly different demographics as relates to the end use of the property?
I think reasonable people can differ on that question. However, I think six or seven years of sales are stale. I mean, I think that's too old. Four years would be my stretch, it seems to me, the way we are looking at it now. But we see that every day of the week, when we have commercial appraisers come in. And we look at their comparable sales, and we question them as to whether -- why they think that sale is a valid sale, in comparison to the subject property. It happens. I mean, I think that, really, the expertise of the individual appraiser sometimes we question, as well as you do.
Yes, I question them quite a bit. Okay. All right. Thank 138 FY '07 OPERATING BUDGET - 3/21/06 you. Thank you, Mr. Glancey. Thank you, Madam President.
Thank you, Madam President. Chairman Glancey, do you have data that you could provide to the Chair? I am just curious, because I don't want to lose touch with this tax abatement issue. Do you know how many properties right now are eligible or are getting a tax abatement?
I will tell you what we have right now, and that's the last page of this testimony, what we are looking at right now. Eligible, I don't know. I can tell you what we hear is -- what projects that at least are on the drawing board. Some are in the pipeline, and some are not. And somewhere in the vicinity of 6,000 units, over and above what we are showing here. 139 FY '07 OPERATING BUDGET - 3/21/06 On this last page, we have a number of properties, 3,448 properties under abatement. Of that, about 3,200 are of the ten-year variety. The older ones are from the older abatements. Remember, the abatement program has been around since 1976, when somebody you know was Mayor of the City of Philadelphia. And the market value, the total market value on those roughly 3,200 -- if this is any help to you, I can give you this data -- is about $997 million, almost a billion dollars in market value. And it is about $26.4 million in foregone real property taxes for this, at this snapshot in time. The number that you see on the includes the $137 million of Keystone Opportunity Zone properties. We don't, you know, administer that, but I keep that as a record here. So I have extracted that $137 million out of the abatement process, because that's really not an abatement that -- under 140 FY '07 OPERATING BUDGET - 3/21/06 the normal abatement program. So 3,200 today. The first group will come off, about 200 will come off, in the Year 2009. The first group of abatements -- Council authorized the first ten-year tax abatement in 1997 for what was known as the Conversion Bill, converting older office buildings or institutions into apartments, into residences. About 200 of those will come off in the Year 2009. And what will happen every year thereafter -- and that's what makes this always a moving target, so the snapshot makes some sense -- is that some will come off and some will go on. So you don't want to double count, you know, the numbers as you go through this. So it is always best, I think, just to take a look at it this way.
Chairman Glancey, what are we doing? You hear constantly one of the concerns about a person that buys a property that receives a tax abatement is, 141 FY '07 OPERATING BUDGET - 3/21/06 some day they have to get ready to pay the tab. Are you going to communicate with them a year or so out to say, hey, get ready, you know?
We are. And I think the best way to communicate, or what we have talked about this being on the notices that we would send out -- and I am not talking about the full valuation, even notices after that was done, which would say, this is the benefit that you have received from the City of Philadelphia to date, or yearly -- we haven't decided on that, you know -- and this abatement will end on whatever year it is. So that folks will understand that there has been a benefit that they have received, and also understand that Year 11 is coming, and be prepared for Year 11.
Can you at that 142 FY '07 OPERATING BUDGET - 3/21/06 time prepare them for what their tax is going to be? Will you be able to do an assessment?
Not really. I mean, I don't think that would be fair. I mean, we can say to them that this is your value -- look, if it is Year 9, then I think they have a pretty good idea that it is going to be close to what they are paying. If it is Year 1 --
No. I don't suggest Year 1. I am talking about when it is getting close, when it is in Year 8, we start communicating with them, and I think they need to see a number.
They will see a number. I think, Councilman, the best way to communicate on those that are aging or almost at the end of the aging period would be, please look at the value of your property and 143 FY '07 OPERATING BUDGET - 3/21/06 appeal this value, if you believe that it is too high.
To remind them. Yes, that's really our intention. We have talked about that for the last four or five months. When we do new notices -- and we are in the process now of getting notices similar to the ones that you had showed us, actually -- we will make sure that that notification takes place. Thank you.
You are welcome. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I realize you have appraisers, but do you have -- assessors, but do you have appraisers, too, who work for you?
How do they 144 FY '07 OPERATING BUDGET - 3/21/06 compare with those of the Redevelopment Authority? Would they have the same ability to --
Well, we have as consultants, and it is in the budget, we have an MAI and three other appraisers. What they do for us is, they're not the ones who go out every day and look at properties, that's what our assessors do. What these appraisers do for us, appear at every hearing -- all three of them don't, but one at a time they will be at every hearing we have. They teach classes for what's called an AAP certification to our evaluators. We are paying for that in-house for all of our evaluators, for professional training. We also have them doing various other special projects. If I wanted somebody to appraise a particular property, they would do that for me, as the Redevelopment Authority appraiser would. They are folks who appraise in 145 FY '07 OPERATING BUDGET - 3/21/06 private business, and they are contracted with us to act as appraisers for the reasons we need them.
So we contract with them. I raised this because the Redevelopment Authority, before it can convey property, has to have two appraisals of the property, but they only have one assessor for the whole authority. And we have a lot of problems, because they don't have assessors, and need them. And, for whatever reason, that's part of our whole housing debate and housing reorganization issue, one of the issues therein. We are concerned about who they are and where they come from. But you are saying you contract with them privately?
That's correct. And very reasonably. I mean, we are asking for a small increment this year. But it has been about $14,000 a year for each of three appraisers, 146 FY '07 OPERATING BUDGET - 3/21/06 and for our -- the appraiser, who is the person who oversees the three, it has been, like, $25,000 a year. And he also was the former -- the first Chairman of the Real Estate Appraisal Board in the Commonwealth of Pennsylvania. So we have a good staff of contract appraisers for very little money.
We have never had a problem. Let me just give you a little history, Councilwoman. When I first came on the Board in 1983, there were three appraisers that were already -- that were there. Two of them were based in Center City, I can't remember where the third one was based. But any time -- and we have kind of shuffled around the money so we can have more than three. Any time we have had a vacancy, we have never had any problem getting somebody, even for that little bit of money, wanted to 147 FY '07 OPERATING BUDGET - 3/21/06 work for that little bit of money. Because it is -- they are doing other work, obviously. But, you know, we found that people were very interested in that contract.
You are welcome. Are there any other questions from members of the committee? Seeing none, gentlemen, I thank you.
And this will conclude our Public Hearing for today. And we will stand in recess until tomorrow at 10:00 a.m. Thank you all very much. (Public Hearing adjourned at 3:15 p.m.) - - - 148 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Tuesday, March 21, 2006, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COMMITTEE OF THE WHOLE _________________________ DEBRA A. WHITEHEAD