Committee Hearing, April 8, 2002

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Monday, 4/8/02 9:44 a.m. Room 400, City Hall Philadelphia, PA - - - BILLS 020030, 020035, 020116, 020144, 020145, 020182 (All ordinances are related to tax issues.) (Complete text of all ordinances attached hereto.) PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE L. BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 4/8/02 COMMITTEE OF THE WHOLE INDEX WITNESS Jonathan Saidel, City Controller................ Anne Rubin, President.......................... 57 Greater Philadelphia Association of Realtors Sam Katz, Chief Executive Officer.............. 62 Greater Philadelphia First City Administration Witnesses: Rob Dubow, Budget Director..................... 87 Janice Davis, Director of Finance.............. 89 James Cuorato, Director of Commerce............ 111 3 4/8/02 COMMITTEE OF THE WHOLE INDEX WITNESS JUDITH VONSELDENECK, GPCC Board ............... 234 CHARLIE PIZZI, Chamber of Commerce ............ 236 STEWART WEINTRAUB, GPCC Tax Committee ......... 273 DAVID THORNBURGH, PA Economy League ........... 307 AUDREY TALLEY, Phila. Bar Association ......... 345 GEORGE LYONS, VP PECO Energy Co. .............. 352 PAM DELISSIO, Mt. Airy Business Assoc. ........ 361 AL TAUBENBERGER, Chamber of Commerce .......... 359 REV. BRUCE EDWARDS, Urban Leadership Council .. 365 SR. ATIKAH HASHIM BEY, WPEB-88.1 .............. 374 ROBERT MARTIN, BOMA ........................... 388 KEVIN MAZZUCOLA, Auto Dealers Assoc. .......... 390 SHELLY YANOFF, PCCY ........................... 400 MICHAEL MAZEROV, Center for Budget and Policy Priorities ...................... 400 KENNETH KAISERMAN, Kaiserman Company .......... 420 EDWARD SCHWARTZ, Institute for the Study of Civic Values ........................... 423 JOSH SEVIN, Young Involved Philadelphians ..... 446 4 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Good morning, everyone. I note the quarters are very, very tight, but you all know that we did have a flood last week in our chamber, so I am just going to ask everyone to please be very patient, and I think if we have cooperation, we can certainly go through the day without any interference. This is the Committee of the Whole of City Council. I would ask Mr. McPherson to please read the title of the bills that we are considering today.

Bill No. 020030, an ordinance amending Section 19-2604 of the Philadelphia Code relating to tax rates, credits and alternative tax computation for the business-privilege tax by reducing certain tax rates and by making technical amendments, all under certain terms and conditions. Bill No. 020035, an ordinance amending Chapter 19-1500 of the Philadelphia Code entitled "Wage and Net-Profits Tax," by decreasing the rates of the tax and by making technical amendments, all under certain terms and conditions. Bill No. 020092, an ordinance amending 5 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Chapters 19-1500 of the Philadelphia Code, entitled "Wage and Net-Profits Tax," by decreasing the rates of the tax and by making technical amendments, all under certain terms and conditions. Bill No. 020116, an ordinance amending Chapter 19-2600 of the Philadelphia Code, entitled "Business-Privilege Taxes," by establishing a program under which a job-creation tax credit will be given to certain businesses creating new jobs in the City of Philadelphia, all under certain terms and conditions. Bill No. 020144, an ordinance amending Chapter 19-1500 of the Philadelphia Code, entitled "Wage and Net-Profits Tax," by decreasing the rates of the tax and by mistaking technical amendments all under certain terms and conditions. Bill No. 020145, an ordinance amending Chapter 19-1500 of the Philadelphia Code, entitled "Wage and Net-Profits Tax," by exempting low-income persons from said taxes, all under certain terms and conditions. Bill No. 020182, an ordinance amending Chapter 19-1500 of the Philadelphia Code, entitled "Wage and Net-Profits Taxes," by providing relief 6 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS from said taxes to certain low-income persons, all under certain terms and conditions.

Thank you. I see that there are people in the corridor. There is some standing room in the empty room directly behind me, and they do have a loud speaker on back there, so anybody that feels as though they would like to hear the testimony are certainly more than welcome to go into the empty room. Our first witness today is Jonathan Saidel. Mr. Saidel, the witness table is directly in the center of the room. (Applause.)

Good morning. CONTROLLER SAIDEL: Good morning, Council President. Good morning to members of Council. It's unfortune that you have to have this meeting here in 696, but it's always a pleasure to see democracy in action, which I think is -- what you see before you is a testament to the vitality of Philadelphia. ) CONTROLLER SAIDEL: I don't have a 7 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS prepared statement; I just wanted to talk to you as family. You're going to hear from a number of speakers that will go over their analysis of why the tax bills that are before you are proper and will not destroy the vitality of Philadelphia. I have been going over these numbers with you and your staff for, if not weeks, then months, and I will be available for the next few days to come back at a moment's notice to discuss any of the economic impacts that you wish to discuss. You and I have been involved in politics for a long period of time, and to the Democratic members of this City Council, I have endorsed you and supported you; and you, in turn, have endorsed me and supported me. And to the Republican representatives, we have shown respect for each other. To me, this isn't a question between reducing taxes and closing a swimming pool. As one of the elected officials of this city who has spent my lifetime here, the last thing that I would ever propose is something irresponsible, to close one pool or one library. Without those libraries, without those pools, without a good public school 8 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS education, God knows where I would be, or my four children. See, I'm not running for mayor; I'm proud of being the Controller of Philadelphia and being elected and reelected four times. " And as a father, I want my four children to stay here, and I want to be able to see them raise my grandchildren here. I want to be able to see my grandchildren. I want everyone to participate in the bright future here in the City of Philadelphia that all of us have had this great opportunity to be a part of. And as a Philadelphian, I want all of the children of the City of Philadelphia to stay here. And I want more children to come back with their families to become a part of what we need to be a part of, and that is the revitalization of the neighborhoods of Philadelphia, the revitalization of our business community here in. 9 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Now, the DiCicco-Nutter bill or the Nutter-DiCicco or the Marian Tasco bill, how ever you want to categorize this bill, it is not a choice between these bills and closing a library; it is about doing what we must do to be proactive for the people of this city and for the people that we need to come back here and raise their families. That doesn't mean that if we reduce taxes that people will flock here two days from now. No, we've got to work on things like fixing our school systems, fixing the gas company, fixing our infrastructure, making sure that the unions that are represented here in the City of Philadelphia and that workforce have a decent wage and can live here and be a vital part of the future of the City. We need to do all of these things at the same time, but the reduction of taxes and showing the business community and the people of the Delaware Valley -- and, in essence, the people of this country -- that we mean business. It's an integral part of what we need to do simultaneously as we move forward in this century. Now, I have told the Mayor that for his 10 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS blight program, I will give him as much time as he feels is necessary to make sure that the blight program is a success, 'cause we have to fix the housing. And I have told the Mayor that I will work with him on the gas company's problems, if need be, hours a day, 7 days a week to fix that 8 gas company.

9 And I have told Jim Nevels, even though 10 I was against the State takeover of our school 11 system, that the time has come to make sure that 12 our school system works, because I'm a product of 13 that public school system. 14 Now, all of the things aside, all the 15 Nutter-DiCicco bill does is cost $30 million a 16 year, and in a $3 billion year budget, it's 17 impossible for anybody to tell me you can't find a 18 percent savings per year on $30 million, 19 $30 million. That's all it is, that's all it is. ) 21 CONTROLLER SAIDEL: And I say this to 22 the Mayor and his administration, and I say it to 23 all members of Council: I will work with you 24 24 hours a day, 7 days a week to find those 25 $30 million of revenue enhancements or expenditure 11 1 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS reductions so we can make this bill a reality during that Five-Year Plan. But this is not the Ten Commandments, nothing is infallible. If, God forbid, there's a problem next year that is unforeseen, we can always change the law; nothing is locked in stone. It is not the be-all and end-all and it is not the end-all. It is bringing this city forward incrementally because that's what we are all about. All of us have run for office, I believe, because we care about the future of this city for ourselves and for our children and for our children not yet born. That's why I'm running for Controller of Philadelphia, and I believe in my heart and soul that's why people of both political parties in this city run for office, is to save the town that they love. Now, I'll be around for the next few days, so anytime you want to talk to me, you want to bring me back, you just got to pick up a phone, and I will be here. You've got a lot of people that want to talk. This is the greatest day for democracy that I have seen in a long period of time. ) CONTROLLER SAIDEL: Let's open the books of Philadelphia open to the public. Let us all examine it fairly and equitably and honestly to find ways to save money and still provide the vital services that are necessary for the people of Philadelphia. We can do this. I would rather fight and die than wither on the vine and allow Harrisburg to come in here and tell us what we're doing every day of the week. Let us fight to make this city viable. ) CONTROLLER SAIDEL: I am very proud that I have supported everyone that I am looking at today. Today and tomorrow, we can all make a difference, for at the end of our days, we can look back on our careers and know that we gave it the best we had for the greatest city in the world. God bless and have a wonderful two days. )

Thank you. At this time, the Chair recognizes Councilman Goode. Before Councilman Goode is recognized, I 13 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS would like to tell my colleagues, there is no way of my knowing whether you want to ask a question unless you simply raise your hands, and Mr. McPherson will keep a list of the people who want to be recognized. Councilman Goode.

Thank you, Madam President. Good morning, Mr. Saidel. CONTROLLER SAIDEL: Good morning.

While you're here, I just wanted you to offer some brief testimony to 020116, the new-jobs tax-credit bill. CONTROLLER SAIDEL: Well, as you know -- and, again, I want to thank you, Councilman Goode. I think that -- and you and I have talked about that bill before. I think it is a wonderful step in the right direction. I think that a yea vote on your bill is the beginning of increasing job opportunities in areas of Philadelphia, and I think revitalizing the City of Philadelphia in areas which have been depleted for a number of years. And I certainly think that all of Council should support your bill that you 14 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS cosponsored, and I thank you on behalf of myself and my four children and the people in Philadelphia for putting forth that bill. Thank you, Councilman. (Applause.)

The Chair recognizes Councilwoman Brown.

Thank you. Good morning. I am not unlike all of us in this room 12 who care about wage-tax reductions, and with the numerous faxes and letters and phone calls I've gotten in my office, it's real clear where the concern is on this issue. The one factor -- the one issue most important to me that has not been reflected in any of that correspondence is, what do we do about our schools? And so my question to you is, given the tenuous nature of our schools and the still- volatile and unpredictable funding picture that we are confronted with, and given the City's new commitment that we will contribute $45 million annually to the schools, how do we reconcile what 15 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we know citizens want, which are wage-tax reductions, and what we know also drives residents from our city, which are poor schools? How do we reconcile that? CONTROLLER SAIDEL: I don't think that -- I don't think you can replace one with the other, and as I had said before, Councilwoman, we have to fix these problems simultaneously. I was not in favor of the takeover by the State, nor am I in favor of State intrusion into what would be a city of the first class prerogatives, but you the budget is based upon the additional expenses that you have just talked about. And I think, as I have said to Chairman Nevels, it's important for all of us to work together to revitalize our school system to see where they can cut and still give the supplies and security and teachers' wages and a variety of other things that are necessary. I think we have to do them all at the same time. Obviously, taxes is not the only thing that we have to worry about, but we have to reduce taxes while we try to fix our public school system. 16 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS As I said, I'm a product of the public schools; my brother is, my sister, my parents, and my four children are. And I think that we have a responsibility, a fundamental responsibility, to provide education for our young people. But I think we can do it all, and I think that we have to try to do it all; we at least have to try. If we don't try, nothing will happen. If we try and there are unforeseen expenses, well, then we have to be adult enough to make those changes in the future. But today, I don't see those expenses getting in the way of what is really a reinstitution of the Rendell reductions that began in 1995.

Yes. CONTROLLER SAIDEL: If we increase our revenue growth over 3.5 percent, then there's accelerated reductions. These bills are not dramatic. Councilman Goode's bill, I think, is very important for the future of Philadelphia, and certainly, the bill that you cosponsored is very important with the reorganization of the way we file City taxes. 17 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS All of these bills are very important as we move forward. But at the same time, we have to fix housing, we have to fix our school system. We can do it all, because if we don't, then the next mayor of Philadelphia, Mayor Street, will end up being mayor of a city that is absolutely dependent upon Harrisburg for its future, and we have to move away from being a stepsister or a stepchild, and take control of our own destiny. I think that the bills in front of you and our looking at our school system realistically and all of the problems that we have realistically are all can come together if we just work together and get it done.

My second and final question is -- and the former administration started the practice of casting wage-tax reductions, not knowing what the economy would look like, and this administration has continued to some extent that policy. Do you believe that is good public policy? CONTROLLER SAIDEL: You know, I think a 18 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS five-year plan is exactly what it is; it's an estimate. Anything beyond two years is really an estimate. But you look at the five years, and we actually look at our government on a quarterly basis, which is mandated by State law. And as we look at it on a quarterly basis, if there's a dramatic change and there's a dramatic problem in Philadelphia, then we have to be adult enough as the leaders of Philadelphia to make those changes. Nothing is locked in stone, but today, today, I do not believe that any of the bills that are before you for a vote up or down can't be voted on yea, and I think they'll have a positive impact on Philadelphia, and it is today that we have to worry about. If in two years, there's a problem, we can change things. None of this is locked into stone. It is not a choice between butter or eggs, it's not a choice between that; it is a choice between us doing the very best we can with all of the problems that we have and tackling all of those problems simultaneously and making the city a better place for all of us. 19 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Thank you.

Thank you. The Chair recognizes Councilman Ortiz.

Mr. Saidel, there's another bill that affects low-income workers in the City of Philadelphia and that is really to eliminate the wage tax of those individuals, and that's Bill 82. That also will have an impact, and it really brings the City of Philadelphia together where the State does not allow and has exempted low-income workers from the income tax. Do you support that bill? CONTROLLER SAIDEL: Yes, I do, but I think that you have to look at that bill with careful analysis as to the other bills.

Right. CONTROLLER SAIDEL: When we estimated for Councilman Cohen the cost of it being between 40 and $55 million, to me, that's a large chunk of money, but what it does show, the dramatic thing that it does show is the large percentage of working poor that pay wage taxes to our City Treasury. I would have been much happier if it 20 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS would have showed that the working poor only paid $5 million a year because it would have shown that we had reestablished our middle class and upper- middle class and brought businesses into Philadelphia. What that analysis showed of Councilman Cohen's bill is that we have a tremendous lopsided percentage of the working poor which have a tax-forgiveness program with the State and received an earned-income credit with the federal government. And it's a sad commentary on the economics of Philadelphia that 40 to $55 million a year of our wage-tax collections is paid for by those people that choice is between paying the wage tax or paying rent, paying the wage tax or paying for food, paying the wage tax or buying clothing for their children. And that's what we have to change.

But the community effect, what it shows really is that the greatest impact is the working class of Philadelphia that will receive the benefit. This is not a corporate bill, this is not a bill to exempt taxes of 21 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS corporations. This is really a tax bill for the working class of Philadelphia, both of them are. CONTROLLER SAIDEL: But in order to pay a wage tax, you have to be working.

That's right. CONTROLLER SAIDEL: So --

But it's not a corporation that -- because what, I think, the arguments that people are trying to look at, and when they say "a Republican tax," Republicans cut taxes for the rich; Democrats cut taxes for the working class. CONTROLLER SAIDEL: We don't have enough rich people here to cut their taxes. (Laughter.) (Applause.)

Thank you. I'm just trying to make the comparison between -- CONTROLLER SAIDEL: I understand.

-- the Bush tax cut that -- the percent and the Nutter-DiCicco bill 23 that cuts really at the working-class individuals 24 in Philadelphia and the Cohen bill that goes down 25 to the lower levels of the working class in 22 1 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Philadelphia. Thank you. CONTROLLER SAIDEL: My pleasure.

Thank you. At this time, the Chair recognizes Councilman Nutter.

Mr. Controller, let me just make sure I have a couple of basic details. You have been Controller for how long? CONTROLLER SAIDEL: For years. 12

And your Charter and statutory responsibility is to do what? CONTROLLER SAIDEL: Is to examine the books and records and the boards and commissions of the City of Philadelphia and to make recommendations to try to run government in a fiscally-sound manner.

And the proposals that are in front of us today, specifically with regard to either Bill 92, Bill 30, Bill 182, and -- Councilman Goode are you 144 -- 116? CONTROLLER SAIDEL: 116.

In your professional opinion, and as the elected and sworn Controller of 23 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the City of Philadelphia, what is your opinion of these bills and their impact on the City of Philadelphia? CONTROLLER SAIDEL: My opinion is that these bills are indispensable to the future economic vitality of Philadelphia, that they are not irresponsible, that they are based upon actuarially-sound presumptions and, I think, will have a benefit to our economic development of Philadelphia, and that if there are reductions in our expenditures that are necessary, or revenue enhancements, that we can do that.

Do you have any concern that the bills would be considered fiscally responsible? CONTROLLER SAIDEL: I think the only thing irresponsible would be to allow this city to whither on the vine and become less of a wonderful place it is than we have today; I think that would be the height of irresponsibility. But I think that all of the bills that are presented before Council today, beginning with yours, Councilman Nutter, which I applaud you and Frank DiCicco and all of the cosponsors for putting 24 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS it forth, is absolutely on course and should be looked as the beginning of transform and not the ends of tax reform.

Would you take any action in your capacity as the elected and sworn controller that would in any way, shape, or form, in your professional opinion, damage the finances of the City or cause fiscal instability? CONTROLLER SAIDEL: I think for those people that know me, after years and being 12 reelected last year, there isn't one time that I've ever lied, not one time that I've ever been irresponsible, and not one time that I haven't absolutely believed in the documentation and the statements that my office has made. And I stand by these bills and will work with the Mayor or his appointed representatives, as well as Council, to make sure that the bills that you pass today come to fruition and are merely the beginning of saving the City that you and I both love.

Lastly, your office has thoroughly reviewed the matters before us and is intimately familiar with the projections, at 25 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS least in terms of the possible cost of cutting taxes, and you're fully and consciously aware of those issues? CONTROLLER SAIDEL: I have never been more confident in my life about bills that are before City Council.

Thank you very much. CONTROLLER SAIDEL: My pleasure.

Thank you. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. Good morning, Mr. Saidel. CONTROLLER SAIDEL: Good morning, Councilman.

Following up on Councilman Nutter's line of questioning, we have been reducing taxes incrementally for the last seven years? CONTROLLER SAIDEL: Since 1995, yes.

'95. During that period of time, as the City Controller, have you noticed any negative effect as a result of those tax reductions? 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS CONTROLLER SAIDEL: No, not at all. In fact, since we have been reducing the taxes in Philadelphia, our total revenue growth has gone up about to percent. 6

And that's after 7 what percentage of tax cumulatively over the 8 seven-year period of the tax reduction? 9 CONTROLLER SAIDEL: It's dropped at 10 about almost percent. 11

So the 1 percent 12 actually caused an increase in revenues. 13 CONTROLLER SAIDEL: Yes. Well, there 14 certainly is a direct correlation. 15

And you don't 16 suspect that there will be any change in what has 17 happened over the last seven years going forward? 18 CONTROLLER SAIDEL: No, I don't see any. 19 If I had the shred of feeling that these bills were 20 inadequate for the future of Philadelphia, then I 21 would not support them. No, what I have put out 22 are tax analysis strategy, which is the basis for 23 many of these bills. 24

And during that 25 seven-year period that we've been experiencing that 27 1 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS incremental reduction, do you know of any recreation centers, City pools or libraries any or other projects which the people of this city depend on having to be closed? CONTROLLER SAIDEL: No. In fact, I remember doing an operational audit during that timeframe in which Mayor Rendell spent an inordinate amount of money in recreation to fix a number of the pools and to revitalize the community organizations that exist throughout the City of Philadelphia.

There have been a lot of numbers that have been tossed around from time to time as to what the City surplus is today. Could you give me in your opinion what you believe the City surplus is today? CONTROLLER SAIDEL: I think it's a little over $300 million, if we use the same accounting numbers and accounting theories that we did the year before. It is at 230 because the federal government and the national accounting associations changed the manner in which we recognize revenue, as far as whether it's 60, 90, or 120 days. 28 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS But there is certainly room to find the money that's necessary to allow the continuation of the deductions in wage taxes as well as Councilman Goode's and Councilwoman Brown's other bills, I think.

So in your opinion, you don't believe that if we go forward with this wage tax and Bill 92, this wage-tax reduction, that we're not going to get that $300 million, more or less, and just give it all back; we will still have some sort of a cushion, it's not going to really impact that surplus to the point where it would be flat-lined, bottom-lined? CONTROLLER SAIDEL: No. I think that what would be the height of irresponsibility would be is if the bills before you today, and after listening openly and honestly to the experts that are going to testify, as well as the people that are more important than the experts and myself, which is the people and the citizens of Philadelphia. The height of irresponsibility would be not to continue to reducing the taxes in Philadelphia.

Thank you. 29 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS I just want to take this moment to thank you for all of the service you have given the City of Philadelphia. I worked for you for a number of years. Some people say that's how I got my job, by driving you around the City, but I know you feel very passionately about the City of Philadelphia, and we've all had our ups and downs, and through it all, you've weathered the storm, and I want to thank you for your contributions to this great city. CONTROLLER SAIDEL: Thank you, Councilman. (Applause.)

The Chair recognizes Councilman Kenney.

Good morning Jonathan. Thank you for your testimony and for all of your hard work on this issue, 'cause I know that a lot of the analysis that was done that gave us the ability to move forward with this legislation was done by your very hard-working staff, very competent staff, and I want to thank you for them and the hard work that they do. Let's talk a little bit about the use of 30 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS surplus dollars for things like tax reduction. The Administration would argue that the surplus is needed as a cushion for various economic- development project and things that they want to target to do economic development with and just to simply have a cushion for cushion's sake. Could you talk a little bit about the use of the surplus to do tax reduction. I mean, is it a sound strategy -- CONTROLLER SAIDEL: I certainly --

-- to spend, I guess, spend some of the savings that we've accumulated to give back to people who helped create that surplus in the first place? And what economic multiplier effect does that kind of strategy have on the future of the City? CONTROLLER SAIDEL: Councilman, I think that the tax reduction is part of economic development. You know, taxes are used for two things: One, to raise revenue; and, two, to change people's behavior patterns. The reduction of taxes works the same way: You reduce taxes, you change people's behavior patterns. It gives them an additional 31 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS opportunity to say why they want to be in Philadelphia or not be in Philadelphia. And one of the problems we have with all the abatements that we give and the TIFs that we give and all these fancy terms we give is that there's inherent reason why people don't want to come to Philadelphia. If we reduce taxes low enough, we don't have to give any incentives because the incentive already is that we have a broad-based tax reduction and we have an economic engine that creates opportunity for people to work here and move here and play here.

But does it make sense to use the surplus, to spend some of the surplus dollars in an effort to offer tax reduction? Is that a good, sound investment that a portion of the surplus could be used to make in the future of the City? CONTROLLER SAIDEL: I certainly so. I think it's important that when you have a large enough surplus, that you have a Rainy Day Fund too, just in case. There's no sense in having 300 as a surplus; if you're not going to utilize it, you'll end up having 400 some day or 250 some day, but 32 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS increasing the broad expanse of economic opportunities and employment opportunities in the City.

So that in the event that revenue enhancements and expenditure reductions could not be obtained -- could not be attained, which you think they could be -- CONTROLLER SAIDEL: Yes.

-- even the effect that they couldn't be, the surplus could still be utilized, or a portion of the surplus could be utilized to continue either the reinstatement of the Rendell tax cuts or the acceleration of additional tax cuts. CONTROLLER SAIDEL: Oh, absolutely. I think they all work hand-in-hand. Obviously, no 18 one wants to go down to a $10 million surplus because then there could be unforeseen circumstances, but the number that we're at today, even with the conservative revenue estimates and the Five-Year Plan and what is a liberal interpretation of our expenditures, which is a nice way of putting it, I think that there is a real opportunity for economic growth ways based upon the 33 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS tax bills that are before you today.

Do you also believe that the imposition of this discipline that Bill 92 would impose upon this City government, do you believe that, both from an economic and from a political perspective, do you believe that the cuts would be found probably more in areas that people don't even realize we're spending on right now today, as opposed to what has been touted as doom and gloom -- rec centers, libraries, police officers, no bullets for the guns? I mean, everything in the world has been talked about as a potential cut. But in the end, doesn't 92 impose a fiscal discipline on the City that's necessary to really change the way government does its business and not necessarily create a circumstance for politicians to make very difficult political choices like closing services -- or reducing services and closing facilities? CONTROLLER SAIDEL: Yeah, I've always believed -- and, you know, I went through the early 1990s, when the City was in dire straits. What the PICA legislation did was force us how to do revenue 34 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS estimates and how to do the expenditures in a much more consistent manner, forced us to do a five-year plan, which I think has set up a basic discipline. But I'll tell you, you can find $100,000 here, you can find $100,000 there, you can find $50,000 there, you could find a couple 100,000 there and, you know, at the end of the day, you got some money. At the end of the day, you got some money. And I think we have to be willing to accept that challenge and not merely look like we were different camps working against each other. We all represent the same people, the Mayor, myself, and you.

At the same time, accepting that challenge to impose fiscal discipline on ourselves, at the same time, the tax deductions, as most credible analysts have told us, will increase revenues. So while we're changing the way in which we do government because we impose the discipline on ourselves, the tax deductions in themselves creates an economic engine to expand revenues. I mean, it's almost -- you really can't lose. 35 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS CONTROLLER SAIDEL: No, Councilman. When I said that we could find $30 million worth of revenue-enhancement or expense reductions, that is the worst-case scenario of there being no positive side to tax reductions.

So there's nothing wrong with finding $30 million in savings, regardless of whether we're doing tax cuts or not. CONTROLLER SAIDEL: That's exactly right, but I wanted to paint the worst-case scenario. We can still live with this tax decrease that everyone is proposing, with us having additional revenue, which I believe we are. In the last number of months, our revenue -- actual revenues received have been higher than our estimates. You know, that is something that we will also have. But putting that aside, even the worst-case scenario, I believe that in a $3 billion budget, we can find percent savings.

Thank you. Thank you, Madam Chair.

Thank you. The Chair recognizes Councilman Mariano. 36 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Thank you, Madam President. Jonathan, explain to me -- 'cause I know you're a smart guy, all right? -- this CPA stuff 'cause we're not all CPAs, supply-side, right? The bond ratings of the City agency, right? The City agencies have bond ratings. CONTROLLER SAIDEL: No, the bonds have bond ratings.

I'm serious. Explain to me how the supply side -- half the time you think I'm kidding, I'm serious. The supply side, explain to me how that works. The question is, I am told that the bond rating agencies that rate our fiscal health will count on the estimates of the supply-side revenue against our total revenues. If there is to be a supply-side effect of this Bill 92 or any other tax measures, where would that come from? How does that work? CONTROLLER SAIDEL: I don't know who wrote that. I can only --

I think it was your mom. CONTROLLER SAIDEL: Okay. 37 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

She just called me. CONTROLLER SAIDEL: Let me just explain something to you.

I love his mom; that wasn't a mocking, all right? CONTROLLER SAIDEL: I appreciate that, Ricky. (Laughter.) CONTROLLER SAIDEL: My mom loves you, too.

Your dad does too. CONTROLLER SAIDEL: He's waiting in the hallway for you.

I know. CONTROLLER SAIDEL: All right. I don't believe that supply-side economics works on a national level because you can raise taxes, you know, on a national level, and people aren't going to move to Canada or Mexico. I don't necessarily believe that supply-side economics can work at any level in the Commonwealth of Pennsylvania 'cause people just don't pick up and move to Jersey, Maryland, Virginia, and New York. But from this building, you can drive 38 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS ten minutes from here and be outside of Philadelphia and get all of the benefits of all of the wonderful culture that we have here, the ballgames, and a variety of other things, and still drive back. The supply side is that the world that we live in is very sensitive to tax reductions, and I believe that there will be a residual benefit to the reduction of taxes, especially during an economic downturn, because then taxes become one of the primary things that companies and people look at in relationship to the cost of either living in Philadelphia or living in the suburbs. I think eventually, the suburban counties will have to go to an income tax because they can no longer be real-estate tax-based, and as we incrementally reduce our taxes and they have to establish an income tax of some kind, then we will be on a par. While we do this, we should also fix our school system and our gas company and the myriad of other problems that we have and accept those challenges. But I think looking at a supply side at 39 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the locale of Philadelphia makes sense economically.

Jonathan, in also looking at those other things, and you talked about before, about the gas company and things, would you support the use of the City Council Appropriations and Joint Finance Committee to possibly look at the sale of the airport or the Water Department, along those lines? Do you think that would help us eventually get out of this? I mean, I think we all understand this wage tax is no good. You know, no matter what side of the room you're sitting on here, if it becomes 3 percent, above 3 percent, this 50-cents-a-week thing, you know, if it's just something that makes everybody feel good, you know, we can argue about that for these whole two days and maybe for two more weeks or two more months. And I understand all of that part, and I certainly understand the political aspect of this. But is this a way to fix this forever, possibly selling the airport? CONTROLLER SAIDEL: Councilman, this has brought up years ago, as far as us selling off 40 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS assets. I do not believe that the selling off of assets changes the fundamental problem that our government. I think if you sell off the airport, if you sell off the gas company sell in and of itself, or if you sell off the Water Department, that may give you an infusion of some kind, but it really forestalls the inevitable decline of the City of Philadelphia. So I have never been one to assume that the selling of assets is the way to go. It's like you had a house and you lose your job and you begin to sell off your car, you sell your furniture; in the end, you have to fix the fundamental problem that we all need to face, so I've never been an advocate of selling off large assets of the City.

Jonathan, my last question: Help me understand this surplus, the City surplus and how a mayor, or whoever the mayor is, this mayor or any other mayor who works with a surplus, and the figure on that about, 8 percent. Could it be higher, could it be lower? I mean, of course, there has to be a surplus 'cause things might happen, like it might snow one year a lot, or it might not, like this 41 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS year. Something might happen like what happened this September. Now, we're really trying to figure this all out, and these are all questions that, you know, like surplus. What's a decent surplus for a mayor? If you were a mayor, what surplus would you like to have? CONTROLLER SAIDEL: Well, I'm not running for mayor; did I make that perfectly clear, sir?

You said that, yeah, and neither am I. CONTROLLER SAIDEL: Good, good.

Not yet. That's for you, not me. CONTROLLER SAIDEL: Oh, all right. Please. You know, I can't tell you what would be a decent surplus. I know $2 million is not a good surplus; I could tell you $800 million is too much money.

Jonathan, what percent is $2 million, though? CONTROLLER SAIDEL: If there was a 42 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS $2 million surplus, we wouldn't be talking about this. You know, if it's an $800 million surplus, we'd be talking about three times the cuts. But I think that is always somewhere in between. But the key to understand about the legislation, the ordinances that are before you for passage, is that they're not the Ten Commandments. If, God forbid, there is a problem as we move forward as a city, then we have to be adult enough to change it, but I believe that today, today, these bills make sense, and that it will not affect us materially as to the services that are provided, it won't affect union negotiations, 'cause I've been involved in those, as you know, Councilman, for a number of years, and that we can move forward as a city and still reduce taxes as we grapple with the real problems that face the City.

Now, Jonathan, you brought up the union negotiations. These bills will only affect in Fiscal Year '04, right? CONTROLLER SAIDEL: Yeah, that --

So if do something today that could not be put off till September possibly or this week? 43 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS CONTROLLER SAIDEL: I think there is no 3 reason not to tell pass the bills now since it will be 16 months before they're effective. They certainly won't affect the police and fire and the FOP negotiations. You know, I doubt that it will ever affect it.

All right, thanks a lot, thank you. CONTROLLER SAIDEL: My pleasure, Councilman.

Thank you. Next is Councilwoman Blackwell.

Good morning. We are very glad to have this discussion and that these hearings have come, because certainly it has been my concern from the beginning that we not have a fight of neighborhoods versus business, because in order to have a vibrant city, we have to have both and we have to work in concert. So I have absolutely been very, very concerned about the issue of neighborhood cuts and the issue of trying to bring businesses from outside of the City into the City, which certainly is the issue and, I think, the crux of the debate 44 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS of the City Council and any administration having the responsibility to protect the people who vote for us and the people within our borders. And yet we do need what the business community brings in from without. Having said that, let me ask you, because we've been in various meetings, and I thank you for coming to my area, and we had a lot of discussions with regard to the land tax. And you and I have had a lot of discussion. My question to you is: How does the land tax that you propose and support, how does that relate to the wage-tax issue? And as you know, the part of the debate there was that even to set up such a system could cost a lot of money, maybe 7 or 8 or $900 million. Part of the issue was trying to cross over to such a plan. But how does your land tax relate to all of this issue of wage tax and gross-receipts tax? CONTROLLER SAIDEL: And I appreciate the opportunity, Majority Leader, for your going around with me throughout the West Philadelphia areas, which we did almost every night, to talk to 45 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS constituent groups in your area, and I'm proud to call you a friend.

Thank you. CONTROLLER SAIDEL: When we came out with our tax analysis report, what was important to me was to put together topics that I felt collectively would have a major impact on Philadelphia. But understanding the world as it exists, I wanted to make sure that each one of the chapters was severable and could be considered to be a bill unto themselves, and which I ended up working with Councilwoman Brown, Councilman Goode, and Mr. DiCicco and Mr. Nutter, which are severable bills than occurred from before. I think the land tax is well overdue in Philadelphia. I think that the land-tax bill would actually enhance the Mayor's opportunity for blight removal since it would allow us to treat vacant ground, ground that is being held by large corporations as an investment pool, to force them to be taxed at what would be the best optimal use of that vacant ground, rather than being taxed at just a land value from going from 75 percent residential building and 25 percent land to 50/50 46 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS for building and for land. I think that would also help reinvigorate our neighborhoods and housing and also reinvigorate the Mayor's blight program. It is not one of the bills that's before you, but I always felt that it would be in a mix of trying to create opportunities for people to build real estate in Philadelphia as well as the reduction of taxes for employees and for businesses and a variety of other areas that that total package would have had a maximum impact if it was all done simultaneously. But you and I understand the politics of the world, and it's very rare that you're going to get everything done that you want at the same time.

Thank you I'll yield for now, Madam President.

Thank you. The Chair recognizes Councilman Clarke.

Thank you, Madam President. CONTROLLER SAIDEL: You know, I said I would come back; I ain't going nowhere.

Good morning. 47 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS CONTROLLER SAIDEL: Good morning.

First I'd like to thank you for the invitation for this morning's march. You understand why I didn't show up, right? CONTROLLER SAIDEL: I understand that, Councilman.

A couple of quick questions. You did an analysis on the Five-Year Plan, there was a report issued by the Controller's Office. Was that based on last year's Five-Year Plan, or was it on the current Five-Year Plan? CONTROLLER SAIDEL: Last year's Five-Year Plan.

Last year's Five-Year Plan? So there's a possibility, based on some things that have happened in the last year -- the recession, September 11th -- that probably your analysis could probably be different if you were to look at the existing conditions today. CONTROLLER SAIDEL: The Five-Year Plan is not locked in stone either, the same way that we have to accept responsibility and things change from year to year. The same way that the bills before you not the Ten Commandments, the Five-Year 48 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Plan is not the Ten Commandments. Anything beyond two years, to be quite realistic, is an assumption. The fifth year is always a massive assumption. If anybody would have told George Bush Senior that during the Clinton administration, there would be a trillion-and-a- half-dollar surplus, I doubt whether he would have believed it. If anybody would have told Clinton that after he left office that the federal government would be in deficit, I don't think anybody would have believed it. But the five-year plans are put into place by PICA, by the PICA legislation, but they, in and of themselves, are merely estimates, and they have to be estimates within certain parameters set up by the legislation that the City has not violated.

Okay. So my question: If you had to do an analysis on the existing Five-Year Plan, with the existing conditions, that your analysis could be drastically different? CONTROLLER SAIDEL: I don't necessarily know that my analysis would be dramatically 49 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS different.

Okay. Earlier in your testimony, you referenced liberal expenditures. CONTROLLER SAIDEL: Right.

Can you tell me what that is? Are you talking about municipal contracts or School District issues? CONTROLLER SAIDEL: No, no. When you look at the category of expenditures for fives years or for one or two years, when I became the Controller of Philadelphia, revenue enhancements were very large to meet a balanced budget, which were wrong. Today, there is a lot of wiggle room 16 within the expenditure side of our City government. That's not to say it's a bad thing, because I would much rather have expenses listed higher than normal than less than normal, but there is wiggle room within the expenditures. And as we move forward, we should analyze the budget and say, Maybe we didn't use $15 million worth of supplies, maybe we only used $13 million, maybe we only use $10 million. But there is wiggle room. 50 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS And I'm more than happy to discuss that in a non-public way, but I think that there are opportunities within our budget to streamline it and to lower the estimated expenses that we might think we're going to have.

How do we have those discussions in a non-public way? CONTROLLER SAIDEL: Well, then I will tell you, there's a lot of play in the expenses, and there's a lot of conservative estimates in the revenue contributions.

$290 million worth? CONTROLLER SAIDEL: Well, I don't know what $290 million is, but there is a lot of money to be found, and I believe if you open up the books fairly and equitably, we can find $30 million of reductions, or revenue enhancements. And if we can't --

Now, let's be clear what we're talking about: We're talking about $290 million, right? CONTROLLER SAIDEL: Well, I don't know what you're talking about; I'm talking about the bills that exist today. 51 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS I believe that these bills are not irresponsible, and I think that they can fit within the economic guide posts that we need as -- and I tell you that as the Controller of Philadelphia, and I have never, ever lied about anything that I've done as the Controller of Philadelphia, and I don't believe that anybody would ever say that I was irresponsible. I believe today that the bills before you are important for us to have economic vitality for the next number of years.

So we're not talking about the gross-receipts tax. CONTROLLER SAIDEL: No, I think the gross-receipts tax is important too.

So we do the gross receipts, and we do the Bill 92, and that gets us to $290 million. CONTROLLER SAIDEL: I'm not talking about the gross-receipts tax; he already incorporated that into his plan.

Okay, so you don't want to talk about the gross-receipts tax? CONTROLLER SAIDEL: No. The Mayor and I 52 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS are in agreement on the gross-receipts tax.

I just want it to be clear that we're not only talking about the wage-tax issue; we're also talking about the gross-receipts tax. CONTROLLER SAIDEL: The Mayor, in his Five-Year Plan, says he found reductions for the gross- receipts tax to be applicable. I think you can find an additional $30 million a year for the wage tax.

But that's only if you forego the wage-tax reduction. CONTROLLER SAIDEL: No. 15

It is, that's true, Jonathan. The Mayor has not said he can do both. CONTROLLER SAIDEL: Look, the Mayor says he wants to do one, and that's his prerogative as the leader of the City of Philadelphia. I believe that you can do both. I believe you can do the jobs tax credit that Councilman Goode does. I think we have to. Do not believe that this city will remain stagnant. While the world passes us by, we will fall farther and farther behind. That Five-Year Plan will be 53 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS meaningless if we don't try to bring people into Philadelphia, to bring citizens into Philadelphia, and to bring business into Philadelphia. Nothing remains stagnant. That's why a five-year plan anything above two years means nothing, because the world never looks the same 'cause every day, people are leaving, and those people that are leaving were part of the estimates of our revenue last year.

So my question, again, is: Do you believe that there's $290 million in cuts that we can make? CONTROLLER SAIDEL: I believe that the Mayor can find the cuts for his gross-receipts, and we can find additional cuts for the bills that are in front of you today.

$290 million CONTROLLER SAIDEL: I said that we can find -- the Mayor has already found, in his Five-Year Plan, his reductions. And all you're asking to do is find $30 million a year for the Nutter-DiCicco or the Tasco bill or how ever you want to phrase it.

That adds up to -- 54 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS CONTROLLER SAIDEL: It can add up to a billion. The Mayor says he could find his money; I think you can find your money.

All right, I just want to be clear. I mean, we're not simply talking about the wage tax; we're also talking about gross receipts. CONTROLLER SAIDEL: Okay.

All right? You also referenced earlier suburban counties. Is it your understanding that these same suburban counties, where there's substantial job growth, probably sooner or later will begin to have increased expenditures? CONTROLLER SAIDEL: Yes. It's my belief that -- when I grew up in Oxford Circle in Philadelphia, Montgomery was a farmland, Chester County was horse farms; South Jersey, when you drove down the Black Horse Pike or the White Horse Pike to Wildwood or to Atlantic City and a variety of places, all you saw was apple orchards. There's over 700,000 people living in Montgomery County; it's twice the size of the City of Pittsburgh. Eventually, it will no longer be able to 55 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS sustain itself with a volunteer fire company. What it then needs is a professional fire department. They can no longer sustain their budget based upon real-estate taxes because they're getting out of sight. So eventually, I believe that they're going to have to move forward and have an income tax of some kind, and I think that as we incrementally reduce our taxes, they will incrementally have to increase theirs to sustain their own way of life, and that we will some day be in the middle. Now, that means we also have to fix our school system and a variety of other things that we're trying to tackle this year. Hopefully, the emotion that's in this room can be transferred to Harrisburg so that they don't come in and try to take over our government, but that they can have statewide tax reform in order to equitably fund our school system and a variety of other things, and hopefully, that will be the next level that we take this type of fight to collectively, all of us, to Harrisburg. But I think that eventually, the counties have no place else to go for money other 56 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS than from wage taxes.

All right. Jonathan, they've already started taking over our government. CONTROLLER SAIDEL: Well, you know, I know that. Let's try to stop it as much as possible.

All right, you'll come back? CONTROLLER SAIDEL: Darrell, I'll be back every day you want me.

Okay.

The Controller has indicated that he will certainly make himself available.

Thank you.

And I would like to remind my colleagues that we have quite a lengthy list of witnesses, and several of them have other commitments this morning. So in light of that, if anyone doesn't have any questions at this point in time or feels that they can hold their questions until he comes back later -- did you want to be recognized now, Councilwoman? 57 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

(Inaudible, off-mic.)

Okay, fine. Everyone's willing to wait for the Controller to come back at another time. CONTROLLER SAIDEL: Can I go?

However, I think you've made it eminently clear that as the financial watchdog for this city, you are saying unequivocally that if Bill No. 92 were passed, there would be no impact to City services, and at the same time, we can address the school and PGW problems, along with the upcoming contracts. CONTROLLER SAIDEL: I am staking the life of my four children on it, and I absolutely believe it.

Fine, thank you. And we will call you. (Applause.)

Our next witness is Anne Rubin. (Witness comes forward.)

Good morning.

Good morning. Thank you for 58 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the opportunity to be in front of all of you again, as I've been here many times, and I want to thank for being here to hear the testimony; it shows your commitment to the City and how important this issue is. I am Anne Rubin, the President of Greater Philadelphia Association of Realtors. I want you to understand that as Realtors, we are 1099, which means we have no benefit personally from a wage-tax cut, but we strongly supports Bill 12 92. We're clear that Philadelphia needs real tax reform in order to survive and to flourish. Philadelphia's many onerous taxes have directly contributed to the loss of production and businesses, and the City needs immediate and real tax reform in order to retain and attract people and industry back to Philadelphia. The Mayor's proposed budget addresses cutting the gross-receipts tax while freezing cuts in the wage tax. We believe these taxes, as with all other oppressive taxes in the City, can be reduced simultaneously. Reduction in the gross-receipts tax benefits the business community, 59 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS while cutting the wage tax benefits both residents and the businesses. For the first time in recent memory, the business and residential communities of Philadelphia are united on a tax issue. There's a strong message here. The wage-tax cut reduction presented in Bill 92, while slight in appearance, sends the right message: Philadelphia wants your business and wants you to live here. By lowering the wage tax, Philadelphia will be perceived as being business-friendly and able to attract corporations that, until now, are not moving in the City. And everyone knows when businesses move into a city, residents follow. , will give Philadelphia the opportunity to redefine itself as a business-friendly city and a place people want to live and raise their families. As a Realtor, one of the top three 60 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS reasons I hear from clients why they don't want to move to Philadelphia or stay in Philadelphia is the wage tax. They could move across the county line, pay less tax, send their children to a safer school, and pay less car insurance. These concerns need to be addressed if the City plans to survive. If we think that taxes aren't important to the residents. I've heard that people will actually drive to Delaware to do their shopping to save taxes; don't think they won't buy their house somewhere else to save a wage tax if they don't work in the City of Philadelphia. Many residents would remain in the City and continue to send their children to private schools if the tax strain was not so great. Opponents of Bill 92 will say that passing this legislation will negatively affect City services and City-employee contracts. Let's look at history. The wage tax was reduced in 1995 through 2001 by a total of 8 percent. 8 percent, and City services were not affected. City employees were given their raises. In fact, lowering the wage tax is also a pay raise. 61 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Challengers of this legislation have said passage of this bill is fiscally irresponsible; I believe that maintaining the status quo on tax reform is fiscally irresponsible and morally bankrupt. The overwhelming number of people who have left the City in recent years clearly demonstrates the need for tax reform. If this trend continues, what happens to the quality of life for those residents who are forced to stay? " Real tax reform is a quality-of-life issue. Cutting the wage tax, while simultaneously reducing the gross-receipts tax and other taxes, will stimulate economic growth and create stable neighborhoods. The issue of tax reform, especially wage-tax reduction, has been the focal point of this City Council for over the past few weeks. One concern also is, how will this affect the City's budget and, therefore, our City services?

As City Councilmembers, one of your primary responsibilities should be to evaluate excessive 62 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS staffing and government spending, along with antiquated procedures and practices currently in place in our city that can, and should be, substituted with things like modern technology. Simply stated, there are plenty of ways the City government could trim its spending. For example, in July of 1999, there were 43 people employed in the Mayor's Office; in July 2001, there are 58 employees in the same office. Additionally, in July of 1999, the Managing Director's Office employed 71 people; and in July of 2001, it had a record of 112 employees. It becomes obvious that this city government should look at itself and its spending habits before it decides to raise taxes or dispute reducing its overbearing taxes. I look forward to the passage of Bill 19 92, urge you to vote yes, despite the possibility of a mayoral veto. Your commitment to the residential and business communities alike in Philadelphia should far outweigh any political affiliation. Please commit yourself to serious tax reform in Philadelphia, and pledge your support to Bill 92 and vote against any veto the Mayor may 63 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS have. And, Councilwoman Blackwell, I'd like to thank you for your bill that you put forward, but I'd like to ask you to remove that from the table so that we can focus on one tax bill that will get us to where we need to be

Thank you

Thank you. (Applause.)

Are there any questions from members of Council? (No questions.)

Thank you very much.

Thank you. (Applause.)

Mr. Sam Katz from Greater Philadelphia First. (Witness comes forward.)

Good morning.

Good morning. Thank you, Madam President, and thank you, members of this Council, for the opportunity to present the views of Greater Philadelphia First. 64 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS My name is Sam Katz, and I'm the Chief Executive Officer of GPF, which is a business and civic organization comprised of 53 of the region's major employers, including businesses located within the City, and suburban businesses that employ Philadelphia residents. GPF is proud to stand with thousands of Philadelphians saying forcefully and without reservation: Pass bill 92 and continue to cut the wage tax. (Applause.)

Council has a number of bills in front of it pertaining to the wage tax, and today, we urge you to focus exclusively on Bill 92, the only bill that provides the certainty of ongoing wage-tax reductions. We respectfully request that Councilwoman Blackwell and her cosponsors withdraw Bill 144 to permit the attention and this chamber's decisions to focus solely on committing to wage-tax reduction. And, Councilwoman Blackwell, we thank you for your leadership on wage-tax reduction. I just had the pleasure of standing next to your husband, former Councilman Blackwell, and was 65 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS reminded of the fact that at the end of the '80s, it was Councilman Blackwell and Councilman Street who put the brakes on further tax increases in Philadelphia. Council should not vote yes on two bills that offer inconsistent outcomes, thereby avoiding a principled stand that an issue of this significance deserves. So today, GPF asks each member of this body, let the citizens who elected you to represent them know exactly where you stand on a guaranteed wage-tax reduction. Reducing the City wage is not a partisan issue; it is a Philadelphia issue. Simply put, Philadelphia's economic competitiveness, its future growth and development, and its ability to become one of the nation's leading 21st-century economies depends on aggressive tax relief and tax-reform measures by providing for incremental wage-tax reductions with accelerated cuts if the economy improves. Bill 92 is neither radical, nor aggressive. It does not fully address the more comprehensive need for the sharply lower taxes necessary to turn the City around, but continuing 66 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS an existing City policy of wage-tax reduction is a significant step in the right direction and shows that the City means business for job growth. Study after study confirms the tremendous drain of individuals, businesses, and jobs as a direct result of the City wage tax. We are not simply losing out to Boston or Chicago or Seattle. This City's major competition is right here in our own tri-state region. According to Fred Murphy at Temple's Fox School, a consulting or law firm that has to pay a premium to employees because of wage tax and that also pays business taxes can increase its profit significantly simply by moving to the other side of City Line Avenue. That many have done so accounts for the real-estate discrepancy pointed out to this Council by Center City District's Paul Levy. Employers report that the wage tax imposes an increasingly insurmountable hurdle in attracting and retaining employees. Often relocation is the choice that makes good business sense. And just take three examples involving members of our board. Centacore started at the 67 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS West Philadelphia University City's Science Center and is currently booming in Malvern. Merk, with its origins as Sharp & Dome, now has its headquarters in New Jersey. Provident Mutual Life Insurance Company left Center City Philadelphia for Chester County's Great Valley Corporate Center. Many of these company's employees gave themselves an immediate pay raise by following their jobs and moving their families to the suburbs. That the City wage tax is not only the most regressive, but also the most detested tax in the region, is confirmed by the results of GPF's 2001 poll. A higher percentage of City residents proclaim that the wage tax is too high, 72 percent; then offered a similar assessment of the property tax, the State income tax, or the State sales tax. Seventy percent of all persons polled who work in the City called the wage tax either much too high or somewhat too high, as do 62 percent of suburban residents who work in the City.

Sixty-four percent of Center City residents believe that the tax structure encourages companies and individuals from moving into the region, and 81 percent cite 68 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS reforming local taxes as a top-priority issue over the next few years. It is undeniable that the City faces an increasing and disproportionate share of problems without the jobs or the tax base to alleviate them. Political and jurisdictional concerns have made regional intergovernmental solutions difficult and often impossible. More and more, Philadelphia has been forced to turn to the Commonwealth of Pennsylvania for help and with the takeover of Philadelphia public schools serving as only the most recent example. The price for that help has been to chip away at local control. Philadelphians shouldn't have to look to Harrisburg to cut the City wage tax, but it now seems clear that if this Council does not act, Harrisburg will. Predictions that the wage-tax reductions will threaten the delivery of essential City services are scare tactics that are belied by Philadelphia's history and the experience of other major cities. According to data compiled by the City Controller's Office, Philadelphia cut the wage tax by 8 percent between fiscal years 1995 and 69 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS 2001, and wage-tax revenues actually increased by percent. The City was able to cut taxes and 4 fund raises for the City workforce both in 1996 and 5 2000. 6 The City Controller has further 7 documented $241 million in savings from recent 8 audits, and has declared that even greater savings 9 could be realized by implementing additional audit 10 recommendations. 11 We all know that the efficiency of City 12 operations can be vastly improved by using more and 13 better technology and by encouraging and rewarding 14 City employers and managers who do more with less. 15 Just as the private sector has been able to achieve 16 consistent productivity gains, the City can too. 17 Like a patient with a regiment of 18 medicine and proper nutrition, the road to cutting 19 taxes and spending does not have to be painful, and it is the only means to return to good health. In fact, lowering taxes and spending went hand-in-hand with providing better services in Milwaukee and Indianapolis. In those cities, workers received fair wage increases, productivity and services increased, and taxpayers still saved millions of 70 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS dollars. There is no reason why that can't happen here. To be fair, uncompetitive taxes are not the only factors driving people away. Unsafe and blighted neighborhoods and underperforming schools further contribute to that exodus and discourage others from coming here. Yet Philadelphia continues to offer a great many powerful and unmatched assets: Wonderfully diverse communities, affordability, magnificent cultural opportunities, world-class entertainment choices, and a location affording easy access to the United States and to the world. In short, there are compelling reasons why Philadelphia should be a great place to live and work. Reducing the wage tax is essential to bringing people back. Experts, such as the Pennsylvania Economy League, have projected that dramatic cuts in the wage tax would increase property values and raise the average salary of Philadelphia workers. An estimated 162,000 jobs could be created by 2007 if taxes were reduced to 3 percent. Those jobs would be the life blood of the City in the globally-competitive 21st-century 71 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS market. Irrespective of your decision on wage- tax reduction, GPF urges this Council to begin a series of hearings and forums to hear from local and national experts about tested and proven strategies and methods of doing more with less.

Our competitiveness as a city demands quality services for less cost, and we need to learn from our own past actions as well as those successfully implemented throughout the nation. It is time to stop denial and face up to the stark reality that passing Bill 92 is not a luxury, but a necessity. It is hardly a radical step. Greater Philadelphia First and the many thousands of workers employed by its member companies will be looking closely at your vote on Bill 92. We consider that vote a litmus test of your commitment to investing in the City's business climate, its future, and its image as a high-cost market. Thank you for the opportunity to present this statement.

Thank you. 72 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS (Applause.)

The Chair recognizes Councilwoman Tasco.

Good morning.

Good morning, Councilwoman.

Thank you for your testimony. I believe that what we need is really statewide tax reform, and since your organization is somewhat of a regional organization, what roll can you play, or are you playing, in trying to provide leadership within the State legislature to address the whole issue of statewide tax reform, not only relative to income tax, but the issue of the school and how we fund our public schools?

Thank you for that question. Greater Philadelphia First is the first organization among the business groups to come out in favor of a shift from the property tax for public education finance to moving towards a statewide combination of taxes that would relieve the burdens on local governments. The impact on that for Philadelphia could be enormous. Obviously, first and foremost, 73 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the School District of Philadelphia relies heavily on the local property tax for a significant portion of its annual revenue. Were we able to replace a significant portion of that local property tax base by a transfer from the State under the basic constructional subsidy, the City would be free to pull back some of that property tax for use by the City, and that could have a tremendous impact on allowing us to further reduce the wage tax and truly to make it -- remove it as a hindrance to economic growth and job creation in Philadelphia. It's a tough issue, as you well know, Councilwoman Tasco. In 1990, I think there was an attempt to get public approval in the Commonwealth of Pennsylvania for local tax reform that was badly beaten at the polls. We believe that this is an issue that is critical for the future of not only the education of children in Philadelphia but throughout the state, and we will continue to speak out and try to change public opinion in order to get a shift from property to a statewide tax base for education.

Thank you very 74 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS much.

Thank you. The Chair recognizes Councilman Mariano.

Thank you, Council President. Sam, I'm going to ask you the same question I asked Saidel. Would you support a joint Committee on Appropriations and Finance to look into the sale of municipal assets, such as the airport? And I know you and I have talked a little bit about this last week -- the airport, the Water Department or -- if not sale, lease.

Councilman, you and I had a chance to discuss that a little bit on Friday, and basically, my views are a little different than Controller Saidel on that subject. I think if Philadelphia had a plan, a five-year plan, to reduce the City wage tax to a number -- and I don't want to say what I think that number should be because, frankly, I don't know what that number should be. But from a psychological point of view, it should be a number that removes the wage tax as an issue with employers and residents as a reason 75 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS to leave or as a reason not to come. And there are people like David Thornburg and Controller Saidel who are in a better position to tell what you that number is. But let's assume it's a big number. And just for the sake of this discussion, let's assume it's to reduce the wage tax from 4.5 to 3 percent in over a five year-year period as a five-year plan. You could calculate the loss revenue to the City; it would be dramatic. And I would not argue that that loss revenue would not have a deleterious impact on our ability to provide services in the City. So in connection with a plan like that, I would want to know, for example that the Commonwealth of Pennsylvania was prepared to come to the table and help support prison costs or court costs. And then, in addition, if there needed to be an asset divestiture such as the Aviation Department or the Water Department, that it was part and parcel of the strategy to get from us here to here so that we could stay here, and so that we are not only reducing our tax burden, but we are also going to be able to find a way to increase our 76 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS revenue. And the State has an interest. A lot of businesses leave Philadelphia and a lot of residents Pennsylvania and they go across the river, and that's a loss to the State of New Jersey. So without saying yes or no to whether it's the Water Department or the Gas Works or some other entity, if asset sale and state financial support, coupled with dramatic decreases in City wage taxes were possible in a partnership with the State, similar to the partnership we now have with the State on the schools, I think that's something that would be worth exploring.

And, Sam, can I assume by what you just said that this tack is a start but, you know, to keep this the way that Rendell is a start, but it's surely not aggressive enough to accomplish what you want to accomplish, right? I mean, I don't think it was you, it might have been George Bochetto or maybe you, and I don't want to give George credit for something you thought or vice versa, but he wanted to totally do 77 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS away with the City wage tax, and he had a plan that he thought worked that he explained to me many times. I think it was George, right?

Well, let me just keep this away from politics and simply say that in 1995, the City wage tax was 4.96 percent. It's almost a half a point lower today, and that may not be a significant number to some people, but that put a lot of money back in a lot of people's pockets. Moving it to 4 percent from 4.96 percent is a big drop in the City wage tax, and if you can only do it incrementally, that's not a reason not to do it.

It's a reason to start, right?

Well, you already started it, and I commend this Council I think in 1995, Council President Street led the fight for reducing the City wage tax, and I think it's a fight we should continue.

Thanks, Sam. (Applause.)

The Chair recognizes Councilman Goode. 78 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Thank you, Madam President. Good morning, Mr. Katz.

Good morning, Councilman.

Let's say for the sake of argument that Bill 92 passes 11-5. The Mayor can't wait to veto it, he vetoes it an hour after we pass it 11-5. We know that the veto's going to be sustained by 5 people. Let's say at the same time, Bill 144 passes 9-7. Would you say the Mayor should sign or veto Bill 144?

Well, what I'm asking you to consider doing, Councilman, with all due respect and with the recognition that I'm not fully appreciative of the strategy and the mechanics of this chamber, is to not give the Mayor two bills, to give him one bill, and let's deal with that one bill. If that bill fails and the Council decides, for whatever reason, not to override a veto, then let's go back and see what other options might exist. I'm not criticizing the other bill; I'm just saying that it would be, I think, clear to the public that the will of this City Council, with 79 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS votes, with a simple 9 being a majority, is that City Council is for continuing reduction of the wage tax, I leave it to you and to your leadership to figure out how to deal with it if that's not acceptable to the Mayor.

I think I've figured 8 it out; I'm voting for both bills. I'm trying to 9 figure out why you think that I shouldn't vote for 10 Bill 144 and why you would think that the Mayor 11 shouldn't sign it.

One bill would enable wage-tax reduction if a whole series of activities, events, circumstances, including some of which I would argue might be in the opinion of people, to continue wage-tax reduction. The other bill is absolutely certain about the continuity of wage-tax reduction and the trigger for acceleration.

I understand both bills.

I'm sure you do, and I respect that.

I'm looking at the political realities, and the political realities are the Mayor wants to definitely veto 92. 80 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Well, I would urge the Mayor's allies on this Council to try to persuade him not to.

Why wouldn't we also approve 144?

I would urge the people on this Council who have supported the Mayor, and I have spoken to several of them who have been loyal to the Mayor on various pieces of legislation, this is not a political issue; this is an economic issue.

It's absolutely a political issue.

That's your judgment, sir.

No, no, no, no, particularly because we are already going to cut taxes next year.

And we commend you for that.

We are cutting taxes for the next fiscal year.

Well, this Council --

We're talking about the year starting July 2003. We have not yet made a decision on what we're going to do. There are 81 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS several options before us, there are bills that we are asking today. I'm saying, why wouldn't we also look at Bill 144?

That's your judgment. Ours is that if you put a bill in front of the Mayor and you get the City Council behind it, preferably -- and I hope including yourself and Councilwoman Blackwell, who is the sponsor of 142 -- that sends a very strong message to the residents of the City, to the leadership of the City that this City Council is in support of continuing wage-tax reductions, and I hope you will.

So is it fair to say you want 92 or nothing?

I was here to say that -- I think my statement stands on its words, which is, we are urging you to pass Bill 92, and we respectfully request Councilwoman Blackwell to withdraw for the moment Bill 142. (Applause.)

Thank you, Madam President. (Applause.)

The Chair 82 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS recognizes Councilwoman Brown.

I made a mistake, Madam President; it's Bill 144. I apologize.

Good morning, Mr. Katz

Good morning, Councilwoman Reynolds Brown.

It's clear, as is evidenced in your remarks and responses to Councilman Goode that you understand and accept that all of us for wage-tax reductions. The question is: How do we do this in a responsible manner? And the critical question for me, as opposed to City Controller Jonathon Saidel, is how do we look to honor up this new obligation of $45 million to the School District? And if we're talking about 2003 and beyond, given the highly unpredictable and tenuous nature of funding for the schools, how do we persue wage-tax reductions in a responsible way and honor up what I believe to be the number-one priority for this City, and that is the education of 219,000 kids.

Well, first of all, Councilwoman Brown, I think it's fair to say that 83 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we stand behind you and this Council and commend you and support the fact that every member of this Council has been on record as favoring wage-tax reductions. And for those of you who have been on the Council for six or seven years, you have voted for wage-tax reductions in every one of those six or seven years, and newer members like yourself and Councilman Goode have been supporting wage-tax reductions since you've arrived. I think that it's hard to always look back at history, but in 1992, when a new administration came into office, and the City faced a cumulative deficit going forward, in excess of a billion dollars, a combination of a new sales tax and the implementation of the Intergovernmental Cooperation Authority were not sufficient to restore fiscal health to the City. It required some aggressive management changes by the Administration, by the City Manager's Office, and by the director and head of every single department of City government. The rallying cry at that time was that we were able to reduce spending without cutting services, and there are lots of examples and 84 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS demonstrated evidence of that skill and that leadership. And I know that this Council and many of the members of this Council were a part of that effort, because we had no choice. And so I would urge you to go back and take a look at some of the strategies that were put in place here in the 1992 and '93 that were helpful in restoring the City's fiscal health. We are absolutely and unequivocally committed and support your decision to transfer $45 million of General Fund revenues to the School District of Philadelphia and to follow through on the commitment that the Mayor and the Governor made to bring fiscal health to the School District of Philadelphia. GPF supports that, GPF supported the Mayor's proposal for new stadiums, GPF supported the blight initiative, and GPF stands fully and arm in arm with Controller Saidel in believing that we can do that, and with sound management and creativity and with the leadership of the City government, which we know is there, to bring about the necessary spending controls that will enable us to keep the wage-tax cuts in place. 85 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS (Applause.)

I thank you for that explanation. In short, you're saying that we should be able to do both.

Well, we believe so, and we will support your efforts to do so. And, like the Controller said, and I'm sure the Mayor will say, we're now talking about restoring wage-tax cuts to the second year of a five-year plan. You have not yet voted on the budget for Fiscal 2004, and y ou won't have to until May 30th of 2003. I think what you're doing is, you're sending a powerful message to residents and to the business of Philadelphia that you're going to stay the course and reduce the wage tax. (Applause.)

Finally, my second question to Mr. Saidel was putting wage-tax reductions, locking it in in cement through legislation; do you believe that that is good public policy?

I would prefer not to see that be the means by which we get the wage tax lowered. I think every time the State takes 86 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS another step to usurp the home-rule powers of Philadelphia, it's not good for Philadelphia, and it further sets back the relationship between a city that desperately needs to have a good relationship with its state. But at the same time, the people who are elected to the legislature were elected by the same people who elected the people to City Council, and they are listening to their constituents, who are saying that wage taxes are too high and are forcing people out, and as would be the normal expectation of elected officials, they're going to try to respond to their constituents.

Very well, thank you, Mr. Katz. Thank you, Madam President.

Thank you. The Chair recognizes Councilman Clarke.

Good morning, Mr. Katz.

Councilman, how are you?

Good. Just a couple of quick questions. Do you support the five-year strategy 87 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS for gross-receipts tax cuts?

Yes.

And you obviously support Bill 92.

Yes, sir.

Do you think that we can cut $290 million out of the budget and not affect services?

Yes, I do.

Okay, straight and simple.

That's $290 million over a five-year period. You keep using that number as if it was a one-year cut, and I don't know that I think we could do it in one year.

No, I referenced the Five-Year Plan.

Yes, sir, I do believe we can do that.

Okay, thank you.

Thank you. Are there any other questions of this witness? (No further questions.) 88 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Thank you very much.

Thank you, Madam President.

The Administration is next: Janice Davis, Jim Cuorato, and Rob Dubow. (Witnesses come forward.)

And could we add a third chair to the witness table, please.

Good morning. The Budget Director will testify first.

Do we have copies of your testimony, Mr. Dubow?

The first piece of testimony we're giving --

I'm sorry, I didn't hear you. Do we have copies of your testimony?

No. I'm really just giving you a short statement on Bill No. 020116 before our testimony on the wage-tax bills.

Do we have copies of testimony on the wage-tax bill?

Yes.

Do you mind if 89 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we have that circulated, please, while you're testifying? Okay, please proceed.

The Street Administration strongly supports Bill No. 020116, which will provide a $1,000 tax credit for a job created by business expanding within or locating to Philadelphia. The bill currently caps the total amount of tax credits approved in your (indiscernible) Program at 10 percent of all revenues collected by the City through the business-privilege tax during the previous year. After consultation with Councilman Goode's Office and the City Solicitor's Office, the Administration would like to make several technical amendments to the bill to make it consistent with the State legislation and to cap the City's total liability to 1 percent rather than 10 percent of business-privilege tax revenues in Year 1. Under a similar new-jobs tax-credit program at the State level, the total value of tax credits awarded in Philadelphia has varied widely from year to year; however, in sum, less than $2 million in credits have been offered in each 90 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS year of the program in Philadelphia County. Although a City program would likely have more credit applications, we believe capping the credits available at 1 percent of BPT revenues would still allow a significant number of credits to be issued, while acceptably limiting the fiscal impact to the City. Thank you for your consideration of my testimony, and we're available for any questions you might have.

Thank you. Does Councilman Goode have a copy of the amendments?

(Nods head.)

Thank you. Good morning.

Good morning, Council President Verna and members of Council, members of the committee. I'm Janice Davis, Director of Finance of the City of Philadelphia. While the Street Administration welcomes the debate about the City's taxes, the debate has been cluttered with --

Miss Davis, do 91 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we have copies of your testimony?

Yes, ma'am.

Are they presently being circulated? We were hoping to have them by last Thursday. They are presently being circulated, so if you don't mind waiting a moment. All right, please proceed.

While the Street Administration welcomes the debate has been cluttered by a focus on one tax, the wage tax, and has been distorted by inaccurate and misleading information about the City's ability to make dramatic cuts in its tax structure. " As I will discuss, the Administration supports responsible, targeted tax reductions; specifically, we favor accelerated reductions in the business-privilege tax and wage-tax cuts only if the City's finances are healthy enough to allow 92 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the City to make those reductions and make essential investments in City services and in economic development. As a result, I am testifying in support of Bill 020030 and 020035. In putting together the FY'03-FY'07 Five-Year Plan, the Street Administration focused not only on taxes, but also on services, on education, on investment in our economy. Without initiative like the Neighborhood Transformation Initiative, without the City's dramatically increased investment in its school system, and without the Administration's commitment to enhancing citizen services, the City will not be competitive, even if it slashes wage-tax rate in half. As the Pennsylvania Intragovernmental Cooperation Authority pointed out in its report on the City of Philadelphia's five-year financial plan for FY '97 through FY '01, improved service levels need to be addressed in conjunction with taxes. There would be serious negative consequences for our services if taxes were cut too deeply. When the City initially implemented the tax-cuts program in FY '96, it promised the 93 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Pennsylvania Intergovernmental Authority that it would review those cuts each year to ensure that they were affordable. In preparing the FY '03-'07 budget, the City determined that it could not afford the same level of tax cuts as had been included in earlier plans. A number of increased costs, combined with the lingering impact of the nation's first recession in a decade, made the FY '03-'07 Five-Year Plan a particularly difficult one. In fact, just the cost of the City's added contributions to the School District of Philadelphia and increased payments to the Pension Fund necessitated by the stock market's poor performance equal $400 million in increased costs over the course of the plan. That $400 million averages to 80 million a year, which is more than the combined annual cost of the Free Library of Philadelphia and the Recreation Department. In essence, in the FY '03-'07 plan, the City's budget was forced to absorb the equivalent of the cost of two new major departments each year at the same time as the City's revenue growth slowed because of the recession. Clearly, in order 94 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS to balance its Five-Year Plan while including the substantial increase in costs, the City had to take drastic action. The first place the Administration looked was to cuts, and the plan does include substantial reductions in costs. In fact, the plan incorporates $227 million, a quarter of a billion dollars, in cost reductions, including the following: Eliminating 330 jobs, one-third of the non-uniformed positions that are vacated when employees leave through DROP. In order to reach this goal the, Administration will work with the departments to see how they can improve their business processes to ensure that they can do more with less. This initiative is projected to save $55 million over five years. Reducing the size of the City's fleet. By coupling this initiative with the reduction in the fleet acquisition budget, the Administration will reduce its vehicle purchase costs by more than 30 million over five years. 5 percent in FY '03, which 95 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS will reduce costs by $15 million a year, or 75 million over the life of the Five-Year Plan. This is in addition to the DROP-related contraction discussed above. 8 million over the life of the Five-Year Plan.

Those cuts, however, were not enough to balance the City's plan. The only way the City could have made further cuts was to reduce services. While it is easy to say that the City has a $3 million budget so it should be easy to find an additional 30 million in cuts, a closer examination of the City's costs make it clear that the City has far less flexibility than the simple examination of the aggregate General Fund budget would imply. The easiest way to look at the City's options is to break its costs down into three categories: Non-personnel costs, personnel costs for departments that provide City services, and 96 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS personnel costs that provide essential costs for those agencies that provide direct services. Under non-personnel costs, first there are a series of costs that are legally required. The City cannot reduce these costs. The best example of this type of costs are debt service, the City's annual service fee to the Pennsylvania Convention Center Authority, and payments of legal claims. Next are costs for services that are mandated and largely reimbursable, such as costs for providing care to abused and neglected children and payments for care at the nursing home. In FY '03, the City will receive well over $500 million in reimbursements from State and federal sources for these costs. Eliminating these costs would have only a minor impact on the City's bottom line since the City funds only 8 cents on the dollar for most of these service. The consequences for the City's neediest residents would be devastating. In addition, there are a series of costs that, while not fixed, mandated, or reimbursable, are largely unavoidable, such as trash-disposal fees, utility payments, food services for 97 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS prisoners, and court costs. 3 million. That leaves under $300 million in non-personnel costs that can be cut. Even those costs are often essential items, such as chlorine for swimming pools, books for libraries, uniforms for police and firefighters, and salt for snow-fighting. Further, the plan assumes that the government's departments will be able to pay for all of those non-personnel costs without any inflationary adjustment in costs in any year of the plan. In other words, the plan assumes that if there are cost increases for such items as chlorine, the departments will have to find other efficiencies in order to cover those increases. Personnel costs. Since substantially deeper costs in the City's non-personnel costs were unlikely, the Street Administration turned its attention to opportunities for reducing personnel costs. 5 percent 98 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS cut in their FY '03 personnel budget. None of the groups advocating tax reform have pushed for reductions in position in service departments, such as Police, Fire, Streets, Recreation, the Free Library, and Fairmount Park. Instead, the focus has been on internal support departments. These internal support departments, however, have already taken reductions in staffing. For example, the Office of Fleet Management staff has gone from 451 positions at the beginning of the Street Administration to 391. The Revenue Department staffing has gone from 330 at the beginning of the Street Administration to 308. And the Department of Public property has gone from 238 to 212 positions. Additional personnel cuts to internal support agencies beyond those proposed in the FY '03-'07 plan would likely lead to a deterioration of the services that they provide to direct service departments, which, in turn, could lead to a reduction in services to the public. For example, it is the men and women in Fleet Management who maintain the 1,725 cars, vans and trucks used by the Police Department. The same 99 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS staff services vehicles for the Streets Department, the Water Department, the Fire Department, and other departments across the City.

While it is clear that deeper personnel cuts than those included in the plan would be difficult to achieve, the City is committed to finding additional efficiencies and to making further cost-cutting actions where feasible. However, given the obvious barriers to making more substantial cuts, it would be irresponsible to build a plan that assumed those cuts were made. Another argument that advocates of steeper tax reductions have made is that the City can afford to reduce taxes even further because its revenue estimates are too conservative. Ironically, the agencies making these arguments, PICA and the Controller's Office, are the very agencies that insisted in the early 1990s that the City move away from making the type of aggressive revenue projections that helped lead the City to the brink of fiscal collapse. Now, based on the City's performance during an unprecedented national economic expansion, these two agencies are pushing the City 100 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS to make those kinds of irresponsible revenue projections, even though the nation's economic climate has changed substantially. While the nation has begun to recover from its first recession in a decade, that recovery has not lead immediately to an increase in jobs, wages, and resulting revenues for the City. Instead, economists say there will be a lag, and the City will not begin to see a real upswing in jobs for as much as a year. Employment data is bearing out the economists' forecast. The most recent data shows that the number of jobs in the City was 1 percent lower in February of 2002 than it was in February of 2001. In addition, the FY '03-FY '07 Five-Year Plan already assumes that there will be a recovery. 25 percent by FY '04. As part of the push for the City to recklessly increase its revenue estimates, the Controller's Office has pointed to a supply-side effect from cutting taxes. Using this argument, cutting taxes will lead to an increase in economic 101 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS activity that, in turn, will lead to an increased tax revenue. While there is no doubt that tax decreases are good for the economy, economists have consistently said that it would be irresponsible to count on large supply-side effects in putting together a budget because the tiny size of that impact is just too unpredictable. In fact, an economist at the Brookings Institute compared using supply-side effects to ancient priests examining the entrails of animals to predict policy outcome. Making the City's position even more difficult is that it faces a number of serious risks that could decrease its revenues or increase its obligations. The following is a partial list of those contingencies. Despite significant improvement in the operation of PGW, it continues to create an enormous risk for the City. For example, this winter, the City experienced the warmest heating season since 1910, resulting in a loss margin to PGW of approximately $30 million. The FY'03-FY'07 Five-Year Plan assumes that the City will receive $135 million in payments from people from PGW from FY '03 through FY '07. 102 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS However, without substantial emergency rate relief from the PUC, those payments are in jeopardy, as is the already weakened fiscal stability of the company. The City could be forced to begin covering some of the utility's operating costs, including paying for gas and assisting with debt service. The City has 7800 families that are due to see their welfare benefits expire by June of this year. If those families turn to the City for services, the cost would be significant. The City also faces a crisis in its Capital Budget. The City is approaching its constitutional debt limit and will not be able to borrow sufficient funds to cover major repairs to its facilities with capital dollars. As a result, the City may have to turn to its Operating Budget to provide funding for some part of its Capital Program.

The plan assumes that the City's Pension Fund will earn 9 percent annually. If earnings fall short of those projections, the City will have to make larger contributions to the fund than those included in the plan. 103 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS At the end of June, the City collective bargaining agreements with its police officers and firefighters expire. The FY'03-FY'07 Five-Year Plan does not include any additional funding for costs that are likely to be required by the new agreements. Also, contracts for AFSCME's local 33 and 47 contracts that expire in two years. The Five-Year Plan makes no provision for any increase in costs associated with renegotiating those agreements. In its review of the FY'02-FY'06 Five-Year Plan, PICA identified $195 million in quantifiable risks and contingencies. None of those risks have been eliminated. All of the people who are calling on the Administration to dramatically reduce its taxes are ignoring those risks. They are asking the City to make dramatic reductions in its costs, without acknowledging the constraints of the City's budget. In addition, they would have the City recklessly increase its revenue projections in a way that is likely to lead to the City's incurring deficits in the near future. Over the last several weeks, various 104 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS groups have made recommendations about how they claim the City can painlessly make reductions in the wage tax that are far steeper than those included in any of the bills now before the Council. Those methods for closing the gap range from speculative to the ridiculous. Implementing those proposals would leave the City either with gaping holes in its budget or substantial degradations of City services. Among the recommendations were the following: Not filling any of the positions vacated as a result of DROP Program. Following this recommendation would mean that we'd lose 736 employees in the Police Department and 468 employees in the Fire Department. It is hard to imagine how those kinds of reductions would not lead to service reductions. Selling the Philadelphia Gas Works. While the Administration is examining this possibility, the $122 million that this proposal was supposed to generate barely underestimated PGW's outstanding debt and completely ignores retiree-related unfunded liabilities that exceed $250 million. As a result, it appears to be very 105 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS unlikely that the sale would generate anywhere near the benefit that the proposal estimated. 4 million in savings from a change in the State pension law that has not yet been enacted. Counting on revenues or savings from legislation that has not yet been enacted is exactly the kind of speculative practice that got the City into trouble a decade ago. In fact, the legislation establishing PICA requires the City to base its projections on existing laws. Issuing debt to fund the revenue shortfalls that would follow from a dramatic reduction in the City's wage tax. This proposal would have the City borrow to fund operating costs in anticipation of receiving speculative revenues that may or may not result from reducing the City's tax rate. The City would be increasing its debt burden based on the hopes of receiving revenues that economists have said may be smaller than the amounts forecast and may not be received for many years. While there would clearly be some economic advantage to lowering the wage tax substantially, it is not intellectually honest to 106 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS say that those cuts will come without a price. To afford those types of wage-tax reductions, or even the smaller reductions included in the bills now before City Council, we would have to reduce services. What services would have to be reduced?

We would most likely start with discretionary services, the ones that we've added since the beginning of this administration, including tree removals, tree-trimming, and lot cleaning. Even if we eliminated all of the new funding for trees and lots, however, that would only save $40 million over five years. We would have at least another $80 million to cut from the budget from FY '03 through FY '07. If we turned our attention next to non-public safety items, we could save money by closing recreation centers and libraries. While such closings would inevitably result in the reduction of services, we wold base our closure decisions on usage. If we close pools, 17 23 recreation centers, and 4 branch libraries, we'd save another $16 million over five years. The combined savings from eliminating our street tree 107 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS and lot-cleaning programs and cutting recreation centers, pools, and libraries would be about $56 million, less than half of the savings that we would need. We would then have to turn to some public-safety reductions. If we eliminated four engine companies, four ladder companies, and one battalion company from the Fire Department, we would save 54 million to bring our total savings to 110 million. If we close the remaining $10 million gap by permanently reducing the size of the police force, we would eliminate 40 police-officer positions. These cuts would have a serious impact on the quality of life in Philadelphia. While our tax structure would be more competitive, our package of services would be less competitive. The benefit that we would receive from lowering taxes would be lost. The proposals that others have put forward ignore the impact that lost revenues would have on services. In putting together its tax proposals, the Street Administration considered all of the factors that other people ignored. After a 108 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS thorough analysis, the Administration concluded that it would be a better investment to put its tax-reduction money towards reducing its onerous anti-business gross-receipts tax, rather than to give taxpayers slightly more than $1 a month through the continued wage-tax reduction. It is for that reason that the Street administration proposed restructuring the tax-reduction program to maximize its impact by increasing the rate of reduction in the gross-receipts portion of the business-privilege tax and freezing the wage-tax reduction after one more cut. 4 million. By the end of FY '07, the gross-receipts tax will have been cut to half of its FY '96 rate. In a published report, economist Dr. Robert Inman of the Wharton School said that reducing the business-privilege tax will lead to an increase in jobs. Further, he added that the business-privilege tax is the only tax that the City could eliminate and actually increase its revenues. 109 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Additionally, a survey of local businesses and the City's econometric model both supported the Administration's assessment of the gross-receipts tax. Unlike the wage tax, which comprises such a large portion of the revenues that the City can't make meaningful reductions in it without jeopardizing its finances, the revenue provided by the gross-receipts portion of the business-privilege tax is small enough to permit meaningful reductions. 79 percent to have any effect. 6 billion in revenue. Clearly, the City cannot afford such a large-scale cut. The smaller-scale cuts included in Council Bill 020092 will not have a significant impact on individual taxpayers, but they will exact a serious toll on government's capacity to deliver services. 5 percent would save the average taxpayer about 50 cents a month, they would cost the General Fund $120 million over four years. So while the average taxpayer would see its bill for City services go down by a pittance, the City's ability to deliver services throughout Philadelphia would be constrained.

That is a trade not worth making. It is also important to recognize that the gross-receipts tax reduction helps many industries. The top-paying industries are wholesale trade, real estate, security and commodity brokers, health services, legal services, insurance carriers, retail food services, and retail. These businesses pay the tax whether they ear a million dollars or lose a million dollars. Some examples from actual tax returns show how unfair the gross-receipts tax can be. A wholesale company that lost $309,922 still owed $19,233 in gross-receipts tax. A business-services company lost $67,803, but still owed $4,171. And a retail food store that lost $240,568 owed $9,001 in taxes. The tax made a bad year worse for these companies. 111 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS The bill proposed by Councilman Cohen also has laudable goals: Reducing taxes for those with the lowest income. That bill, however, would cost the City as much as $50 million a year, an amount that would force the City to reduce services. As the $170 million in tax cuts included in the plan shows, the Street Administration is still determined to cut the City's taxes as part of its strategy to make Philadelphia more competitive. We are committed to doing that in a responsible manner that will provide the City with the biggest benefit. As the Administration has said all along, we believe that the most appropriate way to achieve meaningful, affordable tax reform in Philadelphia is to couple it with statewide tax reform. While statewide tax reform once seemed years away, it is gathering momentum. Just last week, the Majority Leader of the Senate and the Majority Chair of the Education Committee sponsored a reform bill. Philadelphia can take advantage of the passage of such a bill to make itself more competitive with cities around the nation. 112 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS That concludes my testimony. I'll be happy to answer any questions.

Thank you. Mr. Cuorato.

Good morning, Council President Verna and members of Council. I am James Cuorato, City Representative and Director of Commerce for the City of Philadelphia. I am pleased to have this opportunity to present testimony on the various bills that are being considered to reduce the City's taxes. I would like to share with you both the results of a survey that we conducted last year, along with personal observations that I have made in dealing with businesses from nearly two years in this job. The perspective that I bring to you is from someone who is on the front line, if you will, in the effort to keep businesses here in the City growing and to attract new businesses. Although I will be the first to admit that this is not an easy task, I can tell you conclusively from my experience that reducing the wage tax along the lines of what has been proposed would not appreciably help this cause. Reducing 113 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS taxes will, but it doesn't have to be the wage tax, as some have maintained. First, I will outline some of the key results of our business survey. Last year, in my Operating Budget testimony before this Council, I announced a new program that our department would be launching. " The concept is equally as simple: We wanted to send small teams of economic-development professionals out to visit businesses throughout the City. We wanted to solicit their feedback on the experience of doing business in the City, and we wanted to let them know we were there to help them grow. In cooperation with PIDC and PCDC, I set a goal of visiting 300 businesses in the first year of the program. I also directed that the businesses be selected at random, and that we geographically distribute those selected such that we would visit approximately 30 businesses in each of the ten Council districts. We wrote to each member of Council prior to starting the program to determine if there were any specific businesses within your respective 114 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS districts that you wanted us to visit. Some of you submitted some suggestions, but for the most part, the list was purely random. Working with the Finance Department, we developed a survey that our representatives would take with them on these visits. The survey was designed to elicit honest feedback on all aspects of doing business in Philadelphia. Businesses were assured that the individual surveys themselves would be kept confidential in order to allow for candid responses. By November of last year, we had completed the first phase of the program. In developing the survey, we did not attempt to sidestep the issue of taxes; on the contrary, we met the issue head-on, and actually invited the respondents to tell us which taxes they would most like to see reduced. We also asked a wide range of questions regarding City services, the advantages and disadvantages of operating in Philadelphia, the likelihood that they would stay in the City, and what would influence their decision to stay. We received a number of suggestion on how we could improve the business climate in the 115 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS City. To cite just one example, over 80 percent of respondents indicated that they would like to be able to conduct more business dealings with the City -- for example, license and permit applications -- via the Internet. We are following up with the Mayor's Office of Information Services and the Managing Director's Office to work towards this goal. In addition, the Commerce Department will be unveiling its new Website within the next 60 days. With respect to taxes, it was not a surprise that 51 percent of respondents indicated this as the primary disadvantage of operating a business in Philadelphia. However, businesses noted several advantages to being in the City, with the largest percentage, 54 percent, noting that being here gave them direct access to their target-client customer base.

When asked the question as to which tax they would most like to see reduced, the top two responses were the gross-receipts tax and the wage tax, and they were tied at 33 percent each. No 24 other City tax was mentioned by more than 9 percent of respondents. 116 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS The business-privilege tax was mentioned as most cumbersome by small businesses by a ratio of 34 percent to percent over the wage tax among 5 businesses with less than ten employees. 6 The results of this survey, in my 7 opinion, make a couple of points clear, and these 8 are consistent with the personal observations that 9 I will share with you in a few moments ago. 10 First, we must take steps to reduce 11 taxes in the City. The Administration 12 wholeheartedly agrees with this concept, and it is 13 a very positive step that all parties agree on this 14 approach. It will certainly make our job easier. 15 Second, there is no overwhelming 16 clear-cut tax that is viewed as burdensome or 17 onerous. Our survey, in fact, indicated an even 18 split over the two taxes in question. 19 Third, in order to make Philadelphia a 20 better place in which to do business, we need to 21 address problems on a number of fronts, including 22 tax reductions. These steps include the 23 aforementioned use of electronic services that can 24 be utilized by businesses in their dealings with the City to simple things like better, more 117 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS customer-service-oriented training for those who interact with the public on a daily basis. We will be following up on all of the recommendations that came out of this report. We will also be implementing Phase 2 of our program by visiting another 300 businesses this year. Moving away from quantifiable data, I also wanted to provide you with impressions that I have gathered from meeting with businesses during my time as the head of this department. In addition to individual businesses, I have addressed dozens of business associations and community groups, ranging from a handful of people at a storefront in Frankford to hundreds gathered at a Building Owners and Managers Association luncheon to discuss business development in Philadelphia. What I have found consistently is that people are most concerned with quality-of-life issues and with finding ways to reduce the overall cost of doing business in Philadelphia. As much as I hear complaints about taxes, I more often hear people talk about schools, public transportation, and the many wonderful amenities that this city has to offer. 118 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS The plan put forth by the Administration is both responsible, as the Finance Director has testified, and responsive to these concerns. It does tangibly reduce the cost of doing business in Philadelphia by lowering the gross-receipts tax, but it also maintains the level of City services that are crucial to retaining and attracting businesses to Philadelphia. Quite frankly, whenever the subject of taxes comes up in the course of my job, I go to great lengths to remind people of all this city has to offer: The best labor pool in the entire region, a superb mass-transit system that can easily and swiftly move that workforce throughout the City; recreational, cultural, and commercial amenities that arguably can be matched up with any city in the country; and an administration that is committed to creating a more business-friendly environment. I have also been asked whether or not it would be wiser to simply dispense with all of our economic-incentive programs and just reduce taxes across the board. As the Finance Director has testified, such sweeping cuts are not feasible. 119 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS And with respect to our programs, I believe we use them judiciously to gain the most value for our investment. Some projects need no incentives.

The new office tower being constructed by Liberty Property Trust will proceed with no direct City subsidy. They will simply take advantage of the ten-year real estate tax abatement on improvements that this Council authorized. But many smaller neighborhood projects need direct assistance in the form of low-cost financing or grants. It is in those cases that we step in, situations where we can make a difference. I believe that we have been successful in using incentive dollars prudently to generate jobs for Philadelphians in neighborhoods throughout the City. I also believe that the drastic wage-tax cuts would impede our overall economic-development strategy and would be harmful to both major projects and smaller neighborhood redevelopments. The Administration is on record as fully supporting the expansion of the Convention Center. It not an exaggeration to state that the future growth of our hospitality industry is tied directly 120 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS to expansion. We will quickly lose our market share in the ever-growing convention and trade show industry and risk thousands of hospitality-industry jobs in the process. Substantial wage-tax reductions will jeopardize the City's ability to pay its share of costs for expansion. On a smaller scale, we use our economic- stimulus funds to support hundreds of small businesses citywide each year, with such programs as security rebates, facade improvement grants, and marketing and planning grants. These funds are, in many cases, crucial to the development of neighborhood commercial districts, and we have made a difference. Any revenue reductions which would negatively impact these and similar programs would be detrimental to our efforts to generate development and jobs in our neighborhoods. In summary, I would again just emphasize that the program put forth by the Administration offers the best scenario for business growth in Philadelphia by directly addressing the two most important factors to business: Reducing the cost of operating a business in the City and maintaining 121 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS a superior quality of life. I base this conclusion on both the results of our business outreach program and my personal experience as Director of Commerce. Thank you for the opportunity to present my views on this most important matter.

Thank you. The Controller's Office, in their report, made suggestions as to how the City could pay for various tax cuts. What's the Administration's position on their suggestions?

The Administration does not believe that the vast majority of those suggestions were realistic or used accurate projections. I should note also that the Controller's Office appears to have updated that list last week with a new list of items, and we also did not think that that list contained realistic assumptions and projections.

Mr. Dubow, did you ever have a conversation with the Controller regarding the suggested cuts that could possibly be made?

We had a conversation with 122 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS the Controller's Office before their tax policy report was issued.

Is it the Administration's position that the only way the City can cut additional taxes is by reducing services?

No, that's not the Administration's position. The Administration has said, and Finance Director Davis's testimony has said, that if the State, for example, implemented statewide tax reform, that would allow us to reduce our taxes dramatically. If the State assumed its responsibility for the courts, as it's been ordered to by the Supreme Court, that would allow us to reduce taxes. So there are other options, but if there's no other action along those lines, we do not believe that we can make dramatic reductions in our taxes without affecting services.

And you don't feel that the City can reduce expenditures through efficiencies and, therefore, not impact services?

We do believe that we can 123 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS increase efficiencies, and the plan includes about a quarter of a billion dollars in reduced costs through efficiencies, so we do believe that, and we will continue to look for more efficiencies. But we don't believe that it would be responsible to assume those greater efficiencies in our budget as a way to pay for tax reform.

Has the Administration reviewed the report issued by the Pennsylvania Economy League entitled "Philadelphia Tax Rates and Their Relationship to Tax Bases and Tax Revenues"?

Yes, we have.

And what is the Administration's opinion on the report?

We think the report is very informative. We think it's --

I'm sorry, is very...?

It's a very informative report that has important information in it. We also believe, however, that it does not show how it would close the gap that would be created by the substantial reductions in taxes that 124 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS it calls for. We also note that even the projections included in the report assume substantial increases in real estate property so that part of what's happening is real-estate tax payments would go up to help pay for reductions in wage taxes.

Thank you. Mr. Cuorato, you say that the Administration is on record as fully supporting the expansion of the Convention Center. To the best of my recollection, I did not see that in the budget, nor did I see it in the Five-Year Plan.

Madam President, the position of the Administration is clear that we support the expansion of the Convention Center. As I mentioned in my testimony, we believe it is --

I know you said that the Administration is in support of...

We believe that it is vital to the future of the hospitality industry. I'm going to let Mr. Dubow --

And I am saying that it is not in the budget, nor is it, in my memory, looking over the Five-Year Plan, in the 125 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Five-Year Plan.

There's been no provision for it in the Five-Year Plan or the budget.

At this time, the Chair recognizes Councilman Mariano.

This is for Mr. Dubow. Mr. Dubow, 79,000 gross receipts taxpayers -- is that a correct figure?

Yes.

That came from your testimony?

It's about that, that's right.

One of my staff handed it to me. 39,000 of these pay $100 or less; is that correct?

That's correct.

Couldn't we just cut out those 39,000 to help -- were they people that sell Avon or, like, what are they? Who pays $100 or less? How much do you have to make to pay $100 or less?

You have to have relatively small receipts to pay, yes. 126 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Give me a figure. What, what...

I'd have to calculate that.

Couldn't we cut that, though? I mean, would that -- how much would that cut in those 39,000, how would that help the City?

I don't have the total tax number for that.

Can you get that to us?

Yes, we can get that for you.

Thank you.

Thank you. The Chair recognizes Councilwoman Tasco.

Thank you very much. Mr. Dubow, as we struggle here in City Council over these various bills, my question to you becomes: What do you do if, for some strange reason, we're not successful in dealing with the wage-tax issue here in Philadelphia? What will you do with the state's intervention in cutting the 127 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS wage tax?

I'm not sure I understand the question. What do you mean?

Well, if the State decides that they would cut the wage tax for us in a more drastic way, what would --

You mean, what would we do budgetarily?

Mm-hmm.

We'll have to go through our budget line by line and figure out where we'll make cuts, and we do not belive that we'll be able to do that without having a dramatic impact on services.

Miss Davis, you outlined a number of -- Well, back to you, Mr. Dubow. If you had your druthers, wouldn't you rather have Bill 19 92, or would you rather have the State's proposed cuts?

I would rather have the City determine its own tax policy rather than have the State determine the tax policy for us.

But you admit that 92 would be a much easier bill to swallow? 128 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Yes. 92 has lower reductions than the State bill.

Plus it has some flexibility: You don't pass it if you don't have the revenue to generate the revenue. I mean, this is a year-by-year proposal, right?

No, actually, it's different from most tax legislation we have 'cause most tax legislation we have is just for one year. This bill actually sets tax for future years, which we don't normally do.

If there are triggers.

No, it has set reductions, and then if there is growth in wage-tax receipts of 3.5 percent or more, it has additional reductions. So the base cuts... The base cuts are set and then the larger cuts are tied to triggers.

But we can always revisit to reduce it, to stop it.

That's right.

Right, so we have the flexibility to do it just because that's what 129 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we do here in City government, right?

That's right, that's right.

But if the State decides that they want to mandate that we cut the tax, then you don't have any flexibility at all.

That's right. The State would have to revisit that issue

All right, thank you Miss Davis, in part of your testimony, you talked about some of the services that would be reduced, and you mentioned funding for trees and lots, and we went through a major debate in City Council about NTI, and it was my understanding that a lot of this stuff was a part of NTI. How does that get impacted in this wage-tax cut?

There is funding in the General Fund beyond what is included in the NTI proceed funding that goes for lot-cleaning and tree removal, so that is where --

So in addition to the money that we appropriated and will be appropriated through NTI, you're saying that there are additional funds in the budget for tree -- is 130 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS that for this year or outgoing years?

That's for this year and --

Just this year?

And each year of the plan. There is money for tree removal, there's money for lot-cleaning, and there's money to pay the debt service on the NTI bonds. And the NTI bond proceeds, I think, are what you were asking about, how that would be impacted, and they would not

So why do we have -- we were told during the course of the NTI that all of those services were going to be a part of the NTI. Why do you have some money in the budget for tree-trimming and some money in the budget under NTI?

Well --

And how do you know what do we request as a Councilperson and I don't want a tree trimmed, do I have to qualify? or are you going to tell me, Well, it's not in your NTI budget? but can I get it through the regular normal budget channels? I mean, what will be the determining factor? 131 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

The Neighborhood Transformation Initiative is broader than just the bond proceeds so -- and I thought your original question was, how would the use of bond proceeds be affected by this? And the answer to that question is: No, but there's spending beyond the bond proceeds that could be affected if we had to look for service reductions.

No, I asked you, I said I thought that the lot-cleaning and the tree-trimming were a part now of the NTI Program.

They are, in fact, part of the NTI Program, but what Rob is explaining is that NTI is composed not only of those bond proceeds, but of some money in the Operating Budget that will be used to supplement those things on certain operational issues like cleaning lots and cutting trees that go sort of above and beyond what the proceeds from the bonds are intended to be used for.

Could you tell me, in the little green budget but, you have the revenue funds actual for 2001 billion 59 thousand [sic], and then you have an estimates for 2002 as 132 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS $1,023,845,000. Is that a true estimate? Where are we in terms of those estimates? And then when you get to Fiscal Year 2003, the revenue is up.

Could you tell us what you're on?

There's no number. Let me see. Okay, it's opposite ; it's .

The first question I guess you're asking about is the drop from '01 to '02?

Right.

'01 was kind of an odd year. When Controller Saidel was up here, he talked about the change in accounting rules. Because of that change in accounting rules, we accrued two months of additional revenue in '01 for the wage tax, so we're essentially showing 14 months of revenue there, so it looks like there were more collections than there will be in '02, but that's just a factor of the way the accounting rules changed.

Explain 2003.

Fiscal Year 2003 assumes that the base will grow by 2.57 percent, and that 133 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS will be slightly offset by the proposed reduction in the wage tax.

Okay, thank you very much.

Sure.

Thank you. The Chair recognizes Councilman Kenney

Thank you, Madam President.

You're welcome.

For the Finance Director, the City of Philadelphia along with the City of Detroit were the only two major cities in country in the last decade that had a net residential population loss: Philadelphia lost 4 percent and Detroit lost 7 percent. Every other, major city, including New York City, for example, which is somewhat of an anomaly because of its size and economic condition, had a 15 percent domestic out-migration in the same period of time, but had a net 9 percent in population, which is an amazing 24 percent overall turnaround. The thing that concerns me about, I 134 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS guess, the philosophical position of the Administration is that the largest number of people, the largest employers in the City of Philadelphia -- I think the top ten employers in the City -- are either government or nonprofit entities. And I think that if you couple the continued loss of population with the largest employers in the City being not-for-profits, what does that tell you as an economist or as a person who does economic analyses? What is the long-term ability for the City to survive if government or nonprofits are employing everyone and the population's declining?

Not being an economist --

Or someone that has financial experience and --

Having dealt with the numbers, it could tell you one of two things: Either that this is an area that has, like the City of Washington, D.C., a very strong government presence, and is a good place for foundations --

I'm sorry, strong government presence? 135 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

A government presence, and is also a place that is favorable to foundations, and that's why you see not-for-profits. I don't think that, in isolation, that tells me anything specifically. I would have to look at the sort of breakdown of the number of foundations you have, the number of not-for-profits. Just hearing those numbers doesn't really give me a way to look into the future and say, you know, that spells doom and gloom for the City.

Well, then let's break it down just a little more narrowly. The City of Philadelphia, I believe, is the second largest employer in the City of Philadelphia, and with a dwindling tax basis, a dwindling -- if you want to make a correlation to business, a diminishing number of customers. Whether I'm running a furniture store or whether I'm running a government, I'm losing customers. That then becomes the second largest employer in the entire city? I mean at some point in time, doesn't --

Many economies thrive on 136 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS millions of small business --

No, no, you're missing my point.

And that's --

You're missing my point.

And we are losing -- we're losing -- we've lost population, but the population that remains is the population that needs services. It's the population that, because of our status as a county, we're having to take care of, and I think that growth that you're seeing in our work population is because of those county services.

There is no argument that our population, while diminishing, is becoming older and more needy. That's exactly why I don't understand why the three of you extremely intelligent people are sitting there telling me that government and government spending and the maintenance of government services, despite the loss of its customer base, is the way we should continue to go. Because at some point in time, that continuing, shrinking group of people who have the 137 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS ability to pay for those services are going and moving elsewhere, and we're never turning it around under the model that we've employed thus far in our government's history.

We're not supporting -- (Applause.)

We are not supporting the expansion of government and the employment of additional people. We are -- we have cut and our plan shows a reduction of 330 positions. Further, when a lot of the departments are asked to take that 1.5 percent reduction in personnel, the first place they look, as I did, was to not fill positions, so there will be contraction in this plan, because there's no way a department can sustain a 1.5 percent cut in personnel on an ongoing basis without hitting that line.

Well, perhaps --

So we are reducing government, and we're looking for more ways to do it

Well, are there more employees now in the City of Philadelphia than there were two years ago, more or less? 138 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

There are more.

Well --

And I can give you the breakdown of where those are.

But the answer is: There are more

There are more, there are more, and the bulk of --

And the commitment now, based on this entire debate, is that in the future, there will be less. See, government in itself does not have the ability to trim itself unless forced to do so, because government, by its own basic existence, is not to get -- it doesn't promote itself to get smaller; it promotes itself either to stay the same, maintain the status quo, or get bigger. And if -- over two years, considering all of the circumstances we are all well aware of, government got bigger in the last two years, despite the fact that we have continued to lose population.

Yes, because independently- elected officials added 45 positions, we added 130 139 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS in DHS, 27 at the Library, in Fire, 74 with police. Those were the major increases. Those added the significant change. The remainder of the General Fund actually took a reduction in positions.

But in the long run, 8 isn't it easier done when the reductions, the need 9 to be fiscally disciplined, is imposed upon you 10 because if it's not imposed upon you -- it's like 11 in your own spending at home. I mean, if you have 12 to make a choice on whether you go out to dinner or 13 maybe save a little, you know, it's much more fun 14 to go out to dinner. 15 But the point is, unless that's fiscally 16 imposed, the discipline's imposed on you, as this 17 bill would do, you're never going to change the way 18 in which we deliver services. We're going to continue to be government-heavy.

If I could say that those cuts in personnel would extend to all of the elected officials -- independently-elected officials, that we would no exempt any groups, and we're forced into it across the board for everybody who comes before City Council, yes, that's the way 140 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS to go. The Administration is already looking at cutting; we're doing our part. There are certain positions that we cannot cut.

Has the Administration increased or decreased the number of employees in the Mayor's complement over the last two years?

There has been an increase there.

Well, then why would anyone sitting here today believe that in the near future, or far-distant future, there's going to be any change in the status quo if in fact the discipline is not imposed?

Because even with that increase in that office, there has still been a net reduction in the General Fund of more than 100 positions.

The deck chairs have been rearranged, I mean, basically. I mean, we're reducing one area and we're adding in another, and in the net, it's not a zero-sum gain, it's not a decreasing number; it's an increasing number. 141 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

There's been a total loss in the rest of the General Fund, so we've not added one for one. We've had a decrease.

Well, let me go back to the original question: Are there more or less employees in the City of Philadelphia as we sit here today than there were two years ago?

There are more.

Okay. Do you believe at some point in time, the issue of whether the neediest people in the City get service is tied to the continued loss of population? That in fact, if we continue to lose population in the tax base and the service needs continue to expand, aren't those people truly the ones that are in jeopardy?

Yes.

So why not try a different approach, even for a short-term period of pain, if, in fact, what we've been able to see over the last six or seven years has been an increase in revenues partly contributed to by a reduction in taxes? (Applause.)

Our Five-Year Plan does 142 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS still cut taxes by $170.4 million.

Are there any tax-cut freezes, or have we -- did we stop the tax cuts in Fiscal Year '02? We still have these ongoing tax cuts, even though they're small numbers?

Yes.

And we intend to have them in FY '03?

Yes.

Okay. So why aren't there commensurate doom-and-gloom reductions in workforce in this year's budget process considering the fact that we're continuing to cut taxes, and what Bill 92 does is, it puts those tax cuts back and then accelerates them based on an increase in revenue collections. So if you just took one half of the 92 bill, Bill No. 92, and put back the Rendell cuts, why are you not projecting decreases in services, layoffs, library closures, fire house closures, rec. center closures in the upcoming budget that we're debating now?

We are starting to see the 143 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS impact of the change in the economy with the recession, and it is those things that have necessitating going forward that we reduce the amount of the tax cuts. We still have, and we are using in our Five-Year Plan, the surplus that has been generated over the past eight years. It's the use of that surplus that allows us to go into '03 with all of the tax cuts in place.

Why would not that same surplus be able to be used for strategic tax reduction that most economists and people who have studied this indicate would, in fact, increase revenues and not decrease -- we could do the tax cuts by starting to use the surplus. I mean, I don't think that's the way to go, but if you want to maintain all of these important services, to start using the surplus to reduce the taxes would be acceptable 'cause I think what you're going to wind up seeing is an increase in tax revenues as a result of the tax reductions.

The surplus is used down to $5 million through the Five-Year Plan, so the surplus, if you leap to that, is being, in fact, 144 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS used to reduce taxes over the plan, because it is eliminated, it goes down to $5 million by the end of the plan.

Mr. Cuorato, one of the things that you said in your testimony that was interesting to me, and I'd like to discuss a little bit, is what you have -- it's on . "What I have found consistently is that people are most concerned with quality-of-life issues and with finding ways to reduce overall of doing business in Philadelphia. As much as I hear complaints about taxes, I more often hear people talk about schools, public transportation, and the many wonderful amenities the City has to offer." Do you think that the problem we're having with our schools and the problem we're having with our neighborhood blight is a result of the tax structure driving people out over the last 30 years? Or what do you think caused that? Do you think the loss of population and the loss of people who have tired with the unequal taxation levels in Philadelphia vis-a-vis the suburbs, do you think that -- what came first, the flight or the blight? 145 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

That's a very broad, philosophical question, Councilman. I'll just --

I mean, you're an erudite individual and I've known you a long time. You're a very intelligent guy. I'm sure you can at least ponder what may have come first.

Well, I bring this perspective to you as someone who was born and raised here and have lived here all my life and have no intention of leaving. I think Philadelphia is a wonderful city and has a lot to offer. I don't think that the tax structure, per se, is driving people out of Philadelphia. I believe that people are leaving -- that the loss of population that we have may be for a variety of reasons, but I personally do not think that it is directly tied to the tax structure of the City.

Don't you believe that the loss of businesses and the establishments of businesses within the outskirts of Philadelphia has caused people to not only figure out that they don't have to commute to work, but they give themselves a 4.5 percent raise by simply moving 146 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS closer to the business that relocated in Malvern in 202, in South Jersey -- even in Camden these days, we're battling with Camden. I mean, do you think that people aren't intelligent enough to think that maybe if my business moved to the suburbs and I can move and follow my business while, at the same time, giving myself a 4.5 increase in my pay, that's not a significant factor in people deciding to leave the City? (Applause.)

Councilman, I think we're holding our own when it comes to retaining and attracting businesses. (Jeers.)

I will give you my opinion on what we need to do, and we're actually working on this with some of the organizations that you've been hearing from, and will hear from, as part of this wage-tax debate. We need to do a better job of marketing the City and all of its assets and the advantages that we have to offer. I still believe, despite the best efforts of a number of people over the 147 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS years, that we are one of the best-kept secrets in America. We have a tremendous amount to offer. When you look at the climate in the City and the various attractions that we have to offer, it is a good environment; it is a good environment to live in and it is a good environment to work in. But that message is not getting out, and we need to do more to do that.

Well, let me tell you -- and I don't doubt your enthusiasm for the City; I know you love the City, and I appreciate all of your efforts, all three of you. I mean, I know you work very hard. I teach at Penn. I don't know why I couldn't get into Penn but now I'm teaching there, but that's beside the fact. I have had students of mine who have said to me -- and they're aware of the City, they're aware of the City's amenities, they're aware of the City's culture and fun, they love being at Penn, it's a tremendous, you know, asset to them to be matriculating through Penn. And they have said to me consistently: I will never, ever locate in this city as long as this city's taking 4.5 percent of my pay. 148 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS And those are people who are aware of all of the good things in the City, all of the amenities, all of the culture, all of the theater, and they're still deciding to go because of the economics. And that brain drain that we're experiencing and the loss of their population, in their minds, these young, articulate, intelligent, eventually high-producing citizens are deciding, based on the bite that the City takes out of their check at $50,000 or $60,000 or $70,000 to start, they are not going to come here and stay here because of taxes. They don't have kids in the school system, they don't use City services as much as maybe some other City residents do. Their main concern, after getting out of Penn, is getting out of the City because they're not paying 4.5 in the wage tax. And that's my experience. (Applause.)

Councilman Kenney, there are a number of other Councilmembers that would like to ask some questions, so if you don't mind, we'll have a second go-around. 149 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

Thank you, Madam Chair. The Chair recognizes Councilman DiCicco.

Thank you, Madam President. Good morning. Mr. Cuorato, I just want to pick up on your comment to Councilman Kenney where you suggest that the City has been doing a good job in retaining business and in attracting business. And I will agree, during the time that I've had the pleasure of working with you, you've done a great job in particular in my district, and I appreciate that.

Thank you, Councilman.

But how do you make that statement, what causes you to make that statement? What is it that you're doing, or the City is doing, that is retaining businesses and attracting new businesses? In a very brief statement, what is it that you do?

Councilman, let me just correct, or modify, what I think I said in response to Councilman Kenney's question. I believe I said 150 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS that we were holding our own, and I believe that we are.

I'm not suggesting -- and maybe I didn't say it right, that we're bringing more in and we're doing a better job than we could do. We're doing a fairly decent job. How do you go about doing that? What is it that leads you to make that statement?

We have, between my department and the economic-development agencies that work for us, the point that I have emphasized more so than any others is outreach. I want to get into every neighborhood in this city and let businesses know that this administration cares about them and wants to help them. And we have a variety of programs that can help them. As I mentioned in my testimony, there's a lot of investment that happens in this city, that's going to happen just because businesses and people want to be in Philadelphia, but there are a lot of small- to medium-sized businesses that need help, such as low-cost financing, grants, infrastructure. That's where we step in, that's what we've been doing, and that's where I think 151 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS we've been able to make a difference. And I can provide you with dozens of examples businesses that we've helped.

Thank you. Would you agree that from the small- business person to the larger corporate, that some of the things that your department, PIDC, and others bring to the table are opportunities, financial opportunities: They are grants, they are low-interest loans, we do TIFs, Tax Increment Financing deals, that they are not in themselves some sort of a financial inducement for people to want to stay, to encourage business to see stay and to expand? I mean, it's tax dollars that are going to help, and it's a good thing that we do that to help these businesses stay. Why not offer it in the form of wage-tax reduction? It is -- what you're doing anyway now, with the TIFs and all of the of the other things that you and I just spoke of, are tax inducements, they're incentives that either reduce the cost of doing business or help them reduce the cost of doing business. 152 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Don't you believe that the wage-tax reduction would also be an inducement or an incentive as well?

Councilman, the incentives that we offer, as I stated in my testimony, I believe we use very judiciously and we use in those circumstances where they're needed. As I mentioned, there is a lot of investment that happens in Philadelphia in which the City has no direct involvement. People want to be here; they come here, they invest their money, they start businesses. Where I want to use my resources is in specific instances where we can make a difference. If you're suggesting that the reductions in the wage tax would sort of clear the deck and remove the need for incentive programs --

No, I am not suggesting that. It just becomes another piece of the pie, if you will, that makes it more attractive to do business, 'cause that's what you're doing, you're out there talking to the small-business person up to big-business person and saying, Look, we can help you. 153 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS And you and I have been working on a couple of companies in my district. One is there now, Home Line Furniture Industries.

Right.

The largest wholesale furniture distributor in the country. Their home base is here in Philadelphia, and they' want to stay, and I think you're doing a good job to keep them here, but they always talk to me about that wage tax. And I passed out to my colleagues -- and I'll pass it out to the panelists -- a letter from American Financial Services, a company that the Mayor spoke to about two weeks ago when he was asked the question about the wage tax, and he said that we have the possibility of bringing 1,000 jobs into the City of Philadelphia, and that probably hasn't happened for decades. This company will bring jobs that are paying an average salary of about $40,000 a year. And simple math tells you that at 4.5 percent of the wage tax, it's about 1.6 million, and if we reduced it to 4, we still got about $1.4 million in wage taxes. 154 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS But if you look at the letter, what he says is that they're contemplating -- with all of the good things that your department has put on the table, and they still have not made up their mind finally to come in, notwithstanding the wage tax. And to send a signal now, a message now, that we're going to discontinue the wage tax, I think, could be a deal-breaker here. I'm not suggesting that they won't come, but I think if you read the letter again, they're suggesting that were it not for the wage tax, I don't think they would be contemplating; I think they'd be setting up shop today. So why don't we use the wage-tax argument -- and that's what I'm using, obviously -- as one of the other tools, one of the economic tools we have been using to attract and retain businesses?

Councilman, I think the issue gets back to what level of services the City can provide and what type of environment American Business Financial Services, or any other major corporation, would move into. As the Finance Director has testified, 155 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS if the reductions in the wage taxes are such that we need to cut the level of City services, that is not going to make my job any easier to attract a company like this.

Jim, you know and I know -- and I think Councilman Kenney spoke more eloquently on it than I probably will -- that if we continue to lose our tax base, those who have continue leave, the burden becomes greater on those who are left behind to provide those services for those who do not have. It's simple. It's been greater, it's getting greater 'cause we lose that working-class population, and the people who -- with the older population that we have, and we all agree on that -- demand more services, require more services, somebody has to pay for that. And if we don't continue to build our wage tax base, we'll never have enough; we're just going to go down that spiral. As good as we're doing and as much as we've tried, we're not going to be able to retain businesses. Also, in your testimony, you stated that you did a survey of businesses with ten or less 156 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS people. Did you do any survey similar to that with businesses that are over ten employees?

Yes, Councilman. Our survey of 300 businesses ranged from the smallest businesses, literally single proprietorships, all the way up to major corporations. The statistic I cited in my testimony just covered those businesses of ten or less people, and that's who found the gross-receipts tax the most onerous.

But when that questions was posed in -- I'm sorry, when the survey was taken, was the question posed to them: Would you rather have either/or? or how do you feel about the fact that we would be stopping the wage tax but will continue to do the gross-receipts tax reduction? Was that question in the survey?

The question was: Which tax in the City of Philadelphia would you most like to see reduced?

But they were not aware that at the time of the survey -- and correct me if I'm wrong -- that the survey was being conducted that the Mayor was going to propose stopping the wage-tax reduction? 157 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

That is correct.

So the survey could have turned out differently, could have.

Could have.

Okay, one other question. Also in your testimony, Mr. Cuorato, you mentioned that the fact that it is not an exaggeration to state that the future growth of the hospitality industry is tied directly to the expansion of the Convention Center. "We will quickly lose our market share in the ever-growing convention and trade show industry and risk thousands of hospitality jobs in the process." Did anyone ask the question, was there a survey taken at the Convention Center, or people who do business with the Convention Center as to why we're only getting percent repeat business 19 at the Convention Center? And did any one of them 20 say it's because of the wage tax? 21

No, Councilman, there's no 22 question that our repeat business at the Convention 23 Center has not been what it should be, and the 24 issue that has been cited as one reason, perhaps 25 the primary reason, has to do with labor issues, 158 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS and I think all parties are taking steps to correct that because we know if we do not resolve those issues, we will have no chance for a --

So reducing the wage tax really will not hurt the hospitality industry.

Well, reducing the wage tax may impede our ability to fund what I expect -- and I'm not being presumptuous in any way here because we've got a lot of approvals that we have to obtain, but reducing the wage tax could impede the City's ability to pay its share of expansion of the Convention Center. That's my position

My final question: The Mayor, in his budget address, mentioned the fact that for the first time in years or so, we 19 are now beginning to see housing development in the 20 City of Philadelphia, thanks to the ten-year abatement. Again, every time we do something that reduces taxes, whether it's the wage tax or real-estate taxes, we see an upsurge, we see an uptake. 159 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS I think this is a no-brainer. Had it not been for the abatement tax, had it not been for the conversion tax in 1997, with the national economy breaking all kinds of records, those formerly-vacant buildings that are now occupied with new residents would not have been converted. So why stop now reducing taxes? I just don't understand it. For me, this is a no-brainer. Had we not done the conversion bill, had we not done the abatement bill, we would not have had that increase in housing development in the City of Philadelphia. So why would not the same thing apply to reducing the wage tax? And the doom and gloom about all of these costs, I think, is inappropriate. I don't think that's the way to go. (Applause.)

And, Mr. Cuorato, I do appreciate all of the hard work that you do, and I understand that you work for the Administration. And you and I had a conversation a couple years ago about the gross-receipts tax, and I agreed with you then, that I thought it was really important. 160 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS And if you had to choose between the two, maybe that's the right way to bo, but I don't think we need to choose between the two; I think they should both be going down the same path together. Thank you.

Thank you, Councilman. (Applause.)

The Chair recognizes Councilman Rizzo.

Thank you, Madam Chair. I read in your testimony, and also I understand the Mayor said that he would be forced to reduce the Police Department by 40 police officers. Do I understand that based on your testimony that 40 police officers have a value of approximately $10 million over five years?

Yes, sir.

During the budget -- I hate to have to bring this up again, but I must, since you're again using these tactics to close pools and reduce the Police Department. During the budget process, I asked the Police Department to 161 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS provide information, that I'm still waiting for, on what the costs are that are associated with patrolling the Schuylkill Expressway, I-95, the Vine Street extension, Woodhaven Road, which, in a class one city, is normally the responsibility of the Pennsylvania or the state police of that state. In Philadelphia, we do it. I think we should be entitled to some consideration, some reimbursement. Again, I understand that we have almost that number of police officers, or three tours of duty, 35, 40 police officers that are out there. So if you're telling me that 40 police officers over five years, so I want to equate to that it's going to cost of the City of Philadelphia to patrol those expressways $10 million over five years. And I've asked the people in Harrisburg, has this administration asked for any consideration on being reimbursed for that patrol that we provide on those expressways? And, again, I'm just using this as an analogy. We provide police service for the Phillies, for the Eagles, some of it for traffic control is absolutely critical, important. We 162 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS provide other services inside the stadiums when there's rowdy fans, we provide -- we patrol in the community -- again, necessary. But some of it is a luxury, and I'm not sure how we account for that. How the City gets paid by the teams for that police security at various venues throughout the City. So I think before we start shutting police stations and swimming pools and recreation centers that we have our accounting in order to make sure that we're being reimbursed properly for the services that we provide. I'm still waiting for the Philadelphia Police Department to get back to me on how much we spend each fiscal year in patrolling those roadways. And it amazes me that we're facing this crisis and nobody -- at least from what I understand -- has asked the State to kick in a little bit because we're doing a job that they're supposed to be doing. So I hope you get my point here, that people that have been around this town -- if I counted up all the swimming pools that have been closed, or threatened to be closed, during my 163 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS lifetime -- and not one has been closed, by the way, that I know of, and many few have opened. So, again, to use these tactics is kind of getting old with me personally, to reduce firefighters. Why don't we cut a couple of consultants? (Applause.)

Thank you, Madam Chair.

The Chair recognizes Councilman Ortiz. Is Councilman Ortiz at his desk? (Councilman Ortiz not present at this time.)

Councilman Goode.

Thank you, Madam President. Good afternoon, Mr. Cuorato. The questions that I want to ask I really want to ask of Mr. Pizzi and Mr. Thornburg. I'm going to support Bill 92 for what I think are the right reasons. (Applause.) 164 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

But not for many of the reasons espoused by many people today. I want to first thank the Administration for their support of 116, the new-jobs tax credit bill. I offered that bill because it's my belief that there is no direct correlation between incremental tax reform or tax reform and job creation. And for the record, would you state whether you do believe there's a correlation between incremental tax reform and job creation?

Councilman, I'm not sure I understand your question. Are you asking for my position on the bill that you introduced?

No, I'm asking beyond the bill I introduced. I introduced a bill in addition to supporting Bill 92 because I believe that there is no direct correlation between incremental tax reform and job creation. I believe that we create jobs based upon a number of other factors: The ability of a business to expand; and for reasons you that you espoused, business wanting to locate in Philadelphia because it's Philadelphia. 165 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS Is there, in your estimation, a direct correlation between incremental tax reform and job creation?

I think it's fair to say that anything we can do to reduce the cost of doing business in Philadelphia will generate new business and create more jobs, and that's why the plan that the Administration has put forth, which would reduce the gross-receipts tax, I think, will be very helpful to us. I also agree with you, however -- and this gets back to a point that Councilman DiCicco was making. In certain instances, I believe we need targeted -- programs that are targeted at specific businesses or industries, especially small businesses, and those are more effective than incremental tax reform.

The reason why I support Bill 92 is I believe that we need to get to a better period of competitiveness down the road. If we stop now, we won't get there. But if somehow we don't get there anytime soon, I actually believe that, you know, certain things needs to be examined. 166 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS You started with the Commerce Department, with the City's economic development bureaucracy how long ago?

I'm sorry, Councilman?

You started in the City's Commerce Department how long ago?

As the director?

No. 10

I worked in Commerce from 1986 to 1994, left for six years, and then came back two years ago.

Are you familiar with the wage-tax and job-creation statistics over the last to 30 years? 16

I'm generally familiar 17 with the job-creation statistics over the last 20 18 to 30 years. 19

When was the last 20 time we raised the wage tax? (No immediate response.)

It was July of 1983.

July of 1983.

Are you familiar with the City's experience in terms of net job creation 167 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS in the next three to five years after that? (No immediate response.)

It went up to the tune of --

Mr. Dubow is saying it went up.

Over the next -- a few years after we raised the wage tax to from 4.31 percent to 4.96 percent -- under the Green Administration, not the Goode Administration -- the Goode Administration, over its first two years, created a net job total of about 33,000 jobs, and over the first five years, created a net gain of about 50,000 jobs. Can you explain how we raised the wage tax in 1983, yet had the largest period of economic job expansion in the last three decades? (No immediate response.)

That's a question I will save for the economists as well. I'm going to ask Thornburg and Mr. Pizzi that, but the last time we raised the wage tax, we actually had the largest period of job creation in the history of Philadelphia. 168 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

I think -- I mean, I'll give you my perspective, Councilman, and perhaps the Finance Director of the Budget Director would have an answer as well. My perspective is that there are other factors involved in job creation, not simply just the wage tax, and a lot of it has to do with the national economy, a lot of it has to do with the perception that people have of doing business in the City, and those factors, I would assume, came into play at that time.

Okay, I will save that question for Mr. Thornburg and Mr. Pizzi. Thank you again for your support of 116.

You're welcome.

The Chair recognizes Councilman Ortiz.

Thank you, Madam Chair. Did we did lose population in the last two years?

Yeah. Based on the census numbers during that ten-year period, we did lose population. 169 4/8/02 WHOLE COMMITTEE - TAX-REDUCTION BILLS

In the last year two years, in the last year? Have we lost jobs in the last year?

Yes, we have lost jobs for about the last year. When the national economy started to turn down, we started to lose jobs.

Just yes or no. Yes?