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?
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.
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"?
And what is the Administration's opinion on the report?
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?
One of my staff handed it to me. 39,000 of these pay $100 or less; is that 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
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?
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?
Well, if the State decides that they would cut the wage tax for us in a more drastic way, what would --
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
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.
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.
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?
But if the State decides that they want to mandate that we cut the tax, then you don't have any flexibility at all.
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?
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?
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.
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?
'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.
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.
Thank you. The Chair recognizes Councilman Kenney
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?
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 --
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 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.
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
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?
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?
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?
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?
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.
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.
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
So the survey could have turned out differently, 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, 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?
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.)
The Chair recognizes Councilman Ortiz. Is Councilman Ortiz at his desk? (Councilman Ortiz not present at this time.)
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?
You started in the City's Commerce Department how long ago?
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