As we talked about earlier, presently you only have the '03 cut for the gross receipt tax and everything else is subject to the plan, and so what, you would come back every year with a new gross tax bill?
Which is how we've done it over the last how ever many years we've had a tax reduction program.
Had you given any thought to just establishing a schedule of this accelerated cut?
How many jobs have we lost in the City over the last three years on a 203 4/8/02 - WHOLE - TAX REDUCTION BILLS yearly basis?
We actually until about October 2000 were gaining jobs. The year-to-year number from last February, we're down 5700 jobs.
What's the impact revenue-wise in the loss of 5700 jobs?
What we've seen in our collections is that they've flatten out dramatically in the wage tax. Our growth through the end of March was only about .6 percent over the year before. We had been seeing increases of well above that before.
What's the expectation based on your model of the impact in terms of job growth with accelerating the gross receipts tax cut, stopping the wage tax cut?
Our model what we've included in the plan is that the job losses will stop and that the economy will remain relatively static over the life of the plan.
Is that our game 204 4/8/02 - WHOLE - TAX REDUCTION BILLS plan?
No. What we hope happens is that jobs increase. But we don't build our plan on that based on the way the economy has been going over the last year.
Well, Mr. Dubow, you heard me say this a couple times. I'm hoping that my hair comes back, but unless I do something about it, the situation's probably not going to change. What are we doing?
We're doing a number of things. One is the acceleration of the gross receipts reduction. Another is the establishment of the Neighborhood Transformation Initiative. Another is all the things that the Commerce Department is doing. We're doing a number of things to try to attract jobs.
What is it about NTI over the next couple years that's going generate jobs other than demolition? We don't need to have a NTI discussion, but you raised it, so I do need to ask some questions.
Well, briefly, what NTI is supposed to do is to re-invigorate neighborhoods 205 4/8/02 - WHOLE - TAX REDUCTION BILLS which should make them more attractive for people to move into. And then the more people you have, the better your job market is and the more attractive it is to businesses.
Where is the anticipated growth in jobs or revenues from NTI in the five-year plan?
We have not built any of that into the plan because we want to see it develop.
Well, do you believe there's going to be job increase and population increase and revenue increase or not?
We believe there will be. We believe it will be a few years out, however.
Can you put on the record for us today, do you believe that we are still in or are we out of the recession?
What do you think? Would you like to comment upon Chairman Greenspan's view of the economy?
I don't think I'll debate 206 4/8/02 - WHOLE - TAX REDUCTION BILLS the economy with Chairman Greenspan. How that relates to our projections, however, is that one of the things that economists have said in particular as it relates to our market is that there's a lag between when recession ends and when jobs come back so that there is likely to continue to be some downward trend in our jobs at least for six months to a year.
The three of you are highly regarded professionals. And Ms. Davis and Mr. Dubow end of having to keep track of the money and make sure that all of us don't spend our way into oblivion. Do you believe that there's no 15 circumstance or situation that if you were properly charged and directed to respond to the bills that are in front of us today that it is impossible for this government to respond over the course of the next five years to the kinds of tax package that would allow for both the Mayor's proposed reductions in gross receipts tax as well as minimally the reestablishment of the wage tax cuts that are in the current five-year plan?
The answer to your question is no. Clearly there are ways that we could 207 4/8/02 - WHOLE - TAX REDUCTION BILLS respond. However, we're talking about $120 million, and we have to --
Mr. Dubow, you've said that a few times. And I've been very kind about that. You know as well as I do that at the moment we're not automatically talking about $120 million. You know that, first, there's no dispute about the proposed reduction in the FY '03 budget as it relates to the wage tax because there's a bill in front of us to do that from the Administration as well as in Bill 92. You're talking about FY '04 at which time I believe that cut is approximately $11 million; isn't that correct?
That's right. But what I was starting to say was, that we have to have a five-year plan that's balanced. The five-year plan will have all $120 million. So in putting that plan together today we have to be able to identify what it is we can do. When we put together the plan, we put together a list of the things that we felt we could do now. That's the $227 million. We would have to find another $120 million and identify it now in our plan.
Well, would you 208 4/8/02 - WHOLE - TAX REDUCTION BILLS identify it in the same way -- tell me in the current five-year plan what the items are on Line 4 on Appendix 3, . Tell me what those items 5 are. 6
That's $60 million that we 11 have every year but that has been consistently 12 questioned and we've been told that we shouldn't 13 make that any bigger. 14
Every year we go to our 16 departments and we give them target budgets. And in 17 the target budget reduction process they find cuts. 18 That line represents that. 19
The figure actually has been in the plan for several years. It pre-dates me.
Where did it come 209 4/8/02 - WHOLE - TAX REDUCTION BILLS from?
It probably came from whoever was budget director back when it was developed.
It represents what we think our departments can do in future years to reduce costs. Last week we talked to a couple of rating agencies and we asked them about ways we could show a plan that was balanced if we had tax reductions. One of the things we talked about was that line in specific. They said that they didn't think -- they said it would raise questions for them if that number increased beyond where it is.
Well, usually when people raise questions, what they're looking for is an answer. You would probably be creative in developing an answer, right?
Well, the answers that we'd develop would have to be fairly specific. And we've developed a list of cuts that we think we can do that don't impact services.
Well, tell me the 210 4/8/02 - WHOLE - TAX REDUCTION BILLS specifics of these right now.
As I said, the 60 are things that we're going to ask departments to do over time.
So the answer to the question is you don't have the specifics on the 60 right now, right?
So no matter what that number was, you wouldn't necessarily have the specifics of what the answer was to Line 20, whether it's for people here in Philadelphia, to a rating agency, or anyone else; isn't that correct?
That's correct. But the bigger that number is, the more speculative our plan becomes.
All right. Are we anticipating -- can you make available to you us -- are representatives from PIDC here?
Yes, I know. I 211 4/8/02 - WHOLE - TAX REDUCTION BILLS think he's going to have his own time at the table. Mr. Cronin, let me go back to you for a second and then I'll probably just finish up for the moment. Was it your testimony earlier that Philadelphia was one of the best kept secrets in America?
From a business standpoint I said I think we need to do a better job of marketing Philadelphia on a national level, yes.
Well, let me tell you one of the things about Philadelphia that is not the best kept secret. It is a well-known fact analyzed by the Government of Washington, D.C., analyzed by the Independent Budget Office of the City of New York, Philadelphia has the highest tax burden of any major City in the United States of America. That is not a secret. (Applause.)
So let me go back and ask the original question. What are we going to do about it? What is the plan to get away from that particular distinction? And how is any of that accomplished through this process?
We are going to make cuts 212 4/8/02 - WHOLE - TAX REDUCTION BILLS in the one tax where we can make an appreciable difference which is the gross receipts portion of the business tax and reduce the cost of doing business in Philadelphia. We're going to maintain the level of services at a level that are acceptable to businesses and residents in Philadelphia. And we're going to continue supporting economic development projects, both large and small, which will create jobs and create new attractions to bring people into the City.
Mr. Dubow, let me finish up with you. We had an exchange and then we started talking about something else. As you mentioned, you may have to show $120 million over the four years, but the first year of that is the $11 million; is that correct?
Do you know of anything statutorily or by way of the Charter that would prevent us in the course of that next fiscal year -- because all of this debate and discussion and argument is not about the upcoming fiscal year, correct?
Is there anything that could happen or anything that prevents us from reevaluating our situation in the course of FY '04 so as to have prevent the cataclysmic events that we've heard about over the past few days?
There's nothing to stop us from reevaluating. And actually, to go back to it --
Because we've set tax rates every year without a whisper for the last six years; isn't that correct?
We've set tax rate a year at a time each year for the last six years, that's correct.
But whether it's a schedule or whether it's one at a time, there's nothing that still prevents this government or this City Council or the Mayor from proposing that based on the current information we may have to stop something; isn't that right?
Well, what we're saying is that if we put these tax reductions into our plan, we have to balance the plan now, so we have to make changes to the plan now.
I understand that. So let me ask you this question. Is the Controller wrong or irresponsible in his position on this matter?
I didn't ask you that. I said, is he wrong or is he irresponsible?
Is the Director of PICA wrong or irresponsible in this matter?
So you, not individually but as kind of the royal you, notwithstanding the elected fiscal watchdog of the City, notwithstanding a statutorily imposed entity 215 4/8/02 - WHOLE - TAX REDUCTION BILLS from the State called PICA that have to review our finances and sign off on them, you believe that your information is either better, superior, more responsible, and that the other two entities that have some obligation to review the City's finances are just flat out wrong and you have captured all the knowledge and information that could be had on this topic?
I do not believe that anybody has captured all the information or knowledge on this topic. I do believe, however, that our numbers are right. And I believe that in order to make larger tax reductions, there will be some impact on services.
This is my last question. What was the projection for the FY '01 Fiscal Year in terms of collections? What were your revenue projections for FY '01 in that year's plan?
I'd have to go back and look. I don't have that year's plan with me. But you do.
Would you be surprised to know the actual was 60 million more than what you projected? 216 4/8/02 - WHOLE - TAX REDUCTION BILLS
Well, there are two things. One, if you're looking at the actual as it's shown in the plan, that's because of the accounting change that we talked about that we accrued an extra two months of revenues in '01 that we normally wouldn't have accrued, so our revenues were higher. Now, there's another question which is, have those projections been higher over the years? And they were. But we were making those projections in the middle of the longest economic expansion in the country's history. We did not project that that expansion would go on forever. So yes, there are years where revenues came in higher.
That's right. So we did not project that it would. But it went longer than we thought it would. It went longer than anyone thought it would.
It appears that we're at least coming out of what we were just in, and at this critical moment we need a tax policy that actually makes some sense that can generate jobs, keep residents here, and attract other people 217 4/8/02 - WHOLE - TAX REDUCTION BILLS here. And I don't necessarily see where the strategy that's been laid out accomplishes those goals.
We have not seen in jobs data or in our collections data that we're coming out of it yet.
We haven't seen in the jobs data that we're getting or in the collections that we're getting that Philadelphia is coming out of it yet.
The accounting changes that you mentioned, they are in fact accounting changes, they are not a reflection of what you actually received and it is in fact a shifting around of when you account for certain revenues that clearly are still coming; isn't that right?
That's right. But the number that's shown as what we actually collected includes two more months of collections than what we had anticipated we'd collect when we made our projection. 218 4/8/02 - WHOLE - TAX REDUCTION BILLS
All right. Madam Chair, I'm finished. I did want to ask if the representatives from the Administration are either staying around or are you going to leave or do you anticipate coming back?
Thank you. I understand that Councilman Kenney has a few very brief questions to ask.
Thank you, Madam President. Just a couple follow-ups. The strategy, as I understand it, was to freeze the wage tax cuts for 2004, accelerate the gross receipts tax, and then reevaluate as time went on as to whether or not the cuts could be re-imposed; is that accurate?
Wouldn't it have been more prudent or can it be more prudent to have continued the reductions in the wage tax, accelerate 219 4/8/02 - WHOLE - TAX REDUCTION BILLS the gross receipts tax and then reevaluate as time went on? Wouldn't it have kept us out of this room 4 today? And wouldn't it -- maybe it's a good thing we're in this room today because we're discussing more wide-ranging issues relative to the wage tax. But wouldn't that have been a better way to go about it if you wanted to accelerate the gross receipts, keep the modest wage tax cuts and then reevaluate the situation of the City?
That would have been the easier way to go, but we were not able to balance the plan doing those two things.
See, because what confuses me a little bit, I think, is that the gross receipts tax reduction accelerations and the freezing of the wage tax reductions in 2004, does that not amount to basically a $50 million tax increase? And I say that in this regard. If we're stopping something we were doing and wind up at the end of the day with $50 million to spend on services than we had before, isn't that in fact a tax increase?
I would disagree. The tax rate is not going up. The tax rate goes down one 220 4/8/02 - WHOLE - TAX REDUCTION BILLS more year.
We're going to have more money as a result -- we're going to have $50 million more as a result of freezing the wage taxes than we were projected at having in previous five-year plans; is that accurate?
And that increase of $50 million does not come from collections, it comes from freezing the reductions?
No. It's a suspension of a reduction. We have one more year of reduction. The tax rate at the end of the five-year plan process will be lower than it was at the beginning of the plan process.
I understand. But the net effect of it is $50 million more in the City coffers that the City can use as they see fit. So in effect, without raising the rate, you've in fact increased taxes by $50 million.
No. Everyone's tax rate is 221 4/8/02 - WHOLE - TAX REDUCTION BILLS lower at the end of the plan than at the beginning.
I understand. But the five-year plans that we have approved in the past have anticipated the continuation of those wage tax reductions. If we stop those wage tax reductions, are we not in effect back-door raising taxes?
I think this is one of those issues where we're going to go back and forth for a long time.
Let me move then to the gross receipts tax. Is it true that the gross receipts tax does not apply to companies who produce their product in Philadelphia but sell that product outside?
None at all or just a portion of the sales in Philadelphia?
So if I make cardboard boxes and I sell a percentage in Philadelphia and a percentage outside, I only pay 222 4/8/02 - WHOLE - TAX REDUCTION BILLS the gross receipts tax on those products sold in Philadelphia; is that correct?
Have we done any commerce investigation or questionnaire as to the attitude of those companies who won't be experiencing the results of the accelerated gross receipts tax plans that the Administration had because they're located in Philadelphia but a large percentage or a majority of their product is sold outside of Philadelphia? What is their attitude about the loss of the wage tax cuts?
No, Councilman, we have not done any specific research on that point.
Do we know how many companies are in that cadre of companies? See, my concern is that the Administration is touting the acceleration of the gross receipts tax, however there are a cohort of companies that won't have any benefit from that because they do a lot of their work -- because they sell a lot of their product outside the City. And therefore they should be upset that they're losing the wage tax reductions while not experiencing the 223 4/8/02 - WHOLE - TAX REDUCTION BILLS benefit of the gross receipts acceleration. Is there any way to identify those companies and to have some interface with them as to what their opinion is? Do we know how many companies there are in that situation? It would seem to me if I'm located in Philadelphia and the gross receipts tax reductions are accelerated but a large portion or a major percentage or some percentage of my business is not affected by the gross receipts tax but my employees are, in fact, affected by the loss of their wage tax reductions -- have you been able to gauge the attitude of those companies as a result of what the Administration's strategy is today?
Councilman, I understand the point you're making. I just don't have a breakdown as to how many companies do a majority of their business in the City versus how many do a majority of their business outside the City and therefore would not be affected by the gross receipts tax.
Perhaps other witnesses in this Chamber may be able to give us that. 224 4/8/02 - WHOLE - TAX REDUCTION BILLS Thank you Madam Chair.
Thank you. Are there any other questions from members of the Committee? The Chair recognizes Councilwoman Tasco.
In your survey, did you ask them whether they do business in the City or outside the City? Was that part of the survey?
Councilwoman, I do not believe we asked that specific question, no. 12
So it would have some impact on the questions that you asked based on whether or not they did business in the City or outside the City.
The one question that's very close to that that I think is relevant is that of the advantages cited by businesses for being in Philadelphia. The highest response that we got was that it gave them direct access to their customer base. So that would lead me to believe that the larger percentage of the companies that we were dealing with are doing business right here in this City.
But it also would 225 4/8/02 - WHOLE - TAX REDUCTION BILLS have an impact on the gross receipts tax question if the companies don't have to pay gross receipts. It would be a negligible question to them.
But it would be relevant for all those companies that are doing business in the City. And I'm saying our results from the survey indicate that that was the highest response that their customers are in Philadelphia therefore that's where they're doing business. So that's where the gross receipts would be relevant.
Thank you. Are there any other questions from Members of the Committee? Councilman Nutter.
Can you tell me what the impact of the reductions in the gross receipts tax have on these upwards of 700,000 people who work or live in Philadelphia? What does that mean to them?
Our analysis indicated that it would mean increased jobs and increased availability of jobs for the people in the City of Philadelphia. 226 4/8/02 - WHOLE - TAX REDUCTION BILLS
Those people already have a job. I'm asking what the reduction in the gross receipts tax does for working people now.
Hopefully, it will enable us in the future to make more significant cuts in the wage tax.
How many jobs are you anticipating being increased as a result of this proposal?
We haven't quantified the jobs that we anticipate being created. We've included no supply side in the five-year plan.
Councilman, if I may, reducing the gross receipts tax will reduce the cost 227 4/8/02 - WHOLE - TAX REDUCTION BILLS of doing business in Philadelphia and, presumably, lead to a large number of companies reducing their expenses making it easier to do business in Philadelphia and making it more likely that they will stay and be profitable and be viable and retain jobs and grow in the City.
Well, don't you think reducing the cost of the premium that many businesses in Philadelphia have to pay to convince people to work in Philadelphia would help reduce their cost also? I mean, you understand that many businesses end up actually paying the wage tax in effect because some workers are in a position to tell their employer, "If I'm going to end up paying this 4-plus percent, you're going to pay me 4-plus percent more." Doesn't the cut actually help the business in that situation as well?
If we could afford it, more than 170.4 million in tax reductions, we would have continued.
Well, let me just say lastly, Ms. Davis, and you know I respect you tremendously, the $170 million, I think as the 228 4/8/02 - WHOLE - TAX REDUCTION BILLS Controller was saying earlier, none of this is necessarily written in stone and you don't have five years with set rates. The $170 million, as best I can tell, is a very fluid concept. It represents a conscious decision by the Administration, which you have a right to do and the responsibility, to try to determine tax policy. But it would come across as if that's the only idea available, it's the only way to do anything. And it's not four more years of guaranteed cuts. Now, can we at least get that established and clear on the record?
If we did not have to present a balanced five-year plan, what you're saying is correct. Our view is that in order to present a balanced five-year plan, we would have to find $120 million in cuts.
Well, that was very cute. That has nothing to do with the question I asked. The $170 million is not anywhere in terms of an actual expense today because Bill 30 is only for FY '03; isn't that correct?
And, therefore, there is not 170 million in cost, correct? 229 4/8/02 - WHOLE - TAX REDUCTION BILLS
You're exactly correct, but we must present a five-year plan that is balanced. And no matter what your bill says, the fact that the plan anticipates it throughout, we have to have a balanced five-year plan. I understand completely where you're headed with it, and if I did not have a five-year plan, it would be very easy to say look at this one year at a time. But other governments that have looked at their finances one year at a time have gotten down the road and found that they could not afford that government at the end of five years. And what we're attempting to do is what we view as being fiscally responsible, looking at it five years, doing what PICA requires, and presenting a balanced plan.
I understand that. I respect the five-year plan process. We probably should have started that sometime ago and we'll continue to do that. But I guess then I have to finally ask you, with these various proposals and ideas, is it your contention that people who may support them are acting in a fiscally responsible fashion?
All I'm saying is that those 230 4/8/02 - WHOLE - TAX REDUCTION BILLS people don't have to live with the results, the Administration does.
Well, Ms. Davis, hold on for a second. I live here, too. I'll actually have to vote on it. (Applause.)
And I've actually lived here a long time. The government is not the sole prerogative and the sole entity of the City Administration. (Applause.)
And actually, the last I checked, Members of City Council actually have to vote on a budget and a five-year plan, which the Administration does not have to do.
I understand that. But we are in this together; is that correct?
So you don't think really that we would act in a fiscally irresponsible fashion, given the fact that many of us came here at a time when it was much tougher times. I don't recall the discussion when we had a $252 million 231 4/8/02 - WHOLE - TAX REDUCTION BILLS deficit on its way to $1.4 billion deficit, I don't remember as much doom and gloom that we've heard over the past few days years ago. Now, all of 5 those things were not proposed. There were some 6 cuts. There were some very tough times. But I 7 don't think anybody's making the argument that in 8 2002 we're anywhere near where we were in 1992. And 9 we didn't hear the proposed closing of all of these 10 facilities when we had a $250 million deficit and then -- I'm sorry, today's surplus is how much?
So you're not saying that the folks who were managing the budget back in 1992 were able to do a better job than you're able to do today, are you?
There is a phenomenon when people are in crisis that they are willing to bear a whole lot more pain than when they're not. And so those people back in '92 recognized the desperateness of their situation and took drastic action. There were significant amounts that were balanced on cuts in the size of government and the fact that people did not get raises and significant 232 4/8/02 - WHOLE - TAX REDUCTION BILLS pain within the government. We're trying to avoid the pain to the extent that we can. We have done what we think is fiscally responsible that will allow us to generate in the future additional revenues. We have not included anything that's speculative in the plan and we've presented a balanced plan.
Well, let me say two last things. One, the only thing tougher than cutting your cost when you have no money is cutting your cost when you do have money. And so it seems that maybe some of the imperative is to keep our cost at an appropriate level, not a Draconian level, but at an appropriate level. Are you saying that maybe some of that steam and effort has subsided and that we're not doing in these less-than-perilous times what we might be compelled to do in more perilous times?
No. We are still pursuing cuts. We are pursuing cuts whereever we can. We're doing it cautiously. We are doing those things that we think will generate additional revenue. We are looking at ways to restructure government. We are doing all of the things that were done then. We 233 4/8/02 - WHOLE - TAX REDUCTION BILLS continue to do those things. We are just faced with a very different climate.
Well, let me lastly tell you that at another point in time when things were probably or possibly even more perilous, a very wise person said the following: "I have still not been able to communicate effectively what it is I mean when I say we have to do business differently. What this Administration says and what other people say basically assumes we're going to use the same basic service delivery mechanisms, and I think differently along those lines." Who do you think said that?
Any other questions of Members of the Committee? Thank you all very much. And you will make yourselves available, please. Our next witnesses. 234 4/8/02 - WHOLE - TAX REDUCTION BILLS
Thank you, Madam President and Members of the City Council for allowing us to come and speak to you today. My name is Judy vonSeldeneck, and I am the Chair of the Greater Philadelphia Chamber of Commerce.
Ms. VonSeldeneck, just a moment please. Why don't we just have the people walk out that are leaving quietly, please. Please proceed.
Thank you, ma'am. Before I do proceed, I would just like to acknowledge a very special person who is with us today. He's actually up here. His name is Russel Byers and he is a dear friend of mine and a dear friend of Charlie's. And he's got a big smile on his face because he always used to chide us that the business community was made up of a bunch of wimps. And so, Russel, this one is for you. (Applause.) 235 4/8/02 - WHOLE - TAX REDUCTION BILLS
I would like to say that this is the first march I've marched in since 1964, I think it was, when I was working in Washington and was for Walter Mondale and marched to the Washington Monument for the Civil Rights Movement, so it really felt good today and I want to thank Charlie for making it possible. But in any event, I would just like to say I'm here as the Chair of the Chamber, but I'm also here as a resident of the City of the Philadelphia and I'm also here as a small business owner who has had a business for almost 30 years which I started here and I built it to be the largest woman-owned recruiting firm in the United States of America, and it happened right here in Philadelphia. And I was recently bought out three years ago by a public company. I still run the company, but they also have other interests and other businesses in this City that they are interested in growing. So this has a lot to do with a lot of different issues. With me today also is the Chair of the Chamber's Tax Committee Stu Weintraub and he has also played a major role in making all of this 236 4/8/02 - WHOLE - TAX REDUCTION BILLS happen. But now I want you to really hear from the most important person who it is my real honor and privilege to have been associated with, our fearless leader, Charlie Pizzi.
Thank you, Judy, and thanks for your leadership. Madam President, Members of City Council, I would like to thank all of you for taking part in this debate that is so very important to the City's future. I would also like to thank and acknowledge the Pennsylvania Economy League and its Executive Director David Thornburgh. Last September he put out a book detailing all the information about tax policy. And it says "Flight or Fight." Well, ladies and gentlemen, we are doing the latter because we, like you, believe in a strong Philadelphia. (Applause.)
The Chairman of a multi-national corporation in Philadelphia recently told me, when a local government changes direction especially as it relates to tax policy, it creates uncertainty. Business planning cycles are much 237 4/8/02 - WHOLE - TAX REDUCTION BILLS longer. In short, business hates uncertainty. In a recent study of its membership, the National Federation of Independent businesses found that frequent changes in tax code ranked No. 10 out of 75 business problems in the list of top business problems. How can firms plan if the City keeps changing the rules. Business plans spans a period of time that is longer than the election cycle. Until we can promise a stable predictable tax environment, firms will continue to leave the City when opportunity arises and avoid coming here. Labor costs make up 70 percent of business costs. 5 percent of the labor bill by operating on one side of City Line Avenue is compelling indeed to new and existing businesses. As it has been well documented, 90 percent of the business space along Councilman Nutter's district is on the suburban side of the street. This is common sense. For more than a decade I have been coming to Council to testify to the need for tax reform. I have talked about the flight of the 238 4/8/02 - WHOLE - TAX REDUCTION BILLS middle class and the hole that we are putting ourselves in if we did not reverse the trend that the City was facing. Well, here we are a decade later with a smaller, poorer, more service dependent population. Despite the greatest expansion in America's economic history, our City has lost out and is losing out on opportunity. People want to live in our City, but it is not a wise choice when they consider the economic equation. This point was hammered home in this letter written to the Daily News by a young man and his wife who relocated to our region. I quote. "My wife and I recently moved to Philadelphia area. While we were absolutely in love with Chestnut Hill area, we had to eliminate it from our search because economics of buying in Philadelphia simply didn't make sense. A nearly 4 percent tax on dual incomes was too much of a hurdle to get over. That level of tax withholding would represent furniture for our home, possible vacations, and savings. My wife and I are exactly the type of late 20-sometings that the City should be trying to attract to come spend that discretionary income. " Stories like that illustrated why the Greater Philadelphia Chamber of Commerce is leading the fight for Bill 92. It is absolutely the right course of action for our City. Since 1950, more than 500,000 people and 200,000 jobs have left Philadelphia. Countless more like the writers of that editorial comment have been dissuaded from moving here. Most consumers don't save more than 5 percent of their income, a figure negated by the wage tax for workers living and working in our City. These are precisely the kinds of people the City need at residents who will spend their income at City businesses, support City schools, work to improve their quality. The wage tax simply penalizes people for living and working in Philadelphia. And when people leave or choose not to move to Philadelphia, every cent of potential tax revenue is loss. The City now has to resort to bond issues for things such as neighborhood revitalization. This approach is mortgaging the future of our City. It is like a person running up more and more debt on their credit cards. It is an 240 4/8/02 - WHOLE - TAX REDUCTION BILLS approach that will not work for Philadelphia. Former Governor Tom Ridge disavowed this approach when he took the reigns of state government in 1994. He was able to reduce taxes and create a robust rainy day fund. He withstood the criticisms for not following more traditional approaches. The solution to Philadelphia's economic challenges is simple, it's growth. Business growth. Population growth.
Without it, we will continue to see our representation in both Washington and Harrisburg dwindle. You are all very astute politicians. Along with it, that representation and we know we lost congressmen and legislatures, we lose funds for the most needy in our City which will become a shrinking asset. We must attract people back to the City and we must make job creation a priority, not a happenstance. Philadelphia has been seeking to attract new companies. In a recent interview with the City Paper, Mayor Street references those efforts by saying that the City was within a gnat's whisker of attracting a company of a thousand jobs to this City from the suburbs. The Daily News reported on this as well. The company is American Business Financial 241 4/8/02 - WHOLE - TAX REDUCTION BILLS Services. Each member of Council has heard from them recently in a letter from their CFO. He says in his letter, I quote, "One of the major influences on our decision to move to Philadelphia is the City and wage tax. That is why our company's management is very interested in the vote by City Council set for April 8th. We hope that you and your colleagues will vote unanimously in favor of the bill to lower the City wage tax. " Powerful message. 5 percent increase in labor costs that a move would entail? 5 percent is forever, not just one time. With a base payroll of 35 million and an average salary of $37,000, American Business Financial Services would be a very good corporate citizen for Philadelphia. The wage tax is harmful all other ills of this City faces. Consider what the Philadelphia Sunday Sun said yesterday. I quote. "After neighborhood blight, crime, and homelessness , the wage tax has become a symbol of what is wrong with 242 4/8/02 - WHOLE - TAX REDUCTION BILLS fill. The incremental cuts, while small, were proof that we were starting to head in the right direction towards real tax reform. Because it's a flat tax, the levy on gross wages has an even more onerous impact on the earnings of those at the lowest end of pay scale. " While we hope to attract companies like the American Business Financial Services to Philadelphia, I would be remiss if I did not remind of you of opportunities lost. One of the early potential tenants, for example, of the Naval Business Center was SAP. I'm sure that you all possibly have not had seen the beautiful facility in Newtown Square with thousands of jobs. We lost that opportunity to have in the City due to the tax structure. " Efforts are now underway to address 243 4/8/02 - WHOLE - TAX REDUCTION BILLS neighborhood revitalization. Bonds will be floated. A neighborhood transformation process will begin. We will demolish many buildings and create more livable neighborhoods. This looks good on the surface, and both Council and the Mayor should be congratulated for this vision. Unfortunately, this project will be less successful than it could if residents of the neighborhoods cannot find jobs and increase their disposable income. Without job creation, we stand no chance of arresting urban blight. Last week's editorial in the Philadelphia Inquirer said it best. I quote. "Here's the real issue. Any business that needs to compete for talent, in other words, any business that pays a living wage job finds it must subsidize the wage tax to attract or keep employees. That big expense adds up to a big disincentive to locate or expand inside City limits. " Make no mistake, passage of Bill 92 is not the solution; it is only the beginning. It must 244 4/8/02 - WHOLE - TAX REDUCTION BILLS be followed by even more aggressive measures. Bill 3 92 will only reduce the burden that our residence and business face by a very small amount. With growth, it will do more aggressively than foreseen in the five-year plan. Its assure us that the fiscal health of the City is protected and that the reductions are done in a predictable methodical fashion.
The Chamber is in agreement with the Philadelphia Daily News which stated in its March 18th editorial. "We are persuaded of the need for a bold move to signal that the City is serious about changing a tax structure that is onerous to growth, one that contributes to the loss of people and jobs in the City. We must get the wage tax below 4 percent and lower if possible. " Some say that we can't afford to take the risk and that the only solution to our problems is state-wide tax reform. I say that we can't afford not to take the risk given the dwindling clout and population in Philadelphia. Are we naive enough to think that the suburban municipalities won't fight to eliminate non-resident wage tax and 245 4/8/02 - WHOLE - TAX REDUCTION BILLS avail themselves of the ability to tax those wages for their on budgets? We cannot send the signal that Philadelphia is returning to a time when business formation and job creations were unwelcome. We must recognize that our latest employers are growing and their suburban operations are downsizing those in the City in order to retain their most productive employees. Small business owners are finding more hospitality business climates in the suburbs and avoiding making investments in the City. Those businesses here are thinking twice. The Chamber surveyed businesses in Philadelphia. It once again pointed out that 62 percent of those surveyed had considered moving their businesses out of the City. Of those, 87 percent cited taxes as the reason they might leave. Even if those responding truly didn't care about the wage tax, those that did responded and do care and are a significant part of our business community and their consideration of future flight from the City should be alarming. While the number of firms maybe considered small, it represents 11,800 jobs, twice the number of jobs initially lost with the closure 246 4/8/02 - WHOLE - TAX REDUCTION BILLS of the naval yard. Can you as elected officials of the City take the chance that this will not happen? Can you sit back and envision a city whose middle class is composed almost solely by City employees? It is only common sense to envision how long that model can survive. The Philadelphia Business Journal makes this point succinctly. "Financially malnourished Philadelphia needs these reductions in the wage tax cuts. " It is important that we address the issues that have been raised concerning the effect that this tax cut proposal will have on potential incomes of City employees. I have just stated that we are moving more and more towards a population in which the majority of the middle class could be comprised of City employees. Without a broadly-based middle class, revenues will not be available to sustain the numbers of employees. In fact, failure to enact a tax cut could be dangerous to the fiscal health. The argument that has been made by some elected officials on this issue is nothing short of a wrong tactic which must be 247 4/8/02 - WHOLE - TAX REDUCTION BILLS disavowed by those who are saying it. Once again, I quote the Philadelphia Inquirer. "The supply side effect is real when it comes to the City wage tax. Tax cuts can simulate business activity that over time off sets the tax revenues forsaken through the tax cuts. " Let it be clear, we also support the proposal made by the Street Administration that the City act aggressively to reduce, or better, eliminate the gross receipts tax. This tax does not put an inordinate burden on business by taxing them even when they do not make a profit. Unlike some, we do not see this debate as an either-or proposal. It is not either the wage tax or the gross receipts tax; it's both. We applaud Councilman Cohen on his proposal to exempt the truly needed in our community from the wage tax and support Councilman Goode's bill to establish job creation tax credits to business creating new jobs in the City.
I would also recognize the efforts of Councilwoman Blackwell who has worked tirelessly 248 4/8/02 - WHOLE - TAX REDUCTION BILLS achieve a compromise on this issue. Unfortunately, this is an issue where there can be no further compromise and we would respectively request her to consider withdrawing Bill 144. Those of us who own or run a business recognize how difficult it is to attract and retain the most talented employees. It is not theory; it is reality. Businesses that many believe would be in Philadelphia forever are either opening suburban offices or are being pressured by their employees to do so. In this 21st Century economy, business no 13 longer needs to remain in a City. Even those who are dependent on consumer spending tend to locate in areas with growing incomes, not those that are static or declining. We all recognize that supporting Bill 92 will take an act of political courage. And I would like to thank now personally Councilman Nutter and DiCicco and the 11 members of the Council who signed on to that bill. What we are demanding is not only a vote for that bill, but also a commitment to vote for an override and a potential veto. In the past, this Body has passed several versions of bills. I would caution that the groups who are joined in 249 4/8/02 - WHOLE - TAX REDUCTION BILLS support of real tax reform will not stand by. I thank you for providing me with this opportunity to testify before you once again. Together we can bring economic vitality back to Philadelphia. Members of Council, if you are voting solely on the merit of the issue, let me quote from a member of the Mayor's own economic advisory council in today's Daily News. "Small or large the wage tax cut yield results. Clearly a big cut is likely to have a more beneficial effect on jobs and the economy, but a small cut will be beneficial. " Thank you very much. )
Thank you. Mr. Pizzi, I just wanted to thank you for all of your effort in this particular issue. But I want to point out something that's been brought to my attention. And I don't know if we even have a way to measure our loss of business. 250 4/8/02 - WHOLE - TAX REDUCTION BILLS Many large corporations in the City of Philadelphia that had 2500, 2600 employees here at one time on Friday evening the Mayflower truck backs to the door and removes one complete floor. Maybe the real estate department that on Monday the employees report to King of Prussia. So again, we have some businesses leaving. Their name may be here. Their corporate offices may be here, but month after month after month they just dwindle away until many of the departments that operate that company are located in the suburbs. So I don't know even if you had an opportunity to visit that particular issue but it is, from what I understand, becoming a very, very serious issue.
It is, Councilman Rizzo. And I'll just paraphrase a quote that my predecessor Nick DiBennidictus (ph) said back in 1987. He said, and I quote, "Businesses vote with their feet." And they have been doing that ever since he said it.
Well, it's interesting you say that because I believe this one particular company that I'm aware of that the employees physically got together because the 251 4/8/02 - WHOLE - TAX REDUCTION BILLS majority of them lived in the suburbs and they went to the senior management of the company and said, "Look, we want to get out of here and we'll make a deal. We'll find a location in the suburbs, the space that will accommodate our need." They did that, and that moving van moved up on a Friday evening and relocated 111 people.
Well, I want our messages to be clear. This is not a message of doom and gloom. The message that we are bringing to you is a message of opportunity. It's easy to do the doom-and-gloom routine. We are trying to bring and expand on our residents and workers in Philadelphia. And that's what we're trying to do, send a message of opportunity.
Well, we have to balance the doom and gloom a bit here. Thank you.
Thank you, Madam President. Mr. Pizzi, let me first say that I do support Bill 92 and will continue to do so. But, of 252 4/8/02 - WHOLE - TAX REDUCTION BILLS course, I have to turn my attention today to Bill 3 116 because it's my bill. I want to talk also about separation between job creation and tax cuts. People have constantly alluded to the fact that there is some correlation I don't think exists. For the record, could you tell me what years you were Commerce Director?
Yes. I was Commerce Director from 1986 to 1988. And prior to that I was Deputy Commerce Director, then First Deputy Commerce Director from 1984 and '85.
What year did you start your economic development career?
I was 25. It was 1976. And, Councilman, if I may tell you, during that time people didn't know what economic development was.
In 1983 after Wilson Goode resigned as Managing Director and ran for mayor, Mayor Bill Green and then City Council decided to raise the wage tax .65 percent, seemingly dooming his term in office in terms of economic development. But the doom and gloom did not happen, did it?