I didn't think there would be any objections to that. I'm going to basically just mention a few facts and trend lines along the way and then we'll pick up the testimony in written form, and I assume you all have it in front of you.
Charlie Pizzi mentioned earlier the Flight or Fight book which is something that we we're very proud of. I think it has made a compelling and forceful statement about the City and its condition today. And it's filled with many indicators of distress and decline over the last 30 years. And just to mention a few of them, some of these have been mentioned today, the legacy of 30 309 4/8/02 - WHOLE - TAX REDUCTION BILLS years of decline. There are a number of things. One, about 500,000 fewer people in the 1990s, about 280,000 people chose to leave the City. That's what works out to about 77 per day. And the recent trend suggest that that outflow hasn't stopped. Since there's a relationship between people and jobs, we know that it should come as no surprise that we've lost over 200,000 jobs since 1970. It also shouldn't come as a surprise that the total value of property in the City is less today than it was in 1970. If you follow the basic logic that says if people are moving out and people aren't moving in, then residential property values stay low, business rents stay low, little gets built over time. And of course, you and the Mayor have squared up, I think, courageously to one impact of that long-term erosion through the Neighborhood transformation Initiative to address the almost 60,000 vacate lots and structures that literally blight this City. One of the facts that Flight or Fight points out is that three out of four kids aged through 5 live in those neighborhoods, which I think is a very chilling statement about this City and its future. And unfortunately, that blight machine that 310 4/8/02 - WHOLE - TAX REDUCTION BILLS created those 60,000 abandoned structures still seems to be in gear. The reinvestment fund has done work for the Neighborhood Transformation Initiative suggests that by 2020, and you've seen these maps many times, that seeming there won't be more than one or two census tracks in the City that aren't scarred by blight. Clearly, that long-term erosion, the tide going out in Philadelphia has also had a major impact on property values, as I said. So it really has -- there's a perception out there that those who could, left; and those who remain maybe are not worse off by the departure of those who left, and I think I would suggest that they are. Philadelphia's very low property values, average sale price ballpark if about $60,000 compared to $155,000 in the suburbs over $300,000 in markets like Boston and the bay area. What that means long-term is that investment in this place in buying a house in Philadelphia --
Mr. Thornburgh, excuse. I think you deserve a little more courtesy than you're receiving. Anybody having private conversations, 311 4/8/02 - WHOLE - TAX REDUCTION BILLS please do so in the corridor.
Thank you, Council President. I was just finishing by saying that the long-term trend suggests that an investment in buying a house in Philadelphia has not been a real good one. The reinvestment fund points out in their recent report that between 1982 and 1999, 57 percent of the people who bought and sold a house in Philadelphia in that time lost money, the highest percentage of the four studies that were looked at. The report goes on to say that this is really the double-edged sword of our real estate market. Our homes are affordable and not appreciating because demand growth is low. No appreciation, no wealth. No nest egg to use for retirement. No home equity to use for college. No assets to use as collateral for a business loan. The same has been held to be true in the commercial real estate market which makes up about 45 percent of the value in the City. Soft demand, little growth, low rents. That's not in fact good news for, as Charlie Pizzi pointed, the almost half of the downtown workers who take their paychecks 312 4/8/02 - WHOLE - TAX REDUCTION BILLS back to their homes in Philadelphia neighborhoods. So that was sort of a quick walk-through of some of the findings, conclusions, and as I said, legacy of that report. I wanted to go over that ground for a purpose. And the purpose is essentially to ask one more time what it is that we can learn from that legacy of history and can we use those lessons to guide us going forward. " So what then can we learn from the last 30 years and how can we stop doing it? In fact, how can we keep ourselves out of the asylum? One of the questions I think you have to ask yourself is what is really, truly different about Philadelphia compared to other cities. Let's just say New York, Washington, Boston, our neighbors on the East Coast. People take things into account when they make decisions. Schools have been mentioned. Crime has been mention. Taxes have been mentioned. Certainly jobs. How does Philadelphia compare on that score? Well, I'm not going to get 313 4/8/02 - WHOLE - TAX REDUCTION BILLS into another whole round of statistics on you here, but I think it's fair to say that in any one of those cities that I've mentioned, those problems, crime, schools, other urban ills, you can read about in the local paper of your choice on almost a daily basis. My point there is that none of those things really by themselves explain Philadelphia's loss and lack of competitiveness over time. What we do know -- and this is not that hard to figure out. What we do know is that where Philadelphia really stands out is in the area of taxes. And there we have two problems: First, we have very, very high, even what you think of as scary high taxes. C. government, if you make $25,000 a year, you're paying the highest state and local tax burden except for two cities, Newark, New Jersey; Bridgeport, Connecticut. If you've ever been to one of those two, I'd think you'd suggest that those were not in fact good role models for the City of Philadelphia. Our numbers suggest that it costs to make the choice to live and work in the City of 314 4/8/02 - WHOLE - TAX REDUCTION BILLS Philadelphia cost you about $2400 a year if you're the typical family in this region. That's two SEPTA passes a month. That's a semester of community college. That's about three-quarters of the annual tuition that a small private school like and Saint Barnabas in Germantown. So that's problem one; high taxes. The second problem, we spent a lot of time talking about it today, we rely very heavily on that local wage tax. We all know the history. In 1939, temporary measure, tied us over in the Depression. There was a Mayor quoted at the time saying that there as no way that the wage tax would ever last. It was an experiment and then we'd give it up and get on with life. Well, it's clearly with us today. In 1999, the City derived about 52 percent of its local tax revenue from the wage tax.
The only City close to that among the 10 big cities in country is the City of Detroit at 45 percent. Again, not exactly another great role model. In fact, if you look at the way cities have conducted their affairs over the last four years, you'd be hard pressed to find a single big city that's even enacted a new wage tax in that time. 315 4/8/02 - WHOLE - TAX REDUCTION BILLS So how high taxes relied heavily on the wage tax, so what? The key question, we've spent a lot of time talking about it today but I wanted to maybe try to nail down this point. So what? Have in fact high taxes and high wage taxes made a difference, have they encouraged people and jobs to flee the City? I want to take a quick survey of two sources: Expert opinion and public opinion. I will quote Professor Bob Inman, his landmark study, 1987, been quoted in every one of the Rendell Street five-year plans to justify the impact of wage taxes. Professor Inman noted that the City's wage tax alone was responsible for an estimated 60 percent of the City's total job loss between '65 and '85. All tolled the loss of as many as 100,000 jobs. There was a complementary study done by a former Wharton Professor Tom Loos (ph) now down at the University of Minnesota estimated that impact as high as 165,000 jobs from 1970 to 1985 as a result of the wage tax. So I think expert opinion looking over time has been pretty consistent and has been pretty powerful. When you turn to the court of popular opinion, I think you find that the wage tax stands 316 4/8/02 - WHOLE - TAX REDUCTION BILLS guilty as charged as well. 63 percent of the office workers surveyed a couple years ago by the Center of Philadelphia Development Corporation said that the wage tax was the thing that they liked least about working in Center City. 1999 survey, Greater Philadelphia First, the wage tax ranked second only to crime as one of the primary reasons people have left the City. Fall 1999 survey of suburban technology firms found that 34 percent of the respondents identified the wage tax to be a prime deterrent to the growth of technology firms, second only to the 40 percent who identified the commute as a key barrier. So on two counts in two courts, I think you find that the wage tax does in fact stand guilty as charged. The expert opinion, I think, historically is pretty convincing and popular opinion as well. Left with that and with all of the reports analyses, not to mention side bar conversations and conversations over lunch or a beer that've had in the last seven years of this job, I can't understand what it is exactly that we need to know more to convince us that the high wage taxes has in fact been a heroin addiction for the City of 317 4/8/02 - WHOLE - TAX REDUCTION BILLS Philadelphia in the last 30 years, producing cheap highs and easy revenue but literally, quite literally, waisting the City away over that period of time. We know it's not easy to go through heroin withdrawal. But we've begun and we've got to keep it up. Fortunately and to your credit, we're here to talk about how we go about it. We've admitted our dependency, we've looked ourselves in the mirror and we're taking our steps on the road to recovery. And we've done something mentioned that was mentioned in the previous conversation, we've done something quite important. It doesn't have to do with taxes, but I think can help get us off that dependency. And that is the Neighborhood transformation Initiative. By quite literally bringing the City's land back into marketable shape, we can make room for new growth. But if we don't do Step 2, I would suggest strongly that it's only if we take that next step in cutting taxes and particularly the wage taxes will we actually see many neighborhoods transformed. Because those neighborhoods will be transformed one by one by people who bring home their paychecks, maintain their house, care about their neighborhoods, become 318 4/8/02 - WHOLE - TAX REDUCTION BILLS active in their kid's schools.
Their properties are worth something over time. They're not faced with the horrible choice of walking away from properties that no longer have value. And I would suggest that's how the City's neighborhoods would be rebuilt. Still come back to the question. That's history. What do we know going forward? Will cutting wage taxes work? Will lower taxes encourage a few of those 77 people a day currently leaving the City to change their minds? Will lower taxes encourage others to move the City? Will a business add an employee here rather than elsewhere if it cost less in taxes? Ultimately, is cutting taxes worth it? No one, not me, not you, not the Mayor, not Alan Greenspan knows for sure. Still we don't know anything for sure, of course, except for death and taxes. We do know a lot about what high taxes and high wage taxes have done to us in the past and we've got to use the best tools we can and the lessons of history to guide us. And that's what we set out to do at the Economy League this past year. And I should point out we've been working on this 319 4/8/02 - WHOLE - TAX REDUCTION BILLS about two years, so this wasn't sort of a hot house flower that we cooked up two or three weeks ago when all of this started getting hot. This is a core lesson and a core finding out of this book we committed at the time to go forward and do this work and we have. To do that, we hired Dr. Richard Voith, federal reserve economist for years, now 10 principal of E Consult to help us out with that 11 thinking. Working with up to 50 years of data 12 provided thoroughly and generously, I might add, by 13 the City Revenue Department and drawing on previous 14 work by Wharton's Bob Inman, we've constructed a statistical model what we've called the Taxes and Growth Model or TAG Model. This model we hoped would give us some insight on what could happen to the City's economy if we cut taxes. It has, in fact, I think given us quite a bit of insight. The conclusions we get from putting the model to work are, quite simply, very encouraging. It suggests that tax cuts, most particularly wage tax cuts, would have the powerful effect on the City's ability to compete with the rest of the nation for jobs and ultimately population. Rather than seeing those 320 4/8/02 - WHOLE - TAX REDUCTION BILLS jobs go to other states, south, west, north, this suggests that the tax cuts, particularly wage tax cuts, could help more of them stay here and come here in the future. As we become more competitive, model suggests our property values go up. Our real estate is worth more because people want to be here, want to work here. More jobs, higher property values will produce more taxes to the extent that in a few years the City and School District could be bringing in more tax revenues than we might otherwise expect. For instance, the model suggests that the wage tax rates embedded in Bill 92 with triggers met each year could attract or retain about 51,000 jobs by 1997 at a cost per job of about $5,000 a job. In contrast, the tax cuts in proposed five-year plan would attract or retain about 10,000 jobs at a cost of $15,000 a job. In a City where attracting or retaining 100 jobs here or there is big news and where we've spent as much as $450,000 a job in economic development and debt investments, this is good news indeed. At the very least, these numbers should encourage us to room for tax cuts in our economic development portfolio. 321 4/8/02 - WHOLE - TAX REDUCTION BILLS In the last few weeks, Dick Voith and I have presented this work to literally hundreds of business, civic and political leaders around the City. We've met with the Mayor's budget and finance people, his Council of Economic Advisors several times, and we've met with President Verna and many of you and your staff. Not surprisingly, there are a lot of questions. Let me address the big three. First question, how do you know? How do you know that tax cuts would produce jobs and raise property values?
We don't know for sure. I told you that earlier. Nobody does. But I might add, it's the same kind of question that's been asked about the Neighborhood Transformation Initiative. Where will people come from to build on the 14,000 lots cleared by the NTI bond issue? In this case we have the lessons of history on our side. The taxes and growth model looks at the last 50 years and tries to understand what happens to the economy in terms of jobs and property values when taxes change, either up or down. It finds that these relationships are statistically strong and then it uses them to estimate what might happen in the future, assuming the lessons of history will 322 4/8/02 - WHOLE - TAX REDUCTION BILLS continue apply in the future. Will it precisely accurate down to the job? No. Is it useful to establishing magnitudes bigger than the bread box or use in comparing various proposals? Absolutely. Second question we've heard. Well, which tax, which tax, the wage tax or gross receipts tax should we cut? The model suggests that the wage tax does in fact have a greater impact on the economy for a reason which had really never been explored before so I don't fault anybody for not knowing this. It had never really been explored. The reason that the model suggests the wage tax is more valuable is because it affects both jobs and property values, while the gross receipts tax cut really only affects jobs. It was pointed out earlier today that maybe that shouldn't be surprising given that the wage tax is paid by about 700,000 tax payers, while the gross receipts tax is paid by only 75,000, almost more than half of whom pay over $100 a year. Just to repeat, in our model, again, the lessons history 50 years relationships between tax changes and the economy suggest that the wage tax has a greater impact because of the affects wages and property values. 323 4/8/02 - WHOLE - TAX REDUCTION BILLS The third question that's often been asked for us: How would you pay for tax cuts? Well, the model is helpful in some ways in giving us a sense of how big a one-time investment in tax cuts would be required under different proposals. With that number you can then compare it to other economic development investments. It also serves to quantify the amount that would need to be funded by the sale of City assets, gap financing, expenditure reductions or other sources as, I would point out, the Mayor's transition team report on tax policy on which I served suggested a few years ago. In any strategy to reduce taxes, each of these kinds of alternatives and others should be explored. And I would offer -- I've said this before and I would offer it again to the Administration or to you, that in any sincere effort to try to understand or to come up with those funds, I would pledge and commit the resources of our offices, no cost to the City, in order to help identify those dollars. That having been said, we don't have the books in front of us. But I'm confident that two folks that do, the Controller's Office and PICA have given those a good look and I trust many of their 324 4/8/02 - WHOLE - TAX REDUCTION BILLS conclusion. So at the end of the day, what is this debate really about? It seems to me to answer the challenges outlined in Flight or Fight that it has to be about growth. If wage tax cuts didn't promise some level of growth, then we simply wouldn't be interested in them at all. But they do, and our analysis suggests that the growth could be strong and refreshing. One of the sad things about Philadelphia today is that many people faces with the legacy of 30 years of decline have stopped believing that growth is possible. " But growth is possible. New Yorkers know it. The City ended the century with its highest population ever. Who would have predicted that in 1975, A beams sitting on the ropes, near bankruptcy. Highest population of all time in the year 2000. People in Boston know it.
Boston's been on a steady growth curve, population and jobs, since it bottomed out in the 1950s. So the question is, why not Philadelphia? If it's growth we're after and not just managing decline, then our analysis suggests that investing in tax 325 4/8/02 - WHOLE - TAX REDUCTION BILLS cuts in wage tax cuts deserves a very prominent role in our strategy. The cuts included n Bill 92 have to be a beginning, not an end. But they're a good beginning and I urge your support for the bill. Because it promises more substance a wage tax cuts and because its triggers are relatively straightforward, it stands out among the other proposals. I would add, just to anticipate perhaps a question, would also support continued gross receipts tax cuts as outlined by the Mayor. When we released the Fight or Flight book last fall, we knew that we were drawing a line in the sand. That book has gone out to 15,000 people; 6,000 of those people asked for it by name. We're actually doing a second printing because it's touched such a nerve. We drew a line in the sand and, in fact, it really either about more flight, continued loss or more fight. In old Philadelphia fashion, some people suggested that it wouldn't work, that all the fight had gone out of Philadelphia. Clearly it hasn't. As we know from this debate and the people gathered here marching today, there are plenty of folks who believe Philadelphia can grow again. Let's enact 326 4/8/02 - WHOLE - TAX REDUCTION BILLS substantive wage tax cuts as a fresh start and a beginning to where we need to be and let's get on with it now. Thank you. )
Thank you. Mr. Thornburgh, I want to personally publicly thank you. I think you have always been informative and very helpful and I know that you personally have helped me in making my decision on this issue.
At this time the Chair recognizes Councilman DiCicco.
Thank you, Madam President. Good afternoon, Mr. Thornburgh. During the latter part of your testimony, you probably answered most of the questions I would have asked in particular in the area of housing and property values with the Mayor's blight initiative program. I'll start again. You probably answered the majority of the questions I would have asked as it relates to property values in the City of Philadelphia in your testimony. With the Mayor's 327 4/8/02 - WHOLE - TAX REDUCTION BILLS initiative on blight removal, best case scenario, old abandoned houses are taken down, all the lots are cleaned and we're able to work out a deal with building trades to build housing for affordable prices for moderate middle incomes families. Based on your testimony, and I agree with you that the job creation outlook doesn't look very bright in the future. This may be one of those cases where if we build it, they will not come. Would you agree to that?
I think you have to have aggressive and forward-looking wage tax reductions in order to give Philadelphia a fighting chance to grow.
And create the jobs for the people who would be looking to move into the City of Philadelphia and be able to afford the mortgages on those homes.
I have only one other statement at this time. You were a member of the Mayor's -- was it the Transition Team on Taxes or the Tax Reform Committee?
It was Transition Team. 328 4/8/02 - WHOLE - TAX REDUCTION BILLS
Of the nine members -- it's my understanding that the majority, and correct me if I'm wrong, the majority of people if not all of those folks on that Transition Team, the Mayor's own Transition Team, suggested that the right way to do things is to reduce the City wage tax; is that correct?
Do you know of any member of the Mayor's Transition on Tax Reform Committee that opposed -- and you don't have to mention them by name. Do you know of anyone?
Well, I don't. We engaged in that, I think as the other transition teams did, as volunteers and we very much wanted to work towards a consensus style. We didn't take votes. But there was consensus around the room in support of the final report which suggested that the City needed to take a look what substantial tax cuts and particularly wage tax cuts.
As a member, 329 4/8/02 - WHOLE - TAX REDUCTION BILLS Executive Director of the Pennsylvania Economy League, as a member of the Mayor's Transition Team on reducing taxes or looking at tax reform, and your interaction with the Chamber of Commerce and the business community and a lot of the other folks, do you believe that it's being suggested as recent as today, actually, that a number of members have been talking about possibly looking to do some additional consulting and getting additional information on going forward to continue to look at whether or not we need to reduce taxes, is the wage tax the place to go? Do you think, in your opinion, that that is something we need to do? Or do we have enough information at hand to make that decision now?
Well, you know, these kinds of decisions kind of -- sometimes it's very difficult to make far-reaching decision in a very short period of time and let's say a very heated environment. You have a set of decisions in front of you in terms of some bills that, I think, it's been suggested many times an appropriate start. But as I said earlier, we would commit our help and resources to working with you, working with the Administration to try to advance something further 330 4/8/02 - WHOLE - TAX REDUCTION BILLS down the road, something more substantial.
Because in my original bill before I worked out a compromise with Councilman Nutter and a few other members, it did call for more aggressive cuts. I think the trigger in my bill would have been 3.2, get us down below 4 percent at the end of the five years. But in the interest of compromise, knowing that there would be a lot of consideration and concern for this bill, we came up with this final bill. So it is a decent start. I mean, it's something that you believe that you believe that we should begin to do now.
Thank you. Councilman Goode, do you want to be recognized?
The Chair recognizes Councilman Goode. 331 4/8/02 - WHOLE - TAX REDUCTION BILLS
Thank you, Madam President. Good afternoon, Mr. Thornburgh. I support Bill 92, as I've said all day and continue to support Bill 92, but take great exception to a number of things in your testimony and the political spin within it. I'll start with the fact that you conveniently leave out the whole issue of unfunded mandates from Harrisburg. If the City did not have unfunded mandates imposed by Harrisburg, how much tax relief do you think that would buy? Let's take the court system, for example.
I believe the estimate there is about 125, 110 million, that ballpark.
And so you don't believe that unfunded mandates from Harrisburg have prevented us from the type of steady growth that you talk about that led to the fiscal distress of 11 years ago?
Well, that really wasn't the focus of the work that we've been doing the last couple of years. It clearly is an additional cost that the City bears as a seat in the county, I know that. 332 4/8/02 - WHOLE - TAX REDUCTION BILLS
It's also -- I think if you raise that issue with suburb legislators, they would point out that the suburban residents send about $450 million in wage taxes to the City Treasury so --
I'm simply asking you how much tax relieve the unfunded mandates from Harrisburg would buy.
I don't know the answer to that question. I do know a ballpark number for the courts.
My second problem with your written testimony and some of the things you've passed out is the fact that you've tried to allude to the fact that there was no steady growth during the '70s, '80s, and 90s, and that simply is not true. Even economic studies that you cite go from '65 to '85 or '70 to '85. There's a reason why they stopped in '85. The reason why they examined the period up until the mid-'80s because there was significant economic and job growth during the mid-'80s during the Goode administration. But even 333 4/8/02 - WHOLE - TAX REDUCTION BILLS in your handout here, you flat out the job growth during the '80s, and I take serious exception to that. Even after the City wage tax was raised by .65 percent in '83 before my father took office, after that for the next five years there was net job gain of up to 50,000 jobs. And that's the same 50,000 jobs that you cite in terms of growth under Bill 92. I don't understand how you reconcile those two things. I mean, after the wage tax and based upon the model you say that you're using studying the last 50 years, how do you reconcile the fact that after we raise the wage tax .65 percent, the unemployment rate in Philadelphia over the next three years dropped from 9.3 percent to 6.2 percent? Work that out for me under your model.
I appreciate the question, Councilman. Let me just point out the first graph that you see here which is employment numbers graphed against wage tax, those are done on every five year basis so I don't really capture the '85 to '88 period that you talk about.
That's just sort of a little betwist and between. I'd stand by these 334 4/8/02 - WHOLE - TAX REDUCTION BILLS numbers, though. I would point out --
It deceiving to say the job growth was flattened during the '80s when it was not. There was considerable economic and job expansion in Philadelphia until a national economic recession. But you don't tell that story. You conveniently don't tell that story.
Let me just direct your attention to the next page which is Philadelphia property values. And you'll see that there was in fact and we're showing in fact quite a run-up in the late '80s, which is other indicator of economic expansion and growth. So I do acknowledge that that happened. That was part of a real estate bubble, a speculation bubble that was here in Philadelphia and also in part of the Northeast. That's what gave us under your father's leadership many of the landmark buildings in Center City. Haven't seen that kind of building since then. So I certain acknowledge --
Still, using the model that you're providing for Council now, can you 335 4/8/02 - WHOLE - TAX REDUCTION BILLS explain after the City raised the wage tax .65 percent how the unemployment rate dropped from 9.3 percent to 6.2 percent over only three years, the first three years of the Goode administration?
Let me explain a little bit more about the model. We're basically looking back over history and trying to see how the City's share of the nation's economy varied with tax changes. And what you end up with is the 30-year period -- we had real estate taxes actually going back even further -- you end up with what I've kept calling sort of the lessons of history. It's kind of a historical average. Think of it as a 30-year average. Will it be accurate in any given year? No. It is an average. That's why I keep referring to it as sort of a lesson in history. So to take a 3-year period in the 30-year period --
I'm sorry. To take a 5-year period in a 30-year period and to use one to try to justify the other, I can't do that.
That's not what I'm trying to suggest. What I'm trying to suggest is doesn't the period in the mid-'80s from roughly '84 336 4/8/02 - WHOLE - TAX REDUCTION BILLS to '88 wreck your model?
So if we were to raise the wage tax point .65 percent right now, what would happen in terms of job growth?
I can give you an answer to that from the lessons of the model. But you have to understand the model's looking at the whole 30-year period, not just a 5-year period within the 30 years.
The correct answer was actually in your testimony; you don't know.
Based upon a model. I'm talking about in reality you don't know what would happen if we were to actually raise the wage tax .65?
Thank you for your testimony. 337 4/8/02 - WHOLE - TAX REDUCTION BILLS Thank you, Madam President.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam Chair. Just two quick questions. Mr. Thornburgh, you indicated in your testimony that it's approximately 2400 a year more expensive in taxes to live in Philadelphia as opposed to the surrounding statistical metropolitan area?
All of the 238 suburbs in the Pennsylvania side and 120-some -- of course, this may change if Mr. McGreevy has his way.
I think he's thinking about it. He may be reconsidering his position. Does that include things like auto insurance?
So when you look at Philadelphia, for example, and its oppressive auto insurance rates because of a lack of many things but also the lack of enforcement of people driving without licenses or insurance or registration, that 338 4/8/02 - WHOLE - TAX REDUCTION BILLS that number for items like that goes up even higher. So that when that family -- and I explain it as a family sitting at the kitchen with a yellow legal pad or a white legal pad with a line down the middle and they do what's good and bad about living in the City. In addition to the taxes, there are things like a thousand dollars on average more expensive auto insurance and the like.
On the NTI issue, the NTI Phase II -- NTI Phase I we all understand is a demolition program. NTI Phase II, and Councilman DiCicco mentioned it a few things impacting that. What are some of the other obstacles beside wage tax, business tax reductions need to be corrected, in your opinion, if you've looked at it to make NTI Phase II work?
Well, I think Councilman DiCicco mentioned some of the other relative to construction costs and labor issues. Again, I think the reinvestment fund's work has ben instructive on that matter. Clearly, I would say that the construction costs and the tax issues are probably the major immediate financial issues your 339 4/8/02 - WHOLE - TAX REDUCTION BILLS kitchen table example -- clearly, as I said earlier, you don't discount crime and fear of crime. You don't discount auto insurance. There's a whole basket of things that people take into account when they make a decision about where to live. I guess one of the questions that we've tried to address in this book is, which of these are most directly in the bull's eye of action that you could take, that the Mayor could take that we know with a bill passed could dramatically change the landscape from today to tomorrow.
Is it your opinion that without substantive wage tax business tax reforms that NTI is not worth doing at all?
I wouldn't say that. I think it is worth doing because, again, our work here suggested that one of the obstacles the City has is assembling and packaging and transferring land. That is, in fact, an asset that the City has. So that's important to do, but that doesn't make any less important, I think, the other steps that we've talked about today and it doesn't make any less important tax cuts.
I had mentioned this 340 4/8/02 - WHOLE - TAX REDUCTION BILLS to Mr. Pizzi when he was testifying, and I'll ask you the same question. If -- hindsight being 20/20, obviously. If we had a reasonable and effective tax policy over the last or 30 years, would we have 6 the need for NTI today? 7
Thank you. 11 The Chair recognizes Councilman Nutter. 12
Thank you, Madam 13 Chair. 14 Good afternoon. If you've gone over 15 this, please just tell me and I'll go back through 16 it. The PEL study, and I heard you when I was in 17 one of the other rooms talking about Dr. Richard 18 Voith. He worked with you and is an economist 19 formerly of the Federal Reserve Bank. 20
Yeah, he was 14 years 21 Federal Reserve. Recently joined E Consult, 22 lectures at Wharton. 23
Now, is it my 24 understanding from reading his work that he was 25 also, at a minimum, a student of the much-discussed 341 4/8/02 - WHOLE - TAX REDUCTION BILLS Professor Robert Inman; is that correct.
He was a student of his and the model that he built with us is very derivative of much of the recent work that Professor Inman's done, yes.
And in this particular context, we're not talking about the use of the term "student" as just maybe took a class and moved on. We're talking about philosophical, professional sense of relationship and the work product; is that correct.
Right. I would think they would consider each other peers and colleagues.
And is it my understanding that Dr. Voith has taken the basic work of Dr. Inman and for all intents and purposes taken that work to a new level.
I think that's a fair characterization. We went back further in terms of the data that we used and we looked for some other things I mentioned earlier, the impact of wage tax and property values that Professor Inman had sort of 342 4/8/02 - WHOLE - TAX REDUCTION BILLS hinted at but never really explored.
And what is your understanding -- and again, in you've mentioned this already, just tell me. What is your understanding of the view of Dr. Inman as it relates to Dr. Voith's work as well as the PEL study in general?
Well, we've had -- and Dick particularly, but I have as well, have had a number of conversations with Professor Inman over the last number of months. We've had a couple of meetings to try to understand or recognize any subtle differences in approach could. You know, academics can debate methodology until the cows come home. And I think both would recognize that there's substantial agreement in the sort of basic findings and directions of our work. I think both would be comfortable with that.
Lastly, let me ask, what is your professional belief and any concern that you might have about the prospect of a plan who's fundamentals dictate that you would accelerate and maintain cuts in the gross receipts tax and end proposed cuts in the wage tax and the impact of that combination of decisions on the future of the City? 343 4/8/02 - WHOLE - TAX REDUCTION BILLS
Well, again, our research -- go back to what I said earlier. The court of expert opinion, I think, historically is pretty solid in terms of the impact of the wage tax. The court of popular is probably even more solid. I think there are two different types of observations about the wage tax which convinced me that the wage tax has an enormous amount of power relative to the economy, jobs and property values.
Have you had any opportunity to run or create a model of, I guess, in essence the two scenarios, the accelerate the gross receipts tax, stop the wage tax as scenario one; accelerate the gross receipt tax, restore the incremental wage tax cuts as scenario 2? If you had an opportunity to run those models, can you give us any information about the results?
Sure. As I mentioned earlier, for the past three or four weeks we've been meeting with a lot of people and have sometimes been a wash in scenarios. Seemingly there was a different one every day of the week. But in the -- there is an attachment that you should have in it graphics to it. In the back of that, we simply 344 4/8/02 - WHOLE - TAX REDUCTION BILLS applied the model to various proposals. In fact, we looked at the proposed five-year plan that you're being asked to consider and we looked at Bill 144 and Bill 92 both in terms of whether they met all the triggers or whether they met none of the triggers. So you can see, for instance, on page -- No. 13 of these graphs, what the model suggests would be the estimated employment trends and then Slide 14 is the revenue gap that would result from those. And I would caution you and other Councilmembers, these are not lining up -- they will not line up with the City's numbers because we were asking a different question using a different tool. But there's some value if we're asking in the same question of each of these proposals, it does give you some ability to compare one against the other on our terms. I think it's important to recognize that the way we approach this, again, the sort of history suggest that the City will continue to decline unless -- in this model we do something quite significant about taxes and particularly wage taxes. So we've been on a steady downhill. There's really no reason to suggest that we wouldn't be and that's 345 4/8/02 - WHOLE - TAX REDUCTION BILLS the effect the tax could have.
Any other questions? Thank you very much, Mr. Thornburgh.
Thank you for your patience. We know it's been a long day.
Good afternoon. I'm Audrey Talley, Chancellor Elect of the Philadelphia Bar Association. I'm appearing here today on behalf of the officers, the Board of Governors, and the Members of the Bar Association. I have with me Joe Bright from our tax section. I first want to thank City Council President Verna and Councilwoman Blackwell and all the Members of City Council for giving us the opportunity to testify before you today. The Philadelphia Bar Association has long enjoyed a good relationship with City Council and with the City Government. We realize and appreciate the value and importance of that relationship. We know that the 346 4/8/02 - WHOLE - TAX REDUCTION BILLS tax structure in Philadelphia is an issue that sincerely concerns all of us and we know that they are strong feelings about this so we deeply appreciate your attentiveness to this matter. For over 200 years, we've been proud to be associated with this City. Our first name is Philadelphia. We love this City and we want to see it grow and prosper. We want to see it thrive and remain competitive. We want to see it attract new businesses and the best and brightest talent available. Because of this, the Philadelphia Bar Association strongly urges and recommends the City of Philadelphia restructure the tax system that affects Philadelphia law firms' employees and employers. We specifically request the City aggressively pursue and enact substantial cuts in the City wage tax. The Bar Association is one of the largest associations of professionals in this City. Our 13,000 members represent a substantial and important part of the employers and employees located in the City. Moreover, as counselors and advisors, we are in a particularly good position to know the concerns of the business community in 347 4/8/02 - WHOLE - TAX REDUCTION BILLS general. Thus, we speak for ourselves as major participants in the Philadelphia business arena and with firsthand knowledge of every other business in and around the City. As a point of reference, the top Philadelphia law firms employ about 8500 7 people, withhold more than $14 million in wage taxes 8 annually, and least 14 percent all of the office 9 space in Center City. And these are just the large 10 law firm numbers. Most of the law firms in the City 11 are small and medium size. So you can multiply the 12 previous figures and consider that a large majority 13 of our lawyers while operating small businesses make 14 huge contributions to Philadelphia's tax base. The 15 City's tax structure impacts on these small and 16 medium-sized firms in a manner that is clearly a 17 deterrent for them to operate in the City and 18 understandably makes it more conducive for them to 19 merely cross City Line Avenue to open shop. 20 Studies have time and again shown that 21 the wage tax is one of the principal reasons why 22 businesses leave Philadelphia, do not expand here, or never locate here. As our prior speaker said, most recently a study by the Pennsylvania Economy League came to this conclusion. These studies are 348 4/8/02 - WHOLE - TAX REDUCTION BILLS confirmed by our own experience as well as those of our clients. In our dealings with business clients in a Delaware Valley, we have repeatedly heard businesses express their concerns with the City's tax structure. Understandably and more specifically, the wage tax drives workers out of the City. One study shows that a Philadelphia family of four earning $40,000 can save $816 per year by moving out of the City. That is significant. This worker migration also limits the available talent pool for employers. Common business sense dictates that a business needs to be located reasonably close to affordable employees therefore requiring them to migrate with the employee pool. This migration affects law firms as well as all other businesses. We repeat to frequently cited illustrations.
First, there are a large number of prosperous and successful businesses located on the west side of City Line Avenue and relatively fewer on the east side. The Philadelphia tax structure is explanation for the disparity. Second, Boston is a City economically comparable to Philadelphia in many ways. Like our City, it is located in the northeast and has good 349 4/8/02 - WHOLE - TAX REDUCTION BILLS transportation, lots of colleges, and many of the same issues that face Philadelphia including troubled public schools. However, in Boston one of the two mutual fund companies in the world Fidelity Investments has its company complex located in downtown Boston. Not surprisingly, Boston has no 8 wage tax. The second major mutual fund company, the Vanguard Group has its complex with its 8500 employees located in Malvern just outside of Philadelphia. Spokesmen for numerous companies have been quoted as stating that the tax structure in Philadelphia precludes their locating within the City. The Philadelphia tax structure would require such companies to pay hire wages to recruit and retain the same talent they can acquire in Chester or other counties. These examples speak volumes and are consistent with the repeated findings of various studies, as well as with the experience of our members. Philadelphia competes with the suburbs and other locations to attract business and Philadelphia has been losing the fight for about 50 years. We believe that a major tax policy objective of the City should be to make a deep and substantial 350 4/8/02 - WHOLE - TAX REDUCTION BILLS cut in the rate of the wage and net profits tax. A major cut will affect all taxpayers across the board and will have a substantial and positive effect on the City's economy, stop the migration of jobs to the surrounding areas, and turn the City back into a desirable place to work and do business. The change will benefit our members, their clients, associates, and employees. As businesses have steadily deserted the City, there has been less productive work here for our members. It follows, therefore, that there has also been less attraction for law school graduates to locate here. This all adds up to more incentive for law firms to open suburban offices. The Economy League study showed that a law firm is faced with an 80 percent greater increase in taxes if it expands in Philadelphia as opposed to expanding in the suburbs. Given that lawyer serve clients, if the clients leave the City, the lawyers by necessity have to follow. The current tax structure is an indisputable economic encouragement for lawyers to follow their clients out of the City. We strongly urge City Council to enact a major tax restructuring 351 4/8/02 - WHOLE - TAX REDUCTION BILLS including a wage tax cut to reverse this downward spiral. Additionally, we urge the City to address the inequality that is inherent in the interrelation of the net profits tax and business privilege tax and thereby correct the over-taxation of professional firms that organized as partnership as most law firms are. While as we understand and appreciate that the City must fund City services and clearly understand the alarms sounding at decreasing and immediately available pool of tax dollars, various studies have succinctly shown that restructuring the City's tax system, we would induce more businesses and employees to locate in the City which would increase the overall number of participants in the tax pool and would thereby increase the totality of available tax dollars. A reduction in the immediate revenue would be reinstated by the volume of participants involved with lower taxes on more entities versus higher taxes on fewer. We encourage and implore you to make substantial and meaningful changes and cuts to the tax structure in the City of Philadelphia. It is 352 4/8/02 - WHOLE - TAX REDUCTION BILLS the only way to revitalize and rejuvenate this wonderful City. I thank you for your time and attention here today.
And we'll be happy to entertain any questions you may have. )
Thank you very much. Are there any questions? Thank you.
Good evening. Welcome. It's great to see you, Mr. Lyons.
Please identify yourself for the record and begin.
Good afternoon, Council President Verna, Councilwoman Blackwell, and Members of the City Council. I am pleased to appear before you today in support Council Bill 92. , and I'm Vice President of Regulatory Communications and External Affairs at PECO energy. I am also here today with Ed McBride 353 4/8/02 - WHOLE - TAX REDUCTION BILLS my Account Affairs Manager for Philadelphia. C. where we do not have a wage tax, and I can honestly and privately say that for me personally the City's wage does make a difference in locating to the City of Philadelphia. I am here today representing one of the largest and oldest employers in City of Philadelphia, PECO Energy. 5 million annually in City wage taxes and hundreds of contract employees that we utilize to keep the lights on around the City, I want to commend you for addressing this important issue today. I can tell you firsthand that the City's tax structure is burdensome to all who come to work in the City every day and perhaps most importantly this tax is inflicting real harm to the City's economy. The wage tax discourages people from living in the City, discourages business from locating here and encourages the flight of property owners and businesses to the suburbs, New Jersey, and Delaware. 354 4/8/02 - WHOLE - TAX REDUCTION BILLS At PECO Energy we are proud to be a part of something that the Chamber of Commerce President Charlie Pizzi alluded to earlier. 5 7 million over a 10-year period to help improve urban 8 blight, to eradicate urban blight and to provide 9 housing to the people in that part of the City. 10 Stopping the wage tax reduction sends 11 the wrong message to our workers as well as people 12 and business owners from around the region and this part of the country. By passing this bill, you will send the right message that you are serious about making our City competitive to those considering locating here. Passing this bill will tell thousands of people paying the dreaded wage tax that you do indeed hear them. This may also be the beginning of a meaning, thoughtful discussion about how we can revise our tax structure to make our great City a more attractive place to live and work. Members of the City Council, you all know the numbers much better than I. Since 1970, 200,000 less jobs and 400,000 fewer residents. This is happening while the suburban counties are 355 4/8/02 - WHOLE - TAX REDUCTION BILLS experiencing job growth at a rate of percent according to the Center City District State of Center City Report for 2002. The City Controller, the Pennsylvania Economy League, and others who understand municipal finances better than I have said that the wage tax can be dramatically reduced without affecting services. Philadelphia cannot afford any more flight from the City. Passage of Bill 92 would be a move in the right direction to attract new businesses, retain existing businesses, and to attract highly qualified workers. For PECO Energy, the City wage tax is a significant barrier to recruiting and hiring workers for jobs in the City. As you know, our company operates in five counties in Pennsylvania. When we have an opening in the City of Philadelphia for a lineman, for a manager, an engineer, or any other position for that matter, the wage tax, depending upon the location of the job, the parking cost puts Philadelphia divisions at a significant disadvantage. We have a difficult time hiring lineman and underground mechanics in the City especially when they have the option to work in one of the suburban divisions. The wage tax is the 356 4/8/02 - WHOLE - TAX REDUCTION BILLS number one reason cited when people transfer to the City from the suburbs. Most folks enjoy working in the urban environment of Philadelphia but find the wage tax to be a big barrier. For our employees in the City, the wage tax is one of the top dissatisfiers and is usually the hot topics during employee involvement team meetings.
PECO wants to support tax reform that will help the City's economy. The City should continue the gradual decline in the wage tax and consider significant tax reform. According to the Pennsylvania Economy League's recent report on City taxes, reform will lead to higher wages, more jobs, increase population for Philadelphia. The wage tax which few major City impose on its work force is obstructive to efforts to attract new businesses and to retain residents in the City. Detroit and New York City have lower wage taxes and they, too, face big City problems. The Philadelphia Daily News on March 12, 2002, published an article entitled "Wage Tax Hurts the Working Poor the Most. According to the article 24 10 of the nation's biggest cities on average rely on personal wages of just 6 percent of their total tax 357 4/8/02 - WHOLE - TAX REDUCTION BILLS mix, while Philadelphia relies on personal income for 33 percent of the total tax mix on average. How can they do it and yet Philadelphia can't? How can Philadelphia ever be competitive with that type of levy on its workers? We need action now to dramatically reduce and restructure Philadelphia taxes so Philadelphia can be an even more vibrant, competitive and physically sound City to live, work and visit. PECO Energy employees care a great deal about the City. They are also concerned about their paychecks and quality of life. We want to see passage of Bill 92 because a strong Philadelphia economy will mean a strong PECO. And a strong PECO will enhance our ability to keep the lights on. Let me conclude by making this analogy: Now is the time to cut the umbilical cord of taxes so that the baby may live. We need to have cut the City tax so that industry may live and grow. We need to cut the City tax so that workers may live and have more disposable income. We need to cut the City tax so that residents may live and keep more of their income and spend it the way they choose to 358 4/8/02 - WHOLE - TAX REDUCTION BILLS spend it. C. We strongly urge you to support Bill 92 and to pass it and to also pass it again if the Mayor chooses to veto it. I thank you for your time and I am here to entertain any questions you might have.
Thank you very much. And we're glad to see our good friend Ed McBride with you, and he does an excellent job. Thank you. (Applause.)
Mr. Lyons, how many employees does PECO have in the Philadelphia area?
Have you taken any sort of poll among your employees? Have your employees come to you or have you gone to your employees and asked them how they feel about this bill and the wage tax?
We have a very clear 359 4/8/02 - WHOLE - TAX REDUCTION BILLS indication. The conversation comes up quite frequently among employee team meetings. The wage tax is something that's very paramount on their minds. When workers who are out in the five counties and they have to be transferred into the City because they do not get an increase in their salaries for coming into the City, they don't want to do that primarily because of the wage tax. It means for a $50,000 employee, it's going to be about 2,000 less in income, plus they have to pay for parking as well. So that's tremendous impediment. But if I were to take a sample, the majority of the employees definitely would love to see the City wage tax reduced even further than what's on the table.
Thank you very much. Are there any further questions? Thank you very much, Mr. Lyons.
Good afternoon. Thank you for your patience. 360 4/8/02 - WHOLE - TAX REDUCTION BILLS
Thank you, Madam Chair. My name is Al Taubenberger and I'm President of the Greater Northeast Philadelphia Chamber of Commerce. I'm here today representing the Chamber's 900-plus businesses, their employees and stating as strongly as I can that the wage tax must be reduced. Saying that the City can't reduce the wage tax because it's cutting gross receipts tax is like a doctor telling a patient, you can't have two pills for two separate medical problems. If I give you something for diabetes, then you can't have something for high blood pressure. What this Administration is saying is that our Finance Department is smarter than the Chamber of Commerce, City Council, the City Controller, Pennsylvania Economy League, and the citizens of the City itself. Do not, I repeat, do not hurt this City by not reducing the City wage tax. It's one of many problems the City has and it's equally important as crime and education issues. We can remedy this ill quite easily by the stroke of a pen if we have the political courage and the will to do it. Bad things happen to people in cities when good people and elected representatives 361 4/8/02 - WHOLE - TAX REDUCTION BILLS do nothing. Stop the decay, the deterioration, the stagnation before it's too late. Don't hide behind cutting services and threaten job losses. Just cut the tax and it will pay for its itself. Tax issues were at the heart of the American Revolution. And a cut the City's wage tax could be the centerpiece of Philadelphia business renaissance. I thank you all very much and thank you for the opportunity to be here.
Good afternoon. My name is Pam DeLissio. Thank you for this opportunity to testify. I represent the Mount Airy Business Association, a group of about 100 small businesses located in and around the Mount Airy section of the City of Philadelphia. I'm here to tell you that the consensus of the Association is that wage tax cuts should and must continue. The historic perception 362 4/8/02 - WHOLE - TAX REDUCTION BILLS of these decreases is that the City at least recognize that this tax was burdensome and acknowledge this small annual adjustments. It was always the expectation that these small adjustments would lead to a larger more significant discussion on comprehensive tax reform. It has taken too long to arrive at this opportunity for meaningful tax reform and the message being sent with this year's budget proposal is that meaningful tax reform can only cover one topic at a time and that a comprehensive approach is not desirable. Personally, as a new business entrepreneur in this City, I now have firsthand knowledge of the business privilege tax and the gross receipts tax. And you can only imagine the challenge to my accountant to explain to me why I had to pay the business privilege tax twice in my first year of business. Taxes are, in fact, necessary but they need to be fair and logical. As entrepreneurs, it is our goal to provide our customers or clients with what they need and expect. As entrepreneurs, we must be competitive in our pricing in order to attract and retain business. To that end, we strive to operate 363 4/8/02 - WHOLE - TAX REDUCTION BILLS as efficiently and effectively as possible and to provide our customers and clients with the best service at the most competitive price. Businesses, both large and small, are in essence the City's customers. And as customers, we have not been valued appropriately by this City. The perception and reality of doing business in the City is more negative than positive. A real opportunity to create a comprehensive plan that encompasses total tax reform in all areas is now here. Perhaps the Mayor's strategy was to create this opportunity to discuss major tax reform by proposing freezing future wage cuts and anticipating the very broad coalition of interested parties that is without precedent around this issue. If that is in fact his strategy, it's to be applauded. If, however, his strategy is to actually to freeze the wage tax cuts and not embark on comprehensive reform, then this will be considered business as usual and will cause me, and I suspect others, to contemplate the future location of our enterprises. The wage tax is not a new issues to me. As a former CEO for 17 years of two not-for-profit companies in the City for Philadelphia, I was often 364 4/8/02 - WHOLE - TAX REDUCTION BILLS challenged by the need to adjust salaries for staff that we desire to hire who did not live or work within the City limits. Their concern was that even with the offer of the competitive wage, the City wage tax would diminish the dollars that they would earn. As the employer, I could either hire a less desirable candidate or subsidize the wage tax to make the candidate whole. It is our desire to engage in a discussion that will produce in an expedited time frame comprehensive reform that is meaningful. We look forward to engaging in this discussion with our district representative Councilwoman Reed-Miller and others. And we thank you for this opportunity today to testify.
Thank you. Are there any questions or comments from Members of the Committee? Thank you very much. We appreciate your coming in to testify. (Applause.)
Reverend Bruce Edwards 365 4/8/02 - WHOLE - TAX REDUCTION BILLS and Sister Bey.
Reverend, thank you. You've been extremely patient. REV. EDWARDS: Thank you so much. I wish I was in a little better physical condition. It wouldn't have bothered me so much, but I was determined to stick it out only because I'm determined to let you folks hear what the poor people have to say about an issue such as this. It will be a wonderful day, however, if you might can consider integrating the poor folk in between the expert testimonies and the like. There is a great sense in our City that regular people -- and I'm using these pejoratives meaningfully, purposefully. They feel left out. They feel that their voices are just not being heard. They're treated as if they don't have a brain and they can't read and they can't think. And it's really unfair. But let me move on. I did send my testimony all kinds of ways. I e-mailed it, faxed. I trust you have a copy. Handed it out, did whatever I could to get it to you. But we went to work on this issue because it's one of those issues that the Urban Leadership Council came into being to 366 4/8/02 - WHOLE - TAX REDUCTION BILLS deal with. It's not a black issue, it's not a white issue. It cuts across all neighborhoods. It cuts across all class lines. And so when we were called by the Chamber and others to take a look at really what was going on here, we felt that we were compelled to join and to let our voice be heard. The Urban Leadership Council is one of the oldest and largest networks of community-based organizations in Philadelphia and in this entire region. And we boldly support what the City Controller said this morning and Mr. Pizzi and the members of the Chamber of Commerce and many others, high profile others. We support what they've come before you and what they've said because clearly if you do not continue on a reasonable course of tax reduction, you're not going to have any City left to govern. You're not going to have anybody left here to tax. Our network of 212 small and medium-sized CBOs are on the front line of community involvement and activism. Many of our member groups are service providers, block organizations, faith-based programs and the like. These are the very organizations who operate with little or no means but they operate where the rubber meets the road and impact or are 367 4/8/02 - WHOLE - TAX REDUCTION BILLS impacted by all of the seemingly intractable problems that plague the City that we love. Not only is the wage tax burdensome to the corporate community, but the wage tax is burdensome to that low- and medium-income person and it impacts them negatively in major ways. 4 percent of that family's income. Persons now moving from welfare to work are failing because of the high cost of transportation, day care, food, and clothing. Yet they're meager wages are taxed by this City at a rate that is counter-productive to their growth and development. The potential for gainful employment within the City limits is low because the good jobs are distant, leaving our citizens at a great disadvantage. The middle class wage earners, they began leaving Philadelphia not long after I arrived on the planet, which was 1952. million people. million people. Yet at the same time, you're taxing those left at a greater rate than you were taxing those when you had the 2 million people. I've heard the math and all of the 368 4/8/02 - WHOLE - TAX REDUCTION BILLS stuff -- and it's stuff to me because I'm just a plane old Baptist preacher. And I've heard all this stuff all day long, the numbers and the figures, but it doesn't add up. How can you sit and make me, a common man, understand when you talk about City services. Where I come from, we don't hardly see no 8 City service. When I was a boy my trash got picked up twice a week. The streets got swept and cleaned all the time. I don't see any of that, not now, not unless I'm down here in Center City, and those folks pay extra money for that. Now, you think we're wrong?
I just want to sit and talk a little plain common sense. It doesn't take rocket scientists to get people to understand that you've tax the City almost into nonexistence. You've run those folks who had a stake in the City, you've already run those out. And let me tell you something that I'm hearing in the poor neighborhoods. If they could leave, they would leave. Is that the message that you want to continue to send to those kids who are stuck in the schools that at least you're on the road to recovering them. We thank God that you're 369 4/8/02 - WHOLE - TAX REDUCTION BILLS doing that. But is this the message that you send when you sit up and tell us about NTI and neighborhood blight. What brought on the blight in the first place? The City didn't go this way by itself. People didn't get up and leave North Philadelphia for nothing. And they're not continuing to leave for nothing. They're leaving because they're not happy. They don't like it. You may think they like it, but I'm here to tell you they don't like it. They don't like being dictated to. They don't like being treated as if they don't understand. They understand. And guess what, my friends? If they don't understand, they put you here to teach them and to educate them and to help understand. Some of what I see in the city of my birth makes me want to preach. It makes me sad, it me makes me sick, to hear the game-playing on every issue after issue. It's politicized over and over again. You're going to close this and you're going close that. We've heard it all before. And let me say this -- and I don't have a problem with any of it. Build your convention center, build your Kimmel Centers, build all that 370 4/8/02 - WHOLE - TAX REDUCTION BILLS stuff. But the folk who when your erecting these things, the citizens who really live and labor and have been here through your abandonment and your graffitiment and your crime, they can't go because they can't afford to go. The businesses can get so mad with you folk, they can pack up and leave. The poor folk are stuck right here. And you something that I find -- and I'll stop. I told my mother before I came here today I wasn't going do this, but it's my way. I'm not an economist. I'm preacher. And I hope if I can't do anything, I might can convict you in your heart and in your soul about what is right what is wrong. And there is a climate and a tone in the City that we live in that is wrong. I don't like what I hear coming over the airways on talk radio shows dividing our people day in and day out when we're literally sitting in a city that is on the precipice of dying. A great city, a Biblical city. And you're going to play with it as if it doesn't mean a thing. I'm surprised and shocked and ashamed at all of us. All of us. Preachers and politicians. All of us must do so much better. I'll finish. But let me finish as I put 371 4/8/02 - WHOLE - TAX REDUCTION BILLS on my paper to finish. I don't know whether I said what I wanted to say or not. Ya'll can read it. But I will say history taught me that Nero fiddled as Rome burned. Will you tinker as our City totters on the brink of second class status? I'll leave you with the words of an old southern preacher who told the congregation that was having bunch of trouble, he looked out at the congregation and he said to them, he said, "You know, your house is on fire. Your roof is leaking. " Thank you for listening to me. )
Reverend, you were absolutely fantastic. I would like to ask you just one questions. There are several bills that are scheduled for public hearing today. What bill 19 is it that you are supporting? REV. EDWARDS: We support Bill 92. And even further than supporting Bill 92, we support the bill that Councilman Cohen has been talking about. The bill that talks about giving an exemption to those who fall below federally mandated poverty lines. 372 4/8/02 - WHOLE - TAX REDUCTION BILLS How is it that -- again, we're talking about moving welfare people to work. You've moved them from welfare to work all right; you've moved them from here King of Prussia to a low wage job. That means that now they've got child care expenses that they can't afford, they've got transportation expenses that they can't afford, they've got food expenses that they can't afford. And then on top of all of that, the $6.50 is hit by the City. Well, we would have done better leaving them where they were. It would have been far more humane. So we support Bill 92. We support Councilman Nutter and Councilman DiCicco's bill. But you know what more than that because it is so serious and I hope in your consideration and deliberations -- it is hard work, of course, it's hard work. But it's no harder than what happened to God's people when they were captives and the pharaoh got hard-hearted and had them to make brick without straw. That was hard work. But he eventually the captives were set free. Now, you can keep on putting on the people all you want. Something is going to break loose here, whether you do it or not. I'm trying to hit you on the moral side of things. 373 4/8/02 - WHOLE - TAX REDUCTION BILLS There is a right and there is a wrong. And the sense that I get is that people have been so burdened for so long that they're losing all sense of hope. And we just can't let that happen. Whatever you can do, if it's one cent, cent, it 7 will mean something to them. It will give them 8 hope. It will them an aspiration, an inspiration to 9 stand up and fight and keep fighting. They've 10 stayed there while the communities deteriorated. They've stayed there. When others got up and left they stayed there. And now -- and you won't like this, but I believe what I'm saying. You say you're going to remove the blight from where they are, but you say you're going to tear down their neighborhood to do it. Do you know what people tell me? They think that you got a conspiracy going on. They think you're bulldozing their neighborhoods to move them out the way so the rich white folk that moved out years ago can come back in. That's what they think. And we want to sit around here and be political and act like I'm not telling the truth. Light, say amen if I'm not telling the truth. That's what's out there if you really want to know what's out there. And you've got change that 374 4/8/02 - WHOLE - TAX REDUCTION BILLS perception if you want to remove blight. Remove blight from their minds first, blight from their hearts first. My God, what sense does it make to have a new house and you don't know how to live in it? They'll tear it awe up all over again. This woman sitting next to me precedes me by many years. But when I grew up and I was born 21st and Dauphin, not to many years moved to Lower Northeast and was raise in Frankford. We cleaned our streets. We washed our steps we had a community. If I go to the same places now, all the houses are gone nd it ain't no community. Talk, Sister Bey. (Applause.)
We you applaud you, Reverend. Sister Bey. SISTER BEY: Good afternoon.
It's very difficult to come behind such an emotional status quo as Reverend. However, I am Sister Atikah Hasim Bey. I am the CEO and General Manager of Philadelphia's only community 375 4/8/02 - WHOLE - TAX REDUCTION BILLS radio station where I get the most of the blight, where I get all the calls, where I get all the complaints that you all don't have time to hear. I heard him say he was born in the '50s. Well, I was born in 1935 in this City when my uncle cleaned the streets of Philadelphia with two horses and a wagon, a shuffle and a broom. And he kept those streets cleaner then than now with those trucks that you got out there throwing the trash up and down when they do come through. I'm here because I'm concerned about my City and I'm concerned about the loss of population and loss of jobs since 1970. Our City has lost 200,000 jobs. Since the institution of the City wage tax, we have watched as more than 500,000 people have moved out of the City leaving our neighborhoods void and vitality in commerce. And as he said, I had a couple of people last week says, "You know, we're going back down south. " When I was here as a youngster, we had rich, we had middle class, and we had poor. What happened to middle class? It's dissolved, deleted. 376 4/8/02 - WHOLE - TAX REDUCTION BILLS You're either rich or you're poor. But I have a question. I wrote all of this, but it's irrelevant. We're sitting here all morning long to hear all these numbers, as he said, that's going across a ticker tape and someone that can't answer that's supposed to be qualified. But yet they say that Philadelphia is a dump. Well, let me tell you something. I'm here to represent the minority community, whether they be Afrocentric, European, Hispanic or what, we're not all dumb. We might not be heard as we should be, but I'll be damned if we're dumb. And the idea of this situation is this: You know that you're not going to get out and do the work. How do you expect a man or woman to work and do the work that should be done if he's hungry. You talk about ancient slavery time, we don't see much different right now. The only thing we know is that all the rich have left the City of Philadelphia. All the money is gone. The only thing that's left in Philadelphia is McDonald's and your corner neighborhood stores, and they don't give employment. We used to give out turkeys at Thanksgiving. They ended that. That was the only money that the Asians put, was to give us a Thanksgiving basket once a 377 4/8/02 - WHOLE - TAX REDUCTION BILLS year. We don't get that. I'm saying to you here, there's questions that came to me over the weekend and they want to know why is it that some City Councilpersons at- large and not-at-large could be undecided in this particular issue. Is there a hidden agenda that we should know about it since we voted you in there to look out for our interest? Then why don't we know about it. And if it's not, then what is the problem? 75 an hour when it takes way more than that to live. I need to know -- it's way past political. The word "politics" is not bad; it's the politician that's bad. That's not a bad word. We've had politics since ancient time when Jesus walked the face of the earth. He was the greatest politician we had. He turned tables over then because you had took it for gambling and whatever you wanted to do in God's house. Well, Philadelphia just so happens to be one of the major God house churches that's mentioned in your Bible. And when you get these Philadelphia positions and seats, you sit there and forgot all about everything. The only thing you know is how to talk a bunch of rhetoric and be condescending to the 378 4/8/02 - WHOLE - TAX REDUCTION BILLS man that supports you. Well, I say this. Since the enactment of the wage tax, we are warned about the impact of raising this tax too much. We were told over and over again that business and those who could afford would leave the City would do that.
And we all know that that has occurred and is occurring. The negative impact of our population decline was clearly evident at the end of the recent re-appropriatement. C. Unless we change how we run the City, we won't have a City to run. Those who say that we can't afford to lower this and others regressive taxes manage to find money for all kinds of other things. We don't have to name them; you know what you did, stadiums and the likes. And we are tied to policies that are clearly anti-growth. The current level of City services and many of our neighborhoods appear at times to be almost nonexistent. To say that services will have to be cut is almost a laugh. What services? Lifting the tax burden from off the shoulder of the City's poorest citizens and business 379 4/8/02 - WHOLE - TAX REDUCTION BILLS would be a real first step in the removal of neighborhood blight. Part of my concern is a historical fact that the City wage tax was instituted as a temporary tax, and the original levy was 1 percent. 95 for commuters. This tax should have been repealed long, long before now. We should not even be sitting here now, not discussing such an issue. Since we, the common man, is so ignorant, we didn't make these decisions. It doesn't look like the ignorance is running amongst the common man, that worker because I sit here to represent that worker. It seems to be those that's sitting in these other seats, quote or quote, so-called power-to-be that have made these poor decisions. But you know when you feel it, when you stand up one morning, you stop and you look around and there's nobody to open your car door for you, there's no one to be hand you anything. You go get it your damn self. But by that time it's too late and that's Reverend and I are here now. We're a little sick and tired of our City just being dissolved around us and not even basically by 380 4/8/02 - WHOLE - TAX REDUCTION BILLS Philadelphians because that most of you who are sitting in here is not even from Philadelphia. The Philadelphians are not here running our town. You act as though we don't have enough intelligent people in Philadelphia to take positions. You have to go way here, way there, way over there somewhere to come to get somebody to work in Philadelphia, to make the decisions -- how can you a decision for my and home when I live up on Green Street in Germantown and you live somewhere else? You cannot do it. You all are trying to do the impossibilities. When attempt -- there's two things when an immovable object meets an irresistible force, one of two things occurs. If you use positivity, the reasoning power takes over. Other than that, you have a combustion. And I'm here to tell you this is far from a joke. This is far, far from a joke. All the threats that's happening, you don't want to see what happened in ancient time. You don't want your workers, the only few you have left that's eating McDonald's food and got minimum wages go berserk in this town. It's too late then. There's things that can be done. Use some heartfulness. Take on some L-O-V-E, what this City 381 4/8/02 - WHOLE - TAX REDUCTION BILLS stood for in ancient time when it first was stood up. What did the founding fathers hook this country up for? It was to be a God-loving country, and Philadelphia was headquarters. It was the first capitol. Well, look at us now. We stink to high heaven. And it is a damn disgrace. And we call ourselves leaders? Of what? We should be able to set the records and the lead for all over this country from out of Philadelphia. You mention in the Biblical scriptures, but maybe ya'll Bibles got dust on so you wouldn't know what I'm talking about. But I pray that you hear us today and make your decisions in an intelligent manner, not in a grafty money-hungry manner. All of those things have been done in the past. Stop ignoring the people in your community that really do the work.
I've been in West Philadelphia sitting and scrambling with a community radio station since 1986. And every damn time I call, I get the pushover. Why? But yet the true voice of the people in the West Philadelphia and Philadelphia community, because I'm Philadelphia at-large the best we can because thank God for Internet. We're all over now being heard. I'm at 405h and market and you tell me I'm out of the area 382 4/8/02 - WHOLE - TAX REDUCTION BILLS to be helped and assisted. So now I moved to 64th and Woodland. I wonder if I'm in the middle of it now. I have a question regarding the implementation of public policy. How is it that those who have we place in policymaking positions politicize nearly every issue? Would it not show real leadership and pride by acting upon the issues from the position of public good and moral certitude? That is a question that only you can answer. I challenge you to listen to those who have placed you in the position of trust who expect you to make decisions that will reverse years of job loss and employment decline. I challenge you to earn your salaries and perks by standing up and doing the right thing. Vote to at least continue to lower the wage tax and support Bill 92. I thank you. )
Thank you. The Chair at this time recognizes Councilman Ortiz.
A colleague of mine who is not here today, David Cohen usually says that 383 4/8/02 - WHOLE - TAX REDUCTION BILLS we can pass legislation in this Council to benefit millionaires and make rich to a lot of people. We have built stadiums. We have given tax breaks to the rich and the wealthy. But let a bill come before Council that is pro the working class and all hell breaks looks. The Biblical place will hit the City if you begin doing something for the working class. Doom and gloom is not the words to describe what would happen the City if we pass, God forbid, a bill that would help the working class. And it always comes down to whether we have the will to do it or not to do it. This is one of those moments that's that what it's really coming up to. We have another one that's coming up too, which is the schools. You really do not expect a family to keep on taking mortgages out on their house to pay their credit card bill. But we are consistently as a City being asked to take out a mortgage. That's what a bond issue is. Every time you put a bond issue, it's a mortgage on the people who live in Philadelphia. That's a mortgage that the people of Philadelphia take out, and it doesn't resolve the problem of that credit card bill because if you took out a mortgage and really resolved all of your 384 4/8/02 - WHOLE - TAX REDUCTION BILLS debts, then it would stand to reason. But if you take a mortgage and it only takes care of your debt for six months and then you're going to have to go back to the bank and say "I need another mortgage." At one point, the bank is going to say to you, "Sorry, you're over-mortgaged. You cannot keep on paying the interest on this." But they're going to ask us to mortgage the City in a couple of days and a couple of weeks and so on. In order to resolve a problem that should not be a problem, because the right to a public education is a right that every kid in tis City should be guaranteed. Guaranteed by the state government, good public education. And it is time. So I'm glad that you're here because this is a bill, I guess a regressive tax that affects the poor and working class people of this City. REV. EDWARDS: Councilman, you know why I get so emotional? I'll tell, I called myself really doing my Morehouse thing in here today and being very erudite and collegiate, but the more I listened to the numbers, my blood pressure started going up. If I heard correctly -- now, again, we've been a big part of this debate. We've done 385 4/8/02 - WHOLE - TAX REDUCTION BILLS some policy walking and we looked at some figures and we've been on the Internet and talked with some professionals. If memory serves me correctly now, we've gone from a debate about $120 million to a debate of $290 million, which really isn't a debate at all because all we're talking about is what's going to happen next year. In doing the math of $120 million, this is what I came up with because when I first spoke to this Council I was passionate about the issue of PGW and its mismanagement. And I discovered in that debate and in that issue that the City gets $18 million a year annually from PGW. Now, if you do the math million time 4, I think 15 if I did it right or over the course of the 16 five-year plan I keep hearing about, that equaled 17 $90 million. Well, now that would take your $120 18 million hole and you'd only have a $30 million gap at that point.
We haven't gotten that money in a couple of years. REV. EDWARDS: Well, hold on what I'm trying to say here. I understand from very reliable sources within this building that the City gets from PGW every year that God says $18 million. Now, only 386 4/8/02 - WHOLE - TAX REDUCTION BILLS you know what happens to it. I'm telling what has been told to me by PGW and by some City Council folk. So I ain't in that mess. I'm just trying to show you that we did our homework. So if the debate is $120 million, well, me and my poor mathematic self just found 90 million for you. And I'm sure that there's some other efficiencies that could be made. Maybe if you guys would forego your intended salary increase, that probably throw a couple million more into the loop. And by the time it's over, you know that $120 million would be gone and you'd given your tax relief, built your convention center, and all the other wonderful things that you want to be doing. Now, that's non-scientific kind of guy. But I go to the store every day and I buy gas and I put my clothes in the cleaners just like the poor folk. They can count too. And at the end of a week when you looking in your wallet and stretching, like my mother used to say, she could stretch a dollar -- and she could. I never knew how she raised nine kids by herself and always had some money because we were always "Momma this, Momma that." I'm not that good so I couldn't do it and I don't envy what you have to do. But what it does 387 4/8/02 - WHOLE - TAX REDUCTION BILLS show us is that with some honesty, some integrity, some real leadership that only you can provide because legally that's what you're here for. Morally you have the trust of the people to do it. We expect that you will look at this issue in that light. I implore you to look at it in that light. If we can do all of those great things, and nobody has said that those are bad things, you can do this, too. I've heard that you've got to go find the money to expand the Convention Center. Then while you're finding that, find enough to continue the wage tax cut. Find some in there to give the poor folk a break so that maybe when the Convention Center is done they can afford a ticket every now and then to get in on some of the activities.
Before we expand the Convention Center, we got to fix the schools. REV. EDWARDS: That would be better.
Let us get out priorities correct. Before we expand the Convention Center we better have a solution that doesn't mortgage our future for the schools.
However, I'd like to say this. 388 4/8/02 - WHOLE - TAX REDUCTION BILLS With the schools that you're talking about with the blight that's out there, our children cannot go to a school without getting shot up or drugged up. So I think we need to look from that point of view first. When you're getting this school issue together, let's look at them being able to walk to school like we used to do and give the teacher an apple and sit down and learn their reading, writing and arithmetic.
That's why jobs are so important because if our people are working, then they're not on the corner selling drugs. SISTER BEY: Absolutely .
Thank you very much. Thank you for your patience. Our next witness.
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Good evening City 389 4/8/02 - WHOLE - TAX REDUCTION BILLS Councilwoman President Verna and Members of the Committee of the Whole. My name is Robert Martin, and as President of the Building Owners and Managers Association, BOMA of Philadelphia, I am here to support Bill 92. BOMA is a non-profit organization whose members provide over 49 million square feet of office space in the City of Philadelphia for over a half million building occupants and employees. The assessed real estate valuation of office buildings within the City of Philadelphia represented by these office buildings exceeds $1.4 billion. This produces real state tax revenues to the City of approximately $116 million annually. Total tax revenue received by the City from BOMA member's building occupants exceeds $2 billion annually. The total annual payroll for BOMA office buildings, occupants and employees, is estimated at $27 billion per year. We support Council Bill 92 and believe tax reform is need to creat economic growth and more job opportunities for Philadelphians. This should only be the beginning of efforts to revitalize Philadelphia. Tax reform and tax reductions must become a priority of this government. Without 390 4/8/02 - WHOLE - TAX REDUCTION BILLS significant tax reform, Philadelphia will continue to lag economically behind competitor cities and surrounding jurisdictions and the population will continue to decline. By reducing the overall cost of living and doing business in Philadelphia and improving a tax structure that impedes smart growth with the help the City Council and Mayor, we can make Philadelphia a preferred place to live, work, and visit. Thank you President Verna and Members of City Council.
Any questions? When appreciate you coming in to testify and we certainly appreciate your patience. Our next witness. Mr. Mazzucola. I know you've been waiting all day, too. Thank you.
Good afternoon President Verna and members of City Council. My name is Kevin Mazzacola, I'm the Director of the Automobile Dealers Association of Greater Philadelphia. I'm here today on behalf of our Philadelphia members who sell and service new cars in 28 stores with in the city limits to strongly support Bill 30 continuing cuts in the gross 391 4/8/02 - WHOLE - TAX REDUCTION BILLS receipts tax for Fiscal Year 2003 and also support the accelerated cuts in the tax has been outlined by Mayor Street's five-year plan. Obviously, automobile dealer like any other business owners also would like to see wage tax reductions continue for as long as possible and to be as deep as possible. But because of the current wage tax debate is so dominated the news coverage of the City's budget considerations this spring, our members felt it was particularly important for our voice to be heard on the importance of the accelerated gross receipts tax cuts. Operating a new dealership in the City of Philadelphia is a challenging proposition, given the lower taxes and more affluent customer base in the suburbs. Twenty years ago there were more than 40 new car dealers in the City. Before the 1984 Business Tax Reform Act gave the City more flexibility in levying taxes, business taxes were a crushing burden to our members. Although the current economic turndown has been somewhat of an exception, the automobile industry has historically been acutely sensitive to business cycles. Despite 392 4/8/02 - WHOLE - TAX REDUCTION BILLS the high cost of our products, our members operate on narrow margins. A City gross receipts tax of four mills forced dealers to pay very high taxes that could wipe out a small profit or aggravate what is already a money-losing year. Although this could still happen today, the City has been moving forward in the right direction to make that result less likely. Automobile dealers left the City for the same reasons that so many of their customers left, including crime, blight, poor public schools, high insurance costs, and concern about the quality of City services. Without doubt, the City's taxes and particularly the gross receipts tax, also were major factors. Over the last years, every time the 17 City has considered a significant change in tax 18 policy, our Association has come before City Council 19 to make our concerns known. And in response to us 20 and others, Council has done much to make the tax burden more bearable. Ten years ago, you rejected proposed increases in the City wage tax and then began steadily reducing that tax. You reduced City business taxes on retailers who operate on thin 393 4/8/02 - WHOLE - TAX REDUCTION BILLS margins, as I said we do. And you supported an exemption from the City sales tax of automobiles purchased by suburban customers. While philadelphia dealers still face higher taxes overall than dealers in the suburbs, the difference has been significantly narrowed. Mayor Street's proposal to accelerate gross receipts tax reductions in the years beyond Fiscal Year 2003 would have very positive effects on our industry and on the City as a whole. Several weeks ago, we provided our members with sufficient information so that they could analyze the impacts of the proposed gross receipts and wage tax reductions on their businesses. Since that time, I have discussed the proposals with many dealers both individually and in small groups. In one of these discussions, a dealer whose store has been in the heart of the City for decades volunteered that while both the proposed wage tax cuts and the proposed gross receipts tax cuts would be beneficial, the proposed gross receipts tax cuts would be more likely to enable him to raise salaries and to hire more workers. The other Philadelphia dealers who were present agreed 394 4/8/02 - WHOLE - TAX REDUCTION BILLS with him.
I want to emphasize that our members do not see reductions in these two taxes as a choice between whether they benefit or their employees do or between whether their businesses benefit or the City does. Our member believe that while employees appear to pay the wage tax, employers in the City bear some of the burden. One of our members who has a store in both the City and the suburbs reported that it is not uncommon for technicians, for example, being considered for jobs in the City to ask for higher salaries to offset the wage tax. Our members believe that significant wage tax cuts are enormously important to the City's future. The dealers in the Auto Mall in Southwest Philadelphia, for example, are very worried about Governor McGreevy's proposal to end New Jersey's income tax credit against the wage tax. The Auto Mall draws many employees from across the river. This issue is a reminder that real solutions to the wage tax problem probably requires wider reforms in state and local areas. In the meantime, our members also recognize that the City must maintain services and 395 4/8/02 - WHOLE - TAX REDUCTION BILLS make strategic capital investments. As the producers of one of the top auto shows in the country, which set record-breaking attendance records this year, we believe the Convention Center expansion is vitally important. As I testified recently before a Committee of the Pennsylvania House of Representatives, a larger Convention Center would enable our auto show to have more predictable and favorable dates, attract larger exhibits from manufacturers, and bring more visitors into Center City, all while out-of-town meetings are also in progress. That means more revenue for the City. Having said that, we do not believe that the Convention Center expansion should hinge on the outcome of this tax debate in City Council. The City has typically supported major capital projects like the original center and the two new stadiums based on analyses that revenues generated by the projects would cover their costs. If the mayor were to decide that the City could not afford to expand the Convention Center, we would try very hard to change his mind. As business owners, we cannot decide the debate about the trade-offs between tax cuts, 396 4/8/02 - WHOLE - TAX REDUCTION BILLS services, and capital investments. Our members have their own multi-million dollar investments out in the City's neighborhoods where businesses are more dependent on publically provided services and where service levels are not enhanced by special districts as they are in Center City. They believe that the quality of City services does affect the viability of their businesses and adds value to their investments. Before concluding, I want to take note of two other bills affecting the gross receipts tax. Our association supports Bill 020116, sponsored by Councilman Wilson Goode, Jr. We have not yet looked closely at Councilwoman Blondell Reynolds Brown's legislation to change the timing of gross receipts tax payments, but it appears to be well-intended. I will get back to Councilwoman Brown if it turns out we have any concerns. In conclusion, on behalf of Philadelphia Automobile Dealers operating at 28 locations, employing 2700 workers, and generating $10 million in local taxes in the City of Philadelphia, I ask you to continue to reduce the City's business tax burdens and to maintain services that make our City 397 4/8/02 - WHOLE - TAX REDUCTION BILLS more attractive not only to our businesses but to our customers and employees. Thank you.
Thank you. I was somewhat distracted. Did you indicate how many auto dealers we have in the City?
Thank you. And you say they employ 2700 workers?
Thank you very much. The Chair recognizes Councilman Ortiz.
I just want to tell you that I don't think the gross receipts tax is in question in this hearing.
That was a concern from us is that we were watching the debate on the wage tax and we just wanted to make sure our voices were heard in regards to te gross receipts and that since most of the discussion was dominated with wage tax, it is also important to us for our members regarding the gross receipts tax cuts.
Thank you. 398 4/8/02 - WHOLE - TAX REDUCTION BILLS The Chair recognizes Councilman DiCicco.
Thank you, Madam President. Thank you for waiting. It's been a long day. When an automobile dealer makes a determination on the price of a car that he or she is selling, in addition to whatever the requirements are from the home office, if you will, from the manufacturer, there's a bottom line price and there's a lot of negotiation that goes in between, there's a lot of expense that gets, I'm sure, included in the sales price, the price of doing business, advertising, sales representatives sales persons' salaries, et cetera. Does the wage tax -- is it correct to say that the wage tax has some bearing on the sale price?
Certainly. All expenses that are involved in the process of selling that vehicle have to be taken into account as they sell their goods.
And the reason I say that is -- and I know wouldn't have the answer for it. But I know a number of times when we go through our budget hearings and we bring in the 399 4/8/02 - WHOLE - TAX REDUCTION BILLS Procurement Department, the Commissioner of Procurement, we always talk about is there a way in which we can figure out when we by the cars for the City fleet, as an example, we are always in competition because it has to be through an RFP, through a bidding process, and we generally lose out. And it's my understanding in a couple of years, we've lost out by maybe $10 extra per car because that was a low bid so we loss the sales on the Philadelphia side to New Jersey, as an example, because they can sell a car $10 per car cheaper. And it's not an exaggeration. Sometimes it actually comes down to that close. So would it be safe to say that the wage tax reduction may have an impact on the eventual sale price of the car and maybe not make it happen for us, but it's a potential that it cost.
Certainly. And especially when you're talking about fleets and large volumes of vehicles. Although $10, depending upon how many you're procuring, it can add up certainly.
I just wanted to make sure. I figured that that would be the answer, 400 4/8/02 - WHOLE - TAX REDUCTION BILLS that you have to figure everything in, the cost of doing business including the wage tax, but it does actually has bearing on the sale price.
Thank you. No further questions. Thank you, Madam President.
Thank you. Any other questions or comments from Members of the Committee? Thank you again for being so patient.
I'm Shelly Yanoff, and I'm the Executive Director of Philadelphia Citizens for Children and Youth. Joining me is Michael Mazerov who is the Senior Policy Analyst from the Center on Budget and Policy Priorities. If necessary, I will yield my time so that Mr. Mazerov will talk. Thank you. But I would like to finish, of course, if I could.
Certainly. 401 4/8/02 - WHOLE - TAX REDUCTION BILLS
President Verna, Members of the Council, I appreciate the opportunity to testify at today's hearing. C. I'm not here today to express support for or opposition to any particular bill under consideration to cut Philadelphia taxes, rather my goal is to put the issue into perspective by addressing the relationship between local tax policy and economic development. Such perspective has been sorely lacking in the outcry that has erupted in response to Mayor Street's decision to seek no further cuts in the Philadelphia wage tax after this year and to propose cuts in the City gross receipts tax instead. My message today has three parts: First, it is unlikely that Philadelphia's tax levels relative to that of its suburbs are a significant factor in its ongoing loss of population and jobs. Not the message you've heard today and I'll try to explain that position. Second, consequently, cutting either the wage tax or the gross receipts tax to the degree that's being proposed is unlikely to have a 402 4/8/02 - WHOLE - TAX REDUCTION BILLS significant positive impact on the City's economy. And third, unaffordable tax cuts that result in a degradation of the quality of City services and infrastructure could set back the City's economic recovery more than any of the proposed tax cuts could aid it. All day today the business community has been telling a simple story: Philadelphia is losing jobs and people while its suburbs are gaining them, the City's wage tax is significantly higher than the taxes that prevail in the suburbs and therefore the higher City wage tax must be a significant cause of Philadelphia's economic and population decline. What's wrong with this equation is that it ignores the fact that the vast majority of central cities, that is, the cities that are at the center of metropolitan areas, have been declining relative to their suburbs for decades. Such decline has occurred in cities with widely varying tax structures and is by no means limited to cities with wage or income taxes. Let's look at some recent population statistics and then I'll turn to statistics on jobs. In only 5 of the 35 largest metropolitan areas in 403 4/8/02 - WHOLE - TAX REDUCTION BILLS the United States did the City have a higher rate of population growth between 1990 and 2000 than its suburbs did. of the central cities in these top 5 35 metro areas loss population between 1990 and 6 2000, and Philadelphia was one of these 11 cities 7 that loss residents. 3 percent. In 3 of the 10 cities that 11 suffered a steeper loss of population than Philadelphia did in the 1990 to 2000 period, there is no City tax on income or wages. And in six others, the gap between city and suburban income or wage tax rates is significantly less than it is between Philadelphia and its suburbs. For example, the Pittsburgh wage tax is 3 percent with most suburban jurisdictions taxing at 1, yet Pittsburgh's rate of population loss between 1990 and 2000 was twice that of Philadelphia's. In short, Philadelphia has experienced a much slower rate of decline in population than a lot of other major cities in which the relative tax disadvantage of working in the city is a lot less than it is here. Clearly, factors other than relative city versus 404 4/8/02 - WHOLE - TAX REDUCTION BILLS suburban tax burdens are chiefly responsible for declines in City populations. Just as inner city population loss to the suburbs is a nation-wide trend that seems to be a little correlated with relative tax burdens on wages, so too is the flight of jobs to the suburbs. A recent Brookins Institution study looked at job creation in 92 large metro areas between 1993 and 1996 and it found that the share of total metro area jobs located in the suburbs was greater at the end of the three years in fully 82 percent of the metropolitan areas. In other words, only a small minority of central cities have been able to keep up with the pace of job creation in their suburbs.
Of the 92 metro areas, there were in which the city 17 lost jobs between '93 and '96 and suburbs gained 18 jobs. Philadelphia was one of the 23. 19 And I've attached at the back of my 20 testimony this list ranking the cities in terms of 21 population, of job loss that loss jobs in the study. 22 17 of the 22 other cities had a steeper 23 rate of job loss than did Philadelphia. , the gap between the city income tax and suburban income tax is 405 4/8/02 - WHOLE - TAX REDUCTION BILLS smaller than it is in Philadelphia. As with population, Philadelphia's jobs retention record is much better than that of a lot of other major cities that have lower absolute wage tax burdens and much lower wage tax burdens in relation to those in the suburbs. I want to be clear that I'm not saying that Philadelphia policy-makers or citizens should be satisfied with population and job losses that are less severe than those experienced by other central cities. What I am saying, again, is the fact that many other cities with much lower tax burdens on wages are doing far worse in retaining residents and jobs in Philadelphia calls into question claims that the wage tax is a significant contributor to Philadelphia's declining population and employment base. The data I've just cited are consistent with the findings of an enormous body of economic studies on the relationship between interjurisdictional differences in tax burdens and relative rates of economic growth. One recent study can shed valuable light on the debate here. The District of Columbia is in a situation very 406 4/8/02 - WHOLE - TAX REDUCTION BILLS analogous to that of Philadelphia. It has been losing jobs and residents to the suburbs even more rapid than as Philadelphia and there's a similar perception and concern among policy-makers that high taxes have contributed to the flight. Top personal income tax rates in the district are more than 3 percentage points higher than in neighboring Virginia and about 1 1/2 percentage points higher than in Maryland. 's ability to retain residents and jobs. 's record in this regard over ther '69 to '94 period with that all of nearby counties in the metro area. The study found that there was no statistically significant correlation between interjurisdictional difference in personal income tax, residential property tax, or sales tax rates and population trends. C. study brings me to the final point I want to make today concerning the relationship between the quality of public services and the relative attractiveness of a jurisdiction as a place in which businesses choose 407 4/8/02 - WHOLE - TAX REDUCTION BILLS to create jobs. C. study found that there was actually a statistically significant positive correlation between a jurisdiction spending, other than on welfare, and its rate of employment. That is, the higher the level of public spending the higher the employment growth rate after controlling for other factors. And many other economic studies have found a similar correlation. And there are many good reasons for this, and I include in my testimony a quote which I will not read from one of the leading site location consulting companies in the United States advising companies on where to locate talking about how the quality of public services is vital to the location decisions of business. The wage tax and the gross receipts critical are both critical revenues towards sources for Philadelphia, the possibility that cuts in either tax could interfere with the desire of businesses located here or contemplating expansion in this City to enjoy both the fiscal environment and high quality public services must been carefully weighed against the purported positive investment effects of cutting either tax. 408 4/8/02 - WHOLE - TAX REDUCTION BILLS As I have emphasized, the likely incentive effects of the tax cuts that are being discussed are meager at best.
The same potential trade-offs between tax cuts and City services should be of concern with respect to attracting or retaining residents. The City will have gained little if cuts and taxes result in larger class sizes in the schools, dirty parks, more dangerous neighborhoods or degradation in the quality of roads, trash service, and other City services that make a city an attractive place to raise a family and to work. Thank you again for permitting me to testify today. Of course, I'd be happy to respond to any questions and I would also point out that my written statement also discusses Pennsylvania Economy League study and raises some significant concerns and methodological questions about the study and I'd happy to address that as well. Thank you.
Thank you. Thank you for 409 4/8/02 - WHOLE - TAX REDUCTION BILLS the opportunity. As you know, Philadelphia Citizens for Children and Youth professes not to be a tax expert. We represent most commonly the interest of those who do not have access to power nor finance but in whose the hands the future of the City and region will fall. We join with you in recognizing the that City is losing far too many of its people and jobs and we agree with you that the loss is crippling us. Like you, we'd like to change it. We would like to see the schools improve, the automobile insurance rates lowered, the State pick of its share of court costs without taking the funding away from the City in other areas, and our taxes lowered. We are glad that some of our State leaders are finally recognizing that the State should pick up the cost of charter schools. Indeed, many of us have urged that for the last five years. Had that urging been heeded, we might not be in the position today that we are concerning this the schools. But today's question is not that. Today's question is different. We ask that before you wipe out or lower one source of funding, you assure the community that there will indeed be 410 4/8/02 - WHOLE - TAX REDUCTION BILLS enough funds left in the General Fund to provide health care in our centers, to support prevention and remediation efforts in fighting infant mortality and child abuse, that there will be funding for our schools, our libraries, our child and family support programs, our community college, that are our streets will be cleaned, and the neighborhoods will get the attention they deserve. This year additionally we urge you to find $5 million to wipe out the lead problem and start saving children before they're damaged and that you find $1 million to support a health and safety fund for the City's child care programs, funds that have been too hard to find up to this point. We, of course, also urge that there's full funding for the City's schools. We would hope that those who march today have a plan to protect those most vulnerable from suffering losses they cannot afford. We don't know which taxes should be cut. We do know which children and family services should not be. Before the City Council takes action or the State Legislature acts on another in a series of threats to the cities autonomy, we ask that you show us the bridge under which we can be protected until our 411 4/8/02 - WHOLE - TAX REDUCTION BILLS ship with its hundreds of thousands of jobs comes, build us the bridge. We want to go on it and walk over it, but don't leave 400,000 children and their families exposed with a vague hope that it will all work out. We welcome the energy that has ben galvanized around this issue, but taking action against taxes is much easier than taking actions for demanding different power arrangements or for the State to pay for our schools, or for the State to pay for the courts as they've been ordered for almost a decade, or for the State to lower our automobile insurance rates that have really encouraged people to move out, or for local efficient government processes and less political infighting. We urge that such energy be spent to support the overarching cause that should unite all of us. We must speak with a clear voice about the values that should propel this conversation, a vision of a city that's good for children families, communities, and business. Thank you.
Thank you very much. Are there any questions? 412 4/8/02 - WHOLE - TAX REDUCTION BILLS The Chair recognizes Councilman Ortiz.
Mr. Mazerov, you know that one other bill, I think is it's 82, impacts on those that are relatively on the lower scale, the very poor and they pay and those are individuals that do not itemize on their tax returns to the Federal Government. So they pay and according to testimony today, actually, the amount of money that would be taken out of treasury if we exempt the very poor in the City of Philadelphia would be around $50 million. While if we accept, the working class, it's less than that. Do you also hold the same position then exempting the very poor is not conducive to economic situation, creating a clearer economic environment?
Well, I certainly agree that the tax burden on low income people and starting to tax the income of people the very first dollar of income they earn is a significant barrier to employment for all the reasons that have been discussed today. It is a barrier to employment. It makes it more difficult to afford transportation and child care and all the other thresholds that need to be over come before someone can enter the work 413 4/8/02 - WHOLE - TAX REDUCTION BILLS force. That said, there's just as much potential for the revenue that's lost, if it's not made up in other areas, to affect services that can adversely affect low income people disproportionally as well.
You know, that is a premise that is one dollar for one dollar. That's on the premise that if you cut here and then you don't make it up, but we've been in a steady decline. We haven't made up dollars for a long time. So if you're saying this is an incentive to jobs, how are you going to bring more jobs into the City if you keep that.
I didn't say it was a disincentive to creating jobs on the part of a business. I thought you were asking me is it a disincentive, is it a burden in terms of people being able to enter the work force. And there, I agree.
To me that's basically a disincentive to enter into the work force, a disincentive to a job.
Well, most people 414 4/8/02 - WHOLE - TAX REDUCTION BILLS aren't self-employed. They're employed by people who hire them. So the question is, is the wage tax a disincentive for people to come hire them, but I think that's a separate question from the impact wage tax and abilities of a particular person to enter the work force.
But it impacts individuals at the lower levels which makes it even more difficult for those individuals to be able to make a living within this environment.
Are there any other questions? The Chair recognized Councilwoman Brown.
Thank you very much. Good afternoon. To Shelly Yanoff, let me say that your testimony in a very wonderful way captured questions and concerns raised earlier today with regards to how do we honor what we're hearing from a lot of our citizenry, and that is, reduce 415 4/8/02 - WHOLE - TAX REDUCTION BILLS wage taxes and still do this in a way that we hold our schools harmless or do it in a way where the City can still honor up the now 45 million that we're obligated to pay. That question was raised to both Mr. Charlie Pizzi and Sam Katz and Jonathan Saidel. And Saidel's response was we should be able to do both, take care of the now 45 million that we're now obligated to pay and reduce taxes in a responsible way. Sam Katz acknowledged that there does have to be state-wide tax reform. My concern remains while we wait to get there, what do we do with regards to the funding of our schools, since it is in our face. We now are more responsible for the funding of our schools than we ever have been. And so I share that with you because that was their testimony. And I'd just be curious to know how do you reconcile the two?
Well, as you heard in my testimony, we didn't take a firm stand on it. But I do want to just remind you that Dick Voith who authored the PEL study was the person on the SEPTA Board that was supportive of some of your efforts to try to lower the cost of traveling to and from 416 4/8/02 - WHOLE - TAX REDUCTION BILLS school for students and we didn't have he money for that and we didn't have enough money for child care and we didn't have enough money amount to increase the amount of our contribute to our schools and we didn't have enough political will to demand earlier that the charter schools get taken care of and so we keep descending. What I'm concerned about is that we'll always find the money for the Convention Center and the other things, but will we find the money for the kid stuff. And that's the challenge and you wrestle with it and I appreciate the wrestle and I know that this isn't the watershed, but in a lot of ways for children and families we have been limping and thinking it's walking because we've been doing it for so long. So I urge you to before we say we're going to get a hundred thousand new jobs if only -- and, yeah, we may suffer with a $400 million deficit problem that we think about how that's feel and where are the protections on that.
For children and families, yes. 417 4/8/02 - WHOLE - TAX REDUCTION BILLS
You're questioning what is the $400 million deficit?
It's the PEL study that said that we expect that we will have less that amount.
If we do a serious wage tax reduction they propose. That's their proposal. I just read it and I read endorsements of it and I thought, wait a minute here.