COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE COUNCIL COMMITTEE ON LABOR AND CIVIL SERVICE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, April 11, 2000 11:15 a.m. - - - RESOLUTION 000113 - A resolution authorizing City Council's Committee on Labor and Civil Service to hold hearings on ways to encourage Internet and other e-commerce-related businesses to locate to the City of Philadelphia PRESENT: COUNCILMAN DARRELL L. CLARKE, Chair COUNCILMAN FRANK DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 4/11/00 LABOR & CIVIL SERVICE - RES. 000013 I N D E X Wayne Kimmel, Managing Director . . . . . . . Eastern Technology Fund 5 Ethan Fellheimer, Vice President and . . . . . 23 Director of Technology, Pennsylvania Business Bank Johanna Hambrose, COO Electronic, Inc. . . . . 37 Harold Hambrose, CEO, Electronic, Inc. . . . . 37 Gerry Marshall President and COO . . . . . . . 71 Amerimar Enterprises Jacqueline Jenkins, CFO. . . . . . . . . . . . 85 Black Cyberspace Dot Com John Sorrell, CEO. . . . . . . . . . . . . . . 99 Broadband MultiMedia Technologies John Carpenter, Community Builder, HUD . . . . 114 Michael Colazzo, Mitco Corporation . . . . . . 115 Carole Smith, Executive Director . . . . . . . 121 Telecom Advisory Board David Shevron, Global Technologies . . . . . . 132 Member of New Economy Committee Maria Frizelle Roberts, President, CEO, Owner 140 MFR & Associates Bernard McMonagle, Systems Manager . . . . . . 154 Bell Atlantic Corporation James Ingraham, Marketing Manager, Compaq. . . 159 Co-Chair, Mayor's Information Technology Committee Joe Perez, Director of Professional Services 161 for North America, Compaq Computer Corporation Mjenzi Traylor, Commerce Department. . . . . . 172 Kirby Smith, PRWT Services . . . . . . . . . . 174 3 4/11/00 LABOR & CIVIL SERVICE - RES. 000013 (Index, cont'd.) Curtis Jones, President and CEO, PCDC. . . . . 208 Jim Flug, Executive Vice President, PIDC . . . 217 Michelle Davis, Project Manager. . . . . . . . 221 Community Services Network Sharon Pinkenson, Director . . . . . . . . . . 234 Mayor's Film Office Frederick Murphy, Temple University. . . . . . 242 (Chamber of Commerce Written Testimony Attached) 4 /00 LABOR, CIVIL SVC. - BILL 2 P R O C E E D I N G S
Good morning, everyone again and thank you for your indulgence. The committee on Labor and Civil Service will be coming to order. We will be hearing testimony on Resolution 000113. The intent of this particular resolution is to discuss new technologies, e-commerce, and Internet. It is our hopes today to gain information as to how we can enhance our economic viability in the City of Philadelphia. We're going to alter today's witness list somewhat because of the time associated with the individuals having to get back to their jobs. What we would like to do -- I want to recognize first Councilman Frankie DiCicco, Councilman Fran Rizzo, and Councilwoman Donna Miller, and Councilman Wilson Goode, Councilman Michael Nutter, and Councilman Jim Kenny. We're going to call the first -- I'm sorry. Will the clerk please read the title of the bill.
A resolution authorizing City Council's Committee on Labor and Civil 5 /00 LABOR, CIVIL SVC. - BILL 2 Service to hold hearings on ways to encourage Internet and other e-commerce-related businesses to locate to the City of Philadelphia.
First we'd like to call up Mr. Wayne Kimmell. (Mr. Kimmell comes forward.)
Good morning. Mr. Kimmell, would you please state your name for the record.
I'm the Managing Director of the Eastern Technology Fund as well as the director of e-commerce for the Eastern Technology Council.
I think it's very important for the City, as well as everyone here, to recognize that there are some phenomenal things happening with the Internet and e-commerce within the greater Philadelphia region, and I think it's 6 /00 LABOR, CIVIL SVC. - BILL 2 also important that we, as an Internet community, as well as with City Council and others, to recognize the fact that there are billions and billions of dollars that are being created through these Internet companies. For example, Safeguard Scientifics, which is located out in Wayne, this year will invest over $3 billion into Internet companies throughout the country and the world. Companies like Internet Capital Group were created out of Safeguard Scientifics, companies like Vertical Net. A guy like Mark Walsh is one of the leading Internet B-to-B, I would say, persons in the world, and that company is located in the greater Philadelphia region. I think it's very important that we recognize all of the successes that have been taking place within this area and then what we then need to do is recognize all of those successes, celebrate those successes, and then, at the same time, encourage more companies to start their businesses in Center City. And the unfortunate thing is that a lot of the companies that want to start in Philadelphia point to the different tax issues, 7 /00 LABOR, CIVIL SVC. - BILL 2 and that's unfortunate. It's unfortunate that companies and all the students where we have some of the greatest institutions in the world -- Temple, Penn, Drexel, all the different universities that are located in this area, we have over, I think, 250,000 students in the greater Philadelphia region. And what we need to do is to attract and retain these students to this area to start their Internet companies in this area. And any hindrances, any tax issues, or any other issues are impediments to that. We believe that if we let each other know what's happening with the within the greater Philadelphia region -- and my colleagues here that will testifying after me will also be talking about some of the successful companies that they're involved with. We need to let our students know about this, we need to let them know that they need to start their Internet companies in Philadelphia, that the City government and the State government and others will help these companies to grow their businesses in this area, and that they don't need to go to New York City, and they don't have to go to Silicon Valley and go 8 /00 LABOR, CIVIL SVC. - BILL 2 out West to start Internet companies, that Philadelphia a great place to start your companies. And I believe that's -- that's really what I'd like to say.
All right. Thank you, Mr. Kimmell. Mr. Kimmell, can you give me a little background on your company.
Sure. First of all, being the director of e-commerce for the Eastern Technology Council -- the CEO of the Eastern Technology Council is Rob McCord, who's familiar -- a lot of people are familiar with. Rob is a huge activist on the Internet and e-commerce within the greater Philadelphia region. We have -- in our organization, we have over 1,000 companies -- mostly Internet companies that have businesses in the greater Philadelphia region. I am also the managing director of the Eastern Technology Fund, which is a $20 million venture fund that we're looking to invest in start-up in the greater Philadelphia and New York City areas. 9 /00 LABOR, CIVIL SVC. - BILL 2
As you look forward to the potential of investing in the Philadelphia market, what type of discussions are you currently having with the Administration or Members of Council as it relates to things that would make it conducive to you locating your business here?
Well, one of the things that we talk about is that any of these -- any different -- any hindrance, any tax issues, automatically the companies, they don't -- they get a certain amount of money. Let's say we want to invest a half million dollars into a company or a million dollars into a company; they don't want to have that company drained by taxes, they want to do whatever they can to become a big-time Internet company throughout the world. And any of these different issues that will stop them from doing that will cause them to not start their company in Center City, or anywhere in Philadelphia. They would then go out to the suburbs and start their company. And that's unfortunate, I believe, because I think -- you look at Silicon Alley in New York City, and the companies want to be in 10 /00 LABOR, CIVIL SVC. - BILL 2 Silicon Alley, they want to locate in that area because it's the cool place, it's the place where all the young people want to stay. I believe places like, you know, companies like Electronic, Inc. -- and you'll hear from Harold and Johanna Hambrose about their company, that's phenomenal that their in Center City. I think that -- I believe that these companies would much rather stay in Center City, but there are a lot of issues that keep them from not being in Center City. I think that it's unfortunate because the young people that start these Internet companies like the night life, they like the City feel, and it's tough for them to start their companies here because of a lot of the other issues that were talked about.
Are there any benefits that you can see in our particular city? I mean, I know people often talk about the impediments as it relates to doing business in the City, but is there anything in this fine city of our that would make someone want to come here and locate? I mean. . . 11 /00 LABOR, CIVIL SVC. - BILL 2
Well, being basically a native from this region -- I'm actually from Delaware but am now living in this area -- I believe it's a great place to start Internet companies. Because, as I said, one of the most important things -- and as I said before, you'll hear from the other people, my other colleagues about this -- is that it's so important to attract and retain the employees and keep -- also as well as keeping the students that attend the universities here to want to either start companies or work for Internet companies in this area. And they like -- and the students like to stay in this area. So I think things like the night life of this area, of Center City, is something that's very important, as well as -- as well as housing and other things. I mean, it's a great city and there's no reason why, other than these other tax issues, that people wouldn't want to stay here. You can walk to work. That's tremendous. Out in the suburbs, you have to drive everywhere. There's access to restaurants and different things like that. 12 /00 LABOR, CIVIL SVC. - BILL 2
All right. Are there any questions from any members of the committee? I think Councilman Kenney was first and then Councilman Rizzo.
Thank you, Mr. Chairman. Could I have the microphone? Thank you, Mr. Chairman. Mr. Kimmell, approximately years ago 14 or so, I think the State of Delaware did some 15 extreme and innovative tax incentives and tax 16 reductions and waivers in order to attract the 17 banking industry to that state. As a result of 18 those extreme tax advantages that were created for 19 those businesses, approximately, I believe, 40,000 20 jobs were created in the state, and most of this whole East Coast banking community is centered in the State of Delaware. I believe that this is an opportunity for Philadelphia and for Pennsylvania to do the same thing here, in the southeastern region of 13 /00 LABOR, CIVIL SVC. - BILL 2 Pennsylvania, including Philadelphia, to do what may seem to be extraordinary tax breaks or tax incentives but could create a critical mass of both companies and jobs, and therefore spin off tax revenues and buying power ability and all the other things that come with attracting those kind of businesses. What I'd like you to do, if possible, and those other people who are going to testify, is to give us a generic example of a company of a certain size located in Philadelphia and one located in Montgomery County or Chester County or Bucks County or in New Jersey or anywhere else outside of Philadelphia itself, and give me kind of the balance sheet on taxation. How much more expensive is it on average for a company with 10, 15, employees or more to compete here in 19 Philadelphia as compared to the suburbs? What's 20 the difference in the financial disincentive for being here? You've testified about some of the other amenities that Philadelphia has -- as far as affordable housing, kind of eclectic night life, an attraction for young, vibrant, imaginative 14 /00 LABOR, CIVIL SVC. - BILL 2 people to be, walkability, liveability. And all of those things are terrific and I think we need to continue to improve those. But what's the real bottom line when it comes to being in business here, an e-commerce, high-tech, biotech company, as opposed to being a business in the surrounding suburbs? And that's really what I'd like to try to kind of flesh out today and as we go forward with this process as to what we need to do in an extraordinary way, as opposed to other companies that are doing business in this city. And I think a lot of other companies are suffering under the same tax structure as we are, and we need to find and continue to find a way to give them relief both in gross receipts and wage and other types of fees and taxes. But how do we -- what do we do in an extraordinary way to kind of center the focus and energy into Philadelphia, whether it's Center City, whether it's the surrounding Old City areas, or whether it's in neighborhoods? I've talked to people who want to do business and put businesses in on the waterfront property and other kind of 15 /00 LABOR, CIVIL SVC. - BILL 2 innovative and interesting areas. What do we do about the tax structure specifically as it relates to Philadelphia and our competition in the surrounding bushes?
Specifically on the tax structure, I'd probably like to defer that to some of my colleagues, but I think what we could -- what's really important and one of the things that you were saying is that we need to let the people know in Philadelphia and the surrounding suburbs of all of the great companies and all of the great things that are happening here. We need to -- I believe there needs to be some sort of a public relations campaign or something to let companies know and to inform them. I mean, maybe the tax structure -- you know, we should let them know that here's why it's -- here's the great things in Philadelphia right now. We're going to do these, as you said, maybe take these drastic measures within the tax structure of these companies. But then at the same time, we need to promote all the great things, all the great companies, companies like (unintelligible) who are located down on the waterfront, who are -- now 16 /00 LABOR, CIVIL SVC. - BILL 2 they're over 100 employees. And those are companies that we need to celebrate and publicize to the people in this area to let them know that these things are actually going on in Philadelphia. When I was up with Temple University up in Harrisburg testifying with them, I had a legislator come up to me and said, "I had no idea Vertical Net was located in Pennsylvania." Well, that's a multibillion dollar company that we have here, that we can let people know that that's a Philadelphia-area company.
Speaking of promotions and public relations, what effect did yesterday's article in the Daily News highlighting the potential tax implications of profit-sharing and wage tax do to our efforts to kind of attract and make Philadelphia an attractive place? I think I know the answer to the question, but if you're going to make Philadelphia an attractive for these companies to be and to relocate in, it had to be a terrible, terrible store.
It's not a good thing, it's certainly not a good thing. And like Bob 17 /00 LABOR, CIVIL SVC. - BILL 2 Keith from TL Ventures mentioned, these are the kind of things that, as we are struggling and scratching to get on the map, these are the kinds of issues that hurt us, and it's unfortunate that these things are in the way. I believe that when you look at this area, the Philadelphia region, Center City, it's a better place to start an Internet company, to work for an Internet company than in New York City and than in D.C., plus the fact that you're right in the middle -- we have Amtrak here, you can get to anywhere else in the world. The quality of living is better. This is the place --
And could you comment -- and anyone else who comes to comment -- on the effects of the gross-receipts tax on start-up companies in Philadelphia? Is it not true that e-commerce companies generally have a lot of gross revenues in the early years but not the profit that you would like, and that BPT, that gross-receipts portion of the BPT and some areas of e-commerce -- not all but some -- do have a drastic impact on the bottom line at least in the first four, five, six, seven years of the 18 /00 LABOR, CIVIL SVC. - BILL 2 company's start-up.
You're absolutely right. These companies -- a lot of the e-commerce Internet companies today are not profitable for the first few years and that that tax definitely weighs in on the bottom line with these companies and is a reason why they would not want to be in the City.
Mr. Chairman, I just want -- I'd like all of the witnesses to kind of testify to the things I've asked so I'll stop asking questions.
Mr. Kimmell, I apologize. You may have already spoken on this -- I was on the phone. Do you have any contact from the Governor's office, you know, a year or so ago or within the last year, where the Governor expressed an interest in Internet services and creating a Silicon Valley kind of effect in Pennsylvania? 19 /00 LABOR, CIVIL SVC. - BILL 2 Have you been contacted by anyone there, have any discussions taken place yet?
Personally, no. But that doesn't mean -- I wouldn't want to speak for Rob McCord and others at the Eastern Technology Council. I -- you know, we -- speaking with Temple and others, I mean, there may be contacts with the Governor that I don't know about.
Is there one person or persons that are the point persons for the industry, per se? I mean, I appreciate your testimony and I'm sure we're going to hear a lot of good testimony, but I think if you haven't already decided, you have to have some people that would be the emissaries, or whatever, of the industry to take this to the different levels of government. I mean, I see Bonnie Grant who's the acting City representative, I believe right now, in the background, and she and I and Councilman Kenney and others and Senator Fumo have been working on a student retention thing that kind of fits into some of your needs. And I was just wondering, is there a designated person or 20 /00 LABOR, CIVIL SVC. - BILL 2 persons?
Well, the Daily News named Rob McCord "The Mayor of Philacon Valley," so Rob is probably the --
From time to time, they endorse people who don't get elected. I was just curious if that's, you know, acceptable to you also.
But seriously, I think he's the person, or one of the people, who is really the point person when it comes to --
And, again, my suggestion to you is -- it's not for us to decide up here; I think it's for all of you to decide. And I think that would be very helpful.
If more of the Internet industry locates in Philadelphia, could you just talk briefly, if any, about the need for the infrastructure, what our utilities need to do, Bell Atlantic? What cooperation do you have to have and is the infrastructure here presently to keep up with the rapid growth of the Internet industry?
Probably a person to discuss that much better would be someone like Gerry Marshall, who will be talking after this. But, I mean, within the infrastructure, it is important for companies like Bell Atlantic and other telco carriers to be active within the Internet industry. But I believe all of these companies will -- and like 401 North Broad and the building that Gerry and his group at Amerimar just bought, to have these carrier hotels with all of these different switches and things to have high-speed Internet access, that will come and continue to come. Buildings like what Senator Fumo's doing down on Second and Spring Garden as an Internet incubator, and Christian Marrone has really taken the lead on that for his office. 22 /00 LABOR, CIVIL SVC. - BILL 2 Those are tremendous things and these are the kinds of things that, once these things start brewing, the high-speed Internet access and the other things will come to the area.
The reason I ask that question is I've noticed, even without the growth of the telecommunications industry here, that on a rainy early evening to try to even make a phone call sometimes is impossible with circuit-busy conditions, and the phone company says it's because of people on the computers or on the Internet. And without a real growth, experiencing what I've experienced already, based on the present environment, I can imagine that there would be a lot of what you just described, need for improvements in that infrastructure.
Thank you, 23 /00 LABOR, CIVIL SVC. - BILL 2 Councilman. Mr. Kimmell, I want to thank you very much for coming in to testify.
Thank you very much. Next I'd like to ask for Ethan Fellheimer to please come forward. (Witness comes forward.)
Good morning. Please state your name in the mike and --
My name is Ethan Fellheimer. I saw the witness list. I am not the President and CEO; I am the Vice President and Director of Technology, Lending.
I just got a beep from Allen, so I'm pretty sure I'm still vice president. But thank you, Council, and I'll advise him that your recommendation is to make me 24 /00 LABOR, CIVIL SVC. - BILL 2 CEO. Thank you for having me. May I begin?
I'm a little greedy. I don't see the benefits to the region as much in the City as in the suburbs. And we have great companies in the suburbs, but as a banker, as a lender, I'm always in my car driving out to the suburbs to talk to these technology companies. When Allen, who is President and CEO of Pennsylvania Business Bank, decided to open a bank, his love for the City dictated to him that he would headquarter the bank in Philadelphia. We have a big investment in Philadelphia -- to the tune of the capital of the bank. And it's very important for us that this region embraces new technology and the businesses that cater to new technology. When Allen opened the bank in Philadelphia, it meant increased wages for his employees due to the wage tax. It meant -- now, there's a different banking tax structure, so I am not quite sure if we pay the gross-receipts tax. There is a special section of the PA Code that 25 /00 LABOR, CIVIL SVC. - BILL 2 covers this, so I don't want to talk to the tune of the bank paying extra on a gross-receipts tax 'cause I don't think that occurs, there's a separate taxation. But we have a big investment in Philadelphia, and we see the economy moving towards technology, and we want to do everything to encourage technology not to come to the region, but to come to Center City, Philadelphia. There is an excitement about it, you see real-estate developers pouring tons of money into new buildings that revitalize neighborhoods and create further jobs for our citizens and excitement and vibrancy and self-pride for our people. I do believe that we have many great opportunities and resources to offer these companies. The quality of life is exceptional, the housing market is exceptional. What it would cost for these young entrepreneurs and older entrepreneurs to live and work in comparable space in "hotter" sectors, such as Silicon Alley or Silicon Valley is enormous. You can't get office space. In order to get office space, the Realtors demand equity in your companies, essentially /00 LABOR, CIVIL SVC. - BILL 2 holding them hostage for that equity. We have the housing, we have the office space available. There is no reason why we shouldn't be exploiting those resources. We have the best universities in the country producing exceptional students. We have wonderful restaurants, we have wonderful energy. And we've seen Rittenhouse Square, which, back in 1990, was in a tremendous downflow, come back, and there is an excitement about the Square, where people want to be, and there are restaurants, and housing prices have gone up tremendously there, bringing value to those property holders. And that's what I see as the new technology, the new economy has to offer for the majority of Philadelphia. We see the new initiatives on Spring Garden Street, with Senator Fumo's incubator, the 401 North Broad property, Amerimar's networks at 15th and Spring Garden. There's a vibrancy and a revitalization to which we've never seen. Now, to speak to Councilman Kenney's prohibitive -- the structure is prohibitive, absolutely. For a company that does $10 million 27 /00 LABOR, CIVIL SVC. - BILL 2 in revenues, with possibly no profits or losses, a company is going to pay on the (unintelligible) that I saw $25,000 and yet not even turn a profit. Now, that's a cost of another employee. And it's a penalty tax: whether you make money or not, you're paying it. I personally think it should be removed and exempted for all people willing to open up business in Center City. But let's stick to technology now. I agree with Councilman Kenney's analysis -- analogy to Delaware banking. When Delaware enacted the laws, there were no banks in Delaware, or a couple -- I mean Delaware banks but no national banks locating there.
Today, it is -- it is a hub -- the only other two places are South Dakota and North Dakota -- and it has created lots of jobs not only in the banking industry and in the credit card industry but also the law firms that service them, also the people who work at the law firms. So you have not only lawyers getting jobs, which is always a scary prospect anyway, but you have the paralegals, the secretaries, the messengers. And the same things will happen here in e-commerce. 28 /00 LABOR, CIVIL SVC. - BILL 2 I don't know with the direct influence or how many jobs created there will be -- I'll tell you, it will be a lot. But not only for the Internet companies and the technology companies that are being created, all of those people that have to service them, all of the restaurants that have to serve them, the caterers, the cleaning people, all of that spreads, as you well know as you're all in City Council and I am but a banker, and you deal with these issues every day. But what I want to impart to you is the vibrancy and the energy that we can really make a difference in this fine city of ours. Thank you very much.
Thank you, Mr. Fellheimer. Mr. Fellheimer, based on your testimony, I'm getting a sense that you feel that there's more of a perception of Philadelphia as not being a place where this type of industry can flourish. You're giving me the impression that if people were actually to take a chance and locate here the, that the amenities associated with this type of technology and this type of business are 29 /00 LABOR, CIVIL SVC. - BILL 2 actually here, currently in place to some degree. Is that an accurate assessment of your testimony?
I believe that we definitely have the resources to make this type of industry flourish.
So do you think that we're not as a government providing the appropriate marketing for this type of industry?
Well, I don't know if it's government's job, but I certainly think that the City as a whole is less -- is less -- does not sing its praises as well as it could, and whether that be the City or the industries here or our own citizens.
Who -- do you have a suggestion as to what entities should -- would be the appropriate forum to provide that approach, or singing its praises as you say? Should it --
Should it come from government? Certainly steps done by government do not hurt the situation, but Philadelphians have to feel proud about Philadelphia and really sing their praises. As Mr. Kimmell was saying, in the 30 /00 LABOR, CIVIL SVC. - BILL 2 Internet space, we have some of the most successful Internet companies located in this region, and people simply don't know it. So I don't know if it's City Council's position to do a marketing campaign or the Street Administration or the industry. I mean, certainly it's the industry's responsibility and we view it as such to sing our praises. And Philadelphia is a town that traditionally has simply kept quiet about itself.
So if the government were willing to sing its praises, I don't think it would be a bad thing.
Your company is approximately how old in the City of Philadelphia?
We received our charter in January of 1999 and we opened our first branch on March 17th, the year 1999.
And we've grown. We've increased -- we have employees of, I believe, 23 people, mostly drawing in from the 31 /00 LABOR, CIVIL SVC. - BILL 2 outer suburbs. A couple of us live in Center City.
That was going to be my next question. Where's your recruitment? Your recruitment is from the outer suburbs?
Most from the outer suburbs, so we've brought jobs to Center City and we're very proud about that.
All right. Is that -- can you tell me why that is? As opposed to --
These are people who from come from banking, from other areas. You have to grab people in banking from where they are.
Specialized training. And we have hired Philadelphians in other -- we have lots of -- a couple of our tellers are from the neighborhoods. But when you have to grab a CFO, you want to grab a CFO who's done it before at a de novo bank, and he happens to be in South Jersey.
Okay. I guess what 32 /00 LABOR, CIVIL SVC. - BILL 2 I'm trying to get a sense of is our workforce. I notice in one of the recommendations, it was talking about a more prepared workforce coming out of the City of Philadelphia and obviously dealing with the School District and many institutions that we have. And I was trying the get a sense of whether or not we were --
It's very difficult for me to break down my hiring practices to a micro level. I know we do hire from Center City and would love to -- well, I mean to bring it up to the macro level, rather, for city implications. We certainly want to hire people from the City and from the neighborhoods, and we work towards that. I believe that people come as they are and I don't know how government -- I mean, certainly education can make a difference, but to make a direct difference possibly with some of the programs like some of the safety nets that are out there now. We're willing to train. We -- as long as we've got somebody there with a smile on their face and willing to work hard, we're going to hire 'em, 'cause we do have a labor shortage in all 33 /00 LABOR, CIVIL SVC. - BILL 2 areas.
Yeah. The individuals that you hired from the suburbs, did they relocate to this city?
No, sir. We have a couple people from the Northeast, a couple people from South Jersey, and South Jerseyans love South Jersey.
You think we can encourage them to relocate to the City?
No, I'm saying we as in government. I mean, you know, we obviously would like to not only attract new types of industries, but we would also --
And that's where this area is ripe, because these are young people who want to live near their jobs, who are working 18-hour days, who want to spend money in the restaurants. And that's why this industry is ripe for bringing people into the City and bringing new constituents into our neighborhoods.
I believe Manayunk is still in the City lines, and you have people moving into Manayunk from the suburbs.
Councilman Nutter, just kind of get clarity on Manayunk 'cause that's still in the City of Philadelphia? (Laughter.)
But that's a wonderful place for the Internet where young companies are taking up space because of the vibrancy of the area, they want to be there. And there's a lot of areas in Center City where they want to be as well.
Thank you. Thank you, Mr. Chairman. Just one comment on the retention of some of our employees. I think that this gentleman is correct when he talks about young single or married people without children finding it very attractive to live in Center City or in 35 /00 LABOR, CIVIL SVC. - BILL 2 Manayunk or in some of the more vibrant areas with the social night life and other kinds of things. Our problem -- and this is something we've been trying to deal with -- is that once these people have children and those parents start making decisions about education and neighborhood is when the rubber hits the road and we wind up losing them to Montgomery County, Delaware County, Bucks and Southern and Central New Jersey. And then we find a strange situation where after those kids are raised, are out of college, out of the house, we start seeing the migration of these empty-nesters back to Center City because of convenience and lack for need of car and other types of opportunities. If we can begin to address through employment and education and even tax structure that middle-income group of every ethnic and racial background that are leaving the City, we will be able to retain some of these people here and their families through their entire life span, not just single and retired, but the middle group in there. And right now, they have no choice. There's something we just did recently 36 /00 LABOR, CIVIL SVC. - BILL 2 with the report on market-rate housing. I mean, if you're looking for a single-family house with three or four bedrooms, a garage, and a little bit of land, and you're in a pocketbook range of 150, 175, under 200, you're not going to find it in Philadelphia; you're only going to find it in the surrounding suburbs. If you could afford to buy a single East Falls, for example, for 300, 400, $500,000, that's terrific, but there's not a lot of people in that middle-income market rate area that's going to be able to afford that. So we wind up losing those people for 10, 12, years and then wind up getting them 15 back. And it's trying to give them some choices on both employment, education and housing that is what we have failed to do over the last years. 18
I couldn't agree with 19 you more. And certainly when they're leaving, 20 that's their largest income-producing years.
Thank you, Councilman Kenney. Are there any other questions from members of the panel? 37 /00 LABOR, CIVIL SVC. - BILL 2 (No further questions.)
Can we have Johanna and Harold Hambrose please step forward. (Witnesses comes forward.)
I'm Johanna Hambrose, Chief Operating Officer of Electronic, Inc. and resident of Philadelphia.
Harold Hambrose, CEO of Electronic, Inc. and also a resident of Philadelphia.
I put my thoughts down on paper, so bear with me. Ten years ago, I started a company called Electronic, Inc. Today I run that business with my wife from our headquarters at Fourth and Chestnut. I say "headquarters" because we now have office in London, and between the two 38 /00 LABOR, CIVIL SVC. - BILL 2 offices, we employ about 50 folks. Our client list includes some of the largest technology and financial institutions in the world -- IBM, Microsoft, the New York Stock Exchange, City Bank, Merrill Lynch, Reuters. We are a new economy company, and these new economy companies are characterized, big and small, as working in a global arena at the speed of light. I can't describe to you how fast the people in our office work. My wife and I in the last few months have been alternating weeks between our London office and Philadelphia and sprinkling that with a lot of trips to New York to service our clients. And what those trips have made us keenly aware of is the fact that Philadelphia has a lot going for it. But as well, Philadelphia has a lot of things not going so well. The so-called new economy is led by risk-takers -- the unconventional, the newly invented, and the passionate. I say these words because they describe everyone at Electronic, Inc. and they describe all of our clients. When you walk through the streets of 39 /00 LABOR, CIVIL SVC. ) In London and when you walk through the new media corridors of New York City, the excitement is almost palpable. Philadelphia, however, is ill. Step from the train at 30th Street Station and try to make your way on the subway, try to pay for that subway ride. Last week, a client of ours from New York City was told by the cashier to hop the turnstile because she wasn't going to make change and the guy in the opposite booth was on break. If that's your first experience with Philadelphia, you're already experiencing a problem city. I called 9-1-1 this weekend to report a dangerous situation on Lincoln Drive when I was driving with my family. After waiting for the operator to finish a conversation and a chuckle with someone in the room where she was working, she addressed me and told me that she could not help. Get in any cab in this town -- not an experience that speaks well of this city. Last week, I watched a metermaid on Chestnut Street feed an expired meter of a Mercedes Benz and proceed to a Toyota with an 40 /00 LABOR, CIVIL SVC. - BILL 2 expired meter and write a ticket. Last year, a car hit me and my dog while we were walking to work through our Queen Village neighborhood. Why? Because the traffic laws simply are not enforced in a neighborhood that's filled with children. The police let the driver of that vehicle leave the scene -- no 9 registration, no license, and no place for me to seek compensation for an ambulance ride and a lot of hospital bills. And one year my wife and I faced the question of where to send our daughters to school. You may think all of this is just life in the City. I think it's absolutely unacceptable. I don't believe these stories are unique to me and my family. In fact, I think they're part of the Philadelphia experience. They characterize a city that will not attract a new economy to its doorstep until it has something better to offer. The City must no longer settle for mediocrity. In any of its services, in any of its efforts, it's not an option in the new 41 /00 LABOR, CIVIL SVC. - BILL 2 economy. I know -- I live it 24 hours a day, 7 days a week. If you're not 110 percent, this thing is going to pass you by. You're going to hear a lot of testimony about restructuring the tax situation, and I don't want to underplay that at all. In fact, Johanna's here to represent that issue. She runs the business side of things; I run the staff and the business development side.
However, to lure professionals from Boston, Vancouver, San Francisco, and New York City and as I continue to train our European employees in our Philadelphia office, I know longer want to make excuses for this town. I can provide these people with jobs and career challenges that they'll find no place else, but I'm growing tired of explaining why Philadelphia is a city without joy. I am struggling to demonstrate a balance between the joy these people find at their work at Electronic, Inc. and the struggle this city imposes when they're outside of the office. I need to keep these people here, in this city, and this city needs these people. 42 /00 LABOR, CIVIL SVC. - BILL 2 Our new hotels are wonderful, and we've been celebrating them for a couple of years now. Now they risk looking like lipstick on a pig. These structures are world-class. Now everything else must be world-class. When we deploy new newsstands on the streets, we must consider their design carefully, to ensure they speak of us as Philadelphians in the best way possible. How disappointing that large, green, metal boxes sit on street corners where blue, wooden structures once were. They are an improvement but a mediocre answer to a question a truly world-class city would have addressed with excitement, passion, and invention. When compared to our school problems, these issues sound trivial. But therein lies the danger. We are forever characterized then as a city by our struggles as we miss other opportunities. Every answer this city and its Council provide to its citizens must be excellent. There is no time for the status quo or the old ways in the new economy. You must become risk-takers, unconventional, newly invented, and passionate. 43 /00 LABOR, CIVIL SVC. - BILL 2 My wife and I could have grown this company in any city anywhere. We could have built a home for our family anywhere. But we chose Philadelphia because we love this city. This city is unlike anyplace else on earth. I've lived in foreign countries, I've traveled extensively, and I've always come back here because this is a unique place. As a business, Amtrak and the airport are without exception -- some of the best amenities a city can offer. We can be in New York in an hour, and I can be in my London office in five hours. It's fantastic. Philadelphia's a terrific place and we're here to help you bring it to meet the new economy.
I can talk as a business owner and a resident of Philadelphia too about what a company like ours brings to Philadelphia. We created about 40 new jobs last year in Center City, with a median income of about $50,000. Half of these new employees we lured to Philadelphia from other cities -- six from Boston, one from 44 /00 LABOR, CIVIL SVC. - BILL 2 California, a couple from New York, one from Canada, one from England, from all over. They now live within walking distance of our office and they have a great quality of life. They go out together after work, they patronize the restaurants, and they can afford to go out and contribute to this city. About a quarter of the others are old-time Philadelphians who, like us, have chosen to stay here and want to work in Philadelphia. One woman we hired is a single mother of three who we took off welfare and now has pride in coming to work and provides a great quality of life to her children. Five employees of Electronic, Inc. teach in local universities. Harold, for instance, is teaching at the University of the Arts. His senior studio -- every single one of those students was bound for Manhattan, they had jobs lined up. Almost every single one of them now will be working with Electronic, Inc. -- staying, working, and living in Philadelphia we do bring in millions of dollars of revenues to Philadelphia. 45 /00 LABOR, CIVIL SVC. - BILL 2 We do bring in millions of dollars in revenues to Philadelphia. We are a company that is supporting the infrastructure and the tax base. We are moving from 6,000 to 35,000 square feet of office space, staying in Philadelphia because we choose to not because it's necessarily made easy for us. We've got about 60 new jobs over the next year. We're doing our best to lure them to Philadelphia. We talk about the glass being half-full. I only talk about the things I can talk about and glamorize. But like Harold said, it's getting very difficult to keep making excuses and avoiding the issues, and things do need to be addressed. We consider ourselves ambassadors for Philadelphia. We bring clients, senior-level people from the New York Stock Exchange, from City Bank, from like companies from Manhattan to Philadelphia. They walk into our office and they say, Wow, this is beautiful space that you can have. A small company is pidgeon-holed in a back office in New York. We can -- we have -- they walk through the streets of Philadelphia and they say, I never 46 /00 LABOR, CIVIL SVC. - BILL 2 knew Philadelphia was like this. Maybe we should open office here. Our employees can have a quality of life, we can have nice homes. This is a new experience. We also bring Philadelphia to the boardrooms of those companies. Every one of our presentations highlights the fact that we are from Philadelphia. As much as we take the joke and see the elbow across the room, it is an image and identifier that we are a Philadelphia company. To answer Councilman DiCicco's question also about the Governor, we participated and were invited to participate in the Governor's IT trade mission to the UK. As a result of that mission, we started actually seriously talking about a London office, and today we have ten full-time employees in our London office who are growing rapidly. Taxes. Taxes cripple businesses. Some, we all know, are necessary, and some become deterrents. The one that I think that I am most afraid of is the stock-option tax, and I do think that it targets technology companies. If it's a tax that has been in existence, it may not have 47 /00 LABOR, CIVIL SVC. - BILL 2 been exercised much in the past, it is not anything that anybody has yet become dependent upon. But technology companies are the only ones issuing stock options as freely now, they are the ones that will be exercising them and having them exercisable. At that point, they become punitive.
When I am competing for my talent with IBM and with NetScape, I do have a quality of environment and creativity in my office, but I not necessarily can compete with the salary, so I have to put that stock option on the table. Growing as I am, I seriously have to question whether this is too much of a deterrent for me, and I know it's got to be a huge deterrent for companies like mine that are moving into Philadelphia.
That's the article 19 yesterday in the Daily News where Johanna was quoted. I never saw an article in any paper out in the open on more desks in our office before. It's definitely on the minds of the people that are working there.
It's very serious. Business-privilege tax -- specifically 48 /00 LABOR, CIVIL SVC. - BILL 2 gross receipts and sales. As I see it, it's a difference between product and service. If I create a product that is sold in New York, I am not paying taxes on it. If I am creating a Web site for a client in New York, the service is performed here and I am taxed on that Web site. Do I -- the question I entertain now is, do I just open a sales office in Manhattan because I do have so many clients in Manhattan and service them here in Philadelphia, create my team and my staff? Or do I open another office in North Jersey or Manhattan, where the talent wants to be -- they want to be in New York City -- and service the clients from there and lose the revenue to Philadelphia and Pennsylvania? So these are our issues, and we are here. And any way we can help and contribute, we're ready to do it.
Thank you. Quick question. Your testimony, kind of the husband-and-wife team, is kind of across the spectrum as it relates to concerns in our fair city. You talked about this whole quality-of-life issue and you talked about the tax issue. 49 /00 LABOR, CIVIL SVC. - BILL 2 Actually last year, there was this raging debate during the Mayor's election about whether or not we needed to continue to enhance our service delivery arm of government or whether or not we needed to reduce taxes. From your perspective, what should we as government attack first? Because realistically, given the structure of our taxes as it relates to our ability to deliver services, it's difficult. I think, you know, some other members may have a different opinion to do both at one time. What do you think is the most important thing that we should do initially, short term?
I think that there's always a risk, you know, of saying throw more money and, you know, that will make things better. But as a designer, I say, let's work with what we have and see what the potential is. Are we getting 100 percent out of what we have? And I would say no. 22 To improve the City services, how do we instill in all of those people -- from the people who are working for the Center City District sweeping up the streets, to the people who's 50 /00 LABOR, CIVIL SVC. - BILL 2 taking fare money at SEPTA, to the folks who are walking the halls, you know, at this building, how do we instill in them confidence, pride, a belief that ultimately they are Philadelphians? We are all Philadelphians and everything they do matters. I think there is enormous strides to be made by improving what we have, by adjusting the mindset of all of these people out there working in these services. By asking the taxi drivers, you know, you are Philadelphians, you represent the City, you are absolutely important to the success of all these fancy new media companies, and all these other people that, you know, that we hear about on the news every night, you are critical, and so are you, the guy with broom in your hand walking down Chestnut. And the metermaid, you too are important. But I just see this lack of spirit, that adding to that, adding more staff, throwing more people at that is not going to solve anything; it's just going to make the problem bigger.
So you think we have an adequate workforce in terms of numbers; 51 /00 LABOR, CIVIL SVC. - BILL 2 it's just getting that workforce to service us better?
Absolutely. You know, it's what we face every day. Do we hire someone, are we getting 100 percent out of these people? And I'll tell you, there's an awful lot to be had at a company like ours by doing those extra things. We -- you know, it's not necessarily giving them more money; it's giving them opportunities to pursue interests on the clock, it's creating a work environment that's supportive and open, it's creating an organization where the hierarchy is flat, where people don't feel like some boss is going to storm in and give them a hard time, where people don't want to hide in the structure but have such pride in their work -- whether they are answering the phones in our office or, you know, managing a client like City Bank. Everyone feels equally proud and an equal owner in this thing.
I see one necessitating the other. I see cutting taxes attracting more 52 /00 LABOR, CIVIL SVC. - BILL 2 people to this city. And you have more people in this city with more -- better jobs, higher paid jobs, whatever. They are going to demand no more mediocrity. We're not going to just sit and take it anymore -- ship up or shape out. And people are going to be forced to do their jobs and to do them well. And with that, the spirit and ownership of pride in our common city. It's a dirty city, ah, just leave the trash there anyhow. It's not, and it shouldn't be.
Thank you, Mr. Chairman. You covered a lot of different areas. I just would like to focus a bit on the issue concerning your company. I think you employ 50 people in Philadelphia now?
I need to understand a little bit about how a company like 53 /00 LABOR, CIVIL SVC. - BILL 2 yours works. If you needed to expand, and let's assume for a moment that there was not enough space in the building or on the floor that you now occupy, are you able to do some off-site office space, a satellite office within the City of Philadelphia? As an example, you're familiar with the typical rowhouse retail businesses in Philadelphia. You know, you have a 16-foot front store, living quarters upstairs, and that first-floor ground-floor space, if you had to, could you open up a satellite office, could you accommodate the type -- your business in a facility of that size?
Specifically Electronic, Inc., no. However, a lot of new media companies, ones whose focus is different than Electronic, Inc. can, in fact, do that, and we work with them all the time.
That was my next question. Thank you for answering that.
So there are people out there who, that type of building, that 54 /00 LABOR, CIVIL SVC. - BILL 2 facility would be appropriate or would be able to accommodate these new companies that may be interested in coming to Philadelphia. And if we were to provide some sort of economic incentive for them to locate there, minimal rent of space, maybe no rent for the first year as kind of seed money that would go into that facility, would that help? In spite of the fact that at the end of the six months or at the end of the year, some of the taxes that you spoke about may not be at the level we would like them to be, 'cause I don't think there's a person in City Council that would not like to cut our taxes dramatically, but we have to do it in a certain way, as the Chair pointed out, in a responsible way so that we can continue to be able to deliver City services. Is that a good incentive? Would that be a good incentive if I were to locate a couple of store fronts?
Five years ago, we were looking at space just like that all over Queen Village. I mean, we looked at the old Labrador's Pub at Fourth and Bainbridge. You know, we thought that would basically a terrific place, but 55 /00 LABOR, CIVIL SVC. - BILL 2 we couldn't work it out.
All of the things -- I mean, taxes obviously. But if we were to get that same building today and say to you or to another start-up company, We'll provide you this space for six months to a year, no rent, you pay the utilities, at the end of that period of time where there's no cost to you in terms of rental of space, obviously, it's helpful, but does it make you want to stay there beyond that year? Does it encourage you to go beyond that?
I think I need to hear it from you. I mean, we have -- Councilman Kenney's shaking -- he's whispering something to me. We have, in conjunction with what Senator Fumo's doing down at Second and Spring Garden, we have -- we're in the process of acquiring some other vacant buildings, or underutilized 56 /00 LABOR, CIVIL SVC. - BILL 2 buildings, and we have been working with, again, Bonnie Grant and others. And I've also been working with Peter Sompson (ph.) at the University of the Arts to see if there's a way in which we can get some of the students there who just don't have the wherewithal to begin a new business on their own, they don't have the capital to invest. But if we were to give them some space, make that available again for maybe a year without any cost to them -- we're a nonprofit, this entity that I'm referring to, we're not looking for profit, so we're not real-estate speculators and looking to get a return on our investment. Our return as elected officials is to stabilize communities and offer young people the opportunity to come in, set up a business in Philadelphia, and become really a part of the fabric of Philadelphia. We want them to stay. I mean, no one wants to see anybody to leave, and we all wish tomorrow we could get rid of the gross-receipts tax, there's no question about that. But in lieu of those problems, I mean, 57 /00 LABOR, CIVIL SVC. - BILL 2 those are the kinds of things that we're thinking of, and it's helpful for us to get that back from folks like you who are in the business to say, Yeah, that would be something.
It's important to remember, though, that those people are not -- you know, in fact, in our case, a lot of people looked at us as, well, a couple of youngsters starting up a company. The five years have taken their toll on us but, you know, people underestimated what we were actually doing. When we were looking at those spaces, we were explaining to people that we had senior executives from big companies coming to this space, it couldn't be too funky, it couldn't be too offbeat. It had to have, you know, a sense of security and safety, and it had to look professional, even if we had proposed leaving the bar there, but. . .
Just for your information, and you may be aware of this, we have done some legislation over the last two, three years that I thought would be somewhat helpful to counter some of the negative impact that we have from the high rate of taxes by offering incentives 58 /00 LABOR, CIVIL SVC. - BILL 2 to developers or individuals who will take vacant buildings. And we're offering now a ten-year abatement to the improvements to the building. So I think that we shouldn't lose sight that there are some things out there that may, you know, offset it. It kind of sets a better balance for us, and maybe that message hasn't gotten out there yet, maybe we need to do a better job of advertising that there are things out there that can be helpful to you. The wage tax is there, the gross-receipts tax is there, but if you move to another location and you have to acquire a building and do improvements, you know, what is the cost of the real estate outside the City versus the City, what are the costs in tax increases when you make a reinvestment or improve that building versus what the taxes are or won't be if you do it in the City of Philadelphia. So not dismissing again the issues that you have raised, and I think they're, you know, justifiable issues, but we do have some things out there, and we're continuing -- I mean, two years ago, maybe three years ago, I had proposed that 59 /00 LABOR, CIVIL SVC. - BILL 2 maybe we look to do a tax -- a wage-tax abatement for first-time home ownership, head of household in the City of Philadelphia, and we've been told that it's unconstitutional, it doesn't fit within the Uniformity Act. So trust me, we're trying to figure ways of being creative and of being, you know, more dramatic in what we do. You made a statement a little bit earlier that we have to be more radical in our approach. I think that's a very radical approach, but there are some things we just can't do, so we're looking for other avenues, and we're working on something to provide --
I think it's one of the things that makes Philadelphia unique, is that you have these opportunities that London and New York and San Francisco don't have. They don't have space sitting derelict that they can make a decision about doing something with and, you know, improving the economy. They've got a packed city, and that's something different. It's just that when we do that, when we go into these procedures, why don't I know about them? A year ago, I was shopping for an office. 60 /00 LABOR, CIVIL SVC. - BILL 2 I tried to buy two buildings on Washington Square. I didn't know that I could have bought a couple of vacant buildings and rebuilt them and gotten a deal. Instead, I was looking at rehabbing, you know, two Federalist mansions on Washington Square.
It was nuts. But how we execute these projects needs to be world-class. You know, people from the outside need to look in and that needs to appear desirable and exciting. And not just target the University of the Arts, but target companies in New York that are looking for satellite offices that, you know, are offbeat companies. You know, you look at some of these big technology companies, you know, Agency and Razor Fish and Organic and all of these whacky companies, they're looking for footholds in cities like Philadelphia. You get those guys down here -- they've got more money than they know what to do with, let them take advantage of these opportunities and let know about it.
I think something that's 61 /00 LABOR, CIVIL SVC. - BILL 2 unique about the new economy companies is something that Ethan or Wayne touched on. These are young people who do put in hours and are most likely to live right in town here because it's convenient to work, because they like going out with their friends, and there's so many opportunities in this city. So you not only have an employee or an employer in the City, you've gained yourself some more residents.
And that's the bottom line, obviously. And why I mention the University of the Arts is because through a conversation I was having with Peter Sompson, who's the president, and I asked him, you know, where do your students go when they leave here? And it all ties in to the student retention thing that we've been looking at. And he said the majority of them would rather stay in Philadelphia. But there's no industry here yet for them, and they wind up going to New York, and they love New York but they'd really rather be here, it's a much more livable city and so forth and so on. So that's how those discussions began between Peter Sompson and myself. 62 /00 LABOR, CIVIL SVC. - BILL 2 I think what we might want to look at and consider is the conversion bill that we did, which allows for a developer -- gives the developer a ten-year abatement exemption on the improvements to the building providing that 66 and 2/3 of the space be used for residential units, and I think the other 33 and 1/3 is for commercial space. We might want to look to see if we might want to -- if we can -- I guess we'll have to talk to our legal minds about amending that to give the same sort of tax exemption for those vacant buildings that would be converted into uses for which you have been referring to. I mean, that's something I think we should be discussing. Rather than just maybe create a whole new set of bills, it might be more expedient to do it that way. You know, if you take the building and you use it for 60 percent, 70 percent or whatever the formula is and it's for the Internet-type of business, you get a 10-year exemption on all of the improvements.
Thank you, Mr. 63 /00 LABOR, CIVIL SVC. - BILL 2 Chairman. Thank you, Councilman DiCicco. One of the interesting -- and I guess this is what you were touching on -- and one of the radical, more exciting opportunities I think that Councilman DiCicco was talking about with this vacant former retail kind of space. And I don't want you to get the idea that this is some dilapidated, deteriorated area where, you know, you're a pioneer out there all by yourself.
Could I just interrupt you a minute. I didn't want to mention the location 'cause I don't want the real-estate speculators to start running in there and --
Yeah. But one of the interesting parts about that is that when you talk about young start-up companies, you can kind of attract to an existing stable neighborhood that may have some former retail space available, the opportunities to live, for them themselves to live above their e-commerce store or e-commerce shop, 64 /00 LABOR, CIVIL SVC. - BILL 2 as grocers and barbers and butchers used to do, I think is a very exciting opportunity, especially since it continues not only to stabilize but to create a new -- like a renaissance in that particular neighborhood because you have young people living in there, you have young people shopping in there, and restaurants now, instead of going out of business, may be staying in business longer, or someone else opens up. You know, if it's an ethnic kind of neighborhood area, it's very interesting, similar to, you know, the Village in New York and other types of -- or Little Italy in New York, those kinds of places. So I think that that's kind of the exciting, cutting-edge stuff that wasn't thought of until a couple years ago when we started looking at some of the spaces and said, what could we do with this? And then the work with the Student Retention Committee and some of the discussions on e-commerce and that business creation and incentive really gives us a great opportunity to do that. A question I want to ask, though, is, I agree with you totally about the attitudinal 65 /00 LABOR, CIVIL SVC. - BILL 2 problems facing Philadelphia and Philadelphians. I find people who have come to Philadelphia, who weren't born and raised here but have come here and lived here over the past to years are 6 perhaps our biggest boosters. And I can say this 7 personally because I'm 41 and I've lived in one 8 zip code in two different houses in the last 41 9 years in South Philadelphia. 10 And the biggest problem we face is our 11 own attitude. We have a very negative attitude 12 about everything -- the Phillies stink, the Flyers 13 stink, the Eagles stink, my neighborhood stinks, 14 the streets are dirty, I can't park my -- it's -- 15 everything is this negative, negative attitude, and we're never going to succeed, it can't ever happen.
And then when we start cleaning them, then they complaint about cleaning the streets, but that's another whole issue. The question I have is, does New York's economy and vibrance and energy overcome their 66 /00 LABOR, CIVIL SVC. - BILL 2 rude cabdrivers, their rude people? I mean, I love New York. I go to New York, you know, maybe once a year, maybe twice a year sometimes, and I love the theater and the restaurants and the pace and the sights, but they're not the friendliest people in America, and their cabdrivers aren't the friendliest people in America. And while I recognize the surly metermaid and the surly SEPTA, you know, transit toll booth person and the surly police officers sometimes can really give people a really bad experience and bad attitude, does New York's overall thing overcome that?
Yes. New York is an exception, it's going to succeed in spite of itself.
I mean, it's -- New York is absolutely unique, and I think when people make a comparison between Philadelphia and New York, it's absolutely unfair, it's wrong. But the experience in a cab, what the user experiences is far superior to what you experience in a cab here. In New York, the cabs 67 /00 LABOR, CIVIL SVC. - BILL 2 are clean, the cabs are comfortable, they feel safe. They -- walking next to them on the street isn't offensive. Here, it's something altogether different. And it's that stuff that just seems to drill away at the psyche of this town.
I'll tell you what, I don't disagree with you. I mean, I'm not trying to defend our rudeness 'cause I do agree that -- you could have a great experience with a police officer, you could have a great experience with a service person at some, you know, retail operation. If you have this great experience, it makes you feel good about what just happened. And then you could have the other opposite end of it, which just makes you want to just scream sometimes at the lack of interest and the lack of personal politeness that really sometimes happens. I mean, one of the things you talk about is about people ignoring traffic regulations. I mean, "the South Philly Slide," as they used to call it, through the stop sign has become "don't even put foot on the brake."
You know, I have never seen people actually stop at a stop sign to let an old person cross the street. I mean, it's very un -- sometimes you go like this (indicating) to an old person crossing the street and they look at you like, I'm afraid to step in front of the car. (Laughter.)
And you can see that in the psychological attitude in the City. And I know that gets us a little bit far afield of what we're talking about as far as taxes and those kinds of issues, but it really does -- it's an integral part of changing attitude.
It's absolutely -- it's important. I mean, I'm recruiting people from some of the, you know, best universities in the world and asking them to choose to live in Philadelphia before they live in Paris, before they live in London, before they live in San Francisco. And they come here, and do you know what they tell me is, people are friendlier on the street here than they've ever experienced before, but then they ask, is there a government running 69 /00 LABOR, CIVIL SVC. - BILL 2 things, are there laws enforced? And I have to tell them, you know, sometimes. . .
Not to digress too much, but one of the things Frank and I always complain about is that the reputation at the ballpark for rowdy crowds on South Street, for rowdiness on Delaware Avenue or Columbus Boulevard for rowdiness always encompasses more people who live outside the City in that activity than Philadelphians.
At the Fat Tuesday debacle on South Street, there were, what, 70, 80 arrests --
You had 28 arrests and 19 were non-Philadelphia residents -- 17 or 19.
So the enforcement of law, I agree with you, 'cause I think young people from the suburbs sometimes think, Let's go get drunk and get rowdy in Philly and create some havoc, where they can't do it in their communities 70 /00 LABOR, CIVIL SVC. - BILL 2 where their parents live to get away from the bad City, they send their 19-, 20-year-old cretins back into the City to destroy our quality of life. (Laughter.)
Well, they brought them out 'cause they can there raise kids better out there. (Laughter.)
You know, one desire for this city is that it again becomes the world-class city it was once, when my grandparents and my great grandparents, you know, were pipefitters here. They told me stories growing up that this was a great town, and I'm here because those great stories are still ringing in my head, and I want to help.
Please state your 71 /00 LABOR, CIVIL SVC. - BILL 2 name.
Gerry Marshall. I'm President and Chief Operating Officer of Amerimar Enterprises. Amerimar is a Philadelphia-based real-estate development company. We specialize in the renovation of non-performing urban assets. Locally, we have developed property such as the Rittenhouse Condominiums, we own the Wanamaker Building, we own the Drexel Building, 230 South Broad Street, among some other properties, we have all offices in Chicago, Denver, and Phoenix. So we get to see a national perspective on these types of things. Currently, we -- a large effort of our office is being focused on a property at 1500 Spring Garden Street. It's the former pharmaceutical manufacturing plant and some office space developed by SmithKline Corporation. At its peak, the property had about 2,000 employees working at it; today it only has about 100 employees working at it. We have a plan to develop that property into a telecommunications center, an e-commerce center. The property's about a million square feet. 72 /00 LABOR, CIVIL SVC. - BILL 2 The first five floors are really ideally set up for the conversion into telecommunications space. It has 120,000 square foot floor plates, it has very good clear height for the ceilings, it has very good floor loading, there's power to the building, it's right in the heart of all the fiber in the City, fiber optics. The upper floors of the building, where the property steps back to only be about a 40,000 square foot block of space per floor and only about 130 feet wide east to west, is ideally situated for e-commerce space because. Because it's narrow east to west, it gets a tremendous amount of natural sunlight, which bathes the space and really makes it very attractive for tenant- occupants. Our plan on this property is really not a unique plan. It's something that was very successfully done first in Dallas, which I'd like to tell you a little bit about. The property called "the Infomart" in Dallas was developed in 1985 and sat vacant -- not vacant but half-vacant to two-thirds-vacant for almost ten years. The property was originally developed to attract 73 /00 LABOR, CIVIL SVC. - BILL 2 e-commerce -- not e-commerce, but computer hardware and computer software companies. It never got above half-occupied for ten years. In 1995, they started signing leases with telecommunication companies. Those telecommunication companies were looking for space in anticipation of what became the Telecommunication Reform Act of 1996. Once those telecommunications companies started coming into the building, the space became -- the remainder of the space became attractive to e-commerce companies. The reason for that is because the e-commerce companies could get broad-band, high-speed Internet access from those telecommunication companies that were located in the building as well as providing them direct access within the same building to their servers for their Web hosting, which is very important, because an e-commerce company relies on their Web site being up so they can take orders and transact business. These are just some of the reasons why those e-commerce tenants wanted to occupy near -- with the telecommunications companies. 74 /00 LABOR, CIVIL SVC. - BILL 2 With the success of this project in mind, we were afforded an opportunity to look at another property in Chicago. 2 million square feet. 2 million square feet, was really very similar to the Infomart, and we acquired the property and started marketing it in the same way that the Infomart was marketed. 2 million square feet. The synergies are amazing when you put these two uses together. We took that experience that we -- where we gained over in Chicago and what we learned from observing the successful development of the Infomart in Dallas to develop the NetWorks over here at 1500 Spring Garden Street. And what we're learning is and what we learned is that e-commerce tenants really have some special particular needs, and we just heard 75 /00 LABOR, CIVIL SVC.
- BILL 2 from one of them, so I'm probably not the best expert on this. But what we're finding from walking tenants through our building is that they run basically 24-hour operations, that they are extremely concerned with security, amenities, area retail. When we interview -- when we're walking the decision-maker of an e-commerce tenant through our space, they want to know answer to questions like: When one of our employees finishes a project at 2 o'clock in the morning and they need to go from the front door of the building to where their car is parked, how are you going to provide security? What kind of security is there for that person? Which is a big issue, and it's not something I'm particularly fond about bringing up because I do think that the City's made tremendous headway in the police department over the last few years. Additionally, the e-commerce tenants are looking for a pool of labor for young tech-savvy college graduates. That's something that we have here. We're in great shape in that regard. 76 /00 LABOR, CIVIL SVC. - BILL 2 They're also looking for a business- friendly environment. They want to take as much capital as they can to push into the growth of their companies. And the reason why I bring this up is because in particular, the gross-receipts tax is a big issue for a lot of tenants, a lot of e-commerce companies -- in particular the business to consumer companies, the B to C companies, that are pushing out product, that are not just selling a virtual service but selling something tangible that's going to arrive at your door. Typically those margins are raised within, and the addition of a gross-receipts tax could cut into that margin significantly and possibly even put that -- the sale of that product into the red on a gross margin basis. One of the strongest recommendations I could make would be to eliminate the gross-receipts tax, at least with respect to e-commerce tenants. In addition, e-commerce tenants are looking to locate near each other. E-commerce tenants -- what we're finding especially in Chicago is that if you have a business-to-consumer 77 /00 LABOR, CIVIL SVC. - BILL 2 e-commerce company that's out there selling widgets, they like being next to the company that's going to design their Web site. If they can do it all within the same building, within the same space, it adds synergies and it adds value to both companies. Other things e-commerce tenants are looking for, they're looking for investors to provide the working capital, they're looking for inexpensive rent. They're also looking for shared services, something that we are also going to be providing at the NetWorks building in the form of shared conference space. Why should we make somebody rent a conference room as part of their space 365 days a year when they're only going to need it a few times. In addition, e-commerce tenants are looking for a year capabilities, and if they can't get the expansion they need, they're looking for the ability to break their lease. This is a major issue for not only the owners but the renters of properties. So what are we to do? We've heard a lot of talk about changing the taxation and, quite 78 /00 LABOR, CIVIL SVC. - BILL 2 frankly, I think that's probably the biggest and most important thing that we need to do. We also need to improve the parking situation in the City. We need to create a critical mass in the City and we need to change the perception. How do you change the perception? First, you have to change the reality. You change the reality by addressing the first three issues I raised -- by changes in the taxation. We heard about the exercise of stock options as being a major deterrent for e-commerce tenants, e-commerce companies. I can tell you absolutely why I've had tenants walk through our building recently and say, I need to move my office out of the City before I exercise my stock options. What more can you say? It's a powerful statement.
The gross-receipts tax which we talked about earlier and, naturally, the wage tax. I understand that a major portion of the City budget comes from wage taxes, but any reduction that we can make towards the wage tax, I think, would have a great impact on all business in the City. In terms of improving the parking situation, I can only speak specifically about our 79 /00 LABOR, CIVIL SVC. - BILL 2 project. For part of your project, we are buying a parking lot across the street, on the corner of Broad and Spring Garden. My hope is that we can donate that land or give that land to the City, and the City, in turn, through the Parking Authority or otherwise, can build a parking garage on that site, and in exchange, give our tenants preferential rights to rent those parking spaces on a monthly basis. Of course, they're going to be looking for the lowest possible rate, but the most important thing is to have structured parking in close proximity to the building, which is well-lit, safe and ideally with some type of police presence located either in a retail spot within that garage, a retail spot within our building, someplace out on the sidewalk area, to ensure the safety of those workers when they are going back to their cars in the off-hours. Create critical mass. E-commerce tenants very, very much want to locate together, and the way to try to try to direct critical mass together, in my opinion, is to do some of the things that we have been talking about, is to create a TIF for buildings within an area where 80 /00 LABOR, CIVIL SVC. - BILL 2 you believe those buildings have a real competitive chance of becoming real e-commerce buildings in the City. We have a 300,000 square foot block of space, the most meaningful block of space for e-commerce that I've heard of anywhere. And in fact, in talking to representatives of the Governor's Action Team, possibly the entire State of Pennsylvania. We have -- by creating a TIF, we'll be able to lower the rent to the lowest possible rental rates, which will attract these tenants to the area and to our building, but that's really not going to be enough. We need to have economic stimulus for those tenants themselves. When we're competing against the suburbs -- to address your issue, Councilman Kenney, I've done an analysis here, which I'm happy to leave with you, which basically says that if a tenant is looking at space in the suburbs at $28 a square foot, which gets you very nice space in the suburbs, A space in the suburbs, after considering the effect of the wage tax, the effect of employees having to pay for their parking, and having to pay -- excuse me, just those two issues, given the assumptions 81 /00 LABOR, CIVIL SVC. 29 for space in the City so that the employer can save money on rent and increase the amount that they're paying to their employees. And that's not including the -- some of the other issues we've talked about, which is the gross-receipts tax or the taxes on the exercise of stock options, that's not considered here. 29 does not get you acceptable space from any of these companies. There are probably limited situations, narrow situations where you can get space for that kind of a rate, but in order to create the kind of critical mass that I believe we need, you need to be able to charge more rent than that to create the improvements required to create the atmosphere that these tenants with thrive in. So my answer is, in addition to the TIF, I think that we need to find economic stimulus to these tenants, and where I would focus my attention is in job creation, actually, and also in job training. If a tenant is going to 82 /00 LABOR, CIVIL SVC. - BILL 2 create jobs, whether it's an existing tenant in the City or it's a new tenant to the City, that they get grants for the jobs that they create.
You can base those grants based on how much wage tax they are contributing to the City, which, in my opinion, is a way to not violate the issues regarding the uniform provisions of the wage tax but still encourage these tenants and put them on an equal playing ground with tenants with space outside the City. Once you start the critical mass, as we've seen in New York City and in other places, other tenants, other e-commerce companies will want to locate near the front runners into the area, and you'll be able to, in my opinion, reduce the incentives for future projects, if not eliminate those incentives on future projects going forward. By changing these three areas -- the taxation, parking, and creating the critical mass -- in effect, we will change the reality, which will allow us to change the perception. Once we change -- it will give us the tools to change the perception, rather. At that point, I think it's 83 /00 LABOR, CIVIL SVC. - BILL 2 as simple as hiring a good PR company and you've given them the tools to work with.
Thank you. Mr. Marshall, are you familiar with the City's Keystone Opportunity Zones?
Have they proven to be attractive for such technologies?
It is my understanding that the Port of Technology Building, as part the University City Science Center, is having success in attracting tenants to their incubator space.
So they're actually -- Mr. Traylor, I think, will be testifying a little later and can correct me. There are actually several Keystone Opportunity Zones. The incentives associated with the Zone, is it also dependent on the location, the proximity to the university or the proximity to housing or the proximity to highway systems? I mean, can we just create a zone to give you the financial incentives and not provide those other opportunities? I mean, does it have to be an entire package? And the reason I'm bringing that up is 84 /00 LABOR, CIVIL SVC. - BILL 2 that we have created a Keystone Opportunity Zone adjacent to Temple University, and I'm not getting a whole lot of feelers on that and I was just wondering, what is it that we're not doing?
I think providing tax breaks is not enough, and I think in West Philadelphia, where you have the Port of Technology Building, there was enough other amenities and certainly a tremendous body of tech-savvy college graduates to make that a feasible project. I'm not familiar with the site near Temple, but I did study some of the sites when the Keystone Opportunity Zone first came out, and actually, the site in West Philadelphia was the one that was most interesting to me, but I think there needs to be more than just tax incentives, so I think the resources that you have in those other areas might be the issue and not the package or the size of your tax package.
Okay, thank you. Any other questions? (No further questions.)
Thank you, Mr. 85 /00 LABOR, CIVIL SVC. - BILL 2 Marshall. Jacqueline Jenkins? (Witness comes forward.)
I welcome the opportunity to address you. My name is Jacqueline Jenkins, and I'm the Chief Financial Officer of a company called "Black Cyberspace Dot Com." Actually, before joining Black Cyberspace, I was a director for the Wharton Business Development Center, so I'm here to address you, really wearing three hats.
You can't hear? I'm here to address you, wearing three hats. The first one is as owner of a dot com business, the second one as one that's worked economic development in the City, and third, as a native of Philadelphia. I'd like to start off the presentation by just kind of giving you a quick overview of our business, spend some time talking about the net survey that was done. . spending some time 86 /00 LABOR, CIVIL SVC. - BILL 2 talking about the falling-through-the-net survey that was done by the Citizens Bureau, the impact on Philadelphia, and more importantly, the impact on African-Americans in Philadelphia, and talk about key success factors. Black Cyberspace Dot Com is an ISP. We are a two-year-old company targeting the African- American market. Basically, Black Cyberspace is just like AOL: our goal is to put technology into the inner city by means of the African-American market. In terms of some of our objectives: The first is to fill the void for African-American technology businesses; secondly, to increase the infrastructure which supports technology in the inner city; and, third, to provide content for African-Americans. The issues that I would like to discuss today are really the issues that are from the falling-through-the-net survey, which was done by the Commerce Department, and in that almost 365-page survey, there were only two points that really stood out to me as really key and significant. 87 /00 LABOR, CIVIL SVC. - BILL 2 The first one is, if you look at the average earnings of individuals between 15 and 35,000 per year, in comparison to whites, which has 33 percent, African-Americans only have 19 percent. And that is a gap that has been increasing at a rate of 65 percent per year. The impact on that is the lack of technology within the African-American community, which results in African-Americans -- currently, the statistics say, we are only accessing the 'Net at about an 80 percent -- less than 80 percent of us are accessing the Internet. The impact to Philadelphia is really fourfold. The first point that I'd like to make is the lack of the ability to capitalize on the dot com economy. By having a lack of technology, the ability to really compete -- and the past individuals have spoken about the dot coms and the vibrance that they bring and the access and information, it's all true, it's all great, and those are all real dollars. If you think about what is going on in Boston and in San Francisco in terms of technology and the vibrance that's there, it's really city 88 /00 LABOR, CIVIL SVC. - BILL 2 image, and a large part of that is really spun from the dot com technology. And by not embracing technology, one of the things that Philadelphia is positioning itself to do is not capitalize on that opportunity. The other one is loss in potential tax dollars. It's true, right now, dot com companies are not making money, but in the long term, dot com companies are projected to outperform traditional businesses. com's market capitalization rate outperformed the industry's publishing in terms of revenue, so when you think about that impact from a long-term standpoint and the loss of potential dot com dollars in terms of dot coms. . The other point in terms of impact on Philadelphia is a loss of skilled jobs. One of the things that the whole dot com economy has created was a whole new spectrum of jobs that are created as a result of individuals focusing in on technology. And they're everything from Web designers, to programmers, to writers, to content, 89 /00 LABOR, CIVIL SVC. - BILL 2 not to mention service providers that are needed to support these types of businesses. And the other point in terms of the impact on Philadelphia is the loss of native talent, which is something that we've heard over and over again in terms of retention.
What I'd like to focus in on is kind of going back to the survey that was done that looked at the issue in terms of the bridge of the divide and focus in on the impact of African-Americans in terms of the lack of technology. The first point that I'd like to make -- and I'm making this really as a business owner -- is the lack of African-American technology- based businesses. I did a quick survey throughout the City, and I talked with the folks at the African-American Chamber, and of their 600 businesses, only 34 were technology businesses. Now, when you think about that, there's a significant impact there because in order to create successful technology ventures, you need a number of businesses. Right now, the failure of businesses -- I mean, everybody's following -- is to percent. And the reality of it is, right 90 /00 LABOR, CIVIL SVC. - BILL 2 now, there aren't not enough African-American 3 technology-based business to really have some homeruns. So one of the things that I really ask the Council to look at are technology opportunities for minorities. The other part of the impact for technology on African-Americans is the lack of access to information. One of the things that the Internet done, which is crucial, is providing information -- job postings, health and safety education. In order to do business with the State these days, you need to access it through the computer. So that lack of information is very critical and it's a real component in terms of the impact that that will have on our city as we move forward. And my third point in terms of the impact on African-Americans is just lack of opportunity. You know, the reality of it is, if we're going to create an inner-city community of tech-savvy individuals, we need students and individuals that not only have technology but are using technology as a tool in their everyday life. What I listed out now are some basic 91 /00 LABOR, CIVIL SVC. - BILL 2 key success factors. I don't want to come up here and just complain about the City and talk about technology. What I'd really like to do is to propose some ideas that I think are critical in terms of really bridging the digital divide in Philadelphia. The first one is partnership and alliances. If you've looked at the public market in terms of businesses that have been successful, none of them have been successful on their own; they've all partnered with private, government, and various entities. One of the things that I think is key is really looking for ways for government and the private sector to join together. " One of the pluses of a technology cluster is the opportunity to let businesses draw upon one another. What a technology cluster can do is create better efficiencies in terms of not only workforce but supply, but in terms of education. The other side of a technology cluster is, it just creates a sense of vibrance. You know, when you think about the businesses in 92 /00 LABOR, CIVIL SVC. - BILL 2 Silicon Valley, and I don't know if you've gone through Boston and gone through the Route 128, one of the things that those structures have done, it just creates something tangible that you can touch, that you can feel, and you know something's going on in the city in terms of technology, and that's what a technology cluster will do. The second key success factor is capital. As the CFO for this venture, I am fund-raising now and I can tell you, it is definitely a challenge. And the reality of it is, you cannot not compete in a technology business without money. And the money that I'm talking about is not only start-up but also pre-IPO or venture-capital financing. It's a very critical component to creating a vibrant business community. I show the quick statistics of what was invested in Silicon Valley last year. It's not by luck that Silicon Valley is known as one of the hot technology beds of the world; the reality of it is, 38 percent of venture-capital money that was raised last year went into Silicon Valley.
In a study that was done looking at different 18 93 /00 LABOR, CIVIL SVC. - BILL 2 markets, the Philadelphia market ranked number 12. So in terms of technology and creation, the reality of it is, we need capital to actually do that. The third point in terms of key success factor is retention, and it was said over and over again in terms of student and where they're going. Another study that I looked at looked at Stanford and Harvard's business schools, and they're able to retain five times as many more graduates in their local area than the Wharton School. What that means is, the reality of it is, Philadelphia is one of the biggest exporters of talent. And if you think about the opportunity and the loss of individuals there, it's a critical issue that the City needs to look at in terms of addressing it. And the fourth point -- it's a kind of subtle one, but it's mindset. The reality of it is, if you want to create a tech environment, you've got to think entrepreneurial, and the entrepreneurial mindset is one of speed. One of the biggest challenges of creating a technology venture is getting things to market. 94 /00 LABOR, CIVIL SVC. - BILL 2 I think Bill Gates said it the best when he said that right now, business is moving at the speed of thought. Three months on the Internet is actually equivalent to a year of traditional business. So the mindset of thinking about longer times and life cycles, that's all gone. We need to think very quickly in terms of getting things to market. I left my contact information -- that's actually a subtle point there. My office is actually in Camden, New Jersey. The reason why I'm in Camden, the reality of it is, I can't afford to be in Philadelphia. It's not a tax issue, it's a cash-flow issue. The point raised in terms of giving away a year of rent, we'd love to take that. The reality of it is, the money that I save in rent in Camden, I'm actually dumping it into developing my market. I mean, when you think about an Internet play, I'd rather spend more money on creating my market than paying that to a landlord. So with that, I say thank you, and I hope that we can work on addressing these issues.
Thank you. 95 /00 LABOR, CIVIL SVC. - BILL 2 Councilman Kenney, do you think we could find a cheaper space for her? (Councilman Kenney responds off-mike.)
One question is about the disparity in terms of having a computer in the household. And I guess my question is, what drives the purchase of a computer? Is it the child, is the parents' job? I mean, why does somebody purchase a computer for the home? What contributes to that?
Well, I think, as a consumer, my drive was more so for information. The things that I'm reading about in the popular press are saying that the drivers have been awareness. I think you're right -- students in terms of education is a key driver. 96 /00 LABOR, CIVIL SVC. - BILL 2 The workforce has also become a major driver of technology. There have been quite a few companies that have recently announced that they are encouraging people to get discounted PCs so they can work from home. I mean, there are several drivers. I think one of the issues to really look at in inner city is really putting technology in the communities, things like technologies in the Y's. I mean, the library is great, but every time I go to the library, there's always a pack of people waiting to get Internet access. And the reality of it is, we need more opportunities to have technology actually in the community because we don't want people that just know technology; we want people to be using it on a daily basis and really incorporating it into their daily lives.
Mm-hmm. Access to capital, what's the story on that? I'm hearing -- not only in this particular industry, but in other industries, the access to capital, particularly in the African-American community, is rather difficult. Is it? 97 /00 LABOR, CIVIL SVC. - BILL 2