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
You know, I mean, access to capital, I -- I -- there are a few challenges. I think when you're thinking on the venture capital level, which is a level in terms that would fuel something like a dot com business, I think a part of it are relationships and having access to those relationships. I think, secondly, you know, having some of that early seed money to really finance it. You know, to get a dot com business up, the latest statistics say that it costs about roughly between 8 to 10 million, to successfully launch a venture. And the reason why it's important to have that successful early-stage money is that you can build a foundation to compete. One of the success of getting money is having enough money to really build something to actually finance. And one of the challenges, I think, with African-American businesses is, a lot of them are undercapitalized. You know, you can't compete in an industry structure if you don't have the fuel to really get that going. I think that's one of the challenges in terms of capital.
When you talk about 98 /00 LABOR, CIVIL SVC. - BILL 2 relationships, you mean the ability to network? I mean --
I think it's networking. A lot of the early-stage money comes from private annual investors, which are a group of, quote/unquote, high-network individuals. You know, a lot of that is having relationships with peers or individuals that that can finance that. I think that's a critical component. And to be perfectly honest with you, it's not just an African-American issue. I think it's a woman's issue, I think it's an Asian a minority issue. I mean, I think it's a minority issue, and I think one it's one that is critical to be addressed if we're really going to create business that reflect a true community, which is a diverse one.
Okay, thank you. Thank you very much. We are now going to bring up a panel, Panel 1: John Sorrell, Jim Baker, John Carpenter, Mike Colazzo (ph.). Are those individuals here? John? And Mr. Baker is gone? (Witnesses come forward.) 99 /00 LABOR, CIVIL SVC. - BILL 2
Good afternoon, gentlemen. Would you please state your name for the record.
Yes, my name is John Sorrell, and I'm the CEO of Broadband MultiMedia Technologies. Even though we're not a dot com company, we are a part of the new economy. We prepare the infrastructure for a lot of the dot com companies. I'm also the Co-Chair of the Mayor's new Economy Commission and, you know, our task force has looked at a lot of the issues concerning the new economy, how the new economy would have an impact on the City of Philadelphia. And the thing I'm concerned about is -- excuse me. Robert, you changed the presentation. It was the other one I'm sorry. Yeah, mm-hmm. The thing I'm a little concerned about, you know, sitting here, I know our committee spent a lot of time looking at all the issues concerning the new economy -- you know, what were the assets and liabilities of the City of Philadelphia, what kind of concepts, projects, and approaches could be used to really invigorate the economy in the 100 /00 LABOR, CIVIL SVC. - BILL 2 City of Philadelphia. But what I'm listening to here in the room and what I've seen is, you know, a lot of the solutions are really low-tech to this high-tech problem, you know, a lot of things that the City of Philadelphia has to do in order to prepare itself for an influx of new-economy companies. One of the things I wanted to bring up here, and this is really the thesis of my presentation. I'd like to have the City Council provide support for making a positive move, you know, getting beyond the rhetoric and actually making a positive move to invest in the future of this city by utilizing land. You know, we've talked a lot about blight, we've talked about the impact of blight on the City of Philadelphia. Harold Hambrose talked about the quality of life here in the City. I think that we have the opportunity here to be able to leverage the enormous amount of land that we have to not only forge regionalism, because if we take a look at the region, the region is suffering from misuse of land, mismanaged land, and quality- of-life problems. And we have the opportunity 101 /00 LABOR, CIVIL SVC. - BILL 2 here, by utilizing the land we have available in the City of Philadelphia, to kind of turn that whole situation around to a positive advantage. But we have to invest in it. " You look at the K-to-12 problem, you look at the blight problem which we were just talking about, and taxes. These are economic development problems, and they can solved by an economic development approach. And this project that I'm asking the City to invest in, the project really is to move beyond the rhetoric and to begin spending money on producing a real project that's going to have an impact across the City, that will have an impact on neighborhoods, as well as being able to use the amenities that Center City has and the tourism based in Center City that Philadelphia has. What I'm really discussing here in the slide is really related to starting this project now. And what the project is, we have a limited amount of retro-based land, you know spaces in 102 /00 LABOR, CIVIL SVC. - BILL 2 Center City, spaces that are close to the action, that are close to tourism, that are close to -- you know, the kind of place that people want to be near. And we have a lot of land across the City. But we need to start now really planning to capitalize on that resource because it's going to take about a year and a half before any of that non-performing land -- you know, this land, you know, isn't really bearing any taxes, you know, so it's going to take about a year and a half before that land really can be turned into something. So an investment has to be made now to assemble the land, be able to put together a program that actually prepares the land for investment. If you go to the suburbs, there's a track of land that's set up for a company to come in and be able to begin building on that land. We need the same thing to be done here in the City. And I have a couple of experts with me that will echo these sentiments.
If we take a look at the drivers in the new economy, it's really synergism between entrepreneurship and innovation and ecosystem. You know, there really can be no real new economy 103 /00 LABOR, CIVIL SVC. - BILL 2 without all three. Now, if we look through the history, entrepreneurship innovation has been around a long time. " What I'm proposing really is to put a structure in place that allows the main players that have been -- the main players and the new economies that have occurred across the country and across the world to be utilized here. And basically, those players are universities, entrepreneurs, and business -- with government sitting in the center of that. And I'd like to add to that community, which -- by adding community to it, we can have a major impact across the City of Philadelphia. The City of Philadelphia is a city of communities. And we don't want economic development to only be in Center City and in the tourist area. It really has to permeate the whole city and by using land, as we talked before, and also using the tourist areas, the amenities of the tourist areas, just like the suburbs have used that to be able to attract people from all over the country and the 104 /00 LABOR, CIVIL SVC. - BILL 2 world, 'cause they don't know where Chester County is, but they know where Philadelphia is. We can do the same thing here in parts of the City, but the problem is, folks don't have imagination. You know, if you drive through North Philadelphia, if you drive through Grays Ferry, if you drive down Roosevelt Boulevard, you know, nobody would want to move there, you know. So we need to be able to build some models that can begin to show how you can recreate a community. There was a gentleman here speaking earlier that talked about critical mass. I'm not talking about critical mass in a building; I'm talking about critical mass in actually building a community. We have enough vacant space to be able to build communities -- we can call them "new- economy communities" -- in parts of the City that have really been ravished by years of neglect. The government's role in this is to become a catalyst, to be able to bring players to the tables, create partnerships with agencies and mature firms, universities, community leaders, and also to create incentive packages. You know, we're not saying the government should get out of 105 /00 LABOR, CIVIL SVC. - BILL 2 the way totally. I mean, we've said that in some of the -- that's kind of the essence of some of the committee reports that we put out, but government really has to put an ecosystem in place that promotes free enterprise. And where there are problems in the system -- to give you an example, the young lady was here taking about the digital divide. The problem why the digital divide occurs in minority sections of the City is because its driven by a profit and loss. A company that's going to invest in putting broad-band technology, they're going to go where the customers are. I mean, that's just the way that works. So that's where government can have a role -- to begin to lean on some of these companies to be able to provide broadband communications, which is essential -- not only to a family who's trying to get on the Internet, but it's also essential to new-economy-based companies. So these kind of facilities have to be thought through, and government can play a role in negotiating with these kinds of companies through 106 /00 LABOR, CIVIL SVC. - BILL 2 the power of it's open auspices and contracting to be able to provide support in some areas where it's not being provided. This is an example of a Keystone Zone, but the kind of thing we're talking about really could be in all sections of the City. But when we talk about tax advantages, being able to put together a tax program that says, Okay, you want zero wage tax or something equivalent to zero, you know, a significant reduction in wage tax, as well as the gross-receipts tax.
Now, if we take a look at the gross-receipts tax, the gross-receipts tax is a real problem for an Internet company, you know, because you have to pay a tax off the top. So it's very difficult to get an Internet company to move into the City with that kind of tax on the books. A wage tax could be a large disincentive to a biotech company. And Fred Murphy from Temple will probably be talking to some of these issues, so I won't dwell on them. But, you know, you really need to take a look at the tax and the market you're going after to target market, to put together an incentive program for that market. 107 /00 LABOR, CIVIL SVC. - BILL 2 The kind of thing we're talking about here in terms of putting together a new-economy community, the anchor for that kind of community would be the university, and it could be physical or virtual -- the university doesn't physically have to be there, but we have enough universities in the City to be able to handle a lot of different communities across the City. The entrepreneurs should be housed in that facility, too. There was a gentleman speaking earlier that talked about people of like mind and have similar technologies and they'd like to be together. So it's important there be a theme, you know, to these facilities to put together so you have -- you're growing people in the area that can cross-fertilize. Also, there should be large businesses. And this is where, you know, companies like an IBM or a Compaq or AT&T, they should be part and parcel, but the companies you want in the facility should be the big brothers of the theme companies that you're trying to grow. Now, this whole process flow shows from an economic standpoint how through balance of 108 /00 LABOR, CIVIL SVC. - BILL 2 payments. Now, what balance of payments we're talking about here is, you really have to consider the net investment. So in dealing with a lot of smaller companies, they begin to interact and you're beginning to build the economy bottom-up as opposed to one big company coming in and having a huge impact. So this little model here begins to talk about the net payment or the balance of payment that could be derived, as well as other benefits to the community that could be derived from setting up an economic -- one of these economic development, um. . Now, if we look at on the left-hand side, we have start-up growth and maturity. So here what we're talking about basically are -- when you're starting up this whole process, what is the impact? Now, if you're starting a process like this, there's going to be a reason to have more inflow of capital and more support in the beginning, obviously, than it would be when you get into a growth from maturity stage. But the process should begin to pay for itself. So entrepreneurs, if you take a look at 109 /00 LABOR, CIVIL SVC. - BILL 2 the City of Philadelphia, the City of Philadelphia does a lot of contracting. Well, these small companies that you're trying to grow, they should be partnered with the City of Philadelphia to be able to have some early contracts coming in, to be able to buoy those companies, to be able to get 'em down the road to be self-sufficient. The mentors benefit. Now, by "mentors," we're talking about two mentors: The university would be a mentor, and these businesses, large companies that are coming to the area, would be mentors. The university would benefit because there's training involved in this, and people pay for training. In a start-up situation, the community would benefit because you begin to have people that are coming into the community to buy homes. Now, it's going to take time before you can completely turn that situation around because we talked about the condition of the K-to-12 schools. But one of the things we have in this process we're looking at, we have the universities and the large businesses, as well as the small entrepreneurs actually adopting schools in the 110 /00 LABOR, CIVIL SVC. - BILL 2 neighborhood.
And actually, you know, because they have new economy skills and new economy methodologies, they can begin to teach the students in the schools how to perform as a new-economy employee or an entrepreneur. Now, obviously, local business -- I'm not going to go through the whole thing, I'm going to do one side. Local businesses benefit from this because you have more critical mass in the area, you have folks to be able to buy products in the stores. Now, coming out of this whole cycle, you know, when we end this up, what we're trying to accomplish with this is to have more people paying taxes. You know, you need more ratables. You need more ratables and you need, you know, more folks that are actually paying taxes. So this process that we go through from start-up to growth to maturity is a process that's building this tax base. Now, if we take a look in history, we don't have to go very far back, but there hasn't been a whole lot of critical-mass private investment. There's been a lot of subsidized 111 /00 LABOR, CIVIL SVC. - BILL 2 housing, but there really hasn't been a lot of critical-mass private investors. Yorktown is the last one in my memory -- I could be wrong, it could have been another, but that was a 153-acre plot. The thing that we're talking about is something very similar to this. Yorktown was very successful, and the houses are still there and the people are happy. But we're talking about not only putting houses in; we're talking about putting in a community that's driven by high-tech technology so that the people have a place to work. Another statistic is, there have been less than 150 homes built since 1960. And the houses were built also were subsidized and they were dense, you know. So because there's been a sharp reduction in the population of the City of Philadelphia, with a lot of folks going to the suburbs and other places, we have more land. So if we're going to put housing in, the housing should be on a suburban scale, you know, so we can be competitive. We want to be able to have mixed-income communities, you know, where we have 112 /00 LABOR, CIVIL SVC. - BILL 2 different socioeconomic groups and different income groups all mixed into the same community. But each one wants a different scale of house. So what I'm saying in essence is, as we begin to look at this land, there has to be a plan put in place or we're going to end up like the suburbs. You know, the thing that's occurred in the suburbs with the suburban sprawl has occurred because it was unplanned. A company comes in and they want to build a house, they put a house in. Or if they want to build a campus environment for their company they build that, and it could be anywhere. You know, we need to think through how we really use this valuable asset before we step off and begin letting people use the property that is available for the wrong kind of purpose. Now, as I said in the beginning when I first started, in order to balance a regional economy -- on the left-hand side, the region has sprawl and quality-of-life problems, we have land transportation, retro neighborhoods, and amenities. We have to use 'em, we have to plan that use, to say it again. That's the ecosystem we're talking about. The ecosystem really is a 113 /00 LABOR, CIVIL SVC. - BILL 2 structure that's put in place and is a planning process that begins to utilize these resources. You know, when we started, we also talked about the assets and liabilities. We can eliminate the liabilities by using the assets from an economic development venue. This is just a summary of a lot of what we were just talking about. We need to assemble critical mass land banks. The blight committee looked at this in length and can speak more eloquently than I can about it, but it needs to be there. We need to reduce builders' costs, and Michael can speak to that too.
You know, the land is non-performing, so we need to either give the land to builders or greatly reduce the price of the land, you know, so that there's an incentive for folks to come in and begin building on this vacant land. We need to also increase the purchasing power of both tenants, in the case of small companies moving in, and also in the case of homeowners. Now, we have a graying of our population, it's a major problem. If you look at the homeowners across the City, you know, a lot of 114 /00 LABOR, CIVIL SVC. - BILL 2 them are getting older. So we're going to have more and more deterioration of these neighborhoods, and we need to figure out a way to be able to get younger people into the process, but they also have to have an income and a nice place to work. So we're beginning to solve a lot of problems by priming the pump and beginning to kick off a project that looks at an entire community. You can't do it house by house, nobody wants to be a pioneer. Who's going to be the first one that's going to move into an area that's blighted? Okay, why don't we stop here because I want to allow -- I've said enough about this and would like to allow the other two presenters to chime in.
Good afternoon. My name is John Carpenter. I'm a community builder with the United States Department of Housing and Urban Development, and I have, hopefully, a short and simple message to deliver. When I leave, I'll hand over a small briefing paper on the topic, but essentially, one of the things that's been sort of a consistent 115 /00 LABOR, CIVIL SVC. - BILL 2 theme through the entire morning has been the discussion of speed, speed of decision-making, speed of doing business in the e-business world. And one of the places where we as a city are most poorly prepared to meet that need for speed is in our ability to assemble and deliver land for development. It is a sort of grungy, kind of low-tech part of the business, but every business, even the e-businesses need a place in which to house their workers and conduct their operations. So what I have worked on for the last number of months, both with the Mayor's Transaction Committee on Blight, and before that, with a number of other smaller task forces, is a proposal to consolidate the various fragmented authorities of the City into one central location, where we can accumulate all of the abandoned land and property in the City -- estimated at between 30 and 60,000 parcels -- and begin to deliver them in much more speedy and consolidated fashion to potential developers, including developers of e-commerce businesses. So what I'd just like to leave you with today is the fact that we are simply not prepared, 116 /00 LABOR, CIVIL SVC. - BILL 2 given the number of abandoned properties that are still in private hands, to deliver property to future businesses in a timely manner. If three months, as I heard earlier, is equivalent to a year of regular business, then our normal business cycle for delivering land to people who want it, which is two to three years, sounds like nearly a decade's worth of waiting. So what I recommend is that we move with all due speed and thoroughness toward a system where we can deliver property as quickly and as affordably as possible in a consolidated manner to future users so that it's available and put back on the tax rolls and becomes an asset to this community instead of a liability. Thank you.
My name is Michael Colazzo of Mitco Corporation (ph.). I'm a builder-developer in Christian Street in Philadelphia. And one of the things that I want to reiterate what's been going on today is to see the land issues and the mix of what we're doing in the City. This city has spent a tremendous amount of 117 /00 LABOR, CIVIL SVC. - BILL 2 money of its federal grants in developing many parts of the City, especially for low-income residents, and I think it's an admirable thing to do, and we must continue to do that. But the problem is that the rate that we're delivering this product, we're only delivering one mix -- of lower socioeconomic groups. We're not addressing the higher end in the middle of the group, that Councilman Kenney alluded to before and some of the issues that Councilman DiCicco is working on, I know, in South Philadelphia to address the middle of the road. The high-end market in Philadelphia is going to take off no matter what anybody does, the high, high end. No matter what City Council does, what the private industry does, it's going the take off. The low end is going to be there, we have to continue to fund those programs and we have to work with the community groups to do that. It's the middle of the road where we need to save our city, that's going to help our schools, that's going to try to get people to back into the City, and need to deliver that middle-of-the-road 118 /00 LABOR, CIVIL SVC. - BILL 2 product. And it's very difficult to do that under a lot of the guidelines that we're doing now. Land costs are an issue. The land may be cheap in itself, but all of the details in developing and acquiring ground in some of these neighborhoods, of replotting ground -- I mean, many of you have found out in your neighborhoods that are just totally blighted and you've got 250 owners and it's worthless land until you try and buy it, and then it's a $2 million parcel. And a lot of these parcels for years were on the tax rolls, but taxes were not being paid. It's only been in the last few years that the City's taken aggressive posture to try and accumulate this land. And we need to plant these seeds for the future and we definitely have to economically stratify the City. We cannot concentrate on the higher end or the lower end. If we build 500 units in the low end, we have to somehow get the middle of the road built. A good example is John Westin's (ph.) job, which is one of the first jobs that's 119 /00 LABOR, CIVIL SVC. - BILL 2 completely private, out near Spring Lane in Councilman Nutter's district. I think they have homes for around $200,000, and they sold out, they're waiting in line for those type of homes. That's the middle of the road, and there's a tremendous need for it. There is no product like that available in the City, and I know that Councilman DiCicco has been working hard on that. But we need to work on policies to provide the middle of the road, because this new economy won't take off. Not everybody's going to be making a million dollars. There's going to be that middle of the road, to hit that income of 30 to $70,000. And those people are not entitled to any benefits that are in the City programs, the low-income housing tax credits. They don't get any of that, and so they can't afford to live in the City, they can't afford to raise their families. And I think that's where City Council and this government needs to work as partners with government in trying to take some examples from other cities. And one example would be to make land available. If you have to use federal monies, use 120 /00 LABOR, CIVIL SVC. - BILL 2 it in the acquisition in the blight elimination, and take out the old foundations and turn over the land that's buildable property, without the oil tanks and everything else that I just found this week in one of my sites, unfortunately. I wish it wasn't there, but it's there. That's all I have to say, but thank you for your time, Council.
I'd just like to make one comment. You know, I introduced a bill, and it was passed by City Council last year, to extend the three-year real-estate abatement on new residential real estate construction up to ten years. The prior administration was not too supportive of a flat ten-year abatement; they wanted it on a sliding scale, so that became a compromise. Subsequently, the bill was vetoed by then-Mayor Ed Rendell because of some technical issues, and I reintroduced it. I just about an hour ago received a call that the State Senate passed the ten-year abatement for Philadelphia, which would give us 121 /00 LABOR, CIVIL SVC. - BILL 2 the authorization at a flat rate, which I will be re-introducing that bill on this Thursday. So I don't know what's going to happen at the House yet in Harrisburg, but we were waiting for that, and that's the signal, I think, for us to move forward here. And I will introduce the new bill this coming Thursday for the ten-year flat abatement on new residential real estate construction. So I thought you might be very interested in knowing that.
Thank you gentlemen, thank you very much. Next we have Carole Smith, David Shevron, Maria Roberts, Bernie McNogle, and James Ingraham. (Witnesses come forward.)
Good afternoon. Would you all please state your name for the record.
Good afternoon. My name is Carole Smith. Good afternoon. Thank you for allowing me the opportunity to testify today. My name is Carole Smith, and I 122 /00 LABOR, CIVIL SVC. " And I'm the founder and Executive Director of the Workforce 2000 Advisory Council. I also serve as a member of Mayor Street's Information Technology Transition Team, which recommended that Philadelphia take steps immediately to move toward e-government. It gives me great pleasure to be here today. I stood in this same spot almost five years ago to the day, in April 1995, as co- convener of the public hearings on the impact of telecommunications technology on the City of Philadelphia economic, social, and psychological. As a result of those hearings, in June of 1996, former Mayor Rendell established the Mayor's Telecommunications Policy Advisory Commission (TPAC) to advise the Mayor and City Council on policies and actions related to the use or impact of telecommunications technology in the City of Philadelphia and the region. Among the duties and powers of the Commission are to research and report on any 123 /00 LABOR, CIVIL SVC. - BILL 2 telecommunications-related issues deemed appropriate to: 1. Maintain and expand the tax base by promoting the City's unique position as home to major multinational telecommunications companies and other companies, which are at the leading edge of the telecommunications industry. 2. Advocate the private creation of telecommunications businesses that promote job opportunities and/or expand the wage and property tax base. 3. And recommend ways that the City can support the growth of telecommunications relying on businesses. Today, four years after the passage of the 1996 Telecommunications Act, it is clear that telecommunications technology has taken us further in a few short years than many of us ever dreamed of. And I appreciate the opportunity to testify today on the importance of encouraging Internet and other e-commerce-related businesses to locate in the City of Philadelphia. When I suggested that the City look at e-commerce a couple of years ago, it fell on deaf ears. 124 /00 LABOR, CIVIL SVC. - BILL 2 So what are some of the things that need to be done to attract IT and related business? How should the City handle e-commerce? These are the challenges as I see them. One is image, two is technical workforce development, and three is reducing the cost of doing business in Philadelphia and tax reform. Let's take e-commerce first. The Pennsylvania Electronic Transaction Act, passed last year, became effective January 15th of this year. The passage of this law gave clear legal authority for the use of electronic processes in conducting commercial and governmental affairs. Electronic signatures and contracts are now just as enforceable as if they were on paper. It will, therefore, be important that as the City develops a capacity for e-commerce, it implement systems that safeguard individual privacy and provide services in a timely, cost-effective, and efficient manner through re-engineering existing systems. This is particularly true in the area of procurement. A recent study showed that 70 125 /00 LABOR, CIVIL SVC. - BILL 2 percent of all government purchases fall within the category of supplies. The savings and increased processing speed associated with this change could be dramatic. It is also true for service delivery. The availability of Web-based services to citizens has the potential to delivering a timely process with cost reductions. Now to image. Although home to a plethora of educational and research institutions, not to mention the number of information technology and telecommunications companies in the region, Philadelphia is not known as an East Coast technology or knowledge center. To change this image, we need to assess our assets and market them. We must create an image of the type of city we wish to be in the future, showcasing our competitive advantage.
Because competitive we must be as we think about e-commerce. The growth of e-commerce has significant impact on local communities, particularly with regard to their roles in restructuring of the economic system. These impacts are several and have financial, legal, human, and societal implications. First, increasingly, economic 126 /00 LABOR, CIVIL SVC. - BILL 2 development decisions are no longer made at local, State, or even national levels, but on a worldwide steal. Second, capital necessary to support new economic development can move free from locality to locality, and can be quickly withdrawn from nations with weaknesses in their economies and financial structures. This can exacerbate problems for nations and localities, particularly those without a strong economy. This means for local governments is that competition for scarce financial resources makes them more vulnerable to withdraw of capital investments if their economy is weakened or they are perceived as not managing their assets in a professional manner. But the picture looks good for us. Philadelphia, the Philadelphia region, placed 11th in venture fund investments and high-tech companies nationally. And a record 475 million in venture capital was invested in Philadelphia-area companies last year, a 50 percent increase from 1998. This area also ranks tenth in money that businesses spend on information technology. This is an important factor for business deciding where 127 /00 LABOR, CIVIL SVC. - BILL 2 to place new information technology service firms. According to the Daily News, what Philadelphia lacks is brand name recognition. As we identify current and future opportunities and challenges, we need to move on them and quickly. Such is the case with workforce development. We know that the quality of the workforce is of primary importance to today's employers and a key to business attraction. Technology is driving the economy, and this economy requires a higher skilled workforce. What can we do to improve the skill levels of our City's workforce? How can we showcase what we are doing so that businesses will come to Philadelphia? How can we best keep our best and brightest, our college graduates? How can we assist our budding entrepreneurs? And how can we create opportunities for those who feel left out, the so-called have-nots? I suggest that we take a hard look at the breadth and scope of the industry in our region, identify industry clusters, and design training around these clusters in partnership with industry. This should be done at the middle and 128 /00 LABOR, CIVIL SVC. - BILL 2 high school levels as well as at our community and four-year colleges and universities. We need to grow our own workforce, not import it. Rethinking education will, by necessity, require curriculum structure and development and incorporating base technical competencies to be achieved at designated levels. It will mean a change in thinking, a change in attitude, but it will be worth it. TPAC is working with the City's new Secretary of Education, Debra Kahn, to address these issues in the Philadelphia school system, and our colleges and universities are increasingly providing certificate courses to produce skilled workers responding to employer needs for shorter-term training programs. Developing a skilled workforce will increase the earning power of our citizenry. It will also improve our image and the quality of life in our city. Studies show that communities with higher percentages of educated citizens will receive proportionately more than those with under-educated citizens, particularly in respect to the income tax base. 129 /00 LABOR, CIVIL SVC.
- BILL 2 Instead of importing workers from foreign countries, technology companies must be encouraged to direct resources to make technical training and opportunity available to the Philadelphia community, many of whom are African-American and Hispanic groups, from which the Department of Commerce reports that between 1994 and '98, the gap in home and work Internet access widened as compared to whites and Asians by approximately 6 percent, while the education income between those with the most and least resources grew 29 percent during the same period. Workforce 2000 and TPAC have launched a demonstration project in conjunction with the Philadelphia Workforce Development corporation to begin to reduce this gap, by providing technical training to prepare participants for MOU certification -- that's a Microsoft Office Users application. A community-based program, it is being implemented in conjunction with Mount Carmel Baptist Church. Another group that needs to be targeted for retraining is downsized individuals and those who have been re-engineered out of their jobs. 130 /00 LABOR, CIVIL SVC. - BILL 2 This group is usually higher skilled and can be redirected and retrained to take on the newly- created and mid-level jobs this industry is spawning. There are several efforts underway in the City to address these needs, but for the most part, they are uncoordinated and have limited industry involvement. This is the area where TPAC can be instrumental in serving as a clearinghouse for information and resources utilizing the businesses represented on our commission -- all leaders in the industry. The TPAC Five Year Plan, Philadelphia Technology Campus, was approved by former Mayor Rendell, incorporated into our annual report, and distributed to City Council in 1999, in December. As a first step in implementing this plan, Mayor Rendell recommended that TPAC serve as technical adviser for the University City Science Center Court of Technology project spearheaded by the State and designed to entice and support high-tech ventures that locate in Philadelphia. In support of this effort, he allocated $100,000 to support the project. As we study this industry, we must 131 /00 LABOR, CIVIL SVC. - BILL 2 also identify opportunities in economic development such as this within Philadelphia City proper. S. Department of Commerce -- reports that Internet access is growing rapidly among people in all demographic groups and geographic locations. Dot com companies are springing up everywhere, and Philadelphia is no exception. An estimated 18,000 dot com companies have developed in the Philadelphia region in recent years, but the City does not seem to be benefitting from this growth. State Representative W. Curtis Thomas, Co-Chair of the House Subcommittee on Information Technology is working in this regard, looking for ways to attract technology companies to north central Philadelphia. In looking at the City and the availability of tracts of land which can be packaged for development by companies such as SAP, SAIC, or Oracle for back-office operations, the 181st District and other areas of north central Philadelphia are prime examples where land can be packaged and marketed. Marred by blocks of empty factories and dilapidated buildings, opportunities 132 /00 LABOR, CIVIL SVC. - BILL 2 for revitalization abound. To this end, he is convening a brain trust to help him develop a feasibility study on how technology can be harnessed to revitalize north central Philadelphia. Efforts such as his and Senator Fumo's, who has developed a technology incubator in the American Street Corridor need to be replicated throughout the City. Now to the hard part -- reducing the cost of business in Philadelphia and tax reform.
I'll leave those to this august body -- it's too sticky for me and one that TPAC has yet to address, but rest assured, our commissioners have made a commitment to help the City to successfully compete in the 21st century economy in whatever way they can. We look forward to working with you to this end. Thank you.
Hello. David Shevron, Global Technologies. I'm honored to be here. I'm actually a last-minute fill-in for my boss, Herb 133 /00 LABOR, CIVIL SVC. - BILL 2 Gross, the CEO of my company, but he is in Europe on business, so hopefully, I could fill his shoes.
You may get a promotion like the other gentleman earlier in the testimony. (Laughter.)
Right, right. Just as way of background, who is Global Technologies? We are a publicly-traded Philadelphia-based company. In 1999, we had three employees in Philadelphia -- that was Irv Gross, myself, and our secretary. , our 81 percent-owned subsidiary. Global Technologies is a technology incubator that invests in, develops, and manages emerging growth companies focused on Internet networking solutions, telecommunications, and gaming. Today, I'd like to take a few minutes and just frame a picture of the situation as it relates to the Internet, use New York as a case history, talk a little bit more about what Philadelphia has to offer -- so some of it will be 134 /00 LABOR, CIVIL SVC. - BILL 2 redundant -- and then some of t public policy implications on how to forge a partnership between the City and State to create an e-commerce center in this area. Now, this is not new to most people, but more and more companies are getting VC backing, but technology and Internet companies are by far the biggest recipient. The Internet is here and here to stay. 5 billion of venture capital funding 13 went to Internet companies. In three years, that 14 number has increased more than tenfold, and today, 15 Internet companies get more than half of VC 16 dollars. 17 Now, when most people think of the 18 Internet, they think of Silicon Valley. Well, 19 there is life outside of Silicon Valley. 8 billion. Unfortunately, here in Philadelphia, we do not have a deal among the top 50. Now I'd like to take a little bit of a 135 /00 LABOR, CIVIL SVC. - BILL 2 look at New York Silicon Alley, a real-world success story and what they've done in the three years, going from a bit player to number 2 in the marketplace, and let's look at some of the key metrics for the City. Certainly, we're concerned about employment. Employment in the, quote/unquote, new media has increased at a compounded annual rate of 40 percent over the last three years. Today, in New York Silicon Alley, there are 250,000 positions related to this new media. 3 billion, there are 8500 companies participating in this new media economy, with gross revenues of $17 billion. And, certainly, entrepreneurs predominate the number of companies. Seventy percent of those companies have revenues of less than a million dollars, and the number of companies focused on e-commerce has tripled in three years. Now, we certainly know that all jobs are not created equal, and these jobs that are going to New York are high-tech jobs, and high-tech jobs on average pay $30,000 more than 136 /00 LABOR, CIVIL SVC. - BILL 2 their non-IT counterparts. New York has not only seen a growth in employment, but a growth in high-paying jobs. Now, why has New York been successful? Well, New York was fortunate to have certain things in place that made it ripe for success: a technology infrastructure; access to customers; a moderate price base, though we'll see that's going away; proximity certainly to industry drivers -- the advertising world, the media world, and capital both of a venture nature and investment banking. But this story isn't as rosy today in some respects. When surveyed, executives complained -- 62 percent of the executives complained that the overall cost of doing business in New York is very high. Affordable facilities was a thing of three, four years ago. Getting affordable space today in Manhattan is at an all-time low. And, of course, people complain about taxes, both State and local, and trying to get good-talent people is becoming harder and harder. New York problems are opportunities for Philadelphia. 137 /00 LABOR, CIVIL SVC. - BILL 2 Now, what do we have to offer here in Philadelphia? " Location, location, location. Philadelphia is well-situated on the East Coast, between the financial capital and the political capital. The cost-of-living advantages are significant here over New York, Washington, Boston -- in a sense, our competitor cities.
And we have a fantastic ability to access our trains and our air travel. I know a lot has been talked today about out super universities -- the University of Pennsylvania, Temple, Drexel, the art schools among them. Great minds are unfortunately here but passing through the City and staying only for two to seven years. This is a great source of human capital that we have that leaves the City. And then we have leading companies in certain fields -- certainly pharmaceutical, health care, and biotech fields. And we have certain models of success in the Philadelphia area -- Safeguard Scientific, Internet Capital Group, and Verticalnet. Now, how can the local and State governments help to create an e-friendly 138 /00 LABOR, CIVIL SVC. - BILL 2 Philadelphia region? And some of these things have been talked about. Assisting the creation of real estate space and providing incentives for the creation of incubators, and this could include seed money, low-cost base for incubators and residential space, and a big one, I think, is cooperative efforts with universities. The universities, as I said, are a great resource, both in terms of faculty and students, but students study here and then leave. The City needs to get them and get them early. Go to the classrooms, capture this brain power, make it attractive for these smart individuals to stay and thrive in this city. A lot has been said today about the tax burden. Reduce the general taxes that have an acute impact on entrepreneurs. Tax policies need to encourage entrepreneurial-based business and certainly reduce the wage tax. Get technology shows to come to Philadelphia. Help put Philadelphia on the technology radar screen. Get people to start associating Philadelphia and technology. And sort of wrapping up -- promote 139 /00 LABOR, CIVIL SVC. - BILL 2 thyself. I mean, this is a great city, but I don't think a lot of people outside the City know that. As I said, compared to New York, Boston, Washington, this area is much more affordable. I'm actually a native New Yorker and I still read the New York Times and read about the New York sports teams. But I had a choice and I've chosen to live down here and work in Philadelphia. So, there are people out there like me who you can pull down to this city. This city has shown itself to be a great tourist destination. For some of those same reasons, the City should be a business destination. And as I mentioned earlier, you know, as far as travel, we're an hour and a half, hour and fifteen minutes from New York, two hours from Washington, easy access to the airport, reasonable commutes -- these are things that help make Philadelphia great. And we have a tremendous talent pool. As I mentioned earlier, the universities need to be tapped into. And what the City also needs to do is show a willingness to help attract and support businesses. 140 /00 LABOR, CIVIL SVC. - BILL 2 These are the things that Philadelphia should do to promote itself -- and not just domestically but internationally as well. And the time for coordinated action is now -- both between Philadelphia government, the business and university community. And by capturing our fair share of the new e-business world, the economic benefits to the Philadelphia region will be huge. I thank you.
Hi. My name is Maria Frizelle Roberts, and I want to thank you, Councilman Clarke and Councilman DiCicco, for inviting me to be here. I am the President, CEO, and owner of a firm located on Chestnut, 128 Chestnut Street, in Philadelphia. The name of the firm is MFR & Associates. I've been in business for eleven years, and I've found that over the last, I guess, five years, due to an increase in demand, I've had to spend more and more of my company's resources focusing on integrating marketing and IT solutions for my clients. 141 /00 LABOR, CIVIL SVC. - BILL 2 Just in the past two years alone, I've seen the technology needs of companies that I do business with grow tenfold. Presently, almost 70 percent of my company's business is generated soley for an IT purpose for my clients. In fact, I'm going to even give you a little more recent history. In the past two fiscal quarters, my company has had an enormous increase in the numbers of projects that have been technology- related -- notably, those that have involved Web design and application development. This is due to the huge demand that all these companies -- companies -- not just -- companies in this region and across the country have for Internet e-commerce and e-government-related services. And I want to stress e-government because I think we've sort of danced around that issue today, and it really needs to be focused on. I had the pleasure of sitting on the Mayor's Technology Transition Team, and I was also a part of the Mayor's Transition Team for Small Business and Economic Development, so I got quite involved in a lot of issues, and I am booming with 142 /00 LABOR, CIVIL SVC. - BILL 2 ideas, and hopefully, some of the things that came out of the those committees will be implemented. I have worked for many years with private industries and local governments. My most recent experiences, I must say, with the City of Philadelphia, doing business have been positive. I know you won't hear that from everybody, but they have been positive. I consider Philadelphia to be in a prime position to capture the technology boom that's going on. Philadelphia is situated between New York and Washington. We have ten of the top universities right here in the Philadelphia area. My company for the last, I guess, eight years has been involved in the co-op program at Drexel University, and I've had a number of students who've come to work for us during the co-ops and have worked for us continually during the year. We've had a number of students who've come from Temple University, from St. Joe's, and we've had a wonderful experience with them. I also took part in a program that Drexel University had, having students come from overseas. I had a number of French students come 143 /00 LABOR, CIVIL SVC. - BILL 2 for our company for a year at a time, and we've had a wonderful exchange of business ideas and concepts. And, in fact, at this time, we are presently developing a business plan to set up a company in France. Our IT specialist is here, and she has been working on that plan for the last, I guess, month or. So we hopefully will be doing that before the summer's over. I can't tell you how tough it is to do business in Philadelphia -- not from -- not because there's no business here, 'cause there's plenty of business here in Philadelphia. The difficulty is in the networking. The difficulty is that there are many businesses that are here, and we don't communicate with each other. The fact is that many people have no idea that I have been in business for eleven years and that we do technology and we do Web design. I heard from the businesses that were here and I was shocked to find out some of the services that they offer and some of the networking that could happen for us to do some larger business deals together. The -- I guess for me, the biggest problem that I have in looking at e-government is 144 /00 LABOR, CIVIL SVC. - BILL 2 the fact that I do do business with the City.
I live in the City, I own a home in Center City. I'll give you an example. I'm in the process of having my home redesigned, and I've hired a contractor to come in, and I have an architect. And anybody who's ever had an architect, you know that the increase in your house almost doubles. But I had to have the architect go down to L&I to get zoning permits. He sat there for three and a half hours. That was my money that I had to pay this architect to sit there, okay? There's no reason why I should not be able to go on line and fill out zoning permit applications. This should be a communication between me or my architect and my contractor and Licenses and Inspections. It does not exist. I happen to know McLaughlin, and I have had dialogues with him, but 99 percent of the population of Philadelphia doesn't know him, doesn't know anybody in L&I. Another example is the Parking Authority. We all get tickets -- I get tickets, you get tickets. I should be able to go on line, pay my tickets, or even contest a ticket, protest 145 /00 LABOR, CIVIL SVC. - BILL 2 a ticket if I want to. I can't do that. I have to take off from my job to go down to Ninth and Filbert and sit there like everybody else for three hours, and I have a company to run. People who work for me, if that happens, they have to take off from work and go there and sit, or they wind up -- most of them just wind up paying the ticket just 'cause they don't want to be bothered. But it's frustrating. I don't mind paying taxes to a certain extent, but I do mind paying taxes when I don't see much of a benefit or a return on my investment to the City. We pay the BP, the business privilege tax, and I think that in order to make it a little more palatable, as a business person, I think that the City should say, Okay, for those of you who are part of this business culture and who invest in Philadelphia, who pay City wage taxes, who do all these things and you pay this business-privilege tax -- Oh, I also use and occupancy tax, and I'm also now paying a tax now to have the front of my street sweeped, the business that I own swept. So I'm paying taxes on top of taxes, but no one -- 146 /00 LABOR, CIVIL SVC. - BILL 2 not once have I ever gotten a 15-minute grace on my meter. I also think, wouldn't it be nice for the City to say for business people, there are things that the City wants to do for you. The taxes exist. The taxes exist, but there's no 8 reason why there isn't some dialogue or some relationship or some benefit that I see that I get for that. I stay here in Philadelphia. You've heard today that any of our companies could go anywhere. I could go to Camden -- I chose not to go to Camden. I could go to Montgomery County, I could anywhere in the country to do the kind of technology business that we do, but I love Philadelphia, it's a great city. I have fond memories of this place. And it also is cost-effective in many ways to do business here. I can get real estate rates, cost-per-square-foot rates -- for the type of office space that I have here, if I were in Manhattan, I don't know what I'd be paying, but I have fabulous office space here. I walk to my office. I own a home on Front Street, and my office is on Second and Chestnut, and I walk. My car stays in my garage. 147 /00 LABOR, CIVIL SVC. - BILL 2 There's a quality of life here that I don't want to give up. My staff -- I have ten employees. Ninety percent of my staff live and work here in Philadelphia. On Friday nights, they all go out for drinks to the restaurants, they socialize, you name it. All this money comes back to the City in revenue. If I move out of the City, most of them will probably move 'cause most of them -- some of them have apartments, condominiums, and they'll probably move. If companies like mine leave, these people are going to leave. I'm continuing to do work with the universities because I want to make sure that I have a constant pool of people. Right now, I must have ten job applications.
At anyplace we even think of, I have a job application posted. Anybody looking for a job, call MFR & Associates, we're interviewing, you know, like crazy, okay? Darrell, I don't think you need a job, okay?. )
Trust me, I'm a ward leader and I know people that need jobs. 148 /00 LABOR, CIVIL SVC. - BILL 2
Oh, okay. The other thing is -- I guess for me, the problem has to do with the fact that there is a very different -- there's a very difficult exchange between the technology businesses like mine that are in Philadelphia and government, the ability to do business with the government to make my life easier. And I know that I talked about L&I and I talked about the Parking Authority, and those are personal issues. But, for example, I mean, I own a business and I often look for RFPs. I should be able to go own line and get any RFP that's out there in the City. I should not have to call the departments and see what's out there and what's available. I should go do that. When I was on the Small-Business Committee, I was asked to look at some legislation. I couldn't get the legislation. I had to send it somebody over to Council to pick up legislation. It should be on the 'Net. These are -- there should be a way -- you know, I guess my thing is to make sure that we are -- that the City sees itself as being on line 149 /00 LABOR, CIVIL SVC. - BILL 2 and not having its residents in line all the time, and taking up time and burning revenue, that an in-line city is a virtual city and where this city needs to go. And our company is one of the companies that is primed to help the City get there. It's just that the City has not be very supportive of those kinds of idea, and hopefully they will. I would like to say that there is -- we did as part of this Technology Transition Team, we developed a fantastic report. I don't know if any of you have seen it. Have you seen it? There's a number of recommendations we had in that report, and some of the them is elevating the director position to a CIO position, a cabinet position, having a budget that's usable, centralizing the City's technology into one central department. And most of these things are things that will bring a focus to technology into Philadelphia. And also we also suggest a change in the name from "MOIS" to "the Department of Information Technology." It focuses the department in looking more at technology not at information systems, okay? 150 /00 LABOR, CIVIL SVC. - BILL 2 I want to thank you for asking me to come. I sort of got off track, and I didn't really follow my message, but my message is reflective of everyone else who has been here before me, all the business owners that were here before me. I'm planning on staying in Philadelphia, and I look for, hopefully, the next year to come back and report that we have opened our office in Europe and that we wind up being "MFR International." And it's because of the fact that Philadelphia did make it somewhat easier for me to start a business here, because I could not have not done it in New York, I could not have done it in Washington, Chicago, or Atlanta. Thank you very much for taking the time and inviting me to come.
Thank you. Your message was received loud and clear. Councilman?
All right. And I voted for you, too. 151 /00 LABOR, CIVIL SVC. - BILL 2
Never mind. I just wanted you to know for your information, and you may be aware of this, some time ago, back in 1991, actually, I was on the then-Mayor Rendell's Transition Team, and I chose to be on the L&I Committee because of the some of the frustrations. And we haven't really gone very far since 1991, although about six months or so ago, I met with Commissioner McLaughlin and -- just the other name escapes me at the moment, and they're looking to get about $2 million into their productivity bank for some of the issues that you raised about being able to take certain types of applications on line. You should be able to do that without having to come into Center City and going to the Municipal Services Building.
You can't do all of those things because some things are much more technical and require a lot more time and expertise, but for what we've referred to as the "over-the-counter permit," I see no reason why we 152 /00 LABOR, CIVIL SVC. - BILL 2 shouldn't be able to do that. It's always a question of money, and I'm going to be speaking to the Chamber of Commerce -- they're having some breakfast meeting -- and I'm going to make some suggestions that maybe the business community ante up some of the money in advance to establish the amount of money we need in the productivity bank and kind of escrow that money against future accounts.
And against future applications that those folks who would put the money up going, you know, up front and draw down on that going forward, because time is money in every business. And in particular, in the construction business, it's even more money, and a lot of time is wasted and money's wasted. So some of the things we were working on, and I do appreciate the fact that you had a lot of positive things to offer today.
It's a great city and I know that a lot of negative things were said, but it's a great city, and it's primed to be the technology force -- one of the top technology 153 /00 LABOR, CIVIL SVC. - BILL 2 forces on the East Coast, with support from people like you and Darrell. And I want to thank you guys for having this hearing, and to try to get the momentum started so that we can move forward. That productivity bank rejected their money. I don't know if you know that, but --
They rejected it. It came back. So maybe you can pull a few coattails.
Well, that's why I need to go over to the Chamber and see if I can convince them.
Well, I'm going to leave it, I'm going to let the gentleman speak. There's -- obviously, we all have a lot to say.
I understand. Bernard McNagle (sic)? 154 /00 LABOR, CIVIL SVC. - BILL 2
Bernard McMonagle. Hi. Thanks for the opportunity. My name's Bernie McMonagle, and I'm with the Bell Atlantic Corporation. And studies indicate that the base components to successful high-tech areas are: infrastructure, good technological infrastructure; research universities, big universities; skilled workforce; interdependent firms -- they were the technology clusters for another term, but firms that depend on one another for business; and, of course, tax incentives. And as far as the infrastructure's concerned, to give a little Bell Atlantic commercial, with respect to the expenditures that we make on a yearly basis, in '99, we spent $100 billion just in the State of Pennsylvania, upgrading that infrastructure. We've deployed over 91,000 miles of fiber optic in the areas we serve. And without adding any more fiber optic cable, we could quadruple that bandwidth simply by adding technology like dense wavelength to vision multiplexing and other technologies. We employ 19,000 people in 350 locations in 200 155 /00 LABOR, CIVIL SVC. - BILL 2 municipalities just in the State of Pennsylvania. So as far as the infrastructure is concerned, I can speak for Bell Atlantic, and many of our competitors and partners have similar technologies that can be deployed and provide the kind of bandwidth that companies need. Big universities, we keep saying them over and over -- Drexel, Temple, LaSalle, Villanova -- they're all here, they all do a great job. Just in the e-commerce in the business-to-business e-commerce -- e-commerce, there was over 300 million in transactions in e-commerce last year. Now, that's expected to rise into the trillions. That's an awful lot to development that has to take place in order to enable that kind of e-commerce throughout the country. Bell Atlantic recently ran an ad for Web developers, e-commerce development managers, and senior project manager for call center development. And the center for Bell Atlantic's development for business to business e-commerce is located in Philadelphia right at 1717 Arch Street. 156 /00 LABOR, CIVIL SVC. - BILL 2 We've got excellent health-care institutions. People come from ail over the world for health care in the City of Philadelphia. The interdependent firms and related industries, the biotechs that collaborate with our health-care institutions and the universities that educate the best and brightest work in these interdependent organizations. I think one of the things that is missing in that area, from my experience, is the collaboration. " as opposed to looking for the win-win. So that's probably an area that could be worked on. Finally, there's the human element. People with high-tech skills have choices. Philadelphia needs to be that choice. And people who make those kinds of decisions on where to work look at the taxes, the schools, the housing, the transportation, and the newness of the area. I'd say that Philadelphia has most, if not all, of the components, but it's the critical mass that starts by pulling all of those together. 157 /00 LABOR, CIVIL SVC. - BILL 2 Now, one of the points that I want to make, having been on several committees, committees in the Philadelphia area, not just Philadelphia, but in the Philadelphia area, tend to become oversight committees as opposed to committees that help facilitate the development of this critical mass. I think that's an important point. I have firsthand experience on that. And even back to the resolution -- I'll just quote it. " It appears from that statement -- one would read that and say that we're just getting started. I think that the image that was mentioned several times before, that Philadelphians don't have the image of being the high-tech areas or high-tech people, that absolutely has to change because we are. The people that work for me that design, price and sell voice data and video systems to large business customers, solutions 158 /00 LABOR, CIVIL SVC.
- BILL 2 that enable some of the biggest industries in this area to be able to be successful, are probably the best in the country. And I don't think we do enough in marketing that kind of talent. There's plenty of talent that you've already seen today. We need to do a better job of marketing that, leveraging that, building with that, supporting that to build a critical mass. But we're not starting from scratch, and that's the important point. We are way ahead of a lot of other areas. I think it's slightly fragmented and it needs to be pulled together with an organization that can facilitate and not dictate. And one of things that the Silicon Valley network is doing, and that is basically their network to do exactly what this committee is trying to do. So they have a Web site dedicated entirely to bringing businesses to Silicon Valley. You think they already had that nailed down, but they're working on what they've already developed, building on that, and making it even better. I don't think we need to start from scratch; I think we need to jump on that 159 /00 LABOR, CIVIL SVC. - BILL 2 foundation that's been built and build it and start doing a better job of marketing. Thank you.
My names is James Ingraham, and I'm with Compaq Computer Corporation. And I'm also one of the co-chairs on the Mayor's Information Technology Task Force, or Transition Team, I should say. To that end, it's my desire to bring the best value that I can to Philadelphia to help it to become that great city, which it could be. So to that end, what I've done is, I've asked a gentleman from Compaq to come in to join me to talk to you around e-commerce e-government and hopefully build on some of those the gentleman from Bell Atlantic referenced so that we can move forward in a very dramatic way to make this city the best city in the nation. And to that end, here's Joe Perez.
Thank you for that introduction. Good afternoon. My name is Joe 160 /00 LABOR, CIVIL SVC. - BILL 2 Perez. I'm with Compaq Computer Corporation. I am the Director of Professional Services for North America for our public-sector business throughout the country. And, again, I thank you very much for having me here this morning. I've heard quite a bit and I come from a background where I've had a fair amount of experience in urban development, city municipal government, economic and community development in some rather large cities, Boston being one, Jersey City, New Jersey. So I'm sensitive to the discussions that have been going on today. I also want to acknowledge that I think there's a lot of passion in this room that has stepped forward today to offer some ideas, some resource, some talent, and I think the makings of putting together a sound plan to move ahead with making Philadelphia the number-one e-commerce business development community, particularly in this corridor. I think the makings are certainly in place. C. There's an enormous amount of resource right here in the 161 /00 LABOR, CIVIL SVC. - BILL 2 neighborhood. It bears repeating. You have a large university market, some of the major schools in the area, a lot of resource talent. Boston is running out of real estate. " The companies that already exist and the ability of those companies, as well as the fathers of this city to market and sell the strategy of how good Philadelphia is and can continue to be and nurture that business that is thriving today, I think is going to be significant. Let me tell that you e-commerce on the Internet and the businesses not only that are responsible for the infrastructure and the building of applications that support that e-commerce business, but all business from a retail and from a manufacturing business that do business-to-business transactions and need to do business with government, that business is going to migrate and transition very quickly to the 162 /00 LABOR, CIVIL SVC. - BILL 2 Internet. The gentleman from Bell Atlantic mentioned the dollar volume of transactions that are going to occur on the Internet. 3 trillion in the next two or three years -- that's right around the corner. How many people are using the Internet? And there is this element of the digital divide, which needs to be addressed. I think all of the technology vendors are sensitive and have acknowledged and are trying to work towards how to disperse and eliminate that problem. But with the advent of the invention of the radio, it took 30 years to get 50 million people to become listeners of the radio. It took 13 years for the advent of the television to get it up to the ramp of 50 million users. It took four years to get that same amount of population using the Internet and the Web today. And, again, the significance in terms of the number and the amount of business that's going to transpire over the Internet is quite significant. The business of how does the government, how does the City of Philadelphia 163 /00 LABOR, CIVIL SVC. - BILL 2 better service not only its residents, its business owners, but the customers, the outlying customers, several businesses mentioned inviting their clients, inviting their customers into the City of Philadelphia. That's another secondary resource -- not only an image that we want to maintain and enhance, because it's those visitors that are spending retail and capital dollars with the businesses that reside in Philadelphia, but there's nothing to say that we can't attract those businesses in opening up operations and annexes, etc. right within the confines of this city. To that end, my local example is, I live on a small street, there's seven houses. By 8 o'clock every morning, the mother and father are gone, they're off to work. , regardless, they're out working.
They don't have the time to do other things over the course of the business working hours that are required for every -- most individuals in this room and out on the street. Those are buying goods and services for our own household, those are doing activities and business services that 164 /00 LABOR, CIVIL SVC. - BILL 2 are required for us with our neighboring governments. So how do we make that a little bit easier? The strategy and my experience as I travel around the country, state agencies as well as municipalities are moving at light speed as quickly as they can. How can we offer services by 7 hours 10 a day. My colleague to the right of me mentioned 11 some of those examples -- paying parking tickets, 12 paying utility bills, finding out information 13 about the municipal and city services. I need to 14 get that information accessible to me at different 15 hours of the day other than the normal 8-to-5 16 business entity that government typically 17 operates. So the agencies and municipalities need 18 to accelerate their plans and how they can figure 19 out a way to provide those services not only to 20 the residents and constituencies of this city, but 21 how do they provide those services to the business 22 as well. , that financial mechanism that 165 /00 LABOR, CIVIL SVC. - BILL 2 a municipality and banking community may be able to offer, businesses are feeling that they can do business easier and the government services are more accessible to them without the pain of traveling and having to access those services only on a face-to-face capacity make individuals who own businesses and who work as employees of those businesses make them feel better about the community that they live and work in. There are really three points to the triangle that I think of have been talked about today a lot, and that is: government as a user of the Internet; government itself and how they transact business amongst themselves, agencies or departments within the municipality; municipalities and state government, municipalities and federal government and how information is collected and disseminated amongst those and done in a more efficient manner. And the technologies are very capable today in terms of network infrastructure, software applications, and computer products to make that a very painless proposition. The other element is really one of your 166 /00 LABOR, CIVIL SVC. - BILL 2 constituency and residents. , to access and improve the way those services are provided and interchanged between those instances. S. Postal Service. They've, in effect, had to reinvent themselves. Most of us today open up our mailboxes and we get a lot of junk mail and we get out bills, but people don't send letters anymore, people don't send personal material. The electronic mail age has taken over and the postal services really need to reinvent, figure out ways to value, not only, you know, for the 32-cent postage stamps, but what are the other things we can do to better service other constituency, our post users, and they have, in effect, created an online postal office. And there's a lot of details behind 167 /00 LABOR, CIVIL SVC. - BILL 2 that, but the message is, they themselves -- if you look at a very labor-intensive operation, a very, I'll say, person-to-person, you know, letter carrier to the door, that is very quickly changing to a small percentage of their business, and how do they work with business entities for the most part to provide additional value, new value to rationalize the value of the money that they're receiving for the postage revenue that they generate for the federal government. Compaq, as well as many other companies throughout this country, have had a lot of success in providing solutions to municipalities, state agencies, federal government.
It doesn't take very much time to do the research to look at some of the examples that exist in the marketplace that have made life a little bit easier, not only from a government agency and how it operates its business, but more importantly, how it services its residential and business community. And there are an enormous amount of examples in the transportation space, in the professional licensing space, in the motor vehicle area in terms of car registrations and vehicle 168 /00 LABOR, CIVIL SVC. , etc. And even in the educational space where technologies are now being made available to the K-through-12 space, university space, where it used to be a significant challenge to collect statistical information on even how a school district was doing, technology is being deployed today where a parent can get on the Internet and check on the status on how his student is doing. A classroom teacher can check on the performance of the population of that classroom, a principal can check on the progress of its teachers and the school in its entirety and scale all the way on up through a school district as well as a statewide implementation. The availability of that technology is here today, other than the ramifications of, you 169 /00 LABOR, CIVIL SVC. - BILL 2 know, where does a municipality leverage the resource to purchase the applications to make those applications and available so people can run their activities on a more efficient basis. That's another area that is also being challenged. And when I say "challenged," business, universities, and government are kicking the tires on creative ways to afford that technology outside of the traditional "we need to make this capital investment," "we need to issue bonds," "we need to lay out millions of dollars to buy this thing" -- whether it be technology, whether it be land, etc. And I know in the technology venue, strategies are being worked out now to purchase things on a transaction basis, purchase technology in exchange for marketing and advertising that, you know, probably some of even the local community is already involved with. So there are many initiatives that are underway. I have knowledge of some of them in the Pennsylvania-Philadelphia area, but throughout the country that are easily accessible. It's very easy in terms of accessing these resources to gain 170 /00 LABOR, CIVIL SVC. - BILL 2 further knowledge on them. And, you know, I -- to wrap up quickly, again, what I've heard this morning is an enormous amount of dedication, an enormous amount of interest in making Philadelphia and maintaining Philadelphia as a key area for high technology growth, which is going to allow for business growth, which is going to allow for, you know, residential and community satisfaction, and the resources through the facilitation of Council like yourself and some of the other players in the municipality can make some of that happen, I think, relatively painlessly. Thank you.
Okay, thank you. Just to sort of summarize, the bottom line that the City of Philadelphia, by moving into an e-government environment will better serve its citizens, businesses, and etc. New businesses will want to locate here because of the easy-to-do business and will hire the college grads who would otherwise leave to find jobs in other areas. This translates into new revenues, an improved city, an 171 /00 LABOR, CIVIL SVC. - BILL 2 exciting place to live and work, and a more technology-aware educational workforce with a feeder pull from both high school, community colleges, and etc. There's a tremendous amount of monies that's out there today that's available to the City of Philadelphia that I don't see us pursuing. I truly feel that if we take the time to really look at things, and I think that you have a lot of good things in place. As a matter of fact, there's a study that was conducted not long ago by Syracuse University. They took a look at the top 35 cities in the country. Philadelphia came within the top 3, as a matter of fact. There are only two other cities that ranked higher than the City of Philadelphia. So there's a tremendous amount of respect that's given to Philadelphia and the things that they've done up to this point. I think that without any question, there's room for improvement. And to that end, I think if we take a look at some of the people who have spoken today and some of the ideas that they have, certainly those things, when taken into consideration, will 172 /00 LABOR, CIVIL SVC. - BILL 2 be able to drive Philadelphia to be that superior city beyond anything else that's out there. To that end, I thank you very much.
Thank you very much. Any questions? (No further questions.)
I want to thank you very much. Thank you for your time. All right. I want to ask the A-team, members of the Administration to please step forward and all its quasi-government entities. (Government witnesses come forward.)
We're going to really try to take you through this fast, okay?
You need to identify yourself for the record, please.
My name is Mjenzi Traylor, and I'm the Acting Director of the Commerce Department. And we're very anxious for City Council to understand the amount of activity that is 173 /00 LABOR, CIVIL SVC. - BILL 2 already in place, and so we have a tremendous amount of information that we wanted to present around that end. We will give you, of course, copies of the full testimony, but considering the lateness of the hour, we're going to try to go through this as quickly as possible. We have Malow Kyoom (ph) who's here, as well as Bonnie Grant and Peter Iaccavone from our Mayor's Business Action Team, and Fernando Gallard (ph.) had to leave, but they are important parts of the team that is in place for dealing with a lot of these issues that we're talking about today.
If I can interrupt you for one second, Mr. Traylor. Today's hearings were, by and large, for individuals who belong in the industry. As a follow-up, I'm sure that Councilmembers and this particular committee will have more extensive discussions with members of the Administration in terms of how to implement these issues, so if you can get all your testimony in today, clearly understand we will talk again.
Thank you, Councilman. Unfortunately, one of the members of 174 /00 LABOR, CIVIL SVC. - BILL 2 our private sector paid the price by being identified with the public team today, and that's Mr. Kirby Smith from PRWT Services, Incorporated. And so what we're going to do is, we're going to start off with him, even though originally, he was sort of like a big exclamation point for what we had to present.
But in the interest of his being able to get back to business, we'd like to start with Mr. Kirby Smith.
As you heard, my name is Kirby Smith. I'm with PRWT Services. Our corporate offices are here in Philadelphia. We also have offices everywhere from Boston to San Francisco, New York and Los Angeles. When I started with the company, we had roughly about 176 employees, and at this point in time, we're over 1,000 employees, just five years later. A lot of that has been driven by technology. I myself and the chief information officer and vice president of systems for the company, and it's fallen on my shoulders to drive this technology and growth within the company. 175 /00 LABOR, CIVIL SVC. - BILL 2 That means, especially given the way things are today, that I am in a sense an HR person. I am in a sense a consultant within my own company, as well as the person responsible for the hardware and software that's going into the system. As a business, we have to sit back in Philadelphia and say, Okay, we can either sit back and complain about everything or get up and do something about it. There are certain issues that are identified very clearly to me that cause me to do this, and I can start by just looking at it from a personal level. I had a young lady that I wanted to bring onto my staff because of her particular skills, and at the time she had a job offer outside in the suburbs. When I first sat down to speak to her, the first thing she said was, If I leave and go to the suburbs, automatically, if I stay with the same salary, I get a 10 percent increase. We all know that, we all hear that, so the question is, Okay, what do you do to keep people here? That's just the cost that I have to 176 /00 LABOR, CIVIL SVC. - BILL 2 bear. As the CIO, I realize that. I joined certain organizations or started certain organizations to try to fight to bring the taxes down, but it's just the cost of doing business. If I had to look at the single thing that I would say is stopping me the most in terms of sales, 'cause that's what drives everything, it is perception that Philadelphia is not a technology center, that the technology companies are not located in the City, they are located out in the suburbs, and that we don't have the know-how to get large technology processes done. I have as clients American express, AT&T, Bell Atlantic, as well as several City organizations. They are often surprised by what we're able to deliver, and that's not just PRWT, that is the companies that we work with. I also represent a second that's organization -- that's e-Philadelphia. And when the Hambroses spoke, they were one of the founding members of this group. We -- it was a little over a year ago -- had a discussion about the fact that it seems like technology organizations are ignored in the City, and if we're going to do something, 177 /00 LABOR, CIVIL SVC. - BILL 2 we need to do it fast. So we formed the group and then put out a call to see how many businesses would show up for a meeting to discuss the formation of e-Philadelphia. At the very first meeting, we had between 30 and 40 separate technology businesses that appeared as well as other government organizations. What we found was that all of those groups were very dedicated to improving the City and improving the economic situation and improving things for their personnel. Within a year, we've been able to enact the e-speed loan wherein we can give loans to small businesses that are starting up. We've been able to enact BEST, which is a movement I let, which is "Businesses Educating Student in Technology," where we take young students five days a week out of the high school during school hours from 1;00 to 4:00, place them on a business and have a businessmen mentor them in learning technology and business, so that by the time these kids are done at the end of high school, if they choose not to pursue further education, they have a viable source of income that they can turn to 178 /00 LABOR, CIVIL SVC. - BILL 2 immediately.
In other words, we're hoping to get them certified at the end of their high school period in either Microsoft, Cisco, or another certified type of program. The bottom line in all of this is that businesses have managed to drive these programs, to get these things done. And I think one of the problems we're facing right now is, too many people are turning to government and saying the government has to do it, wherein the problem that government has right now is you can't move but so fast. And for us, three months, as you've heard, is a long period of time. And if we spend a couple of years getting there, we're sort of lost in the soup ten years from now. Looking at my group that works for me, forget the fact that they're not from Philadelphia, most of them are not from America. Out of all of my programmers, I have one American programmer. The rest are all from India and Russian. That concerns me. Other ones that come here, they have this belief that Philadelphia is a dangerous place to be, so they locate out of the City. Out of my staff, I'm the only one that 179 /00 LABOR, CIVIL SVC. - BILL 2 lives within the City, and that's my commitment to show the other people that they can do it. My concern as a business person is that I can't find Philadelphia people to work for me, and it's not because they aren't out there; it's because the field has gotten competitive. We're going to be publishing within the next couple of weeks a couple of figures, but when we did a plodding of where the companies are located that are members in our organization, they came in very heavily, squarely in Center City. The concern is, though, that in private-sector employment, we went from a high of 316,000 in 1998 to 273,000 in 1999. Ten years ago, the City made the commitment to become a tourist attraction. No one exactly knew how to do it but everyone worked together, and we drove that. At that point in time, looking at roughly 1996, 47 percent of the people employed in Philadelphia were in the service area, and that would include technology. The fastest growing sector during that period was in computer-related jobs, and they were growing at a rate of 637 percent. 180 /00 LABOR, CIVIL SVC. - BILL 2 If we look at 1998 and '99 at where the growth has been and where it has been lost, we see that in the hospitality industry, we've increased jobs by 31 percent but we've seen a drop of 6 percent in that service industry. That's a 7 problem. That's the technology industry, that's 8 everyone moving out. 9 It is good that we have increased jobs 10 in terms of the entertainment and tourist 11 industry, but the jobs that we have created are 12 waiters, waitresses, and bartenders. There's 13 nothing wrong with that except for the fact that their income does not equal the average income of the people I have working for me that are at $68,000 a year an average. If I have a $90,000-a-year and we lose him, that's equal to about four of those service industry people in the hospitality industry. So the bottom line of what I want to say is, I need to attract those people here who have that kind of talent. What you can do is very easy, starting from today, is that Philadelphia has to walk the walk and talk the talk and that we need to start promoting these groups. 181 /00 LABOR, CIVIL SVC. - BILL 2 E-Philadelphia is a new organization, it is a technology alliance that was just formed last year, but if you take e-Philadelphia, the Eastern Technology Council, other groups, and you say to them, Okay, identify to us who these organizations are so we can get out there and start talking about it, that's a tremendous step right there. That's something very easy to back up. We have the organizations here, let's push them and grow this.
Thank you very much, Mr. Smith. I failed to introduce earlier Mr. Curtis Jones, who is CEO of the Philadelphia Commercial Development Corporation, and Mr. Jim Flug, who is Senior Vice President from PIDC. That is the Commerce Department team. But then there are other members of the Administration who are present, and this is Michelle Davis, from the Mayor's Office of Community Services and Sharon Pinkenson from the Philadelphia Film Office. Let me just right away point out some 182 /00 LABOR, CIVIL SVC. - BILL 2 things that I think we need to keep in mind because people have done an adequate job of talking about the significance of the growth in the IT and e-commerce industry. But let me just say that the trend is for the majority of IT workers to live in the cities with IT activity. The city benefits not only by creating jobs, but also by adding to the City's population. As an example, a prominent IT company, which testified here earlier today, from Old City, was successful in attracting high-tech 13 employees from outside of the region, even as far 14 as England and Switzerland in the last year. All 15 of these people are now residents of Philadelphia. As Philadelphia continues to lose its base of local CEOs from such long-established Philadelphia industries like banking and insurance, we lose a substantial amount of civic and entrepreneurial leadership. The growth of the IT sector gives us an opportunity to introduce new leadership to the City. These new IT leaders are an essential link to the new economy of our future. Now, some of the specific things that 183 /00 LABOR, CIVIL SVC. - BILL 2 have been going on, because if you read media reports and listen to many public discussions, it would lead many of us to believe that there is no 5 information technology or e-commerce growth in our city. Philadelphians need more awareness of this sector's growth that is already occurring here. A look at category 737, that's the standard industry SIC code 737 for calendar year 1997, it shows that the Philadelphia Revenue Department received payments from 460 accounts. Now, this SIC code describes companies in computer and in computer-related industries, and we've given you a whole list of these SIC codes so that you would be able to refer to them going forward. million. million to the City's wage taxes. These wage tax accounts include Philadelphia residents employed at suburban companies. 2 million, with 477 accounts reporting. In calendar year 1999, 184 /00 LABOR, CIVIL SVC. - BILL 2 the number of companies making wage tax payments in creased to 641. 2 million. So that gives us some feeling for the growth taking place within some of these SIC codes. The Mayor's Business Action Team has itself successfully assisted information 9 technology businesses to locate in the City. 10 These 17 companies project 1700 jobs over the next 11 3 years, with average salaries of $55,000 per 12 year. As an example of how fast this industry 13 moves, as this report was being prepared, Know It 14 All, one of the 17 companies, called MBAT to 15 inform them that they were expanding by an 16 additional 50 employees. 17 Now, as far as future projects are concerned, the firms that are close to signing leases that MBAT is working with could contribute over 1,000 City jobs within the next three years. Included within this group are companies located in the south and west United States, which are seeking a presence in the Northeast and are choosing Philadelphia over other cities. An innovative company headquartered in 185 /00 LABOR, CIVIL SVC. - BILL 2 Florida is considering opening a northeast office in Philadelphia. MBAT is working with real-estate brokers to locate a site for this company. And one firm recently signed a lease and MBAT continues to assist them with financing and employee recruitment training issues. There are other businesses located in Philadelphia that have been so successful that they are now expanding.
MBAT is currently working with three companies that want to expand, and these companies project to have over 750 jobs in the next three years. And, again, we have offered you attachments that list those companies. It's important that we understand -- one of the entities that was mentioned a while ago was e-Philadelphia and the Technology Alliance, but we want Philadelphians to understand that there is a whole network that has come together that has helped support our growth in this field. We have a vibrant technology community that fosters an environment of shared knowledge and synergy, and through this community, companies are assisted with business networking and employment attraction and retention efforts. 186 /00 LABOR, CIVIL SVC. - BILL 2 And in addition to e-Philadelphia, there's the Eastern Technology Council, PMA (the Philadelphia-area new media association), the Avenue of Technology, the Science Center Report of Technology Incubator, the Mayor' e-commerce Commission, and the Student Retention Committee. A study conducted at Wharton's field application project, entitled "The Mayor's Business Action Team and the New Media Industry," identified the creation of a local technology association as a top priority for the City of Philadelphia, and we have succeeded in that goal. And the reason I mention that is because it's important that we understand that this is such a fast-growing sector here. And many of the recommendations made by the transition team that has been in place is also -- there are efforts that are already going on to carry out some of the -- or to realize some of the recommendations that have been made in their report. Let me jump now to the schools. The Philadelphia region has over 80 colleges in Philadelphia, and Philadelphia is home to 25 degree-granting institutions of higher learning. 187 /00 LABOR, CIVIL SVC. - BILL 2 This enables Philadelphia to retain a supply of talented workers for the new economy. Universities and colleges have changed their curricula to incorporate courses in Internet and e-commerce. In September of '99, Temple University offered a degree in e-commerce. Other schools with new e-commerce departments and degree programs are LaSalle University's e-commerce Institute, Drexel University's Safeguard Scientific Center for e-commerce Management, and the University of Pennsylvania's Wharton Forum on Electronic Commerce. Academic institutions recognize the need to make business education relevant to the new economy environment, and they are responding. Again, this is important to understand because a lot of the companies coming here in the future will be doing it based upon these kinds of support systems that they see in place. In addition to e-commerce curricula, entrepreneur development centers are being created within the universities to address the business start-up needs of students and graduates. These 188 /00 LABOR, CIVIL SVC. - BILL 2 centers provide counseling about business plans, venture capital opportunities and infrastructure. Examples include the Drexel University Entrepreneurial Development Center, Temple University's Fox School of Small Business Development Center, and the Institute for Entrepreneurship and Innovation, and the Wharton Snyder Entrepreneurial Research Center. Now, you've heard comments earlier today about the need to try to keep students who are graduating from out-of-Philadelphia-area institutions in Philadelphia. Now, surely as we speak, many of these students are leaving. But the Philadelphia College Student Retention Committee of the Department of Commerce has been working with area universities and colleges to promote Philadelphia and expose all students to local business opportunities, thereby encouraging them to remain, live, and work in the City. The challenge has been to keep our 250,000 students who study at the area's college in the City after graduation. Now, how have they done this?
The Student Retention Committee and Temple 189 /00 LABOR, CIVIL SVC. ) Center. This event was first held last year at Drexel University and had 130 students from colleges in attendance, with 12 8 business plan submissions. And there's more 9 information in our testimony about that program. 10 Just a little bit more about the 11 carrier hotels and multi-tenant information 12 technology office space. Philadelphia's large 13 supply of older industrial and warehouse building 14 and Class C office buildings meet the criteria for 15 telecommunications facilities with large 16 floor-bearing capacities, high ceilings, and large 17 freight elevators. Information technology 18 companies locate their facilities along major rail 19 right-of-way's such as the infrastructure which 20 exists along North Broad Street. Landlords are 21 wiring buildings to accommodate information 22 technology businesses. 5 million square feet of carrier IT office space in the City of Philadelphia, and some of these buildings are: 190 /00 LABOR, CIVIL SVC. - BILL 2 401 North Broad Street, and this is Philadelphia's first carrier hotel. 2 million square feet has been successfully leased. Its successes has led to the development of a carrier hotel industry in Philadelphia. 440 North Broad. , will become another carrier IT office facility. You heard discussed here earlier 1500 Spring Garden, so I won't tell you any more about that. And also, at 46th and Market Street, the West Philadelphia Enterprise Center, which was the former WHYY building, now houses small minority and women-owned businesses, many that focus on e-commerce activity. There are other buildings that are being wired to accommodate information technology businesses, and they include: 833 Chestnut Street, 2401 Locust Street, 22nd and Arch, 1309 Noble Street, 801 Arch Street, and 3535 Market Street. So there are plenty of buildings that are poised and ready to be put into use for the type 191 /00 LABOR, CIVIL SVC. - BILL 2 of activity that we're discussing today. We've already the discussed Port of Technology, so I don't have to go into that any further. Now, for businesses that are coming into the City, financing is available through our standard loan programs that are administered by PIDC and PCDC. In addition, the Ben Franklin Technology Partners have a new loan guarantee fund which will also provide a very important service for young IT company, funds to guarantee loans from participating banks, such as Commerce Bank. Now, PIDC in a minute is going to discuss the peculiarities of applying these programs to this new economy industry because there are some real problems in connection with that. We've talked about the Keystone Opportunity Zone. And then the e-Philadelphia Technology Alliance has created a loan program designed to fulfill one of the industry's greatest financing needs, short-term working capital. The e-speed loan program was financed by $1 million from the 192 /00 LABOR, CIVIL SVC. - BILL 2 Delaware Valley Regional Economic Development Fund, and loans will range from 20,000 to $100,000. Creative financing programs for young entrepreneurs are being developed at the university level to encourage advancement of business plans. And, again, we have offered opportunities about those programs. The Ben Franklin Technology Partners has created the Young Entrepreneur Challenge Fund, and Drexel -- awarding matching grants to Drexel University and Temple University to allow resources to be available for the students and graduates of the respective universities to seek funding from their alma maters. Now, again, some information has been discussed in terms of venture capital funds. Let me just say that Safeguard Scientifics, Inc. and the Internet Capital Group are venture capital companies that invest heavily in Philadelphia-based companies. Comcast Corporation started a multi-million-dollar venture capital fund focused on the Internet-related technology field. 193 /00 LABOR, CIVIL SVC.
- BILL 2 There are investing companies involved in providing the infrastructure for the Internet and developing tools that promote Internet use, and we have referred attachments to this report, a whole list of venture fund capital companies, members of the Greater Philadelphia Venture Group. Now, it's important that you know about that group. It's housed in the Greater Philadelphia Chamber of Commerce, and GP provides networking opportunities for venture capitalists and entrepreneurs. We have put together some plans for marketing all of this activity in a way that will hopefully find Philadelphia's media focusing in on some of this activity in a more positive way than has been done in the past. I think at this point, let me just skip to what we need to do to add to the support system. The laws that govern the use of the Internet are still ill-defined, and in some cases, nonexistent. To compound the problem, electronic commerce and general information technology move much faster than any traditional models of business growth that we are used to. The laws 194 /00 LABOR, CIVIL SVC. - BILL 2 that work for traditional businesses may not work for online commerce. We need to evaluate which regulations are e-commerce-friendly and which ones need to be revised. Some laws may impose barriers to the growth of e-commerce and may impede e-commerce expansion. I mention that at this time because this is an area of work that we have to devote some serious new attention to, because we have not been dealing with it sufficiently. Now, much has been said about the digital divide, but the digital divide that exists in our public schools should also be addressed, and we should take advantage of our relationships with the IT businesses and encourage them to provide an opportunity where our students can learn and experience new technology. " It encourages members of e-Philadelphia to provide internships to public school students, and we think that this is going to be an important pilot for other similar kinds of activities. I think now I will go to Curtis Jones, 195 /00 LABOR, CIVIL SVC. - BILL 2 who has been addressing some of our needs in the commercial corridors. And this is an important area that we need to look at.
Mr. Traylor, before you proceed, Councilman Nutter, you had a question?
Thank you. Mr. Traylor, just a couple quick questions and then we have to get to Mr. Jones. Has the Commerce Department or the Administration made any determination about such issues as the impact of our tax structure and how it either encourages or potentially discourages these types of businesses from either staying in Philadelphia or coming to Philadelphia? Has there been any determination made about that?
No. The way we have been planning on coming to that issue is through the transition process. We know that there are a number of specific recommendations that have been made, and we will be presenting some testimony next week, when the Mayor makes his transition report. But I think for the most part, 196 /00 LABOR, CIVIL SVC. - BILL 2 Councilman, what we're going to be seeing is the need to establish a special task force that will be able to really zero in on these recommendations. I know that one of the concerns that the Mayor has is that of offering certain breaks or incentives in a disproportion way. In other words, the whole issue of offering these breaks to IT and e-commerce-related businesses where we have not done that in other business groupings. And so this is one of the issues I know that we're going to have to look at more carefully.
Okay. And I know that you had referred on a number of occasions in your testimony -- do we have -- are there copies of the testimony that you were reading from? You made reference on a couple occasions either to a transition committee or to transition team recommendations. Are they out yet? Has anybody seen them?
Do you know to who or where or -- 197 /00 LABOR, CIVIL SVC. - BILL 2
Yeah. I haven't seen anything, so. . . All right, so the response on the tax issue, whether it's broad or even the more narrow issue, for instance, there's been a lot of concern and complaint about the impact of the gross-receipts tax, for instance, on these particular businesses. The concern is proportionality and fairness, singling out one industry versus another. And do you know if the same is being looked at with regard to -- I think an issue has been raised about wage tax on stock options?
Yes. All of those issues have been raised in the transition reports, and I 198 /00 LABOR, CIVIL SVC. - BILL 2 think that -- I really think that what we're going to be looking at from the Administration side is a task force that is comprised of the Commerce Department as well as Revenue and the Budget Office. And then we certainly need to talk about what such a task force needs to look like for the rest of the government input as well as the private sector. So that those discussions can move forward.
Okay. I took, though, from your testimony that from the Commerce Department's perspective, there is not only a lot going on in this industry in Philadelphia, but a lot of opportunity, but maybe people don't know about it, or are there still other things that we need to do from a competitive standpoint? I mean, we love our region but we also have a city and we're a city and a county to be responsible for. And, again, I'm not an expert in this particular area, but one would get the impression that there is more going on in this particular sector of the business community in the areas outside of Philadelphia, and I'm assuming that's happening for a particular reason. 199 /00 LABOR, CIVIL SVC. - BILL 2 Have we made any determination as to why people are out in, what is it, the 202 corridor as opposed to, you know, Broad and Callowhill?
Well, yeah. And I think that a lot of that has come out today. I mean, you know, taxes, as you've mentioned, are obviously a problem, but then there are quality-of-life issues, and those have been raised. I think the media, by the way, Councilman, has done a very good job of raising all of the reasons for there not being a certain level of growth here in Philadelphia. I think what we're anxious to do is show why there are some, you know, some very positive things here that should enable us to do a better job of attracting these businesses into the City. It's only recently, for instance, that you've heard talk about the fact that, you know, that so much of this activity is being carried out by young folks. And so -- and it's the City that is attractive to young people, but you never read about much of that aspect of this until very 200 /00 LABOR, CIVIL SVC. - BILL 2 recently. So that's something that we're stepping up our activities around so that we are getting to more of a those young people, because they are the ones who are the new CEO class that we need to be catering to. And I think also -- I have a theory, and we've been discussing it internally in the Commerce Department, that we have not done a sufficient job of interviewing those businesses that have made decisions to come into the City to see exactly what has been involved in those decisions and to see whether are not within those decisions there's some stuff that is salable, that can help us draw others. In other words, despite the wage tax, they have chosen to locate here. And so we just need to be clearer about what some of the thinking is that has gone into those decisions.
There's been a lot of discussion and a lot of it has been very 201 /00 LABOR, CIVIL SVC. - BILL 2 similar in nature. There have been a number of people who testified today who speak to the issue of young people being more attracted to the City, but on the negative side, some of those same folks were saying that people have chosen to relocate out to the suburbs or will go out to the suburbs to do business because immediately upon leaving the City, you get an increase in your salary by virtue of the fact that you save on the wage tax. You save 5 percent, 10 percent, whatever it is. I think it's a little bit under 5 percent. You don't hear many people talk about the fact that there's been a five-year plan and there's a five-year plan going forward that will reduce the wage tax. You don't hear much discussion about the fact that, yes, we understand that we are one of the highest taxed cities in the nation, but we are making efforts to bring those taxes down, although maybe not as quickly as we would all like it to be, but it is happening. I get into this debate with my friends to have moved to Washington Township, South Jersey, day in and day out. They have a lot of different reasons for moving and some of them I 202 /00 LABOR, CIVIL SVC. - BILL 2 just won't repeat because I think it's just too ridiculous for those folks to have their head buried in the sand about what life is really all about and what the real world is all about in terms of classes of people and colors and shapes of eyes and everything else that chase people away. But no one ever really discusses with them until they find themselves out there in the suburbs or out in South Jersey that although you may save on the wage tax side, although a lot of those people don't even do that 'cause they still continue to work here. The fact of the matter is, when you move out of the City, the convenience of living in the City where you don't even need to own a car doubles once you move outside the City boundaries 'cause now you need two cars -- one for you and your wife. And if you have a teenage son or daughter, now you need three cars. It's like the Chinese menu, you know, you get column A and column B. And I always use that as example. If you compare column A, which is suburbia versus column B, which may be city life, at the end of that column, when you factor 203 /00 LABOR, CIVIL SVC. m. And I don't know if that's your job, I don't know if that's your job. I think it's more our job, that we have to start some public relations to say to people, Yep, you got a wage tax, you're right, but you don't need the two cars and you don't need this and you don't need that. And if you save some of that money and you're really fed up with the public school system and you waive some of the savings in the real-estate taxes, in the cost of the vehicles, and every time you need a quarter pound of ham, you got to drive 204 /00 LABOR, CIVIL SVC. - BILL 2 ten minutes some 7-Eleven that's going to charge you eight bucks for the same quarter-pound of ham you can buy in the City for four bucks, that maybe you can put your son or daughter in a private or parochial school if you really choose not to send them to public schools, because it is more advantageous to live here. 'Cause I also think the other social side of this is, when you're children are raised in a city, with all of its faults, they're raised in a real-world environment and they're more prepared than these people who come in from the outside. It's kind of like a social statement I'm making here because I keep hearing this. And we're working to get it down, but we offer more advantages for those people who want to do business in the City and live in the City aside from all those other issues. And I think cumulatively, when you look at the package, it makes more sense. My friend is going out of his mind who's out there not even six months. He can't afford it anymore.
He had a nice house in South Philadelphia, $800 a year in real-estate taxes -- he's now paying 3300. And he 205 /00 LABOR, CIVIL SVC. - BILL 2 had one car and he's now up to two, and he's working on three. So, I mean, those are the things that I think when we do maybe a report and we talk to people, we also want to talk about the living conditions and the cost of living, the financial cost of living in the City versus suburbia. And, again, that's more of a statement, I guess, 'cause I get frustrated when I keep hearing it. It's bad, but I don't think it's as bad as we all make it to be.
Well, Councilman, you certainly would have been a good addition to our internal discussion that we held while we were preparing for this report, because so many of the points that you made were points that different ones of us were trying to make. But to answer the question of, do we have responsibility for getting that word out? The answer is yes. We have -- the Commerce Department sees as a part of its job to try to find ways to effectively market that information that you were just going over and to find unique ways, in fact, to get people's attention to these 206 /00 LABOR, CIVIL SVC. - BILL 2 differences that exist. The old nesters, for instance, out in suburbia seem to have gotten the message.
You know, I often -- and I was speaking to one of the reporters outside and I talk to my friends. You know, I had these conversations. They don't invite me to their houses anymore because they're so tired of hearing me. But, you know, I remember years ago when you were traveling west on the Schuylkill Expressway, there used to be a sign out near Conshohocken somewhere, and it said, "If you lived here, you'd be home by now" or "if you lived here, you'd be home by now."
Well, I think we should start reversing that because I listen to KYW in the morning -- and this is not a plug for KYW, I happen to listen to it, but -- and this 207 /00 LABOR, CIVIL SVC. - BILL 2 friend of mine that I keep referring to, when he moved out there, I told him I was buying him a cell phone for a house-warming gift. And he wanted to know what the purpose of that was, and I said, "Well, at o'clock in the morning, while 7 I'm shaving, I can keep you company on the cell 8 phone while you're stuck on 42." (Laughter.)
So I really think that we might look to invest some money in really public advertising about not only is it a great city to visit and come to the cultural institutions and be a tourist, but it also is a great city in which to live. And I think that when we repopulate, the additional tax revenues enables us -- gives us the tools to start talking about other types of reductions in taxes. And it kind of goes -- I think one has to go with the other. You just can't do one without considering the repopulation side of it. I think they have to go simultaneously. And maybe we need to look to put some billboard signs on existing billboards on either side of the Ben Franklin and Walt Whitman Bridge that says, you 208 /00 LABOR, CIVIL SVC. - BILL 2 know, "If you lived in Philadelphia, you'd be at work already" and vice versa on the way home. And that may sound crazy to some people, but I know that most of my friends who moved there are living in denial. They just won't say "you're right" yet. Thank you.
Good afternoon. My name is Curtis Jones, Jr. I'm President and CEO of the Philadelphia Commercial Development Corporation. Councilman Clarke, I'd like to first applaud you on your brilliance in moving the Commerce cluster to the end of the testimony as opposed to the beginning, and to say to you that by doing so, we heard a lot of good testimony. And by doing so, we kind of heard things that we probably would not have heard otherwise. So your strategic move of us to the back was brilliant.
He was being threatened by the other folks. 209 /00 LABOR, CIVIL SVC. - BILL 2
But in all honesty, a lot of you all work for government and you had to stay here.
My role -- and I will attempt to be very brief -- is to say that today I heard a lot about new attractions of new businesses. My role will be to also try to counterbalance that with the retention of some businesses that need to be aware of the e-commerce issue as well. First of all, I'd like to thank John Sorrell, who is still with us today, for knocking on my door and bringing me into the new economy's committee to hear about some of the works that they've done which preceded this hearing. And it was fascinating to find out then as we went over to Temple to meet with the Fox School of Business, and I know Temple is going to be here testifying today about some of the things that are going on. As a result of those meetings, I had an opportunity to go down to hear about the digital divide issue in Wilmington. They did an all-day 210 /00 LABOR, CIVIL SVC. - BILL 2 conference. And then to go up to hear the briefing that Temple put on for the legislators and the Commonwealth of Pennsylvania, anticipating what this e-commerce thing was going to mean. And it was wakening to hear that the prediction is that e-commerce will dominate the legislative agenda for the next ten years. We're talking about a lawless situation currently that we have not put our arms around by way of how to govern this thing and this phenomenon. And what I sense out of all of the digital divide research that has been done is that the mom-and-pop shops that are in existence on our corridors, and we have 300-plus commercial corridors in the City of Philadelphia, of which maybe 50 percent of them even have a computer, and then of which maybe 10 percent of them are on line. And of that 10 percent, maybe 2 percent do e-commerce -- actually buy, trade, sell, have a Web presence where you can plug in and get something from them on line. And that statistic is frightening. It is frightening, Council panel, because if you think about it today -- not in the future, today 211 /00 LABOR, CIVIL SVC. - BILL 2 -- if you're not on e-commerce, you cannot do business with the government, the federal government right now. All of the procurement opportunities that come out of the commerce business daily right now, small businesses can't take advantage of. Today, the Commonwealth of Pennsylvania is moving in that direction so that if you are a pencil, stationary distributor in one of our commercial corridors and want to respond to a bid, you cannot. The University of Pennsylvania today will not deal with businesses that are not on line and do not have e-commerce capability. So we're not talking about some faraway, futuristic kind of digital divide that are impacting small business; we're talking about today. We feel that -- I had a company come in, and Councilman Nutter has left and it's in his district, but he is very aware of the company that is a -- and I won't use their name. They are a small card and gift shop that have been around since I shopped in that card and gift shop as a little boy. Finally, this is the third generation 212 /00 LABOR, CIVIL SVC. - BILL 2 of this family-owned business, they have final found way to get African artifacts imported to their facility, and they have some beautiful figurines that from come from the mother country. Yet because of the changing demographics, a lot of the successful people that have moved away on 42 that you talked about so eloquently won't come back to the neighborhood to look and find that they have some treasures right in the old neighborhood. Well, the simple answer for his dilemma is a locationless business, to find a way to get onto e-commerce, to be able to tap into those people out in Jersey so that they can still shop from the old neighborhood. And I will I would replicate that example by people that are on Passyunk Avenue, which is another one of our commercial corridors. There's some things in Philly that you can't get anywhere else.
And all you have to be is a college student and move away to Utah and go to school, and you will start to miss things like cheese steaks and home. But with the Web, with the Internet, there is a way that we can do that. 213 /00 LABOR, CIVIL SVC. - BILL 2 I have another business, and I won't name the name, but they're into hair-care products. And the elder in that business is in a dilemma of secession planning. His grew up and they wanted to be investment bankers as opposed to developing the hair-care products that have made them successful. Well, he's, in the morning, actually pumping out hair-car products, actually putting it in a jar and casing them and then making the calls at noon and then making the deliveries in the evening. Well, there's some bright folks in Temple and other universities right here that could package his product, put it in a way that he could be on the 'Net the next day and be overwhelmed, inundated with business that he would use UPS to drop-ship that to a consumer the next day. But the connections, Councilman, aren't being made there. " Well, something old are those companies that have existed through the hard times in Philadelphia and are about to turn the corner into 214 /00 LABOR, CIVIL SVC. - BILL 2 the new millennium and possibly find an entrance ramp onto the Internet. Something borrowed is some of this technology and some of the resources that are from Temple and the universities there. Something blue can be the blue sky if we put this thing together and kind of make the universities work with the existing businesses and get some of that young talent together to make Web pages, to make e-commerce a reality for some of these old businesses. And I'm saying to you that as we move forward to attract some of these new clients to the Philacon Valley, as they say, we need to find the entrance ramps to the Internet for some of the older businesses or we're going to lose them. And one of the things that we have done -- and I'd like you to bear with me for another minute while we bring up some charts, and I used old technology because I didn't want to use any of the new stuff. I used some boards. But if you bear with me, and John's going to work with me on doing the light show stuff currently. Currently, if you note, we have 215 /00 LABOR, CIVIL SVC. - BILL 2 commercial area specialists that service the 40 corridors that we're contracted to use, but in this case, we're still using inefficient means to contact our businesses. If I sent a person out, at best, they're going to meet five or ten business persons and help them to improve their bottom line. And they leave PCDC, they drive, they waste more time -- you talked about the cell phone scenario. Well, they go out to Passyunk Avenue and they meet with five or six business people that wanted to get involved and wanted to do some things to expand their business. Next board. What we'd like to do is to provide the Internet access in an efficient manner to people in the neighborhood corridors. What we would like to do is work with Vista and organizations that are taking old computers that are from the federal government, rebooting them, rebuilding them, and on a very low cost or even give them to the merchants on our corridor to enable them to develop Web pages and Web sites to be able to get some valuable information -- procurement opportunities, distance learning, e-mail, payroll. We would like to buy and license 216 /00 LABOR, CIVIL SVC. - BILL 2 some of the software, whether you're talking about Quick Books and others, to be able to afford to have that at the mom-and-pop merchant level. Well, we can batch that technology to pull and push technology and make it affordable to them. And what that does is allows a mom-and-pop shop right here in Philadelphia, on Passyunk Avenue or Germantown Avenue, to be able to compete with the big firms and to offer a bid just like a Fortune 500 company anywhere in the world.
And if we want to make companies competitive, then we better find some entrance ramps onto this Internet highway. And I'd like to give you an analogy that what this Internet thing is, is like at the turn of the century, when we were connecting cities to railways by railroads. It is just that exciting, just that impactful, that for the first time, a small home-based company can compete with a large firm, and on the Internet, he or she is just as big as the big dogs. So I'd like us, as we think about what our strategies are, to not forget the mom-and-pop companies and not to forget the businesses that 217 /00 LABOR, CIVIL SVC. - BILL 2 have been paying the taxes over the years as we attract the new e-commerce firms. And our strategy at PCDC is going to be to try to accommodate them. Thank you.
Good afternoon. My name's Jim Flug and I'm Executive Vice President of PICD, in charge of the lending program, and I was asked to be the "cold water" in this presentation and tell you about some of the problems that e-commerce companies present in terms of our traditional lending programs. Mr. Hankowsky -- first of all, let me say that Mr. Hankowsky extends his regrets that he couldn't be here. He's in Washington on business. com Internet, or "companies of the new economy," as they are called, present unique challenges to fixed-asset lenders such as PIDC and the banks. And actually, only one of the presenters earlier today talked about access to capital as being a significant problem, and that was the young woman from Black Cyberspace. I 218 /00 LABOR, CIVIL SVC. - BILL 2 believe she was the only one that really addressed access to capital. However, we consider it a significant issue. The e-commerce companies present a unique challenge, as I said, because they seldom fit the requirements of our existing loan programs, which are generally provided by State and local government funding. An e-commerce company, for example, is generally a start-up or a relatively young company or at least many times is. It has little or no collateral. They lease many things, including equipment. They lease the space that they occupy in many cases. And they're growing rapidly, their revenues are growing rapidly, but they show no net profit. And finally, it may not seem like a problem, but it is in terms of at least the federal funding is that they add primarily high-tech, high-paying jobs. When you have federal funding that seeks to create low- and moderate-income jobs, it does become problematic. Characteristics -- as I mentioned -- these are all characteristics, which, as I mentioned, create problems for our traditional 219 /00 LABOR, CIVIL SVC. - BILL 2 loan programs. For example, in 1999, in terms of our two most significant loan programs -- when I say "most significant," I'm talking about in terms of the dollars of loans generated or the Pennsylvania Industrial Authority's state-funded program, known as PITA, in which we did loans 8 for $18,645,000. Also the HUD 108 Loan Program, 9 where we did 6 loans -- this is a federal-funded 10 program -- for $9,540,000. E-commerce companies 11 could not have been funded using either of these 12 two sources. 13 In the case of PITA, they generally 14 fund a company which is owner-occupied and cannot 15 lease, which, again, eliminates many of the 16 e-commerce companies, they look at manufacturers, 17 not high-tech commercial companies, and they look 18 for companies that have been in business showing a 19 profit for at least three years. And, again, this 20 excludes many of the e-commerce companies. 21 They also look for adequate collateral. 22 And, again, given the fact that they lease many of 23 the assets they use, this also excludes many of the e-commerce companies. The HUD 108 Program is subject to the 220 /00 LABOR, CIVIL SVC. - BILL 2 CDBG regulations and the public benefit test, which requires that at least 51 percent of the jobs that are created be low- and moderate-income jobs. As I mentioned, the jobs that are very often created on -- the good note is that by the e-commerce companies, there are high-tech, high-paying jobs. But for purposes of CDBG funding, that's not the kind of jobs that government is looking to create. Also, in terms of the HUD 108 Program, they look for specific loan-to-value ratios for collateral. As I mentioned, collateral is generally a problem with e-commerce companies. They also look for owner-users. The program is geared to owner-users of real estate and equipment, as I said, generally not e-commerce companies.
In the final analysis, low-interest loans to such companies with millions of dollars of venture capital readily available may not be the most meaningful thing government can do, and we heard things this morning about things like tax policy, wiring buildings with fiber optics and high-speed Internet access, and getting out the 221 /00 LABOR, CIVIL SVC. - BILL 2 Philadelphia message. However, we are working with the Commerce Department on looking at sources of funding for seed money for Internet or e-commerce companies. And toward that end, we've had a number of meetings with the Science Center, and we think a partnership with the Science Center would be an appropriate one, certainly since they already have existing relationships with the major universities who are dealing with the technology that we're talking about here. And that's the end of my limited remarks.
Good afternoon, City Councilmembers, colleagues, members of the business community, and fellow citizens OF Philadelphia. My name is Michelle Davis. I am the Project Manager of the Community Services Network. The Community Services Network is an Internet-based project of the Mayor's Office of 222 /00 LABOR, CIVIL SVC. - BILL 2 Community Services. It is also supported by the Mayor's Office of Information Services, and we also receive technical support and assistance from Lincoln University Urban Center and Temple University Center for Social Policy and Community Development. The major funding source for this initiative is not the City of Philadelphia, but was the United States Department of Commerce's Telecommunications Infrastructure Assistance Program, which awarded the Mayor's Office of Community Services a grant of approximately $600,000 in 1997. The award was granted to the City to develop, test, and evaluate a health and human services information network designed to benefit consumers and providers of health and human services in North Philadelphia. Since that time, the Community Services Network has established itself as a premiere Web site for information about health and human services in the City of Philadelphia. CSN is the only site of its kind that makes its on-line content wholly available in English and Spanish. The kind of information that can be accessed on 223 /00 LABOR, CIVIL SVC. - BILL 2 our network ranges from day care, after-school programs, job training and vocational programs, substance-abuse programs, college scholarships, first-time home-buyer programs, and home improvement loans, just to name a few. There are over 140 categories of information listed alphabetically and by type. CSN provides information on the agencies, programs, services, and benefits available in Philadelphia, regardless of their parent organizations. City, State, federal, regional, nonprofit, and community-based resources may all be accessed through the network. In addition to providing an Internet-based information infrastructure with high-quality service and benefit content, CSN has also developed an interactive forum to allow providers of services to communicate on line through instant messaging, chat rooms, message boards, free e-mail, and public and private calendars. In today's almost dizzyingly fast-paced high-tech environment, it truly pays to be a visionary, forward-thinking, progressive, and 224 /00 LABOR, CIVIL SVC. - BILL 2 proactive. It pays for consumers and businesses, it pays for students and educators, it pays for parents and children, and it pays for citizens and government. It pays to be adaptive and proactive. To swim with the tide of technology is to get somewhere fast. To swim against it is to go nowhere and possibly drown. Time and experience has proven that yesterday's experimental technologies are today's state of the art, and today's state of the art is tomorrow's standard. Tomorrow's standard might be in next week's recycling bin. The pace and magnitude of change brought on by today's exponentially advancing information technology industry is building unprecedented wealth, progress, and opportunity to communities in our region and across the nation. My hope and optimism as a native Philadelphian, a dedicated City resident, an employee of the Mayor's Office of Community Services, the lead anti-poverty agency in the City of Philadelphia, is that Philadelphia participate fully and cooperatively in the social and economic 225 /00 LABOR, CIVIL SVC. - BILL 2 opportunity to ensure that the City has its fair share in the growth, wealth, and progress provided by this industry and this movement.
Aside from addressing the potential economic impact IT hold in terms of jobs and economic growth for Philadelphia, my primary goal in providing testimony to you today is to illustrate the critical importance and impact information technology, especially the impact Internet-based technology will have and is having on the health and human services industry, as we know it. This trend is impacting providers in both Philadelphia and across the United States. " My testimony will cover three major IT initiatives that would have, in my opinion, the most promising and profound impact on consumers and providers of social services in Philadelphia. By bridging the digital divide and riding the wave of the technology tide, the potential is especially promising for those services directly administered by the City of Philadelphia, such as those services offered by the Department of Human 226 /00 LABOR, CIVIL SVC. - BILL 2 Services, the Department of Public Health, the School District of Philadelphia, the Department of Recreation, Office of Emergency Shelter and Services, Police, Prisons, Family Court, just to name a few. The three major areas of IT initiatives I will discuss are: 1. Internet, Intranet and Extranet application development add and work flow integration; 2. Data warehousing and decision support systems; and 3. Internet access and online content development. First, Internet Intranet, and Extranet application development. It is a commonly accepted assumption in government that improved coordination of social services to children and families in the City of Philadelphia will result in improved outcomes for children and families. It is also believed that improved coordination will provide a sound infrastructure to fiscally benefit the City by reforming system policies which govern the administration of services by providing program linkages, decreasing gaps in service, and reducing service duplication and fragmentation. 227 /00 LABOR, CIVIL SVC. - BILL 2 Streamlining systems, coordinating and consolidating core business functions are areas that could potentially reduce service duplication, foster more effective transactions, improve customer satisfaction, and result in a higher return on investment of City dollars. The City has shown interest in utilizing information technology as a vehicle to increase the level of services to citizens and as a public information forum. " As a starting point, the Street Administration introduced Philadelphia to "Fun, Fit and Free," a public-domain Website implemented by the City of Philadelphia. Both the public and the media embraced the Web site. Government Internet presence has proven to be an effective tool for citizen service, outreach, and proactive public relations. It would be beneficial for the City to build upon the early success of Fun, Fit and Free by dedicating resources to further support digital government in the City of Philadelphia. There are 228 /00 LABOR, CIVIL SVC. - BILL 2 three existing major Internet initiatives that are ripe for further development and coordination. They include the City of Philadelphia Web site, the Community Services Network, and the Fun, Fit and free Web site. In addition, there are other disparate Internet-based, City-affiliated social-service initiatives that might be coordinated with the existing major initiatives, such as the Department of Recreation Web site, the various DHS Web sites, the Safe and Sound Program, America's Promise, the Service Utilization Monitoring System, a project of the City's data policy group, the Homeless Information System, just to name a few. We strongly recommend the City seriously consider the value of these existing initiatives and dedicate resources toward furthering and coordinating their program goals. Each day, the Internet is proven to be a lucrative for bringing people and ideas together in a productive and cost-effective manner.
The City's growth through development on the Internet must reflect the government's goals to achieve a seamless system for citizen services. 229 /00 LABOR, CIVIL SVC. - BILL 2 Consolidating the three major Internet initiatives and coordinating them with other Web-based projects would result in the launch of a cohesive Internet information infrastructure for citizen services. Initiating this strategy would further the City's agenda for a more fiscally healthy city and physically and socially healthy residents. The programmatic possibilities for consolidation and coordination and the available framework for utilizing Web-based business solutions offers an unprecedented opportunity for system reform. In many cases, the core business functions that are commonly duplicated across the City's various health and human services providers, such as outreach, intake, application for services, case management, discharge, these functions could be consolidated across departments, thereby preventing the cases we hear about in the media, such as families with five and six different case workers, five and six different application procedures, five and six different agencies and systems to navigate. In addition, it is possible to begin to 230 /00 LABOR, CIVIL SVC. - BILL 2 uniformly measure outcomes across departments. The Mayor's Office of Community Services, as part of their results-oriented management and accountability system, uses a scale across programs to measure the effectiveness of a variety of services provided to MOCS customers. A similar scale could be implemented to standardize reporting across systems and departments. Today, there is no common or standardized set of measurement tools to determine the effectiveness of services within and across the City's health and human services providers. Although technology cannot be the driving force behind social-service system reform, the methods by which systems are reformed and the possibilities for innovation are dramatically increased by new technologies. Through effective implementation of Internet solutions, digital government in Philadelphia has the potential to virtually transform a fragmented system for health and human services into a coherent, coordinated and proactive model for services. The second issue I wish to address is data warehousing and decision-support systems. 231 /00 LABOR, CIVIL SVC. - BILL 2 Some of the City's health and human service providers have highly-developed internal information systems. Others have operating Web sites and yet others utilize no computer-based information technology whatsoever. There are no existing systems that coordinate information such as individual family or even aggregate data across departments for the purpose of coordinating services, providing public information, or offering a strategic view of what the experiences are of children and families receiving services from the City of Philadelphia. We are currently unable to assess outcomes, monitor performance, and evaluate the needs of a social service system in its entirety under the current system infrastructure and lack thereof. There are a variety of IT solutions, such as data warehousing, that the Managing Director's Office or select groups of departments might implement to begin to better assess the performance of the current system. A well- designed and developed data warehouse and decision support system could equip the City with the tools to collect longitudinal, individual, and aggregate 232 /00 LABOR, CIVIL SVC. - BILL 2 data. We could evaluate data geographically, by service, age and more. It is possible to evaluate both the successes and failings of the current system by measuring where we are achieving our goals and where the need for modifications and improvement are. We could detect trends early on and proactively take preventative measures.
The concept is similar to the geographic criminal activity mapping tools now utilized by the Police Department for detecting and preventing crime. Envision for a moment a health and human service system that recognizes a region and a city in which a higher-than-average rate of low-birth-weight infants are born. Or imagine being able to detect a school or block in which a high rate of lead poisoning occurs. Picture looking back over time at a graduating class from the Philadelphia public high schools and determining who in that class has encountered our prison systems, DHS, or the Coordinating Office of Drug and Alcohol Programs. Imagine looking back at students who graduated from our magnet schools, how many went on to college. How many of the 233 /00 LABOR, CIVIL SVC. - BILL 2 children in our immunization programs stayed healthy. This concept may sound a little overwhelming, futuristic, Big Brother-ish even. However, the goal is not to breach customer confidentiality or make government bigger or more intrusive. The goal is to have a smarter, more responsible, and more responsive government that is able to make well-informed, strategic decisions. The third issue I wish to address is Internet access and content development, on-line content development.
Excuse me. Miss Davis, how much more do you have? The reason I ask you is 'cause the stenographer has been here since 9 o'clock a.m., and we are taxing her.
Did you submit your testimony for the record. I promised her an hour ago that we were almost done.
Okay. Well, in conclusion, I'd like to say that City, State, and federal government can either choose to be innovators and trailblazers by riding the tide of technology, by supporting IT-friendly policies, procedures, incentives, workforce development, public school curriculum modifications, updated civil service rankings, employee and citizen access, and much more. Or our government can choose to swim against the tide of technology. Thank you.
Thank you very much, and we'll make sure it's in the record.
Thank you very much. I will be very brief. I just wanted to make a couple of points that I believe may not have been made today. Although I heard a lot of the testimony, I did not hear all of it. I think talking about the new company versus the old economy, and we know 235 /00 LABOR, CIVIL SVC. - BILL 2 the old economy. We know the old economy in Philadelphia very clearly was manufacturing, it was shipbuilding, it was steel, it was making clothing. Those economies do not exist anymore, and we need to recognize that the new economy is about also about jobs, but it's about different kind of job creation, and that job creation has to do with not just Internet technology but the kinds of businesses that forge Internet technology. And I don't want to leave out what's very important to me is the manufacturer of the entertainment business, which, I believe, has become an important industry in Philadelphia and one which I encourage for the future. You will have the new economy develop in this city with or without the help of City Council. It will be on certain different levels, depending on what you do to encourage, whether it's lowering taxes, whether it's providing free property for a year for new businesses -- which I think is a wonderful idea -- or lowering of business privilege taxes, gross-receipts taxes. All of those things are critical. 236 /00 LABOR, CIVIL SVC. - BILL 2 But what must be recognized -- and I think that this is really important -- is the inherent talent of Philadelphians who come here and some of whom go away and some of whom want to come back and make a real mark in Philadelphia. We can encourage them to the extent that they come here and they spend a little bit of time and they do a little bit of business and they're discouraged by the ability to then really realize their dreams and create something that they can put their name behind for the future and then go away. We need to help them with their plans. And some of these people are, for example, Will Smith. It's an enormous opportunity for this city to have a great talent like Will Smith, just as we own the idea of having Bill 18 Cosby, and now we will own the idea of having a great writer, director, Night Shyamalan. These are people -- just as people in the music industry have been very important, and also add to this new economy of our city, because from Marian Anderson all the way up through Mario Lanza and finally through to groups like the Roots and Boyz II Men, who have -- actually, the Roots, you've read 237 /00 LABOR, CIVIL SVC. - BILL 2 recently in the paper, they are coming -- people in the hip-hop and blues and music industry are coming back to Philadelphia from California. We need to help those people to want to stay here, not to come here and make a record, not to just come here and make a movie but to build their businesses here and to be able to put their names behind it. They're interested not in just what I think is really critical, which is taking old buildings and making them Internet-ready, but bringing businesses will go there, that's very important, but others are interested in building brand-new ventures that will be landmarks in our city. Very shortly, I believe on Thursday, you'll be introduced to the program at -- hopefully at Broad and Washington that Will Smith is planning. We hope that you will look at those kinds of opportunities for the City and recognize that that will attract other businesses. I know that the Mayor's Business Action Team is working with a company in New Jersey that's coming here that works in this Internet 238 /00 LABOR, CIVIL SVC. - BILL 2 industry and in technology and would like to be located in place like that were it built now. The sooner that these things get built, the more that we draw those kinds of businesses from the suburbs to come, from other cities, to come and center in Philadelphia with its great geographical location in the center of the East Coast.
And so the other aspect of it, which I think is really critical, is the education aspect, because in a program like this, not only are we going to be doing television, film, music, and all of the technology from the development of these projects through the post-production of these projects, so that all of these workers come here and work here and pay their taxes to whatever level they happen to be at at that time, but we will also be teaching them. And there is a program that is what I think is really critical, where we will be working with the High School for Creative and Performing Arts, the University of the Arts, Temple University, which is one of the top five film schools in the country, Drexel University, which is about to hire as its new dean of the Nesbith 239 /00 LABOR, CIVIL SVC. - BILL 2 College of Design somebody from the film industry in California, which is an enormous opportunity for us. And then in these kinds of programs, we will actually be physically doing the training of these college, university, and high school students from all over the City in this location to learn that technology, to be trained on the site at a location like this, and then to be encouraged to stay because they will be hired. Because what this is all about is about jobs in Philadelphia. Thank you.
Thank you. You're correct in speaking of the industry. I understand Bruce Willis is coming back?
Unbelievable, it's unbelievable. He has actually -- it's unbelievable, he's coming back.
He'll be in town called 240 /00 LABOR, CIVIL SVC. - BILL 2 "Unbreakable" that reunites him with Night Shyamalan, who wrote and directed "The Sixth Sense," which is the tenth highest-grossing film in history. He's coming back to make a film with Bruce Willis, which is called "Unbreakable," with Bruce Willis, Samuel L. Jackson, and Robin Wright-Penn. And if we nurture this kind of talent, there will be more.
All right. And it's going to be filmed in Councilman DiCicco's district?
Where it's all happening -- on the east side. I just want to thank you for all of your time and effort and energy you put into the -- into putting Philadelphia basically on the map with regard to the film industry. Your reference to a possible TIF that will be introduced on Thursday, there's some -- we're still having some problems with some of the financing aspects of that. I'm not certain if that will be introduced, but don't let that discourage you. There are some things that we still have not been able to satisfy in terms of 241 /00 LABOR, CIVIL SVC. - BILL 2 some of financings that are being brought to the table by the developer. We are still going to make every effort. I mean, I want it to happen. I've been working with this for the better part of the year. We still have about 48 hours to go but, you know, you know, if it doesn't happen Thursday, don't think that that means that it's a dead deal. It's just that something that may be temporarily set us back, but. . .
Not to get into all the details 'cause I'm really not prepared to do that but, you know, we had something that we wanted to see happen on Market Street, and Disney would have brought a lot of technology with the DisneyQuest. But as I'm learning more and more every day, development is a very iffy thing at best. There are some things that we have done. I think we've done a lot of things to try to make Eighth and Market work and still today, nothing is happening, although I'm a little bit more optimistic this week than I was two weeks ago that 242 /00 LABOR, CIVIL SVC. - BILL 2 we might still be able to salvage that deal.
Well, just the one comment that I wanted to make is that timing is of the essence for this project because we have a tenant that drives the project and we will lose this tenant.
Fox, Fox. Yep, I'm well aware of that. Thank you, thank you.
Thank you all. Thank you very much. We have one last witness on our list. Fredrick Murphy, from Temple university. (Witness comes forward.)
It's a pleasure to be the guy with the broom that follows the horses in the parade. Basically what I want to talk about is not the Internet or what we currently call "the new economy," but how do you create the new economy? And the Internet is just one of many waves of technology. And really what is high-tech? It's the latest good idea that has the power to change the 243 /00 LABOR, CIVIL SVC. - BILL 2 way we do business and/or live our lives. And I've listed a whole series of examples here, and these are all high-tech, and I want to illustrate one of those examples. It's right here. I'm probably one of the very few people that draw a pistol.
It's real, but it's not legally a pistol anymore, because it's a --
Now, what makes this interesting is that this was produced by the first person to use interchangeable parts. That revolutionized manufacturing, okay? And I've listed a whole set of others. Railroads revolutionized the way people got together. Manufacturing methods revolutionized the way things were put together and lowered the cost. Electric power has changed our lives. And the automobile assembly line has given us even cheaper products. Now, if you turn the page, you'll see 244 /00 LABOR, CIVIL SVC. - BILL 2 where these things were done. Interchangeable parts - (unintelligible) Valley, Connecticut. Railroads - Baltimore and Philadelphia. Electric power - New Jersey. Manufacturing methods - Philadelphia. Automobile assembly line - Detroit. Now, notice that two out of these five innovations that I've listed, or new technology events, came from Philadelphia proper. And if you've ever seen the book The City of Firsts, A Complete History of the City of Philadelphia, from 1925, you know, this is a city where the action was. So it's possible to bring the action back. Now, why is Philadelphia not a high-tech center now? Well, there have been individual failures. Baldwin Locomotive is a classic of not recognizing the technology change and then being left behind. Other companies just missed the way in which corporations reorganized and operated, and they missed the consolidation of things like the food industry. Changing economics. This was the largest city at the time of the American Revolution. The Erie Canal gave the midwest market to New York City. Railroads helped 245 /00 LABOR, CIVIL SVC. - BILL 2 Philadelphia come back and made this a light- manufacturing center. Highways have caused people and businesses to move out of the city. We have structural problems structural, and the structural problems our taxes, schools, and the labor environment. Now, how do you get in a situation where you can catch the next high-tech wave? Basically, chasing the Internet is something we have to do, but it also is the case that we're always going to be second to Silicon Valley. So how do you become first on the next wave? You look at the two important innovations that are creating the technology waves of today. First, research that creates new industries has coalesced around universities and government lands. Stanford is the cause of Silicon Valley. MIT is what made the stuff happen in Boston. The next critical ingredient was venture capital. This has really developed as a formalized industry only very recently, and this is what continuously spins off the new businesses. Now, with university-centered research, why does it move there? First, federal and 246 /00 LABOR, CIVIL SVC. - BILL 2 corporate dollars go there. Second, it's a low-cost and low-risk environment to try ideas. Third, it's efficient in information structures. If you've got a weird technology question, you can walk down the hall or to another building and get the answer. And there's still another factor. Corporate research labs aren't the same thing. Corporate research labs develop new products in the corporate product line; they don't come up with the new innovations that are transformational anymore. Okay, what has Philadelphia done to develop this? Instead of going for government labs, we've gone for funding of shipyards and deeper channels, rather than things that will lead to the high-tech future. And it's failed to manage the universities as economic-development assets. With the private universities, the trustees, to a great extent, were treated as noblesse oblige and didn't focus on what these universities were about. The State universities are treated as teaching factories by the politicians, not as economic-development agents. 247 /00 LABOR, CIVIL SVC. - BILL 2 And we need to change that. And, lastly, our largest foundation spins on a lot of half-baked idea around the country rather than developing the human capital for the ideas they supposedly prize in Philadelphia, okay?
Now, the venture capital markets. Consequences of venture capital are that now the value of ideas goes to the inventor and the venture capitalists, not to the existing corporations. Before if you came up with an idea, you typically had to go to a company that made a product similar to that and sell the idea to them, okay? New businesses can now knock off old businesses much more readily. C. revolution and those two companies had the assets to do it. Another factor is it leaves a constant turmoil. What led to the revival of high-tech in Boston, starting in the 1960s, was computing. It's dead. There's now virtually nothing going on there. DEC, Digital Equipment Corporation no 248 /00 LABOR, CIVIL SVC. - BILL 2 longer exists. The inventor of the mini computer is Apollo. Sun ripped off Apollo's name, and Apollo no longer exists, it's now a division of Hewlett Packard. But biotech has replaced all of those lost jobs. And, again, it's this whole process of the connection between the research going on in the universities, the venture capitalists, and this whole communication network structure that leads to this new activity. Another feature is, stale businesses die sooner. I suspect that Philadelphia has been generating new jobs as fast in the 1990s as in the past, it's just that the stale businesses have been shrinking faster because of the venture capitalists, etc. And the other fact that has common on is that this is now a cost-driven economy. Companies no longer have locks on markets; they have to be totally concerned about their costs. So, again, what has Philadelphia done? It's provided the worst value in government services, highest city taxes with weak services. And if you think about it, from a quality 249 /00 LABOR, CIVIL SVC. - BILL 2 perspective, there's a lot of things that get done twice. Center City businesses pay extra taxes for their clean streets. I live in Center City, I contribute to the Center City Residents Association so that I get my sidewalks cleaned occasionally. The public schools are paid for -- you know, people pay for schools twice. They pay for the public schools and they pay for the ones where they send their kids. And the City is investing in declining industries. Again, the shipyard and the channel deepening. The channel deepening will basically eliminate one tug and barge unit for lighter and crude oil. That's jobs. That's supposed to 16 explode into 50,000 jobs like the prospectus 17 says? That's bad arithmetic, okay? 18 And the City let's L&I function as a 19 stumbling block to new businesses. You know, 20 we're tenth in venture capital while we're 4th in 21 population. So what are the things to do? Focus on a general business environment, not specific industries. Make the City a better value. It's a combination of cost and benefit. And bring in 250 /00 LABOR, CIVIL SVC. - BILL 2 outside dollars for research, and continue to bring in human capital, okay? Why focus on a general business environment? Okay, think about how the Internet is changing. B to C, business to commerce, was the big thing a year ago. When we were preparing our report, B to B was the big thing. If you read the Wall Street Journal yesterday, Safeguard Scientific said "B to B's on hold. " No political entity can keep up with that kind of change. You have to focus on the environment, not the technology or the specific business. So it's really the brew of money and talent that you need to have, and the right business environment to have the next new wave, okay? The other thing -- next is, make the city a better value. Cut taxes by category, not by company. The tax cutting or the tax deals have basically been an insider game. It hasn't been bringing in new people. And revamp the Tax Code to reflect the modern economy. The Tax Code was designed around 251 /00 LABOR, CIVIL SVC. - BILL 2 a manufacturing economy.
And the difference between a manufacturing economy and the modern economy is that in a manufacturing economy, people serve the machines. In the modern economy, the new economy, the machines are adjuncts to people, computers are adjuncts to people. Now, what does this mean? The gross-receipts tax, the portion you pay is based on the fraction of sales in the City -- and correct me if I'm wrong on this, but also the fraction of capital equipment and the fraction of employees in this city. So what's happened is not only do you have the whammy of the wage tax, but you have the double whammy of having your gross-receipts tax also factored in on your City employment. That's a bad deal and it's a compounding factor. And, again, if you just focus on company-to-company deals, you lock out the new players. And Internet start-up is not big enough to catch the attention of the City agencies, and they move out before they're too big. And TIFs are the wrong way to reduce taxes because basically it's the wage and 252 /00 LABOR, CIVIL SVC. - BILL 2 gross-receipts tax that are the problem. And real-estate tax cuts are reducing the real-estate taxes, but it looks like the main revenues are coming from wage tax and gross receipts, but really, those TIFs should be counted as reductions in the wage and gross-receipts tax as opposed to the real-estate taxes. There's misaccounting in terms of the way those numbers are worked out. And real estate is a derivative industry. You have a lot of growth, you have a lot of business, the real estate's worth a lot. And in North Dakota, the real estate's not worth a lot not because there's not a lot of growth, not a lot of business. So what you want is the growth in the business, not the real-estate deals.
You understand the TIF tax program is, the taxes increase over the current value. It's not a reduction in the existing tax.
Right. It's a credit, it's a tax credit mechanism. But the value of the credit is a reduction in your real-estate taxes is the way you look at it.
The real-estate tax stays what it is before the initial investment.
And at the end of the TIF, whatever the value the development and the land are then becomes the increased value of the real estate.
And correct me if I'm wrong, I mean, it is what it is.
But you view it as a real-estate activity and what you really want to do is focus on wage and gross-receipts tax.
I agree with that, but it's just that your reference to the TIF was incorrect.
Right, okay. I'm not a tax expert in this city, but this is the way that I've seen it described. 254 /00 LABOR, CIVIL SVC. - BILL 2 And, you know, the other question is looking at, how do you cut the taxes? It's not on the list, but how do you cut the taxes in a way that most benefits the City. As has been said earlier, the gross-receipts tax is what's critical for the Internet start-ups that don't make profits. Notice that there are biotech research centers owned by corporations in the City. And the reason for that is that's driven by the wage tax, because though researchers are high-tax people who are -- and the companies have to compete in the national market for those people, which means that they've got to pay a premium on the wage tax to get them in the City. If they locate outside the City, they avoid having to pay that premium and that flows directly to the bottom line of the company. So in looking at this stuff, you have to look at the incidence, who really pays the wage tax. And when it's expensive people in a national job market, the companies pay the wage tax. When it's laborers in a local job market, they pay the wage tax. For example, the union contract on 255 /00 LABOR, CIVIL SVC. - BILL 2 truckers is uniform throughout the region. Those workers pay the wage tax, not companies, okay? And then the other is improved services. That's not antithetical to tax cuts. Improving services can be done just by standard looking at how to create efficiencies. I teach operations management, and I use my experiences with City agencies as an example of how not to run an operation. You can achieve in some areas 50 percent productivity improvement just by looking at how the job is done, okay? Now, bring in dollars and human capital. Focus on bringing in those federal dollars that will draw the people and create the ideas locally that will create the next wave of the new technology. Again, it's wave after wave, and you don't want to chase the current wave only. You want to create the environment so that you're surfing ahead on the newest wave, okay? Examples of that. Bring in a federal research institute like has generated so many jobs in North Carolina around the EPA Research Lab. The Department of Energy National the Laboratories have done a lot in terms of job creation around 256 /00 LABOR, CIVIL SVC. - BILL 2 them. And biotech is big in Washington not because they have any medical schools but the National Institute of Health is in Bethesda. That's what's driving it. And then convince the State government to use a portion of the tobacco money to endow professorships in medical schools to do medical research. You don't know what's going to come out of it, but if states like George are willing to put up behind a new faculty member at Georgia Tech on the order of $10 million per faculty member to have them there to generate those ideas that create the new businesses, they're making a smart move. And then recruit venture capitalists but not specific industries. Focus on those core changes in the way the economy operates that has led to Silicon Valley and Boston being ahead of curve now, okay? That's it.
Thank you, sir. 257 /00 LABOR, CIVIL SVC. - BILL 2 Thank you very much.
Okay. We have come to the end of our testimony. I want to thank everybody very much. Thank you, Councilman DiCicco, for hanging in here with me. There will be a report issued on Resolution 000113. If anybody will be interested in it, please call our office and we'll get a copy to you. This meeting is adjourned. Thank you. (Adjourned at 3:22 p.m.) - - - 258 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Tuesday, April 11, 2000, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON LABOR AND CIVIL SERVICE RESOLUTION NO. 000113 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter