¡›î› COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Room 696, City Hall Philadelphia, Pennsylvania Tuesday, November 12, 2002 10:25 a.m. - - - BILL 020648 - RESOLUTIONS 000691 & 020522 - - - PRESENT: COUNCILMAN MICHAEL NUTTER, Chair COUNCILMAN FRANK DICICCO, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL CLARKE COUNCILMAN W. WILSON GOODE COUNCILMAN ANGEL ORTIZ - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 (215) 561-2220 ¡›î› I N D E X BILL 020648 NANCY KAMMERDEINER, Revenue Commissioner ... RESOLUTIONS 000691 and 020522 BRETT MANDEL, Controller's Office .......... 12 COREY KEMP, City Treasurer ................. 19 JOHN TAYLOR, NCRC .......................... 22 LESLIE BENOLIEL, Community Capital Works ... 62 ANGELA GRACEY .............................. 79 MARGO DAVIDSON, African American Female Entrepreneurs Alliance ................ 87 DEDE MYERS, Federal Reserve Bank ........... 97 RAY DESIDERIO, PNC Bank .................... 132 SHARMAINE MATLOCK-TURNER, GPUAC ............ 144 LAURA SCHWINGEL, Nation Community Capital .. 150 MJENZI TRAYLOR, Commerce Department ........ 158 LYNN CUTLER, Women's Opportunities Resource Center ................................ 165 GEORGE BUTTS, ACORN ........................ 168 LESLIE ESTELLE BANKS ....................... 172 3 11/12/02 - COMMERCE - BILL 020648
Good morning, ladies and gentlemen. This is the Council Committee on Commerce and Economic Development. We have a quorum. To my left is the Vice Chair, Councilman DiCicco. To his left is Councilman Ortiz. To my right is Councilman Goode, and somewhere I know hovering right behind me is Councilman Clarke, who is now over on the right. I'm Councilman Nutter, Chair of the Committee. We have two resolutions that we're taking testimony on and a bill. All three of these matters before us today were introduced by Councilman Goode. We also have a witness list which we will be following to the best of our ability. The first matter before us today actually is Bill No. 020648, title of which is an Ordinance amending Chapter 19-2600 of the Philadelphia Code entitled, "Business Privilege Taxes," by readopting and clarifying the pilot program under which a credit against Business Privilege Taxes will be given to certain businesses that contribute monies to community development corporations undertaking economic development activities within the City of Philadelphia, all 4 11/12/02 - COMMERCE - BILL 020648 under certain terms and conditions. The committee has also been joined by Blondel Reynolds-Brown to my left. Are there any opening remarks by any Members of the Committee? We'll take testimony on Bill 020648. It's my understanding, I believe that Revenue Commissioner Nancy Kammerdeiner will be giving testimony on behalf of the Administration. Please identify yourself for the record.
Good morning, Councilman Nutter and Members of the Committee on Commerce and Economic Development. I believe you have copies of my testimony. If not, I brought some with me in case you did not have that.
My name is Nancy Kammerdeiner, and I'm the Revenue Commissioner for the City of Philadelphia. I'm pleased to be here today to support Bill No. 020648. This Bill will amend Chapter 19-2600 of the Philadelphia Code entitled, Philadelphia Business Privilege Taxes, to restore a pilot program for tax credits for businesses that make contributions to community 5 11/12/02 - COMMERCE - BILL 020648 development corporations. This program was inadvertently rescinded last spring when the Code was amended. The program, as you know, was originally established by Bill No. 6 010541, approved November 14th, 2001. It became part of Section 19-2604, Subsection 6, of the Philadelphia Code. When a Bill was approved in April of 2002, it repealed and restated that section 10 of the Code. That Bill had been intended simply to restate the Business Privilege Tax rates in tabular rather than narrative form and to enact the new Business Privilege Tax rates. Unfortunately, the provisions of Section 19-2604, Subsection 6, were also repealed and were not included in the replacement text. The error was not discovered until October when recent Ordinances were being reviewed for codification. The Bill before you today will restore this program to the Code and will insure continuation of the pilot program. Just a quick description of the program. It provides an opportunity for 10 businesses to enter into contribution agreements with the Department of Revenue that will entitle them to credits against their Business Privilege Tax 6 11/12/02 - COMMERCE - BILL 020648 liabilities each year for 10 years in exchange for annual contributions of $100,000 to CDCs. These business CDC partnerships are to be identified on a first-come, first-serve basis until such 6 partnerships are identified. In the event that more 7 than 10 businesses apply on the same date, the 8 Revenue Commissioner is to provide for a random 9 selection process with 10 businesses each receiving 10 BPT credits of $100,000 or their maximum BPT liability, whichever is lower. This program is expected to cost a million dollars per year for 10 years in reduced tax revenue. The Department of Revenue and the Revenue Commissioner are charged with implementing this program. Let me take this opportunity to give you an update on what's been happening in this regard. During this past summer, the Business Privilege Tax regulations were amended to incorporate the credit program and provide more specific information about the procedures for initial application and continuation of the program. These regulations were filed in records for public comment and a request was received for a public hearing. That hearing elicited testimony from a number of CDCs and 7 11/12/02 - COMMERCE - BILL 020648 potential business applicants. They expressed strong support for the program and made a number of useful recommendations that were used to amend and strengthen the regulations when they were resubmitted to records in final form. A public meeting was then held on September 9, 2002, to answer questions about the regulations and to formally announce the opening of the application process. Thirteen applications were received on the due date of September 23, 2002. As a result, a lottery was held four days later to identify the 10 business CDC partnerships that would be processed for participation in the program. These 10 applicants have been screened to verify that they are not indebted to the City or the School District and that the CDCs meet the qualifying standards established in the regulations. Contribution agreements have been sent to the business partner applicants for their review and signature. These agreements will commit them to make $100,000 contributions to their partner CDCs each year for 10 years. Although none of the agreements have been signed yet, I anticipate the opportunity of signing these as soon as possible 8 11/12/02 - COMMERCE - BILL 020648 after the Bill before you today, Bill No.
020648, has been approved to restore the CDC credit provisions to the Philadelphia Code. I recommend that the Committee approve this Bill with the rules suspended so that this program can be fully implemented without further delay. I'll be happy to answer any questions that you might have.
Thank you, Commissioner. Any questions for Commissioner Kammerdeiner? (No response.)
Seeing none, we're now going to move into our -- we're going to temporarily recess the public hearing. We're going to move into a public meeting for the purpose of receiving amendments to Bill 020648. - - - 9 ¡›î› COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Tuesday, November 12, 2002 - - - Public Meeting conducted by the Committee on Commerce and Economic Development, held in Room 696, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILL 020648. - - - PRESENT: COUNCILMAN MICHAEL NUTTER, Chair COUNCILMAN FRANK DICICCO, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL CLARKE COUNCILMAN W. WILSON GOODE COUNCILMAN ANGEL ORTIZ - - - 10 11/12/02 - COMMERCE - PUBLIC MEETING
Thank you, Mr. Chairman. I have a simple amendment which actually amends Subsection C and D of Section 6. It's a simple amendment that moves from partnerships to 8 15 partnerships. When we originally introduced this 9 Bill we didn't know what the response was going to 10 be. Upon application process, there were 13 groups that applied on the same day, and groups went to 12 a lottery for 10 positions. Since then, another 13 group has applied. We think since those corporate community partnerships do exist out there, that we should amend the legislation to open up for five more slots. Members of the Committee have copies of the amendment and a listing of the partnerships in front of them. So I move that the amendment to Bill 19 020648 be adopted. (Duly seconded.)
The amendment has been properly moved and seconded. All in favor signify by saying aye. (Aye.)
Any opposed say nay. 11 11/12/02 - COMMERCE - PUBLIC MEETING (No response.)
Bill 020648 has been amended. The Chair recognizes Councilman Goode for a motion on the amended Bill.
Thank you, Mr. Chairman. I move that Bill 020648 as amended be reported out of Committee with a favorable recommendation and the Rules of Council be suspended to permit first reading of this Bill at our next Council Session. (Duly seconded.)
It has been moved and properly seconded. All in favor say aye. (Aye.)
The Bill has been reported out of Committee. - - - 12 11/12/02 - COMMERCE - RES. 000691, 020522
We will now reconvene the public hearing on the two Resolutions, Resolution No. 000691, a Resolution calling for hearings into microenterprise development and neighborhood self-employment as an economic development strategy in the City of Philadelphia. And Resolution 020522, a Resolution 9 authorizing the Committee on Commerce and Economic Development to hold hearings into the current state of community reinvestment by City depository banks within low-income and minority neighborhoods in the City of Philadelphia and authorizing the Committee to issue subpoenas to compel the attendance of witnesses and the production of documents and other evidence. We have a witness list, as I indicated earlier, which we will seek to follow. The first testimony will be from the City Controller's office. It's my understanding that representatives of the Controller are here. Please come to the witness table. Identify yourselves for the record and present your testimony. Do you have copies of your testimony?
Good morning. My name is 13 11/12/02 - COMMERCE - RES. 000691, 020522 Brett Mandel, and I am appearing on behalf of Johnson Saidel, the City Controller, who apologizes, but he was called to a meeting earlier this morning. I come before you today to offer testimony on small business lending in Philadelphia. As you know, historical lending patterns have long indicated disparity in loan availability between poorer and richer communities. Access to small business loans is essential for the success our neighborhoods, and I applaud Councilman Goode and all of City Council for focusing on this important issue. Parenthetically, the Controller also wants to pass on his thanks to Councilman Goode for putting into recommendation form the Job Creation Tax Credit recommendation of the City Controller's Tax Structure Analysis Report. We look forward to working with Councilman Goode and all of City Council and the Administration to implementing that program. Although significant study has been completed on this topic by Councilman's Goode's staff and numerous other groups, I will limit my comments to an analysis of small business lending in Philadelphia released by my office earlier this 14 11/12/02 - COMMERCE - RES. 000691, 020522 year, along with an update using more recent data. This analysis considers only data for Philadelphia itself and does not compare our City with other cities or communities. I am, therefore, not in a position to comment on trends outside the City. My office performed an analysis on data available from the Federal Financial Institutions Examinations Council. Along with other responsibilities, the Council monitors the efforts of financial institutions to comply with the Community Reinvestment Act of 1977. This Act seeks to encourage lending within the communities in which banks operate. The analysis performed by my office tracks the number of loans to small businesses, which are loans to businesses with less than $1 million in revenue, as well as other lending statistics. Currently, the data are available for the years 1998 through 2001. Our analysis considers only loans taking place in Philadelphia, and it seeks to identify differences between communities of varying income levels. For the purpose of our analysis, low and moderate-income communities are those that are below 80 percent of the median income 15 11/12/02 - COMMERCE - RES. 000691, 020522 level for the metropolitan area. Middle and upper-income communities are those with higher than 80 percent of the area's median income. During the four-year period of our analysis, there are some interesting trends in lending within Philadelphia. The number of loans to small businesses increased dramatically, rising from 2,816 in 1998 to 7,193 in 2001. During this time, the inflation adjusted total amount loaned to small businesses increased from $163 million to $270 million. Although the loan amount did increase significantly, the average amount of each loan fell from approximately $53,000 to $37,000. The data demonstrates significant trends in overall lending during this four-year period, but the data does not indicate major changes in the distribution of lending between communities of different income levels. During the four-year period, 39 percent to 42 percent of loans to small businesses were in low and moderate-income communities. When considering the amount of the loans, low and moderate-income communities received between 34 and 39 percent of the loan funds. The percentage of 16 11/12/02 - COMMERCE - RES. 000691, 020522 loan funds received by these communities fell to their lowest level of 34 percent in 2001 from the high of 39 percent in 2000. In today's trying business climate, access to funding is particularly critical for many small businesses. While the total amount of money loaned has increased, the average loan amount has decreased significantly in recent years.
Without access to capital, fewer and fewer small business owners will be able to pursue the dream of owning their own business. It is my hope that this data will enhance this Council's ability to consider what the City can do to ensure that the hard-working people of Philadelphia have access to resources that they need to pursue and achieve their dreams. Thank you very much. Along with this testimony, I'll refer this Council to the report that the Controller's Office put out in February of this year.
The Controller's Office submitted a report on this data to the Council in February of this year, and I refer everybody to that 17 11/12/02 - COMMERCE - RES. 000691, 020522 analysis.
Okay. Thank you. The Chair recognizes Councilman Goode.
Thank you, Mr. Chairman. I just wanted to thank the Controller's Office for their work and for their testimony this morning. But one request, I ask that, because data is so important, that we actually have an annual review and a set point for the time of the year that we actually review small business lending. The two reports, the first written report and the update today was great, but the actual annual collection of this data is very important. I thank you again for your testimony.
Mr. Mandel, let me ask you one question based on your testimony. To what would you attribute the decrease in the average amount of loan from $53,000 to $37,000? Is there anything in your analysis that --
I'm afraid that our analysis didn't get into any larger trends in the banking community or any significant reasons behind this. We just looked at the facts themselves, and I 18 11/12/02 - COMMERCE - RES. 000691, 020522 will let the other experts here talk to that matter.
Okay. Thank you. Any other questions? AUDIENCE MEMBER: Are you asking about questions from the audience also?
No, ma'am. I appreciate it. Generally when I say that, I'm actually talking to the Members of the Committee who are allowed to ask questions of the witnesses. We don't allow questions to come from the audience to the people at the table. If you have something that you want to say, you're certainly able. We're in a public hearing. You're certainly, at the right opportunity, able to come to the table and put on testimony that you want. But it's not a kind of an audience participation kind of activity, so I'm asking for questions from Members of the Committee. Thank you. Any members have any questions? (No response.)
Let me also 19 11/12/02 - COMMERCE - RES. 000691, 020522 acknowledge for the record the presence of Councilwoman Donna Reed Miller who is here with us this morning as well. The City Treasurer, Mr. Kemp. Good morning, Mr. Kemp. Please identify yourself for the record and anyone who will be testifying with you.
Good morning, Chairman Nutter, Councilman Goode, and members of the Commerce and Economic Development Committee. I am Corey Kemp, City Treasurer. With me is Joe Feraldo, Deputy City Treasurer.
Do me a favor, Mr. Kemp. Could you bring that mike a little closer to you?
We are here to testify in support of Resolution 020522, which authorizes the Committee on Commerce and Economic Development to hold hearings into the current state of community reinvestment by City depository banks within low-income and minority neighborhoods. Having reviewed this Resolution, it is our understanding that the Resolution complements Bill No. 020047, which requires all City 20 11/12/02 - COMMERCE - RES. 000691, 020522 depositories to provide information on their respective community reinvestment goals. We believe that this information will strengthen our efforts to evaluate whether the banks that we use are committed to investing in our neighborhoods and in our City. Such an effort is important and meaningful and complements the Administration's commitment to support Philadelphia neighborhoods. On October 25th, in accordance with this innovative and necessary legislation, my office sent letters requesting that authorized City depositories forward community reinvestment statements to my office by December 31st of this year. The Treasurer's Office does not expect that the annual collection of these community reinvestment statements will add any significant administrative burden to our regular duties, and we look forward to receiving them. Thank you for the opportunity to appear before this Committee today. And we will be happy to answer any questions that the Committee has at this time.
Are there any questions by Members of the Committee? 21 11/12/02 - COMMERCE - RES. 000691, 020522 Mr. Kemp, just let me ask you one question based on your testimony. You expect to receive the reports and for the moment we're going to -- I don't mean to say "we." Assuming that the institutions comply with the provisions of the legislation and you receive the required reports by December 31st, as to a follow-up to a question or a statement that Councilman Goode made earlier, when would you expect then the Treasurer's Office would issue a report?
What we will do is, once we receive all of the reports, we will send a copy of it over to the Committee. And within days to 30 15 days, we'll have an analysis and a report to the Committee at that time.
Okay. So you think sometime, end of January, beginning of February?
Mr. John Taylor from the National Community Reinvestment Coalition. Gentlemen, please identify yourselves 22 11/12/02 - COMMERCE - RES. 000691, 020522 for the record and proceed with your testimony.
Good morning, Councilman Nutter. My name is John Taylor, and I'd like to thank you for inviting me here and thank Councilmember Goode for -- can you hear me okay? Great. Terrific. I just want to identify with the microenterprise folks, because I couldn't agree more that support from microenterprise supports the local economy. Let me again say, I'm John Taylor from the National Community Reinvestment Coalition. We're a trade association of some 700 community organizations. Our mission is to build wealth in underserved neighborhoods, and I appreciate the opportunity to come here and testify. Let me just start off by saying I'm not here to knock financial institutions for the sake of knocking financial institutions. The truth is, banks are our neighborhood's best hope. If we don't get them to pay attention to the needs of entrepreneurs, small businesses, woman-owned, minority-owned, we simply won't be able to have the kind of prosperous neighborhoods that we all dream of for this and other cities. As you hear people testify today, I want 23 11/12/02 - COMMERCE - RES. 000691, 020522 to get you to distinguish between those who are going to come up and give you real-life good examples of some good things that banks are doing with some people in some instances. Distinguish that from the mosaic of what is really happening overall in the community in terms of the actual lending that's occurring, the difference between a small business loan and perhaps a credit card loan. For example, if you look at the data -- and by the way, have all Councilmembers been supplied a copy of my testimony?
Terrific. Well, if you look at the data, you'll notice that the five largest lenders in Philadelphia for small business purposes are credit card banks, with the average size loans of $3,000, $7,000 and so on. And if you don't have that, I'll supply that to you, but that's just data that you can pull off line from the reports we get out of the Federal Reserve. The point there is --
Mr. Taylor, what page is that in your report, do you recall?
It's not in the testimony, 24 11/12/02 - COMMERCE - RES. 000691, 020522 but I'll see to it that all Council members get a copy of that, Councilman Nutter.
But let me just tell you the top -- the number one lender for small business purposes in the City of Philadelphia -- are you ready for this -- Associates. Does Associates ring a bell for anybody? They were the poster child for predatory lending. They're now owned by Citibank. Now, Citibank is cleaning up some of their practices, but they've got a way to go. But that's the number one lender, the number one institution that people can rely upon in Philadelphia to get loans from; Number two, GE Capital Financial; Number three, MBNA America; Number four, American Express; and number five, Capital One. All credit card banks. So if you want a loan in the City of Philadelphia, the odds are that you're going to end up with a credit card loan, not a small business loan with competitive rates and that sort of thing. And I'm not knocking that there isn't a role for credit card lending -- yes, sir?
I'm sorry, 25 11/12/02 - COMMERCE - RES. 000691, 020522 Councilman. The Chair recognizes Councilman Ortiz.
As you know, I think we won the vanguard of predatory lending across the nation in this Council. What are the rates -- you say that Associates and the other ones are the main sources of loans. What are the rates of their loans and how are you characterizing those loans in terms of facilitating the growth of these small businesses?
Well, this is one of the problems, Councilman Ortiz. Because right now lenders are protected by this vast veil of secrecy You asked a question that no one can answer, what are the rates?
No. I mean, you can go to the institution and get the rates, but you can't get the rates at what they're loaning to women or people of color or low income versus moderate versus middle income. That simply is not reported. It's not even reported by race or by gender. It's not even reported by census tracts, specific census tract. All that's reported -- and that's the problem you'll 11/12/02 - COMMERCE - RES. 000691, 020522 hear today. You're going to hear people from the Fed take the same data we're taking and give it a spin that makes it seem pretty positive. But the truth is, if you really look and listen to what this data is saying, it's saying that people in Philadelphia, if you're a person of color and if you're a woman, or if you're just an entrepreneur or a small business owner who doesn't have great wealth, but just simply has a small business, you're hard pressed to get a lot of the financial institutions to give you a competitive small loan. And what I'm here today to tell you about -- and I'll discuss a little bit of data -- but I'm here to really encourage you on the track you're on. The Bill that passed recently that I think was sponsored by Councilman Goode that's going to ask for -- and approved by this Council -- that's going to ask for up front reports from banks on how they're going to serve underserved populations, minorities is a fantastic step. I don't want to get ahead of myself, but in order to answer the kind of question you and fellow members of the Council are undoubtedly going 27 11/12/02 - COMMERCE - RES. 000691, 020522 to have we are going to need -- and you can request the kind of data that's going to make a difference and I -- this is the conversation that's being had. And I have to tell you, in America you talk about being ahead on predatory lending. You know, you can really take a look at what's happening in the mortgage market. Because mortgages, they have to report race, gender, income, census tract. On two CD ROMs from the Federal Reserve you can tell where every single loan, and the loan amount, who it's going to in terms of the person's gender, their color, their income. So you can really paint the mosaic of what's happening in mortgage lending in your City. You can't do that for small business. You can only get sort of generalized summaries of what's going on. And the summaries suggest that there's smoke and there's a fire somewhere, but you can't get at that because, right now, people are protecting the banks from having to reveal that information. You can do two things on this, Councilman -- I'm very much getting ahead of myself, but if this -- I don't know how much time I have, but I'll tell you -- 28 11/12/02 - COMMERCE - RES. 000691, 020522
We get ahead of ourselves all the time. Don't feel bad.
The crux of the problem is this: Banks and their bank trade associations in Washington and around the country are fighting this kind of conversation. They're going to get up here and they're going to tell you, oh, we're doing this nice thing with this coalition of groups and we've done those loans -- and those loans are true. But don't be misled by the sort of few good examples compared to what's really going on in the community. What needs to happen is -- and what this City can do and where it can lead the nation, is it can demand that banks collect small business data by census tract. Right now, you get it by sort of all the census tracts lumped together and then all the loans lumped together, so you don't know by specific census tract where a particular loan is going. It's not against the law to collect that data. You have 29 11/12/02 - COMMERCE - RES. 000691, 020522 the power in this City to demand that from financial institutions. That's number one. What's number two? Income. You can demand that the lenders provide you as they do in the HUMDA records, just like the first point, the census tract, HUMDA records. Home mortgage lending, they supply that information. Well, for small businesses, supply information on income. Who's getting the loans? For example, you'll hear data talk about, oh, we've increased loans to low-income census tracts. It doesn't necessarily mean it went to a low-income person. And I'm not saying it's a bad thing to invest in someone to go into a low-income neighborhood. I think it's a good thing. But what you really want to get a handle on is our entrepreneurs, our people fighting their way up the economic ladder having equal and fair access to credit and capital. That's something you can do. Now, what you can't do because the Federal Reserve -- and the Federal Reserve is the gatekeeper on this -- and I've spoken to Chairman Greenspan several times about this -- and last Friday or the Friday before they were about to release a change on this, but you can't -- you're 30 11/12/02 - COMMERCE - RES. 000691, 020522 prohibited from collecting this data by race and by gender. All right. And that's a nice little veil that protects the banks from being able to tell you what they're doing in terms of loans to women and what they're doing in terms of loans to minorities. So you can't do that until we change. And we've asked this Council and the Mayor to go on record of supporting that change. Unfortunately, you have a State Senator who does not. Senator Santorum has gone on record of asking the Federal Reserve to not make changes to regulation B, and we're very, very disappointed to see that. In any event, let me move on, you know, because data is a funny thing.
Excuse me, Mr. Taylor. We have a question from Councilman Clarke. The Chair recognizes Councilman Clarke.
Thank you, Mr. Chairman. I just had one brief question with respect to your testimony and the collection of data. In your testimony, you indicated that some lawmakers continually oppose this collection. Is it Santorum or is it lawmakers across the board? I'm 31 11/12/02 - COMMERCE - RES. 000691, 020522 trying to get a sense of who --
Thank you for that question. It's a funny thing. And we're actually very disappointed in Senator Santorum because, in the past, he has shown the willingness to sort of stand up to where sometimes the majority of his party was going. We're just flabbergasted that he took -- Federal Reserve, as I said, Friday before last, was about to release a statement -- and mind you we can only theorize what it was going to be -- but our theories are -- and I think it's pretty consistent with others -- is that they were going to ask for voluntary collection of small business data by race and by gender. Now, not what we would have liked to have seen but, on the other hand, it's an opening of the door. It's a start. It would have made a difference. Some of the institutions, I think, would step forward. Some of the institutions who are doing a good job, who know that they're loaning to women, know they're loaning to minorities, would be glad to supply that information and that would put pressure on others to supply that information. Well, the Fed was about to literally -- 32 11/12/02 - COMMERCE - RES. 000691, 020522 we had staff at the hearing waiting for the announcement. And the first thing at this hearing at the Fed was, we've changed our minds. We've got some new information and we're going to reconsider what we were going to do. And there was a letter -- the only thing that we could tell is that the American Bankers' Association representing the banking interests sent a letter saying, please don't do this. It's going to be terrible. And then Senator Santorum, along with Senator Enzy (ph) from Wyoming and Senator Krepo (ph) from Idaho -- Pennsylvania, Idaho and Wyoming senators, only three, sent a letter to the Federal Reserve saying, this isn't in your power. This is Congress' power. Well, we've been trying to get Congress to fix this for years, but they've been telling us it's a regulation. It's in the Fed's purview, so --
So in your view we will be required to get an amendment of the regulations on a Federal level in order for us to collect the data?
To get race and gender reporting, yes. 33 11/12/02 - COMMERCE - RES. 000691, 020522
But with respect to census tracts, do you think we can do that locally?
Absolutely. You can -- in fact, Josh Silver, who is sitting beside me, who is a Director of Policy and Research -- and I apologize for not introducing him earlier. Josh called over to the FDIC to confirm that, in fact, if a City wished to collect that data, it's not prohibited. And we looked at the laws, the Equal Credit Opportunity Act, The Community Reinvestment Act, there's nothing in that legislation that would prohibit you from collecting that kind of data. And I guarantee you, ladies and gentlemen, you collect that data and, all of a sudden, you can tell by income and by census tracts where people are lending. You will begin to fine hone this discussion from the sort of general what the data says and what the data doesn't say, to being more and more specific until you get to the point where you really know which lenders are really loaning fairly to all Philadelphians, across income tracts, across racial lines. You'll be able to superimpose census data in terms of racial lines. You'll be able to tell in more specificity what's 34 11/12/02 - COMMERCE - RES. 000691, 020522 going on. It will make a tremendous difference in the banks opening up their programs to lending to all incomes and all genders and races.
Sure. Mr. Taylor, let me ask two quick questions. One, I thought you indicated earlier that the banks that lend in the home mortgage market already collect this information; is that correct?
So why is there, from your perspective, a sense of opposition to collecting similar data or information on the business side?
Well, I've had this very conversation, as I said, with Chairman Greenspan many times. And out of his mouth, he has said every time I've been there, including with my board and some of my staff, is he wants a color blind society. And he doesn't think that lenders -- and you might even hear this from one of the lenders -- that lenders shouldn't be considering those factors, what 35 11/12/02 - COMMERCE - RES. 000691, 020522 the gender, what the race is in making loans. And as I've said to Chairman Greenspan, we agree. The problem is we don't have a color blind society. In fact, we don't really have a handle on what's going on in the small business lending arena because there is very little data that you can really draw any solid conclusions from, other than general conclusions. And so here's the rub. If you are a lender and you're making a small business loan -- I'm not talking about a credit card loan -- but if you're making a loan of a $100,000 or a micro loan to an entrepreneur, there's a 99 percent certainty that you know whether you're talking to a man or a woman. And there's a 99 percent certainty of whether you're talking to an African American, a Latino, an Asian or a white Caucasian male. So they already know this stuff.
Just so the record is clear, do you wish to identify yourself under any of those various categories?
I am a white Caucasian male, Irish American. Proud of it. But also proud of a just society. 36 11/12/02 - COMMERCE - RES. 000691, 020522
I want to make sure that anybody reading the notes of testimony knew who was addressing this today.
I just want to make sure, Councilman Nutter, the point was made, is that the banks already have the information about whether they're loaning to a woman or whether they're loaning to an Italian American or an African American or a Latino American. This is not information that's going to become like --
The real issue is the banks do not want you and the general public to see who it is that they're loaning to for small businesses purposes. And that is the single and the only reason that we do not have the kind of disclosure on small business lending that we currently have on home mortgage lending.
Okay. My second question is -- which I believe I know the answer to, 37 11/12/02 - COMMERCE - RES. 000691, 020522 but I'd like you to lay it out for the record. You've made, on a number of occasions here this morning, the distinction between, for businesses, the credit card loan versus a micro loan or a standard business loan. Could you briefly lay out what the distinctions or the differences between those types of loans and why one is better than the other?
Sure. With a credit card loan you're dependent upon the interest rate of the credit card. Unfortunately, we know anecdotally that --
So we're talking about a business that gets a loan that is tied to a credit card, or might be considered a line of credit that's tied to, say, a prime equity loan to that particular business; is that what we're talking about?
Right. Which can range from an interest rate of 9 percent to 21 percent. And more often than not falls on the higher end. That compared to a small business loan, which is offered by a loan officer in a bank based upon the business plan, the equity in the business, the 38 11/12/02 - COMMERCE - RES. 000691, 020522 soundness of the staff and the whole business idea. And it's offered depending who you are as a business. For example, if you're a big business like an IBM or someone like that, they get prime, sometimes even better than prime, loans. Prime is currently at -- where's prime at now? 5, 6 percent. So, you know, for a small business owner to get a competitive rate, maybe it's 7 or 8 or 9 percent, would be a pretty decent thing.
I assume repayment terms are different between that standard type of loan and a credit card loan?
Okay. All right. Thank you. That takes care of my questions. Councilwoman Miller has a question. Councilwoman?
Thank you, Councilman Nutter. I have a question about the reporting -- it's just as hard for you to hear me as it is for me to hear you.
So this room is really difficult. When you collect the data, and if 39 11/12/02 - COMMERCE - RES. 000691, 020522 they report the data by census tract, wouldn't we need to break out who the borrower is, because that doesn't necessarily mean that they're a resident of that particular census tract or minority borrower?
That would be nice. The problem you have is that the Feds -- the Federal Reserve, for the reasons I've given you -- I mean, they are the gatekeeper, and there's no one in between them and us. They have decided that they do not -- they prohibit banks from collecting data about the race and about the gender. What they don't prohibit is collecting data about income and about the census tract where the loan is made. So you're right. This could be, you know, someone from Bryn Mawr who has a business in North Philly and -- am I picking the right neighborhood?
Am I close? I'm a Bostonian, you know, give me a break. But what you'd find out is what the income of that borrower is. So that would give you an indication whether that person lives there because his annual income is about $300,000 a year. He may not live there would be a sound conclusion depending on the census tract. 40 11/12/02 - COMMERCE - RES. 000691, 020522 But at least you would be able to get that much closer to who's actually accessing small business credit and getting them to distinguish. As far as I know, there's no prohibition against getting them to distinguish what's a credit card loan versus what's a straight small business bank loan. Yes. So that would be an additional thing you did.
So somewhere in your testimony you have a checklist of items that -- or we just need to go by the mortgage reporting?
Well, I actually -- in consultation, working closely with Councilman Goode and some of the community groups from the City, we make several recommendations. I can get to those. There's two things I need to clean up here. One is, I wanted to sort of go through the data and what the data suggests. You can read that now -- or you can listen to the Federal Reserve tell you what it suggests. And it will be a very different interpretation. Let me do a couple of very quick data things.
Mr. Taylor, why don't you try to get through your testimony, notwithstanding the fact that we're going to 41 11/12/02 - COMMERCE - RES. 000691, 020522 probably interrupt you a few more times, but try to get through your testimony on the data and we'll try to hold our questions.
Okay. Nearly 50 percent of all the small business in Philly is in low and moderate-income census tracts. 50 percent of all the small business owners, all those entrepreneurs and small business owners, are in low and moderate-income census tract. Lenders made about 40 percent of the loans to them. So a 10 percent differential to what businesses exist versus what they got. Now, substantially minority tracts, that is, tracts that have 80 percent minority and above, that constitutes percent of the small business 17 tracts. Yet if you look at those minority tracts -- 18 so there's 26 percent of the minority tracts with 19 small businesses. 18 percent of them receive loans. 20 So a difference between -- it's this graph over 21 here. So if you look on the left, the purple stuff 22 or whatever that color is, the percentage of 23 businesses that exist in minority tracts. So 26 24 percent of all the businesses are in minority tracts 25 or tracts that are 80 percent or more minority. 42 11/12/02 - COMMERCE - RES. 000691, 020522 But, you see, they receive less than 18 percent of the loans. Now, you flip over to tracts that are substantially moderate income and have less than 6 percent minorities, which constitutes 29 percent of 7 the businesses, you see that they receive more than 8 what they constitute -- more than their share, 33 9 percent. And you can do the math. The difference 10 between 26 percent and 29 percent is only 3 percent. Yet the difference in treatment for majority white versus majority minority, you're looking at the difference between and 33, so it's a 15 percent 14 difference. 3 percent population or 3 percent 15 number of business difference, but an 18 percent 16 difference in the way they're treated by lenders. 17 The point of this is that the more you 18 look at minority census tracts and the more it becomes a minority census tract with minority-run small businesses, there's an inverse ratio to what the banks are investing. In other words, they do less investing the higher the percentage -- even controlling for income level in the tract. So, you know, one thing I kept meaning to say is, the truth is, if lenders have nothing to hide, they have 43 11/12/02 - COMMERCE - RES. 000691, 020522 nothing to fear. If they have nothing to hide, they have nothing to fear. Let me just jump real quickly to some of the recommendations that we would like to make. I want to compliment the City for the annual CRA report. This is something that no other city in America, to my knowledge, has done, and it's something that we hope to be able to bring to other cities across America and encourage similar City Council and Mayors' Offices to take a look at to pass. I've already spoken to the single most important thing beyond what you've done, that I believe you could do that would make a big difference, and that's getting the data by specific census tract and by income. No law against it. You can do it. Go for it. It will make a big difference for your City. I'd also encourage you to revitalize -- I think you once had a link deposit program. Does the link deposit program exist in this City any longer? Okay. What that's about is, you know, why would you want to put City -- for that matter, other institutional deposits, in a financial institution that doesn't invest in Philadelphia and 44 11/12/02 - COMMERCE - RES. 000691, 020522 Philadelphia's people. I mean, it doesn't make any sense. What you want to do is reward those lenders who are investing in all people in all neighborhoods and being fair in their lending. What you do to encourage that is to take your City deposits, which are very substantial, the tax revenues and other revenues, and deposit them in the good institutions that are, in fact, reinvesting in your neighborhood. It's called the link deposit program, something that a few cities have done, and I think it would work very well in the City. Secondly, there's this thing called CRA agreements.
When banks merge -- you're going to hear, I think, from one of the groups, a mention of First Union and what they've been doing in the way of lending. They've done some good things. Well, to remind people, there was a CRA challenge. There was a fight with this institution to do good things in Philadelphia and there were people who stepped forward and said very specifically, you need to do X and you need to do Y in the way of reinvesting in this City. The result of that is some of the stuff you're going to hear about today. Well, the City can get very involved in that process and work with 45 11/12/02 - COMMERCE - RES. 000691, 020522 the community leaders to help push financial institutions to do more and make more forward commitments in investments, whether it's to micro lending or grants to CDCs or investments in minority and woman-owned entrepreneur businesses. You can get involved in that process. I'll give you the model is the city of Cleveland. There's no city better than the City of Cleveland in getting engaged when it comes time for CRA agreements and bank merges. You can comment on a bank's performance. It always appalls me that the Federal Reserve, who you're going to hear from today, if you talk to those examiners, they will tell you they rarely hear from people complaining about banks and almost never from cities. Well, if you're a City leader, whether you're City Council or the Mayor or anybody else, why wouldn't you want to comment about a bank that's either doing a good job, because you can look at the data and it shows that, or is doing a horrific job? They're taking in the deposits from the community and they're not reinvesting in the neighborhoods. Why wouldn't you want to comment to a bank examiner that you're not pleased with that scenario? I would 46 11/12/02 - COMMERCE - RES. 000691, 020522 encourage each Council member, individually or severally and collectively, to comment on CRA exams because it makes a big difference. You hear from these examiners, they don't hear from a community person from one end of the day to the next. Finally -- well, almost finally, we need a stronger federal law. This business I mentioned earlier about Senator Santorum helping to stop the Fed from requiring the collection of Regulation B or race and gender data for small business purposes. Well, there's a law in Congress right now that is actually -- was bipartisan. There was a Congresswoman, Connie Morella (ph), a Republican from Maryland, was the cosponsor with Representative McGovern from Massachusetts. And here we had a Democratic and Republican cosponsoring a Bill called The Access and Openness in Small Business Lending Act. It would get at what Councilman Clarke and Councilman Goode and others have been pushing for, and that is a clearer mosaic, a clearer picture of whether or not women and minorities and based on income were actually accessing small business data. Perhaps the fine people in the State of Pennsylvania can convince Senator Santorum to get behind that 47 11/12/02 - COMMERCE - RES. 000691, 020522 Bill and to sponsor a similar Bill in the Senate. Let me just also say that there is a sign-on letter being circulated nationwide to get the Federal Reserve to go and do what it was about to do that Friday ago and release a request for voluntary collection of this data. We ask the City of Philadelphia to identify itself and say, we share that position. We think it's a good thing for this data to be collected. So, there's that letter that's circulating. Again, I think you're going to hear a lot of examples -- again, I try to get you to distinguish, because there's some good things that banks are doing. Some of them came kicking and screaming. Some of them are doing it because they think it's a good thing to do. Banks are not the enemy.
But I also can tell you that it's going to be impossible to revitalize poor neighborhoods and underserved neighborhoods unless we have a more serious commitment from financial institutions, and that is, in particular, in the small business entrepreneurship and other kinds of lending. That, I believe, concludes my remarks.
Thank you very much. 48 11/12/02 - COMMERCE - RES. 000691, 020522 I'm hearing something on the left side. Councilwoman Reynolds-Brown.
I want you to please, if we could, go back to recommendation number two. And you stated a number of times that Federal law prohibits collection of the data that speaks to race and gender. And then you ended your comments by saying, we'll make a big difference for the City. State again how.
Okay. Can't get race and gender, right, because that, the Feds prohibit. And they have that in a regulation, so the bank would be penalized if they tried to report that. Obviously, they know when they're looking at you when you're trying to borrow from them whether you're an African American woman as the owner of the business, but they can't tell the Feds that. It's silly. It's really silly. But what you can collect is specific census tract. Where is the loan going? Is it going in North Philadelphia, Central City, East Philly? Is it going to, you know, a high-income census 49 11/12/02 - COMMERCE - RES. 000691, 020522 tract, a low-income census tract? That's one thing. The other thing is, on the borrower, while you can't collect the gender or the race, you can collect their income. What is their income, the income of the borrower? So now you know if somebody is getting a small business loan and their income is like $40 or $45,000, you know this is a person working their way up the economic rung. It's not some wealthy person, you know, opening a McDonald's franchise. I mean, it's somebody, you know, that, I think this Committee is interested in seeing to it, gets better served by financial institutions. It's not everything. It's not what we want. What we really need is a complete lifting of the veil of secrecy. And that means getting the Fed to lift Regulation B. And that day will come. And it will come through organizing. It will come from people saying, we're not afraid. It will come from bankers. You know, there was a time when Citibank and Bank America and all them, they all stood up saying, we're not afraid of it. Go ahead. But the bank trade associations opposed it, and that day passed. But there was a time when banks were willing. They're not afraid. Nothing to hide, 50 11/12/02 - COMMERCE - RES. 000691, 020522 nothing to fear. They weren't afraid to come forward and say, here. Here's our record of lending to women and minorities. We'll stack that against others. Right now, what you can tell by looking at this chart here -- I don't know if you can see. Josh, hold that up a little. But you can see on the bottom, we named banks here. And this is the percentage, this is the kind of data that's available, the percentage of loans in low and moderate-income tracts. Now, you don't know which tracts because they're all lumped together. But you do know that Beneficial Savings in the City of Philadelphia is doing a better job than any other financial institution in this City in loaning to low and moderate-income people. And Fleet is number two. And God knows we kicked the cahooties out of these two banks for many years. And it is good to be able to sit here and say, look, they're doing better. And you look down this end, and the worst, one of the worst, is Hudson United Bank. Now, Hudson in the paper said this morning, well, that's because -- oh, Commerce Bank this morning said, well, we're not doing very good because we don't 51 11/12/02 - COMMERCE - RES. 000691, 020522 have a lot of branches in those neighborhoods. Well, open some branches. Let's do some business. You see a whole group here telling you from some community, I don't know what neighborhood they're from, but somebody needs money and somebody needs those branches open. What you'll notice in looking at the data, too, and I think the Fed will confirm this, they confirm it in their data, is that where there are branches and where financial intuitions have branches, there is increased lending to low and moderate-income people and, vicariously, to minorities.
So back to Councilman Clarke's follow-up question. Though the local initiative would be an incremental step in the direction where we ultimately want the Feds to be, correct?
I mean, you'd really be able to tell whether they're loaning to low and moderate-income people, which you can't tell now. 52 11/12/02 - COMMERCE - RES. 000691, 020522 You just can tell that they're loaning in some of those low-income tracts. And they're all lumped together, so you don't know which ones. And remember -- do you know how they define small business loan? A loan that goes to somebody who has a million dollars or less in revenue. So, you know, a million in revenue. I guarantee you that very few of these people are looking for a million in revenue. They're looking for $10, $20, $30, even less, thousand. So, you know, it's -- you'll be able to now tell specifically what neighborhood --
-- by census tract is getting the loan and what the income of the borrower is. And that's something you currently don't have. You have the power to do that tomorrow.
You're welcome. The Chair recognizes Councilman Goode. 53 11/12/02 - COMMERCE - RES. 000691, 020522
Thank you, Mr. Chairman. First let me thank you, Mr. Taylor, for coming here, for your analysis, for your recommendations and for your testimony. I was also interested in some of the responses to your analysis in the newspaper today. I found that critique of your technical review ended up being anecdotal. So I want to ask you a few questions. You can respond to them in technical fashion or anecdotally, however you prefer. Based upon your research in Philadelphia, based upon your research in other cities, based upon your work in this area for several years on a national basis, first question is, as a black man, does where I live or where I conduct my business affect me in the credit market?
Is there any substitution by lenders, do you think, in your view, 54 11/12/02 - COMMERCE - RES. 000691, 020522 of neighborhood characteristics for the credit worthiness of individual borrowers?
Is there any substitution of neighborhood characteristics for the individual credit worthiness of individual borrowers?
I think it's a function of, you know, how committed a particular lender is to a given neighborhood. And what we have found controlling for incomes is that there continues to be a disparity. That if you're in a low and moderate-income census tract, just by the mere presence of being there, you've got an added hurdle that you're going to have to overcome, because the odds are against that census tract getting the same treatment as a majority or white, predominately white moderate and upper-income census tract.
Last question, which is kind of an interesting question and really pertinent to Philadelphia. We were actually embarking upon a $300 million -- or $295 million blight removal plan. Do you believe that blight matters in terms of available credit opportunities? 55 11/12/02 - COMMERCE - RES. 000691, 020522
I think it does matter. But on the other hand, I think it also -- it creates opportunities. Businesses can crop up in blighted areas that are desperately needed and desperately need financing. But I think to the extent that it's sort of like empowerment zones, when you focus on an area and you begin to sort of put a pipeline of credit and capital available, and then that supplemented -- there's government capital and then there's private capital.
The question is really geared toward traditional lending institutions. Do you believe that blight matters in terms of their offering credit opportunities?
Well, it's against the law to discriminate by race, by gender, by even neighborhood. That's why CRA was created. Does it really matter in the minds and the hearts of lenders, I'd have to say -- and, you know, this is the kind of data that's particularly for small business lending. It's very difficult to get a hold and to get a handle around, but I'd have to say it does matter, just because of just people's prejudices and bias and their assumptions about 56 11/12/02 - COMMERCE - RES. 000691, 020522 neighborhoods.
So, do you think we can have a successful blight removal and neighborhood transformation program in Philadelphia at the same time we have redlining of low and moderate-income neighborhoods and blighted neighborhoods?
I think it's impossible to turn the economics of any neighborhood around without private capital. And I think that's been proven over and over and over again. The government has just so much capacity, and they can lead the way. The CDCs, the CDFI, the microenterprises, they're all vehicles and intermediaries to lead the way. But the truth is, unless and until financial institutions reach the point where, you know, when a woman or a person of color who walks in from a low-income neighborhood, who is an entrepreneur, has a good business idea, good business sense, has some equity built up, is treated the same as any white male who walks into that institution and its suburban branch, until that occurs, you'll never revitalize these neighborhoods.
Let me thank you 57 11/12/02 - COMMERCE - RES. 000691, 020522 again for your analysis and for your recommendations. I look forward to a long-term relationship.
Mr. Taylor, let me just ask you one question. This comes from the testimony and the charts, page three into page four. I just wanted to inquire -- and I understand the statistics and the variance in the statistics and what they would seem to show and indicate. Let me ask you for specifically bullet point number two, number three -- probably, actually, points one through four. Do you have any data or information that indicates for -- in the substantially minority tracts, those are 80 percent or more minority, the data indicates that 26.1 percent of all small businesses located are in those neighborhoods, but received only 17.9 percent of the loans. Now, do we have -- naturally, the flip side of that whole discussion is how many people actually applied and how many were rejected in both the substantially minority tracts as well as the substantially -- for this discussion, non-minority tracts. Do you have any information on that kind of data? 58 11/12/02 - COMMERCE - RES. 000691, 020522
Not on applications. And that's a good example. I'm glad you raised that, Councilman Nutter. Because, you know, in home mortgage data, you do.
And there's two sort of conclusions, at least two, that you can reach when you see the amount of applications that a lender is getting. One is, what percent of those applications are approved for African Americans, for Latinos, for women, for whites.
For anyone. And you can do it by income. So you can make comparisons. And in general, if you're African American, you're twice as likely to be turned down for a home mortgage loan as a white person. So if you're in a city or you find a lender that's turning down -- like Navy Federal Credit Union. Don't get me started on the big credit unions. But Navy Federal Credit Union, which turned down 10 blacks in the City of D.C., and seven blacks in the City of Baltimore for every one white, you know, all of a sudden you're going to ask, what's going on here. And that's the smoke that you 59 11/12/02 - COMMERCE - RES. 000691, 020522 look for the fire. But in small business lending this is an example. Why wouldn't we collect data on who's applying? I mean, this is just who's applying. Because it would not show a good story for a lot of lenders. And so that veil of secrecy is going to be kept, and it's going to protect the lenders who are going along their merry way denying disproportionate amounts of minorities and women for small business loans.
So with that lack of data, I mean, one, obviously, the debate goes on and to some extent is ultimately inconclusive. And for the 17.9 percent of the loans received by small businesses in these high minority tracts, in this particular example, we don't know whether that represents 100 percent of the people who applied or literally 17.9 percent --
-- of the people who are just approved out of some larger pool of people who actually applied and then the others were rejected.
And worse, you know, you don't know of that 17 percent, are we talking about 60 11/12/02 - COMMERCE - RES. 000691, 020522 somebody who has a credit card with a 20 percent interest in the bank said, okay, you can borrow $5,000 from us.
That's not what I call a small business loan. That's what I call --
I understand. Well, it goes back to the whole issue of data collection and the ability to give a true analysis and examination of what's going on. I mean, you're just dealing with raw numbers and you have to figure out whether A and B are actually connected, or whether they're stand-alone, separate pieces of information.
And here's another complexity, that in most central cities -- it's changed here in Philadelphia in the last either one to two years. But most central cities, the downtown area is classified as a low and moderate-income area because all the folks go home to the suburbs and the people that live there are LMI. Well, that's changed Philly because of all the condo and other kinds of development. You brought in the higher incomes and so on. But up until very recently, all those loans -- like, if you made a loan to a 61 11/12/02 - COMMERCE - RES. 000691, 020522 downtown law firm, a half-million dollar loan to renovate their offices, because they're in a low and moderate-income census tract, it gets reported here as a low and moderate-income loan.
So the system is so flawed that it's -- we know, and I think you can see just from the people who have showed up, not to mention from your own work in the community, of all the people that you talk to that have a difficult time getting access to credit and capital. The data suggests that this is a bigger problem. And the data suggests and screams out for more information to allow intelligent, reasonable, fair people to be able to make decisions about what lenders are doing and not doing and what they could be doing and should be doing.
Thank you. (Applause.) 62 11/12/02 - COMMERCE - RES. 000691, 020522
Margo Davidson from the African American -- I'm sorry. I'm having a little reading problem here. Leslie Benoliel from Community Capital Works. Sorry. Hi. Please identify yourself for the record and proceed. Before you do that, there are -- it's my understanding there are some other folks who are out in the hallway trying to get in. As people come in, if you could identify open seats, that would certainly be appreciated. We'll be just kind of up close and personal here today trying to have as many people participate in the hearing as possible. Ms. Benoliel, please proceed.
Good morning, Councilman Nutter and honored Committees of the Commerce and Economic Development Committee of City Council.
Sorry. My name is Leslie Benoliel, and I'm the Executive Director of the Philadelphia Development Partnership, PDP. PDP is a microenterprise development agency that provides training, technical assistance, business counseling, 63 11/12/02 - COMMERCE - RES. 000691, 020522 peer support and networking opportunities to small and micro businesses and the self employed in the greater Philadelphia region. I'm also Vice President of Community Capital Works, Inc. That's PDP's US Treasury certified CDFI, Community Development Financial Institution, that provides micro loans and micro equity investments to these small businesses. I'm here today to testify on microenterprise development and neighborhood self-employment as an economic development strategy for the City of Philadelphia. Now, as we look around in many of our City's neighborhoods, we see the obvious signs of economic disinvestment and urban decay. We see vacant buildings, trash-strewn lots, blocks void of commercial activity. However, by taking a closer look, we notice people engaged in business activities. People baking and selling cookies, fixing cars, sewing clothes, braiding hair, making flower arrangements and watching after children. These hard-working people are the self employed in microenterprises. And I'm here today to tell you that they play a very significant and important role in our neighborhood economy. 64 11/12/02 - COMMERCE - RES. 000691, 020522 What is a microenterprise? A microenterprise is defined as a very small business that employs fewer than five people, requires less than $35,000 in capital to help their businesses start up or expand. Most of these businesses tend to be smaller than that. They usually only have one employee and generate less than $50,000 in annual revenues. According to our estimates, there are thousands of self-employed people in microenterprises operating in the City of Philadelphia today. They exist in each and every single Council District, providing much needed goods and services to our community. We see them every day. And we see them here today. They take care of our children. They clean our homes and offices. They cater our special events, paint and repair our houses. And what you see here today is only the tip of the iceberg. These microenterprises and self-employed people are the life blood of our neighborhood economies, especially our low-income communities. Besides providing goods and services, they circulate dollars in our community. They employ local residents and family members, and many 65 11/12/02 - COMMERCE - RES. 000691, 020522 are very actively involved in their communities through their houses of worship and neighborhood associations. They have the drive and determination to make their businesses successful and, in doing so, increase their household income, build assets, improve the quality of life for themselves, their families and their communities. However, with limited resources and support systems in place, these hard-working entrepreneurs struggle to get their businesses up and running and to keep them operating. It is absolutely essential that we find ways to build a more solid infrastructure to support this vibrant and vital segment of our City's economy. What these entrepreneurs need to start up and stabilize and expand their businesses is reliable, predictable access to capital, access to markets and intensive business development services that are specifically tailored to their needs. And let me repeat that. They need services that are very specific to their needs. Unlike small and mid-size businesses, microenterprises are typically shunned by the formal banking and traditional business development service providers. Why? 66 11/12/02 - COMMERCE - RES. 000691, 020522 They're too small and inexperienced to qualify for or even afford loans and investments and services offered by the City, quasi City agencies and small business development centers.
Several years ago, PDP conducted research into the needs of microenterprises here in Philadelphia. That research is cited in the Resolution. And we learned that their needs were indeed not being met by the market. This is still true today. There are serious inequities in their being able to access the resources required to advance their entrepreneurial endeavors. The small amounts of capital they need, often less than $5,000, are considered too small and costly for most banks and even the small development programs. Furthermore, many of the entrepreneurs face barriers that disqualify them from accessing loans. Barriers such as lack of collateral, insufficient savings, limited business experience and, most often, poor credit histories. And because most of our entrepreneurs work at jobs in addition to operating their businesses, it is very difficult for them to access business services from the business -- the service programs due to scheduling 67 11/12/02 - COMMERCE - RES. 000691, 020522 and transportation constraints. PDP's products and services are designed for the specific needs of the low-income entrepreneur. We meet the micro entrepreneur where they are in terms of their phase of business, whether it's at idea stage, start up or they're expanding. And we take them to the next level. Our services are also delivered at times and at locations that are convenient for our clients. We hold our trainings and our group meetings in the evenings and on weekends. We hold them in community centers, at churches, in their places of business. Through our unique peer lending program called Community Capital Works, we offer micro entrepreneurs tiny loans starting at $500, sometimes even less. Clients are able to apply for and receive loans without revealing their credit histories, taking collateral or guarantees. And PDP is often the only place these micro entrepreneurs can turn for start-up capital outside of their circle of family and friends. Our business development, service training, technical assistance, networking and our marketing assistance are practical, comprehensive and intensive. Our integrated array of services 68 11/12/02 - COMMERCE - RES. 000691, 020522 wrap around the needs of our clients and nurture them from idea to start up, from start up to growth. No other provider in this region offers this range and intensity of services for the low-income entrepreneur. Studies have shown, and our own experiences validated that microenterprises that receive these types of services enjoy higher rates of business survival. We know we are effective at penetrating and serving the needs of this market since launching our programs four years ago. We have reached more than 2,000 existing and potential entrepreneurs who have come to our open houses. We've provided business development services to more than a thousand. We've dispersed 102 loans channeling more than $82,000 into the hands of these neighborhood businesses. 99 percent -- and we do collect this data -- 99 percent of PDP's clients are minorities. Two-thirds are women. Six out of 10 live in low-income households. Many are head of their households, responsible for the care of children, grandchildren, elderly or disabled relatives. More than three-quarters operate their businesses in addition to holding a full or a 69 11/12/02 - COMMERCE - RES. 000691, 020522 part-time job and rely heavily on these revenues generated from their businesses to supplement their household incomes. This extra income is essential for them to take care of their families and make ends meet. It also helps them weather the storm in case of a job loss or an unexpected illness, circumstances that can seriously disrupt these vulnerable households. In the four years that we've been providing these services, we've learned firsthand how critical our products and services are to ensuring the success of these entrepreneurs.
Our services help increase the likelihood of their surviving, and have enabled many of these businesses to move into the mainstream economy. In the past year, we've witnessed several of our clients move their businesses from their homes to retail and commercial sites, obtain business licenses, hire employees and increase their revenue substantially. These are significant outcomes and they make a positive impact on our City's economy. And in order to ensure that these entrepreneurs avail themselves of the full range of resources and networking opportunities that are 70 11/12/02 - COMMERCE - RES. 000691, 020522 available, we work in close partnership with other local organizations serving these businesses. The African American Female Entrepreneurs' Alliance, the National Association of Marketing Developers, PCDC Small Business Support Center, Ben Franklin Technology Partners and the Enterprise Center. Thanks to the support we receive from both the private and public sectors, the foundations, the banks, the Commonwealth of Pennsylvania and the City of Philadelphia through the Commerce Department, we've been able to launch and grow our programs to the level they are today, serving more than 300 entrepreneurs annually in Philadelphia. The microenterprises that are enrolled in our programs are located in all of your City Council Districts, and many of them are here today. And without this support many of these folks you see here today might not still be operating their businesses. Demand for our services is increasing. Enrollment in our programs has more than doubled in the past two years. More and more people are coming to us in this uncertain economy saying that starting a business and generating an income for themselves is a financial imperative, and it's viewed as their 71 11/12/02 - COMMERCE - RES. 000691, 020522 best option as an alternative to a low paying job. But we're limited in the number of folks that we can serve because of the limited amount of resources that we have. And we've only scratched the surfaces of what we can do. So I'm urging you, Councilman Nutter and honored members of our Committee, to put into place, or help us put into place, a solid infrastructure that can support these fledgling businesses. And to do this is going to require substantial investment of resources from both the private and public sectors. And although loan capital is very important, also it's equally, if not more important, our resources to support the training, the intensive training and hand holding that these folks need to help their businesses grow. We can no longer afford to overlook this vital segment of our economy. And by making an investment in these microenterprises is at the very heart of community reinvestment. It is an investment in our greatest resource, our citizens. Thank you very much.
Thank you very much for your testimony. (Applause.) 72 11/12/02 - COMMERCE - RES. 000691, 020522
The Chair recognizes Councilman Clarke for a question. And if we could also have the Sergeant-at-Arms pick up Ms. Benoliel's testimony to distribute to the members, I would greatly appreciate it. Councilman Clarke.
I'd like to thank you for the wonderful work that you've done. I'd just like to ask you a couple of questions. Representing a District that, you know, has some problems with respect to employment opportunities, I, in fact, know about this informal economy that we have in parts of my District in North Philadelphia. Sometimes, you know, when you look at the statistics indicating the number of people that are employed, you really don't get a sense of how that particular community can survive. But, in fact, we do have all types of self-employed individuals, cutting hair in basements, selling the dinners, three, four, five days a week. And that's been a situation that we've had in our area for 73 11/12/02 - COMMERCE - RES. 000691, 020522 quite some time. But there are a couple of things that I'm having some problems with achieving, because we've been interested in this for a while for obvious reasons. In some instances, we have individuals who may have problems that sometimes prohibit them, obviously, from getting assistance through the traditional lending institutions and probably, to some degree, through the non-traditional lending institutions, such as yourself. Certain problems with respect to criminal backgrounds, certain problems with respect to the Internal Revenue Service, as an example. What I'd like to know is, what level of debt can we hope to get in terms of support from your organization and other organizations, or can you recommend types of organizations that we can get, as an example? We have a company, and I call it a company in the non-traditional sense, an individual who provides a service to the local community through cutting hair. And this person wants to get formalized. They want to get legalized. And they decide to open up a business. And they've been doing this informal business for maybe 5, 10 years 74 11/12/02 - COMMERCE - RES. 000691, 020522 and, all of a sudden, the Internal Revenue Service decides, when they want to get a tax ID number, how have you been surviving for the last years? You 5 know, what have you been doing? You know, how do 6 have this capital? How do you have this equipment? 7 We run -- on occasion, run into those 8 types of problems. Or the individual may have a 9 pending record, outstanding criminal problem with 10 respect to some activities that they may or may not have been involved with. Does it decrease the ability of that individual to receive a loan through this informal process? I mean, these are just very difficult problems that we have in a lot of parts of our Districts and they're ones that I have to deal with on a daily basis. And I just need to know. I guess I'm grasping at straws in terms of getting some solutions to some of these very, very difficult problems.
Let me answer this way. When an entrepreneur comes to us for assistance, we work with them wherever they are in terms of their businesses. And their problems vary from individual to individual and we design our assistance around that. Most of our entrepreneurs probably have 75 11/12/02 - COMMERCE - RES. 000691, 020522 issues related to their credit histories. They may have a bad credit history or they may have no credit history. And that's often a huge barrier for them to access credit from traditional sources. We don't ask for their credit histories when they first come to us, but we work with them to try to advance them. On some of these other matters, there have been a few, but only a handful. Usually they're not at that level. They're working part-time, as you mentioned. Baking, cooking dinners in their basements. And their capital needs tend to be very, very modest. We start at $500 to buy the computer, maybe a $1,000 to buy some pots and pans for their kitchen. But they're usually not even at that stage, and they've been operating informally. But we do -- where there are issues, where there are some other challenges, we work with them to resolve them. We had one instance with a woman who acquired some property and there were some back taxes, and it wasn't her fault, but we had to help clean some of that up. And I think she was in your Council District where she's running a very fine school now. So we do try to connect them with other resources to help them resolve some of these 76 11/12/02 - COMMERCE - RES. 000691, 020522 other entanglements that may deter them from moving their businesses forward.
So I guess I'm not hearing you being able to respond to what I'm asking. In the sense that I may have situations where I have constituents who have done some things in the past where it is their fault. An individual who has been arrested. All right. Court case doesn't come up for nine months. This individual needs to be able to survive. This individual is selling tapes, right, or whatever on the streets, selling sweaters. But this individual needs to get formalized. What I need -- I'm trying to get some assistance for that individual. I mean, I got a lot of people in my District who provide a service, but it's just informal service. And they have some issues with respect to some things that have happened in their past. And I've been unable to get anybody to help in terms of turning that person in the right direction.
We will work with them. We will work with them to try and help them resolve these other things to enable them to advance their businesses. 77 11/12/02 - COMMERCE - RES. 000691, 020522
And I guess as a follow-up to that question, because I understand any entity has limited resources, I would like to know what type of resources that your agency would need to assist these individuals in getting the type of support, you know, be it legal, be it with respect to any pending IRS issues, anything of that sort?
We will need additional resources for that type of activity.
You'll need more money from Commerce, Councilman Goode told me. All right. Guess you say be careful what you ask for. One other question -- this is kind of an actual situation I'm in the midst of. We have a drug problem in the City of Philadelphia. We have a lot of individuals who are very good entrepreneurs. The only thing is that they're selling the wrong product. All right.
They have a distribution network that, frankly speaking, would 78 11/12/02 - COMMERCE - RES. 000691, 020522 put General Motors to shame. Individual gets off the assembly line, gets relocated. We all know where that person goes. But the reality is that that individual is replaced in a heartbeat before the ink gets dried up on the complaint form. And I'm actually working with a gentlemen who has a business in my District, relatively successful business and we're embarking on -- trying to embark on a program where we can give individuals alternative opportunities to make a living utilizing their very, very capable distribution skills. We're actually talking about selling clothes because we believe that, you know, selling clothes is to some degree, quote/unquote, cool. We think that we can encourage individuals to be involved in that type of opportunity. Can I come to your organization for some assistance in --
We have the appropriate people to do the recruiting, but we just need someone to sit down with us and work our way through this formal process to get these young men and sometimes, unfortunately, young ladies --
I have a very capable, 79 11/12/02 - COMMERCE - RES. 000691, 020522 experienced staff. A lot of our folks have been in business themselves. And we would love to work with you on that.
Thank you very much for your testimony. Ms. Angela Gracey. Please identify yourself for the record and proceed with your testimony.
-- Councilman Michael Nutter and Councilman Goode and other esteemed members of the Commerce Committee, Councilwoman Blondel Reynolds-Brown. Thank you so much. I was looking around for a minute because I thought I went out of order. I thought someone was going to go before me, but that's okay. I just want to speak to you a bit from my heart this morning. I'm not going to follow too much with actually reading my testimony. My name is Angela Gracey, and I'm the founder and CEO of Rhema 80 11/12/02 - COMMERCE - RES. 000691, 020522 Writing Concepts. I provide business communications and consulting services for small businesses and organizations. I'm also an enterprise consultant with the Philadelphia Development Partnership. And after starting my company, which I started in February of 1998, approximately a year and a half later, I became involved with the Community Capital Works program, which is the signature program for the Philadelphia Development Partnership. Myself and five other Christian businesswoman formed a Christian business loan group, and our group is called the Christian Business Legacy group. And shortly after that I was so high on the program because of the services that they offer -- and I won't repeat them again because I think Leslie did a very good job of telling you exactly what the Philadelphia Development Partnership offers. But they offer, just in a nutshell, business skills, training, technical assistance, business loans and networking opportunities, and not the least of which, the unique opportunity to be here today and to actually be an advocate on behalf of small businesses. And I just think it's a tremendous opportunity and a privilege to do it and I don't 81 11/12/02 - COMMERCE - RES. 000691, 020522 take it lightly. I have been able -- as a business owner, I have been able to take advantage of all four of those service areas of the Philadelphia Development Partnership. I received three small business loans since I've been involved in the program since 1999. And those loans have helped me tremendously. I mean, without them my business would not have been able to progress as far as it has. This February I will have been in business for five years, and I owe that tremendously to the help and the support of the Philadelphia Development Partnership. One of the things that I really wanted to tell you about -- I did do some research and so on, and according to the SBA and the NFIB Education Foundation, small businesses represent about 99 percent of all employers in America. They create 80 percent of all new jobs in America and they are almost the sole source of job growth during national recessions of economy. So obviously if we're 99 percent the creators of new jobs and so on, we're obviously creating tax revenues and that kind of thing to the local and state government for the jobs that are created in the City and in our communities. 82 11/12/02 - COMMERCE - RES. 000691, 020522 But beyond the numbers, beyond the actual dollars and revenues that the City and our state benefit from, small business owners also bring a whole lot more to the table. Some other intangible things that may not necessarily be represented in the numbers and in all the reports and so on that we see. As a presenter of the Community Capital Works program, every other week we do have an open house presentation, and that's how most of our clients find out about our services, is through our open house presentations. And as a presenter of those presentations, I get to hear a lot about the dreams and the visions of the entrepreneurs or the prospective entrepreneurs who come there. I ask them things like, you know, what do you want to do, or how do you want to serve your community, and I hear what it is that they're passionate about. Many of them want to address many of our social needs. They want to help teenage mothers. They want to help the disenfranchised. They want to create shelters for the homeless.
They want to develop mentoring and tutoring programs to enhance our educational process. They want to help recovering addicts. They want to provide services 83 11/12/02 - COMMERCE - RES. 000691, 020522 for parents who are overwhelmed, single parents that are overwhelmed with trying to care for their families and trying to make ends meet and trying to work a job every day. As Leslie said, they're working every day, but they have something else that they want to contribute to society and they're very passionate about these things. So small business owners offer people a unique chance or a unique opportunity to become a part of the mainstream or to become a part of the mainstream of society and to give them -- offer them a second chance to those who may not ordinarily receive it from the larger corporations or, quote, unquote, corporate America. We have a unique opportunity to offer some of these individuals, the disenfranchised, a chance to become productive members of society. And not only to become a productive member of society, but to add economic stability to their communities and also to offer them a sense of purpose and a sense of pride and what it is that they want to do or what it is that they want to contribute. So in addition to revenues and those kind of things, small business owners are creating jobs, but they're creating a sense of purpose, they're creating 84 11/12/02 - COMMERCE - RES. 000691, 020522 stability in their neighborhoods. They're offering people a chance to move forward. I had mentioned earlier that I received three small business loans myself through the Philadelphia Development Partnership. And now I'm at a place where I can actually try for a larger loan amount. And I'm seeking to get an operating loan for operating capital for my business that a few years ago I wasn't in the position to be able to do that. And so, the resources -- without having a consistent access to those kind of resources, the Philadelphia Development Partnership and other organizations like them would not be able to create the services, the technical assistance, the unique training programs that the small business owners need. Earlier, Councilman Clarke had said that he was asking about how -- what kind of services that PDP will offer that would help people who were maybe on drugs or they have some kind of criminal background or something, and how to be able to move them forward. Well, we need access to capital so that we can offer that kind of technical assistance on a consistent basis, so that people who come to us 85 11/12/02 - COMMERCE - RES. 000691, 020522 are able to meet those needs and sit down with them and work through it. But it takes resources to be able to offer that kind of technical assistance. Right now, business skills, training and those kind of things are also available. Micro loans are also available. But to move them from a place of obscurity to a place of mainstream productivity takes more technical assistance, more one on one, than just a small business loan. And I'm not knocking the whole idea of the small business loan because we sure need resources, but we need other things besides small business loans. We need other things to support us. Other kinds of assistance to move the micro entrepreneurs forward. The approval of this Bill is much needed, obviously. I don't think that that needs to be repeated and repeated. The need is great. And I think that you can see that from our representation here day. But you know, our state and our federal government, they have spent millions of dollars, you know, bailing out failed companies and failed industries. I mean, they've -- as a result of 9/11, there were millions of dollars were re-targeted to help industries that were failing as a result of it. 86 11/12/02 - COMMERCE - RES. 000691, 020522 At one time Chrysler was in trouble and they were bailed out, you know, millions of dollars to help them pull the company back around.
SEPTA even has been -- many times they have been given millions of dollars to help revitalize and change over and revamp our transportation system. Then most recently Amtrak almost had to shut down because they needed a quarter of a million -- $200 million rather, to put their trains back and keep them running on track. So if our federal government can help give those kind of funds to some of our failing industries, how much more does small business industry. Right now we're the backbone of the economy in this nation and we are worthy of the support because we give so much more to our communities than just revenue and tax dollars. But we bring a quality of life and stability to our communities. And it may be obscured now, but prayerfully with your support it won't be for long. Thank you. )
Thank you. See what happens when you get taken out of order? 87 11/12/02 - COMMERCE - RES. 000691, 020522 Ms. Margo Davidson, African American Female Entrepreneur's Alliance. Please identify yourself for the record and proceed with your testimony.
My name is Margo Davidson and I'm the president and founder of the African American Female Entrepreneur's Alliance. First of all, we want to thank the authors of this Resolution for having the insight, wisdom and determination of spirit to examine this important issue and hold these hearings. It is refreshing whenever leaders act on their convictions and take bold steps based on those convictions. Thank you for recognizing the demonstrative economic impact that Philadelphia CDCs and business development organizations have had in revitalizing and stabilizing our community. Community reinvestment legislation can further the already substantial work done by CDCs and economic development organizations of our area. I'm sure you've heard or read in the Philadelphia Association of Community Development Corporation's published reports that, during the 1990s alone, Philadelphia CDCs and business 88 11/12/02 - COMMERCE - RES. 000691, 020522 development organizations developed 3,650 housing units, created more than one million square feet of commercial space, converted more than 750 vacate lots into community parks and gardens and provided job training to more than 7,000 neighborhood residents. Further, we agree with the PA CDC's assertion that the City should partner with CDCs and economic development organizations in the eight areas including neighborhood planning, demolition and encapsulation, vacant lot management, housing preservation, housing development, commercial corridor revitalization, business development and work force development. However, for the purpose of our testimony, allow us to focus on the area of business development and microenterprise development, particularly as it relates to people of color and women. After all, micro entrepreneurship and self employment is how the members of AAFEA and people in this room today, the African American Female Entrepreneur's Alliance and PDP, CCW members, they own and maintain their houses, some of them built by CDCs. They open commercial shops. They run 89 11/12/02 - COMMERCE - RES. 000691, 020522 home-based businesses and they contribute to revitalizing neighborhood business corridors. They hire from within the neighborhood, increasing jobs and neighborhood vitality. 95 percent of them also find their suppliers and buyers right in the community where they live. 5 billion in sales, according to the US Census Bureau. 2 million firms owned by women of color, amounting to one in five women-owned firms, percent in the 16 USA. Overall, the number of minority women-owned 17 firms increased by 32 percent between 1997 and 2000, 18 four times faster than all US firms and over twice 19 the rate of all women-owned firms. 20 I ask, is this a movement that we should ignore or support? In the Milken Institute Policy Brief, Mainstreaming Minority Business, they determined that systematic changes were necessary to support historically disadvantaged businesses. The report 90 11/12/02 - COMMERCE - RES. 000691, 020522 asserted that the movement should be supported because entrepreneurial business growth has proved to be the most successful avenue for wealth accumulation for lower and middle-income groups. Small business in the United States employs about 56 percent of the private work force, contributes to 47 percent of all sales, creates the most new jobs and products, 55 percent, in fact, of innovations. Smaller establishments with fewer than 500 employees created virtually all the new net jobs from 1992 to 1996. Systemic changes are needed because, despite the substantial results produced by these businesses and the micro entrepreneurs in this business, discrimination in the small business credit market continues to exist. 5 times greater for blacks in the small business credit market compared with the mortgage market. The authors attribute this difference to the existence of special programs and regulatory incentives that encourage banks to 91 11/12/02 - COMMERCE - RES.
000691, 020522 increase mortgage lending in the minority community and to the well-developed secondary market for mortgage loans. In other words, pooling loans and then reselling them in a secondary market appears to reduce the likelihood of racial discrimination in credit lending, and some of those same techniques and methods needs to be applied to the business credit market. As the Resolution 020522 examines community reinvestment by City depository banks, the 1998 study is revealing that a significant portion of community reinvestment dollars could be used to reduce the current inequities in the business credit market. Reducing those inequities is paramount because people of color were four times more likely to be turned down for credit, even when factors like education, experience, and other creditworthiness indicators were controlled. Access to bank credit was more critical to this population because minorities have significant lower net worth and liquid financial assets. Thus, minority-owned firms are overly dependent on commercial bank credit, but receive fewer and smaller loans according to the MI report. 92 11/12/02 - COMMERCE - RES. 000691, 020522 Indeed, among AAFEA members, a recent survey of 212 local member businesses revealed that 98 percent identified access to credit capital as their greatest need, followed by increased client contracts and business development services ranking third. Interviews with members revealed more. The reason that access to capital ranked number one is because of an expressed fear that under-capitalization does not allow them to meet the demand of larger contracts or increased customer demand. For example, one AAFEA member business owner, a caterer, has not been successful in acquiring business credit this year. She continues to turn away business because she does not have the financing to pay additional staff, buy needed new equipment and lease a facility to store inventory and work in progress to meet the increasing demand that her business faces. The business, while maintaining itself, its owner and one part-time employee could increase sales, create additional jobs and pay more taxes with a loan of just $10,000. Philadelphia Regional SBA director confirms that Philadelphia banks are reluctant to do 93 11/12/02 - COMMERCE - RES. 000691, 020522 small business loans or micro loans under $25,000, even with the SBA guarantee. Other business owners report that they cannot get credit locally on 70 percent or sometimes 50 percent of their accounts receivable. In addition, for other business owners, including myself, who do business with the City, the turnaround time for payment in the City of Philadelphia is often 60 days and sometimes up to 180 days. A line of credit for these companies, not customers, is the difference between survival and death. Community reinvestment programs could be designed to better serve this market, pooling funds to be administered through CDFIs and CDCs and business development organizations that are reaching this market. In order to truly stimulate the economy we must invest in small micro businesses and the self-employed. The same strategic effort that was utilized to improve home ownership, including education, loan packaging assistance and credit repair, to name a few of those strategies, must also be adopted in the business credit market. It was the Philadelphia Partnership's former chairman and former executive banker who was quoted as saying 94 11/12/02 - COMMERCE - RES. 000691, 020522 that we are putting people in houses, but we have not done anything to improve their ability to afford or maintain those houses. In other words, the need for people to generate income is a critical precursor to the need for housing and removing blight.
While it may seem like a statement of the obvious, there are examples all over Philadelphia of low to moderate-income housing development projects where abandoned houses were beautifully renovated only to see those same houses become run down or abandoned again because low-income people, who are the last hired and the first fired, were left without any other viable income-producing strategy to counteract this tragedy. The traditional resources have been inaccessible. Community reinvestment dollars can be earmarked to move greater percentages of those resources to the front line. Among the CDCs and business development organizations who sit at the kitchen table or the conference table, which is the kitchen table, strengthening businesses. )
These organizations develop and strengthen these entrepreneurs in a 95 11/12/02 - COMMERCE - RES. 000691, 020522 number of ways, including helping entrepreneurs develop their business plan, assisting them in the crafting of loan packages, helping them to fine tune a marketing strategy to yield greater results, helping new businesses expand their work force and the human resource issues that they face, providing incubator space and assisting businesses wade through commercial property management mazes. Providing credit repair strategies and reviewing financial and investment options are some of the services that we provide. Further, as I begin to close, AAFEA's slogan is that we strengthen businesses through education, mentoring and networking. I bring that to your attention because of the work of education that we provide to, not only the adults, but to young girls, teaching them the principles of entrepreneurship while demonstrating that it is possible and a reality in their own community. Creating a new generation of entrepreneurs is not only the commitment of AAFEA, but other entrepreneurship-focused organizations in Philadelphia. This is the kind of work that community 96 11/12/02 - COMMERCE - RES. 000691, 020522 reinvestment legislation can support; education, mentoring, support services and credit to micro entrepreneurs, small businesses and the self-employed that are represented here today who are out there in the trenches day in and day out helping to make it happen in neighborhoods across this City. The CDCs and business development organizations know where to drill for oil in the wells of people who are making an economic difference in their community, living the dream of business ownership. In closing, we urge you to move forward with this bundle of progressive economic development strategy initiatives that includes community reinvestment and utilizes the strength and community connectedness of Philadelphia CDCs, business development and microenterprise development organizations. We thank you for your time and your fortitude in this matter. (Applause.)
Thank you, Ms. Davidson. 97 11/12/02 - COMMERCE - RES. 000691, 020522
Thank you very much. Any questions? Ms. Davidson, there was a request for a copy -- we have it. Thank you. Sharmaine Matlock-Turner and Dede Myers and Ray Desiderio.
Mr. Chairman, I'm also asking that a member of my team also come up with me, Don Kelly. Is that okay?
That would be fine. However you wish to manage things is fine with me. Please identify yourselves for the record. I'm going to assume you've decided amongst yourselves who will go first. Please proceed with your testimony.
I am Dede Myers, Vice President for Community Affairs at the Federal Reserve Bank of Philadelphia. I'm pleased to provide you with information on small business lending patterns in the City of Philadelphia and to compare them to national trends. 98 11/12/02 - COMMERCE - RES. 000691, 020522 Each year the Community and Consumer Affairs Department, which I lead, prepares a report on selected lending patterns in the third District's communities, including the Philadelphia metropolitan area. This report looks at home mortgage, small business and small farm lending, with a particular interest in low and moderate-income neighborhoods. The report is developed for publicly available data submitted each year by financial institutions on their Home Mortgage Disclosure Act statements and Community Reinvestment Act Disclosure statements. The latter includes small business, small farm, and community development loans. These are the same data that bank examiners use to evaluate a financial institution's community reinvestment record. Because of the City Council's interest in small business lending, my department has prepared a similar report for this City versus the Philadelphia MSA. gov. This is the same information that Jonathan Saidel's staff and John Taylor looked at. First piece of information. Who 99 11/12/02 - COMMERCE - RES. 000691, 020522 reports? CRA disclosure statements are required annually from all independent financial institutions with assets of 250 million or greater on December 31 of the prior two years, or from a financial institution of any size if owned by a bank holding company with assets of one billion or greater on December 31 of the last two years. Nationally, the FFIEC estimates that the small loans to businesses reported on the CRA disclosure statements account for 84 percent of all loans to small loans to businesses, the difference being those not required to publicly report. In Philadelphia, only of 47 14 financial institutions with deposit facilities in 15 the City are large enough to meet this threshold for 16 public disclosure. The data, however, show lenders 17 who may not have branches in the City, but are 18 lending here. 19 What is reported? The small business 20 loans reported on CRA disclosure statements include 21 all loans with a business purpose that are a million 22 dollars or smaller and not secured by residential 23 property. The data also identify loans extended to 24 businesses with annual revenues of a million dollars 25 or less and the census tract where the loan was 100 11/12/02 - COMMERCE - RES. 000691, 020522 originated. The CRA disclosure statements provide no information about application, that is, who requested credit versus who was approved, or the demographics of the borrowing businesses, or their owners or, by extension, the applicants who wouldn't have been approved. The information reported on community development loans provides the total number and dollar, but nothing about the purpose or the location of the loan. So, for example, we can see that the biggest banks might report upwards of 200 community development loans for many millions of dollars, but we can't tell what's in Philadelphia and what's someplace else. What do the data show? The tables and graphs that I have included, and they are attached to my narrative, show the trend in small business lending in the City as a whole and by income category of census tracts. While I will speak mostly to the trend in the past year, the summary tables on attachment one and the graphs on attachments two to five depict data from the past six years, 1996 to 2001. Additional tables in attachments six to eight also show the top 25 lenders in the City as a whole in low and 101 11/12/02 - COMMERCE - RES. 000691, 020522 moderate-income census tracts, and to small businesses, which are those defined as businesses with less than one million in annual revenues. So, let me go through this. Small loans to business.
In 2001 there were more than 19,000 small loans totaling $802 million approved in the City of Philadelphia. That's a 34 percent increase over the 14,000-some made in 2000 and a 59 percent increase in the dollar volume of loans made in 2000. Nationally, during the same period, the number of small loans to business increased percent and the 13 dollar volume increased 23 percent. So Philadelphia 14 saw improvement almost twice that of national 15 numbers. 16 Before the big dollar increase in 2001, 17 the dollars originating in the City ranged from $585 18 million in '96 down to $415 million in '98 during 19 the previous five years.
Ms. Myers. I'm sorry. I apologize for interrupting you. I just want to make sure I understand something that you laid out earlier. In this section of your testimony, small loans to businesses, can I understand from your previous statements, that when 102 11/12/02 - COMMERCE - RES. 000691, 020522 you talk about the 34 percent increase over the 14,288 small loans made in 2000, did I understand you to say that you don't know where they were made, other than the fact that they were made in Philadelphia or to whom they were made?
Actually, because the data does not indicate who applied versus who was approved, we don't know the demographics of the borrower or what businesses applied. We do know that the loans were grouped in certain categories in census tracts, and later in my testimony I'll talk about that. But your question earlier to John Taylor is true of this information as in mine.
Okay. Because I think human nature tells us that generally with more things -- with most things, more is better than less, and increasing numbers, at least in this particular case, are better than decreasing numbers overall. And so when you say that nationally, the number of small loans to business increased 19 percent and the dollar volume was percent. And 23 then, of course, you would say that Philadelphia is doing much better, giving a 34 percent increase here in the City versus a 19 percent increase nationwide, 103 11/12/02 - COMMERCE - RES. 000691, 020522 59 percent increase in dollar volume versus a 23 percent increase nationwide. We are still left wondering, unless there's further information, who ultimately benefited; is that correct?
Okay. And there's no ability to collect this data, or the Fed can't require the collection of this data?
Presently, the Equal Credit Opportunity Act prevents financial institutions from collecting this information. The Board of Governors has taken comment on whether or not that information should be collected for small business loans, and it has not made a decision, at least the second time it collected that -- go ahead.