Committee Hearing, April 4, 2011

COUNCIL OF THE CITY OF PHILADELPHIA2 COMMITTEE OF THE WHOLE - - - Room 400, City Hall4 Philadelphia, Pennsylvania Monday, April 4, 2011, 10:30 a.m.5 - - - RES. 110161 - Five-Year Plan7 BILL 110135 - Capital Program 2012 through 20178 BILL 110136 - FY 2012 Capital Budget9 BILL 110137 - FY 2012 Operating Budget10 BILL 110138 - Wage Tax Bill11 12 COMMITTEE MEMBERS PRESENT: 13 Anna C. Verna, Chair Marian B. Tasco, Co-Chair14 Jannie C. Blackwell Blondell Reynolds-Brown15 Darrell L. Clarke W. Wilson Goode, Jr.16 Bill Green William K. Greenlee17 Curtis Jones, Jr. Donna Reed Miller18 Frank Rizzo Maria Quiñones-Sanchez19 - - -20 21 22 23 24 25 2 4.4.11 COMM. OF THE WHOLE - BILL 1101371

Good2 morning, everyone. This is a public3 hearing of the Committee of the Whole.4 The Chair recognizes5 Mr. McPherson.6 MR. McPHERSON: This is a7 continuation hearing of:8 Resolution 110161, the City's9 Five-Year Plan.10 Bill No. 110135, Capital11 Program for Fiscal Years 2012 through12 2017;13 Bill No. 110136, the Capital14 Budget for 2012;15 Bill No. 110137, the Operating16 Budget for 2012; and17 Bill No. 110138, the wage tax18 bill.19 Today we're taking testimony on20 Bill No. 110137, and our first witness21 today is the Revenue Department.22 (Witnesses come forward.)23

11 COMM. 7 Keith J. 13 Today, with me, I have on my14 right Deputy Water Revenue Commissioner15 Michelle L. 11 COMM. OF THE WHOLE - BILL 1101371 revenue due to the City of Philadelphia2 and all tax revenue due to the School3 District of Philadelphia. 11 The Department of Revenue's FY12 '12 General Fund appropriations were13 increased by $4,361,706 to $19,899,71514 from Fiscal Year '11's estimated15 obligations of $15,538,009. 11 COMM. 6 The FY '12 Water Fund7 appropriation request for the Department8 is $15,850,626. This is an increase of9 $846,582 from FY '11's estimated10 obligations of $15,004,044. 11 COMM. 4 The FY '12 Grants Revenue Fund5 appropriations requests $21 million,6 which is proposed to be transferred from7 the Law Department to the Department of8 Revenue. 11 COMM. OF THE WHOLE - BILL 1101371 analysts, collection customer2 representatives, and clerical staff will3 physically transfer to the Department of4 Revenue. 15 The Department administered the16 City's first Tax Amnesty program in over17 22 years, from May 3, 2010, through June18 25, 2010. 11 COMM. 13 Since the end of amnesty, the14 Department of Revenue has continued the15 process of enhancing its collection16 efforts. 22 The Department simultaneously23 started an outbound calling campaign to24 delinquent taxpayers. 11 COMM. 7 Last October, the Department of8 Revenue launched a delinquent account9 website. In addition to publicizing10 business-tax judgments, this website also11 highlights delinquency over real-estate12 taxes and water and sewer payments. 16 "The Executioner," Bernard17 Hopkins, showed community support and18 loyalty by allowing the City to associate19 his name and face with the City's20 delinquent collection effort. 11 COMM. OF THE WHOLE - BILL 1101371 increasing audit staff and expanding2 enforcement activities such as the3 Parking Lot Compliance Initiative. In4 Calendar Year 2010, the Department hired5 five additional auditors. 11 COMM. 3 Any taxpayer who fails to4 comply with the mandatory electronic5 filing and/or the electronic payment6 requirements is subject to additional7 penalties. This initiative will reduce8 the time needed to manually process9 returns and payments. 11 COMM. OF THE WHOLE - BILL 1101371 seek the next escalated level of appeal,2 which is the Tax Revenue Board. 11 In coordination with the12 Streets Department, the Department of13 Revenue established billing for the new14 annual commercial trash fee that was15 effective July 1 of 2010. 18 In partnership with the19 Department of Licenses and Inspections,20 the Department of Revenue created an21 online tax clearance system. Effective22 January 1 of 2011, all persons going to23 the Zoning Board of Adjustment must be24 compliant on their taxes. 11 COMM. 11 COMM. 2 These events educate water customers on3 the resources available for low-income4 homes. 95 percent tax real-estate increase, the6 Department extended the deadline for7 low-income senior citizens to apply for a8 tax-rate freeze. 14 The City entered into an15 interagency agreement with the16 Commonwealth of Pennsylvania's Department17 of Revenue to include Philadelphia taxes18 into their E-Tides system. 11 COMM. OF THE WHOLE - BILL 1101371 taxpayers. 6 The Department of Revenue's7 payment processing operation is presently8 functioning with significantly outdated9 equipment and technology. 11 COMM. OF THE WHOLE - BILL 1101371 accounting functions. 11 COMM. 2 Last fiscal year, many of the3 department's professional services4 contracts were transferred to the5 Division of Technology. 11 COMM. 6 The Department of Revenue's7 projected participation goal for FY '128 is 15 percent and in relates to General9 Fund contracts only. 20

Thank21 you, Commissioner.22 On of your testimony,23 you mention that the Law Department will24 be transferring its tax unit to the25 19 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Revenue Department. What are the2 efficiencies to be realized by this3 transfer?4 COMMISSIONER RICHARDSON: Well,5 one, with the Law Tax Unit coming over6 into MSB, some of the efficiencies that7 we will continue to move forward on are8 our collection efforts, most importantly.9 We know, from years of10 experience that taxpayers will come to us11 looking for some kind of relief, and we12 may not provide them through our13 guidelines, and then try to go to the Tax14 Unit to get a better deal.15 So we want to make things more16 smoothly with us providing the same open17 transparency to a taxpayer. You're going18 to get the treatment no matter what.19 There's no shopping around now to get a20 better deal for somebody.21 It will be an opportunity now.22 As I said in my testimony, the Law Tax23 Unit and the Audit Department of Revenue24 are working together now, and there's25 20 4.4.11 COMM. OF THE WHOLE - BILL 1101371 more cohesiveness. So if we have an2 audit case that's going in front of the3 Tax Review Board, we will be well4 prepared when we go to the Tax Review5 Board on both sides.6

Thank7 you.8 What is the E-Tides tax filing9 system, and when will it be implemented?10 COMMISSIONER RICHARDSON: The11 E-Tides is a tax system that was created12 in Commonwealth of Pennsylvania back in13 2004, 2005. It requires all businesses14 in the Commonwealth of Pennsylvania to15 file their sales and employer taxes16 through that system electronically. The17 Commonwealth got away from coupons,18 making everyone file through the system.19 It's a benefit for us because20 majority of the taxpayers in Philadelphia21 are using that system, or their22 practitioners, so it will be much more23 efficient for them to do their24 Commonwealth taxes do ours at the same25 21 4.4.11 COMM. OF THE WHOLE - BILL 1101371 time.2 We are hoping that the system3 will probably be up and ready sometime by4 the fourth quarter of FY '12.5

So6 you feel that this system will benefit7 the City and its collection efforts?8 COMMISSIONER RICHARDSON: Oh,9 it mostly definitely will.10

On11 of your testimony, you state that12 you're requesting that $21 million in the13 Grants Revenue Fund be transferred from14 the Law Department to your office for15 collection-agency activity, and this is16 reflected on of your detail.17 What collection agencies will18 you be contracted with?19 COMMISSIONER RICHARDSON: Well,20 we have contracts currently in place with21 Linebarger. We'll be using the Revenue22 Collection Bureau, which is a minority23 sub. We'll continue to work with GRB24 Muni Services, a collection agency that's25 22 4.4.11 COMM. OF THE WHOLE - BILL 1101371 under contract --2

I'm3 sorry. What is that?4 COMMISSIONER RICHARDSON: Muni5 Services is another agency currently6 under contract with the Law Department as7 well.8 So the current agencies that9 are working with the City through the Law10 Department's Tax Unit will be continuing11 to work with us in the Revenue12 Department.13

What14 are the criteria that you use in15 selecting these companies?16 COMMISSIONER RICHARDSON: Right17 now, we haven't started to select any18 companies. When the contracts are19 probably up in the next years or so, the20 criteria again will be that we're looking21 for any company that has the savvy, the22 know-how, the technology to do23 collections for the City. That is part24 of our preference.25 23 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Again, we will always look at a2 minority subcontractor or a agency as3 well to be a part of that process.4

Do5 you know how much the Commission, they6 are paid, for their services?7 COMMISSIONER RICHARDSON:8 Currently, right now, for our first9 placement agencies, we're paying about10 18 percent.11

I do12 have a number of questions. However,13 there are a number of Councilmembers that14 would like to be recognized.15 The Chair recognizes Councilman16 Goode.17

Thank you,18 Madam President.19 Good Morning, Commissioner.20 COMMISSIONER RICHARDSON: Good21 morning, sir.22

You may have23 just answered these questions from a24 different perspective, but what is the25 24 4.4.11 COMM. OF THE WHOLE - BILL 1101371 largest contract that you will award in2 Fiscal Year '12 under any of the funds,3 the General Fund, the Water Fund, or4 Grants Revenue Fund?5 COMMISSIONER RICHARDSON: The6 largest contract that we will have in7 place for next fiscal year will be for8 Philly Writ Services, which is a9 $1,070,00.10

What's the11 amount?12 COMMISSIONER RICHARDSON: A13 $1,070,000.14

And what's15 the name of the firm?16 COMMISSIONER RICHARDSON:17 Philadelpha Writ Services, Inc.18

Okay. And19 is that a renewable contract?20 COMMISSIONER RICHARDSON: Yes,21 it is a renewable contract.22

And how many23 years has that firm held the contract?24 COMMISSIONER RICHARDSON: I25 25 4.4.11 COMM. OF THE WHOLE - BILL 1101371 could get back to you. It's a Law2 contract currently, so we're working to3 transition.4

Please5 submit that information through the6 Chair. And when was the last the7 contract was bid?8 COMMISSIONER RICHARDSON: We9 can need to get back to you, sir, because10 it wasn't a contract of (indiscernible).11

And can you12 briefly describe the contract13 requirements?14 COMMISSIONER RICHARDSON: Sure.15 We can get back to you with that.16

You can't17 briefly describe it at all?18 COMMISSIONER RICHARDSON:19 Because it's a contract that was not20 within the Department; I cannot give you21 the requirements of what the process was.22

Okay. Is23 the firm a certified disadvantaged24 business?25 26 4.4.11 COMM. OF THE WHOLE - BILL 1101371 COMMISSIONER RICHARDSON: The2 firm is not certified, and we are working3 with OEO to get them to be certified.4 COUNCIL PRESIDENT VERNA:5 Excuse me. I believe Shelly Smith is6 here; perhaps she could respond.7 (City Solicitor Shelley Smith8 comes forward.)9 CITY SOLICITOR SMITH: Good10 morning --11

Good12 morning.13 CITY SOLICITOR SMITH: -- Madam14 President. Good morning, Councilman15 Goode.16

Good17 morning, Solicitor.18 CITY SOLICITOR SMITH:19 Philadelphia Writ Service has been under20 contract with the Law Department to serve21 writs related to tax collections for22 several years; I don't know how many23 years, but several years preceding this24 administration.25 27 4.4.11 COMM. OF THE WHOLE - BILL 1101371 And the contract was last bid2 last summer, the end -- Julyish, last3 summer. I think it was ultimately4 awarded in September.5 You asked the criteria for the6 selection? Did you ask that?7

The contract8 requirements.9 CITY SOLICITOR SMITH: The10 contract requirements. The contract11 requirements generally were the volume,12 the capacity to serve a large number of13 writs in relation to the number of14 sheriff sales that we wanted to conduct,15 so they needed volume capacity.16 And we got, I think, if I17 recall, we got three or four responses.18 Philadelphia Writ Services, by far, had19 the greatest capacity to meet the demand20 for writ service that was required under21 the numbers.22

So it is not23 currently a certified disadvantage24 business?25 28 4.4.11 COMM. OF THE WHOLE - BILL 1101371 CITY SOLICITOR SMITH: It is2 not currently certified.3

All right.4 Does it subcontract with any5 disadvantaged businesses?6 CITY SOLICITOR SMITH: But it7 is female-owned, and we'll be working to8 get it certified.9

All right.10 Does it subcontract with any11 disadvantaged businesses?12 CITY SOLICITOR SMITH: I'm not13 sure. I don't believe it does.14

Was there a15 DBE participation goal in the RFP?16 CITY SOLICITOR SMITH: That17 we'll have to get you; I'm not sure. I18 don't recall that.19

Okay. Was20 there a DBE participation goal in the21 contract?22 CITY SOLICITOR SMITH: I don't23 recall. We'll have to get that to you as24 well.25 29 4.4.11 COMM. OF THE WHOLE - BILL 1101371

Okay. How2 have participation goals changed for that3 contract, under your tenure?4 CITY SOLICITOR SMITH: How have5 participation goals changed?6

In that7 contract, under your tenure.8 CITY SOLICITOR SMITH: I'll9 have to -- in terms -- for any question10 you have about the participation goals, I11 was actually going to be prepared to12 answer these in my testimony.13

Okay.14 CITY SOLICITOR SMITH: So I'll15 be prepared to do that when you -- when16 we come at the end of the month.17 But I can get the numbers for18 you -- I can get that information for you19 in the meantime. I don't have it handy.20 I did know the general information about21 --22

And so that23 would also be the largest contract of the24 Law Department?25 30 4.4.11 COMM. OF THE WHOLE - BILL 1101371 CITY SOLICITOR SMITH: No, no.2 Our largest contract is --3

Well, I'm4 just going to go through the questions,5 and I'll actually take those answers in6 writing rather than wait till the Law7 Department comes.8 CITY SOLICITOR SMITH: Okay.9

Next10 question is: What subcontracting11 opportunities exist in the contract?12 CITY SOLICITOR SMITH: I'm not13 sure that any exist in that contract14 because it really is straight writ15 service. It wouldn't really be -- it16 wouldn't be efficient or cost-effective17 for them to contract out.18 We historically used an19 additional firm, Tyler, which was a DBE20 firm. I believe they are still under21 contract with us for a smaller amount of22 the work which was, again, related to23 their capacity to handle the work.24 I don't recall, but we'll get25 31 4.4.11 COMM. OF THE WHOLE - BILL 1101371 you the amount. Okay, I don't recall but2 we'll get the you the amount of that3 contract, and that was a DBE.4

I'm not5 totally sure why there aren't6 subcontracting opportunities.7 COMMISSIONER RICHARDSON: There8 were no requirements for that contract9 for DBEs.10

The question11 is more so, are there opportunities?12 COMMISSIONER RICHARDSON: Are13 there opportunities?14

Yeah. Are15 there subcontracting opportunities?16

No, because --17 there aren't really because we do service18 under this contract --19 (Indiscernible; parties talking20 over each other.)21

"They are22 not really" is not an appropriate answer.23

You24 have to identify yourself for the25 32 4.4.11 COMM. OF THE WHOLE - BILL 1101371 stenographer.2

Excuse me. I'm3 Frances Ruml Beckley; I'm the new chief4 counsel for the Revenue Department.5 And we do service under this6 contract, not just for our sheriff sales7 but on (indiscernible) our Municipal8 Court actions, which we file in bulk9 electronically.10 And those servers have to be11 incredibly cheap in order to make it12 cost-effective for us to bring those13 cases. I believe it's somewhere around14 $27, $25 a service.15 So if you were to subcontract16 that and add another layer on, it just17 wouldn't be cost-effective.18

Not if you19 put that requirement in the RFP. If you20 put a code within the RFP, you're still21 going to get the lowest responsible22 bidder with subcontracting opportunities23 within the contract.24 So my question is really,25 33 4.4.11 COMM. OF THE WHOLE - BILL 1101371 department-by-department, to go through2 the largest contract and to see if there3 are actually opportunities for businesses4 owned by women and people of color to do5 the work. Are there qualified vendors to6 do the work, even if subcontractors?7 And I think the answer to that8 question is yes. And if you choose not9 to do it because you think it's more10 cost-effective, then you can say that you11 choose not to because you believe it to12 be more cost-effective.13 But at the end of the day, I'm14 not going to agree with that position,15 because if you bid it with goals, then16 essentially someone has to respond with17 goals, and that's what will make them a18 more responsible bidder or not a19 responsible bidder.20 The second thing is, why it may21 be cost-effective. It still does not22 serve the overall economic goal of23 growing minority- and women-owned24 businesses. And as we go through the25 34 4.4.11 COMM. OF THE WHOLE - BILL 1101371 largest contracts in each of these2 departments and we identify3 subcontracting opportunities that are not4 being pursued, then we realize that it's5 not a lack of capacity; it actually is a6 lack of utilization.7 COMMISSIONER RICHARDSON: To8 your response, Councilman Goode, we will9 look into this. Again, as I said10 earlier, we are working with the Office11 of Economic Opportunity to get this12 company certified to be a WBE with the13 City as well.14

Okay. Well,15 the last question on the issue: Is the16 firm currently in compliance with the17 City's living-wage-and-benefits standard?18 COMMISSIONER RICHARDSON: We'll19 have to get back to you, sir, as I'm not20 sure about that.21

And will22 they be required to be in compliance?23 COMMISSIONER RICHARDSON: We24 will talk to them about the compliance of25 35 4.4.11 COMM. OF THE WHOLE - BILL 1101371 that code.2

And who will3 be directly responsible for monitoring4 that within your department?5 COMMISSIONER RICHARDSON: It6 will be with Ms. Beckley and myself,7 starting FY '12.8

Okay. Thank9 you, Commissioner.10 COMMISSIONER RICHARDSON:11 You're welcome, sir.12

Thank13 you.14 The Chair recognizes Councilman15 Green.16

I'm sorry.17

Oh,18 I'm sorry.19

I'm sorry.20 I had two more quick questions.21 The CDC Tax Credit Program, the22 first ten-year partnerships expire next23 year. The simple question is: Are you24 proposing changes before the new ten-year25 36 4.4.11 COMM. OF THE WHOLE - BILL 1101371 agreements are done, and what might those2 changes be? And if you know offhand,3 please tell me offhand; if not, please4 submit them in writing.5 COMMISSIONER RICHARDSON: We6 will get back to you, as we haven't7 (indiscernible) down yet with that8 process yet, but we will get back to you9 in writing.10

Thank you,11 Commissioner.12 COMMISSIONER RICHARDSON:13 You're welcome, sir.14

Thank you15 Madam President.16 COUNCIL PRESIDENT VERNA:17 You're welcome.18 The Chair recognizes Councilman19 Green.20

Thank you,21 Madam Chair.22 This is more of a comment than23 a question, but feel free to respond if24 you wish. I'm going to move this25 37 4.4.11 COMM. OF THE WHOLE - BILL 1101371 (referring to microphone) so I can see2 you, sir.3 I'm not sure I understand what4 capacity is in the context of issuing5 writs, which requires very little6 training and knowing where to go find7 somebody. So to, I think Councilman8 Goode's point, I'm not sure what capacity9 constraints mean.10 And also, when you're the11 incumbent, it's easy to have the capacity12 for the work because you've been doing13 it. And providing opportunities for14 other firms means, you know, allowing15 people time to grow into things and stuff16 like that. So I also want to make that17 point.18 And, finally, the Sheriff's19 Office has been talking on CJAB and other20 places about taking over some of the21 civil-service stuff. And have you22 explored spending the million dollars23 with the Sheriff's Office to increase --24 to allow them to serve these writs rather25 38 4.4.11 COMM. OF THE WHOLE - BILL 1101371 than going to an outside service2 provider?3 COMMISSIONER RICHARDSON: We4 have not talked to the Sheriff's Office,5 but we appreciate your comments. Also6 we're looking at, do we really need to do7 a writ service, period, to do this work.8 Again, I come from the world of9 just liening everybody and making that10 lien a public record. And if you want to11 procure it, to make it a judgment.12 That's my mindset.13 But, again, it's something14 that, as the Law Tax Unit is coming over15 to us, we have to strategically sit down16 and plan and look at this and think about17 that.18

So really19 what you're saying is, in the past, we20 have been wasting a million dollars a21 year.22 COMMISSIONER RICHARDSON: I23 can't say that in the past because that24 wasn't my lien to make a decision on it,25 39 4.4.11 COMM. OF THE WHOLE - BILL 1101371 but it's something I'm looking at as we2 move forward.3

Well, I4 don't know if you're aware of the5 politics behind this or who actually owns6 this firm but --7 COMMISSIONER RICHARDSON: I'm8 aware who owns the firm.9

-- I'm very10 surprised by some of your responses.11 Okay. In of your12 testimony, you mentioned that you were13 hiring five additional auditors, which I14 was very pleased to see. You may recall15 that as part of the Freshman 15 and16 consistently for the last three years of17 budget hearings, we have suggested that18 additional auditors be hired.19 In response to a budget20 question last year, you noted -- in a21 3/19/10 letter to President Verna, you22 noted, "Each auditor continues to23 generate more than $600,000 annually,"24 and I think the average salary for a25 40 4.4.11 COMM. OF THE WHOLE - BILL 1101371 revenue examiner is about 50,000; with2 benefits, let's call it 65 or 70,000.3 Why aren't we hiring twenty4 people?5 COMMISSIONER RICHARDSON:6 Again, they are generating assessments.7 That does not guarantee that that will be8 revenue, because they can take that case9 to the Tax Review Board, and they may win10 their appeal.11 So, again, it's not assessments12 or not guaranteed generated revenue.13

Well, that's14 not what your letter said. It said15 "generating more than $600,000 annually."16 COMMISSIONER RICHARDSON: They17 can generate the revenue, but you got to18 understand, they are doing probably a19 million dollars or so in assessments, so20 that could be what they have done for the21 last year or two.22 This year, it could be a23 different change. We don't know what the24 mindset could be. When we take that case25 41 4.4.11 COMM. OF THE WHOLE - BILL 1101371 to the TRB, we could lose that case.2

So the --3 COMMISSIONER RICHARDSON:4 Again, as I would say to you in the past,5 auditors are great, and I've said this to6 you before: I'd rather have more7 collectors that are going to generate8 more money for me than auditors all the9 time.10

Okay. So11 how much do we actually collect based on12 what is assessed on an annual basis per13 revenue auditor?14 COMMISSIONER RICHARDSON: I can15 get back to you on what the annual basis16 number may be 'cause it may fluctuate17 year-by-year.18

But we have19 to have an average over a two-, three-,20 four-year period that we look at.21 So when you made the decision22 to hire these five people, is that based23 on planned retirements and training, or24 is that actually intended to add to your25 42 4.4.11 COMM. OF THE WHOLE - BILL 1101371 capacity?2 COMMISSIONER RICHARDSON: That3 is to add to our capacity 'cause we4 recognize -- again, for many years, we5 got away from doing a lot of travel6 audits. And when I'm saying "traveling,"7 I'm talking about going across the United8 States to do audits.9 We know there's a lot of10 opportunities; i.e., with parking taxes,11 and we've been doing things of that12 nature, and a lot of other industries we13 haven't been touching.14 So we recognize the increased15 staff will continue to make us grow,16 which will stimulate compliance because17 individuals will start saying, "The18 Revenue tax auditors were here to see me.19 Did they come to see you yet?"20 So it will help increase21 stimulating compliance for us as well.22

But you23 didn't do a return on investment for each24 of the five people you hired?25 43 4.4.11 COMM. OF THE WHOLE - BILL 1101371 COMMISSIONER RICHARDSON: We2 did do a return on investment. As I said3 to you, we know --4

And what do5 you expect each auditor to return?6 COMMISSIONER RICHARDSON: We7 expect each auditor to assess and create8 new assessments for the City, anywhere9 from 750 to $1 million.10

Okay. How11 much do you expect us to collect of that12 750 to $1 million?13 COMMISSIONER RICHARDSON:14 Again, on a given year, we would probably15 say about $600,000, but it could16 fluctuate year-by-year.17

Okay. So it18 is 600,000, as is in the letter last19 year.20 COMMISSIONER RICHARDSON: It21 could be. This year, it could be lower,22 sir. That's why I'm saying --23

Okay. But24 if it's 300,000, shouldn't we be25 44 4.4.11 COMM. OF THE WHOLE - BILL 1101371 hiring twenty -- in other words, we have2 not yet reached our diminishing point of3 return.4 (Indiscernible; parties talking5 over each other.)6

Is that --7 COMMISSIONER RICHARDSON: I can8 hire a collector, or if we had a phone9 system to make more money on the phone10 faster than someone going out and doing11 an assessment.12 I can assess "Green13 Incorporated" today. You may not have14 your appeal process for six months from15 now. So --16

I17 understand, but don't we need both?18 COMMISSIONER RICHARDSON: We do19 need both.20

I mean, in21 other words, if we can actually generate22 that kind of return, $600,000, because23 it's been assessed and now we have a24 collector outgoing and collecting it, we25 45 4.4.11 COMM. OF THE WHOLE - BILL 1101371 should be hiring twenty new assessors and2 forty new collectors. And we should know3 what the diminishing level of return is.4 I mean, I don't understand why5 you're not asking for more, given your6 testimony.7 COMMISSIONER RICHARDSON: Well,8 given my testimony, I want more, but not9 more auditors.10 Again, as we said last year to11 you, there is an opportunity that it's12 going to be diminishing returns. I'd13 rather have a collector that can be on14 the phone right now, calling the15 delinquent receivables we have on the16 books than going out there and creating17 new assessments.18 So you got to understand you're19 creating a new assessment that may not be20 legitimate. We may see it on the books21 that way. Again, the TRB has a final22 say-so, or going to the next appeal23 process.24 But I can have somebody come25 46 4.4.11 COMM. OF THE WHOLE - BILL 1101371 in, learn how to pick up the phone, and2 make those phone calls. That's going to3 generate more money than auditors over4 time. And, again, the more auditors you5 hire, it's going to be diminishing6 returns with that.7

Well, but it8 sounds like the return, based on the9 testimony you just gave and your letter10 of last March, it's $600,000. Okay,11 that's a pretty good return for a $70,00012 investment.13 So haven't reached that14 diminishing level. Even with five new,15 it doesn't seem like we're going to reach16 that diminishing level.17 So my question is simple: Why18 haven't you requested appropriations for19 more auditors, and, I will add to it,20 more collectors if you believe that will21 help you raise the City more money in the22 next year?23 COMMISSIONER RICHARDSON: Well,24 again, what I would like to see us have25 47 4.4.11 COMM. OF THE WHOLE - BILL 1101371 in the next fiscal year are more2 investigators on the streets, more3 collectors, the creation of a tax4 clearance unit that will help us to5 continue to generate more revenue.6 You have five new auditors, and7 we have to train them. Right now, a new8 auditor may generate on assessments 3 to9 $400,000. They have to learn how to do10 their job to get to that level.11

How many12 additional investigators did you request?13 COMMISSIONER RICHARDSON: There14 is nothing in the numbers in our budget15 that shows what we've requested, but we16 would like to hire five more17 investigators to be out on the streets.18

I'm19 confused. Have you requested20 appropriation for additional21 investigators?22 COMMISSIONER RICHARDSON:23 There's not -- no. There's nothing in24 the appropriations for that.25 48 4.4.11 COMM. OF THE WHOLE - BILL 1101371

Okay. So I2 remain confused. If you believe that3 additional auditors, additional4 collectors, and additional investigators5 will result in a positive return on6 investment, why aren't we -- why have you7 not made an appropriations request for8 that personnel?9 And I will add a second part.10 If we were to appropriate --11 COMMISSIONER RICHARDSON:12 Mm-hmm.13

--14 additional investigators and collectors15 and auditors, what number would you think16 you'd be able to absorb in the coming17 year and still have a positive return on18 investment?19 COMMISSIONER RICHARDSON: With20 regard to investigators, we believe four21 to five investigators right now would be22 good for us to start with. Again, with23 more collectors, we would love to see ten24 more collectors to come onboard for the25 49 4.4.11 COMM. OF THE WHOLE - BILL 1101371 department.2

And were3 they requested also, the collectors?4 COMMISSIONER RICHARDSON: We5 have talked with the Budget Office. As6 you know, Mr. Dubow is aware of what our7 needs are, what we would like.8 We also believe that we need9 more research group, because a research10 group can help create what we need to do11 for compliance purposes.12

Did you13 request appropriations for a research14 group?15 COMMISSIONER RICHARDSON: Yes.16

And it's17 part of the budget?18 COMMISSIONER RICHARDSON: It's19 not in the budget. They know what our20 wish list is; let me say it that way to21 you.22

Okay, okay.23 And it is your testimony that if we were24 to provide you with additional research25 50 4.4.11 COMM. OF THE WHOLE - BILL 1101371 group additional, additional collectors,2 additional investigators, and the3 additional auditors you've already4 requested, that you would be able to have5 a positive return on investment and6 increase the amount that we collect over7 the next couple of years as a result of8 those new hires; and, essentially, they9 would more than pay for themselves?10 COMMISSIONER RICHARDSON: Most11 definitely.12

By a ratio13 of 3-to-1, 4-to-1?14 COMMISSIONER RICHARDSON: Oh,15 wow. 5-, 6-, 7-, 8-to 1.16

5-, 6-, 7-,17 8-to 1. Okay, thank you.18

I19 believe that Mr. Dubow is coming up to20 the table to defend himself.21 (Laughter.)22 (Mr. Dubow comes forward.)23

I just wanted to24 add a couple of things, and the25 51 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Commissioner touched on this.2 I mean, there are already a3 fair number of new resources that are4 going into the Department. There's a5 period of kind of adjusting to that, of6 training people.7 So, I mean, I think part of8 what we were looking at centrally was the9 need to adapt to having all of the Law10 Department people over, they have the new11 E-Tides system, they have new auditors.12 So there's a lot of new stuff going on in13 here.14 We want to see how all that15 works before we make additional16 investments, but this is one of the17 departments into which we've been18 investing over the last couple years,19 'cause we understand, you know, the20 importance of investigating in the21 Revenue Department.22

Okay. I23 mean, I don't really have any questions24 about it. I think the Commissioner's25 52 4.4.11 COMM. OF THE WHOLE - BILL 1101371 testimony was clear, that we get a 5-,2 6-, 7-, 8-to-1 investment for hiring3 additional people.4 And, you know, I just -- I'd5 like to actually request that the6 Commissioner's request to the Budget7 Director for the positions that he just8 discussed forwarded to the Chair so that9 we may consider them.10

Sure, we can11 provide that.12 But, again, I mean, that return13 assumes that everything is -- that all14 the new investment is, you know, figured15 out, is assumed into the Department. And16 that's a lot of work that has to be done.17

I hear. I'm18 convinced the Commissioner can walk and19 chew gum at the same time.20

This is a lot21 more --22

I have great23 confidence in him.24

This is a lot more25 53 4.4.11 COMM. OF THE WHOLE - BILL 1101371 than that. It's more like walking on2 water and chewing gum at the same time.3 (Laughter.)4

Okay, fair5 enough. I just don't want to leave money6 on the table, as we are apparently doing,7 through a lack of investment.8 So I had a bunch of questions9 about unfilled positions, which I will10 now not ask you.11 Thank you, Madam President.12

Thank13 you.14 The Chair recognizes15 Councilwoman Sanchez.16

Thank17 you.18 Good morning.19 COMMISSIONER RICHARDSON: Good20 morning.21

First, I22 wanted to personally thank the23 Commissioner and his team for their work24 with us, not only in the BPT, but in some25 54 4.4.11 COMM. OF THE WHOLE - BILL 1101371 of the collection efforts. And I want to2 thank you. It's really been a pleasure3 working with you folks, and I want to say4 that for the record.5 I wanted to ask you a little6 bit about the reorg and the efficiency.7 One of the complaints that we get as it8 relates to the collection piece is when9 people want to settle up several10 accounts -- and I think this came also11 post-amnesty, when people had several12 different accounts and securing that they13 were able to pay with one check, let's14 say, ten accounts and stuff.15 Can you speak to -- 'cause in16 your testimony, you talk a little bit17 about the automation system still not18 being there. Can you speak to your19 improvements and how we're going to make20 sure that when someone wants to hand us a21 check for ten different accounts, we22 could take it?23 COMMISSIONER RICHARDSON:24 You're talking more about this payment25 55 4.4.11 COMM. OF THE WHOLE - BILL 1101371 processing issue?2

Yes,3 mm-hmm.4 COMMISSIONER RICHARDSON: Any5 time someone's handing over one check for6 several things, they need to have coupons7 with them, the stub they have.8

Mm-hmm.9 COMMISSIONER RICHARDSON: If10 they don't, they have to get online to11 get those stubs.12 But we are doing a better job13 with getting that through the process.14 In fact, in our concourse downstairs, in15 the MSB Building, we have gone now to16 only about five or six transactions per17 person.18

Mm-hmm.19 COMMISSIONER RICHARDSON:20 Because, for example, on February 28th,21 the last day of the 1 percent discount on22 real estate, we have people in line that23 want to do twenty and thirty24 transactions; we can't do that. For one,25 56 4.4.11 COMM. OF THE WHOLE - BILL 1101371 it takes away from customer service.2 But we are moving forward and3 doing a better job with taking that one4 check for several properties or things of5 that nature.6 Again, if you know someone who7 has that that you're coming across, just8 call us and let us know in advance as9 well.10

As we11 talk about this -- one of the issues12 around post-amnesty, some people have13 gotten notices post-amnesty about the14 posting of information.15 How are we with the collection16 rate of that and then clearing some of17 that stuff up post-amnesty?18 COMMISSIONER RICHARDSON: In19 the report that we sent to you on January20 17th of this year, we had about 3,00021 accounts that we were still working on.22 We're down to about 2500. It's a manual23 process.24 We have a group that will be25 57 4.4.11 COMM. OF THE WHOLE - BILL 1101371 starting, I think, next Monday or so who2 will be doing it and looking at all of3 those cases on a manual case-by-case4 basis.5 So, yes, the money may be in on6 a lot of cases. In a lot of cases,7 people may not have done everything to8 the letter to receive the amnesty9 benefits, so we have to research that as10 well and get back to some of those11 people.12

Mm-hmm.13 COMMISSIONER RICHARDSON: So a14 lot of times, it's just information from15 the vendor didn't come across to us.16

One of17 the things that I'm looking forward to,18 the consolidation of this, is being able19 to settle up multiple accounts when we're20 working with people, so I'm really21 looking forward to testing that with you22 guys.23 COMMISSIONER RICHARDSON: It24 will work well.25 58 4.4.11 COMM. OF THE WHOLE - BILL 1101371

I want2 to talk a little bit about the water debt3 'cause I think this efficiency allows us4 now to look at what do we do with the5 huge water debt that exists, and it's a6 conversation you and I have had several7 times.8 The Seventh Councilmatic9 District has 20 percent of the water10 debt, yet is 10 percent of the City.11 Do you have any thoughts about12 what we want to do with that to improve13 the collection rate and, at the same14 time, keep people in their houses? Have15 you given any thought about what we want16 to do with that number?17 COMMISSIONER RICHARDSON: One,18 I'll say your district is now 12 percent,19 not 21 percent, so we appreciate you20 working with them to get money into us.21 Again, we talked to you last22 fiscal year. The thing is that if people23 have money that is upfront and they want24 to come in and made payment arrangements,25 59 4.4.11 COMM. OF THE WHOLE - BILL 1101371 we want to sit and work with them on2 that.3

Mm-hmm.4 COMMISSIONER RICHARDSON:5 Again, I know you want to do certain6 potential things.7 But most of the times, what8 people owe us is the really the9 principal; it's not a lot in late fees10 and penalties. We are willing to sit11 down, we are willing to talk people about12 our (indiscernible) program.13

Mm-hmm.14 COMMISSIONER RICHARDSON: As15 you know, we've been out to your district16 to several events. We can continue to17 have that dialogue with people.18

Mm-hmm.19 COMMISSIONER RICHARDSON: We20 want to have that rate decrease to help21 us with our efforts.22 But, again, I would also say, a23 lot of situations -- we get it from your24 side to help us, but then we,25 60 4.4.11 COMM. OF THE WHOLE - BILL 1101371 unfortunately, sometimes get some2 hindrance because we had to do certain3 things for people who may call at the4 eleventh hour, right before shutoff.5

Right.6 COMMISSIONER RICHARDSON: So7 we're always willing to try to work.8 Again, the appeals process is9 in place now. As Ms. Bethel can tell10 you, we have over 330 potential appeals11 that are coming into us internally before12 they go to the Tax Review Board.13

Mm-hmm.14 COMMISSIONER RICHARDSON: But,15 again, we're willing to work with you.16

Well,17 thank you. I'm glad to hear that my rate18 is down to 12 percent.19 I like to think that all of the20 stuff we're doing together is helping21 with that. As you know, you know, I do22 the best that we can to educate folks on23 this stuff.24 Can you explain to me with the25 61 4.4.11 COMM. OF THE WHOLE - BILL 1101371 appeal process, what are the types of2 accounts you want to see going through3 that process?4 DEPT. COMM. BETHEL: Good5 morning. My name is Michelle Bethel.6 I'm the Deputy Revenue Commissioner.7 As far as the appeals process8 that the Commissioner was speaking about,9 it's our informal hearing process. So10 people who are disputing their bills,11 anytime they go to either a satellite12 office or deal with our call centers or13 our intake unit, where their question is14 not answered to their liking, where they15 feel that perhaps maybe they need some16 additional explanation --17

Do we18 have a threshold around what people owe19 or --20 DEPT. COMM. BETHEL: No.21

No?22 Okay.23 DEPT. COMM. BETHEL: No. If24 you dispute your bill, you can come in25 62 4.4.11 COMM. OF THE WHOLE - BILL 1101371 and talk about that through the informal2 hearing process if you are dissatisfied3 with your initial inquiry at one of our4 first-line offices.5

Okay.6 Thank you. And thank You, Commissioner7 Bethel. I know when we do call you at8 the eleventh hour for a shutoff, you9 always responds, and I greatly appreciate10 it.11 Going back to -- there was an12 issue around the collection rate for the13 audits that are generated. Do we have a14 sense of what that collection rate is?15 Are we at a third of what we post? Do we16 have an idea, or is it just so varied by17 account?18 COMMISSIONER RICHARDSON: It's19 varied, and we keep an analysis of what20 we've collected from certain audits but21 not the entire pool because, again, by22 the time the case goes before the Tax23 Review Board, it could be six or seven24 months from now, and we're not really25 63 4.4.11 COMM. OF THE WHOLE - BILL 1101371 tracking all of that all of the time.2

Okay.3 Well, thank you. I look forward to the4 reorg process and working with you to get5 more money in. So thank you. Thank you,6 Commissioner.7 COMMISSIONER RICHARDSON: Thank8 you, Madam.9

Thank10 you, Madam President.11 COUNCIL PRESIDENT VERNA:12 You're welcome.13 The Chair recognizes Councilman14 Clarke. Councilman Clarke?15

Thank you16 Madam President.17 Good morning.18 COMMISSIONER RICHARDSON: Good19 morning, sir.20

I have a21 couple of questions not necessarily22 related to your testimony but related to23 revenue issues.24 Can you tell me -- and I25 64 4.4.11 COMM. OF THE WHOLE - BILL 1101371 actually may need Law to kind of respond2 to it. What latitude do we have as it3 relates to our ability to implement a tax4 credit or utilize a tax credit for5 purposes of job creation?6 I know Councilman Goode has7 done extensive work. Are we in a8 position to implement a tax credit9 relating to a geographical area?10 COMMISSIONER RICHARDSON: Well,11 you've had that in place with the KOZs.12 Those are geographical areas.13

I'm sorry,14 the K-what?15 COMMISSIONER RICHARDSON: The16 Keystone Opportunity Zones --17

Correct.18 COMMISSIONER RICHARDSON: --19 that have been in place for many years.20 So that's a geographical area.21

Right. But22 that's State-authorized.23 COMMISSIONER RICHARDSON: Right.24

Do we25 65 4.4.11 COMM. OF THE WHOLE - BILL 1101371 have -- my question is essentially:2 Locally, can we ourselves implement a tax3 credit for a geographical area without4 State authorization?5 COMMISSIONER RICHARDSON: I6 would say, let us get back to you and7 research it and talk to Ms. Beckley about8 that legally.9

You want to10 talk to Law about that?11 COMMISSIONER RICHARDSON: We'll12 get back to you, yeah.13

We'll get back to14 you on that.15

All right.16 COMMISSIONER RICHARDSON: We'll17 get back to you.18

All right,19 that's fine. We do have the City20 Solicitor here. I was thinking...21 COMMISSIONER RICHARDSON: She's22 engaged in conversation, so...23

That's24 pretty high up in the law department.25 66 4.4.11 COMM. OF THE WHOLE - BILL 1101371 (City Solicitor Shelley Smith2 comes forward.)3 CITY SOLICITOR SMITH: I4 apologize. I was transacting other5 business.6 What is the question?7

The8 question is, there have been instances9 where tax credits have been used for10 purposes of job creation, and I spoke of11 Councilman Goode's extensive work as it12 related to that issue.13 What I'm trying to find out:14 Can we apply a tax credit based on a15 geographical area, not necessarily per16 individual or per business.17

(Addressing18 Ms. Smith.) And specifically, do we need19 State authorization to make the credit20 geographical?21 CITY SOLICITOR SMITH: Right.22 We will have to get back to you, but23 we'll look into that.24

All right.25 67 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Well --2 CITY SOLICITOR SMITH: I'm not3 sure that we've looked into that issue4 specifically with respect to geographic5 location, but we'll look into it.6

All right.7 And while you're looking into that, can8 you also tell me the degree to which we9 can apply the eligibility standards for10 that tax credit?11 CITY SOLICITOR SMITH: Sure.12

If we want13 to do, say, local job creation or14 Philadelphia --15 CITY SOLICITOR SMITH: Yes.16

-- or17 participation goals related to that?18 CITY SOLICITOR SMITH: Sure.19

Okay, thank20 you.21 CITY SOLICITOR SMITH: Mm-hmm.22

The second23 one is: What is the official policy on24 pilots of payment in lieu of taxes in the25 68 4.4.11 COMM. OF THE WHOLE - BILL 1101371 City currently?2 CITY SOLICITOR SMITH: So the3 State law does not -- there was4 uncertainty for many years in State law5 about whether we had the authority to6 impose taxes on charitable organizations.7 We were able, by virtue of that8 uncertainty, to negotiate pilot9 agreements with people whose tax10 liability was uncertain.11

Right.12 CITY SOLICITOR SMITH: The law13 was clarified --14

When you15 say the liability is uncertain, what --16 CITY SOLICITOR SMITH: I mean17 people who, because of the uncertainty in18 the law, were not sure what their tax19 obligation might be.20

Okay.21 CITY SOLICITOR SMITH: So we22 were able to enter into pilot agreements23 with a number of those entities.24 There was a court decision --25 69 4.4.11 COMM. OF THE WHOLE - BILL 1101371 and I don't, as I sit here, remember the2 year of it now, but I think in the3 mid-2000s, if I'm not mistaken -- that4 clarified that and, to some extent,5 lessened our ability to use the potential6 tax liability as leverage.7 We did, though, have existing8 pilot agreements which carried over,9 which extended beyond that time. And we10 may have some existing --11

We have several12 --13 CITY SOLICITOR SMITH: -- pilot14 agreements in place. And we still look15 to try to enter into agreements with16 large institutions in the City to try to17 get the benefits of a pilot agreement18 where we can, where they're willing to19 negotiate, even though we don't have the20 tax liability issue itself.21 So where there are other fees22 or payments due to the City for whatever23 reason, we look to try to use to24 negotiate with those entities to try to25 70 4.4.11 COMM. OF THE WHOLE - BILL 1101371 get the equivalent of pilot agreements.2

Mm-hmm. Do3 we --4 CITY SOLICITOR SMITH: But we5 don't have the same --6

But we7 don't have --8 CITY SOLICITOR SMITH: --9 leverage that we used to have.10

-- really11 have leverage to enforce that agreement.12 CITY SOLICITOR SMITH: Correct.13

Are we14 looking at opportunities from a15 legislature to give us some level of16 authority, given...17 CITY SOLICITOR SMITH: No, I18 don't think we have been -- do you want19 to answer?20

What is a purely21 public charity is defined by statute and22 by case law, but the exemption of a23 purely public charity is in the24 Pennsylvania Constitution, so it's not --25 71 4.4.11 COMM. OF THE WHOLE - BILL 1101371 that's not going to be -- there's no2 opportunity there.3

All right.4 Last one, a more detailed question.5 Last year, we passed a law6 authorizing collection on smokeless7 products. And how are we enforcing that,8 or how are we implementing that, that9 tax?10 COMMISSIONER RICHARDSON: The11 deadline to file for the return was12 January 31st. However, we are waiting13 until April 18th, 'cause a lot of14 businesses will probably file that return15 as long as they're a BPT MPT package.16 Once we have an ideal by17 (indiscernible). So if in fact that was18 done by those businesses or not, we will19 start a compliance effort to start20 reaching out to the various businesses in21 the City who did not file for that tax.22

Okay. In23 your estimation, what degree are we24 attempting to impose that tax? 'cause I25 72 4.4.11 COMM. OF THE WHOLE - BILL 1101371 keep --2 (Indiscernible; parties talking3 over each other.)4 COMMISSIONER RICHARDSON:5 (Indiscernible.)6

When I talk7 to members of the Administration, they8 only reference smokeless tobacco; i.e.,9 chaw, or whatever you want to call it.10 But the law was significantly11 broader than that, talked about other12 smokeless products.13 COMMISSIONER RICHARDSON:14 Mm-hmm.15

I.e.16 cigarette papers that most people -- well17 I don't know what most people use it for,18 legal products or illegal products.19 But there were other things20 associated with the bill, and I never21 heard a reference of us imposing that tax22 on those particular products that are,23 frankly speaking, sold in a lot more24 broader locations than smokeless tobacco.25 73 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Do you -- are you familiar with2 what we actually put on the --3 COMMISSIONER RICHARDSON: Yeah,4 we're familiar with what was the law.5

But the6 whole --7 COMMISSIONER RICHARDSON: Yes.8

All of that9 twenty --10 COMMISSIONER RICHARDSON:11 Right. That all went into effect on12 July 1, and we got it out to about 25,00013 retailers in the County that the paper,14 the chew, sniff, things of that nature,15 so --16

All of17 that.18 COMMISSIONER RICHARDSON: Yes.19

Okay, all20 right. So we won't have an accurate21 sense of whether or not --22 COMMISSIONER RICHARDSON: We --23

-- what the24 revenue --25 74 4.4.11 COMM. OF THE WHOLE - BILL 1101371 COMMISSIONER RICHARDSON: Right.2

But we are3 currently just estimating approximately4 what, a million dollars --5 COMMISSIONER RICHARDSON: Uh,6 yes.7

-- less?8 COMMISSIONER RICHARDSON: We9 won't know currently --10

Okay.11 COMMISSIONER RICHARDSON: --12 for a little bit more time at the13 following tax season.14

Okay, all15 right. Great. Thank you.16 And you'll get back to me on17 the other information, right?18 CITY SOLICITOR SMITH: Yes.19

Thank you.20 Thank you, Madam President.21 COUNCIL PRESIDENT VERNA:22 You're welcome.23 The Chair recognizes24 Councilwoman Tasco.25 75 4.4.11 COMM. OF THE WHOLE - BILL 1101371

Good2 morning.3 COMMISSIONER RICHARDSON: Good4 morning.5

Has your6 system improved now to ID all property7 owners who own delinquent property or8 whatever?9 COMMISSIONER RICHARDSON: When10 you're saying "our system," what do you11 mean, "our system"?12

Can you --13 if there's a house that's vacant -- or a14 house -- do you know every property owner15 in the City of Philadelphia?16 COMMISSIONER RICHARDSON: We17 know the delinquent priorities in the18 City, yes.19

Okay.20 COMMISSIONER RICHARDSON: The21 owners may not be here, but we know the22 properties.23

You know24 the properties, but do you know who the25 76 4.4.11 COMM. OF THE WHOLE - BILL 1101371 owners are?2 COMMISSIONER RICHARDSON: I say3 we pretty much do. But, again, if there4 are some delinquent, we have skip tracing5 abilities to try to reach out to them as6 well, so...7

Okay. So8 if we have a vacant or if we have a9 nuisance property in a neighborhood, and10 we want to identify the owner, we can get11 that information from you?12 COMMISSIONER RICHARDSON: You13 go onto the Office of Property14 Assessments website or our website and15 look at that property; it's public16 information.17

Mm-hmm.18 Now, one of the problems we've had is19 that a lot of property owners will use20 the property as their address, but the21 property is vacant or they're renting the22 property.23 COMMISSIONER RICHARDSON:24 Mm-hmm.25 77 4.4.11 COMM. OF THE WHOLE - BILL 1101371

So we've2 had problems getting communications to3 the owner. Have you thought about how to4 address that?5 COMMISSIONER RICHARDSON:6 Again, we address it by doing skip7 tracing and a national change of address8 as well, so we do seek to look for those9 delinquent taxpayers.10

Okay,11 thank you.12 COMMISSIONER RICHARDSON:13 You're welcome, Madam.14

Thank you,15 Madam President.16

Thank17 you.18 The Chair recognizes19 Councilwoman Brown.20

Thank you,21 Madam President.22 Good morning.23 COMMISSIONER RICHARDSON: Good24 morning.25 78 4.4.11 COMM. OF THE WHOLE - BILL 1101371

I know2 that we as a city do not have the ability3 to tax nonprofits. It is also my4 understanding that -- well, we all know5 that there are many nonprofits that have6 for-profit ventures. What is our ability7 to tax those that have for-profit8 ventures?9

If you have10 what's called "unrelated business taxable11 income," under federal law, it's subject12 to business-privilege tax.13

Would you14 repeat what you just said? If what?15

If you are a,16 say, a hospital and you have an unrelated17 gift shop, you make income that is18 taxable under the Federal Income Tax19 Code. That's called unrelated business20 taxable income, or UBIT. That's subject21 to BPT in the City.22

Okay.23 What is your compliance rate, given that24 fact?25 79 4.4.11 COMM. OF THE WHOLE - BILL 1101371

I'd have to get2 back to you on that.3

And so,4 there's some internal infrastructure in5 place that signals the City of the6 instance, the type of instance, you just7 mentioned? There's some red flag or some8 green flag in your --9

I don't know that10 we've singled that out. I know that we11 do do information-sharing with the12 federal tax system.13

Okay. The14 only reason -- well, I bring it up for a15 couple of reasons, but if we factor in16 some of the concerns raised by Councilman17 Green, the prevailing question is, not18 only how well are we doing at collecting19 those taxes, but if we're not doing well,20 why, and what can we do to fix it? You21 follow me? And it speaks to the question22 of compliance rate.23 COMMISSIONER RICHARDSON:24 You're talking about a nonprofit that may25 80 4.4.11 COMM. OF THE WHOLE - BILL 1101371 have a for-profit venture?2

Yes.3 COMMISSIONER RICHARDSON: First4 of all, we need to look at federal data.5

Okay.6 COMMISSIONER RICHARDSON:7 Secondly, most businesses in the City8 that are registered, even, if they, as9 she said, in a hospital, they are10 probably registered with the City and are11 paying or being compliant.12

Okay.13 COMMISSIONER RICHARDSON: What14 are you specifically looking for?15

Just that,16 universities that have all of these --17 COMMISSIONER RICHARDSON: It18 may not be under the name of the19 university.20

Uh-huh.21 COMMISSIONER RICHARDSON: So it22 would be -- you would be the University23 of Pennsylvania, but it could be24 "Reynolds Brown Food Store," so it may be25 81 4.4.11 COMM. OF THE WHOLE - BILL 1101371 not be the name of the university.2

Mm-hmm,3 okay.4 COMMISSIONER RICHARDSON: So5 that's why I would need to know more what6 you're trying to look for.7

Okay,8 okay. So I'll look forward to that9 information, all right?10 COMMISSIONER RICHARDSON: I11 can't really provide you information. If12 you're just looking at nonprofits that13 may have for-profit ventures, because we14 may not know -- it may not be under the15 name of the nonprofit; that's what I'm16 saying.17 It's the University of18 Pennsylvania Hospital, but if you run the19 food services in there, it's not20 University of Pennsylvania.21

No.22 COMMISSIONER RICHARDSON: It's23 under your name. I don't know.24

Got it.25 82 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Is it --2 (Mr. Dubow comes forward.)3

Okay.4

Councilwoman, are5 you asking kind of the broad question of6 what do we do in terms of enforcement in7 general for not-for-profits that have8 for-profit --9

Yes.10

Okay. So you're11 just looking at the broad question.12

Mm-hmm.13 COMMISSIONER RICHARDSON: We've14 done initiatives looking at nonprofit15 agencies that have for-profit ventures,16 so we continue to do that and we canvass17 nonprofits that may have some --18

And the19 yield of that is what? Have you had any20 major findings or discoveries that point21 to the fact that those -- I mean, what22 happens with that research once it's23 collected? Does it inform any future24 action or future decisions?25 83 4.4.11 COMM. OF THE WHOLE - BILL 1101371 DEPT. COMM. BRESLIN: I'm Frank2 Breslin, Deputy Revenue Commissioner.3

Good4 morning.5 DEPT. COMM. BRESLIN: We have6 done audit and investigations of7 nonprofits, and we also do routine audits8 of nonprofits for wage tax. When we do9 the audit for the wage tax, we look at10 their federal tax returns to see if they11 have any UBIT, unrelated business income12 tax.13

Okay.14 DEPT. COMM. BRESLIN: And our15 auditors will pick that up-- because that16 is taxable -- if it's not being reported.17 We also use investigators that will go18 out to nonprofits and look for taxable19 activity.20 As the Commissioner said,21 sometimes it's not the nonprofit that is22 operating the business venture. It may23 be a company, a for-profit company, who24 is actually just paying rent to the25 84 4.4.11 COMM. OF THE WHOLE - BILL 1101371 nonprofit and operating the business.2

I see.3 DEPT. COMM. BRESLIN: In which4 case, we'll look to see that the5 for-profit venture is registered and6 payings taxes. And if they're not, then7 we'll get them set up.8 So we haven't done it as a9 specific initiative, where we've captured10 the data, so I don't have a report that I11 can give you.12

Okay.13

But over the14 years, we have done that, and we continue15 to do that.16

Okay, all17 right. That's helpful. So is it safe to18 assume there are no egregious violations,19 if you will, particularly of that20 community when it comes to what you call21 "the audit investigations"?22 DEPT. COMM. BRESLIN: We've23 found that overall to be fairly24 compliant.25 85 4.4.11 COMM. OF THE WHOLE - BILL 1101371

Okay.2 DEPT. COMM. BRESLIN: Yeah.3 And, you know, sometimes it is an4 oversight or an event or an activity they5 weren't sure maybe how it should be6 treated for City tax purposes.7

Okay.8 That's helpful.9 Based upon the FY '12 Operating10 Budget, "Tax Unit consolidations will11 cause a $24 million increase in the12 budget of the Revenue Department." What13 is the initial stated purpose behind the14 consolidation? You know, is it cost15 efficiencies or whatever?16 If cost savings is one of the17 goals, in what measurable ways was it18 achieved through the reorganization or19 the consolidation?20 COMMISSIONER RICHARDSON: Do21 you want to do it?22

It's up to you.23 Do you want me to do it or --24 COMMISSIONER RICHARDSON: The25 86 4.4.11 COMM. OF THE WHOLE - BILL 1101371 $24 million increase -- first of all, the2 $21 million is the Grants Revenue for the3 collection agencies' purposes for the4 commission. We pay them.5

Okay.6 COMMISSIONER RICHARDSON: The7 next is about $3.4 million, which deals8 with salaries for the 70 employees plus9 the contracts that are coming over to the10 Department.11

Mm-hmm.12 COMMISSIONER RICHARDSON: We13 believe that within the -- you go to most14 municipalities or states, the Department15 of Revenue has a law unit inside of its16 operations.17

Okay.18 COMMISSIONER RICHARDSON: And19 so, we know also from years of experience20 and from just my little short time here,21 folks will come to see us to make a deal.22 If they don't like it, they'll go to the23 Law Department.24 We want everything to be more25 87 4.4.11 COMM. OF THE WHOLE - BILL 1101371 cohesive.2