COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE Room 400, City Hall Philadelphia, Pennsylvania Thursday, May 13, 2010 1:20 p.m. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM K. GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILWOMAN DONNA REED MILLER COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA D. QUINONES-SANCHEZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO, JR. COUNCILWOMAN MARIAN B. TASCO BILLS 100115, 100116, 100117, 100118, 100131, 100254, 100284 RESOLUTION 100141 - - - 2
Good afternoon. Thank you. We appreciate your patience. This is a public hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the bills that we have before us today. MR. McPHERSON: Bill No. 10 100115, an ordinance to adopt a Capital Program for the six Fiscal Years 2011 to 2016 inclusive. Bill No. 100116, an ordinance 14 to adopt a Fiscal 2011 Capital Budget. Bill No. 100117, an ordinance 16 adopting the Operating Budget for Fiscal Year 2011. Bill No. 100118, an ordinance 19 amending Title of The Philadelphia Code, entitled "Finance, Taxes and Collections," by adding a new Chapter 22 19-3600, entitled "Sugar-Sweetened Beverage Tax," under certain terms and conditions. Bill No. 100131, an ordinance 3 5/13/10 - WHOLE - BILL 100115, etc. amending Chapter 10-700 of The Philadelphia Code, entitled "Refuse and Littering," by providing for a sanitation services fee, under certain terms and conditions. Bill No. 100254, an ordinance 8 amending Title 19 of The Philadelphia Code, entitled "Finance, Taxes and Collections," by adding a new Chapter, entitled "Tobacco and Tobacco-Related Products Tax," under certain terms and conditions. Bill No. 100284, an ordinance 15 amending Section 19-1301 of The Philadelphia Code, entitled "Real Estate Taxes," by revising the real estate tax rate, under certain terms and conditions. Resolution 100141, Resolution 20 providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2011 through 2015. Bill No. 100119, an ordinance 4 5/13/10 - WHOLE - BILL 100115, etc. amending Chapter 19-1800 of The Philadelphia Code, entitled "School Tax Authorization," by amending Section 5 19-1806, entitled "Authorization of Realty Use and Occupancy Tax." Bill No. 100120, an ordinance 8 amending Section 19-1801 of The Philadelphia Code, entitled "Authorization of Tax," to further authorize the Board of Education of the School District of Philadelphia to impose a tax on real estate within the City of Philadelphia; all under certain terms and conditions.
Thank you. Our first witnesses will be from the Administration. (Witnesses approached witness table.)
Good afternoon, Council President, members of City Council. I'm Donald Schwarz, Health Commissioner. Thank you for the opportunity to present testimony today on Bill No. 100254, which is Councilman Clarke's proposal to tax the retail sale of non-cigarette tobacco products in order to provide an additional revenue source to help fill our significant budget gap. According to the Centers for Disease Control and Prevention, tobacco use is the leading preventable cause of death in the United States. More deaths are caused each year by tobacco use than by all deaths from human immunodeficiency virus (HIV), illegal drug use, alcohol use, motor vehicle injuries, suicides and murders combined. Tobacco use is defined as smoking cigarettes, pipes, cigars or the use of smokeless tobacco, which consists of chewing tobacco, moist snuff 6 5/13/10 - WHOLE - BILL 100115, etc. and dry snuff. Tobacco use of any kind causes many adverse health effects, including heart disease, cancers of the oral cavity and pharynx, oral soft tissue lesions, gum recession, gum disease, tooth decay and nicotine addiction and dependence. The Department of Public Health supports this legislation as a deterrent and prevention measure for the use of tobacco products, and, of course, the revenue from this proposal would help in our ongoing budget considerations. I thank Council for their support of public health issues, and the Administration is in support of this measure. We're happy to answer questions.
7 5/13/10 - WHOLE - BILL 100115, etc. Mr. Dubow.
Okay. Doctor, I understand you have a speaking engagement?
All right. Members of the Committee, do you have any questions of Dr. Schwarz? (No response.)
Thank you. Dr. Schwarz, when you came by my office and we had a great meeting with your staff about your plans in the Health 8 5/13/10 - WHOLE - BILL 100115, etc. Department for the budget, you then followed up with a -- or your people followed up with some information for us regarding the budget. In that follow-up, we were told that if you got all of the positions you were requesting for your department, you would not need the $571,000 of overtime in your budget for Class 100, and I received a letter from the Administration saying something different, but --
We clarified on overtime, both the amount and use of overtime for the department. In the conversation that we had, we talked about overtime in general, and that was intended to be specific information for you to the dollar and by proportion.
Right. So you have no objection to reducing your overtime budget by $571,000.
I'd be happy to be able to. The issue for the department is that overtime is used in emergency 9 5/13/10 - WHOLE - BILL 100115, etc. situations and on weekends and other times, evenings, for instance, when staff aren't ordinarily around. So they're called in, and that's overtime use. So the department needs overtime funding, and that was what was described, I believe, in the letter which was sent through the Council President.
Okay. Even if you have every position you've requested filled?
Even if we fill all positions, we still don't have staff for emergency coverage. There will always be a need for that, as with other departments in the City.
Sure. Now, are you going to be able to fill all of your staff on July 1st?
We, as you could imagine, likely won't have all staff there, but we're making a major push to hire staff at the moment, as we talked about. We also talked about classes of 10 5/13/10 - WHOLE - BILL 100115, etc. public health workers where we've waited a very long time for there to be lists, and there finally are lists, so we are already going through the process of hiring from the list.
Any other questions for the Doctor? (No response.)
Good afternoon, Council President Verna and members of the Committee. My name is Rob Dubow. I serve as the Director of Finance, and I'm here to provide testimony on Bill No. 24 100284, which would revise the real estate tax rate for Fiscal Years 2011 and 11 5/13/10 - WHOLE - BILL 100115, etc. 2012. The bill proposes to raise the combined rate to 9.008 percent, which would generate approximately $78 million in each of those years for the General Fund. While the Administration is reluctant to increases in the real estate tax rate, we think this increase is essential to provide a portion of the revenues needed to allow us to avoid making service cuts. I will note, however, that the bill falls short of providing sufficient revenue to replace the 107.7 million from the sanitation fee included in the proposed FY11 operating budget. Thank you for the opportunity to testify, and I'd be happy to answer any questions you may have. I'm also joined here today by the Budget Director, Steve Agostini, who will also answer questions.
Thank you. Thank you very much. The Chair recognizes Councilman 12 5/13/10 - WHOLE - BILL 100115, etc. Goode.
At our last hearing on revenue measures on March 17th, I posed a question of what the average homeowner pays in terms of property taxes in the City. Can you give me the answer to that question?
The average homeowner pays $1,146. A proposed bill 21 before us is a 9 percent increase. Nine percent of $1,146 is $103.14, divided by 12 months, that's about $8.60. There is, I believe, a proposed amendment that would take this tax increase to 9.9 13 5/13/10 - WHOLE - BILL 100115, etc. percent. The average homeowner pays $1,146. Nine point nine percent of that is $113. If you divide it by per 5 month, that would be $9.50 a month. 6 Is it clear to say that the 7 average homeowner, if we do a 9 or 9.9 8 percent increase, will pay per year about 9 $103 to $113, which is far less than the 10 $300 flat fee? 11
That's correct. 12 That's correct. It generates slightly less revenue too, but that's correct. The average homeowner would pay less. I should actually say, it's property owners, since this includes businesses too.
And so if we divide that by 12 months and for people working on a monthly budget, $25 a month is to some people a burden. Particularly if they're paying $500, $1,000 in property taxes, that's a considerable increase, but this is at this level for the average homeowner less than $10 a 14 5/13/10 - WHOLE - BILL 100115, etc. month; is that correct?
You're welcome. The Chair recognizes Councilman Green.
Thank you, Madam Chair. Madam President, as I said during our Stated Meeting earlier today, I'd like to raise a point of order regarding Bill No. 100284, which provides for a 9 percent real estate tax increase. During Council's Stated Meeting on April 29th, Councilman Goode put forward a bill 19 which he said was on behalf of Council leadership and noted that he did not draft the bill and did not sign the bill. Councilman O'Neill made clear that the bill was not on behalf of republican leadership. No one in democratic leadership identified himself or herself 15 5/13/10 - WHOLE - BILL 100115, etc. as the sponsor of the bill. There is no 3 sponsor of the bill. Our rules provide that all bills shall be signed by the member or members introducing them, or when bills are introduced by request, the rules require that the bill identify the person or persons requesting introduction. My understanding is that this bill is not signed and that this bill -- no other person requesting introduction is listed on the bill. Our rules also provide that a hearing on the bill shall only be held at the request of the principal sponsor of the bill and only after such request has been approved in writing. It is my understanding that someone on Council President's staff requested a hearing for the bill. In this case, there was no 22 request for a hearing by the principal sponsor of the bill. My point of order is that because our rules were not followed, 16 5/13/10 - WHOLE - BILL 100115, etc. there is a fatal procedural flaw with this bill.
Excuse me, Councilman Green. The Chair recognizes Councilman Goode.
I'm sorry, Madam President. For clarity of the record, Councilman Green has said, one, that there is no sponsor of the bill. Then he is going to reference the primary sponsor, which is confusing.
You know, I think that we all have the greatest respect for Rick Auerbach. He is here. He has looked into the law, and 17 5/13/10 - WHOLE - BILL 100115, etc. he will address this issue. So, Mr. Auerbach --
Madam President, I'm not -- I have one more sentence --
Mr. Auerbach, would you please. I think we heard Councilman Green earlier this morning, and I don't see any reason to keep going down this avenue when we can correct it, once and for all. Mr. Auerbach. I'm sorry?
Madam President, I'm not arguing the point. I'm not arguing Councilman Green's point. I'm asking for a clarity in terms of what he said. He first said there was no 18 5/13/10 - WHOLE - BILL 100115, etc. sponsor for the bill. Then he went on to refer to the primary sponsor of the bill. I wanted to clarify --
Under our rules, there is no sponsor. There was an attempt to introduce a bill. The fix is easy, introduce a bill, advertise it and pass it on June 3rd. I think we put ourselves at great jeopardy passing this bill --
I asked Councilman Green to clarify his statement. He first said -- and this is going to be a matter of this transcript. He first said that there was no sponsor. Then he went on to say that the primary sponsor of the bill had to request a hearing and the primary sponsor did not. 19 5/13/10 - WHOLE - BILL 100115, etc. How could there be a primary sponsor if there's no sponsor of the bill? Clarify your statement, Councilman.
With respect to that issue, because there was no 8 primary sponsor, no hearing could be requested, and, in fact, the person who requested the hearing was not any member of City Council but was a person on the President's staff.
-- on behalf of Council leadership. Councilman, are you listening? The bill was introduced on behalf of Council leadership, as I said, as a result of a phone call from the Council President that morning. It makes perfect sense that if the bill was introduced on behalf of the Council 20 5/13/10 - WHOLE - BILL 100115, etc. President and leadership, that a member of the Council President's staff could request a hearing. Because it's not my bill. It was introduced on behalf of Council leadership. Does that make sense?
I understand what you're saying. I don't think the procedural rules were followed, and that's my point of order. Thank you, Madam President.
I want to put this to bed, once and for all. I would like Mr. Auerbach to address Councilman Green's issues.
The issues raised by Councilman Green are not issues of requirements that are set forth in the Philadelphia Home Rule Charter or requirements that are set forth in any other law of Pennsylvania. They're solely matters of Council's internal 21 5/13/10 - WHOLE - BILL 100115, etc. rules. And the law is clear that Council is free to disregard its internal rules if it chooses to do so, and acting contrary to its internal rules is implicitly a waiver of its rules. Council's rules provide that any rule of Council may be suspended. So this bill 9 was introduced by Councilman Goode on behalf of leadership. It was duly referred to the Committee of the Whole by the President. As required by the Charter, it was advertised in the newspaper. This is the hearing the Charter requires, and then the Committee will act on the bill. And you've raised issues of procedure. The Committee is free to accept or reject your issues in deciding to report the bill out, but it fully has power to report the bill out, and the Council has power to act on it and implicitly waive its rules, if it so chooses.
I do have 22 5/13/10 - WHOLE - BILL 100115, etc. tremendous respect for your opinion, Mr. Auerbach. I don't believe -- and there is caselaw in Pennsylvania on this point -- that you can suspend a rule or change the rules after an action has been taken. Certainly you can beforehand. And I just think when the fix is introduce a bill, advertise it and get it out June 3rd, that we ought to act in that regard rather than in haste. But my point of order is on the record, and I appreciate it. Thank you.
The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Good afternoon, gentlemen. I want to go back to the line of questioning by my colleague Councilman Goode when he broke it down into monthly and annual real estate tax increases on average for each household. In your testimony, Mr. Dubow, you talk about -- you say while the Administration is 23 5/13/10 - WHOLE - BILL 100115, etc. reluctant to see increases in the real estate tax rate, we think this increase is essential to provide a portion of the revenues needed to allow us to continue to avoid making devastating cuts. And then you go on further to say you will note, however, that the bill falls short of providing sufficient revenues to replace the $107.1 million from the sanitation fee included in the operating budget. As you know and as was brought up again today and mentioned today, I did have a tax bill in at 12.01 percent, which I withdrew, and I would gladly reintroduce it if I can get nine votes for it. But using the figures on the 9.9 percent, how much more do we need to raise?
It's about $30 million. COUNCILMAN DiCICCO: And we get there, correct me if I'm wrong, and we get there by charging commercial property 24 5/13/10 - WHOLE - BILL 100115, etc. owners $300 annually for trash collection?
That's part of it. COUNCILMAN DiCICCO: I'm going to give you the four items.
Okay. COUNCILMAN DiCICCO: Three hundred dollars a year for commercial property owners to pick up their trash.
Right. COUNCILMAN DiCICCO: A hundred fifty more than we negotiated a couple months ago.
Correct. COUNCILMAN DiCICCO: Three-quarter cent on the soda tax.
Right. COUNCILMAN DiCICCO: Nine point nine percent real estate tax. And what was the smokeless tobacco? It raises 4 million, but how did we get there? What was the --
The rate? COUNCILMAN DiCICCO: Well, 0.3 25 5/13/10 - WHOLE - BILL 100115, etc. cents, 30-something cents, whatever.
Right. COUNCILMAN DiCICCO: So in actuality, we will be raising four separate taxes to cover the deficit. On the real estate end, if we did the 12.10 percent, according to the numbers that you gave me a couple of months ago, we would raise about $107.2 million?
Correct. COUNCILMAN DiCICCO: And how far short would we be then to accommodate the necessary funds that we need to avoid any service cuts?
It would be -- it looks like it's about a $4 million difference. COUNCILMAN DiCICCO: Four million dollars. So one tax versus four taxes pretty much closes the gap, the deficit. And if we took the 10 million that the soda industry has offered the Administration for the -- in place of the 5/13/10 - WHOLE - BILL 100115, etc. soda tax, we'd be plus million. 3
I haven't been 4 involved in any discussions about that. 5 If that's -- I mean, if that's true and 6 then that math works -- COUNCILMAN DiCICCO: We'd be plus 6 million.
Right. The other issue for us, though, is we need recurring revenues. So the property tax would be recurring. The $10 million wouldn't. So in '12 -- COUNCILMAN DiCICCO: The 10 million is over two years, but I understand they would front load it to give it the first year, which would cover the two.
Right. So there would be -- in '12 we'd have to figure out how to replace that. COUNCILMAN DiCICCO: And what portion would we have to figure out in '12? How much?
Well, it would be 27 5/13/10 - WHOLE - BILL 100115, etc. about the million. COUNCILMAN DiCICCO: Four million. We'd have to find $4 million --
Well, no. That's actually not right, because it would be more like million, because the -- 8 COUNCILMAN DiCICCO: Five 9 years? 10
11 Liquor-by-the-drink -- not 12 liquor-by-the-drink. 13 COUNCILMAN DiCICCO: We did 14 that before. 15
The sugary drink is 16 for half a year in '11. It goes to a 17 full year in '12. So you'd be replacing 18 about another 14 and a half million of 19 that. So you'd have about a 20 20 million -- COUNCILMAN DiCICCO: In '12?
Yeah. You'd have about a $20 million issue. COUNCILMAN DiCICCO: So if we did the 12.1, we'd pretty much be out of 28 5/13/10 - WHOLE - BILL 100115, etc. here today, we'd cover the deficit?
For '11, right. COUNCILMAN DiCICCO: No further questions, Madam President.
Thank you, Madam Chair. Under the proposals before us today and that you're testifying in favor of, what is the fund balance?
The fund balance at the end of 2011 would be about 57 million. I'll give you one other number, which is where our cash would be at the end of the year, and that would be about 12 million.
I gave you two numbers. One was the fund balance, which would be about 57 million. The other number that's important to remember is how much cash the General Fund would have at the end of the year, and that's about 29 5/13/10 - WHOLE - BILL 100115, etc. million. 3
So there's a 4 $57 million fund balance at the end of 5 the year and -- 6
And that 9 assumes that you're working off of the 10 revenue estimates in the budget presented 11 to City Council; is that correct? 12
Could you comment on how much additional revenue we will have compared to the revenue estimates just making a relatively simple assumption, and, that is, that the wage tax receipts continue to increase at their current rate, what would then be the fund balance at the end of FY11 and the cash position of the City?
Steve Agostini, Budget Director for the City. It would be about the same as the numbers we have there. 30 5/13/10 - WHOLE - BILL 100115, etc.
They would be approximately the same as the numbers Mr. Dubow just quoted you, the $57 million.
Well, when you look at wage tax receipts, the most recent numbers we have, they appear to be on an increasing upward trend, and if you annualize that figure, we would end up with significantly more --
It would be a mistake to annualize that figure. It is one month, and it does not represent a significant trend.
And it's a series of months for which we've had increases.
As I said, it would be a mistake to annualize that number, because it's one month, and then there are also -- we're showing less than what we had budgeted for property tax.
So why 31 5/13/10 - WHOLE - BILL 100115, etc. should we argue over that number? Neither one of us is the kind of economist that's going to get that exactly right. We're making our best guess. Have you had a chance to look at the 5 percent property tax increase that I proposed that has a float down in the event that the tax amnesty comes in above million or in the event that 12 wage tax or other receipts are above 13 projections in the first quarter? 14
Yes, I have. It 15 would be insufficient in order -- it 16 would be insufficient to the City's needs 17 with respect to fund balance and it would 18 be dramatically insufficient with respect 19 to cash flow needs. 20
With respect 21 to the 5 percent increase. So what would 22 be your objection to putting a float-down 23 provision on 9 percent, assuming you're 24 right, on the tax increase that's the 25 bill that you're here testifying on 32 5/13/10 - WHOLE - BILL 100115, etc. today? Basically what that would mean is, you'll have all the revenue you say you need and in the event that things come in better than expected, taxpayers will get a break.
So can you just kind of walk through how the float-down provision would work in relation to a 9 percent or 9.9?
Sure. We would just take essentially -- let's say the tax amnesty -- we're raising how much, $89 million in real estate taxes; is that right?
Okay. So essentially let's just say the tax amnesty comes in at 50 million rather than the million budgeted. 22
Thirty 25 million budgeted, okay. 33 5/13/10 - WHOLE - BILL 100115, etc. The real estate tax millage would go up only enough to raise $58 million in taxes. So you take the 5 extra that we got and you'd lower the 6 millage. If, say, wage tax first quarter 7 comes in 10 million more than we 8 expected, we would lower the tax we're 9 going to raise by another 10 million. 10
You're saying if 11 any tax comes in higher than we 12 anticipate? 13
No; just the 14 ones that are steady and predictable. 15 Like the amnesty we'll know for certain, 16 wage tax first quarter comes in above 17 what we would project for the first 18 quarter. And I'm not talking about 19 annualizing these figures. I'm just 20 saying the cash actually in the door at the end of the first quarter.
I think there are a couple of issues with that, and I think Mr. Agostini may want to add something. First, I think you can't just look at one 34 5/13/10 - WHOLE - BILL 100115, etc. tax or another tax and say this is coming better than we projected, so we're going to reduce rates, because other taxes may be coming in lower.
Secondly, I think looking at the amnesty, which is a one-time event, and comparing it to something that's going to be recurring also can create problems, and I think you also have to look at what the amnesty means in terms of delinquent collections going forward. So there's some analysis that has to go -- you can't just look at the gross number.
Those numbers you're discussing are already built into your projections, however.
So the question is if you get 50 million, does that have a 35 5/13/10 - WHOLE - BILL 100115, etc. different impact on the delinquent collections you're going to have in the next couple years, and we'd need to understand that before we made any kind of changes to the budget.
Well, I would suggest that it's something we ought to consider, because if, for example, wage tax comes in 10 million higher in the first quarter, every economist I talked to says that that is going to -- likely will trend up throughout the entire year, and we're not talking about annualizing that figure, for example. And it's certainly my goal to raise the revenue that we need, but the minimum amount of revenue we need, without burdening taxpayers unnecessarily, and I just wondered what your rationale was for that.
I understand. I guess the only thing I would add is if we had done that this year since wage taxes came in actually much more weaker in the 36 5/13/10 - WHOLE - BILL 100115, etc. first quarter and we tried to base a rate off the first quarter, we would have gotten a much different result than we would get looking at two quarters or three quarters.
And we were able to manage to that. I have full faith and confidence in you and Steve that you can manage to whatever appropriation we provide. Thank you, Madam Chair.
The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. I left out something very important in my earlier comments. Going back again to my colleague Councilman Green, when you went through the numbers, that the average household would see an increase of approximately $113 annually if we did the 9.9 percent real estate tax increase. If we did the 12.10 -- I don't have a calculator in front of me, but is 37 5/13/10 - WHOLE - BILL 100115, etc. it safe to say that would average out to about $136 annually?
Yeah. That's right. COUNCILMAN DiCICCO: So it would be a $33 difference from the 9.9 to the 12.10 for the average homeowner in the City of Philadelphia. Instead of paying 113, they would be paying $146 a year. And as I mentioned in the past when I introduced the bill that I withdrew, if you file a federal income tax return, you get a deduction, either a full deduction or a partial deduction, for any real estate taxes that you file, and if you are a property owner who qualifies for the state rebate, real estate tax rebate, you would be made whole. So in many instances, given the number of people who meet the poverty level in the City of Philadelphia, they would in actuality not be receiving any 38 5/13/10 - WHOLE - BILL 100115, etc. increase, because they would be fully refunded. Is that a fair statement?
It's certainly true for some people, yes. (Applause.) COUNCILMAN DiCICCO: So the political hit we stand to take if we do the 9.9, the $300 a year annual commercial trash collection fee, the three-quarter cent soda tax and whatever that percentage of the smokeless tobacco is, it pretty much comes out about the same, if not more, for some people. If you're a commercial property owner, you're actually going to be paying a lot more because you have a fee.
Right. COUNCILMAN DiCICCO: Where you didn't have it as a real estate tax. So if we're going to take a political hit no 22 matter what we do, I'd say take the political hit, figure it out between now and next year how we can make this thing a better place and hopefully get more 39 5/13/10 - WHOLE - BILL 100115, etc. efficiencies in, do the 12.10 and not have to worry about the other taxes, because we can't get the nine votes anyway. Thank you. (Applause.)
Are there any other questions or comments from members of the Committee of our two witnesses? (No response.)
Excuse me. You're going to stay with us, I hope?
Thanks. Our next witness? MR. McPHERSON: Is a panel: 40 5/13/10 - WHOLE - BILL 100115, etc. Kevin Pasquay, Joe Gatta, Joseph Bright and Danny Grace. (Witnesses approached witness table.)
Good afternoon, gentlemen. Please identify yourself for the record and proceed with your testimony.
I guess I will go first. My name is Kevin Pasquay and I'm here -- I represent Swedish Match. Swedish Match makes cigars and other tobacco products that are sold by various retailers throughout Philadelphia. I am here today in an advisory capacity to state that the tax on cigars and other tobacco products, be it the business privilege tax, requires reconsideration. 3 percent. Over the years, our previous Mayors have worked hard to reduce it. Now, if this 41 5/13/10 - WHOLE - BILL 100115, etc. tax is assessed against the retailers, you seek to further burden this industry by adding an additional tax on top of it. For Philadelphia tobacco retailers, that initiative would be a tremendous hardship on an industry that is already heavily taxed and would simply serve as a Band-Aid in attempting to resolve the current City budget crisis before you, not to mention the disadvantage those business retailers, who already contribute to the City via the business privilege tax, would need to endure. Secondly, when you look at any retailer, tobacco or otherwise, they start out of the gate with a State tax of 8 percent as opposed to 6 percent in four surrounding Pennsylvania counties. Taken into effect, the BPT, the business privilege tax, and sales tax difference, you are getting woefully close to 9 percent between Philadelphia and those four surrounding counties. Now you propose adding to that tax burden for 42 5/13/10 - WHOLE - BILL 100115, etc. tobacco retailers. Please allow me to put that into perspective. Here is a tin of Ashton's. There are ten cigars, small cigars, in this tin, Ashton Esquires. They cost approximately $21, including tax, here in the City at Holt's. 75 in the suburbs, I most likely would head out to that retailer in the course of errands I am already doing in those areas. I buy these tins in bulk of ten. 50. These counties are right next door and easily frequented by many of us. It is well known that Philadelphians are very savvy customers. In my working-class neighborhood of Port Richmond, we might head over to New Jersey via the Betsy Ross Bridge for dinner or shopping and, while there, purchase our gas and/or alcohol products. I hope through illustration of these examples, to which we could all 43 5/13/10 - WHOLE - BILL 100115, etc. relate, that you see my point. To make that differentially even more convincing, the cost of doing business in the City as opposed to the suburbs or neighboring New Jersey or Delaware would be going in the wrong direction. If anything, we need to decrease the tax burden to make our shops, retailers and vendors more competitive with our neighboring suburbs and within the tri-state area. Finally, it is my understanding that you plan to assess part of this tax as weight based. I don't know if the good Councilpeople know what that means, but let me show you. I want to show you the products that a tobacco retailer might be carrying. As you can see, they come in different sizes, weights, et cetera. There's no uniformity whatsoever to them. 5 ounce; more chew; chew; pipe tobacco; chew tobacco; 44 5/13/10 - WHOLE - BILL 100115, etc. snuff; snuff, half an ounce. There it is, and I might even be missing some products, quite honestly. The tax you propose will be part of the business privilege tax. How will it be collected and identified? How will it be enforced? What are plans for follow-up? What's a poor retailer to do? He will have to purchase an electronic scale. It will cost him in time and money. It will cost him in the accounting process trying to figure it out. Needless to say, it could be inferred that additional employees will be needed to enforce the tax. Again, this proposal will already stress a system that is not meant to be policed additionally.
My gut, as a lifelong Philadelphian, tells me that if I go to a couple retailers in my neighborhood over in the Kensington area and I buy cigars over there and they sell -- those good folks over there sell 45 5/13/10 - WHOLE - BILL 100115, etc. pipe tobacco, you roll cigarettes, do all sorts of things, all sorts of snuff products, they will just try to work around this proposed tax. I doubt that much revenue would be implemented if this proposal were to become law. If anything, it could have the opposite effect; that is, the City is not a good place to do business. Now we have specialty taxes on top of the already excessive business privilege tax that was never meant to be a long-term solution but rather found itself being a fixture in doing business in Philadelphia in response to a short-term solution. Just how many more of these short-term solutions will become permanent in our already distressed City? A final note, a friend of mine, Scott Segan, who Councilman Rizzo and Councilman Kelly know well, who runs Burton Photo Industries with 50 to 60 employees, left Philadelphia, the Kensington area -- he was a good 46 5/13/10 - WHOLE - BILL 100115, etc. manufacturer -- for Bucks County. He said the business taxes were killing him. In Bucks County, he feels reborn. Just how many more of these types of stories can the City endure? While Scott had to move large, heavy, sophisticated machinery at a pretty significant cost, he made the move. Scott indicated that Bucks County is enticing since it was only ten miles away. Today, we're going to hear from Robbie Levin of Holt's. I thought I would be giving my statement after him, but I do have a statement here, my feeling of -- as to Robbie Levin, what his sentiments are. Robbie Levin, owner of Holt's, is less than a mile away. Bucks County beckons, as does Delaware, Montgomery and Chester Counties. Please take the points I discussed seriously and seek another solution to our current economic crisis. 47 5/13/10 - WHOLE - BILL 100115, etc. Imposition of this tax would further cement the message that Philadelphia is a terrible place to do business, and we will see another empty storefront on Walnut Street, among the many who have pulled out of the City for greener pastures. Thank you again for your time and consideration.
Thank you. Mr. Grace, are you going to testify next?
Madam President, members of Council, thank you for the opportunity to speak on this subject. I am Joe Bright, tax lawyer, tax writer. My firm represents the Pennsylvania Beverage Association, and I was asked to give my view on whether this tax would be sustained by the courts -- by "this tax," I mean the sugar beverage tax -- if it 48 5/13/10 - WHOLE - BILL 100115, etc. were challenged. I was asked to do the same thing two months ago, and my view now is the same as it was two months ago. I think it will be stricken down by the courts as preempted by the State sales and use tax and by the City's own business privilege tax. The source of the taxing authority is the Sterling Act. The City can tax what the State doesn't take. There already is a State tax on beverages. Now, I have seen the City Solicitor's opinion in which he says, But we have drafted it so that the tax is actually on the seller. The tax authorities -- and by that I mean the learned authorities -- tell you that that doesn't make any difference. What you look at is the actual operation of the tax. The Pennsylvania Supreme Court has said the same thing a number of years ago in the first effort to pass a liquor drink tax in Philadelphia. It was struck 49 5/13/10 - WHOLE - BILL 100115, etc. down by the Pennsylvania Supreme Court as preempted on the grounds that other taxes, which were not imposed in precisely the same way, preempted it. I think -- now, as a result of that, the General Assembly gave special authority and we now have a drink tax. I believe that that same view would be applied here. When you cut through it, this is a substance over form argument. What's it really about? What this proposed tax is about is to hit consumers. That's what it's intended to do. That's what the City says, and that's what it would do, and that's what the sales tax does. If you take the substance view, the tax falls. If you, on the other hand, look at the form as drafted by the City, we already have a privilege tax on doing business in the City, detailed and laid out comprehensively by the General Assembly. Generally speaking, in 50 5/13/10 - WHOLE - BILL 100115, etc. Pennsylvania if the General Assembly legislates thoroughly in a field, there is no room for local improvisation. If that rule is applied here -- and I think it will be -- the tax will fall, if it isn't dead already under the first ground. There are other points, but I don't think I need to belabor them here. As I said, my view now is what it was two months ago. If attacked, this tax will fail.
Thank you, Council President Verna and all members of City Council, for once again affording me this opportunity to provide testimony in response to the Nutter Administration's proposal to enact a sugar-sweetened beverage tax. For many weeks now, I and Teamster brothers and sisters have implored you to stand against the 51 5/13/10 - WHOLE - BILL 100115, etc. so-called soda tax for multiple legitimate reasons. It is telling that the Nutter Administration appears to have backed off its original two-cents-an-ounce proposal and is now floating various compromised deals. This development should alert every member of City Council that the Administration has come to the realization that the citizens of Philadelphia have no taste whatsoever for this burdensome tax at any level. The only thing that this would -- the only thing that would be compromised by accepting any form of the soda tax is the financial livelihood of many hard-working families, not just the thousand of Teamsters who will stand to lose their jobs if any form of this tax is passed, but also small retailers, their employees and workers in our restaurant and food-service industries. It is also noteworthy that the Nutter Administration seems to have abandoned any pretense that this tax is 52 5/13/10 - WHOLE - BILL 100115, etc. really a public health initiative. It is not. It is yet another unfair tax burden that will disproportionately hurt hard-working, middle-class families and the working poor of this city. Far too many Philadelphians are already struggling to make ends meet in this dire economy. The soda tax is an impractical and shortsighted policy decision that will succeed only in cutting jobs, not cutting obesity rates. Virtually any food or drink consumed without moderation will cause weight gain. Why aren't we talking about taxing cheese steaks, soft pretzels and Tastykakes? Clearly -- (Applause.)
Clearly, the soda tax is discriminatory. Taxing one product and one industry to the exclusion of numerous items containing similar sugar-based ingredients is simply unfair. This initiative is not about health. It 53 5/13/10 - WHOLE - BILL 100115, etc. is about deficit reduction and raising taxes on Philadelphians, who are already burdened with among the highest taxation rates in the country. The Nutter Administration has repeatedly and cynically denied the Teamsters' position that a soda tax will result in lost jobs. They did not do their homework. Beverage industry statistics show that when soda prices rise ten percent, sales drop eight to nine percent. Reductions in soda sales mean job losses from bottling plant workers to Teamster Union delivery drivers. Our best estimate at this point in time is potentially as many as 2,000 lost regional jobs if this tax is passed in any form. Yet, these job losses will not be limited to Teamster members alone. Supermarket employees, convenience store workers and small business owners who sell soda in their stores or restaurants would also be adversely affected. There are thousands of family-sustaining, middle-class 54 5/13/10 - WHOLE - BILL 100115, etc. Philadelphia jobs in beverage production, supply, distribution, sales and retailing which depend on a healthy beverage industry. The loss of any of these jobs will only further erode the City's tax base. Teamsters Local Union 830 represents 2,200 Philadelphia members in the soft drink and beverage industry. These hard-working, tax-paying City residents do not deserve to have their jobs placed in jeopardy because of a misguided attempt to fill the City's coffers sorely by taxing the product they produce and deliver. Furthermore, it appears that the Administration has not exhausted all other avenues to reduce overhead costs and increase revenues. Just yesterday the City announced that it had received the first installment payment of $3 million that had been sitting in the Clerk of Quarter Sessions' bank account, and there are still untold millions of dollars yet to be identified and 55 5/13/10 - WHOLE - BILL 100115, etc. transferred from the Clerk's Office to the City's General Operating Fund. Similarly, the editorial boards of the City's leading newspapers continue to urge the Administration to make the kind of cuts that other major cities have made to cope with this down economy as opposed to breaking the backs of our bruised and beaten citizens with yet another tax. Members of City Council, I respectfully ask that you vote against any version of the soda tax. It will be an additional financial burden on the families already struggling to make ends meet. It does not work for Philadelphia or for Philadelphia's workers. Thank you. (Applause.)
The Chair recognizes Councilwoman Brown. 56 5/13/10 - WHOLE - BILL 100115, etc.
Thank you very much. Good afternoon, gentlemen. Mr. Joe Bright, I'd like to focus on the legal questions around this proposal, so could you walk through again slowly why, from a legal perspective, this tax is not on solid ground, this proposed tax is not on solid grounds.
Sure. The City has no taxing power that it isn't given by the General Assembly, has no inherent power. The general power is in what we call the Sterling Act. That is, the City is empowered -- and I'm paraphrasing now -- to tax whatever it wants, provided that the State doesn't tax the same thing. So the question here is, has the State taxed the same thing, speaking colloquially, when it has imposed the sales tax on many things, including soda. And as an economic matter, it absolutely has. I mean, common sense tells you that 57 5/13/10 - WHOLE - BILL 100115, etc. when you impose a tax like this, just one step up in the distribution chain, it's going to be passed on. The burden will fall on the consumer, and, in fact, that's what the City said it's intended to do. The original justification of the bill was to deter what was thought to be undesirable behavior from a health point of view. So if you take that view, it's flatly preempted, because the State is taxing the same thing; that is, placing an economic burden on the sale of these items. That's point number one. Point number two is, if you disregard what I just said and if you do not look at the substance of what's going on here and you simply look at the words as they have been drafted in the proposed ordinance, the proposal is to tax the privilege of selling sugar sodas, beverages. We already have a tax on the privilege of doing business generally, including selling all kinds of things in 58 5/13/10 - WHOLE - BILL 100115, etc. the City and --
The business privilege tax. And in State law, there is a doctrine that where the General Assembly lays out a comprehensive plan, either in regulation or in taxation, then that's the set of rules that must be followed, and a municipality, including the City, cannot vary those rules by, for example, doubling the tax on sugar bevs. That's point two. Now, there are other arguments that are contained in the memorandum that I did a couple months ago, but those I think are the key points.
Now, can you cite an example that supports the two points you just articulated?
Sure. There are quite a few of them. On point one; that is, is this preempted by the sales tax, the case cited in my memo is a decision 59 5/13/10 - WHOLE - BILL 100115, etc. by the Pennsylvania Supreme Court which struck down the first version of the City's liquor-by-the-drink tax. The City defended it on the grounds that the other State taxes were further up the distribution chain, and the Court gave a backhand to that and said they were intended to burden the consumer. Functionally, they are consumption taxes. That's what we have here preempted, and the General Assembly then passed specific authorization, which it is entitled to do any time it feels like it, and we now have the tax. But we have it because the General Assembly said so.
Now, on the preemption argument, there are lots and lots of cases that illustrate the point that where the General Assembly, in the language of tax parlance, occupies the field, the field in this case being privilege of doing business, that that's it, you can't add additional 60 5/13/10 - WHOLE - BILL 100115, etc. requirements. I don't think I cited any in the memo, but there are lots of them, and if you want me to give you some, I'd be more than happy to do it.
If you would just send one example to the Chair of the Committee, that would be helpful.
But thank you very, very much for your testimony. Thank you all for your testimony. Thank you, Madam Chair.
Thank you very much. MR. McPHERSON: Our next witness is Dr. Sam Monismith, Sherri Fiorentino and Jonathan Kirch. (Witnesses approached witness table.)
Good 61 5/13/10 - WHOLE - BILL 100115, etc. afternoon. Would you please state your name for the record and begin your testimony, please.
My name is Sam Monismith and I'm a volunteer for the Pennsylvania Division of the American Cancer Society and a member of the Division's Board of Directors, and I want to thank the Council for allowing me to make a few comments to share the American Cancer Society's position on taxing tobacco products, both smoking and smokeless, in the City of Philadelphia. As members of the Philadelphia City Council, you have the opportunity to pass legislation that will help reduce suffering and death caused by tobacco and create parity among the prices of all tobacco products sold in the City. This is vitally important to the American Cancer Society, because the mission of the American Cancer Society is to eliminate cancer. Let's be clear. Where there's 62 5/13/10 - WHOLE - BILL 100115, etc. smoking or smokeless, all tobacco products are harmful, highly addictive, cause cancer and other serious health problems, and unfortunately are commonly used by the youth of Pennsylvania. Tobacco use is the number one cause of cancer death and disability in Pennsylvania. According to the Campaign for Tobacco-Free Kids, it's estimated that 20,000 Pennsylvanians will die each year from their own use of tobacco. Smokeless tobacco users are four to seven times more likely than non-users to get oral cancer and have a 50 percent higher risk of developing pancreatic and esophageal cancer. Use of smokeless tobacco products among high school youth nationwide is three percent. According to the Pennsylvania Department of Health's 2009 Tobacco Facts report, Pennsylvania middle school males use smokeless tobacco at a rate of six percent and high school males use at a 63 5/13/10 - WHOLE - BILL 100115, etc. rate of percent, obviously well above the national percentage. And about 17 percent of high school males report smoking cigars. Despite its serious health risks, Pennsylvania is the only state in the United States that does not tax smokeless tobacco products. Taxing tobacco can obviously bring in revenue, but it also provides the added benefit of reducing tobacco consumption. Increases in cigarette prices are effective at reducing both smoking prevalence and average cigarette consumption in adults and youth. Studies show that a ten percent increase in the price of cigarettes produces a cigarette decrease, a use decrease of seven percent in youth and an overall four percent decrease in smoking consumption in general. Increasing tobacco taxes on cigarettes is one of the most cost-effective strategies to reduce tobacco use among adults and to prevent 64 5/13/10 - WHOLE - BILL 100115, etc. youth from starting. 50, bringing the cost of a pack of cigarettes in New York City to about $9. According to surveys, public opinion indicates that more than 70 percent of New Yorkers support the tax. When creating a tax increase on cigarettes, it is important to create parity among other tobacco products. There is evidence that shows how a price differential impacts use of other tobacco products. Rhode Island last increased their cigarette tax by 75 cents in 2004. They did not increase their smokeless tobacco tax, causing a large disparity in price. In the first six months after the increase, pack sales of cigarettes declined by percent, but sales of other tobacco products increased by 31 percent. A price differential exists that makes smokeless tobacco very attractive to Pennsylvania youth. From 65 5/13/10 - WHOLE - BILL 100115, etc. both a public health perspective and revenue perspective, it is important how we tax tobacco products. In order to maximize revenue for the City and to ensure the greatest benefit to public health, ideally your tax would tax all tobacco products at the same rate as cigarettes. If you don't do this, you will lose revenues when smokers switch to other tobacco products, simply because they're cheaper, but we still end up paying for the long-term healthcare costs for the use of those products.
It is also important to provide comprehensive definitions of the tobacco products that will come under this ordinance to make sure some tobacco products cannot escape being taxed. The industry has developed ultra lightweight products that will escape being taxed without comprehensive definitions to capture the new products. Because of the range of different non-cigarette products and the absence of any standardized 66 5/13/10 - WHOLE - BILL 100115, etc. packaging, many states and localities tax other tobacco products at a percent of the price charged for the product. A percentage tax based on price also results in price correction when the tobacco product price increases. A weight-based tax does not allow for this correction. I also have brought along one of these new products. This product is called Ariva. Its package identifies it as cigalettes. What are cigalettes? 14 According to Ariva, the tobacco in Ariva 15 is 100 percent Virginia star-cured 16 tobacco. All tobacco products, including 17 Ariva, contain nicotine, an addictive 18 substance. So why should this product 19 which is advertised in this manner: 20 Place a cigalette piece in the mouth and allow it to dissolve. Do not chew or swallow. Use a cigalette piece when you might otherwise have a cigarette but can't. So, in essence, it's advertised on the package that it's a substitute for 67 5/13/10 - WHOLE - BILL 100115, etc. smoking cigarettes. What's so special or unique about this product that it should be given a special tax break that cigarette products in Pennsylvania that are already taxed don't get? The American Cancer Society strongly supports your efforts to tax smokeless tobacco products at the same rate as other tobacco products based on the price of the product. By using this taxation method, Philadelphia can help ensure that the tax on smokeless tobacco products remains an effective public health tool over time. Appropriately taxing smokeless and all tobacco products can help make sure that youth do not view these products as an attractive and cheaper alternative to smoking. The American Cancer Society is available to you and would be happy to assist you in your efforts in passing this ordinance. Thank you.
Thank 68 5/13/10 - WHOLE - BILL 100115, etc. you very much, Doctor. Who is going to testify next? Please identify yourself for the record.
Good afternoon. My name is Sherri Fiorentino and I'm a staff member for the American Lung Association. The American Lung Association supports an excise tax on other tobacco products, OTP, that is based on a percentage of the wholesale cost, not the proposed per ounce. An excise tax in the City of Philadelphia would generate approximately $10 million or more. Tobacco-related healthcare costs would also decrease by enacting an OTP excise tax. Other tobacco products such as smokeless tobacco, cigars, cigarellos, blunts, et cetera, are harmful and can be deadly. They cause oral cancer, gum disease and nicotine addiction, and increase the risk of cardiovascular disease, including heart disease. 69 5/13/10 - WHOLE - BILL 100115, etc. According to the Centers for Disease Control and Prevention, OTP use in the United States is higher among people who are employed in blue-collar occupations, service labor jobs or who are unemployed. Many of these individuals are also less likely to have adequate health insurance. Smokeless tobacco is the second most commonly used tobacco product in Philadelphia. As many of you are aware, Pennsylvania is the only state in the nation that does not tax non-cigarette tobacco products. For far too long, the tobacco industry and businesses have enjoyed the bounties of profit while their products remain untaxed in our Commonwealth. 12 billion in tobacco-related healthcare costs in this year alone. With the shortfalls in the City's budget and tough economic times, now more than ever citizens are expecting decisive leadership to find missed 70 5/13/10 - WHOLE - BILL 100115, etc. revenue streams. Now is the time to close this loophole and tax OTP to maximize the overall reduction in tobacco use. From both a public health perspective and a revenue perspective, it is important how the City goes about closing this loophole. In order to maximize revenue for the City and to ensure the greatest benefit to public health, ideally we ask that you tax all other tobacco products at roughly the same rate as cigarettes. The City will lose revenues when smokers switch to other tobacco products because they're cheaper, but still end up paying long-term healthcare costs. It is a lose-lose proposition for the City. 60. To create equity with other tobacco products, the City should look at an excise tax of a percentage of wholesale costs, which would generate more than $10 million, 71 5/13/10 - WHOLE - BILL 100115, etc. provide comprehensive definitions to make sure tobacco products cannot evade paying the tax, new smokeless tobacco products. Orbs, sticks, tobacco water or lozenges are examples. Percentage of wholesale price tax systems are preferable to weight-based systems because they will keep pace with inflation automatically and avoid creating a loophole for new extra light tobacco products that are being marketed by the major tobacco companies. It is projected that by closing the loophole, the City of Philadelphia would generate well over $10 million in new revenue. Economic fears have been raised in regard to taxing other tobacco products. Economic fears in this economy are justified, but it is important to remember that fears are not facts. The reality is, in every state that has passed a significant tobacco tax increase for either cigarettes or other tobacco products, revenues have increased while 72 5/13/10 - WHOLE - BILL 100115, etc. consumption has declined. Research has shown that when you increase tobacco taxes, decreasing tobacco sales actually leads to increases in total sales taxes collected by convenience stores, likely because the people are no longer buying cigarettes, are buying other products instead with the money they are saving. The potential revenue from this proposed excise tax is considerable and would go far to support health initiatives.
The American Lung Association is asking the City of Philadelphia to tax OTP at a percentage of wholesale and allow Philadelphia to reap the benefits of taxing these products. This will generate a significant revenue stream that will reduce OTP use rates, raise critically needed revenue and save lives. Thank you.
Thank you. Good afternoon. 73 5/13/10 - WHOLE - BILL 100115, etc.
Good afternoon. My name is Jonathan Kirch. I'm with the American Heart Association, and we're here today -- we thank the Council, we thank Councilman Clarke for bringing attention to taxation of tobacco products and other tobacco products specifically. I want to try to bullet point what some people have said before me. The American Heart Association supports taxation of all tobacco products at rates significant enough to discourage use and initiation, especially among young people. The bill before this Council is of some concern to my organization because of the methodology that is utilized to calculate the tax. The American Heart Association and others support taxing tobacco products, other tobacco products, at a percentage of the wholesale price. That method will ensure that the tax does not erode with inflation and also is at -- will bring the City more revenue than a weight-based 74 5/13/10 - WHOLE - BILL 100115, etc. method. And it's important to note that new novel tobacco products are probably going to be missed by the tax methodology being proposed today. And this methodology in some regards is more helpful to premium-priced producers who market more heavily to young people and is more harmful to some of the discount tobacco producers and sellers. The American Heart Association has a charge to protect Americans from the deadly effects of tobacco use on the vascular system. We're engaged in a long campaign in this state and across this country to raise the tax rates on other tobacco products using a percentage of wholesale price calculation method. And the proposal before Council, if unchanged, does present some concerns for that effort. So we strongly encourage the Council to consider modifying the taxation method to the wholesale price approach. Again, it yields more revenue to the City, probably $10 million, as 75 5/13/10 - WHOLE - BILL 100115, etc. opposed to the or that the current proposal would bring to the City, and it preserves the progress being made by health advocacy organizations across the country to tax all tobacco products in a sensible way that maximizes the public health impact. I'm happy to answer any questions that the Council might have.
Thank you very much for your testimony. Do we have any members that would like to question the witnesses that are before us presently? (No response.)
Seeing none, thank you very much for your testimony. (Applause.)
Our next witness? MR. McPHERSON: Robert Levin, Holt's Cigar Company. (Witnesses approached witness 76 5/13/10 - WHOLE - BILL 100115, etc. table.)
Good afternoon, sir. Please identify yourself for record and proceed with your testimony.
Robert Levin. My name is Robert Levin. I am the owner of Holt's Cigar Company in Philadelphia. I want to thank City Council for the opportunity to present this testimony today. The taxes contained in the pending resolution threaten the financial well-being of my family business and all its employees. Holt's has been in business in Center City since 1898.
Mr. Levin, excuse me a moment, please. Would you pull the microphone closer to you. We're having difficulty hearing you.
Holt's has been in business in Center City since 1898 and was purchased by my parents in 1957. I started working with my father full time in the early '70s. When my family took over the business in 1957, Holt's was a small retail cigar store across from City Hall. Over the years, our family has grown the business into two retail stores in Philadelphia, our wholesale business, which imports and distributes our proprietary brands all over the world, and a catalogue mail-order business, all based out of our 53,000 square foot facility in Northeast Philadelphia. We now have 95 employees, and I am proud that we have continued the family tradition and that my son and daughter joined me full time in the business. We provide excellent healthcare benefits for all our employees. We pay our fair share of local, state and federal taxes, and our local employees also pay substantial taxes to the City of 78 5/13/10 - WHOLE - BILL 100115, etc. Philadelphia. Last year, Holt's paid the City of Philadelphia over $420,000 in various business and wage taxes as part of doing business in this city, and in addition, we have paid the Commonwealth of Pennsylvania $578,000, for a total of almost $1 million, not including corporate income taxes. My City taxes consisted of the following: Philadelphia City wage tax, $176,000; Philadelphia real estate tax, $80,000; the business privilege tax, $50,000; Philadelphia use and occupancy tax, $44,000; Philadelphia City sales tax, $70,000. Philadelphia has been and remains one of the most heavily taxed cities in the country, and each time this tax burden is increased, it becomes harder to compete effectively against competitors in more tax advantageous locations. Over the past years, I have remained committed to this city and have continued to invest in Philadelphia. I 79 5/13/10 - WHOLE - BILL 100115, etc. own the building in which our downtown store is located, and purchased the building in Northeast Philadelphia in 2003, where our second retail store, corporate offices, operation center and warehouse are now located. I'm a Philadelphia guy. I was born and raised in this city. My children were born and raised in this city. Both of them graduated from Temple University. The emotional ties I have to this city grew out of my belief that a long-term mutual relationship had developed between our business, our employees, our City customers and the City as a whole. Other businesses abandoned the City and urged us to do the same, reminding me of the significant tax savings that we could achieve. They ran, whether just over the City line or to other jurisdictions entirely. I felt my family and Holt's had a multi-generational relationship that transcended this and we remained 80 5/13/10 - WHOLE - BILL 100115, etc. committed to Philadelphia. This tax could well change that relationship and cause irreparable harm to our family business and our ability to stay and keep our employees gainfully employed and paying their taxes to the City of Philadelphia. When the impact of the proposed tax is considered, I am certain that the analysis could not adequately address the impact it will have on cigar revenues from my two stores, as well as other stores within the City. Premium cigar stores fight a daily battle with online retailers and catalogue companies who constantly bombard people with the message that they can buy the same product at cheaper prices and avoid paying taxes such as the one proposed. While the increase proposed may not seem like much, each small increase on our already heavily taxed products drives consumers to alternate sources and drives down our sales. 81 5/13/10 - WHOLE - BILL 100115, etc. My retail stores are already burdened with Philadelphia City taxes that threaten our ability to compete. The taxes that concern me most and threaten my ability to profitably operate my business are those that are levied directly on my product and must be directly passed on to my customers.
6 cents per cigar makes that burden even greater. I have been a cigar retailer and wholesaler for almost 40 years and have personal experience with the impact each tax increase has on our sales. What I can assure you is that this tax will not generate the amount of revenue projected, as our sales will decrease as more of our customers purchase on the Internet or from catalogues. That brings me to the second and more disturbing impact of this tax. My catalogue and web store sales are all 82 5/13/10 - WHOLE - BILL 100115, etc. fulfilled out of our Northeast Philadelphia facility. If this tax is enacted and I am forced to collect this tax on all catalogue and web sales throughout Pennsylvania, it will put Holt's at more of a competitive disadvantage to our competitors both in and out of state, who will then have additional margin available to beat our prices. Please understand that the Internet and catalogue marketplace is incredibly price competitive, with customers often changing retailers based upon minute differences in total costs. The imposition of this tax on my catalogue and web sales will leave me with little alternative but to succumb to the pressure which has been building over many years to relocate these operations to a more tax-favorable location, which may be as close as a half a mile further northeast of our current facility. The unfortunate consequence to 83 5/13/10 - WHOLE - BILL 100115, etc. the City would not only be the loss of the significant taxes paid by Holt's and our employees, but many high-paying jobs with excellent benefits. Bucks County is one-half mile down the road from our offices and distribution center and is offering tax incentives, not additional taxes, to attract employers and businesses. My professional advisors have informed me that if I follow the lead of many other businesses and relocated my operations to Florida, I could realize over $1 million a year in overall tax savings before considering any impact from this tax. Florida has no state income tax and very low business taxes, unlike our own Commonwealth and City. Unfortunately, we also know that taxes never disappear, but always go up. As destructive as this tax is to Holt's and my employees now, it is certain to become more destructive as it increases year after year and my business 84 5/13/10 - WHOLE - BILL 100115, etc. cannot support these increases. That is the reason why I discussed the possibility of a sunset provision in my meetings with several Councilmembers concerning this tax. I have always believed that the long-term prosperity of our city can only be built upon a foundation of a strong and vibrant business community, with businesses that can compete effectively through their success and provide high-quality jobs. This tax, without a sunset provision, will be raised in future times of fiscal need, and I cannot risk the economic health of my business in a city that is clearly sending the message that it is not an environment that understands the needs for businesses to operate with some sense of financial security. I would ask you to direct your attention to the audience in the Council Chamber and ask my employees who have come to this hearing today to stand up. ) 85 5/13/10 - WHOLE - BILL 100115, etc.
These are some of my employees of Holt's Cigar Company who stand to lose their well-paying jobs with good benefits if this seemingly unimportant tax is enacted. Many of them, like many of our employees, have worked for us for over ten years. I have always said that the success of our company is founded on two things: quality products and great customer service. These employees are the reason for that great customer service and the success of this company. I believe that it is important to put faces to this discussion to understand the impact of this tax. Prosperity cannot be built upon new taxes that threaten long-term loyal businesses and cause them to consider packing up and leaving the City. Prosperity cannot be built upon new taxes that prevent businesses from growing and adding more jobs. That alone is reason enough to reconsider the merits of the 86 5/13/10 - WHOLE - BILL 100115, etc. proposed tax. However, I understand the financial issues facing the Council and the City. For me, it would be much better to pay an increased property tax. While I have almost paid $80,000 to the City last year in real property taxes, an increase in this tax would be much preferable than another tax on our products that would be detrimental to our business. (Applause.)
Taxing our products would raise an insignificant portion of the revenue to fix the City's current problems and would cause my family business to relocate, costing the City, my family and these employees more than any potential revenue gain. Leaving Philadelphia and Pennsylvania is neither my desire nor something to be said or undertaken lightly. Holt's has been a proud Philadelphia institution for over 100 87 5/13/10 - WHOLE - BILL 100115, etc. years, and I request that this Council consider all the implications of this proposed tax. I would like to give my son and daughter the same opportunity that my father gave me, to take our family business to the next level and create more jobs as our business grows. Thank you for the opportunity to address these issues.
Thank you, Madam President. Good afternoon, sir. First, I would like to publicly thank you and say how much I appreciated having an opportunity to meet with you one and a half times. I count the time in the hallway as a half time. And as a result of our conversations, I learned a lot more about your company, and I want to 88 5/13/10 - WHOLE - BILL 100115, etc. thank you for having a company business in the City of Philadelphia for more than 100 years. That's quite a significant achievement. And I know that we talked about a number of things as it related to the industry. I heard you, but I also told you what our fiscal challenge was in the City of Philadelphia that caused me to even propose something like this.
If it were not for our challenge, there's no way in the world I wake up in the morning thinking about taxing smokeless tobacco or cigars. But understanding that, at the end of the day, we do have a challenge. So during the course of the debate as you talked about your industry, having done the research that we did, it was clear that, one, in terms of what has happened in the State -- I'm not just going to pick on the City of Philadelphia -- that it is clear that with the exception of 89 5/13/10 - WHOLE - BILL 100115, etc. two states --
There is some sort of a tax imposed on these products directly.
Which we actually thought it was none, but you corrected me. And we also understood in doing our research, as you heard in earlier testimony from folks from the American Heart and Lung Association, that the way we were taxing -- proposing the tax to this product, it was actually not the best way as it related to getting revenue for the City, and I was chastised actually by another member of the industry who would have preferred that we did it in a different way and I understand makes it lesser cost or a 90 5/13/10 - WHOLE - BILL 100115, etc. lesser quality product, and they feel like they're being penalized because we were proposing a per-unit price as opposed to a percentage of the cost. But I said, you know what, after talking to you and understanding your commitment to the City, I said that's okay. I said, I want to minimize the potential impact on a business in the City. Now, when we did the research, we looked at the various products, and understanding that you don't make all of these products, but you happen to be the last person to testify on behalf of the industry at large, when I look at the surrounding counties because -- the surrounding states when I heard the reference during the course of various testimony, when you look at snuff, for instance, which you do not produce, in Delaware, it's 54 cents an ounce; New Jersey, 75 cents an ounce; New York, 96 cents per ounce; Texas, $1.10 per ounce; Maine, $2.02 per ounce. Philadelphia, 91 5/13/10 - WHOLE - BILL 100115, etc. what we're proposing is 36 per ounce, which is much less. Chew and smoking, we actually have wholesale prices, but you can compute the numbers. Fifteen percent wholesale on chewing and smoking; 30 percent wholesale; 40 percent, six percent wholesale. That's based on the price. Much more. We're proposing a price per weight, which is much less if you compute the numbers. Cigars, wholesale prices, 14 percent; 30 percent; 46 in those same 15 states; 15 cents, which is actually per cigar, in Texas. So bottom line is, the numbers are relatively significantly more than what we're proposing. And in spite of that, I said, you know what, after talking to you, I said -- and let me finish, because you have pretty lengthy testimony. You'll have an opportunity to respond. And when I look at -- and I understand after talking to you that some 92 5/13/10 - WHOLE - BILL 100115, etc. of these numbers as it relates to the particular product are a little different, but we did an analysis on the products that were ones that people like to utilize, and we looked at single-stick price, and correct me if I'm wrong, and I'm sure you will, there's a product, a cigar, single cigar, that our information shows that the one most likely to be used or the most popular is $4.80. Boston there's one called the Peretti, $5.90; Las Vegas, $9, on and on, all of them pretty high. But you told me that your average cigar is $2.50, $2.60. I'm going to give you a chance to respond. I sat there patiently over there and here.
And when we compute the numbers based on what we believe to be the most popular, we're talking about a single-stick cigar at 4.80. After the proposed price increase, it will be 4.83. Box of 25, $107. After 93 5/13/10 - WHOLE - BILL 100115, etc. the proposed price increase, $108. So we're talking about an extremely small increment as it relates to an increase in price. Additionally, something that you also made me aware of is that your business does a significant cash -- what is it called, Internet?