COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, 2/14/01 1:45 p.m. - - - BILL 010092 - Amending Chapter 19-3200 of the Philadelphia Code, entitled "Keystone Opportunity Zones," to provide for the contingent exemption, abatement, or credit of certain taxes within specified geographical areas, under certain terms and conditions. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 2/13/01 - COMMITTEE OF THE WHOLE I N D E X James Cuorato, Commerce Department . . . . . . Joyce Wilkerson, Mayor's Chief of Staff. . . . 6 Vince Dougherty, Commerce Department . . . . . 17 7 Glenn Brian, Director of City and Community. . 115 Relations, U of Penn. 8 Jack Shannon, Managing Director for Economic 115 9 Development, U of Penn. 10 Richard Feder, Esq., Law Department. . . . . . 124 11 12 13 3 2/14/01 - WHOLE - BILL 010092 P R O C E E D I N G S
Good afternoon. This is the public hearing of the Committee of the Whole regarding Bill No. 010092. I'll just ask Mr. McPherson to please read the title of the ordinance.
Bill No. 010092, an ordinance amending Chapter 19-3200 of the Philadelphia Code, entitled "Keystone Opportunity Zones," to provide for the contingent exemption, abatement, or credit of certain taxes within specified geographical areas, under certain terms and conditions.
Mr. Cuorato, I understand that Mr. Dougherty apparently has the proposed sites. Is he distributing what we received? Is this what he -- is he distributing the same copy that we received yesterday or last evening? (Mr. Cuorato responds off-mic.)
It is or is not? Okay, so what he is distributing presently is exactly what we received last evening? It is not? Wonderful. 4 2/14/01 - WHOLE - BILL 010092 Councilwoman Krajewski is in her office, and I would ask that she please come down to the chamber. Mr. Cuorato, kindly identify yourself for the record and proceed with your testimony.
Good afternoon, Madam Chair and members of the Committee of the Whole. My name is James Cuorato. I am the City Representative and the Director of Commerce for the City of Philadelphia. With me is Vince Dougherty, the Keystone Opportunity Zone Program Administrator for the Commerce Department. I am here this afternoon on behalf of the Administration to testify in support of and offer amendments to Bill 010092. This bill would authorize the exemption, abatement, or credit on certain taxes for certain parcels, or groups of parcels, throughout the City. The authorization is contingent on the Commonwealth of Pennsylvania approving the City's application for Keystone Operating Expansion Zone (or KOEZ) designation. The KOEZ is effectively a second round of what has been the highly successful Keystone Opportunity Program that has helped create 1900 5 2/14/01 - WHOLE - BILL 010092 jobs and retain an additional 1400 jobs in the City over the last two years. The KOEZ has also led to the investment of over $122 million in capital improvements to the KOEZ properties, either in new construction or improvements to existing buildings. Under the KOEZ program, a business or a property located in a KOEZ will pay virtually no 10 real estate taxes, use-and-occupancy taxes, or business taxes to the City or state until January 1, 2014. The KOEZ benefits -- that is the benefits from the first round the program -- are effective until January 1, 2011, though we do have the option, under the recently-passed legislation to extend the expiration date of the KOZ to match that of the KOEZ. That is, we would add an additional three years to those properties that were designated in the first round. This extension, which would require City Council approval, will be addressed at a later time in separate legislation. As you can see, it gets rather confusing when we talk about KOZs and KOEZs, so for simplicity sake, in the balance of my 6 2/14/01 - WHOLE - BILL 010092 testimony, I will use he term "KOEZ" to cover both KOZ (the first round) and KOEZ (the proposed expansion round) except where a difference between the two actually exists. I will note these differences as they arise. To reap the benefits of the KOZ Program, the property owner and/or business must be up to date in all taxes and fees to the City and State and be in compliance with all City and State regulations such as, Zoning, L&I, and Health. Furthermore, to prevent businesses from jumping from a non-KOZ site to a KOZ site just to get the benefits, the State law requires that any businesses located in Pennsylvania that is not a KOZ must either increase their jobs by percent 17 in the first year or invest the equivalent of 18 10 percent of the previous year's gross revenues 19 in capital improvements to the KOZ property. 20 There are also recapture provisions taking advantage of the benefits, then leaving after a few years. In considering where to locate the KOEZs, the City teams started out with some very basic concepts: 7 2/14/01 - WHOLE - BILL 010092 First, our selections must meet the letter and spirit of the State's KOEZ legislation; Second, we must assure that this program is not a revenue giveaway program but an investment program to help grow and attract businesses in the City; Third, we need to be conscious of the revenue implications of our decisions; Fourth, this program should focus on economic development; Finally, the selection process should be fair to the existing businesses in the City. From these general guidelines, we developed more specific guidelines for selecting sites, and I know that there has been a great deal of discussion about which sites should be included. Our reasoning on the properties that you will hear about is based on these factors that I just mentioned. Our more specific guidelines are as follows: First, no residential would be included. There are two primary reasons for this.
First, the loss of wage tax revenues; and second, 8 2/14/01 - WHOLE - BILL 010092 the issue of fairness. This is a policy which is consistent from the first round of the KOZs and is also consistent with the spirit of the State legislation which targets industrial and commercial industrialization. Second, no existing businesses should be included, except under special conditions; for example, a sole tenant in a large, old industrial complex. Third, the focus would be on industrial development, but commercial development would be considered should a worthy project arise; for example, a project that complements a neighborhood revitalization. Fourth, we would look at sites that offer opportunities to the growth of the technology industry or have the potential to attract new businesses into the City. Fifth, our focus would be on vacant industrial land and older industrial buildings. Other sites would be considered on a case-by-case basis. Sixth, we would also focus on publicly-owned properties and industrial 9 2/14/01 - WHOLE - BILL 010092 properties that have impediments to development; for example, environmental problems, access, et cetera. Seventh, the sites must be developable; that is, of such size as to be developable on their own or in combination with adjoining properties. Eighth, we would not checkerboard; that is, include one small missing tooth on one block and one small missing tooth on the next block. Finally, if we expect something positive to happen at an otherwise eligible site, we would not include the site. To summarize, we attempted to target unattractive properties, which, in most cases, would need some extra incentive for development. Based on these guidelines, we reviewed and evaluated hundreds of sites for possible inclusion. What we have presented to you today is the final recommended list of properties for inclusion in our KOEZ application. We believe the sites that we have included offer a great opportunity to take many vacant, deteriorated, tax-delinquent, and severely underutilized 10 2/14/01 - WHOLE - BILL 010092 properties throughout the City and turn them into productive, job-creating hubs of business that are so critical to our future. 7 million. 5 million. We would expect to see offsets to some of this lost through revenue through certain savings that would be realized, such as cleanup costs, demolition costs, et cetera, that are associated with deteriorating properties and neighborhoods and from increased revenue from real estate transfer tax and from increases in the amount of delinquent taxes that would have to be paid back or increases in the price that properties would sell for at sheriff's sale. Furthermore, and probably more importantly, what price can you put on the spin-off effect that revitalizing these old properties has on the surrounding community. A perfect example is an existing KOZ area at 18th and Allegheny Avenue, in Councilwoman Miller's district. The Councilwoman and her staff, in 11 2/14/01 - WHOLE - BILL 010092 conjunction with my staff, the Allegheny West Foundation and the Hunting Park West Business Association, have been working together since the KOZ designation to revitalize this older industrial area that had effectively been left to rot. In just this last year, we have seen seven businesses take over old, vacant KOZ buildings in this area, make substantial improvements to the buildings, and create new jobs for people from the surrounding neighborhood. The effect has been dramatic on the entire area, and we have just begun. The alternative to the KOZ might well have been to let the area deteriorate to the point that L&I would have to step in and demolish dozens of old industrial buildings. I believe that the KOZ Program has proven to be a great tool in our economic development arsenal for attracting and retaining businesses of all types in the City.
In the first two years of the KOZ Program, we have seen the program assist businesses ranging in size from TJ Maxx, with their projected 1100 employees in the Northeast, 12 2/14/01 - WHOLE - BILL 010092 to PNC Wiring, a two-person start-up minority- owned business in North Philadelphia. We have been able to attract the 100-employee New York based Super Nutrition, and also retain a growing longtime Philadelphia company like the 100-employee Cedar Farms Company, who were very close to leaving the City for New Jersey. Likewise, the program has helped Chianti Cheese, a cheese drying and grating company on American Street, while also helping the many high-tech companies who have moved into the Port of Technology Building. In each instance, the KOZ designation was a key factor in the company's decision. It is because of this wide-reaching and positive effect on development in the City that we have had in the first two years of the KOZ Program and the anticipation of many more successes in the future that I respectfully request Council's support for this bill. Finally, I am submitting to you proposed amendments to Bill 010092. These amendments correspond to the list of properties that you have in front of you. The amendments put 13 2/14/01 - WHOLE - BILL 010092 those properties in the proper form to meet the State's requirements for contiguity of parcels within a subzone. The amendments should be added to the legislation as Exhibits through 8, as outlined in Section 2 of this bill. We -- Mr. Dougherty has a map, a citywide map, that shows the existing KOZ areas and the proposed areas, which he can present, with the permission of the Chair, in a brief fashion to give you an idea of what is on our list, Madam Chair.
Thank you. I don't want to keep Miss Wilkerson here. Some have asked if she could be present, and I think that -- Miss Wilkerson, I think that your purpose of being here is simply to advise the committee what the Mayor's position is on this particular issue?
The Mayor has reviewed the list of properties, the Administration is in 14 2/14/01 - WHOLE - BILL 010092 support of the list of properties, as amended by the submission today. Those would be the properties in the eight subzones articulated in the legislation.
Okay. Are there any questions of Miss Wilkerson?
Well, I don't see any reason for her to be sitting here. If there are questions, I think we could ask her now; otherwise, I think we could ask Mr. Cuorato. Thank you.
Mr. Cuorato, the Pennsylvania Keystone Opportunity Act requires that the application for designation as a KOZ, or a KOEZ, shall show the geographic area of the proposed zones within a detailed map of the proposed zones, including geographic boundaries, total area, and present use and conditions of the land and structures of the proposed zones. Do you have such a map, and does the information exist?
Madam Chair, we have -- 15 2/14/01 - WHOLE - BILL 010092 attached to the list of subzones, we have a list of the specific properties, present and proposed use, address, Board of Revision of Taxes number. We also have a map which shows all of the areas that are being designated.
Is that what you've distributed to us since we started our meeting?
Maybe you could tell us, out of the proposed new sites, how many are privately-owned versus publicly-owned, and why is the Administration proposing to include privately-owned properties in the KOEZ program? Have the owners of these private properties been notified, or are we just changing them because that's something we want to do?
Madam Chair, in nearly all cases, the owners are aware of the designation. In many cases, we were contacted and asked if we could include those properties. The designation itself was -- the decisions on recommendations on properties were based on our judgment as to how we could get deteriorated, 16 2/14/01 - WHOLE - BILL 010092 blighted, under-used, vacant industrial and commercial sites back into productive use. In some -- in a certain fashion, I would compare this designation to, for instance, when we established State Enterprise Zones or Empowerment Zones. This is the City's decision to designate certain areas for -- which we think this program is help to have redeveloped. So it wasn't a situation where every single property owner was contacted and asked about the designation; it was a decision on our part to look at the City, and we really did scour the City to look at all of the different areas that could meet the State criteria which would get properties developed and back into productive use.
I'm sorry, I was distracted. I noticed on the list that we have properties that are listed, and it indicates that the taxes are up to date. I don't know whether that's just a parcel of ground, whether it's a business. Have you checked with people who are up to date with their taxes and told them that you were proposing this? 17 2/14/01 - WHOLE - BILL 010092
In most, but not all, cases, we have. These are industrially-zoned properties, which the City Administration is recommending continue to be industrially-zoned properties. So all that we are really doing is putting a designation on these properties that in a sense makes the properties more valuable to be marketed and increases the likelihood that they will be redeveloped, which is our goal for this program.
Well, have you checked with the annual taxes that are due on the privately-owned parcels, and what is the breakdown of the annual amount due to both the City and the School District?
Madam Chair, our estimate of the amount of tax revenues is $1.7 million to the City.
How about the School District? How about business taxes, property taxes? Give us a breakdown. Let us understand a little more than what we know.
Of the total cost of $1.7 million, that includes all real estate taxes, 18 2/14/01 - WHOLE - BILL 010092 both City and School District. It also includes use-and-occupancy tax and business privilege taxes. The break-out comes down to this: $615,000 of real estate tax to the City; $743,000 of real estate tax, which is School District tax, for a total of $1.4 million in real estate taxes. The total collectible -- oh, I'm sorry. The total use-and-occupancy tax has been estimated at less than $150,000, and the total of business privilege tax is less than 200,000 for all of these parcels. These numbers are based on research done by the Revenue Department on our behalf.
Councilwoman Blackwell would like you to explain, as part of your testimony, you estimate the total cost to the City in lost billable revenues to be less than $1.7 million. The actual collectible revenues are estimated to be less than 1.5 million. She would like you to elaborate on that, please.
Some of the properties are tax-delinquent, and we made a judgment as to what we could reasonably expect to continue receiving versus those that are not paying taxes. 19 2/14/01 - WHOLE - BILL 010092
Some of the properties, Councilwoman, are tax-delinquent that we are proposing for recommendation. So we made what we thought was a reasonable judgment as to which taxes would be paid and which would continue to be delinquent.
I might add, if I may, that on these properties, there's $843,000 in delinquent taxes outstanding on these properties. Quite a few are delinquent and effectively abandoned.
Are you saying that we're losing 1.7 on properties you could bill, but that we couldn't collect any more than -- that we will collect 1.5?
We could expect to collect 1.5 from those property owners who are up to date on their taxes and continuing to pay. There are some tax-delinquent properties --
Wouldn't they be paying anyway, Jim? Maybe I'm a little confused. If they're up to date with their taxes 20 2/14/01 - WHOLE - BILL 010092 presently, putting them in a KOZ, wouldn't they still be paying?
Yes, Madam Chair, they would still be paying, but the properties would remain vacant and undeveloped. What we're trying to do is add this incentive program so that the buildings can be developed and the taxes would be even greater.
Well, tell us, what is the total acreage of the proposed KOEZ Program, and what is the current undeveloped acreage of the KOZ Program?
In the proposed KOEZ, it's a little over 1300 acres that are included in this proposal. In the original KOZ proposal, it was 1505 acres, I believe was the official total.
I have not done the math. I have been carrying it back and forth in my bag.
Well, you don't have to be precise; just give us a ballpark figure, please. 21 2/14/01 - WHOLE - BILL 010092
I would suggest 200, 250 off the top of my head. (Councilman Nutter asks a question off-mic.)
That's 250 out of 1505. 250 have been developed out of the 1505 acres.
Mr. Cuorato, since the KOZ Program extends beyond the time period of the KOZ Program, won't this act as a disincentive for a company to locate in a KOZ area?
Madam Chair, we have the State legislation that established the KOEZ Program, gave us the option to add three additional years to the original KOZ Program. That decision is -- has to be made by this June, and we're going to take a look at those parcels, and we will come back to City Council with 22 2/14/01 - WHOLE - BILL 010092 recommendations on that. So we do have the ability to match up the existing properties with the new properties.
I have several other questions that I would like to ask, but I notice that there are a number of Councilmembers that would like to be recognized. Councilwoman Blackwell.
Thank you very much. Please explain how the abatement from wage taxes works. Would you clarify who is eligible, the employer or the employee? Are there --
Who' is eligible for the wage tax guidelines? Would you clarify whether it's the employer or the employee. Are the wage taxes that are generated during the construction stage abatable?
Councilwoman, wage taxes are not included in waivers of the taxes that are removed as a result of the KOEZ legislation unless 23 2/14/01 - WHOLE - BILL 010092 they're in residential properties. And we are proposing no residential properties. So no wage taxes would be lost to the City.
Okay. What will trigger the abatement period? Is it the Commonwealth's approval date, the date that business licenses are issued, the date the building permit was issued? Because, as you know, there is some controversy by certain businesses in TIF Districts who thought they were eligible at one point and then found out later that they were not because they began too early. So what's that date, what triggers that?
Under the KOEZ legislation, the new round, the benefits begin retroactive to January 1, 2001.
January 1, 2001. The guidelines state that existing businesses will not be eligible for KOEZ designation. If an existing business wants to expand and has a plan to increase jobs by 20 percent and/or invest the 10 percent of the 24 2/14/01 - WHOLE - BILL 010092 previous year's gross revenues and capital improvements to the KOEZ property, will they then be considered eligible?
An existing business in a KOEZ. Well, they would get -- they would just get the benefits. They would be entitled to the benefits.
Your requirements said existing businesses weren't eligible.
No. We tried to limit the number of existing businesses that were in the areas that we're recommending. There are some, but only in rare instances. So the businesses that we are recommending for inclusion would be entitled to those benefits.
Okay. Are there any community notification requirements? I assume not.
How will Commerce work with the zoning in terms of rezoning certain areas, if need be, for this KOZ, or KOEZ?
Councilwoman, we are discussing with the City Planning Commission the idea of a zoning overlay for all Keystone Opportunity zone parcels that would restrict them to their current zoning, which is industrial. That's something that we expect to be presenting to City Council very shortly. So that would limit the uses and be consistent with our policy that we do not want -- we do not want residential properties in the KOZ.
What were some of the considerations in not including residential?
Well, there were several. First, we think it's important to maintain wage taxes for the City of Philadelphia. Second was the issue of fairness, in that if certain properties were designated for residential development, it would create a situation where a 2/14/01 - WHOLE - BILL 010092 group of homeowners or renters would not have to pay wage taxes for years, and we didn't want to 4 be in a situation where we were pitting block 5 against block or neighborhood against 6 neighborhood, where people were saying, you know, 7 Why are they not paying wages taxes and I did? as 8 well. So we tried to established a consistency in 9 that regard. 10 The final reason merely gets to the 11 specific State criteria that you are -- you have 12 to designate parcels of at least 15 acres. We did 13 take a look at certain blighted areas of the City to see if there were areas that could be included, but we couldn't get to 15 acres, we couldn't get near 15 acres. Or if we worked getting close to 15 acres, we were including a lot of residential properties, which we didn't want to do. So for those reasons, we decided that this was the prudent policy.
Finally, what's given the KOEZ, or KOZ, status? Will businesses be mandated to still have the same minority participation in construction? Will all of the other rules and mayoral mandates apply? 27 2/14/01 - WHOLE - BILL 010092
Yes, Councilwoman. There would be no change in any of those policies.
Thank you. I just want -- I have a number of questions, but if this were to pass today, we would then have approximately 2,655 acres under the KOZ?
Thank you. The Chair recognizes Councilman Goode.
Okay, the KOZ economic development stats that you cite in your testimony, 1900 jobs created, 1400 jobs retained, who else can claim these jobs? Are these job- 28 2/14/01 - WHOLE - BILL 010092 creation retention number also claimed by PIDC, also claimed by the Enterprise Zone, also claimed by the Empowerment Zones? I mean, are these attributable to just the KOZ strategy, or is it also attributable to PIDC's programming and other targeted economic development strategies? I mean, how do we know that this strategy works, per se?
Councilman, I'm sorry. The stenographer cannot hear you.
Okay, thank you. My question was, you site certain economic development stats related to the success of KOZ, 1900 jobs created, 1400 jobs retained. My question is, who else can claim these jobs? Can PIDC claim that through its programs, they've created these jobs? Can we claim the Enterprise Zone strategy created these jobs? Can we claim the Empowerment Zone strategy created these jobs? How do we know that it's actually KOZ strategy versus any of these other economic development strategies?
Councilman, I'm sure that there is some properties that are in the KOZs that are included in that 3300 job number, which would 29 2/14/01 - WHOLE - BILL 010092 also show up on PIDC transactions for job-counting purposes as well. In many cases, it's a package of incentives that are used to bring companies into certain areas. And, again, we're taking about parcels that are very unattractive for development and otherwise, we believe, would not be developed. I think -- I will say that we have with us a list of all of the KOZ transactions, including addresses, type of business, employment, and investment, and we can make that available to the members of City Council. Our belief is that virtually all of the properties on the KOZ list are on that list because of the KOZ Program. Now, it may well be that once we got them interested in a site because it was a Keystone Opportunity Zone, we were able to bring other City economic development programs to bear in order to get the project done.
I'll go back to that question again, because I'm not satisfied that you really answered what I was trying to get to. Let me start with a fact. I have a problem with TIFs and KOZs because I believe that 30 2/14/01 - WHOLE - BILL 010092 they more than try to determine economic development strategy for specific locations, but actually determine tax policy. And I believe that's unfair to determine separate tax policy for different businesses. I prefer across the board that we actually cut taxes across the board rather than targeted tax cuts as an overall strategy. Let me ask you a question about in general in terms of economic development planning. KOZ is something that was offered in terms of State legislation and is something that the City is trying to take advantage of, and if the City decided how it was going to take advantage of it, who actually sits at the economic development planning table, who is a part of that process?
For the -- for general economic development purposes or for the KOZ Program planning?
Actually for general. Under the Economic Stimulus Program, there was a, quote/unquote, framework for success, and there were a number of committees outlined saying that these are the people who coordinate for neighborhood economic development; in 31 2/14/01 - WHOLE - BILL 010092 particular, there was both a neighborhood economic development review committee and a neighborhood economic development coordinating committee. But under the Economic Stimulus Program, there were probably up to 20, committees. It wasn't an 7 organizational framework. 8 I'm asking now, in terms of our 9 planning in terms of economic development, who 10 sits at the table? 11
The Department of 12 Commerce, the City Planning Commission, PIDC, 13 PCDC, Housing and Community Development, the 14 Redevelopment Authority, and the Mayor's Office as 15 needed. 16
Okay. My problem's 17 in terms of how we plan economic development 18 dating back and we're both familiar with how the 19 system works and really date back to one of my pet 20 peeves with how it works is the Empowerment Zone 21 designation process. That's actually the process 22 through which I got a chance to know you, and 23 that's why I actually respect your integrity and 24 respect the fact that you're forthright in your 25 answers. 32 2/14/01 - WHOLE - BILL 010092 During that process, it became very apparent in the early planning that the strategy was to just lay the Empowerment Zones originally over the Enterprise Zones as a way of overlapping funds and incentives, basically laying the funds so that at some point, it seems that you're poised for success because every opportunity for new economic development resource incentives would be targeted in the same places until have we find some success. Have we moved away from doing that yet or not? I mean, I am actually concerned with the fact that every time there are new economic development funds or incentives, they seem to be targeted towards Center City, State Enterprise Zones, or strictly industrial sites.
Councilman, I would draw a distinction between the KOZ Program and the areas that have been designated. I mean, just to get back to a comment that you made earlier, I absolutely welcome this program from the State. I think this is a tremendous incentive that we're able to offer businesses, and I'm delighted at the opportunity the take advantage of it, because, 33 2/14/01 - WHOLE - BILL 010092 quite frankly, I think we need every tool available at our disposal to bring businesses in and keep businesses here growing. What we did for the KOZ process was, to a certain extent, dictate it by the State legislation and end up with the policies that we have established.
Excuse me a second. What I'm whittling it down to is, when we have a HUD 108 Program, where we develop economic stimulus funds, when there is a opportunity to establish an Empowerment Zone or there's an opportunity to establish an Enterprise Zone or an opportunity to establish a KOZ, or now a KOEZ, if we are not having the type of economic development success that we would like, and we seem to, in many cases, be applying these programs incentives and funds to exactly the same places, and in some cases, I can say without contradiction, to exactly the same businesses, isn't it time to try to look at not just overlapping what we've been doing in terms of tax programs with new resources but looking at new economic opportunities? But I'll move on a bit. In your 34 2/14/01 - WHOLE - BILL 010092 testimony, you say that no existing businesses can take advantage of this program except sole tenants and old industrial comments. Why is that?
Councilman, it's really a question, I guess, of fairness as to -- again, to go back to the example we used with respect to residential property, who gets the benefits and who doesn't. Also, the spirit of the State legislation is targeted at getting undeveloped, blighted, deteriorated properties developed. So that was our focus.
My question is, why that exception? Why sole tenants and old industrial complexes?
In cases where we felt a building deserved to be in, and there might be one or two businesses in there, we didn't want to penalize -- or we didn't want to not put the building in just because of one or two businesses in there if every other factor was pointing to a need to have that building more fully developed.
It goes without saying, that that could be the case for any number of different economic opportunities, including 35 2/14/01 - WHOLE - BILL 010092 commercial properties. But are these sole tenants you referred to in these building specific clients that already exist?
Are they clients of PIDC, clients of the Enterprise Zones?
Not necessarily, Councilman. We didn't look at that; we looked at whether or not our judgment was that a building could be fully developed, that it was a property that we wanted developed, that would complement a neighborhood development. And the fact that there were one or two businesses in there did not dissuade us from recommending --
So you do not know whether these are existing clients or they are not existing clients?
These are clients that have received any number of different loans 36 2/14/01 - WHOLE - BILL 010092 and/or incentives from the City over the last or 15 or 20 years. Under the Enterprise Zone Program, they have received HUD 108 financing or may have received economic stimulus funds. Should they, on top of that, be put into a 10-, 13-year tax-free program?
Councilman, I'm not -- 9 off the top of my head -- and we can certainly go 10 through the list, and we'll do that. I'm not aware of any existing businesses that we're recommending be in the zone that would fall into that category.
But my question I want to ask specifically is, for every property and business listed within these zones, that we detail what type of public financing or incentive that they've received under all of these programs, under City programs, what public funding or incentives they might have received already to stay and expand in the City. And whether they have received PIDC loans, PCDC loans, HUD 108 loans, economic stimulus funds, TIFs, what have we already done to keep these businesses here?
Are you referring to the 37 2/14/01 - WHOLE - BILL 010092 proposed -- the areas that we're proposing for the new designation?
For the new and for the KOZs, for the KOEZs and for the KOZs.
Okay. For the KOZs, I am certain that there are many businesses who not only are taking advantage of the KOZ benefits but have also received, for example, PIDC financing. And we can provide that list to you.
I'm not concerned with whether, as they are applying for KOZ benefits, or as new KOZ clients, they receive PIDC financing or some other public financing. I want to know whether these are the same clients that have been on the books over the years at PIDC, at PCDC, through the Commerce Department. I want to know whether the people who have benefitted from the KOZ and the people who are intended to benefit from KOEZ are basically the preferred clientele of PIDC, PCDC, and the Commerce Department.
And I don't need an answer to that today. What I need is actually person by person, who has benefitted, and person 38 2/14/01 - WHOLE - BILL 010092 by person, who will (indiscernible) the benefit under this legislation, what public financing they have received over the last to years. 5 My next question is, why is there any 6 limit to the commercial development? 7
Why is there any 9 limit to the commercial development? 10
It seems to be 13 targeting of industrial development, and basically 14 the testimony suggests that you will consider 15 commercial development but there is not an 16 emphasis on it. Since the focus would be on 17 industrial development, but commercial development 18 would be considered should a worthy project arise. 19
It really, Councilman, 20 just again gets to the nature of the properties that we're designating. In many cases, we are looking at large either industrial buildings that are proposed for industrial use or zoned for industrial use or large vacant lots that are proposed for industrial use. 39 2/14/01 - WHOLE - BILL 010092 We would not have a problem with a commercial development, especially in a neighborhood area that made sense, we would not have a problem supporting that.
My question, I guess, is, in these areas which you consider to be industrial, as Councilwoman Blackwell asked before, would you consider rezoning properties commercial if you could attract commercial tenants and developers to those properties? Or are you restricting the use of the KOZs to industrial development?
The former. We would support a commercial use if it made sense for a neighborhood.
Okay. Your testimony says that hundreds of KOZ sites were reviewed. Who were these sites submitted by, who were they reviewed by?
We pulled together a group of City departments and agencies early in the process. We set forth the criteria. By virtue of the criteria itself and the policies that we knew we would be promoting, a lot of areas 40 2/14/01 - WHOLE - BILL 010092 of the City automatically just fell out of the process. We -- given the work that Mr. Dougherty and others within the Department of Commerce have done over the past two years on Keystone Opportunity Zones, we had a pretty good idea of how the program was working and where it might work in the expansion zones. In many cases, Councilman, we did get calls from property owners, brokers, Realtors who would suggest properties to us. We considered every request. Some we were able to say no almost immediately to; others we checked out to see if we could make work, and if we could, we did. All of the research and analysis work was done primarily Mr. Dougherty and our department.
Well, Mr. Dougherty, working with, for example, the City Planning Commission, the Law Department, the Budget Office, the Revenue Department. Mr. Dougherty was really the lead person, but there were a number of City departments and agencies that he was working with, 41 2/14/01 - WHOLE - BILL 010092 but he took the lead in doing the research.
The list that we are presenting to you this afternoon is our final list of recommended properties, yes.
Okay. In your testimony, as you describe what you think the impact of this will be, you say that there will be some savings, but there is not a dollar figure that can put on that cost. Why is that?
It's hard to -- I think -- I think that that message was delivered in two contexts. One is the value that having a property developed that otherwise might not be developed. The value that that has, the impact that that has on a surrounding neighborhood is something that you may not be able to measure, but you can certainly make a qualitative judgment that because the property that was deteriorated, abandoned, or blighted has become developed because of this 42 2/14/01 - WHOLE - BILL 010092 program, it has a positive impact on a neighborhood. The other area that we thought there could be cost offsets had to do with the fact that some of these industrial buildings or abandoned buildings that, under this program, we believe stand a very strong chance of now being developed otherwise might sit there, further deteriorate, and result in a situation where, for instance, L&I would have to step in and do the demolition, so you would be saving those costs.
See, I have a fundamental problem with there being few decision-makers at the table, few economic opportunities.
Excuse me, Councilman, this will be -- your ten minutes is up, so this will be your last question.
I have a problem with there being few people at the table making decisions, few different types of economic opportunities looked at, not enough have focus on 43 2/14/01 - WHOLE - BILL 010092 commercial, why commercial development could create numbers of jobs for welfare-to-work people. And it seems to be at the same time that these statements within your testimony that there are undetermined cost saving and intangible impact. If this is really a gut decision, or more of an art than a science, then why not bring in more people for ideas since, since this is our last opportunity and there is not going to be another round to apply? But I look forward to, I guess, fundamentally finding out whether my gut feeling is right, that a lot of these properties and a lot of these areas outlined are areas that have been designated for economic development funding and incentives over the last years without much 19 success. 20 Thank you.
Thank you, Councilman. Let me ask you, because I received a statement from Penn about exempting one of the properties that are already on the list, and there 44 2/14/01 - WHOLE - BILL 010092 may be another one in question. Shall I just see you after the hearing on those specific addresses? Or how do we handle that? There might be two listings from my district that need to be removed; what do I do?
Well, as of right before we came to the committee meeting, we did talk to Jack Shannon, and the list as of 12:30 was final. We did take the two properties off that he had recommended, so --
My understanding is that he's at a zoning hearing and he will be here shortly. So maybe you and I, if it's okay with Mr. Cuorato, will step to the side a moment and deal with that while you continue to testify. Would that be okay?
Thank you, Madam Chairperson. Just some philosophical questions and some practical questions. Why do areas like 45 2/14/01 - WHOLE - BILL 010092 Northeast Airport, the central waterfront, and the Navy Yard need KOZ designation for development? It seems somewhat likely to me that, considering what may be going on at the central waterfront, for example, in the next year or two, will make the property in the central waterfront that's being designated as a KOZ or a KOEZ to be developable land on its own. Similarly, the Northeast Airport, which I would not consider a blighted area, has -- it has been, the area around it, been developed for various industrial, commercial uses somewhat on their own -- not on their own, but without KOEZ designation through other incentive programs in the City. And, finally, the Naval Yard or the Naval Business Center, seems to be an area that, on its own, with the normal toolbox of City help that it would happen on its own. Would we not be better off taking that acreage and finding truly blighted, desolate areas in order to engender the kind of development that would spur from it residential development, other housing stuff, those kinds of things. I mean, why 46 2/14/01 - WHOLE - BILL 010092 do I need KOZ incentive, or KOEZ incentive, to do development at the incinerator in the central waterfront?
Well, Councilman, to address the three areas that you mentioned, you are correct, there is a lot of demand for industrial space in the Northeast. The areas that we propose for designation are publicly-owned sites that, to this point, have not been developed, so these are not some of the more attractive sites and, in our judgment, were sites we felt could use this extra incentive. On the central waterfront site, the decision to include the central incinerator was really based upon the fact that it is a very attractive site, but it is also going to be a very costly development site. So anything that could be done to make this site more attractive we think will be encourage development. The site is partially owned water, it's going to require a lot of pile -- a lot of different piles for construction. And this was a decision that we made that we felt would make that site that much more attractive. 47 2/14/01 - WHOLE - BILL 010092 And as far as the Philadelphia Naval Business Center, most of the properties that we are including, or most of land area we are including, there are some environmental problems. So, again, we are looking at land that is not attractive and trying to take the step that we can to make it more attractive.
I think KOEZ is not a step; it's a leap. I mean, aren't there other things that we can do? I mean, even in the event of giving the developer the land, I mean, if you were to take some of that publicly-owned land in the Northeast and say, Well, we have a really good industrial commercial project that's being presented, and as part of your contribution to the project, we gave them the land, or did it for a nominal fee, I mean, do we need to eliminate any taxation for the next 13 years in order to make that more attractive? For example -- and I guess the reverse philosophy question that comes next is, what about the pioneers at the Navy Yard? I mean, the people who have gone in there without any tax incentive, some of them, some of them with tax incentive, 48 2/14/01 - WHOLE - BILL 010092 have pioneered that area and have developed a wonderful property there. And now the guy next door, or down the road, is going to have a tax-free environment, when this particular business person won't -- you know, will have the same environment that they have now. And is not Kvaerner more attractive to a potential sale if, in fact, it is a part of a tax-free environment?
Councilman, I certainly respect your viewpoint on that. I guess I just approach this program from a little bit of a different perspective, which is, throughout the City, we have a large number of underutilized, deteriorated, vacant parcels that we want to get developed. I am given the opportunity by the State to designate these areas for no City and State taxes for a period of time. I see that as a tremendous incentive to get these sites developed. With the State program comes these criteria that we have to meet. So, again, without going into all of the detail, we looked at properties all over the City, but if they couldn't 49 2/14/01 - WHOLE - BILL 010092 -- if we couldn't make them work in a 15-acre parcel, we had to rule them out from consideration. I basically just took a program that the State is offering us and tried to apply it to the City in the best and most advantageous way that we could.
I would make a request also, that we receive maps for each of the designated subzones. I mean, the Northeast Airport's easy because of the map here, but some of these other property descriptions, it's almost impossible to understand what area you're talking about. But in the Northeast Airport, for example, explain to me why it's -- I guess on the map, it's designated as Section 9, is a 9-acre parcel and a 2-acre parcel? Now, does that meet the requirements of 15, or is it 15 acres contiguous?
Councilman, we can make distinct properties contiguous, and that's what you'll see in the exhibits. It won't make any sense to you but it is how we make properties 50 2/14/01 - WHOLE - BILL 010092 contiguous, so --
But, see, Section 4 9, or Parcel 9, in the Northeast Airport, it may be that it's just on the map anyway, I don't know. But it says it's a 9-acre parcel -- it's on the left-hand side of the map. A 9-acre parcel, a 2-acre parcel, that's 11, right? How does that make the acres? 10
We make -- there's 10 11 parcels, I believe? I don't have the map in front 12 of me, but I believe there's ten separate parcels 13 designated on that map. That map is from the 14 airport where they have identified these ten sites 15 as having potential uses for non-aviation.
The question is, do they have to be added up together, all of the parcels, 15? Or each --
Okay, fine. Then that answers that question. What about areas, desolate areas of 51 2/14/01 - WHOLE - BILL 010092 north central or southwest, areas that, in conjunction with this long-awaited Blight Removal Program, may wind up creating or more acres of 5 formerly residential area, that with that KOZ easy 6 designation would create a center for industry or 7 commerce that would help rebuild the whole 8 neighborhood? 9 I recognize the time constraints on 10 getting the application in, but it seems that 11 we're KOZing areas that, at least in the three 12 instances I'm suggesting, would be developed 13 property on its own and not need the designation. 14 And number two, with the Navy Business 15 Center, for example, I think we're being terribly unfair to the people that have gone in there and invested. I mean, if I kept my business in the City and spent money to develop a property at the Naval Business Center, and a year or two later, my neighbor pays no taxes, I'm going to wonder what a dope I was -- I should have moved out of the City.
Councilman, if I may,. One of the requirements is if you are a Pennsylvania-based basis not in a KOZ right now and you move into a KOZ, you must increase jobs by 52 2/14/01 - WHOLE - BILL 010092 percent in the first year or invest the equivalent of 10 percent of last year's gross revenues.
Exactly, so people 11 don't jump into a building across the street and 12 get it. So, therefore -- 'cause we've run into 13 this issue in the first round of KOZs, people ask 14 the question, and people are contented with it. 15 You have to invest a whole lot of money or create 16 a whole lot of jobs to take advantage of this. 17 And since most of these properties are 18 deteriorated or vacant land, you have to spend a 19 whole lot of money to get there. 20
In the process of developing these sites, who was consulted from the private development community? You mentioned the governmental people -- the Planning Commission, Mr. Dougherty, Commerce, Law. Who in the private development community was talked to and asked, 53 2/14/01 - WHOLE - BILL 010092 What do you think about these sites, or do you have any in mind or, you know, what do you think of that? Anybody?
We talked to the -- again, we were approached by a number of owners, brokers, Realtors. We talked to -- we did do some outreach into the real estate community just in the course of the normal calls that we get about available properties. That has been happening. I couldn't give you, I mean, a list of names, but we can tell that you we did talk with people in the real estate community to see what sort of interest was there.
Did we go to places like New York or Chicago or outside? In this parochial nature of Philadelphia, we only talk to our own developers and our own real estate people. Have we talked nationally to people who may have ideas as to what we can do with these parcels or other parcels?
See, what I'm concerned about is -- not to denigrate anybody's efforts, but if we're the only people that's 54 2/14/01 - WHOLE - BILL 010092 considering this stuff, we'd better be right, because we have years of looking at the 4 downside as being wrong. And even though you guys 5 have experience and have done a good job the best 6 you can in putting this together, if we're not 7 talking to the movers and shakers nationally or, 8 God forbid, internationally, we're not going to be 9 really taking advantage of -- we're going to be 10 churning more business, I think, than creating 11 more development from outside of Philadelphia or 12 outside of the region. 13 So I kind of hope -- and if Councilmembers are upset because they haven't been talked to, or believe they haven't been talked to about it in regards to their district, I mean, I think we've lost opportunities to talk to international and national commercial and industrial developers that really may have some better insight than all of us put together.
Councilman, if I may, and I'm sorry if I'm preempting you, Jim, but this was before Jim came along. In the first rounds of Keystone Opportunity Zones, the State has undertaken a major marketing program in the 55 2/14/01 - WHOLE - BILL 010092 Keystone Opportunity Zone, so the ball is already rolling with the Keystone Opportunity Zone. The State has done all the major papers, The Wall Street Journal, New York Times, all the business journals throughout the area. There are international divisions that are promoting the KOZ nationwide. So there's -- to get them the big picture that --
Finally, the example that I'll give you is that if KOZs and KOEZs become the State's counterpart to Empowerment Zones, we're in trouble, because I can't imagine -- I can't see anything that the Empowerment Zones have done to really make a difference in the life of the average Philadelphian, either by employment or anything else. So, I mean, if that's the direction we're going in -- and, God, I hope we're not -- we have some really serious problems. Thank you.
Thank you. Do you mind indicating to us exactly what is included at the Navy Yard site, please, if 56 2/14/01 - WHOLE - BILL 010092 you come up to the. . . And while he's doing that, Jim, I notice on one list 4519-45 Chestnut Street, Archdiocese of Philadelphia Parking Lot. Has the Archdiocese been called upon to -- have we been in touch with anybody from the Archdiocese?
But, again, Madam Chair, we're -- we're that -- this designation does nothing more than just make that property more marketable and more valuable.
I just don't think you do that. Am I wrong? I don't think you do that. I think we have to show some common courtesy to property owners, whether they think it's to their benefit or not. Can we see what the Navy Yard --
(Off mic., not entirely audible.) I don't have the updated maps, the larger maps that I believe were sent over to your office by PIDC. But effectively this map (inaudible). Basically the sites in the orange are existing KOZ Opportunity Zones. We will be 57 2/14/01 - WHOLE - BILL 010092 expanding everything except existing properties included in the Kvaerner site, and the section 4 that they will be doing now is (inaudible). There is a proposal on the table that they (inaudible) from the description.
No, it's excluded. Everything that's occupied in the Navy Yard right now has been excluded and we will excluded a portion where there is a potential for residential.
(Inaudible, off-mic.) (Councilmembers and Mr. Dougherty have discussion off-mic.)
So we will extract that so we don't get into that residential issue, should that come to fruition.
How does that -- doesn't that -- the Brack (ph.) have to be modified if you do that, the Brack report?
I'm sorry, Madam Chair. Does the Brack report have to be modified? 58 2/14/01 - WHOLE - BILL 010092
I don't know, I'm asking you that question. At the Navy Yard.
I don't believe that it does have to be amended or modified.
Well, I think we ought to find out. Councilwoman, I know the Community College is in your district.
Yeah, 4725 59 2/14/01 - WHOLE - BILL 010092 Chestnut, that's mine.
Yeah, I have a building and a parking lot for the West Branch.
There are certain parcels that are put in that are tax-exempt. For instance, in -- I'm not sure where fits in -- 49th and (indiscernible) a City yard, the City Streets Department yard. Properties like this can be included. It costs us nothing to include them. It has no effect on those properties whatsoever, unless some day the City elects to sell them, then they need to be developed. So it effectively costs us nothing to include some of these sites, and that's why we do it, especially in an area where we are targeting redevelopment.
Well, I don't mean to be difficult, but I think you were supposed to be giving us maps. That is not what I thought we were going to see. 60 2/14/01 - WHOLE - BILL 010092 Can I share this with you, please, and can you tell me what the Navy Yard -- (Council President Verna continues discussion off-mic.) The Chair recognizes Councilman Nutter.
There have been a lot of questions back and forth, and I have a few of my own. The one thing I wanted to try to get a little better sense of, and maybe I missed it in the early part of the testimony, why are we doing this? Just kind of as a fundamental question, why?
I believe that this program offers a very valuable incentive to get properties developed that are deteriorated or vacant or blighted that would otherwise not be developed. To be able to market properties for land with the incentive that a business would pay no City or State taxes for 13 years is a marvelous way to get discussions started about properties being developed. I firmly believe that for many 61 2/14/01 - WHOLE - BILL 010092 of the properties that are in the existing KOZ and that we are proposing for inclusion, those properties would sit there vacant and undeveloped, in a further deteriorating condition for years to come if we don't find a way to get development jump-started. And I think this program offers an excellent opportunity to get them jump-started.
Well, let me ask you this question. Suppose this program had not been -- or this opportunity had not been authorized by the State, what would we have done? Properties have been here, have been here for however long, you know the details about all of them much more than I do. We have some array of economic development incentive programs; Councilman Goode talked about a number of them little earlier. I mean, what -- just what would we have done? I mean, we didn't know this was going to happen.
Councilman, the best answer I can give you is -- and I don't mean this to be flip in any way -- we would have just done the best we could to get the properties developed 62 2/14/01 - WHOLE - BILL 010092 with the existing tools at our disposal, which for nearly all of the properties on this list, I don't believe would have been sufficient to get the job done.
Okay. Well, let's talk about the existing program a little bit so I can, again, better understand this proposal. Now, did I understand from earlier testimony that there are in the present KOZ a total of 1500 acres; is that correct?