Well, I'm putting on the record now that I'm willing to go to do it for -- amend the Bill to go eight -- 68 Bill 030769 - Finance (Councilman Cohen and Councilman Kenney speaking simultaneously, not reportable.)
Can I just finish? I really just want to finish, so I'm understood. The number would move from $26,900,000 over the ten-year period to 10 million two over the eight-year period. So 11 that will be offered at the appropriate 12 time in the Public Meeting. 13 But my understanding from the 14 industry's input in the creation of the 15 Bill is that three, four, five years out is 16 when we should start seeing the improvement 17 in our bookings, relative to the changes we 18 made at the Center. 19 And some of the other things that might happen. The Barnes may be here. There may be a number of other things that bring people in to want to stay overnight. And hopefully, we can get these hotels, and if we need to help the other hotels in some other way, get to that 69 Bill 030769 - Finance period of time where people can start fresh and have the bookings available again.
Yeah. I think that that's just a lot of words aimed at getting benefits that people are not entitled to. If you're going to offer a Bill to provide unemployment insurance or provide salaries of workers laid off, I'll be happy to support it, because I'm absolutely convinced that your Bill will produce nothing in the way of continued employment. The hotels that don't need workers when they're asking for tax benefits, certainly got top rated as economically as they can. And they're not going to keep people on the payroll if they're not needed. The only thing that's going to keep people on the payroll is when the business comes and people are needed. That's when 70 Bill 030769 - Finance work is provided, and when there is payment of salaries that provide for health benefits and decent care. But not now. What you're doing is offering people money to provide nothing except idle workers. It makes no sense to me.
Councilman, again, as a fact witness, to answer the question that you had posed, there are many more experts here better qualified to testify about the state of hotels than I am. But from my side of it, what I have seen since the year 2003, because 2002 was still a significantly good year at the Convention Center. In the year 2003 there has been a decrease in the occupancy rate of all of the large Center City hotels. And I say that -- Not the airport hotels. The large Center City hotels. And there also has been a drop in the average daily rate for those rooms that are rented. But factually, that's... that 71 Bill 030769 - Finance is the case, but I'm sure there are folks here with probably more up-to-date figures than I have.
Are there any further questions from Members of the Committee? (No response.)
All right. We'll now go to Mr. Tom Witt and James Kroll from the Hyatt Hotel. Thank you, both Commissioner and Mr. Glancey. Thank you for agreeing to stay, Mr. Glancey and Commissioner Kammerdeiner. Good afternoon. Please identify yourselves for the record and begin your testimony.
Good afternoon, Chairman Blackwell, Members of the Committee. I'm Tom Witt of Wolf, Block, Schorr, and 72 Bill 030769 - Finance Solis-Cohen. We represent the Hyatt Regency Philadelphia at Penns Landing. And to my right is John Kroll who is the General Manager of that hotel. We appreciate, Madam Chairman, the Committee's willingness to hear our testimony this afternoon.
To clear up a couple of things, we have in Philadelphia today and have had for several years a ten-year tax abatement for every new hotel and for every new commercial facility. Nothing in the Bill before you today would change that. All we would propose is to extend the benefit of that to hotels that were in the construction cycle at the time that the ten-year program was adopted. Before the ten-year program, we had a three-year program. In the case of the Hyatt, while we were in construction, the program was changed from a three-year program to a ten-year program. 73 Bill 030769 - Finance And the purpose of this Bill is to move the date of eligibility slightly back, so that hotels in that one construction cycle would now qualify for the ten-year. And having been involved in the drafting of this, I can confirm what you heard from Mr. Glancey. We looked at the Philadelphia Code and found that the residential program had been amended to extend back to a certain date. We took that exact date as the potential date for the hotel program. And it was only after that when we decided to draft an ordinance and propose an ordinance 16 that conformed to an existing ordinance 17 that we then did the research to see who would be affected. I will tell you that we knew starting out that the Hyatt would be included or we wouldn't have done the exercise. But there was not a list of hotels. There was a date that conformed to the date in the Philadelphia Code. The Bill is also designed to limit 74 Bill 030769 - Finance this particular benefit to hotels, and that's why on the first page you have the definition of a building to which this applies which refers to the hotel tax. So that this is only intended for the benefit of hotels. You have already heard of some of the difficulties that have afflicted the hotel industry. There are essentially three things that were general to the hotel industry that have happened since our hotel was completed in 2000. That's a national recession. Secondly, the massive tourism decline following 9/11. And thirdly, the difficulties of the Convention Center. There's a fourth problem that's peculiar to the Hyatt at Penns Landing, one of two union, full-service hotels in the City. And that is that we are on Penns Landing because the City government wanted a hotel on Penns Landing, encouraged us very strongly to build a hotel in Penns Landing, asked to us accommodate the City, 75 Bill 030769 - Finance in effect, by moving forward development on Penns Landing. And we did all of those things. And when we got to Penns Landing --
Is the witness indicating that they built it on behalf of the City of Philadelphia and not on behalf of the developer?
No, Madam Chairman, I'm not indicating that at all. But I am indicating that the City went to great lengths to encourage us to build a hotel at this location because the City government wanted a hotel at this location.
And didn't the developer believe it to be a good business?
Madam Chairman, the developer believed that he would have a hotel in Penns Landing which would be 76 Bill 030769 - Finance accompanied by an entertainment center, a tram connecting the two sides of the river, and a major museum. We are on Penns Landing by ourselves. We are the only ones who did what we told the City we'd do. We produced. And now we're there alone.
But you didn't do it because of the City's request. You did it because you thought there was going to be a profit or your developer did.
Well, there certainly were City requests. And I'm sure that there was also a hope for profit. And believe me, there still is. We hope that this will be a successful business.
I don't think there ought to be any deception in suggesting that this is a City hotel. Because the City never was going to get any profits from it, was it? Was it City owned? Did the City own it?
The Penns Landing Corporation does share in the profits of 77 Bill 030769 - Finance this hotel if there are any, which there haven't been to date.
But I'm just wanting the record to be clear that the City has nothing to do with the ownership of the hotel. The City is interested in developing Penns Landing in many different ways. And we've had many proposals. Some have been carried through in part; some have not been. Thank you, Madam Chair.
In particular, the hotel industry has suffered from these three factors that are City wide. And you can see that, particularly with respect to the 78 Bill 030769 - Finance booking of conventions. City-wide conventions booked for 2004, '5, and '6 are lower than in any years before -- since before 1998. And room rates in 2003, room rates, are the lowest since 1997. And they're projected in '04 and '05 to be below 1998. So this is a problem that the hotel industry has suffered, and we all hope it's a temporary problem. I would, though, like to make one point in that connection, to follow up on some of the hotel closings that Mr. DiCicco talked about. Those of us who are old enough to remember before the Four Seasons, when Philadelphia's finest hotels were the down at the heel Bellevue, the Ben Franklin, the Adelphia, and our newest was the Sheraton on Kennedy Boulevard. We had room rates that were well below the national average and below what was needed to produce new hotels. We had occupancy rates that were terrible. 79 Bill 030769 - Finance And it was widely reported by knowledgeable people, who seem to have turned out to be right, that our problem was an inadequate supply of hotels which is completely counter intuitive. You would think that if the rate is too low and the occupancy is too low, then what you ought to have is fewer, not more. But the answer that was stated then, and which now seems to have been proven out, for instance by the 2000 Republican convention, is that you need a critical mass of really good hotel rooms in order to be able to compete effectively in the markets that our Convention Center and our other meeting facilities are trying to compete in. And so we think it's important to the industry that over this next three, four, five, whatever year period, while the Convention Center is in recovery, and while the economy is in recovery, that we keep that inventory of rooms as high as we can keep it, so that we have the critical mass 80 Bill 030769 - Finance to answer the need when the opportunities for more big conventions and shows come to Philadelphia. Now, the point's been made that the Hyatt's taxes would not be reduced under this Bill. What we will be doing under this Bill is deferring an increase which would otherwise occur next year of approximately $1.1 million. And while that number is the number based on our current assessment, our assessment is under appeal. And I believe that many of the hotels may be over valued because of what happened recently in the hotel market. We hope that's temporary. But any reduction in those assessments -- and we believe we're entitled to one -- would reduce the number that is the cost of this Bill because it would reduce the value of the abatement. The Hyatt generates over $1.6 million a year in taxes to the City. That includes the hotel tax, parking tax, liquor 81 Bill 030769 - Finance tax, the real estate tax that we do pay, and the wage taxes of our employees that we generate, far more than the amount of the proposed abatement. So we're hopeful that the Committee can recommend to the Council that we adopt a date that's already in our abatement ordinances, that we extend the benefit of an existing abatement to this one group of hotels that were in the construction cycle at the time that the City's ten-year program was adopted. Thank you.
I just have a... If I could just have a question of Mr. Kroll.
I appreciate Mr. 82 Bill 030769 - Finance Witt's testimony. Mr. Kroll, could you give us an idea as type of the -- kind of a -- what your employees -- the profile of your employees' residency, sex, race, where they have come from, if you're aware of how, you know, how your hotel, you know, your employees came to be.
Sure. At the present time, I have 265 employees. 53 percent approximately are African American, 5.5 percent are Hispanic, and a little over 6 percent Asian. The majority of them, and particularly the year that we opened in 2000, are people who did not have or employees who did not have any hospitality background. And we literally took individuals with no experience and brought them into the industry.
Could you talk a little bit about average pay and benefits, I mean, without being too -- If you can be specific, please. But like what type 83 Bill 030769 - Finance health care coverage and hourly rates average, those kinds of things. Just give me an idea as to what these -- Because I think there's some belief that hotel employees somehow -- You know, being a hotel employee is not a credible job, that somehow being in the service industry is something that's not dignified. I think that the hotels in general should kind of trumpet the type of employees and the type of work and type of benefits that they do provide to their employees because I do think they're significant. I know numbers of people who have worked at various hotels, and still do throughout the City, who have made great careers out of entry level positions, that have moved into management. And I think there are a lot of success stories there that aren't well known. So, again, give me kind of an idea what type of... 84 Bill 030769 - Finance
Sure. Probably the lowest hourly salary we probably have starts at $#10. They do have full health benefits, dental, medical. They also -- We are a union hotel, so they are union benefits and also non-union benefits. But they are very competitive in the market and also outside our market.
Thank you very much. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you. I apologize if you already answered this question. What percentage of your employees are Philadelphia residents? Do you happen to know?
I am going to say 82 percent. COUNCILMAN DiCICCO: So it's about 85 Bill 030769 - Finance consistent with what the industry has always told us, somewhere between 80 and 85 percent; is that accurate?
Yes. COUNCILMAN DiCICCO: The majority of the people whom you employ, do you know where they worked before they came to you for employment? Or did they have a job at all?
That one I don't have very true guesses on, from a percentage standpoint. I stated earlier that we do take a lot of our employees... They were not working at the time. We opened up during a very good economy, and also at the end of the new hotel cycle which means that all the employees were already taken by the four previous hotels that actually opened that year. So we had a very difficult time finding employees. So we found employees who really had very little experience or no experience and made them hoteliers. 86 Bill 030769 - Finance COUNCILMAN DiCICCO: I don't know the exact number either. I just wanted it for the record because I know when I was involved in some of the other hotels that were being proposed, many in my District, by way of either TIFF or the abatement, one of the things that was always mentioned that was very high on the list is that the majority of people in the hotel industry were formerly on the welfare rolls.
I'm going to say at least 95 percent of the employees had no 14 experience in the hotel business. And I'm going to say about 60, 65 came from welfare. COUNCILMAN DiCICCO: Thank you. No 18 further questions.
Do you employ people in your hotel that are not needed for the work? Do you employ them merely to keep them on the payroll?
So the people you employ are people that are needed for the work in the hotel.
You mean if there is no -- We employ as many people as we need.
That's right. And you need, according to the occupancy rate? What determines the need of the hotel?
Well, we're a full service hotel, so both occupancy rate and also the food and beverage business that comes to the hotel which is --
So you would not keep people on the payroll if you didn't need them to perform hotel work; isn't that right?
That's right; and no more because to hire more would be 88 Bill 030769 - Finance wasteful, right?
Could you give me an idea, Mr. Witt or Mr. Kroll, what this abatement could mean to the breathing room, for want of a better term, that it would provide your particular business, and as it relates to continued employment of as many of these people as possible? I mean, can you explain what effect the implementation of this abatement or the extension of this abatement would have on your bottom line, and then therefore on the hotel's ability to stay a fully functioning full service hotel? Because I mean, you don't hire and fire people or lay people off as a result of a weekly or monthly analysis. I mean, 89 Bill 030769 - Finance you don't, I assume; that people are employed for a period of six months to a year, I mean, before you start making decisions on what's your projected occupancy, projected banquet business, those kinds of things. So you know pretty well in advance what you're anticipating. So --
Point of information. I hope Councilman Kenney permits the witness to answer the question instead of just directing the answers. He's doing so well.
I'm sorry, Councilman. Councilman, with all due respect, I have learned from you how to badger a witness.
Well, you're not badgering him. You're helping him. You're answering the question.
Let me be quiet. I think he got my drift. COUNCILMAN DiCICCO: Leading the witness. That's leading the witness. 90 Bill 030769 - Finance
Was a few answers that if he keeps them when they're not needed, he's obviously wasting money.
If I understood the question correctly, there is not at this present time in the present climate, there is not a lot of breathing room. Presently I would have to say break even, if indeed whatever the taxes are. Then that's how much we'd be in the red.
Okay. As far as employment complement, how is that term projected? How do you figure that out? I will stipulate to the fact that I'm sure you're not going to hire people you don't need, as Councilman Cohen has contended. We'll stipulate that's the case.
But how do you determine your employment complement? How much in advance do you plan?
You pretty much plan, I would have to say, on a yearly basis. And 91 Bill 030769 - Finance then within that year, you make adjustments. And you have to make adjustments with the swings in business, whether it is there or not there.
But the bottom line is an important issue in determining current levels of employment.
Yes. We had a follow-up. Councilman DiCicco, and then Councilman Cohen. COUNCILMAN DiCICCO: Thank you. Mr. Kroll, I think you testified that you currently have 265 employees.
Correct. COUNCILMAN DiCICCO: How does that compare to a year ago or two years ago?
Well, in my particular case, we just opened, so each year you're hoping you get busier and busier, so you would ramp up. We weren't completely finished the 92 Bill 030769 - Finance hotel in 2000, nor in 2001. But it would be more comparable with 2002. And it probably increases and should continue to increase, if the business gets better. So it's probably 30 less employees last year. COUNCILMAN DiCICCO: 30 less than last year?
Correct. COUNCILMAN DiCICCO: So it's ten percent reduction, approximately.
Mm-hmm. COUNCILMAN DiCICCO: Thank you. No 14 further questions.
Is your hotel a one hotel business? Is that the only hotel it owns or is it part of a chain?
Well, the way the hotel business works is, we are management companies that run the hotels for the ownerships. And for the most part, that's true in Philadelphia. 93 Bill 030769 - Finance We primarily... You could have ownership in a hotel; you may not. In this particular hotel, Hyatt does not have ownership.
I'm not sure I understood what you said. COUNCILMAN DiCICCO: Hyatt manages the hotel.
Mr. Cohen, I do represent the owner. And the ownership is a one-hotel entity, as are most, because of the way the financing is set up today.
The way the financing is set up, each hotel is separately owned.
But isn't it part 94 Bill 030769 - Finance of an overall company that has a lot of individual ownerships.
That might be the case in some cases. It's not the case in this case. But like most hotels in the country, most full service hotels, it is managed by a national chain, in this case Hyatt.
All right. Because seems to me that private industry has all sort of resources available to it. And it has to have a resource available to it in tough times, as well as in good times. In good times, before the Convention Center mess exploded and the bookings were up and were growing, certainly seemed to me that wise ownership would be planning for tougher times. It would have reserves, and that those reserves are available. If the future looks good, lots of businesses go through tough years. And you 95 Bill 030769 - Finance can't be in a position, I think, of coming to the City during the lean years. Lean years are, as you testified earlier, somewhat interested for the developer or the hotel ownership. Testified that there were a number of reasons. And there are a number of reasons, undoubtedly, for problems that exist. But isn't that part of the taking-risk business? How do we know it's going to be three or five years? Maybe it will be five to seven years? Maybe it will be seven to ten years. Maybe it will be next year when prosperity comes back. Maybe there won't be any because of the jobless nature of the recovery or maybe that will end, and we'll have good job recovery. No one seems to know for sure. One day you read it, and you read that President Bush is in real trouble because of the economy. And the next week you read an article that says he's a sure 96 Bill 030769 - Finance bet to win again because of the economy. Things change. Nobody seems to know. But that's all part of the risk-taking, isn't it? Your people who invest in the hotels are running the risk: They're going to make money; they're going to lose money. And I assume an investor studies the situation carefully, much more carefully than the City of Philadelphia. For example, did you have to submit finance statements to anybody about your hotel operation? How do we know that your hotel is not in trouble because of wasteful management? Has anybody studied that, any official of the City studied? Why do we treat all hotels equally? I'm sure in the hotel industry, like in all industries, you have good operators and you have operators that are not so good, as far as being efficient and being economical. And yet, you're asking for a blanket tax reduction. You call it tax deferral. Everybody knows it's really tax reduction 97 Bill 030769 - Finance because it's going to take less money away from your operations. And that, I think, tax money is money that comes largely from ordinary taxpayers who live often in minimum wages or lower. And I just think it's wrong for government money, tax money, to be used to enrich people who are in business. I have no objection to business people making profits because they undertake a risk. But it seems to me you're re-defining all the notions of how you do business. Sure, on good days you want to take the profit and you want government to stay out of your business. And maybe you're right in that position. I don't know. I offer no judgment on that. But then it seems to me you weaken that kind of an argument when in leaner days you come to us and say, now let's be partners; we're having trouble; now we want to partner with you, until good days come again when we'll throw you out; and when 98 Bill 030769 - Finance we'll say that if you want any information, you're interfering with us. So I'm just troubled badly by this kind of business, when people in the community claim that their houses are being taken that they've lived in for 50 years, I don't find this kind of interest on the part of City Council. When Port Richmond is threatened as a community, I don't find anybody interested in City Council. Very few members are interested. But as soon as the business indicates slightly its concern that maybe it's not making the level of profit it ought to be, certainly then everybody seems to get very much concerned. Seems to me that's not the right direction for government to take. Thank you, Madam Chair.
Thank you very much. I don't know who was next, Councilman Kenney or Councilman DiCicco. COUNCILMAN DiCICCO: I don't have 99 Bill 030769 - Finance any more.
Thank you very much. Thank you, gentlemen. Joshua Grimes and Jay Barnett from Doubletree. After they testify, Joshua Vincent is next. Then Harriet Lessee, and then Richie Fader.
Madam Councilwoman, we have copies of Mr. Barnett's testimony.
Thank you very much. Thank you for your patience. Please identify yourselves for the record and begin your testimony.
Madam Chairwoman, Joshua Grimes, representing the ownership of the Doubletree Hotel.
Madam Chairwoman, my name is Jay Barnett. I am one of the owners of the Doubletree Hotel.
If I may, good afternoon. My name is Jay Barnett. I'm a partner at the Doubletree Hotel at Broad 100 Bill 030769 - Finance and Locust Streets. With me is Josh Grimes, our attorney, who specializes in representing hotels and other hospitality businesses. We're here today to express our concerns about the proposed legislation before you. The property that is the Doubletree Hotel was originally developed and opened in 1983 as the Hershey Philadelphia Hotel. Norman Wolgen is the General Partner of this group, along with a number of other Philadelphians. We built this hotel in 1983, after former Mayor Green assured us that a new Convention Center would be up and running by 1986. Mayor Green felt that a new hotel was absolutely necessary for the success of the new Convention Center. The Doubletree property was built entirely with private money, with no state, local or Federal Government assistance. And of course, the Convention Center did not actually open until 1993, ten years later. 101 Bill 030769 - Finance Back in 1983 the new commercial construction was able to get a five-year real estate tax abatement. We applied for it and received that abatement which ran out in 1988. Since that time, we have been paying our full real estate taxes, along with all the other taxes levied on our business. We realize that the Bill before you is an attempt to help some hotels that may be experiencing financial difficulties. It is well known that the industry is going through troubled times. The major reason for this unfortunate situation at the Pennsylvania Convention -- excuse me -- is the unfortunate situation at the Pennsylvania Convention Center, which we all hope is finally on the way to recovery. In recent years conventions that came to Philadelphia once would not book here again because of the labor difficulties and high costs involved. We are also having an enormous 102 Bill 030769 - Finance amount of difficulty attracting new groups to the Convention Center for a first meeting. This situation is so bad that the number of City-wide conventions which use most of the hotel rooms in the Center City area has dropped from a high of 27 in 2000 to next year, and not much improvement 10 going forward. 11 The hotel community is hopeful that 12 the new agreement recently reached at the 13 Convention Center will cause meeting 14 organizers to take another look at Philadelphia. But even if it does, it will be many years before a critical mass of new conventions will come to our City. The Center must create a track record of improvement before meeting organizers will feel comfortable that the labor agreement is actually working. And most large meetings book at least three or more years in advance. The hotel industry's recovery will 103 Bill 030769 - Finance take several years, not months. The other reason for the hotel industry's troubles is that the City has an over supply of rooms. During the 1990s, the City went to great effort with the, quote, 2000 Hotel Rooms in 2000 Project. Tens of millions of dollars in subsidized loans, outright UDAG grants, and other incentives were given to developers to build new hotels. Unfortunately, this program went on too long, and instead of 2,000 new rooms, approximately 4,000 new rooms were constructed. The result is an over supply of hotel rooms, so that even when a City-wide convention is in town, many hotels struggle to fill their inventory. The Bill before you is an attempt to give some hotels financial relief by excusing them from paying their share of real estate tax for seven more years. Specifically, it will help about nine properties and a few smaller ones that 104 Bill 030769 - Finance opened around the time of the Republican Convention in the year 2000. We salute the Council for recognizing that the industry is in trouble, and for your eagerness to help these properties. This Bill will provide relief that some of them sorely need. However, the Bill does not go far enough.
It does not address the real problem which is that nearly all of the 60-plus hotels in the City are struggling. It seems to me that if the City wishes to help the hospitality industry, it would be better to help everyone or at least those who can demonstrate financial necessity. If your goal is to protect the City's economy and keep the more than 17,000 citizens in the hospitality industry employed, then Bill Number 030769 will affect just the tip of the iceberg. We look forward to a dialogue with Council and the Mayor about the most 105 Bill 030769 - Finance effective ways to provide relief to all of the City's hotels. There are a number of solutions employed by other cities, such as rebating portions of the hotel tax. Providing the relief to all hotels in addition to or instead of selective real estate tax abatement would certainly be a better fix for the City's economy during this very difficult time. In conclusion, we thank you for introducing this Bill and addressing the important issues facing Philadelphia's hotels. We ask that you amend this legislation to incorporate assistance for all of the many troubled properties that are in critical need of help. I'm certain that most of the hotel owners and managers in the cities would agree with our position. And I am pleased to inform the Council that the owners and/or managers of the Omni Hotel at Independence Park, the Holiday Inn Express in Midtown, and the Adams Mark Hotel have 106 Bill 030769 - Finance specifically authorized me to express their support for my testimony today. Thank you.
Thank you very much. Councilman Cohen, did you have a question?
I expect that either Councilman Kenney or Councilman DiCicco will introduce the Bill, and cover -- And they'll come up with, instead of being another production cycle, will have another good reason to want to extend it a few more. I think you make a good general plea. I think we need a lot of facts. Nobody wants to kill the hotel industry. But we want to make sure we're not giving away tax money when it's not needed, and that the need is really there. And I think a lot of work has been done. So you say Doubletree has only received once an abatement for five years?
You seem to have 107 Bill 030769 - Finance a have good record among all the hotels in the City.
Now, I understand that Franklin Windham -- Is there anybody from the City that knows -- still gets a million dollars a year from the City of Philadelphia, that they worked out that agreement with Mayor Green in the early 1980s. And any one year in which the books show that the profit is less than a certain figure, the City agreed to pay a million dollars. And I understand that million dollars a year is still being paid. It's wonderful deal, if it exists. Anybody here know that? I'm going to ask the Chair if she would get... would ask the City Administration to check on that, and see whether that's an ongoing agreement. A few years ago it was.
Certainly. The Chair is happy to do that. 108 Bill 030769 - Finance
And Franklin Windham controlled the situation because they furnished the books to show each year that their profits were below this level, which gave them an additional million a year from the City Treasury.
Thank you. We're happy to do that. Councilman O'Neill.
Yes. just a couple questions on this proposal. Is state legislation needed to accomplish this?
Councilman, if I may, do you mean -- Which proposal are you speaking of?
For the record, Joshua Grimes, representing the Doubletree. Councilman, my understanding is state legislation would not be needed. State legislation authorizes the City to collect the hotel tax, and to pay it out to 109 Bill 030769 - Finance the tourist promotion agency and the Pennsylvania Convention Center Authority and the Greater Philadelphia Tourism Marketing Corporation. My understanding is that something could be done within that to... If you're talking about a rebate, something could be done there with -- amongst those organizations or even possibly within the City. But I would think it would be done in cooperation with those organizations. But to answer your question, I don't believe you would have to go back to Harrisburg.
Okay. Do you have any idea how much money we'd be talking about, within a range, high-low?
Well, unfortunately, like the Revenue Department, I haven't had a chance -- we haven't had a chance to study that. But for comparison, I believe that one percent of the tax is about two-and-a-half million dollars, that the 110 Bill 030769 - Finance one percent would be about.
I can't speak to industry wide, but in 19- -- I mean, in 2002, the Doubletree Hotel paid approximately $1.8 million in the hotel tax.
But if this proposal had been implemented a year ago. So for the year, you can measure where things have been more down than up, what would it have cost the receiving agencies, PCCA and others?
Well, Councilman, if you're looking at the sheet that I gave you, I'm not sure, unfortunately, I could give you a number, because I'm not sure which idea concept that you're looking at. My sense, though, is that you could look at it sort of like a TIFF, is opportunity cost. If one of the ideas with the rebate that we have suggested in concept is that you set a threshold level, and then there would be a rebate above that threshold level. 111 Bill 030769 - Finance So in that situation, if you were to look at that idea, you would give those agencies the same amount that they would get in a particular year. And anything over and above would go back to the hotels. So in that essence you might look at it as costing them nothing, beyond opportunity cost, which is like a TIFF.
I think that's very much an oversimplification of what happened to those agencies. But that's okay. I may have read it too quickly, but it didn't seem to me like you were asking that the tax rebate plan include the GPTMC.
Seems to me they would need at least, based on... to tie into where we can -- where we can see direct benefit. 112 Bill 030769 - Finance
Well, let me general stress that what the committee is looking at are some ideas and concepts that we put together, meant as an opening of a discussion. But when Mr. Barnett and I discussed these concepts initially, our thought was that we would focus on the points of the industry where -- that had been deficient in the past which, frankly, is the Convention Center marketing end. The GPTMC, I think most people would agree, has been a pretty good success. And because with the leisure bookings --
I would seriously disagree with you on the first part, and especially about most people. I deal with more people in the hospitality industry than your clients. And I can tell you that that is not the perception at all. And I think you're walking in and creating your own problem, to start off with, if you don't at least go across the 113 Bill 030769 - Finance board and say PCCA and Convention Center, PCBB and the tourism marketing are on the same footing if somebody's going to get a bite taken out. To make a judgment call that is purely subjective that there's a superior group in here that deserves special status, that they don't get hit by any rebate or affected by any rebate, I think you have everything in order. If I were to pick one group that could afford to take a hit on a rebate, it would be the one you're leaving out. And I don't mean any disrespect to that group. But I know how these numbers have worked over the past several years. And the hardest hit group has been the one that is the Convention and Visitors Bureau. And we don't have to go through the details of it, but I think it's fairly publicly known how they were hit. And so, I would just ask you to take another look at that. I mean, I think you're starting off 114 Bill 030769 - Finance your proposal digging one foot into a hole in the ground.
At the risk of telling a lawyer what to do, I think the object here was clearly for us to really study what would be the best way to do this; that if there are objections to one way or another, you know, I think everyone is open to --
Maybe I can save you some trouble later by asking you to reevaluate that part of it.
I have a couple questions, Madam Chair, when you get a chance.
Thank you, Madam Chair. Mr. Grimes, I had actually not planned to too much join in the fray on 115 Bill 030769 - Finance this. I just saw the proposal. I do at least, from at least two different perspectives -- and let me again state very strongly for the record -- I mean, I am a... I consider myself to be a strong supporter and friend of the hotel industry and the hotel association specifically. And it has been supportive of a number of efforts that I've been involved in. And I think, as the gentleman indicated, maybe this is just the start of a conversation. But I would, sitting in two different places, one here in City Council, as well as relationship with the Pennsylvania Convention Center Authority, I do want to add some caution to designs, I guess, on hotel tax revenues. I would at least like to make one clarification, for the record. The gentleman stated that the Doubletree paid... Did you say $1.4 million?
$1.8 million in 116 Bill 030769 - Finance hotel tax. This is somewhat similar to when the cable companies tell us how much in franchise fees they've paid. The hotel tax is actually generated by the customer; is that correct?
Well, it's out of general revenues, but nonetheless that's not the issue. I was just stating a fact.
You don't get the revenue unless the customer pays the bill.
All right. Okay. So, I mean, I just -- Again, the statement was made earlier -- I just want to make sure the record is clear -- the hotel tax is paid by customers.
In no way did I imply that that was coming out of the bottom line of the hotel, nor did I mean to.
I know you didn't. We have a record. Second, there's been some recent discussion and I think some great concern by the hotel community about the hotel tax and its current rate, as compared to any other rate. And so, I know that in 1995 this City Council actually was asked by the hotel community to increase the hotel tax. And presently there are a variety of ideas floating around. And the hotel community may ask us not to do anything with the hotel tax, as it relates to proposed expansion of the Convention Center. So I just want to put out a word of caution about the hotel tax and any designs or creative ideas about that particular tax, that it is dedicated to go to a variety of places. 118 Bill 030769 - Finance The Convention Center Authority is in a position where it is also trying to figure out its long-term funding streams. The City of Philadelphia is affected by any downturn in hotel tax revenues because we have the ultimate responsibility for any operating deficits over at the Pennsylvania Convention Center Authority. So, many of these things are tied in to each other in ways that... I like as much creativity as the next person. But I did just get this today. And I'd be glad to be a part of any future discussion. But I think that there is clearly a need -- And when you think about Councilman O'Neill's comments, there's clearly a need for much more conversation and in-depth discussion, before we jump into a public forum about how, you know, how many more slices there are going to be in this pie, and where these revenues are going, and what they're going to, and what they're going for, and who's taking something from home to go where. 119 Bill 030769 - Finance
Councilman, if I may just sort of address sort of the germination of some of these concepts, when we looked at this Bill -- and we believe that assistance is needed for hotels like the Hyatt Regency at Penns Landing and some of the other hotels who will benefit under this. However, we also believe that other hotels are in equal need of assistance who will not be helped by this. We approached it before we sought to testify today, we approached that Council and the City would probably not look favorably on many ideas that would cost more off the City's bottom line, in terms of the General Fund. So we looked at other ways that we might try and have this discussion. And where some of these ideas came up is that some other cities, to spur new economic 120 Bill 030769 - Finance development for hotels, have looked at the sources that we're discussing, specifically Houston and Salt Lake City for the 2000 Olympics and the State of Texas. And we're not coming today suggesting that anything is the answer. But we thought it was better than to come say, help everyone or give everyone a ten-year rebate, to sort of come forth with some concepts that might be worth talking about. And that's really all this was meant to be.
All right. I appreciate it. Thank you. Let me make mention -- This is not your issue. But the issue was raised about how we conduct some of the affairs of government. And I alluded to it earlier, but it has, I think, now been raised in a more direct way by some earlier testimony. The concern was how the Bill came forward, the timing, and the like. We faced the same issue, I believe earlier 121 Bill 030769 - Finance this year, and I know Councilman Cohen has some concerns about this, in a completely different situation, involving primarily residential tax abatement. More specifically, there was a community built in my District a few years back, 78 properties. And I believe the first 27 were built under the three-year tax abatement. During the course of the construction, having nothing to do with that particular development, Councilman DiCicco who is the dean of tax abatements here in Council, decided to extend the new construction tax abatement from three years to ten years, having nothing to do with this particular development. And this goes back to the fairness discussion, and whenever you pick a date there's always going to be someone who a week before or two weeks before did something, who will not benefit from it. We passed a ten-year tax abatement on new construction. The development 122 Bill 030769 - Finance project continued on. The developer then, realizing what had happened, promoted the rest of the development for people to get the ten-year tax abatement. Benefit doesn't go to the developer; goes to the occupant. The initial purchasers of the homes in a planned community I believe had a legitimate argument that going in first and dealing with all that happens in a new planned development sought relief from us. And we introduced a Bill which is the same date that's now being used in this particular Bill, to grant the ten-year tax abatement to those homeowners in that same development. You literally have people across the street from each other, one with a three-year, one with a ten-year: Same development, same house, same neighborhood, same everything. But by an action of the government, this was the result. This Council approved that particular Bill because we thought it was 123 Bill 030769 - Finance the right thing to do. And so, I guess all I'm saying here in a fairly roundabout way is there is some precedent to us doing this, which I guess is now the result of this particular Bill 7 here, although it was done primarily in a residential context. So I just wanted to make sure that that information was on the record. That was a recent action taken by this Council. Thank you.
Yes. Don't hotels produce financial statements at the end of a given time, say yearly?
It seems to me that before we consider anything, we have to get a picture of the industry. And all we're doing is taking the off-the-cuff statements of industry here, that it's needed. We don't know what they mean. It could be an investor may not be satisfied 124 Bill 030769 - Finance with the return or profit of a hundred percent. He may need two hundred percent, as he sees it; or you may have somebody where the business is operating at a loss, and he just wants a reasonable profit. It seems to me we need that information. The simplest little community bank would require it. I think government's going to begin using some common sense, instead of sending out a notice to everybody: If you don't come to us for money and you don't get it, you're a fool. So why don't you join in this taxpayer spree? Why don't you take some money from the taxpayer? Now, that does not apparently apply to Doubletree which has a pretty good record, if the record is there. But I would like to see your financial statements, and that holds true of all of the hotels. I don't know what they mean when they say they're in need. Maybe they're in need of 50 percent profit instead of 49 percent, and they look to the 125 Bill 030769 - Finance taxpayer to provide that. So I think that before we can go further on anything, we need some verification of need. And then we've got to find out whether the money is being wasted or not, because certainly the City of Philadelphia doesn't want to have taxpayers responsible for covering wastage. Why does one hotel make money and another one not? Maybe because of location, maybe because of services, maybe because of efficiency or wastefulness. We don't know that. But it seems to me government money is precious and ought to be used only where it's really absolutely necessary, and at a time when it's necessary, to provide a needed service that private industry cannot provide in the ordinary business world. And I think none of that's been dealt with here. We're acting as if the City of Philadelphia is loaded with money, and all we have to do is decide on how to spread it, provided it goes to certain 126 Bill 030769 - Finance business groups. Because if there's an expenditure of a hundred thousand dollars for drugs or to get rid of lead paint poisoning, I can tell you here, it would invoke calls for enormous debate, with severe questions: Where's the money coming from for this expenditure of fifty or a hundred thousand dollars? We're very tight on anything. We cannot spend it, because we don't have it. But if we talk of millions for business, then it seems that the overwhelming body is prepared to give it total consideration. And I think that's the wrong way for the City of Philadelphia to do business. We ought to know what the facts are. And I hope the tourism industry is going to be prepared today or at a later time to give us all of the facts, give us the time to study those facts so we can develop our questions instead of putting us in a position of telling us: Oh, there's a terrible problem. Maybe it won't be 127 Bill 030769 - Finance recovered for three or five years, but in meantime, help us till the time of recovery. And if it's not three to five years, maybe it will be longer. But whatever it is, you need us, so give us the help. Well, I don't think we can have a sound tax policy or rebate policy or a TIFF policy based on that. So I'm asking all of the people that are seeking consideration by the City to cooperate. Perhaps the tourism industry can work together as a unit to get all the financial statements. So let's see what the situation really is like. For example, are you ready to tell us, Doubletree, when was the last financial statement?
When was the last year's full statement? 128 Bill 030769 - Finance
Let's see. I think the mortgage companies require it by usually March the 1st or April the 1st of each year, so I suspect that was when.
Councilman Cohen, keep in mind that I -- in my remarks I did state that, you know, whatever relief that would be forthcoming would be by demonstration of financial need.
So I think that is not an unreasonable request, any more than when you think your real estate taxes are too high, you show the Board of Adjustment what your income and expenses are to justify a decrease, if you wish one. 129 Bill 030769 - Finance
Ou know, things that come about at the last minute... This Council adjourns for its current four-year term in less than two weeks. And we're very suspicious if anything comes in at the last minute, and we're told suddenly there's an emergency and we need to act on it, even when we, as in this case, when the facts seem to contradict that entirely. We're told of three to five years which is a very vague general period of time and recovery is going to be needed. So I hope the movers of this Bill 15 understand the suspicion which they developed, that they don't really have a good cause because they're trying to get it through when there's no time to really study it, when no materials were made available. But if there is a need, I think all of us are interested in knowing about the need and helping to do something about it, something reasonable and something in the interests of the City of Philadelphia. 130 Bill 030769 - Finance Thank you, Madam Chair.
You're welcome. Mr. Peter Kelson and Howard Werzack from the Hilton.
Good afternoon, Members of Council. Peter Kelson, Blank Rome. Thank you so much for allowing us to testify. We're really here very briefly to confirm a couple things. And I think Councilman Kenney just may give you some information. This representation that I have with Mr. Werzack is for the Hilton at City Avenue, a hotel that basically is at the Gateway of Philadelphia. We employ 210 employees.
That is correct. We 131 Bill 030769 - Finance employ 210 employees. And we paid last year $2.8 million in payroll to those employees. Our employees are a valuable asset. And it is our intention and we will make all efforts to maintain that employment complement. Briefly, I wish to testify before Council with a very minor but technical issue, and that is to confirm that the ordinance which calls for qualified building for which a certificate of occupancy was issued after October 27, 1999, relates to the issuance of a -- what we call a final certificate of occupancy. As Council well knows, that there are numerous occasions where temporary certificates of occupancy are issued, and it is my understanding that this Bill will look to the final or the official certificate of occupancy. And I believe the Chairman Glancey, of the Board of Revision will also confirm that that's the operative document that the Board uses for 132 Bill 030769 - Finance the purpose of registering the start date of the abatement. And with that, I thank Council for their consideration. And if you have any questions, we'd be happy to answer.
Thank you, Madam Chair. Thank you, Mr. Kelson. Thank you, Mr. Werzack. Just very briefly, Mr. Werzack, when did the Hilton City Avenue open or when did you receive your certificate of occupancy?
We received the certificate of occupancy in December of 1999, and we opened in January of 2000.
Okay. And in accordance with that, since you received your certificate after -- clearly after October 27, 1999, you're of the impression, if not the belief, that you would then be covered by this particular provision; is that correct?
Okay. And I guess your concern may have been spurred by news accounts that laid out a list of hotels in the paper this morning that were in accordance with this particular provision, but your hotel was not listed; is that correct?
Okay. And do you have any reason or know of any reason why you would not have been listed or is there any other issue outstanding?
No, there's no other issue outstanding, and I have no idea why we wouldn't have been listed.
Okay. Madam Chair, if I could just ask Mr. Glancey a question, I think we'll be finished.
Mr. Glancey, you heard the questions I asked both Mr. Werzack, and you heard Mr. Kelson's 134 Bill 030769 - Finance statement. On behalf of the Board of Revision of Taxes, with that information and a final certificate of occupancy having been issued after October 27, 1999 -- I believe the date is December 3, 1999 -- do you have any reason to think that this particular facility would not be subject to Section C here in the Bill?
I do not, as it is written. It would be part of that legislation.