Thank you. Any other questions for this witness, these witnesses? (No response.)
Thank you. Joshua Vincent, Center for the Study of Economics. 135 Bill 030769 - Finance After Mr. Vincent, Harriet Lessee, you're next. And finally, Richard Fader. I assume there's no one else here to testify. And we may want to -- We do have the information we requested from Ms. Kammerdeiner. All Members of the Committee have them. If you'd like us to bring her back or if you're satisfied with the written form, then we can move on. Thank you.
Thank you, Madam Chairman. I read about this today in the Inquirer. So I started writing my testimony when I got on at Upsal Station, and I finished it at Suburban Station. I'm Joshua Vincent, Philadelphia taxpayer, and the Director of the Center for the Study of Economics. We've had a great interest in the tax structure of the City of Philadelphia. We've worked with the Tax Reform Commission, City Controller, and of course 136 Bill 030769 - Finance yourself over the past two years, discussing essentially the property tax. We support in principle the idea of giving tax relief to businesses that provided needed employment and good use of land in the City of Philadelphia. And Councilman Kenney is to be commended for recognizing this need. However, as media reports have noted, the renewal of these abatements will result in a $4 million loss in each of the next seven years. That loss will be borne, as always, by others with no eligibility for abatements when times get bad, homeowners and older business enterprises. I do believe that this is a good Bill, simply because we have a lousy system. And we have to find an alternative. However, as Mr. Barnett of the Doubletree noted in today's Inquirer, it should be the entire hotel industry they should look to help. 137 Bill 030769 - Finance As now thousands of Philadelphians now know, a restructuring of the property tax would give the City a revenue neutral approach to cutting taxes on needed hotel and hospitality jobs. This approach, land value taxation, would give these hotels mentioned a permanent tax abatement, without punching yet another hole in City and school budgets. The 62 properties listed as hotels by the BRT now pay, after the current abatements are taken into account, about 15 and a half million dollars a year in 16 property taxes. 17 If the City Controller's proposal to 18 adopt a land tax that garnered 50 percent 19 of revenue each from land and buildings 20 were adopted, that amount would drop to 21 about $10 million a year, in other words, 22 an annual savings of nearly $14 million. 23 The Doubletree, which does not enjoy abatement status, and I just found out was built totally with free market private 138 Bill 030769 - Finance funds, would save $500,000 annually under land value taxation. When the abatements that are discussed today end, the savings for those properties would increase because, of course, the abatements are nearly entirely on the improved portion of the improvements. Again, and in conclusion, a land tax permanently rewards development that now has to be attracted by costly abatements, district zones, and other strategies, to get out from under a terrible tax system. I just want to thank you for giving me a chance. Thank you.
Thank you very much. Any questions? (No response.)
Thank you. Harriet Lessee. Thank you all for your patience for coming to a conclusion of our testimony.
Harriet Lessee, Public Affairs Director of the Greater 139 Bill 030769 - Finance Philadelphia Hotel Association. We have 72 members, approximately 46 in the City of Philadelphia. As an organization, they chose not to take a position on this Bill, thinking it was an owner's issue because our organization or association is made up of general managers. However, there are some competitive issues that you should be made aware of. In general, our hotels in Philadelphia paid collectively 79 million in taxes in 2002. Our hotel occupancy dropped from -- is projected to drop from 66,000 -- 66 percent in 2002 to 61 percent in 2003. In 1996 the room rates, the average room rates, in Philadelphia were $115 a night. In 2002 they are 139, and this year they're down to 129. That's the average room rate. So, whatever is done for one hotel or whatever injures one hotel injures all of us. And we wanted to make sure that our voice as a competitive organization is 140 Bill 030769 - Finance heard. Thank you. Are there any questions?
What did you say that figure was for your total taxes for '02?
Okay. We 13 have a figure, but we don't have real 14 estate taxes included. 15 Thank you very much. 16
Thank you, Madam Chair, 23 Members of the Committee. My name is 24 Richie Fader. I'm the Chief Deputy City Solicitor for Legislation and Appeals in 141 Bill 030769 - Finance the City of Philadelphia Law Department. I understand that certain legal issues were raised earlier in the hearing today, so I thought it would be appropriate for the Law Department to come in and state our views on the Bill. It's the Law Department's opinion on this Bill that the City Council is not authorized to enact these abatements in a retroactive manner. And there are essentially three reasons why it seems clear to us that Council doesn't have the power to grant the retroactive abatement. First of all, the Pennsylvania Constitution authorizes Council only to grant abatements pursuant to state legislation. And the state legislation expressly states that the reason their abatement authorization has been given to us is to encourage improvements of deteriorated property. And it's difficult for us to see how an abatement that's been granted to a 142 Bill 030769 - Finance property that's already been developed constitutes --
Point of information, Mr. Fader. I wonder if you could go over that a little more slowly.
I did not follow what it was you were saying. I didn't understand the retroactivity aspect that you talked about, particularly.
It's the Law Department's view that an abatement that is granted to a property after it's already been constructed constitutes a retroactive abatement.
The Constitution and the implementing legislation from the General Assembly authorized this Council to grant abatements going forward to encourage development, but not to grant abatements after a property has already been developed because that no longer can constitute an encouragement going forward. It's a 143 Bill 030769 - Finance retrospective look-back for property that's already been built.
More particularly, the state legislation specifically says that applications for abatements must be filed at the time that construction commences. It seems apparent to us that if an application has to be filed at the time construction commences, then it can only be for an abatement that's in existence at the time construction commences. The abatements we're talking about here are being granted to properties long after the construction has commenced, and in fact long after the construction is completed. Most particularly, however, there's a third provision of the statute which we think is explicit. The relevant statute is the Local Economic Revitalization Tax Assistance Act, commonly known as LERTA. And Section 6B of LERTA says that 144 Bill 030769 - Finance the schedule of taxes exempted existing at the time of the initial request for tax exemption shall be applicable to that exemption request. And subsequent amendments to the ordinance, if any, shall not apply to requests initiated prior to their adoption. Law Department reads that as very clearly stating that the only abatements that the Council is authorized to grant are at the time that the initial application -- is with respect to the schedule that exists at the time of the initial application for abatement, and that the General Assembly has expressly told us that amendments to the ordinance subsequent to the initial application, in other words, subsequent to the construction of the properties, Council doesn't have the power to grant those abatements. So for those three reasons, it will be the Law Department's view that Council does not have the power to extend these abatements beyond their initial time 145 Bill 030769 - Finance period.
Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Good afternoon, Mr. Fader. Did we not have a situation where we rolled back the date, if you will, on the ten-year tax abatement about a year or two ago, to incorporate properties that -- I think you were here during the time of Councilman Nutter's testimony. There were some homes that were being built or had been built that were prior to the ten-year period -- ten-year abatement bill, but we went and rolled back so we can incorporate or capture some of those properties. And so hasn't a precedent been set to roll back, if you will, prior to the legislation -- enactment of the legislation?
Two answers to that question, Councilman DiCicco. The simple 146 Bill 030769 - Finance answer is, I think I sat here in this same seat and gave the same testimony then. So the precedent has been set that the Law Department's view is consistent: Council doesn't have the power to grant that abatement. And the second answer to that question is, I think it was a somewhat different situation, because at least in that situation there was an argument that there was a perceived unfairness. There were these neighbors living right across the street from each other, and there was a feeling that there was some legitimate unfairness, that he got it and I didn't, and I was in the same position. And the taxpayers felt they were unfair -- unfairly treated. It was our position that Council did not have the power to grant that abatement either. I just note that it was a different situation. COUNCILMAN DiCICCO: Yeah. And I understand and appreciate that because, you 147 Bill 030769 - Finance know, where does it begin and end? We've always had that discussion. And Councilman Nutter talked about that a little bit earlier. And someone is always going to say, why not me? I mean, it was my Bill, the ten-year bill, and I only got three years. So I'd like to go back to 1997 or '96, whenever I started building my house, but unfortunately I can't. However, my neighbors next door --
We would tell you that you don't have the power to do that either. COUNCILMAN DiCICCO: They got the ten years. They got the ten years, and they built a couple years after me. So I just -- You know, I understand your position, and I understand that your testimony is very similar to the testimony when we were dealing with the rolling back the abatement dates. But I just wanted to for the record establish that even though the Law Department says we do not have the power, 148 Bill 030769 - Finance we in fact enacted those bills, and we are -- Those properties that we were looking to incorporate have benefited by the ten-year abatement.
I don't know what actually happened with those properties. But I do know that it was, as I said, a somewhat different situation because of the perceived unfairness and a lot different dollar amount. COUNCILMAN DiCICCO: Thank you. Thank you, Madam Chair.
Thank you. Further discussion? Yes, Councilman Cohen.
We could certainly provide an opinion in writing, if you wanted one, Councilman.
I would like to have that because I would intend to do whatever I could to see that a lawsuit was initiated to prevent such an abatement from 149 Bill 030769 - Finance becoming effective, if it were unwisely, in my judgment enacted by the City Council.
I will be happy to provide you an opinion, and I'll let you decide what you want to do with it, Councilman.
But please try to make it as clear as your explanation of your original statement.
I'll do my best, Councilman. COUNCILMAN DiCICCO: Lack of power to add something?
What's that? COUNCILMAN DiCICCO: Lack of power to add something?
Thank you very much. COUNCILMAN DiCICCO: Two historical 150 Bill 030769 - Finance moments today.
Thank you. Commissioner Kammerdeiner, would you come forward. Councilman Cohen, she's able to answer your question.
She's going to answer your question about the Windham Franklin Plaza and the million dollar abatement. And then we will invite back Mr. Witt, Mr. Tom Witt.
I can't speak to whether this is still happening currently and would have to get this information, but the Windham Franklin Plaza situation is a bond covenant. And if they don't meet certain conditions under the bond, the City is responsible for paying that debt service. And so it's not an abatement. It's not a tax issue. 151 Bill 030769 - Finance It was an agreement entered into as an economic development incentive that resulted in the City guaranteeing the bonds and covering the debt service. That's my recollection from a number of years ago when I was in the Office of the Director of Finance and was familiar with this issue.
May I ask for a record of what payments have been made?
We can get that for you. I don't know that. And I didn't realize until I was really called up that I was going to be giving more detail. I had just answered a question asked by staff as to whether this was a tax abatement, by indicating that it was a bond covenant and a guarantee on debt service. And I can check with the Director of Finance and/or the Treasurer's Office to update that information, in terms of what's been paid. Thank you.
Thank you. If you get that to us, we will get it to the other Members of the Committees. 152 Bill 030769 - Finance
The dates of payments, when they were made, and what amounts. Whether I... My question was not clear because I did not know whether it fit under the abatement or whether it was a separate agreement. All we were told at the time, that's early 1980s, the payment would be a million dollars a year, and that it was likely would only be effective for a year or two. But I understood about 10 or 15 years ago that the payments were going on regularly each year.
I just can't say whether they are still going on. I know they were a few years ago. It went on longer than was anticipated at the time that the program was established.
When you make payments, they always go on longer. When you're expecting revenue, it always is shorter. Thank you.
Thank you 153 Bill 030769 - Finance very much, Mr. Witt. And we would also like to thank the Commissioner for the chart we received.
If you could send the information to the Chair of the Committee, she will see that I get it. Thank you.
Thank you. Thank you for the tax analysis we received for years 2000, '02 and '02. Mr. Witt?
Chairman Blackwell, Members of the Committee, Tom Witt of Wolf Block Schorr and Solis-Cohen. As to the Pennsylvania authorizing statute, the statute in question authorizes you to grant abatements for up to ten years. It does not require that you grant them in a single step. It doesn't expressly provide that you could initially grant a three year and extend it to ten, but neither does it prohibit it. Now, to turn to the section that the 154 Bill 030769 - Finance Solicitor focused on particularly, that when you amend, the cost of construction of the improvements to be exempted and the schedule of taxes from which the exemption is granted should not change, even when you amend after an abatement's been granted. Well, the cost of construction of the improvements to be exempted is established for each of these hotels in their initial application, and nobody's suggesting it could be changed. The schedule of taxes exempted is not, in our view, from reading this ordinance, the statute, a time schedule. It is, rather, a list of what are the taxes and what is the percentage of exemption granted. Now, in Philadelphia we really have only one Consolidated City and School District Real Estate tax, and you've chosen from the beginning to exempt it one hundred percent. But this statute applies throughout the Commonwealth, and so that in a 155 Bill 030769 - Finance municipality in Montgomery County, there is a county real estate tax, a township real estate tax, and a school district real estate tax. They could adopt an ordinance and on their schedule they could list one or two or all three of those taxes. And once they've done that, if they were to be doing what you're doing now and extending the time of an exemption, they could not add taxes to that schedule, once the exemption had been established initially. Similarly, that schedule could contain percentages other than one hundred percent. They could say, the school district tax is exempted -- abated 19 percent, the county tax 50 percent, the 20 township tax a hundred percent. Those percentages would not apply to any subsequent extension. That's the schedule that's talked about in the statute. Nothing that you're doing here is contrary to that, in our view. 156 Bill 030769 - Finance
What I would like to do, if it's the Chair's pleasure, is to take the opportunity to for the record talk about the amendment which would be offered in the public meeting.
Thank you, Madam Chair. The amendment, as was discussed earlier, is an amendment to Section D2C, and each Member of the Committee has it. C reads, the Board of Revision of Taxes shall extend to ten years and ten years will be taken out, and replaced with eight years, the term of any three-year real estate tax exemption issued, pursuant to this Section 19-1303(3) upon any improvements to a qualified building for which a certificate of occupancy was issued after October 27, 1999. And this language is additionally 157 Bill 030769 - Finance added: At the end of the extended period, Council shall consider whether the qualified buildings suffer sufficient economic distress to justify a further extension of the abatement for an additional two years. So in effect what I am recommending is that the abatement be extended from three years, as it currently is, to eight, with a review period at the end of the five years, to determine whether or not it's still necessary. And I will be intending to offer that in the Public Meeting.
Yes. I would like to discuss it, because it seemed to me that that course does not even limit the further extension of two years. At the time they've considered the two years, in the wisdom and generosity of this Council, they might equally decide to extend it for eight more years or ten more years. 158 Bill 030769 - Finance This amendment does not have the power to limit the future conduct of the City Council in any way at all, so I think it's just a waste of time, and is a good effort by the Councilman to modify the proposal to make it sound like eight years instead of ten, but it think it opens the door, actually, to many more years than the ten originally.
Thank you very much. Any further discussion with regard to this amendment? Councilman Nutter.
One question. Councilman Kenney, I heard what you said, and I know what the intention is. I do just want to raise a question. Your goal, obviously, is to extend it to a total of eight.
With the expectation that there in essence would be a review after five. 159 Bill 030769 - Finance
Correct. No. 3 Actually, the eight includes the extended five plus the three that's already existed. Actually scaling it back two. Instead of extending it ten --
...I'm suggesting we extend it eight, with a review at the end of the --
But it's a total of eight. It's not eight plus the three.
Might want to extend it even further. 160 Bill 030769 - Finance
Thank you, Councilman, for providing further confusion. It's a total of eight.
It's the second part where I'm raising the question. At the end of the extended period, on first blush what I took that to mean was at the end of...
Do you have a suggestion on how to make it more specific for your purposes?
Well, you could say at the end of... I think what you really want to say is, at the end of five years, right? Five years from the...
So instead of the period, you'd say at the end of five 161 Bill 030769 - Finance years. (Councilman Nutter, Councilwoman Blackwell, Councilman Kenney speaking simultaneously, not reportable.)
Right. I see he's shaking his head. Didn't he testify against the Bill? (Laughter.)
You know there's always been an impossible situation representing both us and the Mayor.
I understand. Hey, look: If you think it's clear and not subject to an additional interpretation, it's certainly fine with me. But I read it to be after eight.
Can we give Mr. Fader an opportunity if he would like to just clarify for the record what he believes the amendment says.
Councilman Kenney, I believe the amendment says what you've 162 Bill 030769 - Finance suggested, which is that after the completion of the full eight years, the three that have already passed plus the five additional, at that time Council shall consider whether to extend it for two more.
Mr. Fader, are you taking this -- Is the concept here in the context of a sunset provision or let's say the five years comes and at that particular point Council doesn't do anything. Then a year later or two years later, are you saying at that point we can then decide to do it another two, and what happens to any break?
Well, I'm not suggesting that Council has that power. I'm suggesting that we just --
I understand 163 Bill 030769 - Finance that. We're having a hypothetical discussion.
Just for a second -- (Mr. Fader, Councilman Nutter and unidentified voices speaking simultaneously, not reportable.)
If we had the power. COUNCILMAN NUTTER (singing): If I only had a brain.
If Council had the power to grant ten years even after the construction is completed, I don't know that Council would have the power if there were a break. I think what this is suggesting -- I don't think anybody contemplated that there would be an additional break. What this contemplates is that when you get close to the end of that full eight-year period --
-- if it wants to go for the next two. If Council does nothing, it stops after eight.
Just suggest to you that abatement years are not real years. You might want to use an actual date for the date you're going to review it, say a date in 2008 because every property has its own abatement commencement date. And they need not all be the same. So if you picked July 1, 2008, you'd know.
I think that's probably technically correct, that every property would have a different abatement date. It would probably serve Council's purpose to pick a particular date. 165 Bill 030769 - Finance
At this suggestion of the two attorneys, one the Law Department, and one Wolf Block, we'll add the July 1, 2008 date, and would ask in the Public Meeting that we do so, Joe. You want to correct that in the copy.
I'd like to note that that in no wise changes the opinion of the Deputy City Solicitor with respect to the legality of the whole section.
Thank you very much. If there is no other discussion, we will end the hearing part of this meeting and we will go into our formal Stated Meeting. (Public Hearing concluded at 4:45 p.m.) 166 Bill 030769 - Finance CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing of The Philadelphia City Council, taken on December 8, 2003, and that this is a true and correct transcript of same. _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)