Well, I think, sir, if the provision is intended to cover 80 Whole (Hearing) - 040640, 040642 - 6/9/04 individuals, that would seem to imply that the individuals would have to live at work.
I didn't understand your response. Live and work where?
Right. I understand that. I've seen a couple cranes out there recently. For the purposes of this bill and the concern with regard to 17th and JFK, do you have any information that would indicate that anyone will live, will be a resident in the zone?
Okay. So from your reading offer this, what exactly does this mean?
From my reading of 81 Whole (Hearing) - 040640, 040642 - 6/9/04 it, the intended effect would be to impose a requirement on taxpayers subject to the net profits tax that, as a practical matter, they couldn't possibly satisfy. So that the practical effect -- I think the intended effect of the language is to eliminate the net profits tax abatement for businesses organized as partnerships that are subject to the net profits tax who occupy KOIZ's.
Okay. And where are the other places, as you've read through the bill, that include the same provision, this residency issue?
I believe, sir, that there's a definition in Section 19-3208. This proposes the addition of a definition...
...of residency, I 82 Whole (Hearing) - 040640, 040642 - 6/9/04 think.
That would seek to delete items one, two and three and replace them with a new item one which is a new section on residency. Is that what you're talking about?
All right. And then your second concern, Mr. Ralph, on of your testimony, this number two, would you highlight the area where this change in the KOIZ eligibility requirements for tenants and the establishment of a second local level of review of eligibility comes into play? What language directly affects you?
In terms of the change in the standards of eligibility, sir, the changes are in Section 19-3204, with the italicized language, as I read it, being the new language.
No, no, no. 25 That's the new language. 83 Whole (Hearing) - 040640, 040642 - 6/9/04 Which specific provision affects you?
The... The... I'm afraid I have to give a... The answer lies in part in legislation that is pending in Harrisburg. The... The amendments to the KOIZ law that are... were the subject of? Senate hearings that Mr. Ralph referred to in Harrisburg yesterday...
...include a provision there that would create -- authorize the City to impose a second level of review on -- on these eligibility requirements.
Is that second level of review encompassed in the bill 20 that's in front of us or would that be an additional amendment to this particular bill to deal with that issue?
To be honest, that's not clear to me, the way -- the way that this amendment is drafted. 84 Whole (Hearing) - 040640, 040642 - 6/9/04
Councilman, we did circulate and will do it at the appropriate time an amendment to add at the end of subsection three of section four dealing with the Brandywine Project, the Cira Center at 30th street.
And the Chair did point that out in a private conversation. I just wanted to get a good understanding of where the different areas were, based on the testimony. If it is okay with the Chair, what I would like to ask -- and if it not be of the gentlemen at the table, I can wait until the more appropriate person -- I would like to better understand who wrote these provisions and why. So I'm not sure at the moment who -- whether... I know there were 85 Whole (Hearing) - 040640, 040642 - 6/9/04 administration representatives at the table earlier, and then they left. I don't know whether they actually gave their testimony or they were trying to respond to questions.
I'm talking about these provisions that are in the bill 15 that are clearly new. I'd like to understand who wrote them, and why, and what the purpose was.
I don't know that they as prospective tenants were involved in that at all.
Oh, I assume they don't have an answer to that question. What I'm trying to figure out is --
Except to say it was not -- 86 Whole (Hearing) - 040640, 040642 - 6/9/04
-- will administration representatives be back at the table? And if they're the more appropriate person, I would ask them at that time.
Thank you. Are those... So has this pretty much covered the lot of the issues that Cira Center has?
It certainly -- It covers the lot of the issues that Dechert and Woodcock, sir, have, where I think you're going to hear later from Mr. Sweeney from Brandywine.
You're quite welcome. Thank you, Councilman. Thank you, gentlemen.
Mr. Shine, you're next, sir. Reverend Shine, maybe 87 Whole (Hearing) - 040640, 040642 - 6/9/04 you're here because we probably all could use a little prayer right about now. But we certainly welcome you. Thank you. This is Reverend Robert P. Shine. Thank you and please identify yourself for the record. We welcome your testimony.. REV. SHINE: Madam Chairman -- Chairlady, thank you for allowing me this moment. I am the Reverend Robert Shine, the immediate Past President of the Black Clergy of Philadelphia and vicinity, and Pastor of the Barocca Baptist Church of West Oak Lane; also a long-term activist for community causes and supporter of good government issues. I'm here today, Madam Chairlady, on behalf of two vitally important issues. But first, allow me to speak very, very briefly on a major corporation in our City and in our region that have has been one of Fortune 500's major companies. And I'm here on behalf of the grass roots and the communities at large that 88 Whole (Hearing) - 040640, 040642 - 6/9/04 uses the services of this great corporation. And on behalf of the Comcast organization, I believe that their presentation and their proposal is vitally essential to the media and to what the people expect in the media. This organization provides for us a serious but very intelligent outlet for intelligent information, and it brings to us a kind of prestige in media journalism that makes this City, again, among the proudest cities. So we applaud what Comcast has done. And by virtue of this legislation that they offer before City Council, I'm sure that as representing the vast clergy organizations throughout our City, that we want to offer our support, and unqualified support, that we believe that what we are here today to see happen is that new and greater innovations, and because it works and operates, both, in every community, every ethnic community, every community, whether 89 Whole (Hearing) - 040640, 040642 - 6/9/04 minority or whether in the vast majority, this is a time that is well qualified for us to now progressively move into the future. I believe we will benefit in the City, benefit as members of our communities from what they offer and will bring to us. And I believe that that would conclude why I'm here in the first instance. And I thank you for allowing me to share that brief but I believe important testimony on behalf of this organization and the project that they bring to us. Secondly, I want to be -- Because of my time as a pastor, and I need to lead my congregation in prayer momentarily -- but I'm here because I support Bill Numbers 040560 and 040561. Having said that, I want to go on record being in favor of this legislation that has been offered. And I do so as a strong community activist in support of good government issues. So I support this 90 Whole (Hearing) - 040640, 040642 - 6/9/04 legislation on behalf of Councilwoman Donna Miller. Thank you so very much.
Thank you, Reverend Shine. Any questions for Reverend Shine? (No response.)
Thank you very much, Reverend Shine. We thank you very much. Councilwoman Blondell Reynolds Brown, you have a question for Reverend Shine? Point of order, Councilman Kenney.
I believe the Reverend has read the two bill numbers, but I don't know if they're the same bill 19 numbers that we're considering now. They aren't? They're not. I think the record needs to reflect -- the Reverend may have been a different sheet of announcements? REV. SHINE: Yes, that's correct.
Okay. I just 91 Whole (Hearing) - 040640, 040642 - 6/9/04 don't want the record to be -- REV. SHINE: Councilman Kenney, you're absolutely correct.
Thank you. REV. SHINE: These bills, the numbers that I have just read, are in reference to the next hearing that will be presented, that's absolutely correct.
I just didn't want the record -- REV. SHINE: I stand corrected, that those are not pertaining to the former.
Thank you. Thank you very much. Thank you again, Reverend Shine. REV. SHINE: You're more than welcome.
Always a pleasure. Jonathan Stein. Thanks, Reverend Shine. 92 Whole (Hearing) - 040640, 040642 - 6/9/04 And while he's coming forward, next we'll have Jerry Sweeney and Brad Milotsky from Brandywine. Good evening. Thank you very much. Please identify yourself for our record and begin your testimony.
I'm Gretjen Clausing. And I'm here on by half of the Philadelphia Community Access Coalition, joined by Jonathan Stein and George McCollough. And I want to thank City Council for the opportunity to speak today. Over the past six years, the Philadelphia Community Access Coalition has grown to include nearly 100 groups, including arts and cultural institutions, labor unions, religious organizations, neighborhood civic associations, economic development and youth training centers, health care, and community organizers, and hundreds of media-concerned citizens, all 93 Whole (Hearing) - 040640, 040642 - 6/9/04 dedicated to the establishment of public access television in Philadelphia. And here's why we're here, testifying on Comcast Corporation's request for a Keystone Opportunity Zone in the City. Philadelphia is the only large city in the country without public access television, in a nation where 2,000 communities from major urban centers to rural suburban towns have had a great track record with public access television. Indeed, this Council unanimously passed an as of yet unenforced City ordinance in the 1980's to establish public access television in Philadelphia, and to utilize five public access cable channels that federal law has authorized for public and community use. Comcast now uses and profits from the so-called lapsed public access channels in Philadelphia. So what do these 2,000 communities around the country already enjoy that we 94 Whole (Hearing) - 040640, 040642 - 6/9/04 here in Philadelphia are unable to do so? Public access television allows ordinary citizens to participate in the information age by providing equipment and training resulting in new locational careers to any individual or community group that wants to make and air non-commercial programs or publicize their activities at little or no charge on cable television. They do so under strict professional guidelines and supervision. Public access television programs promote youth activities; and neighborhood sporting events; local, vocal and dance performances; public health information on substance abuse and AIDS prevention; African American and Latin American history; and programming in foreign languages for immigrant residents. In Manhattan entire channel is administered and programmed by young people, and in Chicago two entire public access channels are dedicated to nonprofit group programming, and there's always a 95 Whole (Hearing) - 040640, 040642 - 6/9/04 waiting list. Public access increases and diversifies the voices in the media. It empowers those in under-served and disenfranchised communities with the tools to be heard by others. The wonderful diversity of Philadelphia's neighborhood certainly ensures a source of rich local programming. Our efforts on behalf of public access have not gone unnoticed. Innumerable groups have endorsed our efforts. And a recent Philadelphia Inquirer editorial, which we have attached in our materials, urge the Mayor to establish access now. They see public access as a good thing for Philadelphia. It will create civic dialogue and allow all the aforementioned groups and others to have a visible voice. And it will also spur economic development at a grass roots level. 96 Whole (Hearing) - 040640, 040642 - 6/9/04 The skills that can be learned at a proposed public access facility in Philadelphia could some day inspire, nurture and train the next Spike Lee, Jim Gardner, Ed Bradley or Oprah Winfrey. The funding for access is simple. In exchange for granting a monopoly to operate in the City, the cable companies via their franchise agreements agreed to pay for capital costs of establishing public access production and broadcasting facilities. That includes money for studios, mobile production units, editing facilities and more. When the City entered into these franchise agreements with the cable companies, they also entered into an agreement with the public.
City residents obtained access to largely commercial cable TV programming. Comcast has certainly prospered, now the largest cable provider in the country. But what about the promise made to 97 Whole (Hearing) - 040640, 040642 - 6/9/04 the public? Since the City granted these monopoly contracts in 1983, it is sad to say that Comcast has not taken pro-active steps to see that public access television is established in the City. The official Comcast position is that they must wait to fulfill their bargain until the City first establishes a public access television nonprofit corporation. But the City is refusing to do that until it is assured that there are sufficient capital and annual operating funds available to get the system started and running. For over years the City has been 18 pocketing our cable user fees from our 19 monthly bills that should be going to 20 public access operations. But Comcast could step forward today, indeed at this hour before you, City Council, to publicly commit itself to adequately fund both the capital and operating costs of a public access system. 98 Whole (Hearing) - 040640, 040642 - 6/9/04 This, after all, is their national headquarters. And yet, it is the only city in the nation without a public access system, that City Council has required by ordinance. If this City were to grant Comcast its special tax-free Keystone Opportunity Zone, the City and the public must be assured that Comcast will no longer sit on the sidelines, but meet its civic responsibility as a good corporate citizen by providing the funds to make public access a reality for all the residents of our City. We ask that Comcast make this commitment to City Council today, and that the Keystone Bill before City Council be amended to assure that this commitment will be honored. Thank you for the opportunity to express myself today. Thank you. )
Thank you very much. 99 Whole (Hearing) - 040640, 040642 - 6/9/04 Are there any questions for the witnesses? (No response.)
Good evening. Please identify yourself for the record.
My name is Jerry Sweeney. I am President and Chief Executive of Brandywine Realty Trust. I have with me Brad Milotsky and Steve Rush, also of Brandywine Reality Trust. Good evening, Madam President, and other members of Council. Appreciate the opportunity of being invited here to present our perspective on the KOIZ debate currently taking place in Center City. First, I'd like to introduce Brandywine Realty Trust, and then talk about our Cira Center project at 30th Street Station in University City. 100 Whole (Hearing) - 040640, 040642 - 6/9/04 Then I'd like to discuss a little bit the provisions that are in the proposed piece of legislation before Council, that in our estimation essentially incorporates changing the rules after the fact, relative to existing KOIZ Zones in the City of Philadelphia; and then finally address the KOIZ proposal for CBD Philadelphia. Brandywine is a publicly held real estate company. We are trading on the New York Stock Exchange. We are a regional company, with operations in Philadelphia and in the suburban counties. We are the largest Class A owner of office space in the suburban regions, and have 242 employees based in the Philadelphia area. Cira Center, which has been talked about this evening, is a 727,000 square foot, 32-story building under construction at 30th Street Station in the rail yards adjacent to the Penn Coach Yards at Amtrack. I actually saw some of the building 101 Whole (Hearing) - 040640, 040642 - 6/9/04 trade folks here. We will be employing through that construction process almost 2,000 people over the next couple years, as that building reaches construction. When we announced that building in May of 2002, our objective was really for the first time to try and tie together the pieces of the City, tie in the central business district with the western side of the Schuylkill River. For those of you who are not familiar with it, Cira Center is located on the western side of the Schuylkill, approximately 14 blocks from downtown Philadelphia. The 30th Street site where we're building Cira was originally designated as a Keystone Opportunity Zone before Brandywine became involved. Brandywine became involved after Amtrack, the site's owner, went to the marketplace for a request for proposal from developers to develop an office project. We responded to that. We were 102 Whole (Hearing) - 040640, 040642 - 6/9/04 awarded those development rights in November of 2001. And I can assure you that despite our enthusiasm at trying to accomplish that public policy goal of tying pieces of the City together, the existing legislation on KOIZ benefits was a key part of our investment decision. And that those benefits would not be available in sites that were not deemed to be blooded or part of the existing KOIZ designations. In December of 2003, we exercised our option with Amtrack, committed to a 100-year ground lease, and commenced construction. To date, as you heard in other testimony, we have contacted over 3300 companies outside of Philadelphia, in an effort to try and attract organizations to the City. The project right now is about 65 percent leased. When completed, that project will house approximately 2200 103 Whole (Hearing) - 040640, 040642 - 6/9/04 employees. Already we have added to the City of Philadelphia over 260 new jobs, including about 120 new jobs into the Commonwealth of Pennsylvania. That represents approximately a percent increase in jobs 8 over the employment base at Cira Center. 9 As we look at the legislation that 10 Council is considering, we look to the 11 public policy intent of the Keystone 12 Opportunity's legislation that was 13 originally approved in 1998. 14 The clear objective of that 15 legislation was to take blighted areas that 16 had been completely unable to attract 17 private capital, and turn those sites into 18 long-term revenue producers for the City 19 and the Commonwealth, not simply to select 20 sites in well-developed areas.
In particular, the site at 30th Street Station has been singularly unsuccessful in attracting private development, since the station was built in the 1930's. 104 Whole (Hearing) - 040640, 040642 - 6/9/04 Many development schemes were tried. Every single one failed. What we saw was an opportunity to create something of great value for the City, try and create a world Class $200 million investment that would be located in an area of the City that had really never seen any private capital before. We were convinced, as we are today, that our investment will undoubtedly spur additional development opportunities in University City, provide a true catalyst for reincorporating the Schuylkill River into the lifeblood of the City of Philadelphia, create a new gateway entrance for the City, and present tremendous long-term value. In our estimation, Cira Center embodies exactly what the Keystone Opportunity legislation was intended to do. We have retained jobs in the City. We have created new jobs, both new to the City and new to the Commonwealth. We have created a long-term valuable 105 Whole (Hearing) - 040640, 040642 - 6/9/04 tax ratable that will certainly increase surrounding neighborhood values. We are using our private financing to improve existing infrastructure around 30th Street, and we have embarked on a marketing campaign that, as I mentioned, has touched 3300 companies outside of the Philadelphia County, in the attempt to attract businesses. Make no mistake, if you would, please, Brandywine placed great reliance on the integrity of the public policy process, and specifically relied on the existing qualification test when we exercised our hundred year ground lease, signed leases with two tenants, then four tenants, have made countless representation to other tenants, and made a decision to invest approximately $200 million of our shareholders' money in the City of Philadelphia. The proposed amendments do serious damage to our project and others located throughout the City. 106 Whole (Hearing) - 040640, 040642 - 6/9/04 Adoption of these revised tests will change the economic underpinnings that were in place when our investment decision was made, and it seems to be unfair on the surface of it, and creates a material adverse change to our existing vested rights. The specific provisions have been discussed, so I don't need to go into those, but they were laid around retroactively changing the rules that were in place when we moved forward with our investment. In addition to that, recent changes to the KOZ statute that occurred in December of 2003, specifically the inclusion of a five percent gross revenue test, occurred after our transaction was done with Amtrack and our two lead tenants. That's important to understand and emphasize because this new qualification test was not requested by either Brandywine or our Cira tenants. And our tenants intend to qualify, 107 Whole (Hearing) - 040640, 040642 - 6/9/04 using the original test. And we work closer with some of the governmental agencies to ensure that we have in writing that they do in fact qualify. Moving on to the more challenging issue before Council, which is the designation of a downtown site as a Keystone Opportunity Zone, it's complicated from a number of perspectives. First, Comcast is clearly a premiere corporate citizen and one that we are all proud to have in our region. They have been a significant contributor. They have made tremendous contributions. They are entitled to, as other companies in Philadelphia have been, to tenant specific relief, in order to induce them to grow their businesses here and bring in additional jobs. The point that is being debated is the mechanism to do that. So when you look at the KOZ statute and the reasons why that was put in existence was really to drive growth in heretofore undevelopable areas.
108 Whole (Hearing) - 040640, 040642 - 6/9/04 When we compare Cira Center to some of the CBD sites that are talked about, Cira is in a blighted area, and for 70 years; whereas, the sites downtown clearly look at development surrounding those locations. Amtrack obtained the KOZ benefits with the consent of Council, and held an open RFP competition that any developer could participate in, versus now looking at assigning KOZ designation to a site after the fact. As we look at it, we are a full supporter of providing strong incentives for Comcast. We simply don't agree with designating a site in downtown Philadelphia that will provide approximately a million square feet of vacant space that will, as some of the building owners indicate, create a dislocation in the marketplace. But in conclusion, we'd like to reiterate the following: We made our decision in 2003 to invest approximately $200 million in an area of University City 109 Whole (Hearing) - 040640, 040642 - 6/9/04 in West Philadelphia that heretofore had not seen any private investment. With all this debate going on, the benefit that we see is by the end of 2005 there will be a world class office building housing over 2200 people at that location. In making that investment decision, we placed strict reliance on public policy intent, existing legislation, and written assurances that we were entitled to the KOZ benefits. We trusted the integrity of that process, and expected that it would not be compromised. We firmly believe that one of the most powerful economic engines is consistent application of public policy. This amendment that you're proposing is not just about giving Comcast tax-free status in a downtown zone. There are provisions in it that significantly and adversely affect our site, our tenants, and our ability to make Cira Center very successful. 110 Whole (Hearing) - 040640, 040642 - 6/9/04 We would respectfully ask Council to focus in a deliberative manner on the potential implications of the proposed amendments, and what they will render to our project and others who operated on the premise of making an investment decision under a given set of facts. Madam President, thank you very much.
You're welcome. Mr. Sweeney, did you indicate when this building will be completed?
This building will be ready for occupancy by tenants in the end of September of 2005. So, actually those who drive by the site, there's two cranes there. The steel has started to be set, and the steel will be topped out in November of 2004.
And you indicated that 65 percent of the building is leased, and we would be seeing 260 new employees? 111 Whole (Hearing) - 040640, 040642 - 6/9/04
Out of that 65 percent, yes, through both organic job growth by the existing tenants, plus the designation by of our tenants of their location at Cira Center as their North American headquarters, with the expectation that they'll be bringing people in from other states into Philadelphia and into the Commonwealth.
Fine. Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Sweeney, thank you for your testimony. Councilwoman Blackwell had indicated and has circulated a proposed amendment to Bill 040642, in an effort to, I am sure, make sure that the benefits that you have received under the rules that you've played by at the time are kept in effect. The representatives from Dechert, 112 Whole (Hearing) - 040640, 040642 - 6/9/04 one of your tenants, pointed out on of the bill, Section 19-3203 sub 4, and then another section, I believe, in 19-3208, a new number one with regard to residency; and then this issue about a second test for tenants, a second local level of review of eligibility. Can you speak briefly to those issues? And does the proposed amendment take care of the concerns that at least were expressed by the Dechert representatives or any other concerns you may have with regard to Brandywine and Cira?
Certainly, Councilman. As we look at the proposed language changes -- And Brad will talk to the specifics -- as we view it, we're looking at existing zones with the existing rules. So, any changes to the rules that were in place at the time that we exercised our option, commenced construction, signed the leases, we view as detrimental to both our investment base of $200 million, 113 Whole (Hearing) - 040640, 040642 - 6/9/04 potentially our existing tenants, and certainly our ability to successfully market the remaining 250,000 square feet.
Do you have any information with regard to the proposed amendments which may affect you and what either the purpose was or what the intention is of those amendments? Do you have any information in that regard?
Councilman, my opinion on that would be pure speculation, in terms of what the motivations were behind proposing retroactive adjustments to an existing site. So, I do not have any particular insight onto what was driving that.
Excuse me, sir. You're going to have to identify yourself for the record, please.
My name is Brad Milotsky. I'm general counsel to 114 Whole (Hearing) - 040640, 040642 - 6/9/04 Brandywine Realty Trust. Councilman Nutter, the question went to what were the changes. Again, Mr. Sweeney stated that we don't know what the motivation was behind the request. What we do know is that the changes that were proposed affect two specific areas. One was the existing historic capital investment test that existed since 1998, when the statute was originally enacted, that was subsequently approved by City Council twice, as well as by the Mayor twice when they approved KOEZ's and then KOIZ's.
And the issue to which you're speaking, where is that --
-- is in two different places. Relative to the bill 22 itself, if you go to Section 19-3204 of the City -- the proposed City ordinance.
3C, correct. 115 Whole (Hearing) - 040640, 040642 - 6/9/04 Subsection C is a new requirement that did not exist when we proceeded forward with our investment. So, the two changes there are requiring equity ownership in improvements, as well as in point two or C.2, restricting the application of tenant improvement dollars for purposes of qualification to manufacturing, industrial and research and development sites alone.
And who would have to -- And is it that the business or the tenant would have to have the equity ownership interest?
That is correct. That's my interpretation, at least, of what the words mean, which we're not sure how you would do that, but that's what we...
Well, I guess that was actually going to be my next question. I mean, tenants just normally pay rent, right?
Okay. How is 116 Whole (Hearing) - 040640, 040642 - 6/9/04 it -- I mean, you guys are in the real estate business. How normal is it for a tenant to have an equity ownership interest?
In the building? Extremely rare to remote. The only guess I would hazard, having asked the question but not gotten an answer, would be if the words were intended to mean equity ownership in the improvements within their leased premises, like the desks, chairs, computers...
...then I might understand what it meant, but I'm not sure that's what the words say. I would suggest, through, that the City might be a better person to ask the question.
I understand. Okay. Thank you. Thank you, Madam Chair.
You're welcome. Are there any other questions of the 117 Whole (Hearing) - 040640, 040642 - 6/9/04 witnesses before us? (No response.)
Our next witness is Sonny Dececchio, from the Philadelphia Produce Regional Market. Is he here? (No response.)
Gabriel Bevilacqua. May I say, you've been extremely patient. Thank you so much for waiting.
And I'm pleased to wait. 118 Whole (Hearing) - 040640, 040642 - 6/9/04
Council President Verna and members of City Council, again, on behalf of the 13,000 members of the Philadelphia Bar Association I offer my thanks and appreciation for this opportunity to once again testify on tax matters. I am here today because I am concerned about legislation which may prevent partnerships, including law firms in Philadelphia, from qualifying for net profits tax exemptions under the Keystone Opportunity Improvement Zone Program. We believe that such a move applied to law firms retroactively would be illegal and unconstitutional, but just as importantly, this sort of targeted action against the leading segment of the local economy service sector would be capricious and counterproductive. As I explained during my recent testimony on tax reform, the legal services 119 Whole (Hearing) - 040640, 040642 - 6/9/04 sector is a regional economic powerhouse. The jobs that Philadelphia law firms bring to the City are well-paying jobs. The ancillary businesses that these law firms support are good businesses. And Center City Philadelphia, as it exists today, would be totally unrecognizable without Philadelphia's law firms. Without these firms, whole parts of the downtown area would be deserted, blighted and barren. When you consider that the 14 largest Philadelphia law firms employ 15 nearly 10,000 people, and you realize that 16 these law firms are but a third of the 17 entire legal community, you can see that it 18 is very hard for me to exaggerate the 19 importance of the legal services sector to 20 the region's economy. 21 Indeed, if all of Philadelphia's law 22 firms were part of one company, they would 23 constitute one of the biggest corporations in this region. We urge your opposition to 120 Whole (Hearing) - 040640, 040642 - 6/9/04 legislation and/or amendments which would economically scapegoat partnerships, lawyers and law firms. At the same time, we stand ready to assist the City and all other appropriate governmental agencies in the development of equitable tax policies. As I have said before, the road to tax reform must be fair, sustained, and even handed. Reform cannot be accomplished by searching for convenient scapegoats or attempting to pit one group against another. Philadelphia's law firms are part of the City and its economy. Our professional family is committed to Philadelphia. We want to see the City grow and prosper. We seek tax equity and reasonable reform, and trust that our legislators will move in a prudent, fair and balanced manner, avoiding the type of arbitrary and discriminatory tax policies which have been suggested. Madam Chair, I do have a copy, if I 121 Whole (Hearing) - 040640, 040642 - 6/9/04 can...
Fine. Thank you. Are there any questions or comments from Mr. Bevilacqua? (No response.)
Thank you again for your patience. We appreciate your coming in to testify.
Thank you. MR. McPHERSON: The next witness Fred Cazenza (phonetic). Fred Cazenza.
While we're waiting for Mr. Cazenza, who is the next witness? MR. McPHERSON: Mike Sencindiver.
From Keating Company. Madam President, the gentleman, Mike Sencindiver from the Keating Company, was 122 Whole (Hearing) - 040640, 040642 - 6/9/04 not able to continue to stay here to present his testimony, so I'm either glad to read it into the record...
That would be fine or if it's rather lengthy, we will make certain that the stenographer gets a copy of it. UNIDENTIFIED MAN: Very good.
And it will be transcribed in full, and perhaps you can simply abbreviate what he has to say. UNIDENTIFIED MAN: Very good. Then I will. Dear President Verna, as a major owner and operator of real estate in and around Center City, Philadelphia we at Keating would like to express our full support for the creation of a Keystone Opportunity Zone at the One Pennsylvania Plaza site. Cementing Comcast and its new job growth to Philadelphia is critical to the long-term economic health of the region. 123 Whole (Hearing) - 040640, 040642 - 6/9/04 Creating new modern office space is important in order for the City to attract growing companies. The use of economic incentives to achieve this goal has been successful in the past, and will be successful in connection with the One Pennsylvania Plaza Comcast project. An additional benefit of creating new office buildings is that it allows older, obsolete buildings to be recycled into new uses. A recent example of this in Philadelphia is the former home of the Insurance Company of North America on the Parkway, which our firm successfully redeveloped into the Phoenix, an $80 million modern apartment and retail complex. Opponents of the KOIZ designation, who are largely from outside of Pennsylvania and Philadelphia, speak of fairness. Please do not be misled. Their motivation is avoiding new competition and 124 Whole (Hearing) - 040640, 040642 - 6/9/04 the additional investments in their properties which such competition will inevitably require. Philadelphia should encourage real job residential and retail growth and investment. And we believe this can be advanced by designating the 17th and JFK site as a KOIZ. Very truly yours, Mike Sencindiver, Executive Vice President of the Keating Company. Thank you.
Thank you very much. And if you would submit a copy -- Is that all of the testimony? We will make certain that the stenographer receives it. UNIDENTIFIED MAN: Thank you.
Has Fred Cazenza come back into the room? Please approach the witness table. Good evening. Please identify yourself for the record and proceed with your testimony.
Fred Cazenza. I'm 125 Whole (Hearing) - 040640, 040642 - 6/9/04 here for Pat Gillespie who couldn't be here. Madam President and members of City Council, the Philadelphia Building Trades strongly support the proposed KIOZ designation for the three proposed new construction projects: The Cira Center, One Pennsylvania Plaza, and the new Food Distribution Center. The One Pennsylvania project, in particular, is extremely important. The 60-story office tower will be the tallest building in Philadelphia, and would generate $1.4 billion in economic activity during the two-year construction period. It would also create 200 million in increased regional wages and earnings during that period, as well as $37.2 million in increased state taxes and 7.2 in City wage taxes. In short, this project will put many members of the Philadelphia Building Trades Council to work. One Pennsylvania Plaza is slated to 126 Whole (Hearing) - 040640, 040642 - 6/9/04 become the new world headquarters of Comcast Corporation, and will be built by Liberty Property Trust, two of our City's most successful and loyal corporate citizens. Comcast has committed to creating as many as 3,000 new jobs over the next ten years at its new Philadelphia world headquarters which will translate into more jobs, more residents, more tax revenue. The same can be said for the Cira Center and Food Distribution Center projects. The Philadelphia Building Trades council respectfully urges City Council to approve and retain the KIOZ designation for all three of these important projects for Philadelphia's future. Sincerely, Pat Gillespie, Business Manager, Philadelphia Building Trades. Also, I want to thank Councilwoman Joan Krajewski and Rick Mariano for their support of this project. (Applause.) 127 Whole (Hearing) - 040640, 040642 - 6/9/04
Stephanie Naidoff. Do we have copies of your testimony?
Thank you. Good evening, Madam Chair and members of the Committee of the Whole. My name is Stephanie Naidoff, and I am the Director of Commerce of the City of Philadelphia. And with me today is Dwayne Bum, the Deputy Director of our Department; Nancy Kammerdeiner, the Revenue Commissioner; and Richard Feder, the Deputy City Solicitor. I'm here today to testify on behalf of the administration to testify in support of Bill 040642. This bill would authorize the City to amend the boundaries of its existing Keystone Opportunity Improvement 128 Whole (Hearing) - 040640, 040642 - 6/9/04 Zone, and revise the conditions for exemption from net profits tax, and clarify and amend the provisions relating to relocating businesses. Enactment of this bill would be contingent upon passage of enabling legislation by the Commonwealth of Pennsylvania. Before I get into the substance of my testimony, I'd like to address the issue of the timing of the introduction of this bill. As you know, the normal course of events for legislation such as this would be for the state to pass enabling legislation, followed by the City enacting legislation based on that authorizing legislation. Unfortunately, in this particular case, the driving factor is time. House Bill 1321 being considered in Harrisburg requires that the City apply for KOIZ designation of sites within 90 days of notification by the state. 129 Whole (Hearing) - 040640, 040642 - 6/9/04 The application requires the legislative approval of this body, as well as that of the School Reform Commission. City Council's summer recess would preclude us from meeting that 90-day deadline. In addition, we have been advised that any additional delay could make these projects unfeasible. These two critical factors, both beyond our control, are what drives this schedule. The Keystone Opportunity Improvement Zone, an offshoot of the original Keystone Opportunity Zone Program, was created to allow the Commonwealth to work in partnership with local governments, like the City of Philadelphia, to encourage substantial job retention and job growth and to spur significant private investment, where the existence of specific, substantial and imminent economic development opportunities exist. The benefits of the KOZ program were critical elements to many of the decisions by businesses to invest in our City. 130 Whole (Hearing) - 040640, 040642 - 6/9/04 Unfortunately, in many cases, the existing KOZ designated sites had not met the needs of the interested companies. In an effort to meet those needs, and to maximize job growth potential, the Governor, with the consent of the state legislature, was authorized to designate certain properties or areas throughout the Commonwealth as Keystone Opportunity Improvement Zones. The Department of Community and Economic Development and the Governor's Office stressed to City officials at that time that only sites and projects that meet the criteria of specific, substantial and imminent would be considered for KOIZ designation. The administration fully supports the concept of expanding the KOIZ's in the City, to allow us to address two such specific, substantial and imminent economic development opportunities that have been presented to us. These opportunities are, first, the 131 Whole (Hearing) - 040640, 040642 - 6/9/04 development of One Pennsylvania Plaza as the world headquarters for the Comcast Corporation, one of our City's largest and fastest-growing companies, and secondly, the construction of a new modern produce market and seafood market at our Food Distribution Center that will retain 47 businesses and 1,375 employees. With respect to the Food Distribution Center Project, it is no 12 secret that neighboring states have coveted the produce market, in particular, for years, and have consistently been willing to be extremely generous in their offers to make such a move happen.
In fact, it's widely reported that the produce market has had extended and in-depth discussions over the last few months with officials from New Jersey, regarding moving the terminal to Camden. It is our understanding that New Jersey has offered a very significant incentive package to move the produce market across the river. 132 Whole (Hearing) - 040640, 040642 - 6/9/04 In many ways, the produce market can be considered the anchor tenant that attracts other businesses within the food distribution industry to the Center. As a result, the loss of the produce market to New Jersey would have a very detrimental impact on the remainder of the Food Distribution Center, resulting in significant job losses for the City and the Commonwealth. For that reason, the Commonwealth, acting through the Philadelphia Regional Port Authority, and in cooperation with the City of Philadelphia, is preparing an offer to the produce market that will allow the PRPA to develop a modern, state of the art, hundred million dollar produce market on 60 to 70 acres that will meet the current Federal food handling requirements and create a more customer friendly environment. Under this scenario, the merchants will enter into a long-term lease with PRPA. In addition, the PRPA site has 133 Whole (Hearing) - 040640, 040642 - 6/9/04 sufficient capacity to house the seafood market. Talks are currently under way with representatives of the seafood market to determine whether all of its needs can be met at the site. This new complex for the produce market and the seafood market is proposed for a site in the immediate vicinity of the existing Food Distribution Center, and will allow for additional growth of both markets. It will also continue to anchor the Food Distribution Center. Finally, the facilities being vacated when the new site is ready will allow us to create much-needed land for new and expanding food companies within the Food Distribution Center. We believe that the threat of losing the produce market to New Jersey is real. As a result, it is important to provide significant incentives from the City and the state by designating the proposed site for the produce market as a KOIZ. We retain the wage tax that we 134 Whole (Hearing) - 040640, 040642 - 6/9/04 presently receive from the 1375 jobs at the market now, we create a brand new modern produce market where our existing companies can grow, and we preserve the integrity of the entire Food Distribution Center. Now I'd like to turn to the Comcast Liberty Project.
The second specific, substantial and imminent economic development opportunity in the City of Philadelphia is the proposed development of One Pennsylvania Plaza, a Class A office complex being developed by Liberty Property Trust. 15 acre site at 17th and JFK Boulevard in Center City, Philadelphia. 5 million square feet of space in two new office towers, with a public plaza, and direct connections to the Regional Rail Line, through a new entrance to Suburban Station. 2 million rentable square feet of office space will be the tallest office building in the City of Philadelphia. The project will cost $500 million which will be funded by Liberty Property Trust. This project, together with the Cira Center development, will be the first significant new commercial office infrastructure in this City in over ten years. Comcast, the lead tenant in this new development, is one of Philadelphia's major corporations, with million customers in 17 41 states, and total employment of 60,000 18 people. 19 Comcast headquarters is currently in 20 an existing Center City building, and the 21 company has expressed interest in relocating to Liberty Property Trust's new development under a long-term lease, with options to expand. With respect to One Pennsylvania 136 Whole (Hearing) - 040640, 040642 - 6/9/04 Plaza Comcast Project, the primary reason for our strong support is the opportunity to create thousands of new high-paying jobs. Comcast is a unique company to us, in that it is the one market leader in its respective industry with a corporate headquarters in Philadelphia. No other Philadelphia company has the market dominance and growth potential of Comcast, and its technology based businesses. Although Comcast has committed to keeping their headquarters in the City, the benefits of the KOIZ will incentivize this company to bring operating divisions to Philadelphia from other parts of the country. As a preview to this potential, last year alone, Comcast added 400 jobs in the City. The company projects even greater growth at One Pennsylvania Plaza, growing from 1,100 current employees to more than 2,000 employees at the new headquarters 137 Whole (Hearing) - 040640, 040642 - 6/9/04 location. We know that states and cities across the country would offer extremely generous incentive packages to attract a company of Comcast's caliber. Earlier this year, the State of Delaware provided a $7 million incentive package to Triple A Mid Atlantic in order to get that company to commit to moving its 350 employee office out of Philadelphia. The projected job growth at Comcast is supported by the company's proposed lease commitment. As we understand it, the initial Comcast lease includes an initial occupancy of 500,000 square feet, a space sufficient to house 2,000 employees. When all lease options are added in, Comcast can ultimately house 4,000 employees at this new headquarters, nearly quadrupling its current employment level. Having Comcast headquarters here in the City within a new signature high-rise building would be a symbol of success throughout the country. 138 Whole (Hearing) - 040640, 040642 - 6/9/04 The Comcast name emblazoned across the skyline sends the message of Philadelphia's economic vitality and optimism. Comcast would be would be to Philadelphia what Microsoft is to Seattle or Coca-Cola is to Atlanta. Furthermore, One Pennsylvania Plaza, in and of itself, will be a symbol to the world. No major new office building has been developed in Center City for over a decade. Not only will it be the tallest office building in the City of Philadelphia, but its urban design will include a new public plaza, connections to the SEPTA concourse, and a new entrance to Suburban Station. This building will create modern 21st Century space that does not presently exist in Philadelphia today.
If we are to compete in the global office marketplace, we need to have a wide range of products to offer, including those 139 Whole (Hearing) - 040640, 040642 - 6/9/04 that contain all of the latest technology. The final argument in support of this project is competition. While no new major office construction has occurred in the City over the last ten years, the suburbs have been extremely active in developing new space. One need only look to Conshohocken, Cherry Hill or Northern Delaware to see the extent of the new office development. As our inventory continues to age, the suburban alternatives offer a very attractive alternative to Center City locations. While both the produce market and One Pennsylvania Plaza offer great opportunities for the City and state, there are issues and concerns that have been raised by this legislation. And I would like to spend a moment reviewing them and address how these concerns can be reasonably responded to. The first issue is the effect on the City budget, and in particular the School 140 Whole (Hearing) - 040640, 040642 - 6/9/04 District. As you know, there have been various analyses done by various interested parties to this legislation. The primary focus of each of these studies has been on the impact on the local office market if additional office space was introduced. The conclusion of each report, as a rule, supports the position of the interested party that commissioned the study. We have reviewed each report, and with the assistance of the Revenue Commissioner have undertaken our own internal analysis. We have concluded that with modifications to the taxes abated by the KOIZ legislation, and an emphasis on job growth as a necessary condition in certain circumstances, the City would greatly benefit from the development of this additional office capacity. One of the legitimate concerns raised in these studies is the negative 141 Whole (Hearing) - 040640, 040642 - 6/9/04 effect of existing office tenants in the Center City marketplace, to move into a building with KOZ benefits, without increasing company employment levels. As you know, to avoid such occurrences, the original KOZ legislation required any business located in Pennsylvania that relocated to a KOZ would be required to increase employment by 11 percent in the first year or invest the 12 equivalent of 10 percent of the previous 13 year's gross revenues in capital investment 14 at the KOZ site. 15 In December of 2003, the state 16 enacted legislation that created a third 17 test for relocations. This test is 18 referred to as the long-term lease test 19 which in short would allow relocating 20 companies to receive the KOZ benefits by signing a long-term lease in a KOZ property. Tenants would not be required to add jobs or make any investment in a KOZ property. This third test allowed for 142 Whole (Hearing) - 040640, 040642 - 6/9/04 relocations, with no return on the City and state's KOZ investment. We are proposing that the state eliminate this long-term lease test except in the narrow exception of the Food Distribution Center. In addition, we are asking the state to strengthen the capital investment test for relocating businesses. We are recommending that language be added to express that mere tenant fit-out expense by a lessee would not satisfy the test, with certain exceptions for manufacturing, industrial, and research and development purposes. In the case of commercial businesses, the proposed changes would expressly provide that capital investment must consist of an equity ownership interest in the improvement to real property, and must have the effect of improving such property. There is an appropriate tenant improvement exception that is limited to 143 Whole (Hearing) - 040640, 040642 - 6/9/04 improvements made for manufacturing, industrial or R & D purposes by a business whose predominant activity in the building will be manufacturing, industrial or R & D.
We believe these changes are consistent with the original intent of the KOZ law, and will assure that only growing businesses will be able to relocate to a KOZ, while the City and state will reap an actual benefit from their investment. Many have asked how we reconcile the need for tax reform with these special incentive arenas. While we may all agree that lower taxes are critical to the long-term future growth and economic competitiveness of the City and the state, we cannot ignore the present economic development environment in which we compete. As mentioned in the Triple A and Food Distribution Center cases, governments nationwide are willing to invest significant tax dollars to lure prime businesses from other localities. It is 144 Whole (Hearing) - 040640, 040642 - 6/9/04 critical that we continue to have economic development tools like the KOZ program to compete in this environment. Some people have made the comment that government, and therefore tax dollars, should not be spent to create or indirectly affect the private marketplace. The fact of the matter is that every time government decides to build a new road, expand our airports, or place a military facility or on the downside close the facility, they affect the marketplace. In fact, one need only look at the Blue Route corridor to see how government has affected our regional marketplace. By building this road, the Commonwealth opened the Conshohocken and Plymouth Meeting areas to new development. What was once undeveloped land, vacant, industrial brown fields or old under utilized industrial buildings, are now mega shopping centers, restaurants and office complexes. Government decisions will always affect the marketplace. 145 Whole (Hearing) - 040640, 040642 - 6/9/04 The final major issue that's been raised is the net profits tax. The NPT issue, as it relates to large partnerships, can be classified simply as a case of unintended consequences. The City's net profits tax is the equivalent of the wage tax for the principals in sole proprietorships and partnerships. The tax is tied directly to that of the wage tax. When the KOZ concept was developed, the idea was not to penalize small businesses that were organized as sole proprietorships or partnerships under the KOZ program. It was never anticipated that the program would include large professional firms, organized as partnerships, to receive an unfair benefit as the result of the net profits tax exclusion. The public perception is that we have created a tax loophole for such partnerships. To correct this inequity, we would propose that the City of Philadelphia 146 Whole (Hearing) - 040640, 040642 - 6/9/04 be allowed to remove the net profits tax exemption from the KOZ program except, like wage tax, where it would continue to be applied to residents of a KOZ. This change would create parity for all people earning a living in the City. With the removal of the net profits tax exclusion, and a greater focus on job creation, the proposed legislation addresses many of the concerns that have been raised by the owners of existing office buildings in the City. The concern that is most often raised is one of moving office tenants from one building to another within Center City, with no resulting benefit to the City. The proposed legislation addresses this important issue by emphasizing the requirement for 20 percent job growth, greatly limiting the capital investment test, and eliminating the long-term lease test as ways for current office tenants to receive KOZ eligibility. The only tenants who would be 147 Whole (Hearing) - 040640, 040642 - 6/9/04 incentivized to consider a KOZ location are those few businesses that are growing rapidly. With the further condition that partnerships would remain liable for payments of net profits tax, there is even less incentive for the movements of tenants from one City location to another. Recent tenant leasing patterns would further support this conclusion.
Over the past two years, the City has been successful in retaining 80 out of 81 renewing office tenants. In most cases these tenants, representing 20,000 employees in over 5 million square feet of space, renewed in their existing locations. By refining the KOZ eligibility criteria, as the current legislation proposes, the threat of that so-called vacuuming effect for existing office buildings becomes negligible. To summarize, we strongly support the passage of Bill 040642. We believe 148 Whole (Hearing) - 040640, 040642 - 6/9/04 this bill, with the proposed amendments to the existing KOZ program, would better protect the City's tax base by narrowing the benefit to companies that are truly growing jobs or are willing to make significant investments in our City. With such modifications, I am confident that providing KOIZ benefits to the two projects I discussed are a great opportunity for the City to invest in our economic future. And now, if you'll permit me, Madam President, I'd like to also offer an amendment to Bill 040642. In addition to some technical adjustments, the amendment would allow for great flexibility to ensure that our bill will be compatible with the pending state enabling legislation. The bill currently requires state legislative approval of net profits tax and elimination of the long-term lease test as conditions to allowing the approval of new sub-zones for the Comcast site and the produce market site. 149 Whole (Hearing) - 040640, 040642 - 6/9/04 The amendment would narrow the site legislative requirement to only the new sub-zones as a condition for those sub-zones being approved. I'm happy to take questions. Thank you for allowing me to speak on this area.
Thank you. I don't know what page number it is, but I think you just gave us an amendment to Section 4; am I correct?
Madam President, I need to be excused from the Council chambers. As mentioned before, I would like to see Bill 640 continued to tomorrow at 1 o'clock, to take testimony from the administration, and anyone else. I want to be recorded as voting in favor of Councilwoman Blackwell's amendment to 642, but also want to be recorded as voting against 642, even as amended.
As I said, 150 Whole (Hearing) - 040640, 040642 - 6/9/04 I think you indicated the amendments in Section 4. Just above that, Section 4, there is one section regarding residency. In order to qualify each year for the exemption... (Loud talking.)
We are still trying to conduct business. ...from the net profits tax under this chapter, a person must be domiciled and shall reside in the zone for a period of 184 consecutive days. Somebody's going to have to clarify that for me.
Madam Chair, members of Council, my name is Richie Feder. I am Chief Deputy City Solicitor for Appeals and Legislation. The purpose of that provision, Madam Chair, is to conform the net profits tax exemption to precisely the same terms as the state has required for the wage tax exemption. As you may recall, to get a wage tax 151 Whole (Hearing) - 040640, 040642 - 6/9/04 exemption in a Keystone Opportunity Zone, under state law, you need to live in the zone. Now, I recognize there is probably nobody in this City who lives in a Keystone Opportunity Zone. But the state has required that as a condition for our approving the Keystone Opportunity Zone -- and this Council has done this on several prior occasions, with respect to several of the other -- with respect to all of the other zones -- one of the tax benefits that we've given as part of a Keystone Opportunity Zone is that if you live in a zone, regardless of whether you work there, if you live in a zone you get exempt from all wage tax. If you work in the zone, there's no 20 exemption from wage tax. That has been in Council legislation since 1998, recognizing that probably nobody does live in a zone. But the state insisted on that as a condition for approval of the zone. What we've done here is make the net 152 Whole (Hearing) - 040640, 040642 - 6/9/04 profits tax provision identical to the wage tax rule because it's our feeling that the net profits tax is simply nothing more than the wage tax component -- the net -- the tax -- the income -- the earned income component for self-employed people. It's the same as the wage tax. And so this would say the same thing. Net profits tax. You no longer would get an exemption from the net profits tax by working in the zone. You would get a net profits tax exemption by living in the zone, full well recognizing that there probably is nobody who actually lives in the zone. But that's what the state legislation would require us to do.
You know, it would almost sound as though you would have to live in the building in order to be eligible. The Chair recognizes Councilwoman Brown. Thank you.
Thank you, 153 Whole (Hearing) - 040640, 040642 - 6/9/04 Madam Chair. Good afternoon, Commerce Director and members of the administration. Thank you for your testimony wherein you give a lot of discussion to the number one test which is job creation. The other test, I believe, carries -- that should carry equal weight is the ultimate impact on the Philadelphia Public School System. So, over the end on of the testimony you do mention that you and members of your team, particularly the Revenue Commissioner, did do an internal analysis. However, no hard number is given, as a result of the outcome of that analysis. So over the 15-year life of the KOIZ, what would you determine the financial ramifications to be? And I asked that because I've heard numbers from 3 million to 25.6. The Center City Owners Association claim a total of 25.6. Could you speak to that, please? 154 Whole (Hearing) - 040640, 040642 - 6/9/04
Good evening. I'm revenue Commissioner Nancy Kammerdeiner. I have some charts here I can share with members of Council that provide the net results of the analysis that we have done. Let me just as a matter of introduction, while these are being passed out to you, give you an idea of how we conducted this analysis. You will probably recall that when the discussions about Keystone Opportunity Zones being applied in Center City began several months ago, there were several studies that were circulated. One of those was done by the Center City District, and it included a number of scenarios and assumptions that provided different mixes of activity, in terms of how the buildings would be filled, whether they would be filled by people moving from another Center City building to the new buildings, all coming from outside or some 155 Whole (Hearing) - 040640, 040642 - 6/9/04 mix in between. The Department of Revenue obtained a copy of the computer model on which that Center City District report was developed. And we have worked with that raw data. So what we're doing and what we're looking at is very similar to what many of you have already seen in the Center City District Report. We took their worst case scenario where a hundred percent of the building would be occupied by relocating tenants from other Center City buildings, and their best case scenario where their a building was occupied by an anchor tenant that moved from Center City, but the balance of the building was occupied by firms moving in from outside the City. We averaged those two, because we felt that the real truth was going to be somewhere in between those two extremes. And we also looked at the assumptions on which that study was based. And it was determined, after discussions 156 Whole (Hearing) - 040640, 040642 - 6/9/04 with a number of people in various areas, that what's called the absorption rate, the reuse of the buildings that people move out of, that was used by Center City District at that time, was too low, that the typical absorption of businesses into a building that's been vacated in Philadelphia has been at a higher rate. And so, we made an adjustment for that. We also looked at the difference between the current KOZ law, where the net profits tax is exempt, and what we are proposing in terms of having the nets profit tax taxable going forward. One other thing I'll mention. That study was done, including both the Cira Center and One Pennsylvania Plaza. But there was enough detail in the background there that we were able to separate the two buildings, because the nature of the tenancy in the two proposed buildings is different, because Comcast being a corporation isn't subject to the nets profits tax in the same -- excuse me -- in 157 Whole (Hearing) - 040640, 040642 - 6/9/04 the same way that the partnership that was the main tenant in the Cira Center. What I have distributed for you is a breakdown that shows over the years of construction and for the remaining years of the KOZ eligibility what the net result would be of the gains we would have from the increased wage tax from job creation, the losses we would have from the taxes that would not be paid during the life of the KOZ, and we looked at the net result of that in each and every year. The top portion of that chart is the combined City and School District, but we've separated it so that you can see that the impact on the City with the growing wage tax really goes away very, very quickly. But in the School District case, because they don't have the wage tax and it takes a while for use and occupancy tax to come back up in the buildings that were vacated in Center City, there are a few years that are negative. 158 Whole (Hearing) - 040640, 040642 - 6/9/04 But even there, you start to see with the tax mix that occurs on a City-wide basis, as a result of people moving back into the buildings that were vacated, and new growth that we have, we see a positive impact.
2 million advantage or plus for the School District. For the City on average in each year when you average out those losses and gains, it's about $15 million.
Let me do a follow up and ask... You discuss it at the top paragraph on . Does this include -- Does this figure include potentially depressed property values of 159 Whole (Hearing) - 040640, 040642 - 6/9/04 surrounding buildings? Would that be a task to be --
I don't believe the Center City District study took that into account in their initial characterization. To the extent that they did, we factored that in. But we didn't do a specific calculation on that basis. But as I indicated at the outset, we started with an analysis that had already looked at pluses and minuses of the various interacting taxes. But I don't believe they had factored in a reduction in real estate values of the Center City buildings.
Would you suspect that that is an important consideration when --
It could be. I know that in the years right after the One Liberty and Two Liberty buildings were built, there was a spin-off effect, but that need not always take place. There were other economic conditions 160 Whole (Hearing) - 040640, 040642 - 6/9/04 at the time. And I believe also right about that time we had the fire, the Meridian Bank Building. And having a burned-out building in the same neighborhood also had a deterring effect. So, your conditions at the time include a number of different things. And that's one thing I should stress here. These aren't accurate figures. These are based on a whole series of interacting assumptions, not one of which is a hard fact, particularly when you're looking out to 2018.
We've taken a lot of assumptions, and interacted those assumptions using a computer model. And this is our best guess, using very conservative numbers. I've had people tell me that the absorption rate should actually be much higher in this instance because you're looking at Comcast bringing in, according to their proposal, bringing in people from 161 Whole (Hearing) - 040640, 040642 - 6/9/04 other areas. So that you would be even less likely to have a movement of tenants from another Center City building into that building than you would if you looked at your model differently with someone who's not already making a commitment to grow from outside.
Again, I thank you for your testimony. And in no way to discredit the numbers arrived at by Kevin Gillen who said about million and Center 14 City's Owners Association which said 25, I 15 would lean heavily on the analysis done by 16 the administration. 17 So thank you for your testimony. 18
Excuse me. If I may, I was just told that there was, in fact, some provision made for a decline in 162 Whole (Hearing) - 040640, 040642 - 6/9/04 the assessed values in the downtown buildings when Center City District did that study. I stand corrected, and want to make sure you're aware of that. I don't know whether it was a full and complete adjustment, but there was some consideration for that.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Excuse me. Director Naidoff, I wanted to ask you a couple questions about your testimony. The first thought I'd like to raise with you is, on the first page you make reference to the schedule that we find ourselves under. And is it possible to actually have 163 Whole (Hearing) - 040640, 040642 - 6/9/04 for the members a copy of House Bill 1321?
Okay. And I guess the place where I'd like to start is, you talk about the schedule, the House Bill. Was this bill drafted as a result of provisions in that bill?
Bill 040642, was that bill -- Was this bill drafted as a result of the provisions in House Bill 15 1321?
We don't have it with us, but we believe it's in December of 2003.
You think House Bill 1321 was introduced in December of 2003. 164 Whole (Hearing) - 040640, 040642 - 6/9/04
And the bill in front of us today, when was that drafted?
Okay. And do you know why it was drafted at that time, as opposed to sometime closer to when House Bill 1321 was drafted?
Councilman Nutter, if I may, this bill as introduced is designed to track the state legislation as we anticipated coming out. Yesterday in Harrisburg there was an extensive informational meeting of a Senate committee that's considering HB 1321.
HB 1321 is not going to 165 Whole (Hearing) - 040640, 040642 - 6/9/04 come out of the General Assembly looking very much like the HB 1321 that was introduced. And so, although 1321 has been around since December 2003 or thereabouts, we're working off a moving target. We had been hopeful that we would know much better what 1321 would look like.
And what happens if this particular bill passes in either the form it was introduced or now you've handed up pretty much the same bill with a few amendments in it, if this bill is passed and House Bill 1321 is changed subsequent to this legislation possibly being passed?
Two answers. First of all, we are fairly confident that this bill 23 contemplates many, if not all, of the possibilities as to what 1321 will end up looking like. 166 Whole (Hearing) - 040640, 040642 - 6/9/04 But the precise answer to your question is there are very specific contingencies clauses in this ordinance, most of which say the ordinance only takes -- only works up to the extent authorized by the General Assembly. To the extent it's not authorized, this Council doesn't have the power to enact different conditions than the state gives it.
Well, I would -- I would think not. I guess what I am trying to figure out is, you go through the effort to at least lay out how we ended up where we are. And now you have there's a 90-day notification by the state. I guess I'm wondering whether or not such a bill with such contingencies could have been drafted some time ago, and we could have had at least the first part of a hearing about it, with the details that we knew at the time; not find ourselves in this particular situation. 167 Whole (Hearing) - 040640, 040642 - 6/9/04 And then, I guess to kind of wrap that up, notwithstanding all of that, City Council's summer recess precludes you from meeting the 90-day deadline. Is that somehow our fault now?
No. It's certainly not, and we apologize for needing to be before you on such short notice. It is... It's unfortunate that the bill in Harrisburg that we expected to move along at a quicker pace than it has really kept us from responding more promptly to you. And we apologize for not giving you more time to consider it.
Well, I appreciate that, but I guess the larger point is, I had asked you, unless there is some incredible action taken by this body, I think it's inappropriate to put in testimony that somehow, some way our advertised departure date would somehow leave the public or the business community with the impression that if there were some serious matter that this body had to take 168 Whole (Hearing) - 040640, 040642 - 6/9/04 up, that our quote unquote summer recess prevents from us exercising our duty and responsibility in an appropriate fashion, and that as a result because there is now this summer recess, we have to do this right now because this City Council wouldn't respond somehow to an emergency if necessary. I just think it's an inappropriate reference, and is not consistent with this body's activities.
Everyone knows when we're in session and when we're not in session.
Okay. Let's talk about the testimony. First, who wrote this bill?
Mr. Feder, let me say that if you ever do anything wrong, 169 Whole (Hearing) - 040640, 040642 - 6/9/04 and you find yourself out with the Commerce Director, rest assured you are probably going to jail because she's going to give you up real quick. (Laughter.)
Let's talk about , and go back to where Councilwoman Reynolds Brown was. The statement is the first issue is the effect on the City budget and in particular the School District. Now, the Councilwoman did ask you about that. And I listened to the response and I saw a two-page printout. But to be honest with you, I still have no idea what the answer is because I don't think there was a specific answer. So I'd actually like to hear an answer to the statement that you put out because I'm not sure what the sheet tells us, with regard to all of the benefits that a KOIZ provides. And so, what is the effect on the City budget or what are the -- what's the 170 Whole (Hearing) - 040640, 040642 - 6/9/04 value of the benefit that is being provided?
The value of the benefit that's being provided unfortunately exists right now in a very extensive computer model, and Revenue Commissioner Kammerdeiner is going to comment briefly about that. But the modeling itself, the computer material itself, will be available to you if you'd like to examine it.
I'm sorry. I didn't hear the last part of what you said.
Well, yes. I'd like to know what the value of the benefit is before there would actually be action taken on the legislation. I think that's the minimum amount of information we should have. Are you talking about what the Revenue Commissioner later refers to as is referred to as your own internal analysis?
The material that we 171 Whole (Hearing) - 040640, 040642 - 6/9/04 have submitted to you is the netting out effect. And what she will now address is how that was arrived at, and try to address for you in a very summary fashion the issue of the value.