COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE JOINT COMMITTEES OF THE WHOLE AND FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, May 24, 2003 12:00 p.m. - - - Bill No. 040255 PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN JUAN F. RAMOS COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 (Council members were not present for the following statements.) (Mr. McPherson entered Council chambers at noon.) 6
The Committee of the 7 Whole and the Committee on Fiscal Stability will be 8 recessed until 2 o'clock. 9 (The hearing recessed until 2:00 p.m.) 10
The Committee on Fiscal 11 Stability and the Committee of the Whole is going to 12 stand in recess until 3 o'clock. Councilwoman Blackwell's hearing on Century 21 is going to be moved to June 1 at 10:00 a.m. (The hearing recessed until 3:00 p.m.)
The Committee on Fiscal Stability and the Committee of the Whole will be recessed until 4 o'clock. (The hearing recessed until 4:00 p.m.)
The Committee of Fiscal Stability and the Committee of the Whole are in recess until 5:00. (The hearing recessed until 5:00 p.m.) 3 Whole & Fiscal Stability Hearing - 5/24/04
The Committee of the Whole and Fiscal Stability will recess until 7:00 p.m. this evening. (Recess to 7:00 p.m.) MR. McPHERSON: The Committee on Fiscal Stability and Committee of the Whole will be recessed until 8:00 p.m. (Recess to 8:00 p.m.) MR. McPHERSON: The Committee on Fiscal Stability and the Committee of the Whole are recessed until 9:00. (Recess to 9:00 p.m.) MR. McPHERSON: The Committee on Fiscal Stability and the Committee of the Whole are recessed until 10:00 this evening. (Recess to 10:00 p.m.) (The Committee of the Whole and the Committee on Fiscal Stability began at 10:50 p.m.)
Good evening, everyone. This is the public hearing of the Committee of the Whole. And I would ask 4 Whole & Fiscal Stability Hearing - 5/24/04 Mr. McPherson to please read the bill 3 numbers and the titles of the bills. MR. McPHERSON: Bill Number 040009, an Ordinance amending Chapter 19-1500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by decreasing the rates of the tax, by making technical amendments --
Councilman Cohen asked that we read a little slower. MR. McPHERSON: I'm sorry. -- by decreasing the rates of the tax, by making technical amendments, changing the effective dates for rate changes, and, repealing certain provisions, all under certain terms and conditions. Bill 040010, an Ordinance amending Section 19-2604 of The Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates, all under certain terms and conditions. Bill Number 040011, an Ordinance 5 Whole & Fiscal Stability Hearing - 5/24/04 amending Title 2 of The Philadelphia Code, entitled "City-County Consolidation," by removing the authority of the Board of Revision of Taxes to hear appeals and reassigning that authority, with the power, functions and duties of hearing and deciding appeals, from the Board of Revision of Taxes assessment, to a newly appointed independent City agency to be known as the Property Assessment Appeals Board. Bill Number 040012, an Ordinance 14 amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by amending the definition of "Net Income" to determine the net income of unincorporated businesses by allowing deductions of payments to certain proprietors or partners. Bill Number 040013, an Ordinance 22 amending Chapter 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes," by specifying a rate for tax year 2004, specifying that rates thereafter be 6 Whole & Fiscal Stability Hearing - 5/24/04 dependent on total taxable assessed values certified by the Board of Revision of Taxes. Bill Number 040014, an Ordinance 6 amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by providing a minimum number of estimated tax payments in the last six months of the City's fiscal year and authorizing additional estimated payments in the first six months of the subsequent fiscal year. Bill Number 040015, an Ordinance 15 amending Chapter 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes" to mandate a phase-in of equal percentages of the Target Tax Billings to be imposed upon lands and buildings for real estate tax purposes. Bill Number 040016, an Ordinance 22 repealing Section 19-2500 of The Philadelphia Code, entitled "Real Estate Non-Utilization Tax," effective January 1, 2005, all under certain terms and 7 Whole & Fiscal Stability Hearing - 5/24/04 conditions. Bill Number 040017... I'm sorry. Bill Number 040016, an Ordinance Repealing Chapter 19-2500 of The Philadelphia Code, entitled Real Estate Non-Utilization Tax," effective January 1, 1005, all under certain terms and conditions. Bill Number 040017, an Ordinance 10 amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes" by amending the definition of "Net Operating Loss" with respect to carryforward period for net operating losses. Bill Number 040018, an Ordinance 17 amending Chapter 19-1302 of The Philadelphia Code, entitled "Installment Payments" to provide for the Department of Revenue to accept payment of real estate taxes in four equal payments, all under certain terms and conditions. Bill Number 040019, an Ordinance 24 amending Chapter 19-1400 of The Philadelphia Code, entitled "Realty 8 Whole & Fiscal Stability Hearing - 5/24/04 Transfer Taxes," by amending the definition of "Value" to include deeds in lieu of foreclosure. Bill Number 040020, an Ordinance 6 amending chapter 19-1300 of the Philadelphia Code, entitled "Real Estate Taxes" by providing discounts and penalties related to the installment payments and new fiscal year billing, and to guarantee that payments are applied to current year tax first to avoid accumulation of additions and penalties.
Bill Number 040021, an Ordinance 15 amending Chapter 19-500 of The Philadelphia Code, entitled "Taxes and Rents-General," by providing for uniform time limitations on collections, examinations and assessments, under certain terms and conditions. Bill Number 040022, an Ordinance 22 amending chapter 19-1300 of The Philadelphia Code, entitled "Real Estate Taxes," by providing that no change by the Board of Revision of Taxes to the ratios it 9 Whole & Fiscal Stability Hearing - 5/24/04 uses to calculate assessed value shall be effective unless Council by ordinance 4 adjusts real estate tax rates so that such change is revenue neutral or unless Council otherwise approves such change by ordinance, all under certain terms and conditions. Bill Number 040255, an Ordinance 10 adopting the Operating Budget for Fiscal Year 1005. Bill Number 040256, an Ordinance 13 amending Chapter 19-1200 of The Philadelphia Code, entitled "Parking Tax," by establishing a rate of taxation on parking transactions for Fiscal Year 2005 and thereafter, under certain terms and conditions.
What is the purpose of the reading the title of each bill now? Because they're going to have to be reread and explained each time the bill 23 is presented. MR. McPHERSON: This was a re-advertised meeting of all the bills, to 10 Whole & Fiscal Stability Hearing - 5/24/04 make sure that in case of any break that we had, we had any technical problems. Bill Number 040257, an Ordinance to adopt a Capital Program for the six Fiscal Years 2005 to 2010 inclusive. Bill Number 040258, an Ordinance to adopt a Fiscal 2005 Capital Budget. Bill Number 040259, an Ordinance 10 amending Section 19-1801 of The Philadelphia Code, entitled "Authorization of Tax," to further authorize the Board of Education of the School District of Philadelphia to impose a tax on real estate within the City of Philadelphia, under certain terms and conditions. Bill Number 040260, an Ordinance 18 amending Chapter 19-1800 of the Philadelphia Code, entitled "School Tax Authorization," by amending Section 21 19-1804, entitled "Authorization of Net Income Tax," to further authorize the Board of Education of the School District of Philadelphia to impose a tax on net income from real property and tangible and 11 Whole & Fiscal Stability Hearing - 5/24/04 intangible personal property of residents of the School District of Philadelphia, all under certain terms and conditions. Bill Number 040261, an Ordinance 6 amending Chapter 19-1500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by establishing certain tax rates, amending the effective dates of various tax rate changes, and by amending the definition of Excess Growth Rate, all under certain terms and conditions. Bill Number 040262, an Ordinance 14 amending Chapter 19-1800 of The Philadelphia Code, entitled "School Tax Authorization," by amending Section 19-1806 to further authorize the Board of Education of the School District of Philadelphia to impose a tax on the use or occupancy of real estate within the School District of Philadelphia, under certain terms and conditions. Bill Number 040313, an Ordinance 24 amending Chapter 19-2600 of The Philadelphia Code, entitled "Business 12 Whole & Fiscal Stability Hearing - 5/24/04 Privilege Taxes," by making permanent and clarifying the pilot program under which a Job Creation Tax Credit will be given to certain businesses that create new jobs within the City of Philadelphia, all under certain terms and conditions. Bill Number 040397, an Ordinance 9 amending Chapter 19-1500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by decreasing in six stages the rates of the tax imposed upon certain low income persons, providing for refunds of excess taxes paid, and directing the Revenue Department to prepare forms for use by eligible taxpayers seeking such refunds, all under certain terms and conditions. Bill Number 040421, an Ordinance 19 amending Titles and of The Philadelphia Code, the "Air Management Code" and "Health Code," respectively, by increasing the fees or establishing new fees for various health-related licenses, permits, certificates, approvals and variances issued by the City and for various 13 Whole & Fiscal Stability Hearing - 5/24/04 inspections, examinations, reviews and other services provided by the Department of Public Health, all under certain terms and conditions. 10, entitled "Reinspection Fees," to amend the fee schedule for reinspections conducted by the Department of Licenses and Inspections for failure to comply with the provisions of certain technical codes, all under certain terms and conditions. bill Number 040423, an Ordinance 22 amending Section 11-203 of The Philadelphia Code, entitled "Sewer and Water Pipe and Other Underground Services," by increasing permit fee charges for breaking and 14 Whole & Fiscal Stability Hearing - 5/24/04 excavating of any paved or macadamized street, under certain terms and conditions.
And for the Committee on Fiscal Stability, Resolution 040276, Resolution 6 providing for the approval by the Council of the City of Philadelphia of Revised Five-Year Financial Plan for the City of Philadelphia, covering Fiscal Years 2005 through 2009, and incorporating proposed changes with respect to Fiscal Year 2004 which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority, pursuant to the Intergovernmental Cooperation Agreement, authorized by an Ordinance of this Council, approved by the Mayor on January 3, 1992, by and between the City and the Authority.
Thank you. Do we have any witnesses to testify? Miss Wilkerson.
Good evening. My name is Joyce Wilkerson. I'm Chief of Staff to Mayor John Street. With me today is Janice Davis, the 15 Whole & Fiscal Stability Hearing - 5/24/04 City Finance Director, and Secretary of the School Oversight; Phil Goldsmith the Managing Director; and Rub Dubow, the City's Budget Director. When we last testified in support of the City's five-year financial plan, subsequent to our last testimony in support of the City's five-year financial plan, the City has experienced a number of factors that have caused us to need to request an amendment to that financial plan. Last week we circulated to all Council members proposed amendments that reduced the projected revenues by $18 million annually, in order to account for the Gas Works not making its annual payment to the company. There also is a proposal to move back two years the repayment of the $45 million loan from the company to the City. In addition, there's one additional change that the proposed amendments make, and that would reduce by $4 million annually, beginning in FY '05, the interest 16 Whole & Fiscal Stability Hearing - 5/24/04 earned from the Water Revenue Fund. Those cuts in revenue are offset by cuts, across-the-board cuts, to most City departments, 3.5 percent cuts in most City departments, with the exemption of the Fire Department and those departments within the City that generate revenue for the City. That proposal, the proposed amendment to the five-year plan, and amendments to the Operating Budget were distributed last week. I have another copy I can submit for the record, but we would ask that those be considered by the Council. And I also understand that there may be additional amendments. And if possible, I'd like to have an opportunity to offer some comments on those at the appropriate time.
Very well. Do we have anyone else to testify? (No response.)
Seeing no 25 one, the Chair recognizes Councilman 17 Whole & Fiscal Stability Hearing - 5/24/04 Nutter. I'm sorry. I'm sorry. We have to go into a public meeting. This will conclude our public hearing.
We will now go into our Public... Yes. Sorry. Councilman Clarke.
Thank you. Madam President, real briefly, we received some numbers as a result of the interaction between the Administration and the Council, some of the Council's technical staff. And it speaks about the five-year... not necessarily plan, but the five-year plan and the dollar amount, in terms of the deficit for these next five years. And one of the questions is, given the potential significant number associated with the out years, particularly '09, where there's a number of $388 million, is there any corresponding expenditure reductions or offsets in revenue from any other place that we've identified or...
We don't have a copy of that. Mr. McPherson just 18 Whole & Fiscal Stability Hearing - 5/24/04 went in to get his copy. (Pause)
Okay. Councilman, do you mind repeating your question, please?
Yeah. I was just referencing the document that we were given, that lays out the reductions as a result of particularly Bill 9, 10 and 12, and subsequently the potential deficit. And it's all relative to, you know, what set of assumptions you agree with, but on the out years and particularly in '09, it references a deficit of around $388 million. And the question was, do we have any information that talks about expenditure, reduction or increases in revenue to offset that substantial number?
Yes. 19 Whole & Fiscal Stability Hearing - 5/24/04
In the outlying years there's a deficit associated with those numbers --
-- that I think we all agree with we that have no 8 information on...
Okay. All right. I just wanted to get clarification on that.
Yes, Madam President. Prior to going into our Public Meeting, I'd just like to take the opportunity to make a statement. 20 Whole & Fiscal Stability Hearing - 5/24/04 When we first adopted our rules in January, as you know, there was a great amount of concern and argument back and forth about whether or not we should do them, and there are still some issues of reservation that I have. But I always like to take the opportunity to thank you personally, along with Majority Leader Blackwell and Minority Leader O'Neill for the way in which you conducted yourselves over the past few days, in sharing information with us and keeping us in the loop, in bringing the Council together as a body, allowing to us deliberate, allowing us to have our opinions and to express them, and whether or not we agree with the way in which -- whether we agree with people's votes today on these bills, I think that we really conducted ourselves as a deliberative legislative body, and we have yourself and Councilwoman Blackwell and Councilman O'Neill to thank. And I want to thank you for it personally. 21 Whole & Fiscal Stability Hearing - 5/24/04
The Chair recognizes Councilman Cohen. Your light is on, sir.
Yes. Thank you, Madam Chair. Generally speaking, tax programs when they're sought to be amended, seek to shift the tax burden from one group of people to another group of people. Yet I haven't heard any identification of those who are going to be winners and those who are going to be losers in this discussion. Is there anything that causes that unusual occurrence?
...some input on that issue. I think what we have is a shift. And I think one of the things 22 Whole & Fiscal Stability Hearing - 5/24/04 underpinning the Tax Reform Commission is a shift from what is viewed as an over reliance on the wage tax and the business tax on to the property tax, that it is the sense of the Tax Reform Commission that that will make Philadelphia more in line with other jurisdictions, and therefore more competitive. And so I think as you work through the tax reform proposals, and the ones directly in front of you today, you'll find that it's a decrease in the business taxes, a decrease in the wage tax. And when Councilman talked about some of the out years, I think what we'll see is the deficit being made up through growth in the property tax, and if not an actual increase in the rate of the property tax. The Administration has also proposed an increase in the parking tax, as a way of trying to offset the lost revenues. And so, I think you do have winners; you do have losers. 23 Whole & Fiscal Stability Hearing - 5/24/04 The Administration over time has supported some of these measures. There are challenges with our property taxes, but it's our position that the set of bills before you go overboard, that what we have is a City that will be left with inadequate resources to maintain services throughout the City. When you reach the point that at the end of the five-year plan you have a $242 million deficit, we're going to live in a City that's substantially different from what it is today. We won't be in a position of providing the quality neighborhoods. We won't be in a position of maintaining the Clip Program. We won't be able to maintain high level Police Department services, the Recreation Department. There will be virtually no department in the City that won't be impacted dramatically. You cannot take $242 million out of a budget in a single year, which I guess is 24 Whole & Fiscal Stability Hearing - 5/24/04 what we would be looking at by FY '09, in order to accommodate the tax changes that are proposed.
Well, having dealt generally with the groups that will benefit and the groups that will lose, how otherwise would you characterize them? Is business gained? Do private residents gains? Who gains?
I think what you have is, you have business taxes decreasing. I think that you had -- And to the extent that some of those businesses are non-resident businesses, what you find is a shift onto Philadelphia residents. You know, one of the things that I think the City has to grapple with is the recommendation by the Tax Reform Commission that we rely less on the business tax, less on the wage tax, and put more on to our property tax. It does a -- what may be a very thorough review of Philadelphia taxes, in comparison to other jurisdictions, and 25 Whole & Fiscal Stability Hearing - 5/24/04 finds that we have lower property taxes. I think what's unusual about Philadelphia is that we have such a high incidence of low income and moderate income homeowners. And so, as the tax burden shifts onto property tax, you'll find that, you know, the residents, the senior citizens are going to be more heavily impacted.
How about out of the City residents? How do they play a role in this? Do they benefit? Do they have more taxes to pay or less taxes?
I think in the long run they'll probably have higher taxes. I think that they'll -- To the extent that we have a degradation in City services, it's going to impact Philadelphia residents.
Well, do you know; of the current tax revenue received by the City, what percentage is paid by out-of-town residents? Are there any studies or analyses of that?
Mr. Dubow can answer Whole & Fiscal Stability Hearing - 5/24/04 that.
On the wage tax, it's approximately two-thirds resident, one third non-resident.
Mr. Dubow, in your experience, would you say the current system is more friendly or less friendly to residents, as compared to business owners, than the new proposals will be?
Well, the new proposals would probably be a bigger benefit to businesses than to residents. So, in terms of a shift, if there's some kind of shift, it would make it -- it would tilt it more towards businesses than the current system.
Is there any statistic that shows that about 40 percent 27 Whole & Fiscal Stability Hearing - 5/24/04 of income from business taxes come from out-of-state residents, out-of-state businesses?
Thank you. The Chair recognizes Councilman Clarke. Councilman Clarke, your light's on.
I'm sorry. I'm sorry. Madam President, just briefly, Has the Administration identified any potential cuts, a reduction in the expenditures associated with the five-year plan as we had before us? I believe the document that I'm referencing now is the one that has the out year of $388 million deficit. Is there...
There are a number of... This was generated off the information shared by Council earlier. There are a number of proposed reductions, 28 Whole & Fiscal Stability Hearing - 5/24/04 some which the Administration supports. There are substantial problems with a number of the reductions proposed. For example, there is a proposal to eliminate some of the spending in the Inspector -- for the Inspector General. We had in the Mayor's Office funding both for Class 100 for the Inspector General but also a $250,000 Class 200 item. As I testified earlier, that is a duplication of funding that could be eliminated. There are other much larger proposed reductions with which the Administration takes issue. For example, there is an $11.6 million projected reduction in the fringe benefit line item. It would be $11.6 million annually. That, I believe, allows for growth of only 4.5 percent in the City's fringe benefit line item. And what we know is that those fringe benefits tend to be increasing in double digits, as opposed to 29 Whole & Fiscal Stability Hearing - 5/24/04 four-and-a-half percent. When we got our award during the Firefighters arbitration last year, the fringe benefits grew by 37 percent. So, I think that it's unreasonable to expect this kind of savings. It's unreasonable to assume that we're going to have this kind of reduction in our fringe benefit line item. And being wrong about an item like that has profound impact on the City's annual budget. And it compounds, when you look at the five-year financial plan. We also would take issue with a number of the items. For example, there's a savings of $2 million annually that's proposed from prison overtime. Prison overtime is not one of these items that the City can control unilaterally. Our prison overtime is driven by prison population that we also don't control unilaterally. And so, to assume $10 million over the five-year plan as a result of prison overtime is probably over -- is probably 30 Whole & Fiscal Stability Hearing - 5/24/04 unrealistic. There's also a proposed $8.9 million savings in FY '05, as a result of police overtime and delaying of class. We think that part of that might be appropriate because it is likely that we will delay a class. About $5 million of that we would could support, but the balance of it is probably an unrealistic savings. The Administration has already done a great deal to reduce overtime over the last several years. Last year, I believe, overtime was about $134 million. We've taken that down to about $117 million. We have additional savings from overtime projected in the out years. And I'll ask Janice to talk a little bit about how that impacts --
Before you do that, I'm going to get back. I think you probably misunderstood my question.
And that was all good information, but it wasn't necessarily 31 Whole & Fiscal Stability Hearing - 5/24/04 what I was seeking at the time. I guess my question centers around the document that shows the cuts in the out years, '06, 64. Then it ramps up to 134. Then it ramps up to 240, then up to 388.
What strategy will the Administration use on trying to fill those gaps? Will you focus primarily on reducing expenditures, i.e., layoffs, cuts? Or do you think that it's more prudent to look at the possibility of increasing real estate, i.e., the rate as called for by the budget based real estate system? Or do you...
Or is there any assumption that the revenue growth associated with the tax cuts will be as aggressive as this particular schedule, in terms of filling that particular budget gap?
I think what you're 32 Whole & Fiscal Stability Hearing - 5/24/04 probably going to find is some of both. And I'll ask Janice to comment on that in more detail.
I think what we have to bear in mind is that we have to present a balanced five-year plan, balanced over all five of the years.
To reach the sorts of numbers that we're looking at here, we would have to rely on a combination of very deep cuts, and then in some way allowing the rate of growth in real estate to take place and/or seek a rate increase.
I think what we're finding in a number of the City departments is that we really are down to bare bones. In the proposed amendments to the five-year plan, we don't propose any additional cuts to the Fire Department because we don't think that we can maintain industry standards in our response time if we were to take any additional cuts. We don't propose any cuts to those 33 Whole & Fiscal Stability Hearing - 5/24/04 parts of government that are revenue generating. And so what we have are increasingly steep cuts being taken from just a few City departments. And I think what we're going to find is that those departments are going to be devastated; and that in order to balance the budget, we'll have to increase revenues. I think it's going -- You know, if we -- If what we do is consistent with what the Reform Commission proposes it will be revenues taken out of property taxes. And if it doesn't -- If that doesn't grow fast enough, we would need to have a rate increase.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Just a quick question. Miss 34 Whole & Fiscal Stability Hearing - 5/24/04 Wilkerson, we've heard a fair amount about this concept of the shifting in tax responsibility. Is there any bill presently that changes the real estate property tax rate in front of us?
Okay. And is there any action by this Council that would automatically result in a quote unquote shift in burden to real estate property taxpayers?
No. I think that's one of the problems. I think that's one of the reasons that, you know, we end up the five-year plan with a $242 million hole, is because there is not adequate provision being made for the lost revenue from the decrease in the property -- from the decrease in the wage and the business tax. The Tax Reform Commission was not just a tax reduction commission. The Tax Reform Commission, in fact, proposed reforming taxes, shifting the complexion of 35 Whole & Fiscal Stability Hearing - 5/24/04 Philadelphia's taxes away from the business tax, away from the wage tax, and onto three other taxes. It talked about the amusement tax. It talked about the parking tax. And it talked about the real estate tax. It said clearly that the real estate tax may grow sufficiently, we have to allow it to grow sufficiently in order to make up for the lost revenue of the business tax, but it was very clear --
Well, real estate taxes have been growing over the past few years, haven't they?
And we've been capping that. I think what the Tax Commission makes clear is that we have to --
You've never capped the real estate tax, except for an action by the BRT which was probably 36 Whole & Fiscal Stability Hearing - 5/24/04 outside their authority, but that will be a separate discussion. There have been no 4 capping of real estate taxes over the last 12 years.
What we have done this year, as you said, we have a cap in place on the assessment increases. But what it makes very clear is that you have to allow these taxes to grow, that in other jurisdictions the real estate tax accounts for up to 40 percent of the -- 40 percent of the taxes collected. And we have -- We have about half of that.
All right. And in those communities are they growing and flourishing or are they losing population and businesses?
I think it's across the board. I think the other thing you have happening in Philadelphia that you don't necessarily have in other jurisdictions is that an unusually high incidence of home ownership among elderly. I believe that 37 Whole & Fiscal Stability Hearing - 5/24/04 figure is someplace in the neighborhood of 76 percent, is what the Action Alliance indicated the other day. We also have an unusually high rate of low income home ownership. And I think that as --
And we also have an unusually high tax burden, as compared to any other major city in the United States of America, right?
I mean, we have a number of unusual things here in Philadelphia.
That's right. I think the challenge is, how do we close the $242 million gap in order to have a balanced five-year plan, which is what --
I understand. What's the impact of the proposed bills in front of us for the upcoming fiscal year? 38 Whole & Fiscal Stability Hearing - 5/24/04
The Administration has taken a look at Bills 9, and 12. 4 And the cost in FY '05 is $11.77 million. 5
Okay. And the 6 current budget in front of us is how much? 7
The current budget 8 in front of us is in excess of $3 billion. 9
Okay. All 10 right. And there have been other decisions made recently with regard to... which had nothing to do with this City Council, with regard to PGW and the proposed removal of the Water Revenue Reserve Fund that have already caused financial problems; is that correct?
You're welcome. Are there any other questions or comments from members of the Committee of 39 Whole & Fiscal Stability Hearing - 5/24/04 our witnesses? The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. Clarity of the record, Chief of Staff Wilkerson. You just stated in your testimony $284 million gap over the five-year plan?
Yes. $242 million. These numbers are based on the numbers City Council presented earlier this evening. There are a number of items that are -- that are proposed as either reductions or that are proposed as reductions with which we take issue. But just based -- Assuming all those things are feasible, you still end up with a five-year plan that is $242 million short of being balanced.
And you're saying these are the figures -- you arrived at that figure because of the information provided by Council versus the figure you 40 Whole & Fiscal Stability Hearing - 5/24/04 state in your five-year plan, which is $834 million. That's what's stipulated here in the five-year plan on .
Yeah. There are two different things. The 834 was actually the five-year plan projected deficit that we looked at when we started the '04 to '08 plan. We're talking about now, we say $243 million is, there were a set of proposals that are contained in the bills that you will be voting on tonight, that had some revenue measures and expenditure measures. And when we ran those through a five-year projection, they came up with the $243 million gap. So... And that's where we are, based on the bills that you're looking at tonight.
Chair recognizes Councilman Goode. 41 Whole & Fiscal Stability Hearing - 5/24/04
Thank you, Madam President. So, Mr. Dubow, you're saying last year's five-year plan you identified the $834 million deficit, but because of the proposals before this Council right now you identify a $242 million deficit?
Well, we had a plan that before, when we started our plan process last year, it had a gap of $834 million. But before we brought it to Council, we took actions to bring it into balance. But what I'm saying --
Particularly compared to $242 million figure that also provides tax relief that may provide economic growth.
But the $834 million number was at the beginning of a process. And we had time. We went through and figured out how to balance it. We're 42 Whole & Fiscal Stability Hearing - 5/24/04 talking about $243 million.
I might suggest that a $242 million figure is the beginning of a process. Thank you, Madam President.
Well, we're only... I would disagree because we're supposed to have a budget passed by May 31st or we need to have appropriation power by July 1st.
We're referring to the deficit of the five-year plan. And we were comparing last year's identified deficit with the deficit identified as a result of the proposal before City Council right now. And your answer was that last year $834 million was the beginning of a process. So while it was astronomical, we worked it out. And now you're suggesting that, with the prospect of tax reform, the $242 million deficit in the five-year plan, it can't be worked out. 43 Whole & Fiscal Stability Hearing - 5/24/04
No. What I'm saying is that we actually presented a set of ordinances and proposals that showed that it was balanced. And now you're being asked to vote on a set of ordinances that don't show how it will be balanced.
So you're suggesting that last year's five-year plan you balanced an $834 million deficit?
But came to Council this year with a $227 million deficit?
No. We erased the $227 million deficit before we brought any ordinances to Council.
So the $834 million deficit identified last year was 44 Whole & Fiscal Stability Hearing - 5/24/04 not that much larger in your mind than $242 million, and you were able to resolve a $227 million this year. I'm really not understanding clearly your math.
Part of the reason we identified a $227 million deficit in next year's budget, potentially, was because of flat revenue growth. So if you identified 834 last year, you still experienced a flat revenue growth. And you only expect a $242 million deficit over five years, through enacting comprehensive tax reform that doesn't seem like a large number. But Thank you, Madam President.
Thank you. Are there any other questions or comments from members of the Committee? (No response.)
Seeing none... The Chair recognizes Councilman Cohen. 45 Whole & Fiscal Stability Hearing - 5/24/04
I'm wondering whether the City saw the piece of literature put out by the Committee for Youth and Children. Did you see this yellow card? Maybe Councilman DiCicco would turn it over to Joyce Wilkerson. I'd appreciate if you would read the items and tell me how people do you think react to something like that? I'm not saying that you're going to agree with what you read, but please read it for a minute because I have questions to ask you about it.
Okay. The PCCY budget ledger, balancing the City budget in favor of Philadelphia's children and families. If Council called on the sports teams to postpone away $6.8 million 46 Whole & Fiscal Stability Hearing - 5/24/04 proposed for upkeep of the new stadium, the City could use the money to support services to children and families, $6.8 million for stadium upkeep or $1.5 million back to the library, $3.1 million back to the recreation centers, $2.2 million back to the Art Museum.
Now, may I ask you to stop at that point? What does that do to the image of Philadelphia? That is pretty much the same thing, indicating the terrible need that exists for children and youth, how little money is really required to give them a much higher level; that when it comes to the business items, that the City takes care of those needs; but when it comes to children and youth, the City doesn't. And that's what's so troublesome about balancing a budget on the backs of children and youth, and why it's so bad for the City to be doing it. Aren't we shortchanging our kids?
I think what this 47 Whole & Fiscal Stability Hearing - 5/24/04 Administration has attempted to do is to strike a balance. I think the commitment we've made to children and neighborhoods is probably unprecedented. We have the NTI initiative. We have funds going into increase after school. We've -- We've, with the support of City Council, increased funding for public education, a way that really is unprecedented. At the same time, we understand that there is a need for tax reform. And so, in the budget transmit by the Mayor, budget and five-year plan, there's over $400 million in tax reform. But there has to be enough in order for us to maintain quality services. We've got to be prepared to invest in areas like northern -- North Delaware River, Penn's Landing. We have these wonderful assets in the City that we have to be positioned to develop. And it takes money to do that. I 48 Whole & Fiscal Stability Hearing - 5/24/04 think we -- you know, we have made difficult decisions, but have tried to strike a balance that allows us to address both services, tax reform, and stimulating the economy moving forward.
And you're not concerned at all that this indicates an imbalance in the City's distributions of goods and services? You talked about what you've done in Neighborhood Transformation. (Fire alarm sounds.) (30-minute recess.)
We're back in session, please. The Chair recognizes Councilwoman Miller.
Thank you, Madam President. I do have one question of the Administration.
Okay. Miss Wilkerson is approaching the table. 49 Whole & Fiscal Stability Hearing - 5/24/04
Hi. Good evening, Miss Wilkerson. I have a question that's just been bugging me a little bit. With the tax reform proposals, particularly those that eliminate the wage and the business tax, in the five-year plan it says that 62 percent of our general revenue -- General Fund revenues come by way of taxes. Has anyone given you any tangible suggestions on the alternative ways that we can find money? Because people keep saying, oh, there's money; you can find money. Sunday I was looking at issues in -- No; Inside Story. And, of course, they were discussing the tax reform proposals. And someone on that show also said, oh, it's okay to cut it; they'll find monies. And I guess what makes me nervous is that my District is a District that really needs core services. And I don't want to see in Philadelphia that we shift the 50 Whole & Fiscal Stability Hearing - 5/24/04 burden of taxes from one group to another group. And I do believe that we... And I've said this for a couple weeks now, that I don't believe that we've had enough time to really evaluate and assess the... Well, we've certainly had enough time to evaluate or to read the Tax Reform Commission's report and the good breakdown that they gave us. But I don't think we've had enough time to really look at how it actually impacts our ability to operate the City and keep the service levels where it needs to be. However, maybe I don't know everything. And I just wanted to know if anyone has given you or anyone from the Administration real suggestions on alternative ways that we can generate revenue in the City without the key taxes.
Yeah. The Tax Reform Commission had a number of proposals in it. And many of them have been 51 Whole & Fiscal Stability Hearing - 5/24/04 incorporated into our budget in our five-year plan. For example, they had a whole host of fees that we ought to take a look at increasing. And some of the legislation before you today relates to those fees. There were proposals to improve enforcement. We have for years been working with L & I. L & I now has more inspectors. They've been cross-trained. They have the capacity to bring in additional fees. We have... You know, there were proposals that we sell the gas company. There were proposals, you know, that the Airport be sold. So we've taken a look at all of these proposals. We've got a number of proposals incorporated into the five-year plan. Naming rights is something that the Administration actually pursued, and it became a part of the City's five-year plan last year. 52 Whole & Fiscal Stability Hearing - 5/24/04 So we've done -- we've done most of if not all of the proposals that are feasible. And we've also had a number of initiatives by the Administration that take a look at restructuring how we do services. And so we've got the administrative cluster initiative, that is reducing the -- you know, the administrative services throughout the City, so that each department no longer has its own back -- back operation -- back room operation. It's done in -- for clusters of departments. And we've saved about... We project to save about 400 positions, once we complete, fully complete that initiative. So, we've been working diligently on a number of the reform measures. And Phil, you had wanted to...
Yeah. I would like to say, if I may, as Chief Operating Officer of the City, and also as the City's Chief Emergency Officer... I've been 53 Whole & Fiscal Stability Hearing - 5/24/04 silent tonight, but I can't remain silent because I think I have an obligation. And that alarm going off, I think, sort of underscored some of the things I want to say. As I look at... There's a hidden tax. And a hidden tax is what this is going to do to our services. And to get to Councilman Cohen's question of the shifting from one group to another, there is a shifting. There's a shifting of services that are needed and required and desired by the citizens of this City. They are not necessarily the same people that will benefit from a wage tax reduction or a business tax reduction. And that's not to say those reductions shouldn't happen. But they have to be put in measure of the consequences. I've looked at this budget. I have many, many years of extensive management experience, both the private and public sector. I've been a consultant. I know 54 Whole & Fiscal Stability Hearing - 5/24/04 the difference between consulting reports and reality. I know how difficult it is to do things in the public sector, much more difficult than the private sector because of our union rules and our Civil Service rules. We are coming dangerously close to impacting our public safety core services in the City. It may not be someone that wants to visit the Art Museum on a Sunday or necessarily care about bulk trash pick-up on a Wednesday, because they may not live in the City. But I will tell you, not as a threat, but as a reality, because I think we have to talk about reality, the consequences of doing a budget that will not allow us to do the basic core services -- They may not care about snow cleaning in every street in the City, if you don't live in the City. But I don't think we can just in a 55 Whole & Fiscal Stability Hearing - 5/24/04 vacuum talk about taxes. I think we have to talk about our services. And I find it ironical that in many places in this great City where many of these Council people are, where we have exciting things going on, whether it be Old City District or whether it be in Manyunk, that require extra police protection. And what we are doing is reducing overtime, we're reducing our staffing levels in the Police Department, we are affecting major core services. And I really ask this Council to think long and hard about the consequences of what we're doing because I for one am very concerned about how we do this. You take the Fleet Management Department. The Fleet Management Department has lost 20 percent of its staff in four years. The acquisition budget has gone from $14 million, and we're going to take it down even more to $7. We had a consultant come in here and 56 Whole & Fiscal Stability Hearing - 5/24/04 say that to just stay on our normal maintenance schedules, we have to be at significantly higher than that. Now, we can do it with less than what that consultant said. But we have to remember, we're talking about maintenance and upkeep, not of personal sedans, none of our personal vehicles. We are talking about the upkeep and the maintenance of our police vehicles, our EMS units, our trash compactors, the vehicles that allow this City to get the job done. And that's just one example of what I think that we're walking through a precipice. And I don't mean to over blow because I think I can walk around this City like everyone and say, boy, why are we doing this and why are we doing that. But we're getting real close to the edge, and I just want everyone -- I could not leave this chamber's tonight without expressing myself, because ultimately I have the responsibility to provide City 57 Whole & Fiscal Stability Hearing - 5/24/04 services and to provide emergency services. I'd ask you, how many times do you think President Bush and John Kerry are going to be coming to the City in the next four months? That's police protection.
And yet, we are just willy-nilly cutting police overtime. We have a District Attorney's Office that's getting increased money and has much to do with our court overtime, more to do with our overtime than the Police Department. So, in our rush to try to improve the business economy of this City, and as a former business person, all of which I applaud, I say we also have to be looking at what it's going to do to our residents day in and day out. Thank you.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam President. 58 Whole & Fiscal Stability Hearing - 5/24/04 But actually, Managing Director Goldsmith's answer goes exactly to the question I wanted to pose, which has been touched by Councilwoman Donna Reed Miller. We've heard that arts and culture, recreation centers are not core services. All of us have expressed our discontent with that prospect. And I was curious to know, given the existing tax cuts already in place, what core services, as you define them, Managing Director, are already being impacted. And you've mentioned Fleet, above the 10 percent level, currently at 20 percent level.
Well, I think our Streets department, which I think is the one department that impacts each and every Philadelphian, is going to be cut. Our Health Department is going to be hurt. I mean, I think we just have to go across -- across the board. We're already doing something with 59 Whole & Fiscal Stability Hearing - 5/24/04 the Fire Department, which I think makes sense because we're adding -- we're adding where needed, and we're talking away where we think that there's less need. That's the type of stuff we should be doing. But to force us in a position of an across-the-court -- across-the-board cut to balance a budget, based on a hope and a dream, I think is a mistake. And I must say when I hear about business growth, and so forth, I have to go back to a previous job I had, which was former Chief Executive Officer of the Philadelphia School District. And I remember all the commotion about bringing Edison in here and privatizing. And I met with those business communities. Well, they didn't have a plan. They didn't know what they were doing. But the business community said, well, it can't get worse. It can't get worse than what we have. Let's just throw it over to this company that's been 60 Whole & Fiscal Stability Hearing - 5/24/04 untested, untried. And I think we're about ready to do the same thing. We are going on untested, untried domain here, on the hopes that it's going to bring growth and it's going to bring this... And I say, what I think we need is a balanced approach. That's what we did at the School District. We didn't privatize the whole thing. And what we got instead was Paul Vallas, and we got some EMOs in there, and it was a balanced approach. And that's what I think we need here, a balanced approach. And I think that's what --
I'm sorry. The Chair recognizes Councilman Goode.
Thank you for your testimony. Would you characterize your statements at the point of discussion of Edison coming in, and the talk about a 61 Whole & Fiscal Stability Hearing - 5/24/04 state takeover, state partnership, as defending the status quo, then?
Would you characterize your statements at the time, as former C.E.O. of the School District, that Edison was coming in or there was a proposed state takeover, state partnership, would you characterize your statements as defending the status quo at that point?
I did not feel I was defending the status quo at all. No, not at all.
With all due respect, I believe that the statements at the time were that we were investing new money, we were turning the system around, that things were on the right track. And that was not the case. Because there was a state partnership, because there was a School Reform Commission, because it was new leadership in Paul Vallas, there's a difference. 62 Whole & Fiscal Stability Hearing - 5/24/04
Well, I think that there is a difference. And I think the difference is because we did not go to the extreme. And the extreme was, if you recall at the beginning, it was to bring in this private company that had never been tested or never been tried, and to take over the whole issue --
This issue was not just Edison. The issue was also whether you're going to keep the status quo.
And we had to get rid of the status quo in order to change the School District. And we have to change the status quo now. Thank you, Madam President.
I think we do have to change the status quo. And I think some of the tax reductions we have and maintenance of core services, some of the 63 Whole & Fiscal Stability Hearing - 5/24/04 other things we're doing in the City will do that. But I would like to at least see some empirical evidence, that before we go through this wholesale, you know, reduction of services or whatever it's going to take to do this, be some empirical evidence that this type of, you know, tax reduction process is going to bear fruit in the near future. I've never seen any empirical evidence like that. It hasn't worked on a national level. And I don't know where it does work. And I think that to say that it's the tax structure that's driving people away from Philadelphia, I think is an overly simplistic, unproven type thing. But that's my own personal opinion.
Thank you. The Chair recognizes Councilman Mariano.
Madam President. 64 Whole & Fiscal Stability Hearing - 5/24/04 This is for whoever thinks they can answer this one. What happens with the City workers' raises? Are they automatically knocked out of the box now, the 47, 33?
There are no raises provided in the budget or the five-year plan. This... You know, normally we would end up trying to find efficiencies in order to fund a contract. I think it's unlikely that we will get through negotiations with all zeros. It's clear that the arbitrator's not going to award a union all zeros and no 17 change to the health and welfare. I think we are going to be back here within the next several weeks, talking about, you flow, how are we going to close the gap as a result of the labor contracts. PICA has already indicated that, you know, that if it doesn't have a budget in a timely way, that we'll have to amend the financial plan even before the contract 65 Whole & Fiscal Stability Hearing - 5/24/04 negotiations are concluded, to reflect what it is we have to put out, in order to reach agreement with the unions.
July 1. We're already in arbitration with the F.O.P. That will conclude probably next month some time. And about 30 days after that we'll have an award from the arbitration panel. When the Firefighters had their arbitration, the arbitrator awarded a 37 percent increase in the health and welfare benefits. And I think that we're going to find ourselves right back here, grappling with numbers, that are even more distressing than the deficit, the $242 million deficit we're looking at now.
So if District Council 33 is on strike, that means the trash doesn't get picked up about July -- when my birthday rolls around, about July 20th. And then, the rec centers are going 66 Whole & Fiscal Stability Hearing - 5/24/04 to be closed anyhow, possibly, if we're going to forecast doom and gloom. The policemen will still be out on the street because they have binding arbitration. The Firefighters are July 1st, too.
Within months we 9 will have negotiated with all of the 10 unions. 11
That's a 12 good -- This is going to be a fun summer 13 around here, I would suspect, if the basic 14 services aren't provided for by the City. And then we worry about eroding the tax base. If that goes on for about two weeks or a month, we'll see how fast the tax base erodes. Thank you.
Thank you. The Chair recognizes Councilman Cohen.
Thank you, Madam Chair. Mr. Goldsmith, you make a very good effort to explain the circumstances of the 67 Whole & Fiscal Stability Hearing - 5/24/04 City and your good feeling about the need to provide services. But really, your position would be so much stronger had it not been for the fact that the Mayor, on his own, without consultation with City Council, decided on the program of Safe Streets, on the loans to the schools, and NTI, without any discussion with City Council. How do we know now that those expenditures were the wise way to go? If he had involved City Council, it may well have been we could have had the same kind of programs but with a much less costly base to them. We would have helped finance them. But instead, the Mayor decided, this is the direction we should go, and he did it on his own. Then you come and you talk to us about you hate to see us in this position. Well, if the money hadn't gone to... We still don't know where the money came from. I haven't the slightest idea where 68 Whole & Fiscal Stability Hearing - 5/24/04 Safe Streets money came from. Do you know where?
Well, I thought under the Home Rule Charter, we had something to do with that. But we didn't in real life. We didn't know where it was coming from. Nobody discussed it with us. So let me just say to you, we appreciate what you've done all these years, and the spirit of independence and integrity you've shown over the years. But every bit of our work would be so much easier if there were full cooperation, instead of the Mayor going his way and compelling City Council to deal with the after effect. Thank you, Madam President.
Councilman, I 69 Whole & Fiscal Stability Hearing - 5/24/04 understand your point. And I think... I guess what I would say is, I think we have to look to the future, not the past. And what happened, and I guess what I'm trying to say is that we all take a sobering look at the present and the future, the implications, I mean. I think you always have to ask what are the implication of what we're doing. And I would hate to think that we were going to do something because we didn't like what the Mayor did last year or two years ago or three years ago. I think we have to look to the future for the people of this City and work cooperatively. But I'm just concerned. And I have my own perspective -- because I'm the Chief Operating Officer -- about how we handle services in the City. And I think we all agree in this room we wish we could do better. I can guarantee you one thing: We can't do better if we have less and less. And 70 Whole & Fiscal Stability Hearing - 5/24/04 that's what concerns me. We live in a very interesting age right now. And we never know when we're going to be called for any type of thing. And I just would say, you know, we can keep on looking backwards at what the Mayor did or what the Mayor didn't do. I think we have to look forward and make sure we're all doing the right thing together. But that's my own feeling on it.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. I'll be real quick. Mr. Goldsmith, two things you said kind of piqued my interest. First, I was somewhat surprised when you said early in your commentary that the majority of the benefit of the main tax bills would not benefit Philadelphians, that they would benefit some other group of people. Under what set of circumstances 71 Whole & Fiscal Stability Hearing - 5/24/04 would a cut in the resident wage tax not benefit most Philadelphians or cut in the business privilege tax paid by those same businesses that may assist them in growing or expanding their business? What would possess you to say that these cuts would not benefit Philadelphians?
Well, if I said they didn't -- they wouldn't benefit Philadelphians, I did not mean to say that. Of course they would benefit Philadelphians. What I was saying, that you have to look -- in addition to the benefits of the tax reductions, you also have to see who uses City services. I think by and large, while it's true that people that come into our great City --
They're the same people that are paying the taxes, right?
They're paying some of the taxes. They don't necessarily pay all of the taxes. So I think that there 72 Whole & Fiscal Stability Hearing - 5/24/04 are certain services that our residents depend on here, that a visitor would not depend on, only because they don't require their trash to be picked up in Philadelphia or they may not be as concerned about neighborhood police protection or snow removal or whatever.
So you're saying -- If I heard what you said correctly, you're saying that that's not what you meant.
I did not mean to say that there's no benefit to the taxpayers...
All right. And then the second was, in response to Councilman Goode, you said that you don't see any empirical evidence to, you 73 Whole & Fiscal Stability Hearing - 5/24/04 know, do a variety of positive things that many of us are trying to lay out here. What is the empirical evidence that what we're doing is working to our advantage?
I mean, you may not have been up here a couple weeks ago. There's an article, April 2004 from Treasury and Risk Management Magazine. And it's just a little box. And it says, thinking about where to set up shop? On the whole, you wouldn't rather be in Philadelphia after all. Philadelphia is listed as the most expensive City in a 315 City survey on business cost, taxes, fees, and incentives, higher than Cincinnati, New York, Columbus, San Francisco, Nashville-Davidson, Newark, Minneapolis, Indianapolis and Boston. Now, what is it that's working so 74 Whole & Fiscal Stability Hearing - 5/24/04 well for us under the present plan? What's the empirical evidence that it's helping us?
Well, I think the... Number one, I -- I -- I used to be in business and ran a $7 billion line of business for a bank. And I was very much aware how corporations go about making their decisions as to where to locate and where not to relocate. And I will tell you that the tax structure is one of many reasons, one of many reasons. It's not the only reason.
That's one of the reasons that we don't have many of the banks that we had here before probably.
No. I disagree. I think the reason that we don't have many of the banks... When I started in banking in 1982, we had 12 banks headquartered in this City.
I don't think we 75 Whole & Fiscal Stability Hearing - 5/24/04 have any headquartered here.
And I think the reasons are far more complicated, which I'd be glad to go into, but I don't think you want to listen to me tonight at this hour.
I think they're far more complicated. And I think all these issues --
And I kind of bought the chair for the evening, so I mean, if you'd like to go. But I think many of them are probably in Delaware.
I would tell you -- I would tell you a lot of the banks left to Delaware because of the interest --