00001 COUNCIL OF THE CITY OF PHILADELPHIA CONTINUED PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 696, City Hall Philadelphia, Pennsylvania Tuesday, March 18, 2003 10:10 a.m. - - - Bill Number 030008, amending Section 19-2604 of the Philadelphia Code, relating to tax rates, credits, and alternative tax computations for the Business Privilege Tax, by reducing certain tax rates, all under certain terms and conditions. Bill Number 030010, amending Section 19-1301 of the Philadelphia Code, entitled Real Estate Taxes by Restating the Rates of Taxes in Tabular Form. Bill Number 030073, an Ordinance amending Section 19-1502 of the Philadelphia Code, Entitled Imposition of Tax by Providing for Reductions in the Rate of Wage and Net Profits Tax, under certain terms and conditions. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN MARIAN B. TASCO COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK. J. DiCICCO COUNCILMAN FRANK RIZZO COUNCILMAN JAMES KENNEY 00002 PRESENT (CONTINUED): COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN ANGEL ORTIZ COUNCILMAN DAVID COHEN COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED-MILLER COUNCILMAN DARRELL L. CLARKE COUNCILWOMAN BLONDELL REYNOLDS BROWN - - - V A R A L L O Incorporated Litigation Support Services 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 00003
Good morning, everyone. I would ask Mr. McPherson to please read the Bill Numbers and the title of the Bills. MR. McPHERSON: Bill Number 030008, amending Section 19-2604 of the Philadelphia Code, relating to tax rates, credits, and alternative tax computations for the Business Privilege Tax, by reducing certain tax rates, all under certain terms and conditions. Bill Number 030010, amending Section 13 19-1301 of the Philadelphia Code, entitled Real Estate Taxes by Restating the Rates of Taxes in Tabular Form. Bill Number 030073, an Ordinance 17 amending Section 19-1502 of the Philadelphia Code, Entitled Imposition of Tax by Providing for Reductions in the Rate of Wage and Net Profits Tax, under certain terms and conditions.
As I look out in the audience, I would assume that most people here would like to testify on Bill 030073. Am I correct? 00004 03/18/03 - Committee of the Whole AUDIENCE: (Nods of heads in the affirmative.)
Okay. Do we have anyone from the Administration here to testify on this Bill? I'm sorry. I am just informed that Mr. Levy has a very important commitment, and he would like to be heard first. Mr. Levy.
Good morning, Councilwoman Verna. Thank you very much for that courtesy. I do apologize to my friends from the City. I didn't mean to displace their testimony. But my name is Paul Levy. I'm here as the Executive Director of Central Philadelphia Development Corporation. And I want to very briefly testify in support of the spirit and the direction of this Bill because I think it is part of a very important movement and attempt to shift some of the burden to support City services away from a over dependence on the wage and earnings tax and to try to shift it more to the real estate tax. I have not prepared text testimony 00005 03/18/03 - Committee of the Whole but simply a series of charts which I'll very quickly refer to and keep my remarks very, very short. I think all of us who are interested in tax reform are focused on one central issue which is in the last 30 years we have lost almost a quarter of the jobs in the City. And clearly, our goal with any type of tax reform is to, again, regain jobs in the City, regain employment for our residents. I think what I'd like to do is jump ahead in my prepared text or the prepared images to . Because I think what we have done is working with the Board of Revision of Taxes put together some information that I think will be very helpful in understanding the context for this Bill. The map on at the top shows the origin of real estate taxes as they are collected in the City. And what you see is that while Center City is only 3 percent of the land area, it is the setting for 43 percent of all jobs in the City and 28 percent of all real estate taxes. 00006 03/18/03 - Committee of the Whole Center City is also the only place in the City where commercial and industrial real estate taxes have a greater volume than residential, and I think that's the key point that I want to address. If you look throughout the rest of the City, in virtually every other portion of the City, we are dependent on the residential sector for real estate taxes. And there is really in many ways an insufficient source of commercial, industrial and retail. And to me, one of the great purposes of this Bill is that I think -- I firmly believe, as many people do, if you cut the Wage Tax you will produce job growth within the City. And that if you can produce job growth, not only will you employ people, you will increase the demand for commercial office space, for industrial space, and retail space. And therefore, you have a strong opportunity to increase the commercial and industrial sector as the source of real estate taxes. If you go to in the 00007 03/18/03 - Committee of the Whole presentation I put together, I think this to me is the most compelling information we were able to derive working with the Board of Revision of Taxes. If you look back in 1984, for all real estate taxes collected in the city, 27 percent came from the commercial and industrial sector, and 55 percent came from the residential sector. As we went through the great boom and expansion in office development in the downtown in the late '80s, you'll see that the commercial industrial sector grew to 32 percent, and we were less dependent on the residential sector that fell to 51 percent. That seems to me to be exactly the direction we want to be going as a City in which our commercial and industrial property is paying a greater share and our residential portion is paying a lesser share. But if you look at where we are in 2002, we are exactly right back to where we were in 1984, in which we are -- again, the residential sector is producing a greater burden, and the 00008 03/18/03 - Committee of the Whole commercial industrial sector is producing a lesser burden. If you reflect back to the political crisis or the community crisis we had with rising inflation and assessments in Center City and Mt. Airy and other portions of the City, I think you can argue that happened, frankly, because we were overly dependent on the residential sector and a few areas.
And we had more than half of the properties in Center City see a dramatic increase. If we were growing jobs in the commercial and industrial sector, we could place a greater burden on that sector and less on the residential sector. So I would simply conclude by two things. If you look at the chart on the top of , unlike virtually any other American city, we are overly dependent on the wage and earnings tax to support local government. I in no way quarrel with people's concern that if we cut the Wage Tax we're going to lose revenues in the City. That's a serious challenge. But it is such a challenge for us, because we're getting 56 percent of locally 00009 03/18/03 - Committee of the Whole generated revenue from that source. Bottom line, if we can continue to move in the direction that Councilman Mariano's Bill suggests, that by reducing the Wage Tax, we can increase jobs in the City; by increasing jobs in the City, we can increase the demand for commercial and industrial real estate. We can increase the volume of revenues that come into the City from the commercial and industrial sector on the real estate side, and reduce the burden we are placing on residents. So in support of the direction and intent of this Bill, I think this Bill could also be looked at in the context of general Citywide and Statewide tax reform, again, as we try to reduce the burden that we place on residents, reduce the burden we place on wage and income, and put that more on the commercial and industrial side. Thank you very much for this opportunity.
Thank you, Mr. Levy. 00010 03/18/03 - Committee of the Whole The Chair recognizes Councilman Mariano.
Thank you, Madam President. Mr. Levy, thank you for coming and thank you for your testimony. And you pretty much answered most of my questions. But one question that I need to ask you is, by reducing the resident -- Wage Tax for residents based on increased revenue, do you think that we will make our efforts to attract residents into the neighborhoods that your organization is marketing? I know you're marketing a certain sector.
And with the increased people... We did a bill a couple years ago, making it easier for people to convert some of these office spaces into residential. That all helps, doesn't it?
Yeah, it helps. I mean, The ten-year tax abatements helped dramatically, in terms of making the numbers work for apartments and the houses. 00011 03/18/03 - Committee of the Whole To the extent that you were reducing the resident burden of the Wage Tax, you continue to make the City more competitive. We have extraordinarily affordable housing in the City. And to the extent that we reduce the penalties for living in the City, we're going to grow population and jobs.
Let me ask you this: And this is a more of a metaphysical question. And I'm looking at Mr. Schwartz when I say that. He's into metaphysics. You're more of a hands-on guy. Do you like that? There's naysayers that would say that we can't at this time decrease any Wage Tax, any property taxes. But there has to be a point, at least in my opinion, where if we don't start doing it no matter how little, it sends a signal that we're really not interested in doing the things that you testified for.
No. I think, I mean, we didn't go through them. But we have had substantial growth in office jobs in this region. But those office jobs are all locating out in Bala 00012 03/18/03 - Committee of the Whole Cynwyd, Conshohocken and Wayne. Between 1994 and 2000, the Pennsylvania suburbs built the equivalent of 5 Liberty Place towers. They turned them on their 6 side, they put them out along strip centers, but 7 they built 10 to 12 Liberty Place towers. 8 If we built those in Center City, 9 there would have been 48,000 more jobs. There 10 would have been at least 25,000 people in 11 Philadelphia neighborhoods who held those jobs. 12 So I think there is no doubt reducing taxes costs revenue to the City. I don't quarrel with that. I think we need to figure out a transition strategy. I think we need to figure out a strategy to shift some of the burden to other taxes. To the extent that there's a healthy discussion on Statewide tax reform, that helps. But I think there is no doubt -- I don't think anyone disagrees -- our tax burden makes us non-competitive. Where the debate is is by how much can we lower it? How quickly will we get jobs? And how much will that cost us in City services? 00013 03/18/03 - Committee of the Whole That's the real challenge we all face. But the bottom line is, we have lost percent of our private sector jobs since 1970. 5 And in the '90s Boston, Washington and New York 6 City all added jobs. We did not. I think we are 7 all committed to seeing us add jobs. 8
Thank you. I 9 have no more questions, Council President. 10
Thank you. 11 Are there any other questions or 12 comments from Members of the Committee of 13 Mr. Levy? 14 (No response.) 15
You 20 always, always give us very informative 21 information. And I thank you. 22
Thank you. I appreciate 23 it. I just want to thank my colleagues for 24 deferring as well. 25
Thank you. 00014 03/18/03 - Committee of the Whole
I understand there are a panel of witnesses that would like to come up. Brett Mandell, from the Office of the City Controller, the Greater Philadelphia Chamber of Commerce; and Reverend Bruce Edwards, Urban Leadership Council. Mr. Mandell, kindly identify yourself for the record and proceed with your testimony.
Good morning, Madam President. My name is Brett Mandell from the City Controller's Office. I offer apologies from the City Controller. He is in Florida dealing with a personal matter.
You should have copies of my testimony. I have additional copies here, if you'd like.
Okay. Thank you. We have them. Does everybody have a 00015 03/18/03 - Committee of the Whole copy? I assume they do. Okay.
I'll just read highlights of the testimony, then. I come before you today to offer testimony on Bill 030073 which provides for City Wage Tax reductions when City real estate tax collections exceed current growth projections. I applaud Councilman Mariano and all of City Council for focusing attention on this worthy idea. We do not need to review the notion that the Wage Tax places Philadelphia at a competitive disadvantage. But I will try to briefly provide some new perspective on that well-established fact. S. cities or surrounding suburban locations. With a high personal income tax that both increases personnel expenses for companies trying to attract talent and erodes employees take-home pay, Philadelphia discourages firms and 00016 03/18/03 - Committee of the Whole families from locating within City limits. S. cities, it is evident that the mix of local and government taxes in Philadelphia is much different. S. cities collect locally-generated tax income from property taxes, and a significant portion from general sales taxes, Philadelphia generates most of its revenue from taxes on personal income. This over reliance on the Wage Tax is harmful to the city in a number of ways. First, unlike a tax on property which tends to be more stable, collections from a tax on wages will increase substantially during an economic expansion and then decrease during an economic contraction. Additionally, the Wage Tax is troubled due to the significant cost it adds for employees, employers, or both. This cost is compounded when it is presented as a competitive choice. One of the recommendations in my November 2001 Tax Structure Analysis Report called on the City to significantly reduce the Resident 00017 03/18/03 - Committee of the Whole Wage Tax and increase the City real estate tax accordingly to create a budget neutral shift. Bill 73 takes that concept and creates a reasonable modification to reduce Wage Tax burden in a more measured way, without actually increasing another tax. Under the provisions of the legislation, the City would use any growth in City real estate tax collections above and beyond budgeted projections to reduce the City Wage Taxes. A reduced reliance on taxes on wages and an increased reliance on taxes on property makes economic sense. First is, we know all too well in Philadelphia, if we tax jobs and tax people, they can avoid the tax by leaving the City. Property does not leave the city. And if we do our jobs, and make Philadelphia a preferred place to live, work and visit, that property will increase in value and generate the additional taxes necessary to provide services demanded by the citizenry. Additionally, reducing reliance on 00018 03/18/03 - Committee of the Whole the taxes on wages by increasing reliance on taxes on property underscores the maxim that the three most important factors when considering person and property are location, location, location. If we reduce the burden of Wage Tax, we make Philadelphia a more attractive location for businesses and residents which would further increase the value of City property. As a brief digression, I wish to add that I support a tactical amendment to clarify how we treat calendar year 2002 collections, compared with calendar year 2003 collections, in the formula I used to determine future Wage Tax revenues. Because we have shifted millage to increase the amount of real estate tax collections going to the School District, we must include language in the legislation to take that millage shift into account to ensure that we are comparing 2002 to 2003 as apples to apples. Similarly, I support additional language that would clarify how to apply it to prior year Wage Tax rates in the formula when those rates have changed in the middle of that 00019 03/18/03 - Committee of the Whole prior year. Before I conclude, I must offer one word of caution, as we move forward with this legislation.
As we all saw during discussions concerning this past summer's assessment increases, we need systematic change to create a real estate taxation system that is equitable, sure, and easily understood. In recent years Philadelphia has made strides to address the general undervaluation of properties and disparities among tax bills, and has for the first time made some real estate data available on the City's web site. Still, we have more to do. As I advocated in the Tax Structure Analysis Report, the City should seek to remedy the unfairness that has developed in the real estate taxation system through a full Citywide real estate reassessment or increased efforts to equalize all Philadelphia properties, so that similar properties have similar City-determined market values and equal real estate tax bills. Bill 73 makes a great deal of economic and common sense and can help reduce the 00020 03/18/03 - Committee of the Whole City's reliance on the Wage Tax, as it reduces taxes for City residents. This is an excellent step towards a tax structure that could improve the City's competitiveness that should be complemented with additional changes to the way we tax property. By reducing the Wage Tax and appropriately valuing property and shifting taxes from buildings to land, we can create a fair system that retains firms and families in Philadelphia and encourages economic development across the City. Attached to the testimony I have included an analysis of the implications of Bill 16 73 that was requested by Council Mariano that would compare how Wage Tax rates would change under various growth scenarios. And I'm happy to answer any questions.
Thank you very much. Supposing we hear from the three witnesses and then we could ask questions.
Good morning, President Verna. 00021 03/18/03 - Committee of the Whole
And Members of the Committee of the Whole. I am Joe Mahoney, Senior Vice President for External Affairs of the Greater Philadelphia Chamber of Commerce. I come before you today in support of City Council Bill 030073 which amends Section 11 19-1502 of the Philadelphia Code, entitled "Imposition of Tax by Providing for Reductions in the Rate of Wage and Net Profits Tax, under certain terms and conditions." For many years, the greater Philadelphia Chamber of Commerce has been an advocate for tax reform in the City of Philadelphia. This advocacy has been based on the notion that the City will continue to lose jobs and population if its tax policies are not competitive with those of its neighboring counties. Unfortunately, those dire predictions have come true. Since 1970, 00022 03/18/03 - Committee of the Whole Philadelphia has lost more than 200,000 jobs and seen more than 400,000 residents leave. You may recall the results of the survey of the Chamber conducted as part of our Wage Tax campaign last spring. Almost 90 percent of the respondents say that taxes is the primary deterrent to a better business climate in Philadelphia. However, the most troublesome portion of that survey revealed that 62 percent, or 117 of the 189 companies surveyed, have considered moving their business outside the City. Those 117 companies represent 11,789 employees. 3,850 of them are City residents. If these companies left Philadelphia, for every job lost there is a potential to also lose one City resident. The Chamber pledged back in the Spring of 2002 to do all that we could to continue to reduce the much-dreaded Wage Tax, and we stand by that commitment today. I would be remiss if I did not stop here to thank you all again for your support last year by recognizing that the continual incremental 00023 03/18/03 - Committee of the Whole reduction of the Wage Tax was the right way to go, thereby passing City Council Bill 92 unanimously. Bill 73 appears to be a physically responsible approach to reduce the tax burden for Philadelphians, in that it would use -- it would only use those property tax revenues over and above those anticipated in the City Budget to offset a portion of the Wage Tax. I need only refer to several recently prepared reports, like those by the Pennsylvania Economy League, Bob Inman from the Wharton School, and the Flight or Fight Report prepared by the Metropolitan Philadelphia Policy Center, and our very own City Controller's report on tax structure analysis to confirm the need to reduce and/or restructure the City burden, the tax burden in the City, and do it now or be prepared for flight. We as the Chamber see it as our primary responsibility to the business people of this region to make Philadelphia more competitive and business friendly. Certainly, with the recent merger of Greater Philadelphia First and the Chamber of 00024 03/18/03 - Committee of the Whole Commerce, we speak with a stronger united voice. Passage of City Council Bill 73 sends the right message. It sends a positive message that helps us accomplish our mission for the business community, and to our responsibility to the residents of the City of Philadelphia. Thank you very much.
You're welcome. Reverend Edwards. REV. EDWARDS: Good morning, Madam President. Good morning to the Honorable Members of this Legislative Body that governs our great City. I'm here today to support Bill 17 Number 030073 as is amending the Section 19-1502 of the Philadelphia Code that is entitled, "Imposition of Tax." And I'm here to support the reductions in the rate of Wage Tax and profits tax under certain terms and conditions. As you all may recall, last year the Urban Leadership Council joined with the Greater Philadelphia Chamber of Commerce, the City Controller's Office, the Pennsylvania Economy 00025 03/18/03 - Committee of the Whole League, and others, to advocate for the continuation of gradual Wage Tax reductions for the citizens of our City and those who work here who reside in the region. During that struggle many people, many people questioned me as to why would a grass roots organization be involved in an issue that was of a business nature. Our response to those questions then and our response again today is simple: Real significant tax reform is fundamental to revitalizing the great City that we love, and it directly impacts everyone who works and lives within its borders. As Mr. Mahoney has stated, and what we all know is the truth, continuing population decline and job loss is directly impacted by the high tax rates that exist in our City, making us less competitive in our own region and nationally. And since we declare that we want to be an international City, I would dare say it makes us less competitive worldwide. If the statistics are to be believed, Philadelphia continues, one of only one 00026 03/18/03 - Committee of the Whole other City, continues to lose some 1,000 residents per month. Not only draining our talent pool, but directly affecting the City's income. Such knowledge removes the argument for a continuation of the way that our City has dealt with the issues of taxation. Your unanimous vote to pass Bill 92 and the subsequent voter-approved creation of the Tax Reform Commission, and the continuing work of the City Controller's Office, relative to such great initiatives as the Land Value Tax are all positive signs that the matter of reforming this City's tax structure is a part of a vision to begin to regrow Philadelphia, as opposed to simply managing our City's decline. The U.L.C. is proud of its friendship and association with the Greater Philadelphia Chamber of Commerce and the business community, because we see the mutual benefit of cooperation relative to issues that not only affect the bottom line of a business entity but hits at the pocketbooks and the purses of every working man and woman in this City. So we support the passage of this 00027 03/18/03 - Committee of the Whole Bill that would use property tax revenues that are in excess of those projected to be collected in the City Budget to offset a portion of Wage Tax payments. Perhaps again, this may be equal -- may grow out to be another small amount of money that actually remains in the pockets of our citizens, but it is still another step in the right direction. We fully realize that there are so many important issues that you are dealing with, yet the issue of tax reform and/or restructuring must be fundamental as you look toward a future relative to neighborhood revitalization, job growth and retention, the reformation of our public school system, and all of the other matters that are so important to the sound governance of our City. Real neighborhood transformation must equal the transformation of the people's lives, as well as the building of new houses and the like. Thus, I conclude by saying, reducing taxes adds value to the lives of the citizens who 00028 03/18/03 - Committee of the Whole work in the City and who live in our neighborhoods, and is an attraction to those who might be considering becoming Philadelphians. Thank you very much.
Welcome, Reverend. At this time, the Chair recognizes Councilman Mariano.
Thank you, Madam President. My first question is for Mr. Mandell. Mr. Mandell, based on the analysis done by the Controller's Office, and based on the projections in the current five-year plan, and the projections in previous five-year plans, do you believe the City can afford this Bill without sacrificing services or creating a deficit situation?
Yes, I do. Assuming the City continues to do fair and accurate reassessments moving forward, the growth of real estate taxes should be captured which should provide for the total plan on a cash-flow basis with enough money to cover the wage tax offsets. 00029 03/18/03 - Committee of the Whole And then of course, we believe that something good will happen as we continue to reduce our Wage Tax that should further growth.
And also, I have two more questions for you. Will this bill 7 continue to feed growth in both Wage Tax revenues and real estate tax revenues, in your opinion?
I actually think that's one of the more inspired aspects about the Bill, is that it would say that we are going to reduce the tax burden that should fuel property tax value expansion. And as long as we capture that by reassessing it fairly and accurately, that should then fuel more growth. That should then fuel more property value expansion.
To people out there that are watching this, that probably, like myself, don't totally understand the stuff that you and the Controller understand, as far as numbers, and... In a nutshell, if the Wage Tax is reduced and the property tax is capped and reduced, that's going to make people want to do more and invest more, and live here, right? I mean -- 00030 03/18/03 - Committee of the Whole
We're all trying to make this place a place where people want to be. And then, if people want to be here, then obviously you know what happens in your neighborhoods when more people want to be there. The property values go up, people are willing to pay more for homes, and more to be in neighborhoods. And then, it's only fair that the City captures a portion of that as taxes.
Thank you. This is my last one for you, and then I have a couple for Mr. Mahoney. If the Real Estate Tax Cap Legislation were to been enacted, would this Bill 20 still cause a reduction in Residential Wage Tax, as we project?
Assuming you put in a tax of 4 or 10 percent, it might make it more difficult to hit the extra growth. For example, Center City growth this 00031 03/18/03 - Committee of the Whole past year, I know my house in fact was increased with an assessment of a lot more than that 4 percent. 5 It could make it a little bit more 6 difficult to capture this, but the mechanism of 7 the Bill would still be sound. And we still 8 should, assuming, again, we do fair and accurate 9 reassessments, manage to fuel further Wage Tax 10 reductions.
Mr. Mahoney, do you agree that it is important for the City when it recognizes increased revenue to use those revenues to reduce wage and business taxes?
We do, Councilman. You know, we've always been a proponent of growth. And one of the hindering factors that we have seen, you know, in attracting employees and, you know, and also growing residential, you know, population, has been the tax structure. You know, we hear that from employers all the time. And I can tell you that 00032 03/18/03 - Committee of the Whole some of our own experience with our own employees at the Chamber has been, you know, some young employees who very much want to live in Philadelphia, because Philadelphia is a great place for young people to live. Some of them have moved to suburban locations because of -- because of the Wage Tax, even though, given their preference, you know, they would prefer to be in town or in Manayunk.
Let me ask you this one. What is the Chamber's position in regards to Council being asked to send legislation to the Tax Reform Commission prior to us taking actions on such tax reductions?
We testified last year that while we supported the Tax Reform Commission and their job to look at a long-term overall tax reduction strategy for the City, we felt that the Tax Reform Commission should not be held up as kind of an excuse to continue reducing the burden of taxes, you know, on both residents and businesses prior to their report coming out. So we don't have a problem, if you're moving in this direction, Councilman, to 00033 03/18/03 - Committee of the Whole reduce tax rates to do that prior to the report of the Tax Reform Commission.
Thank you. Are there any other questions or comments from Members of the Committee? (No response.)
Gentlemen, thank you very much. Mr. Schwartz, are you here to testify on this bill?
Very well. Is there anyone else that would like to testify on this Bill? (No response.)
Okay. At this time I think we ought to hear from the Administration and what their position is.
Good morning, 00034 03/18/03 - Committee of the Whole President Verna, and Members of City Council. I'm Nancy Kammerdeiner, Revenue Commissioner. With me this morning is Rob Dubow, Budget Director. I'm pleased to be here today to present testimony regarding Bill 030073. This Ordinance would amend Section 19-1502 of the Philadelphia Code to provide for Wage Tax rate reductions based on increases in real estate tax revenue. Last year this Council approved and Mayor Street signed an Ordinance that established procedures for the determination of Wage Tax reductions for future years. These procedures were followed for the first time this year. On February 27, 2003, I wrote to Mayor Street and Council President Verna to advise them that the growth in Wage Tax receipts for calendar year 2002 over 2001 had been just sixty-one one-thousandths of a percent. As a result, the Wage Tax rates for July 1, 2003, were set at 4.4625 percent for residents. That includes the one-and-a-half percent FICA tax; and 3.8801 percent for 00035 03/18/03 - Committee of the Whole non-residents. These new rates are on the City's web site. Payroll services have been notified. All registered taxpayers -- that includes both employers and the individuals who pay directly -- will receive letters of notification within the month. And as required in the legislation that set up this procedure, ads will be placed in at least two newspapers of general circulation before April 15th. The Ordinance before you today would amend this procedure by adding another factor to the determination of the Resident Wage Tax rate for the following fiscal year. Any growth in real estate tax revenue in excess of two percent would result in an equivalent decrease in Wage Tax revenue the following fiscal year. We do not believe this legislation would provide meaningful relief for residential property owners who have received substantial increases in their real estate assessments. Since it provides Wage Tax reductions for all resident wage taxpayers, as it 00036 03/18/03 - Committee of the Whole must, under the Uniformity Clause of the Pennsylvania Constitution, it dilutes the impact on those who receive large property tax increases, and it has no effect at all on those with pension or Social Security income that's not subject to the Wage Tax. The written testimony that you have provides a hypothetical on how this might occur with someone who has a $50,000 income and/or a property with a $50,000 assessment. This Bill would provide only minimal reductions in Wage Tax for taxpayers, that the City would incur a substantial cost at a time when we're facing substantial financial challenges. It is estimated that over the life of the five-year plan, this Bill would cost the City at least $40 million. In addition, the Administration believes that the Tax Reform Plan the Rendell Administration will be proposing on March 25, 2003, will include the potential for substantial reductions in the City's taxes. We would like to work with City Council to advocate those reductions. To give us 00037 03/18/03 - Committee of the Whole the opportunity to do that, we request that you hold Bill Number 030073 in Committee at this time. Thank you. We'll be happy to take any questions.
Thank you very much. Mr. Dubow, are you going to also testify?
Okay. Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. I apologize for the delay. Good morning, Miss Kammerdeiner and good morning, Mr. Dubow.
Let me move my breakfast. I had a couple questions, both related to 030073 and 030008. Let me try to understand a couple things here. Miss Kammerdeiner, in your testimony on , you talked about the taxpayer earning 00038 03/18/03 - Committee of the Whole $50,000. The reduction would equal just $27. Now, you know, at a certain level, whatever the reduction is, it is what it is, as they say. But generally, some people like actually holding onto their money as opposed to just turning it over to the government. And so, whatever reduction people can get, I think we should just, you know, kind of recognize the reduction for what it is, and not, you know, try to, you know, either minimize or, you know, almost trivialize the reduction. I mean, I think in a certain way that would also leave you with the impression that the sponsor or cosponsors of the Bill are trying to be reasonable, but also trying to give, you know, some amount of relief. If you don't have much money... You know, something beats nothing every day.
I think the point we were trying to make there was really that this Bill would not provide substantial relief to someone who had received a substantial increase in their real estate tax bill. We were looking at that, in terms of 00039 03/18/03 - Committee of the Whole the comparison between the increase they would suffer on the one hand and the relief they would get on the other. And if you were looking at this legislation as a way to provide some additional tax relief for someone who had had a large assessment increase, what we were saying is this Bill wouldn't provide that sort of thing.
It might have other objectives, but it wouldn't meet that one.
It might have other objectives, but it would not meet the objective of providing relief for someone who had had a large increase in real estate taxes.
Well, but, if -- You know, I mean, unfortunately, you've kind of opened a particular door. I mean, if the government was that concerned about trying to provide tax relief to people who had received excessive increases in 00040 03/18/03 - Committee of the Whole their real estate assessment, then the Administration would have supported a percent 4 cap bill. 5 I mean, you can't have it all the 6 way around the block where, you know, each measure 7 comes along, they have merit in their own right. 8 This Bill is now in front of us. 9 And the argument against it is, well, it doesn't 10 provide a significant amount of relief on the property tax side, if that's the objective. When you had an opportunity to do something about significant relief on the property tax side, the Administration was against that also. I mean, where do the taxpayers -- Where are they to go, if not to us, to seek relief and... You know, this is a variation on the, you know, the person kills their parents and now they're pleading on the bar of the Court complaining that they're an orphan.
Rob Dubow, Budget Director. Our belief is that the proposals coming forth from the State next week, actually one week from today, will allow us to provide substantial 00041 03/18/03 - Committee of the Whole relief to taxpayers here.
That was the other question I was going to mention to you, because Miss Kammerdeiner says that in the testimony. I'm trying to find it. First page or second page?
At the very end of the testimony, with reference to the --
Yes, toward the tail end. Right. Will include potential for substantial reductions in the City's taxes. Now, I understand you might not have all the specifics of what the Governor's plan is, but I mean, you're not trying to give the impression that it's going to give reductions in the Wage Tax. I mean, the Governor's not proposing to reduce the Wage Tax, is he?
Yes. Our understanding is that when that proposal comes forth, it will give the City the flexibility to reduce its Wage Tax.
Well, let me talk to you about an idea that I had actually 00042 03/18/03 - Committee of the Whole shared with the Governor a little while ago, and I'd like to get your reaction to it. I had a conversation with the Governor a while ago about his proposed plan to provide property tax relief as a part of one of the four items that the Governor's trying to get done between now and June: Property tax relief, increased funding for schools, dealing with this $2 billion deficit, and medical malpractice. Those are four things, at least as I understand, that are major elements of the game plan for the Governor in the next few months. And one of the things I talked to him about was the idea of looking at what the actual tax relief would be to the City of Philadelphia, based on whatever the particulars are of his proposal to provide property tax relief. And that in the context of, at least my belief, that the City is in a fairly decent position, actually, to manage our property tax situation here. And I'm not saying we don't have a property tax problem. We do. But I also believe 00043 03/18/03 - Committee of the Whole that the counties around us, and many other counties throughout Pennsylvania, who have actually been increasing their property tax rates, which we have not, for the last years, that the 6 property tax issue in Philadelphia is different 7 than the property tax issue in most other counties 8 across the Commonwealth. 9 Because they've been increasing 10 their property tax rates to pay for schools. 11 We've had our own little situation where we don't increase the property tax rate. We allow the assessments to go up. We don't adjust our rates, like other places do. And the City and the School District have been benefiting from what I will call the windfall effect of increased property tax assessments, no 18 change in rate. And so, the City and the school District continue to get additional revenues above and beyond what they budgeted when they passed their respective budgets in the Spring. And that if we took the Governor's proposal for property tax relief, whatever that formula is, applied it to Philadelphia, and 00044 03/18/03 - Committee of the Whole figured out how much money the City would actually realize from the Governor's proposal for property tax relief, and took that exact dollar amount and simultaneously reduced the Resident and Non-resident Wage Tax rates by the same amount of money, we could in fact have Wage Tax reductions and a source of funding to cover the gap that would result from reducing those Wage Tax rates. Now, that has been a discussion with the Governor for some time. And I'd be interested in your perspective on that.
We firmly support that approach. We've also had discussions with the Governor's Office where we said that we support that approach. We've talked to State Legislators and told them we support that approach. So, we completely agree.
We've been in budget hearings together for about eight, nine years. I've have never heard such a positive 00045 03/18/03 - Committee of the Whole affirmation. And as a result, I expect now that proposal will probably go down in flames.
Unfortunately, if we agree, I'm sure that's what will happen. But that's exactly --
Right. Right. It's probably being torn up as we speak.
That's exactly what we wanted to have happen. And we want to work with Council to make sure that happens. I mean, that's the way we think the tax reform should work for Philadelphia.
I understand. But at the same time, you should understand that because --
Can't we just stop on agreeing with something? Share this special moment?
It was a very special moment. I enjoyed it for all five seconds. Now we're back in the hearing.
I understand 00046 03/18/03 - Committee of the Whole that. Not today. One of the reasons that I co-sponsored this Bill with Councilman Mariano is because this idea in the Bill was somewhat similar to the idea that we just had our discussion and agreement on. And so, I think conceptually here, this Bill at the moment represents as close as possible the particular concept that we're talking about, and that was the reason why I agreed to co-sponsor the Bill. Because I want to further the idea that if there is a, quote, unquote, new revenue source designated for one particular tax, that we should be able to open the discussion and have a legitimate discussion about directing the tax savings that we would get from one source to help us in another area that... For us the Wage Tax in Philadelphia, I believe, is comparable in being onerous to the property tax in most other counties in the Commonwealth of Pennsylvania. And if we had the flexibility to make the shift and either demonstrated our commitment up front by passing legislation, or if 00047 03/18/03 - Committee of the Whole there were a state statute that required that we'd pass certain legislation in order to even receive the anticipated tax relief from the Governor's property tax reform proposal, that that would be the way to go. But that we do have a Bill in front of us that is somewhat similar, and we want to keep moving, I think that concept, in the right direction.
I think there are a few distinctions between this Bill and what statewide tax reform would do if it allowed us to use a new source of money to reduce the Wage Tax. One, by using the base it does, this Bill actually takes some money that we had counted on in the plan away from us. There's the first year of growth that we would lose. So, that would cost us revenue. Second, while the statewide tax reform would not result in any increase in property tax, this Bill would. We'd wind up, people would be paying more property tax.
Why do you say that? 00048 03/18/03 - Committee of the Whole
Well, because for this Bill to kick in, you have to have an average increase of over two percent in the property tax.
So, people would be paying more property tax. For you to get this reduction, someone would have to pay more property tax.
People do pay more property tax just about every year.
But I'm giving you the distinction between this and what the Governor's proposal would do.
That wouldn't result in any increase in anything else in our taxes. It wouldn't deprive us of any revenue we're already counting on in the plan. And the other thing, too, it would let us reduce both the resident and non-resident tax.
Those are the differences between the approach on the statewide 00049 03/18/03 - Committee of the Whole tax reform and this Bill.
Well, I hear what you're saying. Let me move to 030008 for a second. I'm looking at the Bill, and I'm looking at the testimony that Miss Kammerdeiner sent up for that particular Bill. There's a schedule starting in Fiscal '95 going through '08 of the gross receipts rate and what the change from year to year is, as well as the total BVT reduction. I see in the Bill on the reduction from '03 to '04 going from 2.30 mills to 2.10, which matches up with the chart. What I do not see and cannot seem to read anywhere is, there appears to be a change in Section 3 of the Bill on for the manufacture, wholesaler and retailer rates for 2004 and thereafter. But I don't see any reference to that in the testimony, nor do I see a chart that goes with that. And if you could explain that, I'd appreciate it.
I believe in the 00050 03/18/03 - Committee of the Whole testimony the only reference would be to the alternative rates. And I'm not even sure that that was referenced directly. That's in the title of the Bill. There are alternative rates for manufacturers, wholesalers and retailers. That's a part of the basic BPT legislation, the enabling legislation from the State, and has been there all along for the City. And we do concurrent reductions in those alternative rates, along with the standard rate that the vast majority of taxpayers would utilize.
But I think what I'm asking you, Miss Kammerdeiner is, where do these new rates come from and are they referenced anywhere in your testimony?
They're in the same percentage of decline as the rates for the average or general BPT payer, and it's not referenced directly.
They're changing 00051 03/18/03 - Committee of the Whole constantly.
This is the kind of formula once you change one, you have to make a change in the others?
And they are changed in the same proportion each year. And as you can see from the legislation, we've been doing this each year in tandem with the main BPT change.
The projections, in terms of the impact, are incorporated directly in with the entire tax. They're not separated out.
Okay. Let me ask this question: Last year when we were having our wonderful conversation about taxes in the spring...
...the gross receipts rate schedule that is in your testimony starting in '04, going through '08, .21, .19, .175 00052 03/18/03 - Committee of the Whole and the rest, are those the rates that were proposed last year as a part of the aggressive reduction schedule?
Okay. And let me make sure that I'm understanding for the record. According to the five-year plan, what is the projected City deficit?
There is no deficit in the plan. The plan is balanced. You mean before we started doing the plan?
You know... Never mind. And you were doing so well. $834 million projected deficit in the five-year plan. Is that the answer?
Okay. And 00053 03/18/03 - Committee of the Whole notwithstanding that, the Administration is presenting to us today a Bill to reduce the gross receipts tax rate; is that correct?
Okay. And so even at this time of anticipated or potential deficits, based on a five-year plan and the proposed actions of the five-year plan, because I know according to the plan everything is balanced and things are peachy keen. But if we don't do those things, you have an $834 million deficit. And notwithstanding that, the Administration today is proposing to put forward a Bill to reduce taxes.
Yes. And we did it as part of a plan that showed itself balanced at the end. We didn't do it in isolation. We showed it as part of a larger plan.
Very good. What I'd like to propose, Mr. Dubow is, and Miss Kammerdeiner, is similar to -- I think my memory is telling me that it was Bill 24 020092. I think that was the Wage Tax bill last year? 00054 03/18/03 - Committee of the Whole
Vague. Yeah. I think you came to that hearing. Similar to that legislation, which actually now is the reason I think you don't have to bring us a Wage Tax bill this year and you won't have to bring one for the next four years, because we now have legislatively and by statute directed a schedule of reductions. What I would like to propose in the course of this hearing is to incorporate that same idea into this Bill and establish a schedule of guaranteed tax reductions on the gross receipts tax side, utilizing the schedule in Miss Kammerdeiner's testimony that has 2004, 2005, 2006, 2007, 2008, taking the gross receipts tax rate from .21 down to the .15 in the testimony. And I would like to amend this Bill 20 or propose amending this Bill 030008 in that section where we list 2004 and continue that schedule, going all the way down to 2008 with the .15. In that way, we would have not only a guaranteed tax reduction, as the Council put 00055 03/18/03 - Committee of the Whole forward last year on the Wage Tax rate, but we would also have guaranteed tax reduction on the gross receipts tax rate, so that taxpayers and business people could see and would know with certainty what the rates were going to be over the next few years, which I think has been helpful on the Wage Tax side, because people now know what the rate is going to be. There's no mystery. There's no hoping. And that we should certainly give that same stability and comfort level to our business community, so that they know over the next five years what the rates are going to be.
Have to determine how that formula will work. We'll have to work together on that, if that is something that becomes the --
I don't understand what you mean by see how the formula would work. You gave us a formula. 00056 03/18/03 - Committee of the Whole
Not directly. You mean to establish the rates altogether. Because the Bill that exists on Wage Tax that you were referencing has calculations within it to get to a rate, and it's not a fixed rate in the future years. There are options within those rates, depending upon the growth in Wage Tax.
Commissioner, I think you're talking about the accelerated changes. We have guaranteed Wage Tax reductions in Bill 92, based on --
But you're talking about just putting each of the future years --
Okay. I 00057 03/18/03 - Committee of the Whole misunderstood.
If we decide at a later point in time we want to have an accelerated schedule, that's, you know, another topic for another day. But if the accelerated never happens, people know that from now through '07 there will be Wage Tax reductions because of the incremental schedule, which was incorporating what had traditionally been in the five-year plan anyway.
Okay. Now, based on our earlier discussion, you would also have to calculate, which I think you don't have a schedule for -- you'd also have to calculate the manufacturers, wholesalers and retailer rate?
We would have to calculate those and add them to the chart, if indeed you were going to --
Right. And in the Bill, '08, there would be no change to Section 9 2, which just has a rate at 1998 and thereafter, which is the 4.60, the 2.3. Do you see what I'm talking about?
Right. So, could you prepare for us a schedule for manufacturers, wholesalers and retailers that would take us from 2004 to 2008, based on the similar changes -- percentage changes that are going on with the gross receipts tax rate?
Okay. Thank you very much. 00059 03/18/03 - Committee of the Whole No further questions, Madam Chair.
Thank you. The Chair recognizes Councilman Mariano.
Thank you, Madam President. Mr. Dubow, the current five-year plan has increased tax revenue and non-tax revenue collections of over $100 million. Is that true?
Okay. If that's true, and you said it is, why would this Bill 030073 be unaffordable?
Because those increases are already assumed in the plan. So, the plan is balanced based on the assumption that we get more revenue than we had built into earlier plans. This would take away revenue that's included in the plan, and there's no added revenue that makes up for it. So, $100 million you're talking about is already built into our base.
What if there's any future revenue that's put in the plan, maybe, to straighten the situation up with the State, and 00060 03/18/03 - Committee of the Whole there's some more revenue that they should be giving us anyhow? What if we stopped paying for the courts and the State picks up their burden of the courts? What if they come in and take away another agency, like they did the Parking Authority and the Convention Center? I mean, we don't project that into it either.
We actually say, in the plan that if the State came in and took over the courts, that we could use that money to reduce the Wage Tax. And I think we put in a rate of 4.11 percent. I mean, on the other hand, we also don't have in the plan things like, what happens if we have to increase our pension fund contribution, because we assume a nine percent earnings rate on our pension fund. To the extent that we miss that, and it looks like there's a decent chance we'll miss that this year, we have to put in more money. So there are a whole series of risks to the plan. Or, for example, if Fire Arbitration 00061 03/18/03 - Committee of the Whole comes out to cost more than we expect it to or Police and Fire Arbitration Interval four costs us more. We don't have contingencies built in for that kind of increase.
Let me ask you: If there's concerns over the holes in the five-year plan last year, when last year, just weeks after we approved the '02 plan, the Administration began spending millions each month for Operation Safe Streets, which I supported, which I think is a great thing, and it was used in my District. But I mean, we all know when the money crunchers or your number crunchers, I mean, sit down and do this stuff, you're moving things around and it works good for what works to get the Budget in at the time. I mean, I got the same glasses as Councilman Nutter. I'm trying to read the same things he does. I'm trying to figure it out just in detail as he does. And I'm not going to argue with you about this. But this is just a small thing to show the people that we care and that we're 00062 03/18/03 - Committee of the Whole trying. We understand. We understand how it is to go to a job every day, maybe in a factory or somewhere, and see $80 in City Wax taxes, you know. If it's reduced a little and it goes on top of -- and it's in conjunction and it's triggered by a reduction in their property taxes, you know -- I mean, I do understand your concern, but I just don't go for it, because we seem to find things when we need them, when we need them for big important things.
Let me say a couple of things. I mean, let me be clear. The Administration agrees that we need to reduce the Wage Tax.
We have Wage Tax reductions in our five-year plan, going all the way through '08. We think the best way at this time to advocate for those reductions is to support statewide reform that we'll be hearing about in a week.
Or we could 00063 03/18/03 - Committee of the Whole have signed the cap bills when they were there, too.
I mean, that bill, we understand, is going to give us a substantial amount of relief and will, I mean, provide a strong indication that, you know, we're going to be giving tax relief to people in Philadelphia.
All right. The current five-year plan calls for real estate tax revenue growth of slightly over two percent for the life of the plan. Can you provide for us the level of growth as a percentage for each year covered by the plan? The current five-year plan calls for real estate tax revenue growth of slightly over two percent.
...calls for real estate tax revenue growth of slightly over two percent. I mean, it's your projections. 00064 03/18/03 - Committee of the Whole
Can you provide for us the level of growth as a percentage for each year covered by the plan?
Here's my big question: Are you familiar -- maybe the 00065 03/18/03 - Committee of the Whole Commissioner is familiar with the transition -- the Street Administration's transition team's report on tax policy.
Well, that plan calls for aggressive and creative options to reduce wage taxes. Further, are you familiar with option set three of the transition reports that calls for reduction in wage taxes in a fashion similar to those achieved by this Bill? Listen, I know I'm the smartest guy here, you know. But I didn't figure this all out. And you thought we were throwing that stuff away. We weren't. We were reading it. You're the smartest? Okay? I mean, this comes right from the transition team report, the general idea here. I didn't eat my Cocoa Puffs and just think of this one day. And Nutter didn't help me with this. So, Rob, I mean, come on.
I mean, again, just to go back to what I'm saying, we all agree, the Wage Tax should be reduced. 00066 03/18/03 - Committee of the Whole