Guv sez: Drop Dead, Mayor sez: Keep smilin'

Sub-Headline: Sorry, Can’t Really Sugarcoat This Stuff Folks.

There’s no doubt that Philly’s in a heap of trouble from budgets being torturously made, as we speak, in Washington, Harrisburg and Philadelphia. It seems we’re assured of two years of bad news, first from service cuts, then from tax increases on working people and homeowners. With a little bit of bad luck we could face a mix of both. The moral? We’d better organize ourselves a lot better than we did in 2010 if we don’t want a third and fourth year helping of the same thing. And also, if you pass a corporate exec in the street, keep your hands in your pockets.

Tax Reform can grow our economy according to Moody's Mark Zandi

Check out this great piece on the tax proposal by Maria and I.


Short version, do it now!

Small Businesses, and their Savior: Cutting Business Taxes

Remember this sheet?

It shows the amount of Philadelphia business taxes paid by business size. We have talked about it a lot. Just as a reminder, it shows that for taxpaying businesses, the average amount paid in the gross receipts tax by businesses taking in less than 100k for 2006 is a whopping $54. The average amount for businesses taking in between 100k and 500k is $435. That doesn’t seem like a ton of money, right? Yet from every news story, editorial, and blast from the Chamber of Commerce, Philly Forward and others came the idea that this tax was the invention of Satan himself. Why so evil? You have to pay it whether or not you earned a profit or not. (Remember this point, please.)

As Stan has pointed out, the devlish GRT actually does some good stuff. While we always hear the tiny, Lucifer-like GRT forces businesses to move outside of the city, it turns out the incorrigible tax already hits businesses outside of the city for any business they do inside of it. So, if Exxon-Mobil, or Coca-Cola does business in the city (which they do), then they actually pay the tax. So, unless you think that eliminating the troll-ish GRT will make Coca-Cola run to set up shop in Philly, then getting rid of it might be sort of dumb. In effect, we are disarming and giving up money for businesses outside of the city. So in response, the Coalition for Essential Services made a proposal that would increase the GRT, then exempt the first 500k for all businesses, effectively making taxes more progressive in the city.

Now, let’s contrast that proposal with what is actually happening in our city, where taxes are actually becoming more regressive. We spent years lowering business taxes, with the idea that this would be sooooo great for small businesses. And yet, what did we learn from the city?

Philadelphia's free trash-collection service for small businesses will come to an abrupt end July 1, when merchants will be forced to pay $500 a year for the privilege or else hire private garbage-haulers.

Letters notifying business owners of the fee began arriving this week, taking many by surprise.

"It came like a slap to the face. Businesses are scratching and clawing to stay open, and you're putting another $500 on top of that?" said Rita deVecchis, owner of a South Street framing shop.

Although the fee was mentioned in Mayor Nutter's March budget address and passed by City Council as part of last month's budget accord, the $500 fee was largely overshadowed by the budget debate over property and sales taxes.

The fee will be levied on about 15,000 small businesses, and could raise more than $7 million a year for the city, said Deputy Streets Commissioner Carlton Williams.

Ooops. That is right. IF you are a small business, you may a few bucks less in taxes... but you will instead pay for your services, in the form of a $500 flat fee for trash pick up. And, remember that point above, about what makes the GRT so evil- that you pay whether you make a profit or not? Oh, yeah, you pay this whether you make a profit, too. What a sweetheart deal! Comcast, Cigna and others get a huge tax break every year and taxes are lowered. Small businesses get a tiny tax break, and then immediately give that tax break back in a trash fee. And as a byproduct, when Comcast and friends (and Coca-Cola and Exxon) no longer pay, the city’s treasury is further shrunken, preventing the city from providing other services.

Small businesses, like the majority of people in the city, have been sold a false bill of goods with respect to tax cuts. If anything can show what this has really been all about- breaks to big corporations- it is this.

Unraveling Library Debate Reveals BPT Elimination as Real Culprit, Part Deux

Way back in 2005, a funny looking little man named Ray wrote a post titled "Unraveling Library Debate Reveals BPT Elimination as Real Culprit":

The real cause of library service reductions is the elimination of the business privilege tax. City Council, the PA Economy League, Philadelphia Forward, Young Involved Philadelphia and other proponents of conservative trickle-down economic theory have beaten the drum for tax reform for so long that the Mayor included a 3.8% reduction in business privilege taxes in this year's budget. That reduction is worth $70 million in FY 06. The Mayor’s budget is revenue neutral so that reduction will be balanced by an increase in parking taxes from 15 to 20 %.

If even a small portion of the revenue generated by a parking tax increase were given to the Free Library rather than business privilege tax reduction, full-time week-day service could be maintained and all branches could be opened on Saturdays too (the Library says this would cost about $5 million, or about 7% of the amount of BPT tax reductions proposed). Instead, cuts are being made to basic services with the vague promise that business tax breaks will eventually generate economic growth.

The reality is that the jobs and economic growth that tax reform proponents have promised haven’t emerged so far and are unlikely to start any time soon. As Professor Robert Lynch pointed out in his paper, "Rethinking Growth Strategies," local taxes are normally at the bottom of a list of criteria that businesses use when making decisions about where to locate their company. At the top of that list is location, quality of city infrastructure and service, access to roads and transportation and the quality and skills of the local workforce.

Cuts to corporate taxes causing the library to shut its doors? That could never happen! I did see something in the paper today, however, that vaguely reminded me of the post above:

The looming round of budget cuts appears to have made managers across city government jittery, particularly at the Free Library of Philadelphia, which in a cost-cutting move eliminated Saturday hours at 27 of its 53 branches over the weekend.

The libraries were reopened, for now. But who needs libraries anyway? Kids on the street can do other things to distract themselves, like go to the gym:

Recreation Department officials recently met for a presentation assessing which recreation centers could be closed or get by with reduced operating hours. For now, cost-cutting measures seemed likely to be leaving vacant positions unfilled, cutting back on part-time jobs and reducing staff at five city ice rinks.

"My theory is, if we reduce anything, we are going to be cutting services to kids at this point. We can't cut anything else," said Michael McCrea, president of the Philadelphia Recreation Advisory Council, which represents nearly 190 volunteer groups.

To McCrea and others, the discussions are uncomfortably similar to those of 2004, when proposed belt-tightening moves included closing or leasing more than 30 recreation centers, and shuttering 20 city pools and several fire stations.

What is blowing a hole in our budget? Oh, right, the business tax cuts. So, let's get this straight: in a city wracked by violence and under-education, cutting business taxes results in laying off rec center employees and shuttering libraries on the weekends?

Bottom line: Philadelphians would rather stop business tax cuts rather than cut services like these. I know that the editorial boards of the papers, especially the Inquirer, have long pushed for these cuts. But, the jig is up, the game is over, the credits have rolled. Philadelphians who can least afford it are about to be dealt a severe blow, directly related to slashing business taxes. So, I hope reporters from the Daily News and Inquirer start to ask Council and the Mayor some tough questions. For example, why, in the face of a huge majority of their citizens against them, are they taking us down this path?

City Council needs to immediately halt business tax cuts and fix this.

New effort to eliminate the BPT coming

You would think that, with the Nutter administration securing a substantial victory on tax policy, talk of the “job-killing business tax” would be on the decline.

But that awful tax is not yet dead—only the Gross Receipts portion of the tax is slated for elimination and the reduction in the Net Profits portion of the tax will come more slowly than desired by both Brett Mandel of Philadelphia Forward and the Philadelphia Inquirer. So the Inquirer and Mandel have been working together on a project to keep the terrible consequences of the BPT in the minds of the citizens of Philadelphia.

You decide: no casinos or BPT cuts?

Our friends over at Old Philly Politics A.K.A. The Public Record have a pretty interesting editorial in this week's paper. The crux of it is this:

In a campaign that proved wildly popular with the citizenry, Mike Nutter proposed to spend more on police, health programs, arts programs, schools and Community College. He is opening up new offices in City Hall as fast as desks can be delivered – for business, culture, public relations, transportation, zoning and housing, to name but a few.

At the same time, Nutter is determined to keep cutting the City’s destructive business and wage taxes. Great! In the long run, a healthier business environment will pump revenues in a healthier way.

In the short term, however, it looks like we’re walking into a recession. That can wreak havoc with the Mayor’s best-laid plans. If a general economic downturn affects our region, a wide range of business and wage taxes will drop.

The real-estate market is cooling off at the same time. This will lead to lower earnings from the transfer tax.

The city cannot afford, in 2008, to turn away any longer from the immediate economic benefits of casino construction.

I think slots casinos are one of the worst ideas for economic development proposed for this city in a long time (right up there with raising Black Bottom for Penn in the 50's, "slum clearance" on South Street via the Crosstown Expressway, stadiums and convention centers, etc. And could only be made worse by adding tables games to the mix). I am very happy they have still not been built.

However, this editorial (and the front-page story of the Public Record) make it clear that pro-casino forces are getting antsy.

And positioning casino revenue as a way to fund BPT tax cuts is very, very interesting to me.

I am curious to know who is pushing this idea behind the scenes and how much traction it will gain. It's certainly an argument that could put a lot of us in a weird place, i.e. united.

Who Do Business Tax Cuts Benefit?

A while back, we requested a bunch of data from the City on business tax records. The idea was that before we start cutting taxes more, we should look at the data, so that we can use reality-based policy making. (See here and here.) The City said they needed thirty days to respond to their request. The solicitor told us that, in effect, as long as names of businesses were shielded, it was our right to get the information. However, thus far, the Department of Revenue has only given us a small piece of information. So, with the legal opinion of their own law department saying they are obligated under the law to give us the info, we are going to try one more time. (More on this new request in a follow-up post.)

However, we did get a small piece of info from the City so far, and at the very least, we can see just who these tax cuts benefit. The chart below divides the 77,000 payers of the BPT (in 2006) into two categories: The first (the red bars) is businesses that paid over $100,000 in business taxes. There are 446 of these. The second category is everyone else- the 76,600 payers of the BPT that paid less than 100,000 in taxes in 2006. They represent 99.5% of the number of BPT payers.

The second and third sets of columns show us two main numbers: how much each category of business would save from elimination of the gross receipts tax, and how much each category of business would save from cutting the net income tax from 6.5% to 4%.

I had to put those blue arrows in, because otherwise, it is hard to see how much the bottom 99.5% of Philly businesses save from BPT cuts- $574 a year from net income cuts (over a long period of time), and $734 a year from the elimination of the gross receipts tax. The net income tax cut, for example, would be about enough for 99.5% of Philadelphia businesses to hire one minimum wage worker for all of... two weeks. I know it is called job killing and all that by Philly Forward and the like, but... I don't see it.

The vast majority of Philly businesses don't get a whole lot from tax cuts. How about the 446 that make up the top one-half of one percent? They do just fine. As the red bars show, the two tax cuts net them $149,000 and $77,000 bucks a year, respectively. The top 0.5 percent of our businesses together take over 50% of the total tax breaks.

Again, just the net income portion of tax cuts: Biggest 446 businesses net an average of $149,000 a year. The other 76,000? About 500 bucks.

If we want to target tax breaks to small businesses, fine. But, we should be clear about a couple things: Even at the biggest projection of tax breaks, the vast majority of Philly businesses will not be 'saved' by an extra 100 dollars a month. And, they will not all of a sudden be able to hire a number of additional workers. What will happen is that the biggest 446 businesses will get themselves a nice chunk of change.

We will have more data soon, when the City gives us the information that they are legally obligated to give us. But for now, even with this most basic data, I think City Council and the Mayor should slow down on BPT cuts and figure out if there is a targeted way to help small businesses. Because this is not it.

We will follow up, with our new request within the next day. Again, if the city decides to cut taxes, that is a policy decision. But we should make it with reality-based decision making, not hidden numbers and empty slogans.

So a very nice gentleman from the City Solicitor's office wrote me back

A couple weeks ago, I wrote to request records that would show exactly who pays what under the Business Privilege Tax (this is why). The request made it to the right people--the Revenue Department and the City Finance Director--after some trial and error and with the help of some of you.

Last week I received an email. The City Solicitor's office is reviewing the request, and will determine what will be released.

February 13

Dear Ms. Kates,

This response is to your letter addressed to Department of Finance. You request various records relating to payments under the Business Privilege Tax.

I am writing to let you know that we have taken this matter under consideration. However, in order to adequately review and respond to your request, a legal review is necessary to determine whether and to what extent the records you are requesting are public records subject to access under the Pennsylvania Right to Know Act, 65 P.S. §§ 66.1-4.

We will keep you informed of our progress, and anticipate being able to respond to the entire request no later than 30 days from the date of this letter.

So, a couple more weeks and then the, um, real fun begins: data analysis!

Nutter's first budget

I had been thinking about Michael Nutter's first budget address for the past 24 hours and feeling fine... until I got an email from Brett Mandel this morning with the subject line, "Tax Reformers...This Budget's For You!" I thought we might be in trouble after all, but another review of the Mayor's address, and it seems like we're gonna be ok. That said, there are two things Mayor Nutter has proposed which could become very big problems:
  1. He sets aside a specific amount of money for city contract negotiations with unions--no more--while relying on a bond to deal with city pension obligations.
  2. He proposes cuts to the net income portion of the Business Privilege tax.
The problem with the first point is we don't really know if a bond can work. As the Inky reports today:
"It is a creative solution, and that's a good thing, but there are lots more questions that need to be answered before we know if it'll work, when it'll work," said Uri Monson, executive director of the Pennsylvania Intergovernmental Cooperation Authority, which oversees the city's budget.
We also don't know what the city employee unions are going to be asking for just yet, and without the knowledge, it seems a bit inflexible to name a dollar figure now. Remember, the city is the largest employer, and any drastic change to the livelihood of its employees can have a big impact on our entire region's economy. The problem with the second point--and Jennifer and Dan pointed this out last week--is it is hard to support cuts to the net income tax without knowing how it currently impacts businesses in real numbers. I am sure the Mayor knows of course--since he is privy to data from the department of Revenue that would indicate how the tax is affecting different kinds of businesses--but we, the public, do not.

In the spirit of Mayor Nutter's "new day, new way" approach to open records and transparency in government, Jennifer wrote a letter to the Department of Revenue requesting this data. After all, there is growing evidence that for the very largest corporations, despite a real or perceived high business tax burden here, other factors like proximity to roads, train stations, cultural events, restaurants, etc. have been more important factors in making decisions about business relocation. And, perception often trumps reality when in comes to the free-market, and Nutter sent a pretty strong message that will change the perception of Philadelphia when he said this at a Chamber of Commerce luncheon:
"The doors at City Hall are now open," he said, in a silent nod to the strained relationship prevalent during the Street administration. "You will always have a friend at City Hall."
That's not to say that business taxes do not matter--and I think we all agree that our business tax structure seems uneven at best. But without a public release of the data, it's hard to know how serious of a problem this is, without relying solely on anecdotal information. Despite these potential problems, you have to give credit to Nutter for proposing a budget which:
  • expands single-stream recycling
  • gives $3 million to city health centers
  • $4 million a year to CCP to expand its reach
That said, it is a humble budget, which makes sense for a first budget from a new Mayor. However, I have to express some concern that the entire Jobs and Economic development portion of the Mayor's speech really includes only 3 ideas: arts & culture expansion, tax cuts, and dealing with unions. For a city whose real wages have been on the decline every single year since 1969, and that has yet to produce a real economic sustainability plan for the future--as opposed to piece-meal economic development deals, often at the discretion on Council members--we could do better. However, as Nutter himself said:
We don’t walk into this process under the assumption that we have a monopoly on ideas, but we believe the proposals set forth here today will put us on a course for a safer, cleaner, greener city, where our children are protected and educated, where government performs its tasks in an open, honest and efficient manner and where performance is measured, improvements are made and services are delivered.
And until we see the line-item budget, that sounds good enough for now.

Tax cuts and open government, part two: I get out my stationary and stamps

Yesterday, Dan wrote:

So, before we decide to cut business taxes or not, we should know how much every business- from big old Comcast to the smallest person just opening up shop, pays in taxes to the City each year. This may shock you, but under the previous Mayor, the Commerce Department generally refused to provide these numbers. I guess they thought it was their business only. But, with a new Mayor focused on transparency and the like, I am hoping things change.

and I got out my laptop. (And stationary, and envelopes and stamps.)

The letter was sent to the Department of Revenue, and copy given to Finance Director Rob Dubow. Notice of the request was also sent to the mayor, and Council members Frank DiCicco, Jim Kenney, Wilson Goode, and Maria Quinones Sanchez. So we'll see.

Tax Cuts, Open Government, and Reality-Based Decision Making

Dear Mayor Nutter and City Council,

We in Philadelphia are gladly watching the beginning of the Nutter administration. I, for one, am especially heartened by the sense that we are entering a period in Philadelphia where we use reality-based decision making. Think about it: Outcome-based budgeting. A 311 system and Citi-Stat. Open records and open government.

A new day, indeed.

However, this reality-based lawmaking and open government is about to get a test, and it the test comes in the form of (wait for it, wait for it, wait for it….) business tax cuts. Here is where the rubber meets the road.

As most know, the BPT is made up of two parts- receipts and profit. Councilman Goode just introduced a bill to eliminate the receipts portion of the tax. This is by far the smallest of the taxes, at just .19% 1415% (versus 6.5% for profits). The receipts part of the tax is a symbol, because people have to pay it whether they make money or not. The bill will probably pass as of today, as will a bill to significantly cut the larger tax on corporate profits. Even the most rosy scenario of tax cuts predict that at least in the short term, there will be a decrease in revenue.

Why do we cut business taxes? Most times, it is talked about as a way to grow jobs, especially in the context of small businesses. Given that general business location decisions of big corporations put emphases away from taxes and tax packages, and towards services, workforce education, etc., we can assume that tax cuts are aimed to help small businesses. And, Brett Mandel, et. al., have done an admirable job of getting small business people up in arms about the devilish BPT.

I agree that if you presented a small business with enough money to hire an additional person, to invest in new equipment, etc., then a tax cut may make sense. On the other hand, if the typical BPT payer is not getting much of a break, and the City and small businesses could desperately use a 1)more user friendly City Hall and 2) better and more services (think the surcharge that the Center City District businesses pay), then it may make sense to forget cutting business taxes, and instead invest more in our City.

So, here is where the open-records, and reality-based decision making comes into play:

Before we make a decision on whether to cut business taxes, we should know how much each business actually pays to the City each year. (As we know from the Vince Fumo property tax fiasco, how much each person pays in property taxes is a public record.) Is a small businessperson actually saving enough money to re-invest in their business, or to hire additional workers? Without having real statistics, how would we know?

So, before we decide to cut business taxes or not, we should know how much every business- from big old Comcast to the smallest person just opening up shop, pays in taxes to the City each year. This may shock you, but under the previous Mayor, the Commerce Department generally refused to provide these numbers. I guess they thought it was their business only. But, with a new Mayor focused on transparency and the like, I am hoping things change.

Until we know these numbers- and see just how much business people will actually benefit from a tax cut (as opposed to our biggest firms)- we can not use reality based decision making.

I suspect very few people- from City Council, to the new Commerce Director to Small Businesspeople themselves- actually get what these numbers are. But, before we simply start cutting taxes, shouldn’t we make sure that these basic questions are answered? If there is a real privacy issue, the actual business names themselves can be redacted. But, either way, all we need is something that should be quite simple: some sort of excel/dbf type file, with a business, and the amount of each tax that it paid per year. We can analyze it from that.

It is a new day in Philadelphia. A day for open government. And a day when we can make budgetary decisions with our eyes wide open. Let’s see those numbers before we start tax cutting.

EMS Response Times, Dying on the Streets, Tax Cuts and the Controller

Poor, poor Stan Shapiro. He is currently on a vacation, out of the country, when stories with headlines like this come out:

"Butkovitz: Halt tax cuts, fix EMS"

And from the Inquirer, we get this:

Philadelphia's city controller - contending Mayor-elect Michael Nutter should be assessing city services before talking tax cuts - yesterday reported dangerously slow response times on emergency-medical calls.

"Most of the departments we look at, we see gaping holes in service," Alan Butkovitz said at a news conference in which he released a performance audit by his office of the Fire Department's Emergency Medical Services Division. "We're in the midst of this tax-cutting craze."

Nutter has pledged to enact tax reforms, including scaling back the business-privilege tax.

In response to the audit, Nutter's spokeswoman, Melanie Johnson, said "the mayor-elect wants to review the controller's report and will have a more detailed comment after he has seen it. In reference to the controller's recommendation to freeze business taxes, the mayor-elect is committed to improving the business climate while at the same time improving on the delivery of city services."

The controller said the assumption behind the "tax-cutting craze" is that city services are up to snuff. But the performance by EMS ambulances is one example of a service that falls woefully short, he said.

Stan, where are you!?!!?

As far as the EMS specifically, this is unfortunately not anything particularly new. Mike Newall, of the CityPaper wrote a cover story about our EMS problems two years ago, the Daily News did its own series, and Newall followed up last month, and reminded us of some people who likely died specifically because of slow EMS response times:

Danny Rumph, a 21-year-old stand-out guard at Western Kentucky University, suffered cardiac arrest on a Mount Airy basketball court and died after waiting 31 minutes for an ambulance. Ricky Badway, 22, suffered cardiac arrest at his girlfriend's house in Roxborough and died after waiting 22 minutes for an ambulance. Rotan Lee, a prominent education reformer, suffered cardiac arrest at his West Philadelphia home and died after waiting 19 minutes for an ambulance. And a 5-month-old baby girl suffered cardiac arrest in Wissinoming and died waiting for an ambulance that never even arrived.

"And these are just the cases the press knows about," says one paramedic. "This happens all the time. It's a silent epidemic."

We know about these, because they are the extraordinary cases- a local Division 1 basketball player, a prominent Philadelphian like Rotan Lee (Read Seth Williams' remembrance of him here), and a 5-month old baby. But, I think we all understand that for every case that is reported, many, many more go unreported.

So, Butkovitz undertook an audit of the EMS system, and came up with a long list of things needed to be done to fix the system. First, and foremost though, is hiring more paramedics, which will cost money, and appears to be the jumping off point for the first Philadelphia Politician in recent years to utter the phrase "tax-cutting craze" in recent memory.

Anyway, this is a big deal in this whole tax cut debate for a couple of reasons. First and foremost is that the last Controller, Jonathan Saidel, was basically the point man in so much of the debate. And second, Butkovitz is now, by far the highest ranking city official who appears to be getting off the BPT train. Maybe he will fall back in line, maybe not.

I think we need to take a few reasonable steps before cutting taxes:

1) A whole sale evaluation of city services, city departments, etc., to figure out exactly what our budgetary needs are- from EMS, to libraries, etc. This is often proposed by our very own Gaetano. Within that, there will be different levels of urgency- so, we will have to prioritize.

2) Unlike with the Street administration, our more Open-Govt oriented new Mayor should give us some detailed figures from the BPT cuts. What is the breakdown for BPT breaks? There are something like 75,000 payers of the BPT in Philadelphia. What percentage of this tax break goes to the top one percent (750) of businesses and top 5 percent of businesses? What percentage goes to the other 70 thousand or so payers? If the idea is small business job creation, and it only gives the typical small business a hundred bucks a year, then... you know where I am going with this.

At least then, with a little more information under our belt, we can at worst look at the situation, and agree to disagree on where our next steps should lie. At best, maybe we will even agree...

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