CITY OF PHILADELPHIA TAX REFORM COMMISSION EDWARD A. SCHWARTZ 1401 John F. Kennedy Boulevard Chair Municipal Services Building, Suite 1440 Philadelphia, PA 19102-1602 Tel: (215) 686-2140 Fax: (215) 686-2123 Tax Reform Commission Summary of Meeting Thursday, June 5, 2003 The meeting came to order at 9 a.m. The following Commissioners were in attendance: Chairman Edward Schwartz, Vice Chairman Al Taubenberger, Thomas Forkin, Melvin T. Jackson, Brett Mandel, William R. Miller, IV, Harold A. Sorgenti (via conference call connection), Jonathan M. Stein and Stewart M. Weintraub. The following Advisory Committee Members were represented: Community Legal Services, The Institute for the Study of Civic Values, The Pennsylvania Economy League and Philadelphia NOW. The following guest speakers were in attendance: John Del Roccili, Ph.D, Senior Vice President & Principal, Econsult Corporation; Rob Dubow, Budget Director, City of Philadelphia; Michael Harris, Chief Financial Officer, School District of Philadelphia; Michael J. Masch, Secretary of the Budget, Commonwealth of Pennsylvania (via a conference call connection); Robert Greenwood, Executive Director, House Committee on Appropriations, Commonwealth of Pennsylvania. Joining these guests were Hal Fichandler from the Mayor’s Office, Sean McNeeley of the Office of Budget and Program Evaluation, and Kyle Wedberg and Christina Ward from the Financial Offices of the School District. The Chairman opened by enunciating the purposes of the meeting to be: 1) To have a final discussion regarding the Rendell proposal for state tax reform; 2) To hear from particular guests regarding their perception of this proposal; 3) To vote to accept or reject the Commission’s resolution to support Rendell’s proposal. The Chairman articulated the provisions of the Commission’s Resolution to be: 1) A statement, based on the commission’s charge to make recommendations regarding state tax reform that will improve the tax system in Philadelphia and throughout the state, approving or disapproving Governor Rendell’s proposal; and 2) A statement articulating exactly what the Commission is approving or disproving with regard to Rendell’s proposal. 3) The Chairman emphasized that the Resolution was not to be an advisement to the Commonwealth on how to raise revenue for to support Rendell’s proposal. Commission Meeting Minutes June 5, 2003 The Chairman asked John Del Roccili, Senior Vice President & Principal, Econsult Corporation, to review his findings and to answer any questions that the Commissioners might have. o Mr. Del Roccili stated that a reduction in the City’s wage tax would cause growth in the City’s tax base and thus growth in the City’s revenue, and further that it would create cross base increases (e.g. the property tax base would increase because property values would increase). o Commissioner Jackson asked why Mr. Del Roccili’s report focused only on the City’s Wage tax. Mr. Del Roccili responded that, for this meeting, Econsult was only asked to create an economic prediction as to the effects a reduction in the City’s wage tax would create. Chairman Schwartz affirmed this statement, adding that the Commission will consider the other business-oriented taxes at a later date. o Robert Greenwood, Executive Director of the Pennsylvania House Committee on Appropriations, asked the effect an increase in the state’s personal income tax rate would have on the City. Mr. Del Roccili answered by saying that it would have no effect vis-à-vis businesses in the City because the costs of moving out of state are much greater then the costs of moving from county to county within a state. Commissioner Weintraub affirmed this statement by saying that the increase in the income tax will not affect competitiveness because all taxpayers in the state will have to pay the same rate. o Commissioner Stein then added that economics is not the only factor that should be considered with regard to the Governor’s proposal. Chairman Schwartz stated that this may be true, but Econsult’s job was only to predict the economic consequences of a reduction in the wage tax. Chairman Schwartz then asked Rob Dubow, Budget Director, City of Philadelphia, to make a statement on behalf of the Mayor of Philadelphia o Mr. Dubow stated that the Mayor recently sent a letter to the Governor expressing the Mayor’s support for Rendell’s proposal. Mr. Dubow added that the Commission should keep in mind that schools all over the state need assistance from the Commonwealth, so the Commission should not focus only on the effect on the School District of Philadelphia Chairman Schwartz then asked Michael Harris, Chief Financial Officer, School District of Philadelphia, to express the School District’s opinion as to Rendell’s proposal. o Mr. Harris stated that although there are some technical aspects that still need to be resolved, those aspects are not so large as to change the District’s support for the proposal. Chairman Schwartz then asked Michael Masch, Secretary of the Budget, Commonwealth of Pennsylvania, to make any comments that he may have as to Rendell’s proposal. o Mr. Masch stated that it has been conveyed to the budget committee that there is concern about the effect Rendell’s proposal will have on the quality of life throughout the state. He stated, however, that this concern is minimized by the new tax reform package enacted by President Bush. This package will provide relief to Pennsylvania, and it is the Governor’s position that this relief should be used to improve or maintain the quality of life enjoyed in Pennsylvania. o Commissioners Taubenberger and Weintraub asked Mr. Masch questions about the mechanics of the relief provided under President Bush’s tax reform package. Chairman Schwartz then asked Mr. Greenwood, Executive Director, House Committee on Appropriations, Commonwealth of Pennsylvania, to articulate the Republican Party’s stance on Rendell’s proposal. o Mr. Greenwood stated that, although the Republican Party supports the goals of the proposal, the timing and implementation of the proposal are troublesome. In particular, Mr. Greenwood stated that expanding governmental Commission Meeting Minutes June 5, 2003 programs at this time would be inappropriate as there are already existing programs that are un-funded and under-funded. He also stated that the proposal would not really help school districts throughout the state. Finally, Mr. Greenwood explained that Rendell’s proposal is relying on sources of funding that are not particularly guaranteed. For example, he stated that relying on revenue from gaming, beer, and cell phones might not be appropriate because it is not clear that those sources will exist. o Mr. Masch responded to these comments by saying that although there may be difficulties for school districts in implementing Rendell’s proposal, not one district has said that it does not have the capacity to do so. According to Mr. Masch, Rendell’s position is that immediate action is required to prevent Pennsylvania’s school districts from experiencing even more difficulty funding necessary improvements in the future and that the Commonwealth will miss out on the opportunity to play a major role in the economy’s future expansion. o Commissioner Mandel then asked Mr. Masch and Mr. Greenwood to comment on behalf of their parties as to the priority of each party’s goals. Mr. Masch stated that Rendell’s top priority is to maximize the degree of economic competitiveness for the state and districts within the state. Mr. Greenwood agreed with Mr. Masch, but reiterated that the timing and extent of the proposal will cause more problems than it cures. Chairman Schwartz then called for a vote on the resolution that would voice the Commission’s approval of Rendell’s proposal. o All Commissioners present voted in favor of the resolution. o Commissioner Miller proposed waiting on the vote so that those Commissioners not present could vote for it, thus creating a unanimous stance by the Commission. o Due to practical problems with this proposal, the Commissioners decided against it. The meeting adjourned at 10:30am.