Tuesday, November 27, 2001

Phila Inquirer: Saidel offers tax plan, challenge

Land would be taxed more than buildings to spur revitalization. Saidel dared Street to back the plan or come up with another.

By Nathan Gorenstein
INQUIRER STAFF WRITER

City Controller Jonathan Saidel wants to overhaul Philadelphia's tax system, and yesterday he challenged Mayor Street to adopt his plan or come up with another.

Saidel yesterday released his proposal to cut wage and business taxes, and to revise property taxes, after Street staffers briefed in advance dismissed the ideas as too risky.

So it was no secret to whom Saidel referred when he said: "If they don't like what I say, then where are their alternatives?"

Saidel's plan has three major components: steeper reductions in wage taxes than those currently called for by Street; reductions in city business taxes, including one tax that companies must pay even if they lose money; and an overhaul of the city's property-tax system to reduce taxes on the value of buildings and increase taxes on the value of land.

While the 93-page analysis is merely the latest of many calls for tax reduction to echo across Philadelphia over the last decade, it has the advantage of already having wide support.

With Saidel when he unveiled it were Greater Philadelphia Chamber of Commerce president Charles Pizzi and five City Council members, including such allies of the mayor's as Jannie L. Blackwell, chair of Council's Finance Committee, and Richard Mariano, a union electrician and close ally of building-trade union leaders.

Saidel said he did not expect the Council members, or business leaders, to support every aspect of his plan. Its success depends on a "supply-side effect," the theory that by reducing taxes, businesses will create more jobs and thereby create more tax revenue.

Saidel said he was confident that if the detailed plan receives a full hearing by City Council, "a tax package can be delivered to the mayor."

Asked specifically whether any plan could be passed over Street's opposition, Saidel said: "If he thinks it is not proper, I ask for an alternative."

Street did not return calls seeking comment.

By next year, Saidel's plan would reduce the wage tax from 4.54 percent for city residents to 4.00 percent. By 2007, wage taxes would be cut to 3.5 percent for city residents and 3.375 percent for nonresidents, down from 3.9 percent.

The net-income portion of the business-privilege tax would drop from 6.5 percent to 4.0 percent next July, while the gross-receipts tax would drop from 0.24 percent to 0.20 percent.

Land would be taxed at a higher rate than buildings, resulting in tax cuts for most homeowners and tax increases for many businesses. Saidel argues that those tax increases would be offset by cuts in business taxes.

Saidel also identified in the report $27 million to $95 million a year the city can save through greater efficiencies.

Street aides have said that with the nation's economy sliding into recession, the city cannot start changing the complicated mix of taxes that funds the city's $2.9 billion budget. Rob Dubow, the city budget director, said any change in the city's taxes must await a statewide overhaul of the property-tax system. Such a move is considered to be years away.

Saidel noted that Philadelphia lost more than 4 percent of its population in the 1990s, its number of jobs dropped 6 percent, and its taxes remained among the highest of any city.

Saidel and Pizzi argued that inaction would doom the city to continued decline.

That was the message from one speaker, Paul Tirjan, who provides funding for biotechnology start-ups. Such high-tech businesses are the heart of the sole major economic-development plan Street has proposed since becoming mayor.

But Tirjan, the local director of Burrill & Co., a venture-capital firm, said that even though his office is located downtown, once new firms he finances start expanding, high city taxes mean "we have a fiduciary responsibility to encourage those companies to leave the city."

Saidel's plan says that by making the city more business-friendly, his reforms would "expand the tax base and increase tax revenues in the long term," but it acknowledges that in the short term, the city would likely see a reduction in tax revenue.

But he maintains that there is enough breathing room in the city budget to handle up to $629 million in lost revenue over four years - what the report calls the "worst-case scenario."

Saidel argues that the city regularly and deliberately underestimates its revenue base. Saidel said the city could absorb the "worst case" and still end up with a $213 million surplus in 2006.

Not everyone is so sure. Joseph Vignola, who heads the state agency that oversees the city's budget, said the worst-case scenario would be "disastrous.

"The city has areas where money is salted away," Vignola said. "But 10 years ago at this time, the city was overestimating revenues. . . . That's how we got into trouble."

Still, Vignola supported Saidel's call for cutting business-privilege taxes, which he called particularly harmful to small start-up businesses. He added that fixing schools was as important to the city's future as overhauling the tax system.

Other City Council members present were Michael Nutter, Blondell Reynolds-Brown and James Kenney. Nutter noted that while Street draws up the annual budget, it must still be approved by City Council, which could choose to impose a new tax system.

"The city's tax structure is abominable, and it needs to change," he said.

Nathan Gorenstein's e-mail address is ngorenstein@phillynews.com.

http://www.earthrights.net/philly/ptax27.html