no brotherly love for entrepreneurs: it’s never sunny for philadelphia’s small businesses

8/7/2019 No Brotherly Love for Entrepreneurs: Its Never Sunny for Philadelphias Small Businesses

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November 2010

Written byROBERT McNAMARA

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Its Never Sunny for Philadelphias Small Businesses


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Cover PhotosTopAaron Ultimo found the process of dealing with city officials toopen up his coffee bar like operating in a different century.BottomPhiladelphia enjoys a thriving street food-vending marketeven though the citys laws make it unnecessarily difficult for new busi-nesses to enter this trade.

Bottom photo by flickr.com user techfun under creative commons license,(http://creativecommons.org/licenses/by-sa/2.0/deed.en).


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AcknowledgmentsThe Institute for Justice wishes to thank the Diehl Family Foundation for

the generous support that made this project possible.

The author wishes to extend his sincere appreciation to Praveen Kosuri andhis students at the University of Pennsylvania, who every day work to makethe burdens detailed in this report a little less burdensome. Thanks arealso due to Hannah Sternberg, Courtney Knapp, Denise Chaykun and theever-helpful staffof the Franklin Mortgage and Investment Co. Last, butperhaps most importantly, he is deeply grateful to all of the entrepreneursand experts who contributed their stories and insights to this report.

by Robert McNamara, StaffAttorneyInstitute for JusticeNovember 2010

Its Never Sunny for Philadelphias Small Businesses


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No Brotherly Love for EntrepreneursNo Brotherly Love for Entrepreneurs

The city of Philadelphia is governedby the ordinary things one finds in

American cities: a mayor, a city council,various bureaucracies. But it is also gov-erned by something else: the word no.

At nearly every level, Philadelphias city

government and related bureaucraciesoperate with a one-word vocabulary;whatever the question is, the answer isNo. In field after field after fieldfromzoning to permitting to occupationallicensingwould-be entrepreneurs hearthat answer time and again.

But as anyone who has ever spenttime around a toddler can attest, a one-word vocabulary quickly wears thinand in this (as in many things) what istolerable in a toddler makes for terriblepublic policy. Saying nothing but no

eventually yields exactly what one wouldexpect: nothing.And nothing, unfortunately, is what

Philadelphia has to look forward to un-less it begins to reshape its approach toentrepreneurship. Three key areas cryout for reform:

Zoning

Philadelphias zoning code represents an almost insur-mountable barrier to starting a new business in many (if notmost) areas. Perhaps most significantly for people looking tostart new businesses, in many of the citys residential areas,it is flatly illegal to run a business from your homeeven if

you do not create a traffic problem or cause noise that wouldbother your neighbors. Not only does the citys decades-oldzoning code forbid most basic land uses in most areas, theonly way to escape from the codes strictures is to ask for a

special variance from the citys Zoning Board of Adjustments(also referred to as the Board of Appeals), a bureaucratic bodythat operates with essentially unlimited discretionand actslike it.

Taxation

The citys current system for raising revenue from busi-nesses is stifling and perplexing. Philadelphia small busi-nesses are faced with taxes that are not simply too high, buttoo many, creating innumerable chances for a business ownerto inadvertently slip up and incur hefty fines.

Permitting & Licensing

As things stand, the mission of the citys various officesand bureaucracies appears to be to stymie the creation of newbusinesses wherever possible. The citys procedures them-selves are fundamentally broken, to say nothing of the fact that

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And the city government clearlydoes not recognize that all of thesegovernment-imposed barriers to hon-est enterprise are a problem: In 2008,the city council actually adopted an en-tire new regulation making it illegal towork as a tour guidewithout obtaininga special government-issued license. Inthe eyes of the city government, thereis apparently nothingincluding talk-ing about the Liberty Bellthat citizens

should be allowed to do without thegovernments say-so.

for a wide variety of occupations, city and state lawsfor nogood reason at allcreate tremendous barriers to entry.

The citys permitting and licensing codes are onerousenough in themselves, but city officials often seem hell-benton treating the system as a perverse game: Entrepreneursmust successfully navigate the byzantine system of rules inorder to win. This is backwardswhere the citys laws get inthe way of honest entrepreneurship, this has to be seen as abad thing.

Moreover, city and state law collude to make some occu-pations all but offlimits to new entrants. For some business-

es these laws impose unnecessary and unrelated educationalrequirements that interfere with grassroots entrepreneur-ship. For otherslike taxi servicesnew businesses are sim-ply illegal altogether. Just a few examples of the unnecessarylicensing burdens placed on would-be entrepreneurs:

State law makes it illegal to engage in landscape ar-chitecturewhich in many cases simply means trimmingshrubsunless the would-be architect goes through anexpensive process of education and licensure.

Similarly, hair styling, hair painting, traditional Africanhairbraiding and most other variants of what the law callsbeauty culturerequire extensive training and educationtraining and education that is totally divorced from any public

health or safety concerns.Licensing requirements for new street vendors are oftenincomprehensible, at least in areas where new vendors arenot functionally prohibited. Mobile vendors find it all but im-possible to determine where it is legally permissible to vend.

State law flatly forbids new taxi businesses.The city even requires a license even to close a business.

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As things stand, the mission of thecitys various offices and bureaucraciesappears to be to stymie the creation ofnew businesses wherever possible.

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Entrepreneurial Activity in Philadelphia

Entrepreneurs are the heart of the American economy.Entrepreneurs create jobs, provide services, introduce newproducts and improve their neighbors livesall while payingtaxes that pay for government services. Entrepreneurs pro-

vide the drive that makes local economies work.They do that everywhere, that is, except for Philadelphia,

where they are not allowed to. Philadelphia has the low-est rate of entrepreneurship of any major city in the UnitedStates. In April 2008, the nonprofit Kauffman Foundation ofEntrepreneurship found that Philadelphia had the lowest rateof entrepreneurial activity of any of the 15 largest metro-politan areas in the country, with only 110 entrepreneurs perone hundred thousand adults.1 That is only about one-thirdthe national average rate, and less than one-fifth the rate thestudy found in Phoenix, Ariz.2

This paltry rate of entrepreneurship does not stem from

a lack of local drive, or education or income.

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Indeed, talkingto the average Philadelphian, one gets the sense that half thepeople in the city are walking around with a business plan intheir back pocket. Given the drive and enthusiasm Philadel-phians seem to have for entrepreneurship, the incredibly lowrate of actual entrepreneurial activity in the city seems noth-ing short of shocking. There is nothing wrong with thepeopleof Philadelphiabut there is unquestionably somethingwrong with its government.

It is important to bear in mind that the strikingly lowrate of entrepreneurship measured by things like the Kauff-man study measures only Philadelphias rate of legal entrepre-neursthat is, small businesses that have all of the necessary

permits, pay all of the necessary taxes and operate within thebounds of the citys legal system. For obvious reasons, it is difficult to quantify how many entrepreneurs are currently op-erating illegally and in secret, but the Institute for Justice hasspoken with countless individuals running businesses outsidethe bounds of the lawdriven to illegality by the complexity,expense or simple hostility of the citys regulatory system.

Philadelphia is one of the rarecities that inspires true passion in itsresidents. Philadelphians take pride in

their city, and theres a strikingly largepopulation of people in the area whowant to make their community betteroffpeople with ideas about new busi-nesses or services Philadelphia mightneed. These people have questions:They want to know where they canstart their business, what they needto do to get the citys permission andhow much all of this will cost. Unfor-tunately, the Philadelphia city govern-ment does not have answers. And when

it does have an answer, that answer is,almost invariably, No.The current state of city govern-

mentthe rampant overregulation,the tremendous burdens placed onwould-be entrepreneurs, and, aboveall, the pervasive culture of no thatpermeates every city officeis puttinga stranglehold on entrepreneurial ac-tivity. Wracked by a budget crisis, thecity inexplicably continues to expendextraordinary resources making itmore difficult to start a business (and

thereby generate more tax revenue).All Philadelphia needs to do in orderto unleash growth, in order to unleashthe creative energies of the literallythousands of would-be entrepreneurswithin its bordersis to stop sayingno, and start saying yes.


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But even though these businesses continue to operate, toone degree or another, their impact is greatly lessened. Illegalbusinesses have less of a positive effect on their communi-tiesbecause they cannot advertise, because it is difficult to

hire employees and because concerns about being caught bygovernment officials make the owners unwilling to grow thebusiness. They also contribute nothing to the citys tax base.For all these reasons, it often makes little practical differencewhether the city government destroys a would-be businessor simply forces it to operate in the shadows. Either way, ithas prevented an entrepreneur from improving the quality oflife in her communityand any reforms of city governmentshould be directed as much at making it easier for businessesto step out of the shadows as at making it easier for new busi-nesses to start from scratch.

Barriers to Entrepreneurship

There are plenty of reasons not to start a new business.It can be difficult to find financial backing, and for manypeople, the risks involved in starting a new venture are simplytoo terrifying. All of these reasons, though, hold true forentrepreneurs nationwide, in cities with three or five times asmuch entrepreneurial activity as Philadelphia. What entre-preneurs in those cities do not face, however, is the Philadel-phia city government.

Philadelphias government is ruled, at a very basic level,by a culture of no. Entrepreneurs are told, at every turn,

that they may not do anything without some governmentofficials permission. And that permission is rarely forthcom-ing, and sometimes flatly impossible to obtain. This definingproblem hinders entrepreneurs in Philadelphia at every stageof their interaction with city governmentfrom zoning, totaxation, to a wide assortment of licensing and permittingissues.

Philadelphias government is ruled, ata very basic level, by a culture of no.This defining problem hinders entrepre-neurs in Philadelphia at every stage oftheir interaction with city governmentfrom zoning, to taxation, to a wide assort-ment of licensing and permitting issues.

Philadelphias zoning code isconvoluted, outdated and horrendouslyrestrictive. Although zoning presentsa problem in many cities, the burden is

particularly oppressive in Philadelphiafor a few overlapping reasons:

The codewhich is essentially agroup of restrictions that have accretedover many years without even a coher-ent visionis simply too restrictive.

As a practical matter, in many regions,nearly any conceivable use for privateproperty (other than whatever use hap-pens to currently stand on that prop-erty) is simply prohibited.

Moreover, any attempt to get

around the zoning codes prohibition ofparticular activities sends a propertyowner into a dizzying bureaucraticmaze. The only way to get around azoning prohibition is to apply for azoning variancea process that canbe shockingly arbitrary and so compli-cated as to discourage residents fromeven trying to apply.


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Essentially, he said, Philadelphia has 150years of zoning history without ever revampingits zoning code. That creates 150 years worthof exceptions to the original zoning plan. Thisoutdated code (rife with exceptions and existingillegal uses) can create a nightmare for anyonewho wants to open a new business.

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the problem exists. The city has retained consultants toexplore reforming its zoning code.4 As, however, with manyproblems the city acknowledges, there is no indication ofwhen a solution will actually be enactedor, more impor-tantly, whether any reforms will actually address the trueproblem.

Even in those rare instances in which the citys zoningcode, on its face, allows an entrepreneur to use her propertyin a particular way, the culture of nothe presumption thatthe zoning code mustforbid something, because the zoningcode forbids nearly everythingstill often stands in the way.It is all too often difficult to figure out what the zoning code

allowsand even then, it can be difficult to convince city of-ficials to obey the code as written.

There is no better example of the systems consequencesfor ordinary would-be entrepreneurs than Debbi Ramsey,owner of Natural Wellness & Spa.5 Debbi never wanted tobe self-employed. She liked working for someone else andgetting a regular paycheck. But when she started takingmassage-therapy classes at 52, she needed to practice dif-ferent techniques on her friends and relatives. And once shefinished school, her friends were unwilling to let the massagesstop, and prevailed upon her to go into business for herselfusing her new training.

Her initial plan for her massage business was to start byoperating out of the basement of her home, butperhaps un-fortunatelyshe is meticulous by nature. I realized throughmy research that [a home-based business would be] illegal,she said. [And] Im the type of person with a conscience. Ilike to do things right. Although many entrepreneurs in hersituation would simply have operated an illegal business,Debbi refused to break the law. (See Home-Based Businesses,below.)

Because she was unwilling to operate illegally, Debbiinstead renovated a nearby commercial building owned byher mother-in-lawrequiring tens of thousands of dollars inexpenses before she had a penny of revenue.

Meanwhile, Debbi continued to dig into the citys require-ments for her new business, finding frustration at every turn.Even her efforts at finding out what the citys requirementswere met with frustration. Everything I found, she said, Ifound by accident. Prayer and accident. [And] the more I dug,the more I cried.

And to make matters worse, the

question of whether a zoning varianceshould be granted is a question onwhich everyone gets a sayneighbors,passersby and just general busybodiesalike. Property owners seeking a vari-ance all too often have to run a gauntletof private objectors, each with theirown set of idiosyncratic demands.

Indeed, experts in Philadelphiaentrepreneurship routinely point to thecitys zoning code as a leading problemfor would-be entrepreneurs. Praveen

Kosuri, executive director of the Uni-versity of Pennsylvanias Entrepreneur-ship Legal Clinicwhich lets top-flightlaw students help entrepreneursnavigate the various legal thickets ofopening a business in Philadelphiasummarizes the problem succinctly:Essentially, he said, Philadelphia has150 years of zoning history withoutever revamping its zoning code. Thatcreates 150 years worth of excep-tions to the original zoning plan. Thisoutdated code (rife with exceptions and

existing illegal uses) can create a night-mare for anyone who wants to open anew business.

As with many of the problemsidentified in this report, city officialsrecognizeat least to an extentthat


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Although Debbis hard fighteventually resulted in her being able tooperate legally (due in part, she says, tochanges in the zoning code), her even-tual success came at the cost of literallymonths of effort.

Debbis story is far from unique(except, perhaps, in her refusal tosimply flout the law). Entrepreneursare left to figure out a massivelyprohibitory zoning code all on theirownand then, even if they manage tosort through the requirements, are leftat the mercy of a zoning bureaucracythat operates from a presumption thatpeople can never do what they want todo with their own property.

And Debbi, it is worth pointingout, is in a relatively good positionthe

law actually allows her to do what shewants to do. Entrepreneurs who arenot so lucky need to seek a zoning vari-ance from the citys Zoning Board of

Adjustmentsa process in which, ap-parently, almost anything can happen.

Praveen Kosuri, right, Director of the Entrepreneurship Legal Clinic at theUniversity of Pennsylvania, works to help Philadelphia entrepreneurs navi-gate the citys regulatory thicket.

Digging, unfortunately, was not enough. Debbi discov-ered on a city government website that a special massagepremises license would not be needed for massage done onlyat the direction of a doctor or physical therapistwhich is allshe intended to do (all of Debbis clients have prescriptionsfrom a physician). So she printed out the web page and trium-

phantly brought it downtown.No, said the customer service agent, thats not the waywe do it. That exemption, she was told, was only availableto massage therapists physically located inside a physiciansoffice. But Debbi persevered, eventually being routed to asupervisor, who hauled out the relevant code and found thesame language Debbi had found on the Web, which on its faceallows two different exemptions: one for massage therapydone at the direction of a physician, and a separate exemptionfor massage therapy done in the office of a physician.6

Well, said the supervisor, Ive been here for 25 years, andthats not the way we do it. Despite Debbis continued protesta-tions, no one ever explained to her why the city did not believe

the exemption applied to her. That just wasnt the way [thecity does] it, the text of the code notwithstanding.Im a trained massage therapist, she said. I can mas-

sage you anywhere in the world. I can take you out in thestreet right now and massage you there. [So why] cant [I] doit in this room?


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The ZBA

The Zoning Board of Adjust-ments meets on the 18th floor of aCenter City office building, in a ster-ile room festooned with blue chairsand elementary-school-style postersexhorting Ethical Decision Makingand asking visitors whether they are

following the Golden Rule. Based onwhat I observed directly, and countlessstories heard from other people, thereis literally no one who would want tohave the zoning-variance process doneunto them.

Individuals seeking a varianceare expected to be flawlessly prepared.They must bring a copy of their deedor lease to the property with them(and a married applicant should noteven think about trying for a variance

without a signed letter from his spousegranting permission to do so). Anapplicant must also have photographsof the propertyeven if the variancerequested has nothing to do with theexterior of the property. And organiza-tions of any kindeven tiny nonprof-

itsmust be represented by an attorneyeven though themembers of the Zoning Board themselves do not have to belawyers.

If an applicant is fully prepared to go before the board,she (or her attorney) must make a full presentation describ-ing the variance sought. Three separate groups also addressthe Board, each of which has the power to stymie an applica-tion: community groups, city council members and the citysPlanning Board.

One might expect that objections to zoning variances

would have to do with the nature of the varianceconcernsthat allowing a new use would create pollution or wouldinterfere with nearby properties. Nothing could be furtherfrom the truth.

For example, at a recent board meeting, one real-estateprofessional (who declined to be interviewed for this report)came with what seemed like an eminently simple variancerequest: The building from which she operated her businessalready had a parking space set aside in the back, but thebuilding wasnt zoned to have onsite parking. She just wanteda variance to make it legal for her to use the space that al-ready existed.

Rather than a discussion about the consequences tothe neighborhood of allowing the use of an existing parkingspace, the ensuing meeting turned into a debate about wherethe real-estate business kept its trashapparently, near afence on the property. Although the city had never issuedany citations for improper trash storage, this had apparentlycaused some consternation among the neighbors (or, at least,among the single neighbor who came to the hearing). It wasnot entirely clear whether it was legal to store trash by thefence, or what this had to do with the parking spacebut noone seemed particularly to care.

After a lengthy discussion of things other than themerits of allowing an existing parking space to be used for

parking, the members of the board in attendance voted anddeadlocked, 2 to 2.7 And, in yet another illustration of Phila-delphias culture of no, a tie vote means the same thing as aunanimous No.

This was not an unusual casethe board regularly hearsobjections that are totally unrelated to the actual variancebeing sought.8 And the board regularly imposes requirements

The Zoning Board of Adjustments meets on the18th floor of a Center City office building, in asterile room festooned with blue chairs andelementary-school-style posters exhorting

Ethical Decision Making and asking visitorswhether they are following the Golden Rule.Based on what I observed directly, and countlessstories heard from other people, there is literallyno one who would want to have the zoning-variance process done unto them.


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A Word on Community

Development CorporationsPhiladelphia is blanketed by an interlocking web

of community organizations, generally referred to as

Community Development Corporations, nonprofits

that purport to support neighborhood development.

And, to be sure, these organizations can be helpful

sources of funds for entrepreneurs. But they are

just as oftenif not more frequentlya hindrance.

Most CDCs are simply independent nonprofit corpo-

rationswhich means that anyone can (and, with

apparent frequency, anyone does) simply start their

own. Predictably, this leads to unresolvable turf wars

in which different CDCs compete for limited govern-

ment development funds and even over the right to

particular territory. Sometimes CDCs even change

their boundaries, increasing the amount of regulatory

conflict.

Of course, it is usually no problem when two dif-

ferent charities seek to help people in the same area.

But Philadelphias CDCs exercise what often amounts

to full veto power over zoning decisions. And the

method of resolving these turf wars in the zoning con-

text is, sadly, perfectly in keeping with Philadelphias

broader scheme: Where two CDCs claim the same

piece of territory, but disagree over whether a particu-

lar zoning variance should be allowed, the dispute is

all too frequently resolved with a simple No.If two [CDCs] overlap and one objects to the

variance, one city employee told me, It puts [city

council members] in a difficult position. You dont

want to be seen as disregarding the communitys

wishes. The result often means that each of the

interlocking groups exercises an effective veto over

any proposed property use inside its self-proclaimed

boundaries.

Although all CDCs proclaim their mission is to

promote community development (and while, to one

degree or another, each does some things that ad-

vance that mission), there is a marked difference be-

tween organizations like the University of Pennsylva-nias Entrepreneurship Clinicwhich seeks to help all

entrepreneurs overcome the citys barriers to starting

or growing a businessand organizations like CDCs

that, all too often, join hands with the government to

create barriers to starting or growing a business.

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(sometimes called provisos) that

variance seekers take steps and incurunrelated costs as a condition of grant-ing any given variance.

One example of the costs of thissystem is Ramesh Naropanth, who ownsthe Cedar Street Supermarket. Rameshis no stranger to business, holding hisMBA in corporate finance from FarleighDickinson University.

The Cedar Street Supermarket playsa central role in its surrounding commu-nity. Ramesh calls it one-stop shoppingfor convenience and value, but anyone

spending a couple of hours there wouldsee customer after customer whosechildren greet Ramesh by name, who buymuch-needed baby formula with a prom-ise to pay when they can, and who clearly

view the Supermarket as an importantpart of neighborhood life.

Ramesh wanted to build on this community spirit and

sought a zoning variance that would allow him to sell sand-wiches out of his market. He was already allowed to sellbread, and he was already allowed to sell deli meatshe

just wanted to put the two together and let customers walkout with a cold sandwich. If people have a choice between

junk food and a sandwich, I want them to be able to take thehealthy option, he explained.

Rameshs first attempt at securing a variance went theway of most entrepreneurs applications: It was flatly re-

jected. Ramesh had assumed that, because there would be noreal effect on his neighbors (he had no plans to serve hot foodthat might create smoke or to add outside seating), and sincepermitting the variance would give people in the neighbor-

hood healthier food options without making anyone worse offhe would not have a problem. He could not have been morewrong: Community members showed up making outland-ish demands that Ramesh make financial contributions to

various local causes and, in keeping with the all-too-frequentpractice of treating any community objection as a veto, Ra-meshs request for a variance was rejected.

Ramesh Naropanth spent $8,000 on new security grates (see photo, right) so the city would grant him the privilege of selling sandwiches.


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Ramesh was shocked. After all, he had dealt with zoning

authorities beforehe went through a similar process whenremodeling his home in New Jersey. The process was similar,that is, in that he needed a zoning variance; it was wildly dif-ferent, however, in that it was completely painless. Therewas simply no comparison to the head-spinning experience hehad before Philadelphias Zoning Board of Appeals.

Chagrined, he sought help from the University of Pennsyl-vania Law Schools Entrepreneurship Legal Clinic. Aided by ateam of law students he praises as methodical and very well-prepared, Rameshs second application was grantedbut onlyon the (unrelated) condition that he install brand-new securitygrates on his windows, a process that ended up costing about$8,000. Ramesh does not object to having the new gratesone

can never have too much securitybut the fact remains thatthey are not legally required (none of the neighboring busi-nesses have them) and it was yet another expense to layer ontop of the zoning process, all just to let people buy a sandwich.If anything, Ramesh is glad he escaped without having to fulfillsome community members more outrageous (and unrelated)demands, such as the request that he pay for an area play-

ground in exchange for the right to sell

sandwiches.The process has taught Ramesha lesson: He owns the building hous-ing his market outright, and he hasa variety of ideas for expanding andpossibly including some outside seatingto give community members a place tocongregate. But he is unsure whetherthe zoning process, with no way topredict the outcome, would be worthit. I dont want to be making a fool ofmyself, he says.

Anyone spending a couple of hours there wouldsee customer after customer whose childrengreet Ramesh by name, who buy much-neededbaby formula with a promise to pay when theycan, and who clearly view the Supermarket asan important part of neighborhood life.


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Home-based Businesses

The broader problems with the citys zoning regulationsfind specific expression in the way the law treats home-basedbusinesses. As with commercial signs, in many areas of thecity, home-based businesses are flatly prohibited without azoning variance.10 And, given the documented difficulty ofsecuring a zoning variance, this means that many entrepre-

neurs simply cannot afford to even try to operate legally out oftheir homes.

But operating out of the home is one of the only waysmost entrepreneurs can afford to start their business. Asthe Enterprise Centers Della Clark, who has more than twodecades experience working with small businesses in Phila-delphia, pointed out, There are very few places in the city ofPhiladelphia that can give you free rent . . . . People dont havethe revenue [yet] to start that business outside their home.Incurring huge upfront costs can be a killer for a startup busi-nessas Debbi Ramsey (above) demonstrates.

Of course, as with signs, the legal prohibition does not

mean that no one breaks the lawin fact, it means that manypeople break the law. Once again, by adopting a draconianprohibition, the city has accomplished nothing but drivingsome businesses into the shadows, and destroying others out-right. The main function of the law, perversely, seems to be topunish the few people who are foolish enough to obey it.

Parking Requirements

The arbitrary and counterproductive requirementsimposed by Philadelphias zoning code are so legion that it isdifficult to choose one to highlight, lest this report seem to

endorse the various provisions it fails to mention. That said,the minimum parking requirements imposed by the cityszoning code serve as a useful microcosm of Philadelphiasapproach to zoning.11 Put simply, if you want to build some-thinganythingnew in Philadelphia, the city mandates that

Signs

One would not know it from walk-ing down any street in the city, butcommercial signs are illegal in Phila-delphia. To put up a sign of nearly anykind requires a special permit from thecity, which must specifically approve

(to the smallest detail) each and everysign erected.9

For a typical store-identificationsign (such as one that reads Grocery),typical production costs are between$1,200 and $1,500. At $500, thepermit

fee for a simple sign can end up beingmore than one quarter of the total costof adding the signto say nothing ofthe 30-day wait for the permit to beprocessed.

Faced with these costs, many mer-

chants told me they just put up signson their own, on the theory that city of-ficials will only sporadically enforce thepreposterously draconian ordinance.For the most part, these merchantsseem to be making the right callen-forcement of the sign-permit require-ment seems at best sporadic, and anadmittedly unscientific sample of citybusinesses showed that the vast major-ity of signs are technically illegal underthe code. As is the case with far toomany city laws, the rules impose almost

impossible burdens on merchants, andso the rules are (in many cases) simplydisregarded.


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you set aside a certain area to be used for no purpose otherthan vehicle parking.

As an initial matter, the codes requirements are oppres-sively complex. As Bill Kramer, then acting division directorof the Development Planning Division of the PhiladelphiaCity Planning Commission, admitted in 2008, Currently, thecode requirements for parking are a little less than clear. Itsall the kind of thing that where you are is going to determinehow much parking is required in that particular district.12 Aswith all of the citys regulations, complexity here favors big-

ger businessesthe only people who will be able to functionwithin this system are those with the money to buy teamsof lawyers to ensure compliance or those with the courageof John Longacre (discussed later in this report) to simplystart building without regard for the city codes never-endingdemands.

But more importantly, these requirements seem to havebeen imposed without giving any thought to what the city isaccomplishing through these burdensome regulations. Sure-ly, developers building new condos or shopping centers canbe trusted to construct enough parking to lure residents orcustomers to their development. Mandating that developers

include a minimum number of parking spaces seems to makeno more sense than mandating that hot-dog stands stock aminimum number of buns. What reason do we have to believethat, absent this legal mandate, condominium developerswould somehow forget that residents looking to buy a condowill, frequently, want to be able to park there?

Instead, the effect of the minimum-parking require-ments (like much of the citys zoning code) seems to beentirely pernicious.13 The complicated regulations imposecompliance costs, and (where the code requires more spacesthan the developer would otherwise have included) require

valuable real estate to be turned into essentially empty space.The only real impact for the citys residents is to require devel-

opers to build more parking spaces than people want. Unlesscity officials can present a compelling argument for usinggovernment power to artificially encourage Philadelphians todrive more frequently, the citys minimum-parking require-ments should simply be scrapped.

The culture of no is at the veryheart of the citys tax system, whichenvisions the mere act of being in busi-ness as a privilege for which would-beentrepreneurs must pay a businessprivilege fee.14 One of the most basic

American rightsthe right to earn an

honest livingis a special privilege inPhiladelphia, and one you must pur-chase from the government.

This point bears emphasis: Phila-delphia literally makes it illegal to earnanymoney outside of an employer-employee relationship without firstpaying the city a special fee. For bigbusiness, of course, the fee ($50/yearor $300 for a permanent license) is nomajor obstacle. For small startups, itcan be fatal.

The outrageousness of the lawis only compounded by the fact thatit makes nearly everyone in Philadel-phiaor, at least, everyone who hasever earned a dollar through baby-sitting or mowing lawns or any of athousand other everyday pursuitsintoa lawbreaker. And that is no exaggera-tionPhiladelphia seems intent onenforcing the law to the letter, to the

As is the case with far too many citylaws, the rules impose almost impossibleburdens on merchants, and so the rulesare (in many cases) simply disregarded.


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and have the same effectmaking it more expensive to run abusiness.

The array of taxes, credits and fees raise the cost of do-ing business both directly (by taking money from businesses)and indirectly (by imposing tremendous compliance coststhrough the sheer complexity of the tax system). Every singletax and fee imposed by the city creates an additional oppor-tunity for a business owner to slip up and incur hundreds oreven thousands of dollars in fines.

Even if completed perfectly, however, the array of taxes

and fees is daunting. A fledgling entrepreneur in Philadelphiacan find himself handing over more than one tenth of hisprofits to the city, all before he even begins to pay state andfederal taxes on his income.

As Praveen Kosuri, of the University of Pennsylvania,wryly noted, when the city wants to attract big businesses,all of these taxes are frequently waived, leaving the burdenon small businesses. And many of those businesses respondpredictably: Its a real decision [for them], Praveen said, toopen up here in Philadelphia or to cross City Line Avenue andset up shop in Conshohoken.

It is worth noting, once again, that these requirements

drive any number of businesses into the underground econo-my. The city is rife with individuals operating illegally, simplybecause the burden of paying the citys business-privilegetax is too highespecially for businesses that are operatedpart-time by their owners or for individuals who operate asindependent contractors within the city limits.

Board of Health, Licensing and InspectionsUnlike many of the rules and regulations referenced

in this report, the Board of Health finds few detractors onsubstancefew if any entrepreneurs say that the governmentneeds to get out of the business of protecting consumers frominsanitary food. But on procedure, the Health Department,

extent that in August 2010 it crackeddown on unlicensed hobbyist bloggerMarilyn Bess, whose blog yielded anestimated $50 in profits.15

Once an entrepreneur has securedthe privilege of going into businessfor herself, she is faced with a truly be-wildering array of separate taxesin-cluding a business-privilege tax (whichis based on both gross income and net

profits), an additional tax on net profits(separate from the net-profits tax paidfor the privilege of being in busi-ness), a use and occupancy tax forthe additional privilege of occupyinga building within the city, and furtherspecial taxes on specific things likeparking services or car rentalswith allthis falling on top of the additional costof hiring employees who are burdenedby a separate city wage tax.16

And these, of course, are just

taxes. The city demands additionalmoney from entrepreneurs in the formof feesfees to do everything from

just opening your business (as notedabove) to putting up a simple sign tell-ing people what you sell. Although notstyled as taxes, these fees serve thesame purposeraising city revenue

Philadelphia seems intent on enforcing

the law to the letter, to the extent thatin August 2010 it cracked down onunlicensed hobbyist blogger MarilynBess, whose blog yielded an estimated$50 in profits.


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like the Department of Licensing and Inspectionsand likeessentially every arm of the Philadelphia bureaucracyseemsto be nothing short of a nightmare: inflexible, incomprehen-sible and uncompromising.

A large part of the problem is simply a tremendousdivision of authority. Just as, in the zoning context, a huge

number of groups can exercise an eff

ective veto over any newbusiness, a multitude of city and state offices can indepen-dently stymie a new business venture. And there is simply nocentral authority to tell new businesses where they need togo, or in what order these permits need to be secured. A newrestaurateur, for example, would have to go to the Philadel-phia Board of Health, the Pennsylvania Liquor Control Board,the Department of Licensing and Inspection, and the ZoningBoard of Adjustment, as well as settling tax issues with theDepartment of Revenue. Each of these steps can, in and ofitself, be a time-consuming nightmare.

Everything here is backwards, said coffee-shop ownerAaron Ultimo, Its quaint sometimes, but sometimes you

want to actually get stuffdone. Having worked in the coffeebusiness in Arlington, Va., Aaron noted the stark differencebetween Arlington (where rules were clear and answersrelatively easy to obtain) and Philadelphia, which Ultimo (em-ploying a phrase that a surprising number of entrepreneursused regularly) said seems like it is operating in a differentcentury.

At one point, Ultimo went to theBoard of Healths offices to get thebusinesss permit to handle food, butsomething had fallen through thecracks on their end, he said, and anecessary piece of paperwork had gone

missing. Rather than being able to sortthings out there or even being able torefile the missing form, he was justsent away.

Area entrepreneur John Longacre,Aaron Ultimos business partner and anentrepreneur with years of experiencein both business and city government,said problems are rife at every possiblecity office. After spending a while inter-acting with city departments, he said,You really get a sense of whats set upto help and whats not. And right now

none of them are [set up to help].Im Philadelphias biggest cheer-leader, Longacre continued, but fromthe perspective of owning a business, itcouldnt be more difficult.

Take, for example, Kate Carrara,whose Buttercream Philadelphia is the

Aaron Ultimo found the process of dealing with city officials to open up his coffee bar like operating in a different century. When theBoard of Health lost his paperwork, the agency simply sent him away rather than help sort out the problem.


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Erin Anderson, Fringe Salon

City Hall just assumes you should automatically know stuff. Its a battle.

Erin Anderson owns the Fringe Salon, a brightly lit space on Passyunk Avenue, where you can get your haircut, grab a

massage, pet a cat and buy a new painting, all in one visit.

Being both meticulous and entrepreneurial, Erin originally wanted to pay her taxes in person, but when she went to the

Department of Revenue, she was, she said, essentially scolded and turned awayall of her payments could be (must be)

handled through the mail. But when Erin stopped receiving her tax paperwork in the mail, resulting in her missing a single

payment, fees piled up far more quickly than she would have expected.

The alacrity with which late fees are assessed is not unusualindeed, a surprising number of small-business owners

related similar stories of huge fines racking up from what seemed like an innocent paperwork error. Asked what he sus-

pected was behind the perceived increase in fines, John Longacre echoed the sentiments of many of area business owners:

Now that the citys broke, theyre doing everything they can to collect revenue.

15



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From what people tell me, andI experienced it myself, it all comesdown to whos reviewing you that day,Kate explained. Your whole businessis going to turn on Oh, we said a 12-gal-lon tank, and you have a 13-gallon tank.That makes you feel like youre at [their

mercy].Kates circumstances are un-usual, in that her licensing processwas almost impossibly easy: She onlylanguished for only one month waitingfor permission to operate after she hadinvested in all the things necessary tomake her business run. That kind ofspeed is unheard of (and almost surelydue to the leftover aura of litigatorsauthority Kate carries).

citys first cupcake trucklike an ice cream truck, but insteaddelivering professionally baked cupcakes to grateful pedes-trians.

Getting the truck wasnt hard, Kate said. Having theidea wasnt hard. Finding a location wasnt hard. The piecethat was hard was the licensing.

A former attorney, Kate is nothing short of tenacious, but

even a career in litigation failed to prepare her for the burdenof starting a simple business in Philadelphia. As Kate ex-plained the process, I went to [the licensing authorities] andasked them what I should do. They said, We dont do it thatway. They said, You should tell us what you want to do andwell tell you whats wrong [with your proposal]. . . . It was ahassle every step of the way. Law school had nothing on this.

Philadelphia regulations, for example, require that anyvehicle from which food is sold must contain a sink and a hot-water heater. Even though Buttercream sells only premade,packaged cupcakeswhich Kate bakes in a government-licensed commercial kitchen before heading out in the truckthere was no way around this requirement, requiring more

than $5,000 to refit the companys truck. Kate does not dis-pute the need for these requirements for some types of foodbusinessesbut applying them to prepackaged foods simplydefies logic. The insanity of the system is only heightened bythe fact that, all too often, the precise way each regulation ap-plies hinges entirely on which city inspector an entrepreneurhappens to be dealing with on a particular day.

Like countless other entrepreneurs across Philadelphia, Debbi Ramsey, ownerof Natural Wellness & Spa, fought a pitched battle with local zoning officials.

A former attorney, Kate is nothingshort of tenacious, but even a career inlitigation failed to prepare her for theburden of starting a simple business inPhiladelphia.


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All told, Kates simple idea re-quired four separate city licenses: (1) abusiness license, (2) a catering license,(3) a mobile-vehicle food license, and(4) a license to operate out of a catererskitcheneven though the caterer fromwhom Kate rents kitchen space alreadyhas a valid commercial-kitchen licensefor the space.

And despite her doggedness,Kates problems did not end there: On

August 24, 2010, just before this reportwent to press, her truck was confiscat-ed by the citys Department of Licens-ing and Inspections for vending in aprohibited area.17 As Kate correctlypointed out to Philadelphia InquirerreporterRobert Moran, however, thecitys regulations regarding whereexactly she is allowed to park areaswith so many city regulationstotallyopaque, leaving her (like other entre-preneurs) almost entirely at the mercy

of city offi

cials.

18

As is the case with the rest ofPhiladelphias insurmountable barri-ers, the only way to get past them, inmany cases, is to ignore them. For myfirst restaurant, we just started build-ing until we got in trouble, Longacreconfesses. Then we immediately cor-rected [the problem] and complied andgot the permit [we needed].

Taxis

There is no better example of theway regulations contribute to the Phila-delphia shadow economy than the citystaxi industry.

Taxi service in the city is regulatedby the Philadelphia Parking Authority,

which took over the job from the state Public Utility Commis-sion in spring of 2005 as the PUC was mired in scandal over itsofficials allegedly accepting bribes in South Philadelphia.19

On their face, the citys laws make it illegal to start a newtaxi business.20 And, as far as the citys official records indi-cate, the city has no new taxi businesses. But a simple walkalong the Market-Frankford line in West Philadelphia duringrush hour indicates something far different: men with cars in

various states of repair, inquiring whether returning commut-ers need a hack. Faced with a clear market need for moretaxis and a legal system that forbids them from meeting that

need, these men do what Philadelphians from many otherwalks of life have been forced to do, and simply ignore the law

People need a ride, one illegal operator from West Phila-delphia (who, for obvious reasons, did not want to be specifi-cally identified) said. [Licensed cabs] wont come out here totake them to the grocery store, to take them home from work.

Even though the U.S. Federal Trade Commission hasrepeatedly found that entry restrictions like these do noth-ing to help taxi consumers,21 and even though no serious casecan be made that these entry restrictions are being rigorouslyenforced, the city of Philadelphia continues to respond to anyattempt to create a new legal taxi business with a word that

has become all too familiar: No.In order to operate a legal taxi service in Philadelphiathat is, to be able to pick people up on the street and then dropthem offwhere they want to goyou are required to have aspecial permit, called a medallion, issued by the Philadel-phia Parking Authority.22 In order to obtain a medallion, youmust first obtain a certificate of public convenience.23 Inother words, you may not open a new taxi business unless the

Authority first determines the city needs a new taxi business.Take a second to imagine this policy applied to any other

business. That is, imagine if, before an entrepreneur couldstart a new hamburger stand, he first had to prove that thecity needed onethat the citys hamburger needs were not

being sufficiently met by McDonalds or Burger King. If thatwere the law, Philadelphians in need of a high-quality burgerwould often end up going hungryjust as Philadelphians inneed of a taxi all too often go rideless.

And, to make matters even worse, the law does not stopthere. In fact, the Authority is only permitted to issue a totalof 1,600 certificates of public convenience for taxi serviceno


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matter how many people might need taxi service.24 And be-cause the city already has 1,600 authorized taxis, this meansthat it is literally impossible to start a brand-new taxi busi-ness, no matter how hard you work or how much consumersneed additional taxi service. The bottom line is this: Drivers

and the riding publicnot government offi

cialsare in thebest position to decide if more cabs are needed on the streetsof Philadelphia. If new cab companies start up and there is nodemand, those businesses will go out of business. But if thereis demand, the publics need will be met.

Street Vendors

Philadelphians are justly proud of the quality of the foodthe citys vendors sell from street carts. Unfortunately forany Philadelphians who want to add to that quality, the city

strictly delimits the areas in which stationary vendors canoperate, and the fact that established vendors have largelytaken up all of the legally available space makes it difficultinsome areas impossiblefor new entrants to compete withpre-existing businesses.25

Philadelphia regulates street vending in several differentcategoriescurb markets, where vendors may sell an almost

comically limited set of things (freshfruits and vegetables, boxed fresh eggs,frankfurter sandwiches, shoes and drygoods) from a wheeled cart, street ven-dors, who may sell essentially anything

from a conveyance that takes themfrom place to place,26 and a variety ofdifferent types of sidewalk vending,which is sharply circumscribed andgoes by different names in differentareas. The upshot is that it is impos-sible to break into any kind of vendingexcept street vend[ing]that is,selling from a mobile vehiclebut eventhere the regulations are so preposter-ously specific (there are more than300 areas specified in the city code, forexample, where vending is prohibited)

that essentially every mobile vendor Italked to said they generally pull overand sell things wherever they want and

just leave if a city inspector or policeofficer happens by.27

Philadelphians are justly proud of the citys street vendors, including the vegetarian offerings from University Citys Magic Carpet Foods.


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19

Business Closing

Apparently not content to makeit illegal to open a business, the city ofPhiladelphia has made it illegal to closeone without giving the city govern-ment advance notice. Anyone with anyemployees who wishes to close his busi-ness must provide the citys Director

of Commerce (as well as all employees)with a statement of his intent to closeand an impact statement detailingthe consequences of the proposed clo-sure.28 The law even gives city officialsthe authority to obtain a court ordermandating that a business stay open ifthe city receives insufficient notice.29

Tour Guides

As mentioned above, city officialsare not oblivious to the problems identi-fied in this report. Indeed, nearly everyobstacle identified above either hasbeen or is currently the subject of a taskforce or committee considering whetherthe burden on entrepreneurs shouldbe lightened. But while city officialsconsider the possibility of taking stepsto make things better in the future, theypersist in actuallytaking steps to makethings worse right now.

This is probably best illustrated bythe citys plan to make it illegal for any-one to give a tour of the city without firstobtaining a special tour-guide license.This new requirementwhich wouldplace significant financial burdens on

the small companies and independent contractors that makeup the bulk of the citys tourism industrywas not a consideredresponse to any consumer complaints or an attempt to preventinjuries. Instead, the city responded to complaints from asingle officious guide, who believed his competitors were insuf-ficiently educated, and to Councilman Frank Rizzos concernthat impudent guides sometimes mak[e] fun of [Philadelphias]artwork by imposing new licensing, testing, insurance andpermit-fee requirements on the entire tour-guide industry.30

As seems almost always to be the case in Philadelphia, the urge

to say no (in this case, to say, No, you cannot talk about theLiberty Bell,) prevailed over all else.

Fortunately, in this case, the citys effort to say no hasbeen stymied. Faced with a lawsuit by three brave local guideswho sought to protect their First Amendment right to speak fora living, the city has so far been unable to enforce its new guide-licensing scheme. Those guidesMichael Tait, Ann Boulais and

Josh Silvercontinue to give honest, entertaining and unli-censed tours of the city to this day.31

Landscape ArchitectsUnreasonable prohibitions on operating reasonable

businesses do not end at the city-government level. Thereis perhaps no better example of this than Pennsylvaniaslandscape-architect registration requirements.32 Althoughthe law spends more than 200 words defining what it meansby landscape architecture,33 the simplest way to explain it isthat landscape architects design (or consult about or super-

vise) land usesthey design things like gardens, trim thehedges and arrange the shrubs.

In order to design a garden in Pennsylvania, a would-beentrepreneur must demonstrate either eight years expe-

rience as a landscape architect or two years experiencecombined with a degree from an approved college or school oflandscape architecture.34 Once licensed, they must complete24 hours of continuing education every two years.35

Pennsylvania is not unusual in requiring landscapearchitects to obtain a government license.36 But one cannot


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help but wonder what purpose is served by imposing theseburdens on would-be entrepreneurswhat threat to thepublic health and safety is being staved offby a law that, byits literal terms, prevents anyone from opining on the propershape of a hedge without the proper government creden-

tials. It is useful to contrast the limits imposed on landscapearchitects with those imposed on another groupactualarchitectswho could create genuine safety concerns byperforming their jobs incompetently. Pennsylvanias archi-tect-licensing law only prohibits unlicensed individuals fromproviding studies or design documents (or supervising relatedconstruction) in connection with the design and constructionof a structure or group of structures which have as their prin-cipal purpose human habitation or use or certain interior orsurrounding spaces.37 In other words, an unlicensed architectcannot design or supervise the building of a housebecausea poorly designed house could collapse and kill people. Anunlicensed landscape architect cannot provide a consultation

. . . [about] natural land features.38

It may be that there arecompelling reasons that the public needs to be protected fromuneducated consultations about their natural land featuresbut there is no telling what those reasons might be, and noindication that the state legislature considered them beforeshutting would-be landscape architects out of the market.

Hairbraiding

Although Pennsylvania law oftenimposes wholly unnecessary burdenson entrepreneurs, there is nothingstopping the legislature from lifting orlessening those burdens. And, indeed,

sometimes it doeseven if it fails to gofar enough.An excellent example of this is the

states treatment of traditional Africanhairbraiding. African braidinganancient art involving the intricatetwisting, weaving, extending or lockingof natural hairhas for years been thesubject of legal controversy, as govern-ment officials looked at the art, did notquite understand it, and made it illegalto practice it without first obtaininga (wholly unrelated) license in other

kinds of hair-care or cosmetology.39

Pennsylvania was no different, foryears levying hundreds or thousandsof dollars of fines on braiders for notbeing licensed cosmetologists (eventhough they didnt cut or color hair, or

Philadelphia-area tour guide Josh Silver, left, talks to reporters. Silver sued Philadelphia after the city passed a law making it illegalfor him to talk about the Liberty Bell or other Philadelphia sights without first obtaining a special government license.


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Cosmetology

Besides hairbraiding, Pennsylvania imposes burden-some requirements on an impressive array of occupationsin the field of what state law calls beauty culture.44 Nailtechniciansa term that encompasses not just manicurists,but also people who apply false fingernails of the type thatliterally anyone can buy from a drugstoremust undergo 200

hours of training.45 Estheticians, who practice the not-so-dangerous art of makeup application and the tweezing ofunwanted hair, are required to have 300 hours of education.46

These requirements can seem reasonable at firstblushafter all, one expects ones manicurist to know how tomanicure. But the burdens these laws impose are substantialThree hundred hours of education, even if one goes to schoolin lieu of a full-time job, would take almost two monthstwomonths in which a would-be nail technician must forgo anyincome, to say nothing of having to pay tuition.

Against this burden, one has to measure the benefitsproduced by these laws: protection, perhaps, against bad

makeup jobs.

47

But faced with the choice between trustingconsumers to decide whether they want a particular personto do their makeup and imposing huge burdens on would-beentrepreneursbetween saying yes and saying noPennsylvania law nearly always errs on the side of no. Thelegislature errs on the side of requiring a licenseand justa couple hundred hours of educationeven when it cannotpoint to any real danger posed by unlicensed individuals.These burdens, which may seem small on paper and surelyseem small in the halls of the legislature, can be enormous toan individual of modest means, and they should not blithelybe tolerated in the complete absence of any evidence thatthey are necessary.

do anything other than braid it, andeven though most cosmetology schoolsdid not teach braiding).40 The statefinally changed that in 2006, at the urg-ing of the Institute for Justice,41 remov-ing the requirement that braiders belicensed cosmetologists and substitut-ing a regime that required braiders toobtain a license that required education

in braiding (rather than in everythingbut that).42 Under the new law, braid-ers are required to complete 300 hoursof education in sanitation, scalp care,anatomy and natural hair braiding in acosmetology school.43

Even this requirement (althoughmore sensible) is born out of a faultyassumptionthe assumption thatanyone who wants to do anything shouldbe presumptively forbidden. The stateof Pennsylvania was not faced with

the complaints of hordes of victims ofunder-qualified braiders. What harmwould there have been in requiring only100 hours of classes? Or 50? Or none?The state should not regulate just for thesake of regulationshould not say no

just for the joy of the wordand, in theabsence of a true threat to public healthor safety, there is simply no reason whyconsumers should not be entrusted withtheir own hair-care decisions.

Under the new law, braiders arerequired to complete 300 hours ofeducation in sanitation, scalp care,anatomy and natural hair braiding ina cosmetology school.


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A Brewing Controversy

The slogan greeting visitors to Ultimo Coffee Bar in South PhiladelphaBeer and coffee, together at lasten-

capsulates the shops mission, providing high-end coffee drinks and carryout specialty beer. Unfortunately, it also (at the

moment) tells a lie, at least if the Pennsylvania Liquor Control Board has anything to say about it. While the coffee business

has been open since May 2009, the shops application for a license to provide beer had been pending (when last we spoke)for one full year.

It doesnt make a lot of sense, Ultimo said. Every week that goes by is less revenue in the governments pocket.

The source of the problem, as seems all too often the case with Philadelphias small businesses, is the objection of a

single neighbor, said Ultimo and his business partner, John Longacre. Even though hundreds of neighbors signed a petition

in favor of the new business and a visit to the shop on a weekday afternoon reveals a healthy customer base, the fact that

someone in the neighborhood would rather not have fancy beer sold nearby has stymied Aarons brainchild.

This is not, it is important to note, a delay in Ultimos efforts to obtain a new license to sell beer. The state does not

issue new licensesever. Instead, entrepreneurs must (as Aaron and John did) purchase an existing license. In other

words, they face this delay despite having been extraordinarily lucky. The unusual number of Philadelphia restaurants

(even high-end restaurants) that operate with a BYOB policy is a testament to the fact that many small businesses are not

nearly as luckya fact for which Philadelphias diners regularly pay the price.

Aaron and Johns business has already obtained all of its other permits and completed its renovationsincluding a

dividing wall between the coffee and beer segments of the shop because, apparently, the state disagrees that coffee

and beer need to be brought together at all.

Aaron Ultimo has waited more than one year for a government-issued license to sell beer. Every week thatgoes by is less revenue in the governments pocket, he points out.

22


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No Brotherly Love for EntrepreneursNo Brotherly Love for EntrepreneursNo Brotherly Love for EntrepreneursNo Brotherly Love for Entrepreneurs

a public nuisance, there should be a presumption in favor ofgranting a variance; and (2) Public objections to proposed

variances should only be entertained to the extent they assertthat the proposed use would itself create a specific harm toneighboring properties.

Signs: Philadelphia should abandon any permittingrequirements for window signsPhiladelphias entrepreneurshave a right to communicate with their neighbors.

Home-based businesses: The citys new zoning codeshould make clear that Philadelphians are permitted to startsmall businesses in their homes. Since Philadelphians alreadydo this, changing the law would do nothing more than bringthese productive businesses out of the shadows.

Parking requirements: Philadelphia should simply abol-ish all parking requirements for new construction in the city.

Taxation

Philadelphia should scrap its maddening array of taxesand replace it with a single, uniform tax on net income that

can be easily understood by small entrepreneurs.

23

City and state officials shouldtake immediate steps to correct theseproblems that are choking Philadelphiaentrepreneurship offat the source:

Zoning

Zoning Code: Philadelphias zoningcode needs to be scrapped and rewrit-ten from scratch, expanding the num-ber of permitted uses ofall propertyand reducing the wildly inconsistentzoning that makes ones ability to starta business literally depend on whichblock ones property is in.

Zoning Board of Adjustments : TheZoning Board of Adjustments free-for-all system of deciding zoning-variancerequests should be replaced by a simplesystem based on two simple principles:

(1) If a proposed use would not create


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Licensing

Board of Health, Licensing, and Inspections: Licensingand inspection requirements should be simplified and madeuniform. Right now, far too much power lies in the discretionof individual inspectors or bureaucrats. City officials missionshould be finding ways to sayyes to entrepreneurship, and thatcan be accomplished by reducing inspection requirements tosimple, clear and publicly available forms that spell out all legalrequirements and yield definitive answers. Leaving discretion to

city employees all too often means leaving entrepreneurs out inthe cold.Taxis: Would-be taxi entrepreneurs should be able to start

a business as long as they are fit, willing and able to do so andtheir vehicles are inspected and insured. By following the ex-ample of Minneapolis, Minn.,48 which recently opened its marketto nothing but good effect, Philadelphia can improve service forthe citys taxi consumers while improving opportunities for thecitys entrepreneurs.

Street vendors: Philadelphia has a truly impressive street-food scenefor those lucky enough to be on the inside. More ar-eas need to be opened to vending, and more competition needsto be allowed within them. Regulations should be designed to

facilitate orderly competitionnot to make competition illegal.Business-closing license: It is neither sensible nor constitu-tional for the city to require a business to obtain its permissionbefore closing, and the business-closing licensing law shouldsimply be repealed. If we make it more difficult to close a busi-

City officials mission shouldbe finding ways to say yes toentrepreneurship, and that canbe accomplished by reducinginspection requirements to simple,clear and publicly availableforms that spell out all legal

requirements and yield definitiveanswers.

24

ness, smart entrepreneurs will thinktwice before they open one.

Tour guides: Philadelphia shouldrepeal its unnecessary and unconsti-tutional tour-guide licensing law, andreplace it with the same legal regime ituses to protect its citizens from any otherkind of speech: No regulation at all.

Landscape architects: Similarly,there is no reason for the state to requireeight years experience in order to ar-range shrubs. The best people to decidewho is qualified to design a garden inPennsylvania are the consumers hiringpeople to design their gardens.

Hairbraiding and other cosmetol-ogy licensing: The states hairbraidingregulations are another solution insearch of a problem. In the absence ofevidence that unqualified braiders wereactually hurting peopleand there is no

such evidencethe states hairbraiding-licensing requirement does exactly onething: prevent competition by stiflingentrepreneurship. It should be repealedentirely.


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25

John Longacre summed up the first lesson that every would-beentrepreneur in Philadelphia should internalize: In Philadelphia, yourentrepreneurial will is challenged on a daily basis, because never everwill you get the answer youre looking for or [have someone] help youget ahead of the curve.



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26

In an economic climate where every city should be welcom-

ing every new business with open arms, the city of Philadelphiadoes the opposite. In a nation where the default response fromgovernment should be Yes, you can rather than No, you cant,Philadelphia does the opposite. In a city that prides itself onBrotherly Love, where self-starters should be helped with theirproblems rather than simply sent away regretting they had anyentrepreneurial ambition, the city of Philadelphia, most emphati-cally, does the opposite.

John Longacre summed up the first lesson that every would-

be entrepreneur in Philadelphia should internalize: In Phila-delphia, your entrepreneurial will is challenged on a daily basis,because never ever will you get the answer youre looking for or[have someone] help you get ahead of the curve.

Philadelphiaand Philadelphiansdo not need to put up with an anti-entre-preneurship culture. Philadelphia doesnot need to assume that the default an-swer is nothat you cannot put up a signor open a simple business without mov-ing heaven and earth to get its permis-sion. But it does assume thatand untilit stops, until the city government makesa conscious decision to abandon its raw

hostility to small businesses, it is difficultto imagine the citys rate of entrepreneur-ship climbing out of the basement inwhich it currently languishes.


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(All Internet content was current as of September 15, 2010.)

1 Robert W. Fairlie, Kauffman Index of Entrepreneurial Activity15

(April 2008), available athttp://www.kauffman.org/uploadedFiles/

KIEA_041408.pdf2 Id. pp. 2, 15.

3 See Philadelphia Demographics, available athttp://philadelphia.

pennsylvania.com/demographics.html.

4 See Imagining Philadelphia: Laying the Foundation, http://www.

zoningmatters.org/issues/foundation.

5 Debbis business was previously (and for many of the events discussed

here) known as One Touch Wellness & Spa.

6 The relevant licensing code reads, in relevant part:

The provisions of this ordinance shall not apply to massage treatments

given

(a) in the office of a licensed physician, osteopath, chiropractor, or

a physical therapist;

(b) in a regularly established medical center, hospital, or sani-

tarium;

(c) in a residence of a person under doctors care by the direction of

the doctor;

(d) upon the order of a licensed physician, osteopath, chiropractor,

or physical therapist.

7 The Board has six voting members, not all of which need to sit at any

given meeting. Phila. Code 14-1805(2). In a way, the realtor in this

example was lucky to even have four members attendingany fewer and

the Board would not have had a proper quorum, meaning her application

would simply have been continued for months without any answer at

all. SeeJeffShields, Nutter Tiring of Lack of ZBA Quorum, Philadelphia

Inquirer, Nov. 23, 2009.

8 The difficulties imposed by the citys Zoning Board of Appeals have

been well-covered by the local media. See, e.g., Paul Davies, City to Busi-

ness: Drop Dead, Philadelphia Inquirer, Nov. 20, 2009.

9 Phila. Code 14-1903, 14-1904.

10 In some special areas, certain businesses can be run out of ones

home without a zoning variance. See Phila. Code 14-205.

11 Phila. Code 14-1401 et seq.

12 Seth Budick, Building for Transit-Based Living,available athttp://

planphilly.com/node/2848.

13 See generallyDonald C. Shoup, The High Cost of Free Parking (2005).

14 As of 2009, the fee to simply starta business was $300.

15 See Tanya Roth, Bloggers Must Purchase Business License in Philly,

available athttp://www.reuters.com/article/idUS157926431520100824.16 See generallyCity of Philadelphia Revenue Department, Tax Types,

Rates & Codes, available athttp://www.phila.gov/revenue/Tax_Types_

and_Codes.html (summarizing 15 separate taxes levied by the city).

17 Robert Moran, A cupcake controversy in Philly, Philadelphia

Inquirer, August 25, 2010, available athttp://www.philly.com/inquirer/

local/20100825_A_cupcake_controversy_in_Philly.html .

18 Id.

19 See Don Russell, PUC probed for alleged taxicab payoffs, Philadel-

phia Daily News, May 2, 2005.

20 By statute, the Parking Authority may issue licenses for no

more than 1,600 taxis to operate in the city. Philadelphia Parking

Authority Regulations for Taxicab and Limousine Service in the City

of Philadelphia 9.

21 See generally Mark A. Frankena & Paul A. Pautler, An Economic

Analysis of Taxicab Regulation, (1984) FTC Bureau of Economics Staff

Report, available athttp://www.ftc.gov/be/econrpt/233832.pdf.

22 4 PPA Regs. b.i.23 4 PPA Regs. a.i.

24 9 PPA Regs. a.i.

25 Phila. Code 9-201(3).

26 Mobile vendors in Philadelphia must also operate from a

commissarya centralized location where all food is prepared and

stored.

27 The citys specific regulations can be found at Phila. Code 9-201

et seq.

28 Phila. Code 9-5102. These requirements do not apply to certain

types of business closures, such as those caused by fire. Section

9-5101(4).

29 Phila. Code 9-5104.

30 This licensing scheme, currently the subject of a legal challenge

by the Institute for Justice, has not yet been enforced.

31 The Institute for Justice is lead counsel in the lawsuit challenging

the citys unconstitutional attempts to require guides to get a license

to talk. The case, Tait v. City of Philadelphia, is currently on appeal in

the 3rd U.S Circuit Court of Appeals.

32 Landscape Architects Registration Law, 63 P.S. 901-913.

33 63 P.S. 902(4).

34 63 P.S. 906(a), (b).

35 63 P.S. 909.1(b).

36 See Bureau of Labor Statistics, Landscape Architects, Occupa-

tional Outlook Handbook2010-11 Edition, available athttp://www.

bls.gov/oco/ocos039.htm.

37 63 P.S. 34.3.

38 63 P.S. 902. The law also provides that This provision shall not

be construed to prohibit those engaged in nursery occupations or as

gardeners or landscape contractors from preparing planting plans

and items incidental thereto. Id.

39 SeeValerie Bayham, Legal Barriers to African Hairbraiding

Nationwide, available at http://www.ij.org/1631.

40 New state regulations cut hair braiders some slack,Philadel-

phia Tribune, August 11, 2006.

41 See Are hair-braiders locked up by laws? New Pittsburgh Cou-

rier (Pennsylvania), Dec. 28, 2005-January 3, 2006.

42 Id.

43 63 P.S. 511.44 63 P.S. 507-527.

45 63 P.S. 511(b)(2).

46 63 P.S. 511(b)(1).

47 It is important to note that these licensing requirements are not

directed solely at public health and safetyat issues like sanitation

but are typically focused primarily on improving the overall beauty

with which one performs the beauty culture.

48 See http://www.ij.org/664.


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Robert McNamara serves as a staffattorney with the Institute forJustice. He joined the Institute in August 2006 and litigates cutting-edge constitutional cases protecting First Amendment, propertyrights, economic liberty and other individual liberties in both federaland state courts.

Currently, Robert is lead counsel representing a group of Phila-delphia tour guides challenging a law that would make it illegal forthem to give tours without first obtaining a special license from thecity governmentliterally making it illegal for them to talk about theLiberty Bell for compensation. His practice has also included repre-senting Bill Brody, a Westchester County, N.Y., property owner whofought against his states outrageously unfair eminent domain proce-dures and a group of Colorado homeowners in their fight to be able to speak freely about politicswithout subjecting themselves to the threat of lawsuits from their political opponents.

Roberts written work has appeared in popular publications like the Philadelphia Inquirerand the Washington Post, as well as academic publications including the Texas Review of Lawand Politics and the Federalist Society journal Engage. Roberts opinions on constitutional is-

sues have been featured nationwide in media outlets including the The Wall Street Journal, AirAmerica, National Public Radios All Things Considered, and Fox News Channel.In 2006, Robert received his law degree from the New York University School of Law.While

at NYU, he served as Editor-in-Chief of the NYU Journal of Law & Liberty, a scholarly publicationdedicated to the critical examination of classical liberal ideas. In 2003, he earned a dual degree inCommunications and Political Science from Boston University.


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The Institute for Justice is a nonprofit, public interest law firm that litigates to secure economic liberty, school choice,private property rights, freedom of speech and other vital individual liberties and to restore constitutional limits onthe power of government. Founded in 1991, IJ is the nations only libertarian public interest law firm, pursuing cutting-edge litigation in the courts of law and in the court of public opinion on behalf of individuals whose most basic rightsare denied by the government.

A B O U T TH E INSTITU TE FO R JU STICE

INSTITUTE FOR JUSTICE 901 N. Glebe Road Suite 900 Arlington, VA 22203 www.ij.org p 703.682.9320 www.facebook.com/instituteforjustice

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