A recent tweet (see above) from our good friends over at the Commonwealth Foundation highlights that private sector job growth in 2011 was the strongest in Pennsylvania since 1999 and links that outcome to state tax and spending policy. The figure below plots the 12-month moving average of private sector payrolls in Pennsylvania since 1990. What you will notice about the figure is that in the period following a recession (the areas shaded gray*) private sector payrolls expand.  That's what is known in macroeconomics as an expansion, it's been a characteristic of every business cycle on record since 1854. Given where we are in the business cycle to link private sector job growth to 2011 state tax and spending policy is like the rooster taking credit for the sunrise.

This of course doesn't mean that policy makers can't influence the pace of private sector job growth but the role of state policy makers especially in a single year is very difficult to identify precisely.  However there are some instances where the impact of policy on total job growth is very simply a matter of counting. 

Total non-farm payrolls grew by 58,800 jobs or 1% from December 2010 to December 2011.  If the state as well as local governments hadn't shed 18,500 jobs over that period employment would have grown by 77,300 or 1.4% during the year. 

State policy makers did not have the means to prevent all of the public sector job losses that occurred over the last year but they did choose a policy path that lead to more job losses than were necessary.  The loss of thousands of teachers and first responders is not something most people are going to be celebrating over the next few years.

 

 

 

Note: *The recession dates on the figure above are precise where as each point on the figure represents an average of employment over the previous twelve months. So by construction payrolls in the figure will only turn down after several months of job loss.  This doesn't alter the main point which is that private payrolls always expand after the end of a recession.  A 12-month moving average is used to plot the data because the Bureau of Labor Statistics does not produce seasonally adjusted private non-farm payrolls for Pennsylvania.

This week, we blogged about the $300 million in revenue lost to legislative inaction on a natural gas drilling tax, proposed asset testing for food assistance, and the top 10 blog posts of the past year in celebration of Third and State's 1st birthday. Plus: Morning Must Reads and another edition of Price of Service Cuts.

IN CASE YOU MISSED IT

• On the Marcellus Shale, Chris Lilienthal wrote that legislative inaction on a natural gas drilling tax has cost Pennsylvania $300 million in lost revenue.
• On the state budget, Michael Wood shared the latest installment in the Pennsylvania Budget and Policy Center's Price of Service Cuts series, with a look at funding cuts to higher education and how that is helping to make college even more unaffordable for many Pennsylvanians.
• On poverty and public welfare, Mark Price blogged about Corbett administration-proposed asset testing for food assistance with posts here and here.
• In other Morning Must Reads this week, Mark Price wrote about the payroll tax cut and cuts in block grants to local governments; local jobs data and the unemployment debate in Washington; and the value of job training.
• Finally, Chris Lilienthal shared the top 10 most read blog posts of the past year in honor of Third and State's 1st birthday on February 1.

More blog posts next week. Keep us bookmarked and join the conversation!

Third and State celebrated its one-year anniversary this week. We launched on February 1, 2011, and 350 posts later we're still going strong.

We couldn't do it without our readers, so we thought it would be fun to take a look back at what posts you liked the most over the past year. And so we bring you a countdown of the top 10 most viewed blog posts at Third and State.

10. Governor Corbett Unveils 2011-12 Budget Proposal, March 9, 2011:

By taking direct aim at schools and higher education, the Governor’s plan disregards a fundamental principle of economic growth — businesses locate and expand in states with an educated workforce and academic centers of innovation.

There is a better choice. Lawmakers can choose to take a more balanced approach that makes targeted cuts, improves accountability and raises revenue.

9. 2011-12 State Budget Highlights, June 28, 2011:

State legislative leaders and Governor Tom Corbett agreed on a 2011-12 state budget deal this week, and on Tuesday, the state Senate approved it on a 30-20 party-line vote. The bill heads to the House of Representatives next. ...

The biggest cuts, in both dollars and percentages, are in education programs, including PreK-12 and higher education.

8. Marcellus Shale, Unemployment and Industrial Diversity, August 3, 2011:

There is always a danger that Marcellus Shale extraction may crowd out rather than seed new industries. Policymakers in Harrisburg and elected officials in these regions should make efforts to ensure that some of the good economic fortune represented by Marcellus Shale gas is reinvested in the seed corn necessary to increase the economic diversity of these communities. A drilling tax is the most sensible way to generate the funds needed to pay for these investments.

7. What is Pat Toomey Doing? Inequality and America's Future, November 16, 2011:

On a day when a national newspaper is using Philadelphia to illustrate the erosion of the middle class, why is Senator Toomey championing ideas that threaten the most cherished American values (opportunity, democracy) and the country’s future living standards? You’d have to ask him.

6. CEO Pay Soars While Workers’ Pay Stalls, April 6, 2011:

Since there’s been a lot of discussion about public-sector pay recently, it’s interesting to compare these CEO salaries with that of the top-earning public workers in Pennsylvania. According to a Pittsburgh Post-Gazette story in 2009, the top 100 highest-paid state employees in Pennsylvania earned $19.4 million as a group. In other words, the two highest-paid CEOs in Pennsylvania earn a lot more than the top 100 public-sector workers.

5. Fruit Salad, Anyone?, March 14, 2011:

The Governor's speechwriter appears to love apples to pears comparisons, or maybe bananas to oranges. But nothing so plain as apples to apples. ...

In sum, when you do apples-to-apples comparisons, public-sector workers do not earn more than comparable private-sector ones. In addition, Pennsylvania public-sector wages have not risen faster than in the private sector over the last half decade.

4. A $56 million 'Oops': PA Revenue Department Updates Marcellus Shale Tax Estimates, November 23, 2011:

Back in May, the Department estimated that taxable Marcellus Shale royalties generated $102.7 million in PIT collections in 2010. Now the Department says that figure is a tad lower — $46.2 million, a decrease of $56.5 million or over 55% from what was reported six months ago. To quote Britney Spears, "Oops!" ...

The gas industry has been very effective in arguing that it is contributing a "game-changing" number of new jobs and tax revenue, and uses these claims to beat back efforts to enact a meaningful drilling tax. We have made the case for some time that these claims are well overstated. The Department of Revenue data, particularly the paltry PIT numbers for 2010, seem to back up our case.

3. Déjà vu All Over Again: Mid-year Cuts and a Budget Shortfall on Tap for 2012, December 20, 2011:

Secretary Zogby rightly identified areas of built-in growth that will contribute to a structural budget deficit moving forward.

His analysis failed to mention how much tax cuts, both enacted and planned, will contribute to the short- and long-term problem. For example, the administration has likely under-estimated the cost of the 100% bonus depreciation policy enacted in January, contributing to the lower-than-expected corporate tax collections. (This policy allowed corporate taxpayers in 2011 to deduct 100% of a capital expense up front, instead of stretching it out over a period of years.)

The Governor's budget guidance issued earlier this year called for $400 million more in tax cuts, which could contribute to more than half of the expected gap for 2012-13.

2. What's Good for the U.S. Chamber of Commerce Isn't So Good For You, March 3, 2011:

All else equal, the Chamber seems to prefer that any given level of job growth go along with lower wages and less human development. This leads you to conclude that the Chamber values lower wages and less human development as simply good things in and of themselves. Kind of like apple pie. Go figure.

And the number 1 top viewed blog post of the year:

Teacher Salaries and the Medieval Bloodletting of the Public Schools, May 23, 2011:

The Teacher Salary Project seeks to educate Americans that this country has relatively low teacher pay compared to the most successful educational systems in the world. That's one reason it's difficult for American schools to retain their most talented teachers, especially in distressed communities. ...

Yet policymakers in Pennsylvania are running hard in the opposite direction. Cuts in public school funding will mean stagnant or lower pay, especially in our poorest districts. More education delivered in charter schools and private schools will mean greater inequality in pay in two senses: a bigger gap, on average, between the charter and private schools serving affluent students and those serving lower-income children; and a bigger gap, again on average, between the pay of school CEOs and principals and the pay of front-line teachers.

When public school performance predictably suffers, any chance this will be used to push privatization of education further? Heh, when the first round of medieval bloodletting doesn’t work, let’s bleed the patient a bit more.

Lancaster Rep. Mike Sturla was quoted in Capitolwire (paywall) on a Pennsylvania Department of Public Welfare (DPW) proposal to limit access to SNAP, or food stamp, benefits to households with fewer than $5,500 in assets:

"We're going to take the concept of the safety net and flip it and tell people they have to impoverish themselves before they get the benefits."

This quote caught the eye of the Commonwealth Foundation's Nathan Benefield.

He noted in response:

Just to make sure I wasn't misunderstanding the outspoken representative, I Googled the definition of impoverish and came up with "To reduce to poverty; make poor."

Indeed! Welfare programs like food stamps were designed to help poor people, and the administration's policy will work to ensure it serves only poor people.

As I often tell interns and students, Google is a powerful tool, but it's only as powerful as your own understanding of a policy debate. A key concern with the DPW's asset test, as Rep. Sturla correctly notes, is that it could potentially force low-income families who have experienced a job loss or a serious illness to spend down their meager assets in order to qualify for food assistance. Forcing hungry low-income families to spend down their savings makes them more vulnerable to having unexpected expenses that could trigger a mortgage default, eviction or loss of access to transportation. In other words, the less savings a family has, the greater the risk that an unexpected bill will make it harder for them to get back on their feet and off of public assistance.

The Pittsburgh Post-Gazette noted Thursday that the DPW expects some 4,000 people to be denied SNAP benefits and the people impacted appear to have little resemblance to the millionaires and billionaires that fund the Commonwealth Foundation.  Surely, there is a way to prevent instant lottery millionaires from collecting SNAP benefits that doesn't also include making little old ladies go hungry.

• Karen Langley, Pittsburgh Post-Gazette — Pa.'s food stamp asset test will be easier than planned:

A total of 4,000 households are expected to lose their food stamps under the revised proposal by the state Department of Public Welfare...

In Pennsylvania, people can access SNAP if they make 160 percent of the federal poverty level or less. For a family of four, the poverty level is $22,350...

Mr. Sturla said the proposal would discourage poor people from saving.

Karen Naeser, 63, of Richmond in Tioga County, said her assets surpass the level that would disqualify her from food stamps. Ms. Naeser, who is disabled, began receiving food stamps this summer after losing her job as a receptionist at a personal care home. She said she has more than $9,000 in stocks and uses her savings to pay her taxes.

"I'm going to have to dip into the money, and then after it's gone, what am I supposed to do?" she said. "What am I supposed to do when something happens to the furniture, the hot water heater?"

A director of Just Harvest, a Pittsburgh organization that addresses poverty and hunger in Allegheny County, said the proposal would make it harder for poor people to weather such unexpected bills.

"The kinds of emergencies middle-class people use their savings on make poor people destitute," said Ken Regal, co-director of the organization. "What the asset test fundamentally says to poor people is unless you're risking destitution, we don't believe you really need help."

In other news this morning, the Philadelphia School District is expected to layoff 90 police officers today.

• Kristen A. Graham, The Philadelphia Inquirer — Phila. School District said to cut 90 police officers:

With a $61 million shortfall to bridge by the end of June, the Philadelphia School District will let go about 90 school police officers Friday, according to a source familiar with the plan.

Finally, a handy graphic of proposed property tax increases in Lancaster County (full story here). 

On Wednesday, the Pennsylvania Department of Public Welfare submitted its final proposal to the federal Food and Nutrition Service for an asset test on SNAP benefits (formerly known as food stamps).

As the Department explains in its proposal:

The Department of Public Welfare has submitted its final plan to the Food and Nutrition Service (FNS) to reinstate the asset test for the Supplemental Nutritional Assistance Program (SNAP). The final proposal sets the limits at $5,500 for households (age 59 and under) and $9,000 for households with older Pennsylvanians (age 60 and above) or disabled individuals...The SNAP program takes into account both income and assets when determining an individual or family’s eligibility. Certain assets are exempt from the measurement, including but not limited to one’s home, primary vehicle, educational savings accounts and pension plans.

We are pleased the thresholds have been adjusted up to account for inflation but remain deeply skeptical of the efficacy of the proposed asset test. Asset tests are costly to administer and discourage families from saving. It is counterproductive to force low-income families who have suffered a job loss because of the economy or a major illness to spend down their assets in order to qualify for food assistance. This policy is especially harmful in today's economy with unemployment still high.

To understand just how ill prepared families are for an unexpected job loss or major illness, the Corporation for Enterprise Development (CFED) has developed an Asset and Opportunity Score Card. One of the measures in the Score Card is the liquid asset poverty rate:

Percentage of households without sufficient liquid assets to subsist at the poverty level for three months in the absence of income, 2009. The threshold used to determine the liquid asset poverty rate varies by family size. A family of three with liquid assets less than $4,632 in 2011 is asset poor.

According to CFED, 36% of Pennsylvania families are liquid asset poor. CFED has more on the problems with asset testing here.

It is important to remember that although the economy is adding jobs overall, new workers lose their jobs due to economic conditions each month, adding to the already deep pool of job seekers. The Philadelphia Inquirer reports AstraZeneca, with facilities in Delaware, is about to shed another 7,300 jobs worldwide. No word on how many of those job losses will be in Delaware or on how many of the workers affected live in the Philadelphia region.

• David Sell, The Philadelphia Inquirer – AstraZeneca to cut 7,300 more jobs amid fourth-quarter profit drop:

The cuts announced Monday are the third set of layoffs since 2007 and will bring the three-part total to 28,900. The two previous rounds of layoffs involved 12,600 and 9,000 employees, respectively.

The company did not specify which locations would lose workers under the latest round of cuts other than to say layoffs would be in the supply chain, sales, administration, and research and development, with an estimated cost savings of $1.6 billion by the end of 2014.

The Associated Press reports that war has broken out between West Virginia, Ohio and Pennsylvania over who can give away more tax dollars to Shell Oil.

• Associated Press – 3 states offer big tax breaks for Shell Oil plant:

Pennsylvania, Ohio and West Virginia are trying to top each other with the sweetest package of tax breaks for Shell Oil Co., which plans to build a huge new petrochemical refinery in the region. But some are questioning why there's been so little public discussion over exactly what's being offered, and how the deals would impact communities and the region.

"Who's going to be paying for the roads?" asked Robert P. Strauss, a professor of economics and public policy at Carnegie Mellon University. "You have to think through very carefully what the additional costs will be."

The proposed plant, called a cracker in the industry, would take ethane out of natural gas and convert it into the basic materials for literally hundreds of consumer and industrial materials, including plastics, fertilizers and antifreeze...

Some are disturbed that states haven't released a more detailed economic analysis of the proposed tax breaks. "We have no idea how much the state is losing in revenue each year. Nobody knows," added Ted Boettner, director of the West Virginia Center on Budget and Policy. "It's about transparency and accountability. Is it clear to county officials, school boards, how much revenue is being foregone?"

Just in case you think throwing state tax dollars at individual companies while school districts are gearing up for another round of budget cuts is an isolated practice, here are two stories from just this week:

• Joseph Distefano, The Philadelphia Inquirer – Philly fuse maker chooses Bucks over North Carolina
• Monica Von Dobeneck, Harrisburg Patriot-News – Pacific Edge Diagnostics should bring 100 medical sector jobs to Hershey over 3 years

The economic news in the past couple of weeks has been relatively positive so that must mean it is time for another down to the wire battle in Washington to help restore pessimism! At the end of the month, temporary extensions to the payroll tax credit and extended unemployment benefits will expire. With unemployment high, both measures should be extended through the end of the year.

• Borys Krawczeniuk, Scranton Times-Tribune — Tax cut extension would save NEPA worker $410 or more:

Extending the Social Security payroll tax cut through 2012 would save a typical Northeast Pennsylvania worker at least $410 and probably more depending on where the worker lives, according to statistics released Tuesday...

The tax cut would cost about $10 billion a month, or $100 billion through the end of the year. Preventing the Medicare cut will require another $20 billion and extending unemployment benefits $45 billion, the Associated Press reported. The failure to extend the tax cut would cost the state 19,000 jobs, economist Mark Zandi has estimated, [Senator Robert] Casey said.

The Scranton Times-Tribune also reports on cuts in federal funding which are forcing local governments to cut back or delay infrastructure projects. 

• David Singleton, Times-Tribune — County share of federal block grant funding shrinks:

Boroughs and townships in Lackawanna County will find federal Community Development Block Grant funding harder to come by in 2012.

The county Department of Planning and Economic Development is anticipating another 10 to 15 percent cut in the CDBG funding available for projects ranging from sewer improvements to handicapped-accessible curb cuts in the 38 municipalities where it administers the money, said Michelle Giovagnoli, CDBG contract manager...

Ms. Giovagnoli said the county received just under $1.56 million last year, down about 15 percent from 2010. A similar cut this year would slash the 2012 allocation to less than $1.33 million. Fewer grant dollars means more projects, especially larger ones, will likely have to be funded over multiple years, she said. "We have to go into future years to fund the project, so it gets delayed because we don't have the money to do it right away," she said, citing a storm sewer project in the Nebraska section of Archbald and a sanitary sewer project along Main Street in Dickson City as examples.

The Patriot-News this morning reports the Commonwealth has given Amazon more time to "get their software up to par" in order that they might collect Pennsylvania's sales tax. In the meantime, the Corbett administration is providing a handy table for consumers to figure out how much sales tax they might owe if they failed to keep track of their online purchases.

• Donald Gilliland, Patriot-News — Pennsylvania residents must now track, pay sales tax on online purchases:

Amazon, which has a distribution center in the Carlisle area, is one of the largest online retailers that have resisted collecting sales tax. The Department of Revenue said Internet companies with facilities in the state will get a seven-month reprieve in collecting the tax...

There’s no such clemency for the common taxpayer. This year’s tax form includes a special line — line 25 — requiring citizens to pay “use tax” on items they purchased over the Internet for which no sales tax was charged.

The Corbett administration didn’t announce it would be aggressively collecting use tax until November. If the taxpayer failed to keep receipts for all purchases, the new tax booklet offers a handy table of estimated tax based on income.

A curious feature of that table is that the wealthiest pay a rate 25 percent lower than the poorest of Pennsylvanians. The sales tax is 6 percent. The estimates in the table assume a person making $30,000 a year would buy $200 in goods over the Internet; it therefore suggests $12 be paid in tax. For people who make over $200,000, however, the table offers a choice: use a percentage of income or $71, whichever is lower. If the rich-folks rate (0.03 percent of income) were applied to the person making only $30,000 a year, he’d pay $9 in use tax, instead of the suggested $12.

Legislative inaction on a natural gas drilling tax has cost Pennsylvania $300 million in lost revenue, according to the Pennsylvania Budget and Policy Center.

Our Drilling Tax Ticker tracks the revenue Pennsylvania has lost since October 1, 2009 by not having a tax in place. It shot past $300 million Monday morning.

State cuts announced in January to services ranging from help for victims of domestic violence to hospital trauma centers to prekindergarten could have been avoided if the Legislature had enacted a drilling tax.

Plus, the $300 million in lost revenue may be just the beginning. Reuters reported last week that a Marcellus Shale “impact fee” bill now before the state Legislature could cost $24 billion to $48 billion in lost revenue over the next 20 years.

$24 billion? Yes. Reuters calculated that at current gas prices a Pennsylvania shale well would generate $2.4 million over 20 years under a tax comparable to West Virginia’s. By comparison, an impact fee approved by the state Senate would generate only $360,000 over that 20-year period. 

Based on an industry estimate that Pennsylvania will have 11,500 wells operating by 2020, Reuters determined that Pennsylvania will lose at least $24 billion in gas revenues over 20 years – and much more if natural gas prices rise.

Keep in mind that across the country, 98% of natural gas is produced in states that have drilling taxes or fees. In many energy-producing states, that revenue supports services like education and health care, funds environmental conservation and protection, and mitigates the impact of drilling on local communities.

As Reuters put it:

Given the fiscal challenges of Pennsylvania, it would seem important to earn as much revenue as possible for the state’s natural resources. Maybe it’s time for the Pennsylvania General Assembly to revisit the issue and really determine how much impact this fee will have.

The Pennsylvania Department of Labor and Industry (L&I) has released local data on jobs in December. Later today L&I will release the full data here. What follows is a run down of how newspapers across the commonwealth covered the new release.

• Sean Adkins, York Daily Record — Restaurant's serving up jobs while York County jobless rate is unchanged:

Randolph Sexton of York, a recent graduate of YTI Career Institute, waits to be called for an appointment Monday at Cheddar's Casual Café in Manchester Township. Christopher Paules has likely cooked your lunch or dinner. The long-time culinarian has worked or managed kitchens for many of the chains and clubs that pepper York County, including Regents' Glen Country Club, Ruby Tuesday and the Olive Garden. And despite his skills, Paules has struggled the last few years to find a job that offers both security and enough hours to make a living. On Monday morning, the Dover Township resident was one of more than 100 people who stopped by the soon-to-open Cheddar's Casual Café in Manchester Township to fill out a job application...

In December, the county's unemployment rate remained unchanged at 7.7 percent — one tenth of a percentage point above the state's rate of 7.6 percent, according to data released today by the Pennsylvania Department of Labor & Industry.
 

• James Haggerty, Times-Tribune — Region's jobless rate lowest since May, but still tops in state:

Unemployment in the Scranton/Wilkes-Barre/Hazleton metro area decreased three-tenths of a percentage point in December to 8.9 percent.

The region's jobless rate was the lowest since May, when it was 8.7 percent, according to state Department of Labor and Industry data released today. Nevertheless, the metro area led the state in unemployment for the 21st straight month.
 

• Shannon Simcox, Reading Eagle — Unemployment falls in city, county: Reading decreases to 11 percent, Berks to 7.9 percent:

Unemployment declined in Reading and Berks County in December. The city's jobless rate fell to 11 percent in December from a revised 11.6 percent in November, while the county's jobless rate fell to 7.9 percent from 8 percent in November, according to statistics provided today by the state Department of Labor and Industry...

In December, Reading's unemployment rate remained fourth-highest among the state's 80 largest municipalities. Hazleton, with a rate of 11.7 percent; and Chester and York, both with a rate of 11.3 percent, had higher jobless rates than Reading...

In Berks, a total of 187,200 were employed in December, up from 186,200 in November, and up from 183,300 a year prior.
 

• Erich Schwartzel, Pittsburgh Post-Gazette — Region's jobless rate fell in Dec.:

Unemployment in the Pittsburgh region followed state and national trends in December and fell, dropping two-tenths of a percentage point to hit 6.9 percent, the Pennsylvania Department of Labor and Industry reported today.

The Pittsburgh region's nonfarm job total reached its highest level since April 2001, increasing by 5,200 to 1.15 million.

The Pittsburgh region is the state's second-largest labor market and had the fifth-lowest unemployment rate in December.
 

• David Wenner, Patriot-News — Unemployment falls in the Harrisburg area:

Unemployment in Harrisburg-Carlisle fell to 6.9 percent in December, down two-tenths of a percent from November, according to new figures from the Pennsylvania Department of Labor and Industry.

When adjusted for seasonal jobs, the Harrisburg-Carlisle region had 259,700 jobs as of December, 2011, up from 258,800 in December, 2010. There were 19,300 unemployed workers, compared to 21,500 in 2010.

The bottom line is that the economy is improving slowly. Unemployment remains abnormally high even in regions that have the lowest unemployment rates in the Commonwealth. Workers who are laid off each month because of the continued weakness in the economy face a prolonged job search.

The Pittsburgh Post-Gazette reports this morning that a minor legislative change required to maintain access to federally financed extended unemployment benefits for 17,000 Pennsylvania workers faces an uncertain future as the Pennsylvania Chamber of Business and Industry pushes the state House of Representatives to delay passage of the bill. The business lobby is seeking to hold the extension hostage in order to push for changes that will in the short run benefit its members but in the long run undermine the overall effectiveness of the unemployment insurance system for the rest of us.

• Laura Olson, Pittsburgh Post-Gazette — Jobless benefits to expire unless Pa. House acts:

Thousands of Pennsylvanians will see their federally funded unemployment benefits expire after this week, with legislation to extend those checks lingering in the state House of Representatives.

A pending measure, which passed the state Senate last week, would offer 13 additional weeks of benefits to the state's jobless residents. The federal funding was approved by Congress in December but requires the state to tweak its unemployment compensation rules in order to receive those dollars.

That bill is awaiting consideration by a House panel, which has a vote scheduled for Monday. Legislative staffers say the belatedly approved benefits would be retroactive, but pressures to also enact broader changes to the state's unemployment compensation system could further hold up that assistance.

Approximately 17,000 residents would be affected if the benefit extension is not approved, according to the state's Department of Labor & Industry.

Speaking of people seeking short term gains at the expense of the rest of us, Gillian Tett of The Financial Times has an excellent summary of the history of banker pay. While I don't share Tett's optimism that the current abnormal levels of pay in the financial sector are at an end, it is a step in the right direction to at least acknowledge that banker pay is out of step with historical norms.

• Gillian Tett, The Financial Times — Forget the big bonuses; a pay squeeze is coming

The Pennsylvania Budget and Policy Center is telling the stories of Pennsylvanians impacted by five years of state service cuts in a new series called the Price of Service Cuts.

In today's installment, we take a look at funding cuts to higher education and how that is helping to make college even more unaffordable for many Pennsylvanians.

Brittany graduated from Shippensburg University last year with $60,000 in student loans. She is thankful, however, because her communications degree did land her a job in New York where she commutes every day from Bucks County. Others are not so fortunate. Zachary invested in a five-year architecture/landscape program at Pennsylvania State University, and it has yet to pay off. After graduating, Zachary settled for a manual-labor landscaping job that has since ended. He is eager to work and has a career of academic achievement but simply cannot find a job.[1]



These stories are not unique. Today, many young graduates are left holding a diploma but not a job after pouring time and money into a college education. As a result, more graduates are defaulting on their student loan payments each year.

At a time when parents and students are burdened with the cost of an increasingly expensive college education, the state budget cut funding to public institutions – making the situation even worse – as institutions are increasing their tuition. If Zachary were returning for another year, he would be paying the in-state tuition fee (not including housing, food, or books) of $15,124, which is $724 higher than last year.

State support of higher education has been cut dramatically in the past few years. Since the start of the recession in 2007-08, state funding for community colleges has been cut by 10%, the State System of Higher Education schools by 25%, and the state-related universities (Penn State, Pitt, Temple and Lincoln) have seen their funding cut 29%.

State schools are raising the price of tuition as a result of the lost revenue, and Pennsylvania families are paying the price. Behind the mortgage, the cost of college is often a family’s largest investment, and it is becoming increasingly unaffordable.

[1] Jeff Gammage, “Debt soaring with tuition,” Philadelphia Inquirer, September 18, 2011, http://articles.philly.com/2011-09-18/news/30172177_1_tuition-and-fees-college-enrollment-state-owned-colleges.

In the State of the Union address last week, President Obama called for more investment in programs that link training in higher education to employers. This morning the Harrisburg Patriot-News has an excellent article detailing one such program here in Central Pennsylvania.

• Diana Fishlock, Patriot-News — ArcelorMittal and United Steelworkers Local 1688 program offers Penn State students training in manufacturing:

ArcelorMittal and United Steelworkers Local 1688 are teaming up with Penn State Harrisburg and Penn State York, where [York County student Ryan] MacDonald studies, to launch Steelworker for the Future in Central Pennsylvania, a training program to prepare students for careers in the manufacturing industry. Most of the classes will be at Penn State York.

ArcelorMittal is the world’s largest steel company, with 18,000 U.S. employees and 280,000 worldwide in 20 countries.

Many of the employees at ArcelorMittal Steelton have worked there for decades. As they retire and the plant upgrades, the company needs skilled workers who understand new technologies, said Ray Napoli, president of United Steelworkers Local 1688.

ArcelorMittal broke ground in Steelton in December for a $54 million high-efficiency reheat furnace project that it hopes to use this year, spokeswoman Mary Beth Holdford said.

Last week the Bureau of Economic Analysis released a new round of detailed data on economic growth. Paul Krugman riffs off Jared Bernstein to point out that cuts in state and local spending are focused on two areas, physical and human capital.

That is, we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster.

This week, we blogged about the President's State of the Union address, new legislation to address corporate tax loopholes and a new series examining the price of cuts to state services in Pennsylvania.

IN CASE YOU MISSED IT

• On the State of the Union, Mark Price offered a preview before the President's speech and a recap of his favorite parts the next day.
• On state budget and tax policy, Chris Lilienthal wrote that legislation proposed by Representatives Dave Reed and Eugene DePasquale would take a first step towards closing corporate tax loopholes in Pennsylvania, but more needed to be done. Chris also highlighted the first and second installments of a new series from the Pennsylvania Budget and Policy Center featuring stories of Pennsylvanians impacted by five years of state service cuts.
• And in other Morning Must Reads this week, Mark Price compared and contrasted executives and teachers, and highlighted a proposal to strengthen both the minimum wage and the earned income tax credit.

More blog posts next week. Keep us bookmarked and join the conversation!

The Pennsylvania Budget and Policy Center is telling the stories of Pennsylvanians impacted by five years of state service cuts in a new series called the Price of Service Cuts.

In today's installment, we take a look at funding cuts to services that help victims of domestic violence.

After suffering abuse, Michelle went with her two young girls (2 and 6 years) to SafeNet, a domestic violence program in Erie. SafeNet’s emergency shelter was over capacity but made room for Michelle and her children. SafeNet offered Michelle and her children a safe place to stay and counseling. Staff and volunteers put in extra effort working with the children, unwitting victims who are often confused and traumatized by the violence they have witnessed, to assure their physical and emotional well-being.

Domestic violence shelters can only provide 30 days of shelter for victims, but Michelle needed more time to find permanent housing and get back on her feet. SafeNet continued to work with Michelle, but could no longer provide shelter because of limited funding.

The state provides funding to 61 local shelters, like SafeNet, through the Department of Public Welfare’s Domestic Violence Services program. In 2011-12, this program helped local agencies provide 105,000 days of shelter and 242,000 hours of counseling to 46,000 victims. From 2007-08 to 2011-12, state funding has decreased from $12.5 million to $11.6 million, a 7% cut.

The Human Services Development Fund (HSDF) provides counties with flexible funding for an array of services, including for victims of domestic violence, but it was deeply cut from $23.5 million to $14.2 million in 2011-12. Since 2007-08, funding for HSDF has dropped almost 60%. These cuts give counties, like Erie, less ability to meet social needs.

Funding for domestic violence services in the commonwealth has been stagnant or decreasing over the last 11 years, while the operational costs of providing shelter and counseling have skyrocketed. The recession and high rate of unemployment, while not causes of domestic violence, are tied to an increase in both the frequency and severity of reported cases. With less funding, fewer victims are getting the help they need.

Today is Earned Income Tax Credit (EITC) awareness day! 

EITC, the Earned Income Tax Credit, sometimes called EIC is a tax credit to help you keep more of what you earned. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

Since we are on the topic of the EITC, today is a good day to highlight a proposal to strengthen both the minimum wage and the earned income tax credit so that they are more effective tools for reducing poverty.

• Jeannette Wicks-Lim & Jeffrey Thompson, Political Economy Research Institute - Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers:

..we begin by proposing a 70 percent increase in current minimum wage rates. This would raise the federal minimum from today’s rate of $7.25 to $12.30 per hour.

We also propose two expansions of the EITC, the federal program that provides tax relief and cash benefits for low-income working families. These include raising the maximum EITC benefits by 80 percent and the income eligibility threshold to three times the federal poverty line. The maximum EITC benefit would rise from $5,028 to $9,040 and households with incomes up to $57,000 could receive some benefit.

In combination, these two policy measures would guarantee 60 percent of all low-income working families a decent living standard through full-time employment. The other 40 percent of low-income working families offer more difficult challenges, because they either live in high-cost areas or they depend on only one wage-earner to raise children. But our proposed measures would substantially improve conditions for these households as well. Current policy terms guarantee a decent living standard for only 12 percent of low-income working families.

By strengthening both the minimum wage and EITC in combination, we take advantage of how they can operate in complementary ways—that is, with the strengths of one policy making up for the weaknesses of the other.

The minimum wage, if raised too high, could cause business costs to rise significantly and in response, employers could potentially lay off workers or cut back on their hours.

The EITC program has the advantage of supplementing the earnings of low-income workers without raising business costs. Generous EITC benefits, however, tend to draw more people into the labor force and allow employers to pay less while still attracting the workers they need. A robust minimum wage rate would prevent wages from falling too low due to the EITC.

Everyone's favorite rhetorical device maker, Steve Jobs has loomed large in policy debates about inequality and industrial policy in past several weeks.  After the State of the Union, Paul Krugman pointed out, in reply to Indiana’s governor Mitch Daniels that the government rescue of GM and Chrysler protected hundreds of thousands of U.S. jobs. The Economic Policy Institute in December 2008 estimated the collapse of the auto industry would put at risk 120,000 jobs in Pennsylvania alone. Apple employs about 43,000 employees in all of the United States.

Krugman returns to the topic this morning and offers up some of the lessons he learned from the research that earned him the Nobel prize in economics — new economic geography (PDF).

• Paul Krugman, The New York Times — Jobs, Jobs and Cars:

This is familiar territory to students of economic geography: the advantages of industrial clusters — in which producers, specialized suppliers, and workers huddle together to their mutual benefit — have been a running theme since the 19th century.

And Chinese manufacturing isn’t the only conspicuous example of these advantages in the modern world. Germany remains a highly successful exporter even with workers who cost, on average, $44 an hour — much more than the average cost of American workers. And this success has a lot to do with the support its small and medium-sized companies — the famed Mittelstand — provide to each other via shared suppliers and the maintenance of a skilled work force.

The point is that successful companies — or, at any rate, companies that make a large contribution to a nation’s economy — don’t exist in isolation. Prosperity depends on the synergy between companies, on the cluster, not the individual entrepreneur.

The Philadelphia Inquirer reports on a disturbing tit-for-tat exchange on food stamps between U.S. Secretary of Agriculture Tom Vilsack and Gov. Corbett's spokesman Kevin Harley.

• Alfred Lubrano, The Philadelphia Inquirer - Nutter: Food stamp asset test 'mean-spirited, asinine':

Secretary of Agriculture Tom Vilsack, in Philadelphia to discuss President Obama's State of the Union message, said the asset test "is not going to save the Commonwealth a single dime," and would, in fact, cost the state money to implement...

Responding to Vilsack's remarks, Kevin Harley, Gov. Corbett's spokesman, said: "It doesn't surprise me that the man whose president has overseen the greatest increase in food-stamp usage in the history of the United States would be critical of any Republican governor attempting to impose an asset test. Because of President Obama's economic policies, 11.2 million additional Americans have been added to the food-stamp rolls."

Recessions drive up unemployment, thus creating a need for food assistance. We are now recovering from one of the worst recessions on record. Pennsylvania's own recovery initially started out strong but thanks in part to state budget cuts Pennsylvania has created fewer jobs in the last 12 months than it did in the previous year. Perhaps we all can agree to avoid stigmatizing people who are in need because the economy is weak.

The Pennsylvania Budget and Policy Center launched a new series today featuring stories of Pennsylvanians impacted by five years of state service cuts.

The first installment looks at the demise of the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) after it was cut deeply in the 2011-12 budget and how it nearly cost a Western Pennsylvania woman her home. Check out the full story below and keep up with all the stories in the coming days and weeks at our Facebook page.

Judy earned a modest income from her clerical job until an unexpected health problem hit. She needed to work to pay her mortgage, but her doctor and physical therapist told her she had to take time off to recover. Judy, who lives in Allegheny County, went five months without income and fell behind on her mortgage payments. She faced the awful prospect of losing her home.

The Homeowners’ Emergency Mortgage Assistance Program (HEMAP) was designed to help Pennsylvanians like Judy. It provided short-term, low-interest loans to help homeowners continue making mortgage payments after losing their job or having their work hours cut through no fault of their own. Once the homeowners regained their financial footing, the loans were repaid. Over 28 years, the program helped more than 46,000 families stay in their homes, according to the Pennsylvania Housing Finance Agency (which administered the program).

When Judy turned to HEMAP for help, she hit a wall. Funding for HEMAP was cut so deeply in the 2011-12 state budget (by $8.5 million or over 80% from the previous year) that the Pennsylvania Housing Finance Agency had no choice but to shut HEMAP down in July 2011.

Fortunately for Judy, a federal program modeled on HEMAP helped her save her home. But like HEMAP, the federal mortgage help is no longer available. For now, Pennsylvanians are on their own if they lose their job and fall behind on mortgage payments, making it likely that Pennsylvania’s foreclosure rate will continue to remain high.

The New York Times this morning has yet another story that is sure to dominate public conversation over the next week or so. Read it or else!

• Charles Duhigg and David Barboza, The New York Times — In China, Human Costs Are Built Into an iPad:

In the last decade, Apple has become one of the mightiest, richest and most successful companies in the world, in part by mastering global manufacturing. Apple and its high-technology peers — as well as dozens of other American industries — have achieved a pace of innovation nearly unmatched in modern history.

However, the workers assembling iPhones, iPads and other devices often labor in harsh conditions, according to employees inside those plants, worker advocates and documents published by companies themselves. Problems are as varied as onerous work environments and serious — sometimes deadly — safety problems.

Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records, according to company reports and advocacy groups that, within China, are often considered reliable, independent monitors.

“You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards,” said a current Apple executive.

Wow. It is remarkable that a company famous for "thinking differently" has executives that assume the only way to build things faster and cheaper is to have harsh working conditions.

As a counterweight to the amoral view of certain high paid Apple executives, Sara Ferguson of the Chester Upland School District reminds us of the good in humanity.

• Sara Ferguson, Huffington Post — I Represented All Teachers:

That commitment to quality public schools is even more important during these tough and uncertain economic times. My school district, Chester Upland School District in Pennsylvania, has long had financial troubles. More than 70 percent of our students are eligible for free or reduced-price lunches. That's more than double the state average. Now, the district is in outright financial crisis.

The situation is so bad that in early January we were told that there wouldn't be enough money to pay us. We were all incredibly anxious and upset. I'm a third generation teacher, and to be told I might not be able to continue teaching my students was horrifying. We all have families to take care of, mortgages and bills to pay.

But our union leaders brought us together, and 204 teachers and 64 support staff decided unequivocally to keep working as long we were able to make ends meet. Our students had no contingency plan. They needed to be educated, so we intended to be on the job.

Pennsylvania Representatives Dave Reed and Eugene DePasquale rolled out legislation today that would take a first step towards closing corporate tax loopholes in Pennsylvania.

Corporate tax loopholes have been a problem for a long time in Pennsylvania. They don’t create jobs but do drain needed resources from good schools, health care and infrastructure.

Representatives Reed, a Republican, and DePasquale, a Democrat, deserve credit for recognizing this is a problem and taking steps to address it.

The bill, however, takes a limited approach and leaves many loopholes open for companies to exploit. It should be strengthened to ensure that big profitable corporations cannot use other artificial means to shift profits out of state and dodge taxes.

Matthew Gardner of Citizens for Tax Justice tells Philadelphia Inquirer columnist Joe DiStefano that combined reporting would be a better approach to closing loopholes. Under combined reporting, corporate net income tax would be assessed against income earned in Pennsylvania from a parent company and all of its related businesses.

As Gardner says:

Even if you’re successful in closing one [loophole], you’re doing nothing to stop the emergence of additional loopholes. Combined reporting ends the Whack-a-Mole game by taking away the incentive for companies to artificially shift income from one state to another.

Pennsylvania businesses are at a competitive disadvantage when multistate corporations are able to game the tax system. The Reed/DePasquale bill takes a step toward leveling the playing field for all businesses in the commonwealth, but more needs to be done.

The Pittsburgh Post-Gazette has a pretty good summary of the State of the Union.

• Tracie Mauriello, Post-Gazette — Obama calls for 'fair shot': In address to Congress, he urges balancing the scales of wealth

Here is the full text of the President's speech, and Wonkblog has a version of the speech with only what they define as specific policy proposals.

What follows are our favorites from the speech.

Community colleges and workforce development:

Join me in a national commitment to train two million Americans with skills that will lead directly to a job. My Administration has already lined up more companies that want to help. Model partnerships between businesses like Siemens and community colleges in places like Charlotte, Orlando, and Louisville are up and running. Now you need to give more community colleges the resources they need to become community career centers – places that teach people skills that local businesses are looking for right now, from data management to high-tech manufacturing.

I want to cut through the maze of confusing training programs, so that from now on, people like Jackie have one program, one website, and one place to go for all the information and help they need. It’s time to turn our unemployment system into a reemployment system that puts people to work.

Taxes:

But in return, we need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes.

Infrastructure:

Building this new energy future should be just one part of a broader agenda to repair America’s infrastructure. So much of America needs to be rebuilt. We’ve got crumbling roads and bridges. A power grid that wastes too much energy. An incomplete high-speed broadband network that prevents a small business owner in rural America from selling her products all over the world.

During the Great Depression, America built the Hoover Dam and the Golden Gate Bridge. After World War II, we connected our States with a system of highways. Democratic and Republican administrations invested in great projects that benefited everybody, from the workers who built them to the businesses that still use them today.

In the next few weeks, I will sign an Executive Order clearing away the red tape that slows down too many construction projects. But you need to fund these projects. Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.

Tonight President Obama will deliver his State of the Union Address to Congress. We are expecting the President to recommend an extension through the end of 2012 of extended unemployment insurance benefits and the payroll tax credit. It looks as though a major theme in the address — besides the catch phrase “built to last” — will be conventional policies aimed at reducing inequality, such as increased spending/tax credits for education and training.

Education and training are important and fruitful means of reducing inequality, but they fall well short of what's needed to reduce the degree of inequality we now face.  A more forceful step in the direction of reducing inequality would include raising the minimum wage and making it easier for workers to form and join unions. We don't expect to hear the President call for either of those changes.

The President will propose paying for his new initiatives with higher taxes on wealthy households. As with education and training, restoring some sense of fairness to the tax code is a laudable goal but longer-lasting reductions in inequality will only come from policies that allow the pre-tax wages of more Americans to rise as the size and wealth of our economy grows.

• Tracie Mauriello, Pittsburgh Post-Gazette — Obama to target economy in State of the Union address tonight:

Manufacturing, energy, job training and middle-class growth will be the cornerstones of President Barack Obama's speech tonight as he takes to the nation's grandest political stage for the annual address on the state of the union, according to senior advisers.

We are slowly getting details of a settlement of allegations of fraud by banks during the housing bubble. Dean Baker notes this morning that the deal is said to include immunity from prosecution for banking executives in exchange for mortgage relief paid for by investors (not the banks). It's good to be a banker.

The Philadelphia Inquirer reports this morning that the association that represents construction contractors who mainly compete for work in the non-residential construction sector is expecting essentially no change in the number of workers they will employ in 2012. Non-residential construction makes up roughly two-thirds of all construction employment in Pennsylvania. Also of note in the article: 62% of Pennsylvania contractors surveyed reported relying on some stimulus-related work. Remember that factoid next time you hear someone claim stimulus spending had no effect on the economy.

• Jane M. Von Bergen, The Philadelphia Inquirer — Construction industry expects more jobs, but only a few:

Construction employment will go up — very slightly — in 2012, contractors predicted in a survey released Monday by the Associated General Contractors of America...

The survey notes that many contractors relied on stimulus-funding projects over the past years, but few expect to perform much stimulus-funded work in 2012.

In Pennsylvania, for example, 62 percent of those surveyed had stimulus work, with most of them assigning the majority of their workers to those projects. But in 2012, only one in five expects stimulus work.

More news of property tax hikes, teacher layoffs and larger class sizes — this time out of Dauphin County.

• Marijon Shearer, Patriot-News — Central Dauphin School Board approves a $155.4 million preliminary budget for 2012-13:

The Central Dauphin School Board Monday night approved a $155.4 million preliminary budget for 2012-13 that could mean higher taxes, larger class sizes or furloughs of as many as 50 district employees.

The Patriot-News Editorial Board notes that the asset tests for food stamps proposed by the Corbett administration are unwise and likely to punish many rural families.

• Patriot-News Editorial Board — This test is no asset: Planned changes in food stamp eligibility penalize people struggling financially:

Creating an asset test for food stamps in Pennsylvania is the wrong approach...

Given the economic woes many families are facing with at least one parent — sometimes both — out of a job, the car rule hardly makes sense. This is especially true in rural parts of the state. Reliable transportation is critical to achieving financial independence, and in many families that means parents having two decent cars to drive.

The other issue is the $2,000 limit in savings. Families struggling to get out of poverty are likely to be trying to save money, build up funds to help them pay off bills, make a security deposit on an apartment or catch up on mortgage payments. It makes no sense to compel people to potentially liquidate funds to be able to put food on the table.

Hunger is a problem in our state, and many people rely on food stamps to solve it.

This week, we blogged about the state's revenue picture, Pennsylvania's December jobs report, a new report on the cost of interest rate swaps, and the termination of public health insurance for 88,000 Pennsylvania kids.

IN CASE YOU MISSED IT

• On the state budget and the economy, Michael Wood shared his analysis of the state's revenue picture midway through the 2011-12 Fiscal Year. And Mark Price highlighted some of the key takeaways from a conference hosted this week by the Independent Fiscal Office on Pennsylvania's economic and revenue outlook.
• On jobs and unemployment, Mark Price provided his analysis of the December Pennsylvania jobs report and what the outlook is for 2012.
• On financial matters, Sharon Ward blogged about a new report from the Pennsylvania Budget and Policy Center documenting the hundreds of millions of dollars that interest rate swap deals negotiated with Wells Fargo, Morgan Stanley, Goldman Sachs and other banks have cost the City and School District of Philadelphia. Chris Lilienthal highlighted some of the media coverage of the report.
• On health care, Mark Price shared a report from The Philadelphia Inquirer that Pennsylvania has terminated public health coverage for 88,000 kids since August. Mark also linked to a news report on the resignation of a Pennsylvania Department of Public Welfare adviser.

More blog posts next week. Keep us bookmarked and join the conversation!

Pennsylvania's revenue picture remains mixed as Governor Tom Corbett prepares to roll out his 2012-13 state budget proposal in a few weeks.

Pennsylvania continues to see an increase in collections over last year, but revenues trail Corbett administration estimates so far this year. That has prompted the administration to announce midyear budget freezes this month and could impact the budget plan the Governor will present in early February.

Weak corporate collections are taking a toll, and it appears likely that Pennsylvania will end the year with a revenue shortfall, despite solid growth from 2010-11. Still, the revenue picture, in the short term, may not be as dire as that painted by the Corbett administration. The state is carrying a half a billion dollars in reserve that more than covers the current shortfall.

The Pennsylvania Budget and Policy Center has a full analysis of the revenue numbers at the midpoint of the 2011-12 Fiscal Year.

Year-to-date tax collections as of December are up $398 million, or 3.6%, over this point last year, but are falling short of Corbett administration estimates by $466 million, or 3.9%. Total revenue collections are $487 million, or 4%, below estimates.

Year-over-year growth slowed in December with monthly tax collections outpacing those a year earlier by only $6.5 million, or 0.3%. Some of this slowdown has to do with a shift in the timing of sales tax payments, but weak corporate collections are also having an impact.

Changes to the revenue estimate itself may be playing a role in the shortfall, as well. The administration projected a larger share of revenue collections in the first half of the year and a smaller share in the second half than has been the case in recent fiscal years. That may have contributed to the midyear shortfall and could set the stage for a stronger revenue showing between now and June.

Actions taken by the Corbett administration and the General Assembly have also contributed to the current revenue shortfall. The decision last year to allow corporations to accelerate depreciation costs may be costing more than originally estimated, while doing little to improve the economic outlook. That, combined with the continued phase-out of the capital stock and franchise tax in 2012, will cost the state hundreds of millions of dollars in lost revenue.

Again, you can find our full analysis of the revenue picture here.