Third and State
Both reports were a mixed bag:
- National payrolls grew a bit faster than expectations, but the unemployment rate climbed to 6.7% in February.
- Pennsylvania payrolls grew by a disappointing 500 jobs in January, but the unemployment rate declined four-tenths of one percentage point to 6.4%.
Those of you hoping to see how other states fared in January relative to Pennsylvania will have to wait until March 17 when the U.S. Bureau of Labor Statistics releases January jobs data for all 50 states. In the meantime, check out the Keystone Research Center's recent policy brief finding that in 2013 Pennsylvania ranked 48th out of the 50 states in job growth, creating about a quarter of the number of jobs last year as it did in 2010.
As is standard operating procedure, the release of state jobs data for January corresponds with the release of newly revised and updated unemployment and nonfarm payroll data for previous months. These revisions typically don’t change employment and unemployment trends radically. Unfortunately, some technical glitches on the Pennsylvania Department of Labor and Industry's website are preventing a full review of the new benchmarked data, so I will let you know next week if there are any changes of note.
For more on the national jobs report, here are two quick takes from D.C.'s leading labor economists, Dean Baker of the Center on Economic and Policy Research and Heidi Shierholz of the Economic Policy Institute:
The establishment survey showed the economy added 175,000 jobs in February, in spite of the unusually harsh weather on much of the country. With modest upward revisions to the prior two months' data, this brings the 3-month average to 129,000. While this is considerably weaker than the fall months, weather has undoubtedly played a role in slowing job creation. (In contrast to the prior two months, February’s weather was unusually harsh.)
- Heidi Shierholz - Unemployment in February Remains Elevated Across the Board:
But the main point of the table [see below] is that the unemployment rate is between 1.4 and 1.7 times as high now as it was six years ago for all age, education, occupation, gender, and racial and ethnic groups. Today’s sustained high unemployment relative to 2007, across all major groups, underscores the fact that the jobs crisis stems from a broad-based lack of demand. In particular, unemployment is not high because workers lack adequate education or skills; rather, a lack of demand for goods and services makes it unnecessary for employers to significantly ramp up hiring. [My emphasis]
By several measures, Pennsylvania’s economic recovery is still limping along. That is the essential finding of a new policy brief from the Keystone Research Center examining Pennsylvania job growth since the recession ended.
Job growth in the state has slowed steadily over each of the past three years with only about a quarter of the number of jobs created in 2013 as in 2010, the first full year of the economic recovery.
in 2013, Pennsylvania ranked 48th out of the 50 states in job growth, compared to seventh in 2010. The state’s unemployment rate, meanwhile, has hovered at or above the national jobless rate since mid-2012.
If job creation is the test for effective policies, Harrisburg needs to re-evaluate its approach.
To be clear, new jobs have been created, and unemployment declined to a five-year low in 2013 — signs of progress. Still, job growth in 2013 was less than a quarter of the 83,600 jobs created in 2010. The number of new jobs created has declined every year since 2010 — coming in at 45,900 in 2011, 34,600 in 2012, and 19,000 in 2013. (See Figure 1.)
Private-sector job growth followed a similar trajectory – coming in at 88,600 in 2010, 71,700 in 2011, 42,900 in 2012, and 28,200 in 2013. (See Figure 2.)
A few years ago, Pennsylvania's economy was riding high above the waves coming out of the recession. Since 2011, however, the economy has been taking on water. Now would be the time for the Legislature and the Governor to re-evaluate policies such as cutting education funding and refusing federal Medicaid expansion dollars that could give Pennsylvania’s state and regional economies a much-needed shot in the arm.
With state budget hearings in the rearview mirror, I wanted to offer a few thoughts about the Governor Tom Corbett's 2014-15 budget proposal.
First of all, this, the Governor's fourth budget, is very different from his first. Tough talk about reining in spending has been replaced with a host of new initiatives that resonate with the public, particularly women.
Several of the Governor’s priorities stem from genuine interest. He has been sympathetic to the plight of children with autism and other intellectual disabilities, and has proposed new funding to reduce waiting lists for a second year. His support for rape-crisis and domestic-violence programs can be traced to his experience with victims of sexual assault as attorney general.
The Governor’s budget also reflects a reversal on education funding, a response to the resounding voices of Pennsylvanians who disapprove of his cuts to public education. A poll released last June showed that an unprecedented share of Pennsylvanians, 77 percent, were worried about the cuts and that a majority would support measures, including paying more, to restore them. The latest Franklin and Marshall poll finds that after the economy and education funding tops voter concerns.
The budget includes no increase for basic education funding, the main source of state dollars for Pennsylvania’s 500 school districts, which is still $250 million less than when Corbett took office.
The biggest education initiative is a new block grant called “Ready to Learn.” While many of the details are still forthcoming, we do know this — lower-performing school districts will face significant restrictions in how those funds can be spent.
“Ready to Learn” block grant funding can be used for early learning, teacher training, and science, technology, engineering, and math education — all worthwhile programs. But the new funds will not be available for art, music, counselors, school nurses, sports, or to restore smaller classes.
In short, the dollars cannot be used flexibly to restore cuts prompted by the loss in state funding. That would require the Governor to acknowledge the cuts to begin with — something he has not done. Instead, he continues to point to the loss of federal stimulus funds in 2011, despite the fact that half of the education funding reductions that year came in state-funded programs.
The new block grant would be allocated based on a formula that includes student counts, poverty, and English-language proficiency. This is a step in the right direction. Pennsylvania is one of a handful of states without an education funding formula that considers student needs and community resources.
Still, the spending plan makes no commitment to use real costs to determine how much school districts need to educate students to meet state-imposed standards. Without such a commitment, the disparity between high- and low-poverty districts will continue to grow.
As befits an election-year budget, the Governor’s plan presents a hopeful view of the state’s overall fiscal health, more than is warranted by the facts. The commonwealth is not enjoying the robust revenue surpluses many states now have, and revenue projections for next year and beyond are optimistic, masking fiscal troubles ahead.
The budget relies on several one-time funding sources and gimmicks that the Governor condemned in his first address. It will reduce, again, the state’s contribution to public employee retirement, increasing the state’s pension debt.
Without sustainable funding, the new worthy initiatives proposed in the budget may be short-lived.
This budget does have some similarities to Corbett’s first.
For the past three years, the Governor has relied on business tax cuts to fuel economic growth. This budget provides more of the same, further reducing the capital stock and franchise tax. That tax has already been cut by 90 percent and is paid by only a small percentage of large companies.
Cutting business taxes has not brought jobs to Pennsylvania. The commonwealth’s job-growth ranking has fallen from seventh in 2010 to 48th in 2013. Corporate tax collections have begun to decline, leaving the cost of services to fall more heavily on other taxpayers, and undermining the state’s long-term financial health.
The budget saves money, once again, by cutting health care for low-income Pennsylvanians. It foregoes the opportunity to expand Medicaid under the federal health-care law, proposing instead a new Healthy PA program that will reduce health-care benefits for low-income working families and people with high health needs.
So the tough talk is gone, and we have been offered a kinder and gentler budget. But the devil is always in the details, and we still have a lot to learn as the budget season continues in the months ahead.
If we are going to see sunnier days ahead, Pennsylvania must restore education funding with flexibility for school districts to address their local needs, expand health coverage without strings attached, and adopt a tax policy that asks large corporations to pay their share. That is the key to getting our economy back on track.
Pennsylvania General Fund collections for nearly every major tax type fell short of estimate in February. Shortfalls in the collection of sales, personal income, and realty transfer taxes may be partly attributable to the excessive amount of inclement weather in February, but the bulk of the month's deficit is due to expectations of strong growth for 2014 falling short. This is the third consecutive month in which revenues have fallen short of targets.
In total, February fell $34.5 million, or 2%, short of the monthly target. For the fiscal year, revenues are down $75 million, or 0.5%, from estimate, a manageable amount at this point. The Corbett administration has indicated it could lapse unspent funds, which could help offset some of the revenue deficit going into the 2014-15 Fiscal Yar.
All eyes will be on collections for March, the largest revenue month of the year. The state estimates revenues will total $4.2 billion for the month, two-and-a-half times more than was collected in February. If collections fall short in March by about 2%, as they did in February, the state's year-to-date revenue shortfall would more than double. April, the second most important revenue month of the year, will be another one to watch closely. Combined, both months' revenue tallies could significantly impact the 2014-15 budget.
My last blog on the UAW vote at VW in Tennssee argued that the union began to develop a new argument for why unions make sense in U.S. manufacturing -- for workers, employers, and the nation. That blog encouraged the UAW to keep developing this new argument if it wants to win over workers, and shift more policymakers and members of the public to its side going forward.
Before getting back to the UAW and VW, I want to explain why unions could be instrumental more broadly in strengthening U.S. manufacturing for the future.
Three central challenges in U.S. manufacturing today are that its wages are too low, employers invest too little in their workers, and the sector lacks meaningful credentials or job-matching institutions that might allow dislocated manufacturing workers to find new manufacturing jobs that capitalize on their skills.
First, wages. Long gone are the days when manufacturing paid high-school educated workers far above the wages and benefits enjoyed by workers in other parts of the economy. Yes manufacturing still pays better -- but only about 7.4% better controlling for worker education, experience, and other characteristics according to recent estimates by our labor economist Mark Price for the Brookings Institution. As Steven Rattner pointed out in a recent New York Times opinion piece, manufacturing wages have fallen even more than other wages in the current recovery. Even in the higher wage U.S. auto industry, according to Rattner, wages are now well below those in Gerrmany. Keeping wages low is not the solution for U.S. manufacturing and, in fact, we will argue it is part of the problem.
Second, skills. Too many U.S. manufacturing employers invest little in their workers. Apprenticeship programs, common in the 1960s in manufacturing, have almost disappeared. (There are anecdotal reports of some new ones.) Manufacturing now accounts for nearly two out of five jobs in the temporary help industry (p. 4), another symptom of the Walmart-ization of manufacturing work.
Third, credentials and job-matching institutions. For all practical purposes, U.S. manufacturing has none. To be sure, the National Association for Manufacturers has pursued a widely publicized effort to promote skills standards. But there's not much evidence yet that employers have embraced these standards or are willing to pay more for people with credentials. There is, on the other hand, lots of evidence that manufacturing workers with skills-in-demand do not easily find new positions that capitalize on their skills. Even in industrial maintenance and precision machining jobs, for example, unemployment rates were well above the national rate during and shortly after the Great Recession. Only about one in five dislocated manufacturing workers in these occupations regains employment in manufacturing in the same occupational cluster by the time of the next displaced worker survey, up to three years later (see Table 13 in this report). (For sources to back up the last two sentences, and details, see Critical Shortages of Precision Machining and Industrial Maintenance Occupations in Pennsylvania's Manufacturing Sector, written by KRC for the PA Department of Labor and Industry.)
Declining wages and benefits. Little investment in skills and reliance on "disposable" workers. No effective institutions that enable skilled manufacturing workers to find new jobs.
These structural factors underlie the widespread reports of skills shortages in U.S. manufacturing. These structural factors also threaten the economic performance and innovative capacity of U.S. manufacturing employers going forward.
Given these structural issues, unions, rather than being "the problem," could be the solution for U.S. manufacturing. To be seen as the solution, it may help manufacturing unions to borrow more deliberately from their union friends in the building trades.
To see why, let's play Jeopardly briefly. Ignoring right-wing and liberal elitist stereotypes, if the answer is "building trades union," what might the question be? What is a union that lifts regional wages and benefits, promotes employer investment in skills, and supports industrywide credentials and job-matching institutions? But those are exactly the features needed by U.S. manufacturers to eliminate skills shortages, support more widespread adoption of good job strategies, and promote innovation.
In sum, I'm suggesting that a model of union that borrows heavily from craft union traditions might be viable in U.S. manufacturers going forward. Based on this, maybe the feature of VW that might be emphasized in a second union vote is not "works council" -- which, after all, has a foreign air to it -- but the new apprenticeship program that VW has already implemented. Partnering with the union might be an effective way to spread apprenticeship more broadly, down the VW supply chain and to lower- wage manufacturers struggling to find qualified workers.
Are you a governor of a Mid-Atlantic state in a tough re-election fight this year? After supporting policies that reduced corporate taxes, cut education funding, and reduced the number of people eligible for unemployment insurance, do you find your supporters are about as loyal as Theon Greyjoy?
Perhaps a change of strategy is in order.
Might I suggest a policy idea endorsed by seven in 10 Pennsylvania voters overall, including majorities of Republican, Democratic, and Independent voters: raising the minimum wage!
For quite some time now, we have been putting out jobs data explaining that drilling in the Marcellus Shale has produced far fewer new jobs than the industry and its supporters claim. Well, now you don't have to listen to us; a team of economists from the U.S. Bureau of Labor Statistics (BLS) is out with a study confirming what we have been saying all along.
The BLS report finds that the oil and natural gas industry added a total of 15,114 jobs in Pennsylvania between 2007 and 2012 — a far cry from the hundreds of thousands of jobs often attributed to the industry by its supporters.
The report, which examines employment and wage trends in Pennsylvania's Marcellus Shale, is consistent with the findings of a November report on shale jobs from the Multi-State Shale Research Collaborative, a project that includes both the Keystone Research Center and Pennsylvania Budget and Policy Center. That report put the number of jobs resulting from Marcellus Shale development between 2005 and 2012 at 22,441.
So why do our numbers come in just a bit higher than the BLS estimates? Well, we looked at a longer period of time and cast a slightly broader net. Specifically:
- We used all employment in Support Activities for Mining, while the BLS economists, Jennifer Cruz, Peter Smith, and Sara Stanley, used just the oil and gas related subsectors within Support Activities for Mining (NAICS 213111 and NAICS 213112, to be precise), and
- We included employment in Oil & Gas Pipeline & Related Structures Construction (NAICS 237120) whereas Cruz, Smith, and Stanley chose not to include this sector.
Despite these differences, both ours and BLS' estimates are very close to one another.
The BLS report also highlights the top 10 states ranked by employment in the oil and natural gas industry and finds that Pennsylvania ranked second in terms of the increase in employment between 2007 and 2012. Texas came in first and following Pennsylvania are North Dakota, Oklahoma, Colorado, California, Louisiana, New Mexico, Alaska, and Arkansas.
The chart below presents in that same order the December 2013 unemployment rate in those 10 states. You will notice that Texas had an unemployment rate of 6% and Pennsylvania 6.9% compared to just 2.6% in North Dakota. Both the Texas and Pennsylvania economies are large with 5.7 million and 11.2 million jobs, respectively, whereas North Dakota has fewer than half a million workers.
The takeaway: in a small state like North Dakota, tens of thousands of oil and gas jobs are enough to bring down the overall unemployment rate, while in large states like Texas and Pennsylvania, this sector just doesn't produce enough employment to move the dial.
One would think that all profitable Fortune 500 companies in the United States are paying some amount in federal income taxes. And one would be wrong.
A five-year study of 288 highly profitable Fortune 500 companies found that 111 of them, including six based in Pennsylvania, paid no federal corporate income tax in at least one of the last five years. In fact, 26 companies, including Boeing, General Electric, Priceline.com and Verizon, enjoyed negative income tax rates over the entire 2008-2012 period, despite combined pre-tax profits of $170 billion. Overall, one-third of the corporations studied paid a U.S. tax rate of less than 10% over the five-year period.
We have this new info courtesy of the good folks at Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP) who crunched the numbers. They limited their review to every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. Although the statutory corporate federal income tax rate is 35%, these corporations paid an average effective rate of just 19.4% over the past five years, barely more than half the official rate.
Six of the 16 Pennsylvania-based Fortune 500 corporations included in the study paid federal income taxes of zero or less in at least one year between 2008 and 2012: Allentown-based PPL (3 years); Pittsburgh-based Allegheny Technologies and PNC Financial Services Group (2 years); and King of Prussia-based UGI, Pittsburgh-based H.J. Heinz, and Allentown-based Air Products & Chemical (1 year). All six companies paid overall effective tax rates of 15% or less.
It is important to acknowledge thoese companies that are paying closer to their fair share, including six in Pennsylvania paying effective federal income tax rates of 20% or more: Hershey (31.6%), King of Prussia-based Universal Health Services (31.1%), Pittsburgh-based PPG Industries (29.2%), Coraopolis-based Dick’s Sporting Goods (27.2%), Chesterbrook-based AmerisourceBergen (24%), and Philadelphia-based Comcast (24%).
The report outlines a set of sensible reform options that could help revitalize the federal corporate income tax, including ending the indefinite deferral of taxes in foreign profits and tax breaks for executive stock options.
The study is impressive work, and I would encourage our Philadelphia readers to put it on their list of weekend long reads. As always, context matters. While there is much that is good in this study, how best to link it into the city's economic and social policy is going to be a matter of intense debate. So take a moment now to read up on what this study does and doesn’t say.
The study brought to mind Michael Smerconish's recent Inquirer column that cites another study identifying marriage as a factor in growing income inequality — specifically, the marriage of highly educated people to other highly educated people (resulting in higher incomes). The study is a great example of what Larry Mishel at the Economic Policy Institute (EPI) calls "misdirection" (more on that later). The essential problem is that it identifies demographic trends, rather than changes in the distribution of income, as the reason we have rising income inequality.
Smerconish opens his column with a brief summary of the Piketty and Saez top income series, which tracks the rise in incomes of the top 1% nationally. The chart below presents the Pennsylvania version of these data, focusing on the share of income claimed by the top 10% of Pennsylvania taxpayers. Notice (it will be important later) this pattern in the chart: not a lot of change in the share of income going to the top 10% from 1960 to 1980, and then a big increase in the share going to the top 10% after 1980.
After that pretty good summary of recent inequality trends, Smerconish shifts gears badly:
Of course, to listen to the public debate about income and wealth inequality is to hear about the minimum wage, the extension of unemployment benefits, the effects of globalization, and the loss of manufacturing jobs. But new research suggests that into that mix must also be placed the institution of marriage.
Smerconish then summarizes the study, coauthored by Jeremy Greenwood of the University of Pennsylvania, tracking changes over time in the frequency with which highly educated individuals marry one another. (If an economist is in the room with you, they call it positive assortative mating.)
On Monday, EPI's Larry Mishel reviewed the same paper, calling it an example of "misdirection," or "how authors contort their analysis to answer a question no one is asking but make it seem as if they are answering an important current question."
Greenwood et al.’s data show that positive assortative mating declined(!) from 1980 to 2005, which directly tells us that this phenomenon did not cause any of the income inequality generated after 1980: in fact, positive assortative mating was a force that equalized incomes after 1980 [my emphasis]. It was in the period from 1960 to 1980 that positive assortative mating lead to more unequal incomes. Consequently, their research in no way lifts up the role of ‘like marrying like’ in generating inequality since 1980: it actually means that economic inequalities overcame an equalizing demographic factor and that the inequality of economic outcomes had an even larger impact than we might have thought.
Smerconish speaks for a common bias in Pennsylvania that what troubles the City of Philadelphia and feeds the decline in the middle class is a breakdown in the institution of marriage, not changes in the degree to which middle- and low-income families see their income rise as their productivity rises. Or as Larry says: "Misdirection."
For a long time, we've been making two points about natural gas drilling in the Marcellus Shale. One, Pennsylvania's drilling impact fee brings in a fraction of what a severance tax comparable to those in other large energy-producing states would generate. And, two, the claims of job creation by the industry and its supporters (often used to cut off any talk of enacting a severance tax) are greatly overstated.
But don't take it from us. The Allentown Morning Call's Steve Esack has a pair of Sunday stories making the very same points.
The first story observes that a severance tax would have raised much more revenue than Pennsylvania's impact fee, which has generated about $200 million in each of the last two years:
The record-high 3.1 trillion cubic feet of gas uncorked from Pennsylvania's 4,904 wells in 2013 would have generated about $425 million for the 2013-14 budget if the Legislature had copied West Virginia's gas policies, The Morning Call found after analyzing records of the state Department of Environmental Protection and the U.S. Energy Information Administration. That's because severance tax revenue fluctuates with production, meaning the more gas that's extracted, the more money that goes to the state. ...
The impact fee remains much lower than severance taxes in Wyoming, New Mexico and Texas. ...
The second story finds that Pennsylvania has inflated fracking-related job numbers:
Gov. Tom Corbett praises the natural gas industry as a key cornerstone of the state's economy. ...
But state records show the gas industry has not created as many jobs as state officials have claimed. In addition, the state's estimates of ancillary job growth have been inflated to include employment in places drilling isn't even taking place, further skewing the impact the natural gas industry has had on employment.
The Morning Call explains that the state Department of Labor and Industry publishes job numbers for what it calls "Marcellus Shale-related ancillary industries," taken from Pennsylvania’s Quarterly Census of Employment and Wages. But those job numbers are not based solely on employment trends in the counties where drilling is occurring:
The report includes statewide employment trends in trucking, engineering, highway construction and about two dozen other career sectors. So jobs in the Lehigh Valley, Philadelphia and other areas where there are no wells have been counted as ancillary gas jobs.
On Wednesday, Gap Inc., which operates clothing retailers The Gap, Banana Republic, and Old Navy, announced that it would set an entry level wage of $9 per hour this year and raise it to $10 per hour next year. Steven Greenhouse of The New York Times gives you the run down:
Also on Wednesday, Bloomberg’s Renee Dudley reported that Wal-Mart Stores Inc. is weighing whether to endorse a minimum wage increase. Joshua Holland takes a closer look at what Wal-Mart is up to:
It is a very good sign that prominent low-wage employers are talking in a positive way about raising wages for their workers. What to look for in the coming months is whether politicians normally opposed to a minimum wage increase begin shifting their stance. Here is what I wrote on the topic for The Reading Eagle in December:
In Pennsylvania, the minimum wage stands at $7.25. Legislators in Harrisburg recently introduced two different bills calling for increases. Gov. Tom Corbett responded by saying he won't push legislators to make an increase happen. The governor might change his mind about that, especially since polling has shown minimum wage increases to be popular with voters of all stripes. It's not hard to imagine a flagging re-election campaign a few months from now seeing support for a minimum wage increase as a way to both warm up a candidate's icy image and take an issue away from the Democratic opposition.
Finally, as you may have heard, the Congressional Budget Office (CBO) released its evaluation of the impact of raising the federal minimum wage. John Schmitt at the Center for Economic Policy and Research should be your first stop for understanding what's in the CBO's analysis:
Today the Economic Analysis Research Network released The Increasingly Unequal States of America: Income Inequality by State by Estelle Sommeiller of France and yours truly. With apologies to the great Woody Guthrie, you can summarize the report's findings this way:
From California to the New York island; from the Redwood Forest to the Gulf Stream waters, the incomes of the highest earning 1% grew faster than for you and me.
This project originally began as Dr. Sommeiller's dissertation at the University of Delaware, which she completed by 2006. About a year ago, I reached out to her to see if she would be interested in updating her time series. She generously agreed, and as result, we have this handy interactive summary of recent trends in income in every state.
State-level data on incomes are readily available from many sources since the 1980s, but this time series allows us to peak all the way back to the eve of the roaring 1920s. As a result, we get the remarkable picture below taken from my summary of the Pennsylvania findings.
This figure presents the incomes of the 1% and the bottom 99% indexed to their levels in 1917, the beginning of our time series. The figure identifies two distinct periods: the first following the end of World War II from the late 1940s to the 1970s, and the second beginning in the early 1980s.
In the first period, the average income of the bottom 99% in Pennsylvania grew from $22,377 to $41,060 by 1973, an increase of 83%. The top 1% in Pennsylvania didn’t do as well but did see their incomes grow over this period by more than $104,000 to $395,561, an increase of 36%. Since that 1973 peak, these income trends more than reversed as the bottom 99% saw their income climb by just 6% to $43,399, while the top 1% saw their incomes rise to $882,574, an increase of 123%.
What could have changed in America between these two eras?
In a word, power. Working families have seen their bargaining power sapped by policy choices that have shifted increasing amounts of the fruits of productivity growth to a narrow sliver of finance and executive occupations here and across the country.
We have come to a point where this unbalanced growth in incomes is now feeding itself as activist billionaires here in Pennsylvania and across the country use their vast wealth to bankroll campaigns to further weaken the connection between productivity growth and earnings.
Consider one simple example: paid sick days. Most low-wage workers don't have paid sick days. This means in practice that many parents are just a sick kid away from losing either their job or a day's pay. No matter how good their intentions, most low-wage employers will not provide paid sick days if their competitors down the street don't also offer them.
As a result, policymakers in cities like Philadelphia have proposed ordinances to level the playing field and require employment to include a modest number of paid sick days. As my colleague Diana Polson explains, a national operation has now come to Pennsylvania to push legislation that prevents local governments from enacting ordinances that expand coverage of paid sick days to all workers.
On this and many other issues, a ragtag band of advocates often face off against high-priced lobbyists in Harrisburg. As you can see in the Pennsylvania summary of top income data, the match so far is going very well for the top 1% of Pennsylvania taxpayers.
Today is the third and final day of a historic union vote for workers at Volkswagen in Tennessee, in which workers will decide whether they want to be represented by the United Auto Workers (UAW) union.
As explained by my friend and mentor Harley Shaiken in this opinion piece, this is an unusual case. The employer, VW, is neutral rather than opposed to unionization. Moreover, VW and the UAW have the opportunity to pilot within the United States a new, more collaborative model of U.S. labor relations, using shop floor "works councils" for day-to-day worker participation in problem-solving to raise productivity, quality, and adaptability.
The results are expected to be in by about 11:30 p.m., and as soon I hear what they are, I'll let you know in another blog post.
Here's a link to Harley on the PBS Newshour debating Vincent Vernuccio of the Mackinac Center for Public Policy, a "free market research center." As Harley explains, Vernuccio's convoluted arguments are "anti-union feeling masquerading as an argument."
If workers vote for the union, it could be a critical step forward in the reinvention of labor relations to mesh with our 21st century economy. As explained further on Keystone Research Center's "new unionism" page, adapting to new circumstances — in this case by developing union models that fit both a global, innovation economy and the huge number of jobs (especially low-wage jobs) in service industries — is always difficult. Adapting to the new economy is more difficult for labor organziations because many employers seek to coerce workers not to form a labor union, and policymakers (e.g., in Tennessee) and courts are hostile to worker organization.
So hats off to VW for staying neutral. And good luck to VW workers, their employer, and the UAW as they try to create a new template for manufacturing labor relations.
Part of the broader context for the VW vote is that America can't solve the problem of economic inequality — and keep alive the America Dream of widespread upward mobility — without a growth of unionism in the private sector. If union models grow that work collaboratively with employers in the workplace and on issues such as training and careers, while also negotiating to create middle-class wages and benefits, then we can have a STRONGER economy as well as one that's more humane and moral.
The Independent Fiscal Office (IFO) and Corbett administration are at odds over how much Pennsylvania will collect in taxes and other revenue for the remainder of 2013-14 and all of the 2014-15 fiscal year — to the tune of roughly $375 million. That's a little over 1% of what is expected to be spent in 2014-15.
The driving force behind how much Pennsylvania can expect to collect in several major types of state taxes next year is just how much wages are projected to grow. The Independent Fiscal Office (IFO) is estimating Pennsylvania wages will grow by 3.6% in 2014, up from 2.6% in 2013.
That puts General Fund revenue growth at 3% in 2014-15, not including several of the new revenues proposed by the Governor in his 2014-15 budget, as well as the recently enacted small games of chance taxes. Including small games of chance taxes, but not the one-time proposed revenues, preliminary IFO growth is 3.3%, as compared to the Corbett administration's 3.9% in projected growth.
The IFO has also downgraded its revenue estimate for 2013-14 due to somewhat sluggish collections and now expects revenues for the fiscal year to fall $112 million short of Corbett administration estimates.
Just how much state tax and revenue collections will grow next year was the subject of a House budget hearing where IFO Director Matthew Knittel testified Monday. Knittel discussed the IFO's outlook for the rest of 2013-14 and what 2014-15 could look like economically.
Knittel reiterated that the state faces a long-term problem where revenues increase more slowly than expenditures — particularly due to increases in pension payments in the coming years. Several of the pension reform proposals would increase the state's structural deficit in the near term. To correct this, additional revenues need to be raised or spending reduced.
Demographic changes will put more pressure on the state budget in coming years. While the state's population of children and working-aged adults is expected to be relatively flat, the state's elderly population is projected to grow by 29% in coming years.
At the same time that Knittel was testifying before the House Appropriations Committee, Budget Secretary Charles Zogby was grilled by the Senate Appropriations Committee, where several senators of both parties worried about optimistic revenue assumptions in the Governor's budget. Secretary Zogby noted it was early in the process and the administration had other ideas it was working on in case the estimates did not work out.
Budget hearings continue over the next two weeks in Harrisburg. They are often great information sources as lawmakers discuss details of the Governor's budget with individual departments and offices. These hearings will provide more detail on the Governor's plans regarding education, health care, human services, public safety, and environmental programs. We will be blogging the highlights as we learn more.
The Philadelphia Daily News' Will Bunch had an uplifting column this past Sunday on Saturday's "Moral March" in Raleigh, N.C. It was the South's largest protest march since Dr. Martin Luther King and the Selma-to-Montgomery march in 1965.
The protesters (including my colleague Michael Wood of the Pennsylvania Budget and Policy Center) want to reverse a regressive policy agenda in North Carolina — that has been echoed elsewhere, including in Pennsylvania. Bunch writes:
They want to undo voter ID laws that will undo some of the gains from that 1965 Voting Rights Act, equal rights for gays, lesbians and the transgendered, unfettered reproductive rights for women, the expansion of Medicaid to cover hundreds of thousands without health care, the return of long-term unemployment benefits, a higher minimum wage, and the reversal of tax code changes that harmed the poor and benefited the wealthy.
The Moral March in North Carolina brought to our minds the concept of a "moral economy" that we have offered as a unifying umbrella for policies that would restore opportunity and rebuild America's middle class, while making the economy stronger.
The idea of a "moral economy" is informed by our understanding of how the New Deal and its central policy pillars were enacted in the 1930s. The "big four" New Deal policies included the first federal minimum wage, unemployment insurance, Social Security, and the 1935 "Wagner Act," which made it easier for unions to organize workers at giant manufacturing companies like General Motors and U.S. Steel. How on earth could such a far-reaching set of ideas become federal policy in such a short time?
In our view, New Deal policies galvanized the broad public support needed to become law because they were understood as a way to make the economy BOTH more moral and stronger. It is this mix of morality and practicality that is political dynamite — in a good way.
From a moral point of view, New Deal policies enabled retired Americans to put food on the table, unemployed workers to replace half their wage income and support their families, low-wage workers to earn closer to a living wage, and industrial workers and their families to share in the benefits of unprecedented productivity.
From an economic point of view, giving retired people, unemployed people, low-wage earners, and industrial workers more money to spend was just the tonic needed to lift the U.S. out of the Great Depression.
The conviction that New Deal policies would made the economy more moral AND stronger meant people could take to the streets — or sit down in their factories — buoyed by moral conviction and by the knowledge that employers and lawmakers could meet their demands and THE POLICIES WOULD WORK. The lives of protestors and their families would improve in immediate, practical ways.
Armed with this view of history, we have argued for policies that could recreate the political magic of the New Deal by making today's economy both more moral and dynamic. For example, we outlined these types of policies in a "draft" presidential candidate speech during the 2008 election.
Then-candidates Barack Obama and John McCain did not pick up our arguments. Since then, however, the continued overreaching of the extreme right, the sluggish economic recovery, and the stunning return to unequal growth (with the top 1% taking home 95% of the rise in income during the recovery to date) may have created a context more conducive to combining moral arguments with evidence about the positive economic benefits of progressive policies.
The current push for a minimum-wage increase has been striking in how much it has gone on the offense in arguing for a raise in order to boost purchasing power and increase productivity growth. The nationwide push for a higher minimum wage is gaining confidence — and speed — because advocacy emphasizes not just equity but also the economic benefits.
We hope Will Bunch is right and the Moral March is coming to you. We also urge progressives to expand their economic wish list beyond the minimum wage.
For example, let's also give workers the choice to form area-wide unions that can lift up regional wages and benefits — in fast food, in health care, in restaurants, in retail, and so on.
Let's strengthen training and career structures to give workers the skills and supports to achieve economic security in today's economy.
Let's turn unemployment insurance into "re-employment insurance" that combines income support with long-term training leading to jobs that pay decently.
And let's strengthen Social Security directly and build on President Obama's myRA proposal to repair our tattered private-sector retirement security. (Read an op-ed that discusses several of these proposals.)
Emulating the 1930s, a "New Deal for a New Economy" with the components above would make our economy more moral — more consistent with our values — and more economically successful.
If morality is also practical, who could oppose it?
Time to hit the streets.
While most states are finally recovering from the worst recession in decades, and seeing revenue surpluses for the first time in several years, Pennsylvania has missed the boat. And costly corporate tax cuts have a lot to do with it.
Reid Wilson of The Washington Post explains more in a blog post:
After years of harsh budget cuts, the economic recovery has meant good news for states reaping the benefits of rebounding tax revenue. California has a $4.2 billion surplus. New York has $2 billion in extra cash. Across the country, state revenue is up 3.8 percent over last year, according to the National Association of State Budget Officials.
But in Pennsylvania, the picture isn’t as rosy. As he seeks reelection this year, Gov. Tom Corbett (R) is dealing with a budget deficit of more than $1 billion. So why, when other states are rolling in dough, is Pennsylvania still drowning in red ink?
Corbett’s critics say tax cuts the governor pushed through the Republican-dominated legislature are to blame. In 2011, Corbett backed cuts to the state’s capital stock and franchise tax that cost the state almost $600 million a year. ...
All told, Corbett has signed legislation cutting taxes on businesses by about $1.2 billion since taking office.
Wilson also writes that with much of the income growth of the past few years going to top earners, Pennsylvania's flat income tax has seen less growth than states like California with progressive income taxes that assess higher rates on top earners. As Pennsylvania Budget and Policy Center Director Sharon Ward tells Wilson: “The income growth in Pennsylvania, like the rest of the country, has been at the top. So over time, we’re at a disadvantage."
Punxsutawney Phil is predicting more chilly weather ahead, but a winter-weary Gov. Tom Corbett must have spring on his mind. His budget address Tuesday painted a bright and rosy picture of Pennsylvania's future even as we remain in the grip of a long economic winter.
Pennsylvania's economy is not recovering as quickly as most states. Gov. Corbett, attempting to improve growth, made a bet that a billion dollars in new corporate tax cuts would fuel economic recovery, but that bet has been lost. Our unemployment rate has hovered above the national average for more than a year, and job growth trailed all but two other states last year.
Instead, corporate profits continue to rise, but those profitable corporations are paying less in taxes, if anything at all.
And Pennsylvania has faced one budget crisis after another, with the casualties falling largely on schoolchildren, local taxpayers and the state's economy.
Against this wintry backdrop, Gov. Corbett presented his new state budget.
He led early on with an increase in education funding that is indeed welcome news for many schools. One of the governor's first acts in office — a nearly billion-dollar cut to public schools — cost 20,000 jobs in schools and reduced offerings for students.
Students in Allentown are paying the price. After cutting 350 jobs over the past several years, school officials face more bad choices: new cuts this year or a 9 percent local tax hike.
The governor's budget makes no increase in basic education funding but does add $241 million to a new program, the Ready to Learn Block Grant. The program is welcome, but strings attached to those funds may prevent schools from restoring the basics that have been cut over the past three years — small classes, summer school, nurses and counselors, art, music and advanced courses. Common sense demands that we restore the basics and build from there.
The budget provides new dollars for schools by making changes to the state's pension system that will repeat many of the mistakes of the past.
The Pew Charitable Trusts and Laura and John Arnold Foundation recently estimated that nearly half of Pennsylvania's current pension debt stems from the commonwealth's failure to make annual required contribution payments. The last thing Pennsylvania should do now is kick the can down the road on pensions.
The governor's budget provides no increase for higher education institutions, locking in cuts made to public colleges and universities three years ago. It does include $25 million for a new, higher education scholarship fund. With state universities funded at mid-1990s levels now, most students will continue to pay relatively high tuition and graduate with significant debt. Keeping college affordable is not something "nice to have," but a key public responsibility.
The governor missed an opportunity by rejecting a federal expansion of Medicaid health coverage that a bipartisan group of governors embraced. That expansion would bring $4 billion into the state and create 35,000 good-paying jobs.
Go to Ohio, New York, New Jersey, Delaware or West Virginia, and a low-wage worker can obtain high-quality, low-cost health coverage through Medicaid. Come to Pennsylvania, and that worker is out of luck.
Instead, Gov. Corbett finds savings by cutting health care benefits for people who are sick or living with disabilities, savings that are unlikely to win federal approval. The commonwealth should not close a budget hole created by years of corporate tax cuts with benefits cuts to the most vulnerable Pennsylvanians.
The governor's budget relies on more than $1 billion in one-time revenue sources that will not be available for future budgets. To see the preschooler of today through to her high school graduation day, Pennsylvania needs a more sustainable approach to funding priorities like education that are so critical to our economic future.
New investments are welcome, but they have to be paid for. Pennsylvania can ensure that new funding for schools, people with disabilities, and early-learning programs can continue well into the future by rejecting a proposed reduction to a business tax that has already been cut by 90 percent and is paid by only a small percentage of large companies. Everyone must contribute to our state's future economic success.
After a long economic winter, the people of Pennsylvania are clamoring for warmer, sunnier days — with more jobs, greater job security and a brighter future for our children.
Will lawmakers hear their call?
Governor Tom Corbett has proposed a 2014-15 state General Fund budget that would spend $29.4 billion, $927 million, or 3.3%, more than the current fiscal year.
The plan also shifts $70 million in unused current year funding to pay for other needs this year and counts on $250 million in lapsed prior year funding.
Below is an overview of the budget proposal from the Pennsylvania Budget and Policy Center. Check out our charts and infographics on the budget and find other resources.
The budget projects a $216 million year-end balance in 2013-14 to carry over into the new fiscal year, although that cushion may disappear if revenue collections fall short of estimate. (They are already $41 million below projections through January.)
- The plan is built on stronger tax revenue growth in 2014-15 (3.9%) than in 2013-14 (2%). Sizable growth is predicted for a number of taxes, including personal income tax (5.5%), sales tax (3.4%), realty transfer tax (14.4%), and bank taxes (9.2%).
- The capital stock and franchise tax remains on schedule to be reduced in 2015 and fully eliminated in 2016.
- Total corporate tax collections are predicted to decline for a second straight year, with continued annual declined expected through 2017-18.
- $150 million would be raised by changing the timing on when unclaimed property may be claimed by the state.
- $75 million would be generated by land leases for gas drilling in state forests and parkland. The last leases were signed in 2008, when a moratorium went into effect.
- Funding for the basic education subsidy would remain unchanged at $5.5 billion.
- $241 million would be combined with the existing $100 million accountability block grant to create the new Ready to Learn block grant for public schools. The program would have four tiers of school districts depending on school performance profiles. 72% of schools would be in the top two tiers. School districts would be permitted to spend money allocated through the block grant on existing programs funded by the Accountability Block Grant, but new funding would be limited to a restricted list of expenditures. The block grant would fund curriculum development and training to support early literacy and STEM education and extended learning opportunities in grades K-3, with additional options for tier 3 and tier 4 school districts.
- Special education, which has been flat funded at $1.027 billion for the past six years, would get a $20 million increase.
- Pre-K Counts would get a $10 million increase to provide early learning opportunities to an additional 1,670 children.
- Funding for the state’s higher education institutions (including Penn State, the other state-related universities, and the State System of Higher Education) remains flat, maintaining deep cuts in effect since 2011-12.
- The plan includes $25 million for new “Ready to Succeed Scholarships” offered through the Pennsylvania Higher Education Assistance Agency (PHEAA). The merit-based scholarships would be targeted to families with incomes up to $110,000 and would require legislation to create.
- The plan relies on far-from-certain pension changes that would save the state and its 500 school districts a combined $300 million. Savings generated will be paid for by unspecified pension reforms.
- The Governor’s budget also relies on a one-time transfer of $225 million from the tobacco settlement fund (cash reserves and private equity investments) to the Public School Employees Retirement System. Tobacco settlement funds typically support health care programs.
- Reduction in pension collars will mean less of the pension debt is paid off each year. While this reduces expenditures for the state, it increases the cost of repaying the pension liabilities in the long term.
- The budget incorporates the Governor's Healthy PA plan. Rather than adopting an expansion of Medicaid under the Affordable Care Act, the Governor proposed a plan that would reduce health benefits for current and new Medicaid enrollees and allow the state to use federal Medicaid expansion funding to enroll newly eligible individuals on the health insurance exchanges. The budget includes $125 million in savings from the reduced benefit package. The plan requires federal approval, which is uncertain.
- The total Department of Public Welfare (DPW) budget will increase by $428 million, or 3.9%. The proposed budget replaces $340 million in federal funds due to a decline in the state's federal matching rate for the Medicaid program.
- The DPW budget includes a number of one-time funds and transfers, including $394 million in delayed payments to Medicaid Managed Care providers, $130 million in Long-Term Care funding transferred from the Lottery Fund, and $62.5 million directed from the Tobacco Settlement Fund to nursing homes.
- The budget expands Home and Community-based Services for seniors and people with disabilities by $51 million, increasing slots in Long-Term Care Managed Care, Attendant Care, Services to People with Disabilities, and the ID Community Waiver program.
- The budget increases the Child Care Services Line, using $15 million in additional federal funds to reduce the waiting list. The Child Care Assistance appropriation, which pays for child care for Temporary Assistance to Needy Families (TANF) recipients, is level funded but declines by $15.3 million as a result of reduced federal dollars.
- Services for victims of sexual assault receive a 10% increase.
- Family Centers, Nurse Family Partnerships, the Human Services Development Block Grant, and Legal Services are all level funded.
- $5.3 million is sought in the Department of State budget to advertise and publish three proposed Constitutional Amendments (there was no description of what these amendments entail).
- The cost of running state prisons increases by $78 million, to more than $2 billion in 2014-15. This represents an increase of 4%. The prison population is expected to drop by approximately 1,000 inmates in 2014-15. The state’s cost to incarcerate an individual climbs to $41,100 per year.
- More of the cost of running state forests and parks has been shifted from the General Fund onto the Oil & Gas Lease Fund (which collects royalties from wells on state land). The Oil & Gas Lease Fund now provides over $4 for each $1 the General Fund provides to the Department of Conservation and Natural Resources.
- The Department of Environmental Protection receives a General Fund increase of $10 million, or 8%. This is due to an anticipated loss of federal funding.
PBPC will have more detailed budget analysis later today.
Punxsutawney Phil predicted chilly weather ahead on Sunday. Will Governor Corbett do the same?
On Tuesday, Governor Corbett will emerge from his office to deliver his state budget address. Will he see much-needed sources of revenue in Pennsylvania’s future, or will this early February ritual result in an extension of economic winter for our state?
It's Budget Week in Pennsylvania, and the Pennsylvania Budget and Policy is here to help you make sense of the future that the Governor sees for our state – without the top hats or tuxedos seen yesterday in Puxsutawney but with analysis and facts.
First, make sure you Like PBPC's Facebook page so you don't miss out on any up-to-the-minute details and infographics we will be posting there throughout the week. Also, be sure to follow us on Twitter where we will be live Tweeting the Governor's budget address to the General Assembly beginning at 11:30 a.m., using the hashtag #PABudgetLive.
Come back here to our web site Tuesday afternoon for additional resources and an overview of the Governor's 2014-15 budget proposal. Then on Wednesday morning, come back to read PBPC Director Sharon Ward's commentary on the Governor's budget.
Later in the week, look for PBPC's detailed analysis of the Governor's budget. This is a must-read for anyone who wants to go beyond the numbers to get to the real implications of this budget.
Want to delve deeper into the budget? Register to participate in our annual Budget Summit on Thursday, February 20 from 9 a.m. to 4 p.m. at the Hilton Harrisburg. Join us for a comprehensive look at the proposed state budget, and in-depth workshops on the leading issues of the 2014 legislative session.
Pennsylvania Senate hearings on lottery expansion earlier this week focused on increasing state revenue for seniors' programs by expanding lottery games under public management (to include keno). This was a welcome shift from last year's proposed privatization of the lottery with the Camelot Group, a British company, and a temporary reprieve from more recent rumors about privatizing lottery management.
The shift away from privatization was particularly welcome given recent news from The Times of London about the outsize (and hidden) £2.1million bonus received by Camelot's chief executive, Dianne Thompson, at the end of last year. The same Times of London story also points out the £112 million paid in dividends to shareholders in the year ending March 2013.
The price of British lottery tickets recently doubled, so we can expect more increases in revenues in the future, with Camelot -- and Thompson -- siphoning off a healthy portion of the additional take instead of the public programs supported by the British lottery.
The British experience brings to mind our original critique of the proposed Pennsylvania deal with Camelot. To us, it looked like a sweetheart deal, in which Camelot embedded a set of easily attained financial goals within a complicated agreement. The practical result, we feared, would be Camelot (and its executives) capturing nearly half of the growth of revenues that state management of the lottery could achieve by expanding lottery games (to include keno) and through the normal growth of revenues.
Glad we dodged that bullet! For now.