Third and State
The Senate Appropriations Committee met on March 30 to discuss the proposed 2015-16 education budget with Acting Education Secretary Pedro Rivera. Three topics were discussed at the committee hearing that will be key to understanding the upcoming budget process:
- How well public schools are doing and whether all children are given a fair chance to succeed;
- The role of unfunded pension costs in budget concerns; and
- Property tax reform.
Today, we look at the second topic: pensions.
During the hearing, senators kept emphasizing the impact of unfunded pension costs on school districts, with Republican lawmakers making clear that pensions will be their top priority in budget talks. Three important things to know in the pension debate are: how we got to this point, why pensions matter, and how to move forward:
- We’re here because of past state decisions. Various factors caused the unfunded pension liability, as shown below, but employer funding deferrals remain the largest factor. The decision to defer payments was ultimately made by legislators.
Source: PSERS analysis
- Pensions are a critical part of our investment in public education, helping to attract and retain good teachers. Of all the factors within the control of a school district, teachers are the most influential on student performance by two- or three-fold. Pensions are especially important to improving teacher quality because salaries for teachers are 25% or more below private-sector salaries for the college-educated.
- We need to be responsible to move forward. We must beware of potential “reforms” that would offer new public workers 401(k)-type retirement accounts. Among other problems, these accounts would have a “transition” cost of $42 billion and would not offer any pension debt relief. Gov. Wolf’s proposal to buy down debt, on the other hand, would help us dig out of this mess.
 “Partners for Your Future: Pennsylvania Public Schools Employees’ Retirement System (PSERS) Budget Report Fiscal Year 2014-2015.” PSERS, February 7, 2014. Print. Page 20. Accessed April 7, 2015. http://www.psers.state.pa.us/content/publications/budget/1415budget.pdf
Today, low-wage worker protests across Pennsylvania, the nation, and the globe will reach their greatest scale yet.
Mobilizing behind a demand for "$15 and a union," this swelling movement holds the key to the future of opportunity and the middle class in America.
The basic idea here is simple. Most U.S. jobs -- and an even higher share of jobs that pay below a family- supporting wage -- are in service industries that can't relocate. You can't empty the bed pans at UPMC from Tijuana. You can't guard the Tower at PNC plaza from Beijing. You can't customize a Subway sandwich for someone in Pittsburgh from Indonesia.
By forming regional (or statewide) labor unions in service industries -- often similar in geographic scope to building trades unions -- service workers will gain the ability to lift wage and benefit standards (and work-time, training and other labor standards). Imagine unions of janitors, security guards, contingent university faculty, retail workers, supermarket workers, fast food workers, other restaurant workers, hotel workers, health care workers, etc.
Presto -- they have wages of $15 per hour and above, instead of $7.25 to $13 per hour. The "union" part of "$15 and a union" is essential to -- among other things -- keep wages moving up with productivity growth, after the initial catch-up wage jump to compensate (literally) for 35 years of wage stagnation.
In many industries, the bump-up of wages won't have a big impact on total costs but could lead to substantial improvements in productivity and/or quality. One example where there could be a large quality boost is in the nursing home industry, about which we released this report two days ago.
Driving up wages will also boost consumption and economic growth AND, in the long-term, INCREASE productivity growth and innovation economy-wide. Businesses that can't profit at the expense of their workers find a more productive focus for managerial energy.
With this just one little bit of social innovation -- $15 AND a union -- in all these regional service industries, presto, you solve the problem of inequality in America, and increase living standards for everyone more rapidly.
What's not to like about what economist Paul Krugman recognizes as an eminently practical solution?
Occupy Wall Street some five or six years ago was critizied for not having a solution to the one-percent economy. The workers protesting today have a solution. They just need to keep pushing until society -- and economic and political leaders -- realize they have a solution, and that the solution works great for everybody.
Hats off to all the nursing home and other Pennsylvania workers joining the Fight for $15 today. Their fight for their families' economic justice is also a fight for all of us to create the kind of Pennsylvania we want.
Today in 200 U.S. cities workers will rally for higher pay and a union. These actions, which started in November of 2012, have been instrumental in building momentum for state and local minimum wage increases.
These events have already driven large corporations like the Gap, Walmart and McDonald’s to announce, usually with great fanfare, that they are raising wages. On Tuesday a Pennsylvania-based retailer, Giant Food Stores (the firm is a subsidiary of the Dutch multinational Ahold), joined in and announced that it would raise starting salaries to $9 per hour.
While $9 falls short of the $10.10 per hour minimum wage being advocated by the Raise The Wage Pa Coalition it does represent another victory in the fight to raise wages a victory that comes in no small part from thousands of workers who risk their jobs to speak out for higher wages.
It’s thanks to events like those happening all over Pennsylvania today that the Pennsylvania legislature will likely pass a bill to raise the minimum wage this year. By all accounts, we will win the fight for a higher minimum wage. The tough part of the fight will be lifting the statewide minimum wage in Pennsylvania to at least $10.10, including for tipped workers, and retaining for local governments the power to set their own minimum wage at a higher level.
The Senate Appropriations Committee met on March 30 to discuss the proposed 2015-16 education budget with Acting Education Secretary Pedro Rivera. Three topics were discussed at the committee hearing that will be key to understanding the upcoming budget process. The topics will be covered, starting today, in three separate blog posts:
- How well public schools are doing and whether all children are given a fair chance to succeed;
- The role of unfunded pension costs in budget concerns; and
- Property tax reform.
Today, we look at the first topic: public school performance and equality of opportunity.
Sen. Lloyd Smucker (R-Lancaster and York) started the hearing by pointing to how well the state performed on national academic measures to underscore how good our public schools already are. But that assumes that those averages are a good picture of the entire state, instead of just parts of it. When looking at state averages we see that:
- The state is among the top 10 nationally for 8th grade reading and math scores; and
- Pennsylvania’s high school graduation rate ranks 15th nationally.
However good these state averages are, they hide the achievement gaps among socioeconomic groups. Scores on Pennsylvania System of School Assessment (PSSA) exams vary along ethnic and class lines, as shown by the results of PSSA math scores in 2011 and 2014, which are similar to the reading scores in those years. Generally, ethnic minorities perform worse on these exams than white students. Furthermore, Pennsylvania’s achievement gaps between students attending the poorest and wealthiest schools are worse than the national average.
Source: Pittsburgh Post-Gazette analysis
Underlying these achievement gaps are funding gaps:
- Research shows that reducing funding inequality reduces the achievement gap. You can see the importance of funding to performance by looking at how PSSA math scores above dropped across the board as classroom funding levels fell after 2010-11. The following year the state cut more than $840 million from classrooms.  Reading scores showed similar drops.
- Pennsylvania ranks as worst in the nation in funding inequality between the poorest and wealthiest school districts, almost twice as bad as the second-worst state, Vermont. Pennsylvania spends about 34% more on students in the wealthiest districts despite the poorest districts needing more money to meet their higher needs.
Source: Washington Post analysis
- The inequality is due to the state’s low share of public education funding, 38%, ranking as one of the bottom 10 states nationally. Lower-income school districts are unable to raise the needed local revenue to make up the funding gap while the wealthier school districts can.
 PBPC analysis.
March’s revenue numbers fell short of targets, but only by a little bit (-0.2%). March’s numbers matter because it’s the largest month for tax receipts. General Fund collections so far this fiscal year (starting July 2014) have exceeded expectations by $368 million, or 1.7 percent.
Compared to last March, this March’s tax revenues ($4.2 billion) are up $125 million, or 3.1%. Fiscal year-to-date tax revenues also exceed a year ago by $946 million, or 4.7 percent. Read PBPC Research Director Mike Wood’s in-depth analysis of March’s revenue data, including why Pennsylvania needs corporate tax reform, in his latest blog post.
April will be another important month and, as the fiscal year ends, any revenue surplus or shortfall could have a major impact on budget negotiations. We’ll keep you posted.
Growing gaps in school funding … A new national study, Funding Gaps 2015, by the Education Trust measures the nation’s growing funding inequalities between affluent and poor school districts. Pa. placed second worst among states, with the highest poverty districts receiving $2,491, or 17 percent, less per student than districts with the lowest poverty. The Campaign for Fair Education Funding, of which PBPC is a member, issued a press release on the report this week, and PBPC education analyst Waslala Miranda wrote a blog post on it.
Thumbs down on “jobs that don’t pay” in construction … Also this week a group of lawmakers led by Rep. Jesse Topper, and joined by the School Boards Association and the Pennsylvania Association of School Business Officials, kicked off a by now-biennial effort to exempt school construction projects from Pennsylvania’s prevailing wage law. In a statement to legislators and media, KRC summarized research that shows the law helps keep skilled and experienced workers in the construction industry, and does not raise construction costs. Is it too much to ask that school associations and lawmakers do their homework before advocating for policies that drive down wages?
Thumbs up on a minimum wage increase … On Thursday KRC labor economist Mark Price testified before the House Democratic Policy Committee in Harrisburg on the benefits that raising Pennsylvania’s minimum wage from $7.25 to $10.10 an hour would bring. Mark noted that more than 30,000 people in Dauphin County alone would see a hike in their pay, boosting demand at local businesses. Workers making the minimum wage now can’t afford even the basics, he said.
Supersizing everything but the minimum wage … McDonald’s announced on Wednesday that it will increase by $1 the locally mandated minimum wage it pays in the 1,500 U.S. stores it operates, effective July 1. KRC labor economist Mark Price calls McDonald’s decision “a classic example of union avoidance” as groups like Fight for $15 organize fast food workers to demand higher wages. For more on Mark’s take on McDonald’s decision, read this article from Inc.com.
Coming soon … PBPC Outreach and Engagement Director Jeff Garis will discuss Pa.’s regressive tax system and how to make it fairer at a public forum sponsored by the Susquehanna Valley Progressives from 6:30 p.m. to 8 p.m., Thursday, April 9, at the Unitarian Church in Northumberland, 265 Point Township Drive (Route 11).
… PBPC Research Director Mike Wood will give an updated version of his budget presentation from last week’s Budget Summit in a webinar at 1 p.m. Wed., April 15th. Space is limited, so you'll want to register for the webinar as soon as possible.
The Education Trust, an independent national education policy organization, recently released a report on the nation’s growing funding inequalities between wealthy and low-income school districts. The study reveals that Pennsylvania has the second-worst funding gap among states. When adjusted for the higher needs of low-income students, Pennsylvania’s highest poverty school districts receive 17% less per student than the districts with the lowest poverty.
Figure 1: The Education Trust analysis
To understand this statistic, we need to look at how state and local funding of schools works in Pennsylvania. Currently, the commonwealth has no funding formula that distributes money based on the needs of a school district or its students. The state share of funding -- 38% -- puts us in the bottom 10 of states nationally. This is part of a long-term trend of the state paying a smaller and smaller share, leaving local communities to fund the balance. As local wealth greatly varies across the state, so does the chance that a child will receive an adequate education, which is a basic right.
Below we can see the result: Instead of having a system that matches funding with need, we have one in which the poorer a school district is, the less funding it receives. Adjusting for the higher needs of low-income students, the poorest school districts receive almost $2,500 less per student than the wealthiest districts.
Figure 2: The Education Trust analysis
This is a problem that affects the whole state when you realize how common student poverty is. In 2013-14, nearly half of all public school children in Pennsylvania, 44%, qualified for free- or reduced-price lunch, an indicator of student poverty. Half of all school districts had student poverty rates of 40% or higher. These funding inequalities affect the core mission of public education: to promote academic achievement and an engaged citizenry. Pennsylvania needs to return to a funding formula that gives every child a realistic chance to succeed in school and life.
March is always the most important month for the collection of corporate taxes because nearly half of all corporate tax dollars for the fiscal year come in at this time. While overall tax collections were on target in March 2015, a closer look shows why we need to re-think our corporate tax policies in Pennsylvania.
March bank tax collections were $59 million, or 19%, below their revenue target. Compared to March 2013 collections, bank taxes are down $67 million, or 20%. This is not how it was supposed to be. In 2013, the bank shares tax was reformed to fix unintentional loopholes in the law that arose from changes in the banking industry. The reform expanded the base and lowered the tax rate from 1.25% to 0.89%, in what was sold as being “revenue neutral” – meaning the change was supposed to neither gain nor lose revenue for the state. As we’ve seen from the results – it hasn’t worked that way. Banks pay a lot less under the revised law than they did prior to reform.
Gov. Wolf, in his 2015-16 budget plan, calls for reforming the reform – pushing back the tax rate to the pre-reform level and collecting the tax the commonwealth lost over the last few years.
The second area where the ramifications of policy decisions are evident is in capital stock and franchise tax (CSFT) collections. In March 2015, the commonwealth received $33 million from the CSFT, in what is typically the largest month of collections for that tax. In March 2009, during the height of the recession, Pennsylvania had CSFT collections of $121 million. In March 2007, the state collected $175 million in CSFT revenue. Pennsylvania is experiencing a massive loss of revenue – all due to a steady stream of CSFT rate cuts. Revenue from this tax used to total more than $1 billion a year before the Great Recession, and the CSFT is being eliminated (even under Gov. Wolf) on Jan. 1, 2016.
Overall, revenue collections in March (the single largest month for tax receipts in a fiscal year) fell short of budget targets, but only modestly (-0.2%). For the fiscal-year-to-date, General Fund collections have been higher than expected, exceeding estimates by $368 million, or 1.7%.
General Fund tax revenues in March totaled $4.2 billion, an increase of $125 million, or 3.1%, from a year ago. Compared to the prior fiscal year at this time, tax revenues are $946 million higher, or 4.7%. Every major category of taxes has grown since last year – a sign of the growing state and national economies.
Revenues for 2014-15 are on track to meet their targets. But April is another critical month for tax collections and could dramatically add to or subtract from the current surplus. As we grow closer to the end of the fiscal year, revenue surpluses or shortfalls can have a big impact on budget negotiations for the next fiscal year. We’ll keep watching and keep you posted.
Left to my own devices, I would make more frequent references to Monty Python and cricket (the sport not the insect) in my op-eds, blogs, and other writings.
Fortunately, the younger members of the KRC staff keep me mostly under control.
In a recent op-ed on the Wolf budget, however, I did get away with a reference to Austin Powers, which isn't quite as old as Monty Python, and which involves Americans (OK, a Canadian) making fun of the British.
Here's the op-ed, which so far has appeared in the Philadelphia Business Journal and the Northeast Business Journal.
Below is a YouTube video of the scene from the movie I referenced, which is only 34 seconds and worth playing to the end.
Read the op-ed as well because the business community really SHOULD be a champion of the Wolf budget. Let's see how much it will be.
PBPC’s Budget Summit last week in Harrisburg drew about 200 participants and a distinguished bipartisan lineup of speakers, including Katie McGinty, Gov. Wolf’s chief of staff; Sen. David Argall; Budget Secretary Randy Albright; Representative Kerry Benninghoff; Secretary of Policy and Planning John Hanger; Representative Madeleine Dean and Representative Glen Grell.
PCN broadcast the summit’s plenary sessions -- including McGinty’s keynote speech -- and two of the workshops on Saturday. You can also find workshop presentation materials from the summit on PBPC’s website.
Amnesia Anyone … KRC Executive Director Stephen Herzenberg participated in a town hall on pension reform Thursday night, sponsored by the Pennsylvania NewsMedia Association Foundation and the Pennsylvania Chamber. Steve pointed out that pension experts (or “actuaries”) estimated just 21 months ago that moving new public employees out of the existing Pennsylvania pensions into separate 401(k)-style savings accounts would cost taxpayers a cool $42 billion. This hefty price tag killed the proposal in 2013, and yet it appears destined to rise again, zombie-like, this year. PCN broadcast the town hall at 9 pm Saturday.
It’s Elementary. PBPC education analyst Wasilla Miranda blogged last week about a new brief on how, surprise, money matters to school outcomes. The University of Pennsylvania Consortium for Policy Research in Education published the brief. Check out her post on Third and State.
Lifting Wages to Boost the Recovery. KRC labor economist Mark Price gave a talk Friday morning to the Bucks County Women’s Advocacy Coalition on why Pennsylvania’s minimum wage needs to be raised and how raising it will help the commonwealth’s economy.
Boom Chicka…Bust…The Multi-State Shale Research Collaborative will hold a public forum on “Shale Boomtowns: The Economic and Social Impacts of Gas Drilling” at 7 p.m. April 29 in the Community Room of the Sewickley Public Library, 500 Thorn St., Sewickley. For more information or to register, click here.
Who’s afraid of the Wolf budget … KRC’s Steve Ehrenberg explains why business should embrace Gov. Wolf’s budget proposal in an op-ed published last week in the Philadelphia Business Journal.
Coming soon … The Basic Education Funding Commission will meet from 10 a.m. to 2 p.m. on April 27 in the William Pitt Union Assembly Room at the University of Pittsburgh.
katiefoto v2.pdf Legislative Panel.pdf
Keystone Research Center
PBPC’s Budget Summit this week in Harrisburg drew about 200 participants and a distinguished bipartisan lineup of speakers, including Katie McGinty, Gov. Wolf’s chief of staff; state Sen. David Argall; Budget Secretary Randy Albright; Secretary of Policy and Planning John Hanger; and state Reps. Kerry Benninghoff, Madeleine Dean and Glen Grell.
Katie McGinty, Gov. Wolf's chief of staff, spoke at PBPC's Budget Summit
PCN will broadcast the summit’s plenary sessions -- including McGinty’s keynote speech -- and two of the workshops at 2 p.m. Saturday. Click here for PCN’s channel designation in your area. You can also find workshop presentation materials from the summit on PBPC’s website.
Sen. David Argall & Reps. Madeleine Dean & Kerry Benninghoffat the budget summit
AMNESIA ANYONE ... KRC Executive Director Stephen Herzenberg participated in a town hall on pension reform Thursday night, sponsored by the Pennsylvania NewsMedia Association Foundation and the Pennsylvania Chamber. Steve pointed out that pension experts estimated just 21 months ago that moving new public employees out of the existing Pennsylvania pensions into separate 401(k)-style savings accounts would cost taxpayers a cool $42 billion. This hefty price tag killed the proposal in 2013, and yet it appears destined to rise again, zombie-like, this year. PCN will broadcast the town hall at 9 pm Saturday. So you can just about squeeze in dinner between the budget summit and the pension forum.
IT'S ELEMENTARY ...PBPC education analyst Waslala Miranda blogged this week about a new brief on how, surprise, money matters to school outcomes. The University of Pennsylvania Consortium for Policy Research in Education published the brief. Check out her post on Third and State.
WHO'S AFRAID OF THE WOLF BUDGET … KRC’s Steve Herzenberg explains why business should embrace Gov. Wolf’s budget proposal in an op-ed published this week in the Philadelphia Business Journal.
LIFTING WAGES TO BOOST THE ECONOMY ...KRC labor economist Mark Price gave a talk Friday morning to the Bucks County Women’s Advocacy Coalition on why Pennsylvania’s minimum wage needs to be raised and how raising it will help the commonwealth’s economy.
BOOM, CHICKA ... BUST …The Multi-State Shale Research Collaborative will hold a public forum on “Shale Boomtowns: The Economic and Social Impacts of Gas Drilling” at 7 p.m. on April 29 in the Community Room of the Sewickley Public Library, 500 Thorn St., Sewickley. For more information or to register, click here.
COMING SOON … The Basic Education Funding Commission will meet from 10 a.m. to 2 p.m. on April 27 in the William Pitt Union Assembly Room at the University of Pittsburgh.
The Keystone Research Center is a nonprofit, nonpartisan research organization that promotes a more prosperous and equitable Pennsylvania economy. The Pennsylvania Budget and Policy Center is a non-partisan policy research project that provides independent, credible analysis on state tax, budget and related policy matters, with attention to the impact of current or proposed policies on working families.
Last November, the University of Pennsylvania’s Consortium for Policy Research in Education (CPRE) released a policy brief on how money matters in school funding, especially in large, urban school districts. This brief defines adequate school funding and shows that school districts with large funding gaps are low-achievement and high-poverty. It also shows that large urban schools can be efficient. Below are the three things you need to know about public school funding in Pennsylvania:
1. More than $3.5 Billion Needed for Adequate Funding
For any school to achieve, it must receive fair and sufficient funding. However, 84% of school districts in Pennsylvania do not meet the mark. The gap between this fair and sufficient funding level and what schools are actually spending is the adequacy gap. In 2009-10, the additional funding needed to close this gap across the state was $3.55 billion [or $3.88 billion in 2015 inflation-adjusted dollars].
This translates into an average district-level adequacy gap of $1,559 per pupil. Considering the funding inequalities at the district level, CPRE found that the quarter of school districts serving the largest share of low-income students had an average adequacy gap six times larger than the quarter of school districts serving the smallest share: $2,416 vs. $442 per pupil.
2. Largest Adequacy Gaps found in Highest-Poverty and Lowest-Achieving Districts
The schools dealing with the highest number of low-income students suffer from the steepest adequacy gaps. It’s no surprise then to see that their school districts are also low achieving. When CPRE looked at the 25 poorest school districts it found that their greater needs are not met with adequate funding:
- Excluding Philadelphia, the school districts, on average, had an adequacy gap of $2,608 per pupil in 2009-10. On average, they spent 84% of what was needed to prepare their students to achieve state standards.
- Philadelphia had an adequacy gap of $5,478 per pupil in 2009-10, more than double the average gap of the other 24 highest-poverty school districts, even though the city’s school district serves the same share of low-income students. On average, Philadelphia had only spent 68% of what was needed to educate its students to achieve state standards.
3. Despite Less Funding Philadelphia Outperformed Its Low-Income Peers
Despite this funding discrepancy, Philadelphia schools outperformed other high-poverty schools. Looking at the achievement outcomes of the 25 highest-poverty schools, CPRE found that Philadelphia students performed “slightly better” in math and English language arts (ELA). Philadelphia earned 15% greater achievement per dollar than other high-poverty schools.
This policy brief helps justify the push to restore state funding of our public schools after years of cuts. When school districts in low-income neighborhoods lose state funding they often cannot replace that funding on the local level, resulting in adequacy gaps. For these gaps to disappear funding should meet need. Only then can all children in public schools be prepared to achieve.
The Washington Post ran a story on March 12 about unequal education funding between the haves and have-nots in America. Because children in low-income families have greater needs, the schools they attend require more funding to give them a fair chance at educational success. However, 23 states give low-income schools less state and local funding than the wealthiest of school districts, fueling even more inequality.
Pennsylvania ranks the worst by far among states in this inequity. Pennsylvania also is one of just three states without a predictable funding formula for basic education. The Campaign for Fair Education Funding, of which the Pennsylvania Budget and Policy Center is a member, has proposed a student-driven funding formula that strategically directs resources to students and school districts with the greatest needs and provides the investment necessary to enable every child to succeed academically.
Gov. Tom Wolf has also proposed a funding formula and a significant investment in basic education in his 2015-16 state budget plan.
Pennsylvania Budget and Policy Center Research Director Mike Wood revealed the flawed arithmetic behind the Commonwealth Foundation’s “analysis” of the tax impact of the Wolf budget plan in his blog post this week “Budget Critics’ Stupid Math Tricks.” CF made an error in adding up the total taxes in the first year (whoops!) and included all corporation taxes as part of what families pay (huh?). CF claimed that families would pay more under the Wolf plan -- without actually analyzing the impact of the plan on any real families. Neat trick! In fact, most families in the school districts that receive the largest tax relief are likely to see lower taxes as well as many families in other communities. Given the size and targeting of the property tax relief most homeowners earning up to $100,000 may benefit – as the Wolf Administration claims. But don’t worry. We’ll check their math too.
Fighting amnesia on pensions … In an op-ed published this week in The Patriot-News and on Pennlive.com, and in a new pension “primer,” Keystone Research Center Executive Director Stephen Herzenberg reminded legislators who want to move employees toward a 401(k)-style plan that Gov. Corbett made this proposal just two years ago. Actuaries for the state’s pension plans estimated this would cost $42 billion. And that’s just one of the problems with the idea.
Borrowing revenue-boosting ideas … Jan Jarrett outlined in a blog post and email blast just how similar some of Gov. Wolf’s revenue proposals – such as personal income and sales tax increases – are to Republican plans introduced last legislative session. So how come they are already disagreeing?
Doing wonders for the state budget … KRC and PBPC released a joint brief showing that Pennsylvania could generate up to $6.9 billion in revenue if top income groups paid the same state and local tax rate as middle-income Pennsylvanians. Tax Fairness: An Answer to Pennsylvania’s Budget Problems found that if the highest-income one percent of taxpayers were taxed at the same rate as the middle 20 percent, Pennsylvania could raise $3.75 billion per year. And if the top 20 percent of income-earners paid the same as the middle 20 percent, Pennsylvania could raise $6.93 billion per year.
“Revenue lost because of the one-two punch of rising income inequality and regressive state tax codes has led states to impose years of unnecessary austerity — underfunding schools, cutting investments in higher education, and deferring maintenance of aging infrastructure,” KRC Executive Director Dr. Stephen Herzenberg noted. “After 30 years of a middle-class squeeze, it’s time to restore balance.”
Gov. Wolf’s property tax relief targeted to middle- and lower-income communities is one way to make progress on tax fairness.
Reforming cyber school funding … PBPC education analyst Waslala Miranda blogged on Gov. Wolf’s plan to reform cyber school funding. She says all public school students stand to gain under the plan.
Testifying for a higher minimum wage … KRC labor economist Dr. Mark Price testified in Philadelphia again in support of raising Pennsylvania’s minimum wage to $10.10, this time before the House Democratic Policy Committee. Mark told them that a higher minimum wage will increase the wages of 1.2 million Pennsylvanians and create 6,000 new jobs.
Going fast … Registrations continue to surge for PBPC’s 2015 Budget Summit on March 25 at the Hilton Harrisburg. Space is filling up fast. So if you want to hear the keynote address by Gov. Wolf’s Chief of Staff Katie McGinty, you should register ASAP.
This may be a first for an economist. A map based on a report by our very own Mark Price -- the Increasingly Unequal States of America -- made the Sports Illustrated blog at the end of last week. Fortunately, it was not accompanied by a picture of Mark on the beach during his recent work-related trips (yes, plural) to Miami.
Gov. Wolf’s proposed state budget addresses the commonwealth’s structural deficit and raises the money needed to strategically invest in growing Pennsylvania’s economy, educating its children, creating good jobs, and caring for its most vulnerable citizens. His plan plainly lays out where the revenue will come from to make those investments possible.
None of the governor’s revenue-raising ideas are new. Similar ideas have been proposed in prior legislative sessions by lawmakers on both sides of the aisle.
For example, the governor proposes raising the personal income tax to 3.7 percent and the sales taxes to 6.6 percent, while broadening the sales tax to include some additional goods and services but not food and clothing. Our online side-by-side comparison breaks down how these increases compare to Republican-sponsored legislation introduced last session.
Specifically, 2013-14 House legislation proposed by Rep. Reed would have increased the PIT to the same 3.7 percent level the governor proposes, while Rep. Cox and Sen. Argall proposed a higher increase to 4.34 percent.
Rep. Cox and Sen. Argall proposed raising the sales tax to 7 percent, higher than the governor’s proposed 6.6 percent, and broadening it to include most food, clothing, and personal services. Rep. Reed also proposed raising the sales tax to 7 percent but did not broaden it to additional items.
The Cox and Argall proposals garnered support from a large number of legislators:
- 48 Republican and 13 Democratic cosponsors in the House, and 13 Republican and 12 Democratic cosponsors in the Senate.
- 47 Republicans and 12 Democrats in the House voted for Rep. Cox’s proposal.
- 12 Republicans and 13 Democrats in the Senate voted for Sen. Argall’s proposal.
Rep. Reed’s proposal was not voted on; it had seven Republican cosponsors.
Since 2008, legislators on both sides of the aisle have also introduced legislation similar to the other revenue proposals in the Wolf budget: a severance tax on natural gas drilling, a tax on smokeless tobacco and cigars, and proposals to close the loopholes corporations use to artificially lower their income taxes (such as the Delaware loophole).
Obviously, legislators’ willingness to support raising revenue depends on how the money is used. On that issue it is noteworthy that a main use of the revenue raised in the Wolf, Cox, Argall, and Reed proposals would be to lower property taxes.
Because revenue proposals similar to the governor’s have received bipartisan support in the past, the budget debate this year should not be short-circuited by the claim that lawmakers won’t support broad-based tax increases on this scale. That claim is demonstrably false.
Gov. Wolf’s proposed 2015-16 state budget, unveiled last week, proposes to reform cyber charter school funding so that it reflects their actual costs, freeing up an estimated $160 million more for classroom funding.
Cyber charters do not have the same basic costs as other public schools, such as building facilities. The governor's funding reform would cap public funding at reasonable levels: at the highest cost levels of “comparable, high-performing online education programs offered by Intermediate Units”, plus 10% more for any additional administrative costs.
Beyond basic cost differences, there are major outcome gaps that call for cyber charter funding reform. In 2013-14, cyber charters cost school districts $421 million, and yet they produced significantly worse results on School Performance Profiles (SPP) than all other public schools, according to the educational research group Research for Action (RFA).
Figure 1: Research for Action Analysis
Although SPP scores are based on standardized test scores, which are shown to be highly associated with student poverty, RFA found that even the poorest of all other public schools do better than cyber charters. The cyber charter student poverty rate of 48% is not that much higher than the 44% poverty rate of all traditional public schools.
Public funding of any program should rest on transparency and accountability. The public needs to know that their tax money is being invested in programs that work well. When funding reform improves the educational power of every public dollar spent, public school students and our state benefit.
David Letterman would have been proud. The “drown government in a bathtub” crowd put on a show earlier this week complete with props, kids, and stupid math tricks. Unfortunately, the whole show was missing something important: facts.
Pay attention here – we’ll walk you through how the Commonwealth Foundation (CF) tried to make the numbers walk on hind legs and bark. To estimate the overall impact of the Wolf budget plan on a typical family, CF added together all the proposed tax changes, whether a typical family would ever pay them or not, and divided this figure by the magic number of 3,179,000 – exactly one-quarter of Pennsylvania’s population. CF labels the result what a “four-person family” would pay. Perhaps it created the “family” figure rather than merely dividing by the total number of people in the state because, well, it’s four times bigger. (For good measure, CF also added together the tax changes for 2015-16 incorrectly – see page C1-6 of the proposed budget for the correct total.)
The CF “average" is also inflated because it includes severance, corporate, and bank tax changes - all taxes families typically do not pay. Again, this helps make the figures bigger.
Here’s the most important point: the figure that CF computes is a mythical – and meaningless – average. It doesn’t tell us anything about what an actual or average family pays or saves under the plan.
An honest analysis of the impact of the governor’s budget proposal on real families requires looking at what households with different income levels, housing situations, and addresses actually pay in sales and income taxes and how they benefit from a reduction in property taxes.
That requires anti-taxers to do some real analysis – including using income tax and consumer spending data. The impact on actual families depends on their situation (their income, where they live, what they buy, if they own or rent, and the value of their home). That’s a lot harder than taking the total and dividing by the number of “families.”
Based on what we know about the plan and the Wolf Administration’s own estimates, you will likely benefit financially if you live in a lower-income or “higher-taxed” (relative to income and property wealth) area. Regardless of where you live, renters earning up to $50,000 a year and homeowners with incomes up to $100,000 will likely benefit financially, too, according to the administration (we’ll check on that).
We all benefit from the increased state funding of schools. Our kids get a better education, funding won't vary so much from district to district, and school districts become less reliant on local taxes.
We’ve had too many years of budgets based on stupid math tricks that tried to hide the impact of not increasing state taxes. This unjustified and ineffective austerity led to cuts in classroom funding coupled with higher local property taxes. The results aren't surprising - lower test scores, fewer educational opportunities, and a state economy falling farther behind the rest of the nation. Stupid math tricks don’t work, and neither does a state budget based on them.
This was a big week for budget analysts as Gov. Wolf delivered his first budget address and presented his first state budget on Tuesday. He gave us plenty to dig into with an ambitious $29.9 billion proposal to fill the existing $2.3 billion deficit while also restoring $1 billion in education cuts, reducing school property taxes by $3.8 billion beginning in 2016, and funding a $1.75 billion job growth initiative.
The Pennsylvania Budget and Policy Center was busy producing immediate analysis and infographics for the media, advocates and legislators, and rapidly tweeting them out and posting them on our website. See our Summary and Highlights of Gov. Wolf’s 2015-16 Budget Proposal.
Needing an economic turnaround … PBPC’s media statement on the budget explained why Pennsylvania needs a bold budget that invests in education, infrastructure, jobs and skills: the state’s prior cuts-only approach left Pennsylvania 50th in job growth since January 2011, 46th in revenue growth, and resorting to one-time budget fixes that have led to repeated downgrading of the state’s bond rating.
Leaving the job market … Offering further evidence of the state’s need for an economic turnaround, Keystone Research Center Executive Director Stephen Herzenbergblogged this week that Pennsylvania’s declining unemployment rate isn’t such good news because it results from more Pennsylvanians giving up on finding jobs and leaving the labor force. If the labor force had not declined, Pennsylvania’s unemployment rate would still be 6.9 percent. Read more here.
Explaining the budget … PBPC Research Director Mike Wood was a guest Wednesday on WHYY’s Radio Times show on “Unpacking Gov. Wolf’s budget address.” You can listen to it here. Newsworks ran a story quoting Mike about the governor’s plan to increase the sales tax. Even conservative media organizations watchdog.org and the Pittsburgh Tribune-Review came calling for budget analysis. And Friday morning Mike gave a presentation on Gov. Wolf’s education budget proposal before the Education Policy & Leadership Center’s new class of fellows.
Making some better choices … By our count, the governor’s proposed budget includes seven of the 19 recommendations on the Better Choices for Pennsylvania coalition’s tax fairness platform: nos. 1 (close corporate loopholes by enacting combined reporting), 3 (adopt a severance tax), 4 (tax smokeless tobacco products and e-cigarettes), 5 (fix the bank tax), 13 (expand the Tax Forgiveness Program), 15 (maintain the sales tax exemption on food) and 16 (create a property tax rebate program -- Gov. Wolf’s rebate proposal is larger than the Better Choices proposal). PBPC is a member of the Better Choices coalition.
Blogging on the budget … Check out this week’s blog post on how the environment and conservation would win in Gov. Wolf’s budget by Jan Jarrett, coordinator of the multi-state shale research collaborative.
Paying the pension debt … Dennis Owens of ABC 27 interviewed Steve Herzenberg on Wednesday about Rep. John McGinnis’ plan to pay down Pennsylvania’s pension debt. Steve agreed with McGinnis on the need to address the problem and save on Wall Street management fees but pointed out some problems with McGinnis’ proposed switch of new employees to 401(k)-style retirement savings plans (don’t forget the $40 billion transition cost found when Gov. Corbett made the same proposal in 2013). You can see the interview here.
Raising the minimum wage … KRC labor economist Mark Price testified before the Philadelphia City Council on Wednesday in favor of a $15 minimum wage. Advocates are hoping to lay the groundwork for a city challenge to a state law that prohibits municipalities from setting minimum wages. The hearing was held one day after Gov. Wolf proposed raising the state’s $7.25 minimum wage to $10.10 an hour.
Katie’s keynoting … PBPC confirmed this week that Katie McGinty, Gov. Wolf’s chief of staff, will be the keynote speaker at the 2015 Budget Summit on March 25 at the Hilton Harrisburg. Registrations are already up to 125 and filling up fast. Space is limited, so if you want to come you should register ASAP!
Coming soon … Budget hearings begin this Monday, March 9, in the House and next Monday, March 16, in the Senate. To use the oft-misquoted version of the Bette Davis line in All About Eve, “fasten your seatbelts. It’s going to be a bumpy ride.”
… The Basic Education Funding Commission will meet at 10 a.m., Thursday, in Hearing Room 1 of the North Office Building in the Capital Complex, Harrisburg, to hear a presentation on the Wolf administration’s proposal for a fair funding formula.
Pennsylvania’s Economy Still Needs a Turnaround: Falling Unemployment Results from People Leaving the Job Market
While a lower unemployment is sometimes good news, the decline in Pennsylvania’s unemployment rate over the last two years has been driven by the fact that fewer Pennsylvanians are looking for work. Between December 2012 and December 2014, more than 127,000 Pennsylvanians dropped out of the labor force. With fewer unemployed workers “counting” in the official statistics, the unemployment rate went down:
If the labor force had not fallen since December 2012, the state’s unemployment rate would still be 6.9%. (This figure is based on adding the 127,000 to the 293,000 currently unemployed – a total of 420,000 people – and then taking this 420,000 as a share of the total labor force.)
The bottom line: Pennsylvania needs faster job growth. The move away from austerity represented by a state budget that invests in education, jobs, innovation and skills, and in infrastructure should help give Pennsylvania the economic turnaround it needs.
Environmental protection and conservation are winners in Governor Wolf’s proposed state budget. His proposal to levy a 5 percent severance tax on natural gas extraction would generate almost $1 billion in new revenue a year, a portion of which would go to a number of important environmental programs.
The governor would use $40 million a year from the severance tax to finance a $225 million clean energy bond that would be distributed in the following way:
- $100 million for alternative energy;
- $50 million for solar power installation rebates;
- $50 million for energy efficiency;
- $25 million for natural gas distribution line development.
Another $10 million of severance tax revenue would go to the Department of Environmental Protection to beef up oversight of the gas drilling industry. DEP’s entire budget would get an $18.8 million increase.
The Department of Conservation and Natural Resources budget would increase by $8.3 million. Over the last several years, DCNR’s budget has been funded almost entirely from royalties from natural gas drilling on public land. The proposed budget would begin to reverse that dependence by increasing the amount provided from the General Fund by $20 million.
A total of $41.7 million would be available through the Growing Greener Program which provides funding for watershed protection and restoration, parks and forest rehabilitation and community conservation – an increase of $1.16 million. The Keystone Parks, Recreation and Conservation Fund would get $51 million, an increase of $2.6 million, for local recreation projects, open space conservation and parks and forest rehabilitation.