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Public School Poverty: The New Normal

December 12, 2014 - 5:49pm

The Great Recession may be over but many in Pennsylvania are still suffering from its effects. This is most obvious in our public schools where the number of students who qualify for free- or reduced-priced lunches, a poverty measure, is disturbingly high. Almost half of all public school students qualified for the lunch program in 2013-14.  When we look at these students and their school districts we find:

  • The state, overall, saw its student poverty rate increase from 36.51% to 43.2% between 2008-09 and 2013-14, a jump of nearly 7 percentage points.
  • Across Pennsylvania, poverty was the norm in 2013-14:
    • Two-thirds of school districts had a poverty rate equal to or higher than 33%.
    • Half of all school districts suffered from concentrated poverty, where the poverty rate equaled or exceeded 40%, the federal threshold for qualifying for Title I school-wide funding.  This federal funding is necessary to help school districts manage the added difficulty of educating students going to schools and living in neighborhoods with little relief from poverty.
    • About 25% of school districts had a poverty rate equal to or higher than 50%.
  • The state’s largest school districts--Philadelphia and Pittsburgh—educate more than 160,000 students and had poverty rates of 80.76% and 73.11%, respectively, in 2013-14.

As a state, we have crossed the 40% Title 1 concentrated poverty threshold.This alone should set off alarm bells.  In addition, severe budget cuts that have disproportionately targeted low-income districts mean that too many students are in schools that cannot financially function as places of learning.  Just look at Northeast High in Philadelphia: more than half of its students qualify for free or reduced lunches, and yet it only has a total school budget of $5 per student. [1]  That’s $5 for everything—books, supplies, labs, and anything else needed to make a school a school.

We cannot rebuild our economy when so many of our schools are awash in poverty and unable to meet their mission of educating our children.  We must invest more, not less, in our public education system so it can provide all our children with a quality education and lay the groundwork for a strong economy for the future.  We must and can do better.

You can read more about school district poverty on the Pennsylvania Budget & Policy Center's Education Facts webpage.






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The Empire Strikes Back: Shale Industry Minimizes Potential Severance Tax Revenue, But It's Still More than Impact Fee

December 10, 2014 - 10:05am

Pennsylvania would benefit from switching from its current impact fee to a severance tax. Depending on the estimate, the severance tax could raise two to four times as much revenue as we expect from the impact fee, with this difference growing over time.

Whether the revenue gain from switching to a severance tax is $400 million, $600 million, or more, this is exactly the type of recurring revenue needed to help restore harmful cuts to our schools, help bridge an estimated $2 billion state budget gap in 2015-16, and help close the state’s ongoing structural deficit where revenues grow more slowly than spending.

Hand-wringing about differences between tax revenue estimates (due almost entirely to differences in projected future natural gas prices) misses this important point.

Diving into the numbers

We currently project that a 5% severance tax on natural gas (based solely on the sales value of natural gas with no deductions) would yield $881 million in 2015-16, based on an average selling price of $3.48 per thousand cubic feet (MCF) of natural gas produced in the state. We based our estimates on recent U.S. Energy Information Administration (EIA) price forecasts, which we discounted to reflect current, lower local selling prices for gas. The projected tax yield is roughly three times the $270 million in impact fee revenue expected for the same fiscal year.

As new production and price data are released, we update our estimates to reflect changes in the market.

A recent AP story, based on figures likely provided by the Marcellus Shale Coalition, projects less revenue from a severance tax – “only” $675 million in 2015-16.  This works out to an average natural gas price of $2.67 per MCF, seemingly making permanent the current lower Pennsylvania prices. The clever reader will note this is still several times more revenue than we could expect from the impact fee.

If the gas industry gets their wish and can deduct processing and distribution costs before figuring the tax, they think the tax yield could be as low as $525 million in 2015-16. (Such deductions have been at the heart of a number of lawsuits between gas producers and landowners, who have seen their royalty payments gutted by this hard-to-verify accounting sleight-of-hand.) Such potential deductions, if brazen and generous enough, could eventually whittle the tax down to $0.

We could quibble about the selling price of natural gas in the future, but one fact remains - a 5% severance tax (on the selling price of natural gas) generates more revenue than the impact fee – a lot more. As the outgoing state budget secretary noted last week, we are going to need the money in 2015-16 and beyond.

Impact Fee versus Severance Tax

A proposed 5% severance tax on natural gas will generate more revenue than can be expected from the current impact fee. The value of natural gas production in Pennsylvania is increasing at a much faster rate than the number of unconventional, or shale, wells being drilled. The difference we have already seen makes revenue from a 5% severance tax on the value of natural gas sold several times larger than revenue from the impact fee, with the difference between the two growing over time.

Even with low natural gas prices, as is currently the case in parts of Pennsylvania, the difference is massive.

Note. Drillers made two impact fee payments in 2012-13: one payment based on wells in existence as of 2011, and a second based on wells in 2012. The chart above compares the 2011-based payment to severance tax revenue that would have been generated during the 2011-12 fiscal year.

Actual production, drilling, and price figures demonstrate how far short the impact fee falls from a severance tax

In 2013, gas well operators paid $224 million in impact fees for 6,215 horizontal wells and 274 vertical wells.  Producers paid these yearly assessed impact fees by April 2014, during the commonwealth’s 2013-14 fiscal year.

During that same fiscal year, unconventional wells produced 3.638 trillion cubic feet (TCF) of natural gas. Conservatively assuming an average sales price of $3.90 per thousand cubic feet (the national average price during this period was $4.40 per MCF), the gas produced would be valued at $14.2 billion. A severance tax of 5% of this value would yield more than $700 million. This eclipses impact fee collections in the same period by more than $480 million.

Had a severance tax been in place since fiscal year 2011-12, Pennsylvania could have raised an additional $1.2 billion over its impact fee collections. If you go back to when Governor Rendell first proposed such a tax in 2009, the amount left on the table grows larger.

Local Pennsylvania prices have fallen, for now

In October, the U.S. Energy Information Administration (EIA) reported low prices at several of the hubs where Marcellus Shale gas enters the pipeline system, but noted, “These expansions of takeaway capacity (pipelines) should alleviate the supply backup that has kept prices low at many Marcellus trading points.”  In December, the EIA noted that up to a third of existing pipelines would be modified by 2017 to help move natural gas from the Marcellus region to other markets. 

Another factor likely to increase prices for Marcellus-produced natural gas will be the opening of a newly approved liquid natural gas exporting facility in Maryland in 2017.  Likely overseas customers for this gas include Europe and Asia. Higher demand tends to lead to higher prices.

It seems curious that gas drillers would increase Pennsylvania drilling in 2014 over 2013 if they thought current, lower prices are here to stay.

Delay costing Pennsylvania hundreds of millions of dollars each year

Even if local prices stay lower than the national average, a 5% severance tax would yield significantly more revenue than the impact fee.

This additional revenue could be used to address unresolved damage caused by this industrial process, and help restore education funding, close the projected $2 billion state budget shortfall for 2015-16, and ensure funds are available for critical services we all rely on – schools, hospitals, infrastructure, and public health & safety.

The longer Pennsylvania delays enacting a severance tax -- and we’re the only major gas-producing state since Marcellus Shale development took off in 2008 without one -- the more the gas industry profits, and Pennsylvania loses.

It’s Official: Zogby Confirms $2 Billion Budget Gap

December 3, 2014 - 10:21pm

Budget Secretary Charles Zogby confirmed today during his final mid-year budget briefing that Pennsylvania will face a $2 billion budget gap next year. After balancing the 2014-15 spending plan with one-time resources, Secretary Zogby acknowledged that crafting a 2015-16 budget will be difficult for the next administration.  This sentiment echoes what the Independent Fiscal Office (IFO), bond-rating agencies, and others (including we here at PBPC) have been saying for months.

Pennsylvania has a structural deficit – meaning that revenues aren’t growing fast enough to keep up with spending growth on things that are necessary for the state, such as support for public education; health care for elderly, poor, and disabled Pennsylvanians; debt service; and prison and pension costs.

Last month, the IFO warned that a return to a “normal” (post–recession) economy won’t be enough to fix this ongoing problem.

This is not the first year that one-time revenues have made their way into the budget, but now the cupboard of such temporary fixes has largely been cleaned out. Secretary Zogby offered a few more possibilities in his mid-year review – infusions of cash from selling the liquor stores and “selling” electricity consumers to new suppliers – but these ideas have serious consequences and continue the current strategy of kicking the can of budget troubles down the road.

Secretary Zogby acknowledged that while there is little appetite in Harrisburg for new cuts, the only choices are big budget cuts or new revenue. Things we care about, like public safety and schools, must be paid for year after year. A more reasonable way of doing the state’s business would be to rely on revenues, like a Marcellus Shale tax, that come in year after year rather than on a one-time basis.

One thing the Secretary didn’t mention is that the state’s fiscal problems have been made worse by unaffordable tax cuts. Over several administrations, Pennsylvania has repeatedly cut the capital stock and franchise tax rate. This tax, which brought in more than $1 billion a year prior to the Great Recession, is expected to generate $118 million next year before being eliminated.

We’ve also seen an inadvertent tax cut for banks, several new tax credit programs, more generous rules for writing off operating losses, and other business tax changes that have resulted in less revenue for the state each year.

The General Assembly made these cuts with the hope that they would increase Pennsylvania’s competitiveness and grow the state’s economy. The cuts seem to have been more effective at diminishing tax collections than stimulating growth.

The 2015-16 budget process offers an opportunity to take a hard look at how the state raises and spends money. We can continue down the failed path of tax and spending cuts that result in higher college tuition and local property taxes, and fewer opportunities for our children, or we can improve the tax system by making it fairer.

The State Priorities Partnership: Celebrating 20 Years of Impact

December 1, 2014 - 3:04pm

By Jean Ross, Program Officer, Promoting Transparent, Effective, and Accountable Government, The Ford Foundation

Over the past two decades, the State Priorities Partnership (SPP) has worked to ensure that states have the resources they need to invest in schools, child care, health care and other services that can help create opportunity, and reduce inequality and poverty.

The Partnership—which emerged from conversations between Michael Lipsky, then a senior program officer at the Ford Foundation, and the Washington, DC-based Center on Budget and Policy Priorities (CBPP)—came together in Baltimore last week to celebrate and honor Partnership members past and present, and to strategize at the Center’s 2014 State Fiscal Policy Conference.

Speakers at the State Priorities Partnership 20th anniversary dinner, from left to right: Nick Johnson of the Center on Budget and Policy Priorities; Robert Greenstein of the Center on Budget and Policy Priorities; Michael Lipsky of Demos and formerly of Ford; Iris Lav, retired from the Center on Budget and Policy Priorities; Patrick McCarthy, head of the Annie E. Casey Foundation; Gladys Washington of Mary Reynolds Babcock Foundation; Jean Ross of the Ford Foundation; Sharon Ward of the Pennsylvania Budget and Policy Center; Georgia House Minority Leader Stacey Abrams.

Formerly known as the State Fiscal Analysis Initiative, SPP began as collaboration between three national foundations (Ford, the Annie E. Casey Foundation, and the Charles Stewart Mott Foundation), the CBPP, and 12 state-based organizations. Five additional national and regional foundations joined the original three members of the SPP funder collaborative and hundreds of state and local partner funders to invest over $20 million per year in the network. Using evidence and analysis—along with smart communications, outreach, and coalition building strategies—the network racked up a series of impressive victories as it grew in size, scope, and impact. The SPP Network contributed to stopping harmful limits on public investment (so-called TABOR amendments) in more than three dozen states over the past decade; helped persuade reluctant lawmakers to expand Medicaid coverage to 6.3 million low-income Americans under the Affordable Care Act, and secured billions of dollars per year of new resources for critical services in states such as Minnesota and California, while helping to block billions of dollars of damaging state tax cuts.

How has this network remained vibrant over two challenging decades? First of all, the “Partnership” in SPP is more than just than just a slogan: State-based partners, staff at the CBPP, and funders engage in spirited debate and learning that draw on best practices from within and outside the Network. While remaining deeply rooted in analysis and policy advocacy, Partnership organizations’ members now tackle a wider array of issues—including Ford-supported work on immigration and criminal justice reform—that are beyond the network’s original fiscal policy bailiwick. And the Partnership invests in the development of a new, diverse set of leaders through the State Policy Fellowship Program that places recent graduates in state-based organizations. All of this gave those of us gathered Baltimore many reasons to celebrate.

President’s Actions on Immigration Will Benefit the Pennsylvania Economy

November 26, 2014 - 9:38am

Last week President Obama announced that he will use the power of the executive office to shield millions of people from deportation and give them authorization to work.

The President's action is a positive step forward.

Bringing undocumented workers out of the shadows and into the above-ground labor market is good for them, good for the economy and good for us all. Specifically, the president’s actions will bring the following important benefits to the Commonwealth of Pennsylvania:

Higher Wages

  • Bringing undocumented workers into the above-ground labor market will expand the range of jobs these workers can pursue and make it much less likely that they will be taken advantage of by employers.  A meta-analysis of previous research into the impact of workers gaining legal status by David Dyssegaard Kallick, of the Fiscal Policy Institute in New York, concluded that wages rise by up to 10% when workers obtain authorization to work. 

Higher Tax Revenues

  • With legal status, immigrants will be paying more taxes. The Institute on Taxation and Economic Policy (ITEP) modeled the impact of immigration reform in 2013 and concluded that reform benefiting 11 million undocumented immigrants would boost state and local tax revenues in Pennsylvania by $61 million. Because administrative relief, as proposed by the president, is more limited in scope and would benefit roughly 5 million people, state and local tax collections in Pennsylvania would likely rise by about half as much, or $30 million per year.

 A Brighter Fiscal Future

  • One of the factors cited by Pennsylvania’s Independent Fiscal Office (IFO) as a long-term driver of the state's structural budget deficit is the decline in Pennsylvania's working-age population through 2030. This age group is the primary contributor of income and sales tax revenue in the state. Over the next five years the IFO projects net international migration will account for nearly half of total population gains in Pennsylvania.  Making the commonwealth a welcoming place for migrants should be a key priority for lawmakers interested in boosting the long-term prosperity of Pennsylvania.

Pa. 3rd Worst in Student Debt

November 21, 2014 - 5:28pm

Yesterday, the Washington Post reported on the toll student debt is taking on students on a state-by-state level.  Not surprisingly, Pennsylvania is ranked as the 3rd worst in the country with an average student debt burden of $32,528 and an 11.6% student default rate.  To understand what Pennsylvania can do to reverse this trend and help power the economy, read the Keystone Research Center's report on investing in higher education.


New Study Suggests that Low Wages Imperil Future of U.S. Manufacturing and Innovation

November 21, 2014 - 11:20am

Debates about manufacturing wages and jobs require the ability to walk and chew gum at the same time. Let's see if we can do that.

For a half century or more the mantra has been that manufacturing jobs pay better and support a family. But a new report by the National Employment Law Project (NELP), profiled in today's New York Times, shows that  manufacturing wages for production workers have dropped below wages for all private sector workers. NELP also finds that “more than 600,000 manufacturing workers make just $9.60 per hour or less. More than 1.5 million manufacturing workers – one out of every four – make $11.91 or less.”

To be sure, there's a little bit of apples and oranges in some of the NELP comparisons. You see, private sector workers as a whole have higher levels of education than manufacturing workers. If you control for education and other individual and job characteristics that impact wages, it's likely still true that manufacturing workers earn more than non-manufacturing. When KRC's Mark Price last ran such controlled comparisons (for a Brookings Institution report), using data through 2010, he found that manufacturing workers averaged $605 per week, 8.4 percent higher than the non-manufacturing average of $558. The manufacturing wage advantage was bigger for less-educated and lower-wage workers. Interestingly, Hispanic workers in these controlled comparisons earned 10% less in manufacturing than comparable Hispanic workers in non-manufacturing.

In sum, for comparable workers, it's likely still true that manufacturing jobs typically pay a bit better than non-manufacturing, especially at the low end (but with the important exception of Hispanics).

It is also true that manufacturing is important as a source of innovation and productivity growth. So manufacturing still matters: but we need to bring manufacturing worker pay to the center of public policy debate, not simply take for granted that manufacturing pays well. So good for NELP for driving home this point.

When you peel the layers of the new NELP report, and abandon the misconception that manufacturing jobs monolithically pay well, you find wide variation in wage levels in manufacturing.

As already cited, $1.5 million manufacturing production jobs pay less than $12 per hour. There are also some manufacturing production jobs that pay pretty well: reading from a graph on p. 8 of the NELP report about 600,000 pay above $21 per hour, with perhaps a third of those over $25 per hour.

There are two likely explanations for the top end of the production worker pay scale: even now, some of these jobs are "legacy" unionized jobs in big manufacturing companies that haven't quite managed to offshore, outsource, or downgrade (two-tier) the pay levels of every last one of their long-tenure production workers; the second explanation is that some manufacturers are "high road" companies that recognize the critical importance of shop-floor skills and pay decently to attract and retain employees with those skills.

Unfortunately, the wage numbers tell a pretty clear story that there aren't that many high-road employers. Relatively low, and declining, wages help explain the purported "skill shortage" in manufacturing. (A recent Economic Policy Institute study also finds that claims of skill shortage are overblown, with many companies content with workers that have modest skills.)

In Pennsylvania, a 2010 Department of Labor and Industry study authored by KRC in collaboration with agency staff found that even in two occupational families (precision machining and industrial maintenance) in which Pennsylvania employers reported the greatest skill shortages, wages had been flat for a decade. Moreover, there were workers in these occupations available (albeit hard to find) in 2007-09 despite employer claims of shortages -- unemployment rates in the recession and early part of the recovery were in the 11% to 13% range. Maybe if employers looking for workers in these occupations paid better, those workers with experience would be a little less hard to find.

The NELP study also highlights the growing importance of temporary employment in manufacturing. This likely reflects use of temporary agencies  to lower wages and benefits further and greater volatility of manufacturing employment in today's global economy.

NELP makes clear that manufacturing workforce policy going forward MUST do two things at once -- as in walk and chew gum at the same time or, in this case, pay attention to wages and benefits as well as to skills.

The general strategy for the state must be to partner with high-road employers -- new startups as well as mature employers -- to elevate the status, skills, credentials, and multi-firm employment security of manufacturing production workers. Apprenticeships are one way to move in this direction. Supporting high-road temporary agencies is a second. Adapting the building trades model of unionism to manufacturing is a third -- as we suggested in a blog a few months ago.

State Sued Over School Funding

November 11, 2014 - 11:47am


Six school districts, seven parents, the Pennsylvania NAACP and the Pennsylvania Association of Rural and Small Schools filed suit on Nov. 10 against state officials, alleging they are using an irrational means of financing public education that underfunds school districts and denies students in low-income areas equal educational opportunities.

The 149-page lawsuit -- which names the governor, legislative leaders, the secretary of education and the state board of education as defendants -- asks the Commonwealth Court to declare the state’s current funding system unconstitutional and to require a new funding formula that provides adequate and equitable funding to all school districts.

The Pennsylvania Constitution requires the state legislature to “provide for the maintenance and support of a thorough and efficient system of public education.” Yet a 2006 state board of education study determined that 95% of the state’s 500 school districts required additional funding, totaling $4.4 billion, to achieve the cost per pupil necessary to provide an education that would enable a student to meet the state’s academic standards.

The General Assembly responded to the study by passing legislation that set funding targets for each school district and established a formula for distributing funding to ensure that all students would have the resources to meet the state’s standards. But, in 2011, state officials abandoned that formula, reduced state education funding by $860 million and passed legislation making it harder for communities to raise revenue locally to cover state funding cuts and growing costs.

Since then, Pennsylvania school districts have had to lay off teachers and staff, increase class sizes, cut back on facility repairs and upgrades, and postpone equipment, textbook and technology purchases. Some school districts are underfunded by more than $4,000 per student, according to the plaintiffs. Consequently, many students in these districts are unable to achieve basic proficiency on PSSA exams, which measure reading, writing, math and science performance, and are unprepared to pass the new, more rigorous Keystone Exams, which soon will be a requirement for high school graduation. Last year, more than 300,000 of the approximately 875,000 students tested couldn’t meet state standards.

The current system discriminates against students in low-income districts because, as the level of state funding for education dropped, school districts have become more dependent on funding from local property taxes, the plaintiffs noted. Per-pupil spending now ranges from $9,800 in districts with low property values and incomes to more than $28,400 in districts with high property values and incomes, according to Pennsylvania Department of Education data.

The plaintiffs held a press conference in the Capitol Rotunda to announce the historic lawsuit, which was filed on their behalf by the Education Law Center of Pennsylvania and the Public Interest Law Center of Philadelphia.

Gov.-elect Tom Wolf has said he wants to increase education funding and supports a new cost study to determine necessary funding levels.  The Basic Education Commission, authorized under state law, plans to recommend a new funding formula by next year. 

Voters sent a clear signal that they want to see education funding cuts restored and a renewed focus on student needs. The lawsuit may be the motivation that all parties need to resolve this longstanding issue. For more information on the lawsuit, visit



2014 Midterm Election Roundup

November 6, 2014 - 12:37pm

Gov. Tom Corbett lost his reelection bid to Democrat Tom Wolf, a York County businessman and former state revenue secretary, in an otherwise Republican sweep in Tuesday’s mid-term election. Consequently, the new Gov. Wolf will face challenges getting his agenda, which includes a reinvestment in education, through a more-Republican-than-ever legislature.

Wolf’s election means that Democrats hold all four statewide elected offices. He joins Treasurer Rob McCord, Auditor General Eugene DePasquale and Attorney General Kathleen Kane.
Pennsylvania Republicans expanded their existing majorities in both chambers of the General Assembly. They added three seats in the state Senate for a new 30-20 majority, and won eight more seats in the state House of Representatives, for a new 119-84 majority of historic proportions there, according to unofficial election results.  That’s the largest majority for Republicans in the House in memory, and the largest of any party since Democrats had 126 seats during the 1957-58 session, according to

Incumbent House Democrats Jesse White of Washington County, Rick Mirabito of Lycoming County and Mark Painter of Montgomery County fell to their respective Republican challengers, Jason Ortitay, Lycoming County Commissioner Jeff Wheeland and former state Rep. Tom Quigley (whom Painter unseated in 2012).

House Republicans picked up five open seats that had previously been held by Democrats. Ryan Warner won Rep. Deb Kula’s old seat in the 52nd District; Harry Lewis won in the new 74th District that was moved to Chester County from Cambria County; David Parker won the new 115th District seat in Monroe County; Aaron Kaufer won Rep. Phyllis Mundy’s old seat in the 120th District; and Kate Klunk ran unopposed for the new 169th District, moved from Philadelphia to southern York County.

The GOP also held on to eight open seats that had been held by Republicans. The new freshman Republican members of the House will be: Barry Jozwiak (5th District), Parke Wentling (17th), Brett Miller (41st), Cris Dush (66th), Russ Diamond (102nd), Craig Staats (145th), James Santora (163rd) and Jack Rader, Jr. (176th).

The 81st District in Huntingdon County will have a new Republican representative too. Richard Irwin, who won the Republican primary as a write-in candidate, defeated incumbent Republican Rep. Mike Fleck, the first openly gay member of the General Assembly, who won the Democratic primary as a write-in.

House Democrats held on to two open seats currently held by Democrats. Peter Schweyer will replace Rep. Erin C. Molchany in the 22nd District in Allegheny County, and Mike Driscoll will replace Rep. Michael P. McGeehan in the 173rd District in Philadelphia.

Democrats will see one of their seats open when the new session begins. Rep. Brendan Boyle, D-Philadelphia, won his race for the U.S. House of Representatives, so a special election will be held in the 170th District to replace him.

The enlarged Republican majorities in the General Assembly will face a serious budget shortfall next year that the current legislature failed to address this year.  They will have two choices: new cuts to education and colleges, which will lead to higher local property taxes, or a severance tax on gas drillers.

Many Pennsylvania political analysts are attributing Corbett’s loss on an otherwise Republican night, both nationally and statewide, to his funding cuts to education. Voters seemed to reject Corbett’s argument that he didn’t cut state education spending.  And they linked local property tax increases, larger class sizes, teacher layoffs and program eliminations to his budget cuts.

Pennsylvanians spoke with their votes for governor, suggesting broad support for Wolf’s proposals to increase school funding and institute a severance tax on natural gas.  Even in solidly Republican districts, especially in the southeast, incumbents running for reelection had to come out on the record in support of public education funding, and several pledged support for a severance tax.
The House and Senate will elect new leaders on Nov. 12, and based on the new configuration there may be changes. Senate Majority Leader Dominick Pileggi lost a key supporter late in October, and his position may well be in jeopardy.

Tom Wolf, like Ed Rendell in 2002, will enter office with firm Republican majorities in the legislature. How this will affect his agenda, and the chances for success in advancing his priorities, remains to be seen. His 55% to 45% defeat of a sitting governor, in a year that otherwise favored Republicans, allows him to claim a mandate. 

Cutting taxes won't spur economic growth

October 29, 2014 - 9:19am

Flying in the face of the often heard rhetoric that tax cuts are the cure for all ills, a new study finds that cuts to business taxes are at best ineffective, and at worst harmful to state economic growth and development. A better strategy for growth is to increase investment in education and infrastructure.

State economic development is related to many factors, but few of these are controllable by state policymakers. One often used lever is to cut taxes – particularly for businesses. Traditional economic theory would have you believe that if a state makes it more profitable for businesses to operate by cutting taxes, that state would have more business activity.

The problem is that this strategy doesn’t work, according to the study. This is because business taxes are not the only factor that influences business behavior. Being close to customers, availability of a well-educated workforce, access to raw materials, and energy costs are much larger factors in a business’s profitability than state taxes. For instance, in Alabama state taxes cost corporations only 1.89% of their revenue. Varying this small factor has a limited effect on the actions of businesses.

Using data from all 50 states spanning the years 1977 to 2005, the study’s authors (Soledad Artiz of Harvard University and Kenneth Meier of Texas A&M) found that state policies seeking to spur business investment had no demonstrative positive effect on state economic development. The authors take a broad perspective on economic development. They measure the changes in gross state product, employment, personal income, net job creation, poverty, and the creation of new establishments.

The biggest factor found to influence the growth of state economies was the health of the national economy. State economies are tightly tied together, making it difficult for individual state actions to make much of a positive difference.

When state lawmakers cut taxes, the net effect may be slower economic growth. This is because the loss of business tax revenue means less funding for government services that often pump money back into a state’s economy.

So, when politicians talk about cutting taxes as a way to grow our state's economy, know that the opposite could occur.

Germany Makes University Education Free Again -- Pennsylvanians Take Note

October 27, 2014 - 1:24pm

Our just-released report on Pennsylvania higher education points out that student tuition and fees at Pennsylvania's four-year state-owned universities now cover nearly 75% of university costs. Prompted by this, our friend Charlie Bacas sent us today a story on states in Germany making tuition free again. In 2006, Germany began allowing public colleges to charge students up to 1,000 euros per year (currently $1,270). Student protests, petition campaigns, and fear of voter backlash reversed this change. Public universities will once again have free tuition for all students.

Another object lesson for Pennsylvania students and voters?

Pennsylvania Needs to Stop Shortchanging Its Future and Invest Smartly in Higher Education

October 27, 2014 - 12:29pm

While there's been a lot of focus recently on K-12 school funding cuts in Pennsylvania, Pennsylvania higher education has experienced even larger state funding cuts in percentage terms. Pennsylvania's starting point for investing in higher education, moreover, was already near the bottom.

The list of poor rankings that reflect Pennsylvania's underinvestment in higher education is somewhat mind blowing.

For example, Pennsylvania is 48th for investment in higher education per capita.

Pennsylvania has seen the fifth largest decrease in higher education funding since 2010-11, including a $90 million cut – 18% -- from funding for the state's cheapest four-year college option, the state-owned Pennsylvania State System of Higher Education (PASSHE) universities.

Pennsylvania has the third-highest tuition and fees at public four-year colleges; we have the seventh-highest tuitiion for our community colleges.

We have the third-highest student debt among graduates from four-year colleges. While that ranking for average debt includes graduates of private and state-related schools (Pitt, Penn State, Temple, and Lincoln), the average debt of graduates from state-owned PASSHE universities is almost as high -- right around $30,000.

Pennsylvania is 41st for the share of adults (25 to 64 years of age) that have more than a high-school education. That's up from 45th or 46th a decade or so ago but we've been stuck around 41st since 2010.

Pennsylvania's rural regions suffer the most from the state's underinvestment in higher education, with 26 counties having little or no access to community college. One positive sign: Senator Joe Scarnati (R-25), the president pro tem of the Senate, has been a leader in addressing this issue, which could open the door to bipartisan progress in the future.

Pennsylvania's low spending is short-sighted because investment in higher education pays off handsomely for states and for individuals.

  • According to the Milken Institute, each one year of additional average education beyond high school is associated with a more than 17% increase in both GDP per capita and wages.
  • College-educated workers earn hourly wages more than three-quarters higher than workers with only a high-school degree and also have an unemployment rate half or less of the unemployment rate of less-educated groups.

In sum, when we shortchange investment in higher education, we shortchange ourselves.

Interestingly, the top four states for investment in higher education are Wyoming, North Dakota, Alaska, and New Mexico. Four resource-rich states that use some of their mineral wealth to invest in higher education. Perhaps there's a lesson there.


Memory Lane -- Larry Summers on Why Some People Mow Lawns and Others Don't

October 21, 2014 - 3:36pm
While searching for something else online, I just tripped over a letter to the editor from 1988. The letter was published during the 1988 presidential campaign, in response to a New York Times profile of the economists' advising George H.W. Bush ("Poppy") and Michael Dukakis ("Tankman").   Larry Summers was the economist advising Mr. Dukakis. The profile of Prof. Summers in The Times seemed to suggest that he thought the world was divided into people who mow lawns and people who have their lawns mowed based on how much people like mowing (i.e., based on what economists call people's "preferences.").   I thought that was a bit off key. So I wrote the following, published under the title "Economic Axioms."  
June 26, 1988

To the Editor:

According to the economic theory of compensating differentials, workers in unpleasant or hazardous jobs should be paid more highly to compensate them. A corollary is that a person like Prof. Larry Summers (''The Economists Behind the Candidates,'' June 5), who ''loves'' his work, should be paid less. Of course, then he might not have enough to pay for someone to mow his lawn.

Stephen Herzenberg, Washington, June 5


Good times.

Pennsylvania is now dead last in job growth since January 2011

October 21, 2014 - 2:10pm

As we reported on Monday new jobs data for September were not encouraging with payrolls in Pennsylvania falling 9,600 jobs over the month.

According to data for all the states released this morning by the Bureau of Labor Statistics, nonfarm payroll employment increased in 39 states.

Based on this data Pennsylvania’s rank for percent job growth since January 2011 has fallen to last place among states (50th). 

Today’s numbers drive home emphatically that you can’t cut your way to prosperity.

We were ranked in the top 10 for job growth in 2010.

Then tens of thousands of layoffs in education, and the state’s postponed investment in infrastructure and delayed acceptance of Medicaid expansion dollars delivered a body blow to Pennsylvania’s recovery, the effects of which are still being felt.  

In recession and recovery, Pennsylvania needs a balanced, creative policy and state budget approach that fuels the state’s economic engine, not an unbalanced one that slams on the brakes.

Here are the details on how we ranked the jobs data

Read The State of Working Pennsylvania 2014 (at for our complete examination of recent trends in economic data in Pennsylvania.


September job losses mark three consecutive months of job loss in Pennsylvania

October 20, 2014 - 11:44am

On Friday the Pennsylvania Department of Labor and Industry reported that the unemployment rate fell from 5.6% to 5.7% while nonfarm payrolls fell by 9,600 jobs in September.  

Those disappointing payroll numbers in September plus revisions for August mean Pennsylvania has shed 3,700 jobs a month in the 3rd quarter of this year.  Resident employment drawn from a survey of households performed better in September registering a gain of 11,000 jobs. That’s the first gain in resident employment since April of this year. Still on average resident employment in the 3rd quarter fell by 19,700 jobs a month.

Over the last year weak growth in resident employment of just 16,000 meant that most of the improvement in the unemployment rate has been a result a decline in the labor force which has fallen by 93,000 in the last 12 months.

Exploring the change in payrolls by industry over the month the weakest sectors were Construction (down 2.1%), Transportation and Utilities (down 1.4%), Wholesale Trade (down 1.1%), and Information (down 1.2%).

Manufacturing had a good month adding 2,700 jobs but remains down by 2,100 over the last year.

All in all there is nothing to celebrate in the September job numbers for Pennsylvania.

Educational Tax Credits: Increasing Public Funding of Private Schools at the Expense of Public Schools

October 10, 2014 - 4:49pm

In the last few days of the legislative session, state lawmakers are fast-tracking a bill that would expand and unify the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC).  Tax credits provide taxpayer subsidies to businesses that fund scholarships to students attending private and religious schools, pre-K through 12th grade.  House Bill 1207, a proposal by Rep. Jim Christiana (R – Beaver County), would make more tax credits available for businesses and combine the tax credit programs so any money left in one program could be used by the other.  Taxpayers would pay up to 90% of the tab.

A PBPC analysis shows why taxpayers foot nearly the entire bill: the triple dip tax reduction.  In addition to the tax credits, businesses could file for state and federal tax reductions for “charitable” contributions.  Despite the heavy investment of taxpayer dollars, the Keystone Research Center notes that there is no enforcement of requirements or guidelines, and no data exists on how well these programs perform.  While public schools are required to let taxpayers know how well they perform, these programs still cannot answer the most basic question:  Do the students receiving scholarships or aid from these programs improve academically?  A House Amendment by Rep. James Roebuck (D – Philadelphia) took modest steps toward accountability by requesting descriptions of grant programs, including demonstrated or expected results, and basic auditing of financial statements.  The Amendment was not adopted.

Without evidence of academic improvement, proponents try to claim that these tax credits keep private enrollment from nose-diving, particularly in areas with struggling Catholic schools that have made it their mission to serve low-income children.  When we look at private school enrollment since 1997-98, we see that a decade of tax credits has not stopped a steady decline in students attending private schools, most of which are Catholic schools.  Meanwhile, we see that charter school enrollment grew substantially, suggesting charter growth possibly came at the expense of private schools.

Source: PBPC analysis of Pennsylvania Department of Education

We all care about improving the education of Pennsylvania’s children, especially those in poverty, but tax credits don’t work.  There is no proof that the students who have received any scholarship or aid have improved academically.  None.  Instead of giving taxpayer dollars to programs without accountability or a proven success record, we should instead use public money to reinvest in public education for the benefit of all our children and lay the groundwork for a strong economy for today and tomorrow.

Another victory in the fight to keep predatory payday lending out of Pennsylvania!

October 10, 2014 - 10:09am

As many of you are aware Pennsylvania law prohibits lenders from charging exorbitantly high interest and fees on small loans in Pennsylvania.  In the last several years the Payday lending industry which in other states regularly charges fees and interest of 300% or more has been lobbying the state legislature to offer similarly destructive financial products to Pennsylvania consumers.  In our briefing paper Bankrupt by Design: Payday Lenders Target PA Working Families we found that expanding this form of lending in Pennsylvania would cost consumers hundreds of millions of dollars and result in the loss of good jobs from the state’s economy.

Earlier this week Pennsylvania State Senator Jake Corman from Centre County attempted to get the Senate Banking and Insurance Committee to adopt a resolution that would authorize a study of payday lending in Pennsylvania.

The broad coalition that has been working hard to protect consumers from this form of predatory finance was alarmed by the proposed study design which in addition to being rushed included feedback from the organization lobbying on behalf of the payday lenders but not members of the coalition raising concerns about the harm of this product.

Thanks to the efforts of Senators Rafferty, Vance, Stack, Williams, Boscola, Farnese and Brewster the resolution did not get adopted!

You can bet the Payday Lenders and their lobbyists will be back so please don’t hesitate to reach out to these Senators and thank them for standing up for working families!

Your legislative champions need to hear from you when they do good!


A funny thing happened to our data on the way to Philadelphia

October 6, 2014 - 9:29am

If you have been following this gubernatorial election, or just watching television, you might have noticed that the Wolf campaign has been arguing that 27,000 jobs were lost in education in Pennsylvania.  That’s a figure my colleagues and I released in late August in our annual State of Working Pennsylvania.  To generate that number we used data from the Bureau of Labor Statistics to calculate education employment in local governments in the 2010-11 school year, which ran from July 2010 to June 2011. In that school year there were 308,000 workers employed in the education sector.  In the 2013-14 school year, which ran from July 2013 to June 2014, there were just over 280,900 workers employed in the education sector. Take the difference and round down, and you get 27,000 fewer people employed in that sector today than in 2010-11.

During the gubernatorial debate last Wednesday morning, Gov. Corbett claimed that 14,000 job losses in education occurred during the previous administration.  According to Dave Davies at WHYY, the Corbett campaign cites as the source for that claim a story by Melissa Daniels in the Pittsburgh Tribune Review.

In early August Daniels called me, asking questions about job loss in local governments. I shared with Daniels the monthly data since 2003 that I summarized above and explained that the bulk of losses in the education sector (just over 15,000 jobs, see Table 1 below) occurred between the 2010-11 and 2011-12 school years.  I noted that I prefer to use an annual estimate of employment in education tied to the actual school year as well as the state budget cycle, given the importance of state revenues to local education.

Daniels thanked me for the data and ran a story with the lede that education employment in September 2013 was at its lowest level since September of 2003.  Daniels reported that "Pennsylvania lost 11,200 teachers and staff during Corbett's term, according to state data."

Daniels defined job losses during the Corbett administration as the change in education employment between September 2011 and September 2013 (see Table 2 below). Corbett took office in January 2011, and his first budget, which impacted school district budgets for the 2011-12 school year, was signed in June 2011. In other words, employment in September of 2011 reflected the budget choices of the Corbett administration in its first state budget. But by Daniels construction, the lower level of employment in September 2011 was thanks to state budget choices by the Rendell administration made in 2010, which is clearly mistaken. Daniels article even says: “Corbett's first budget coincided with the expiration of the stimulus and a 4.19 percent decrease in education employment, the largest decrease during his term.”  That 4.19% decrease is the percent change in education employment from September 2010 to September 2011, which is 12,700 (see Table 2 below). But by reporting job loss under the Corbett administration as the change from September 2011 to September 2013, or 11,200, she implied that the 14,500 job losses that occurred between September 2009 and September 2011 were under the Rendell administration.

Shortly after the article appeared Stephen Miskin, press secretary to the PA House Majority Leader and spokesman for the House Republican Caucus, used Daniels' article to taunt the Pennsylvania Education Association on Twitter:

Then last week Tom Corbett, during the gubernatorial debate, went one step farther, cited the number in Daniels' article and claimed 14,000 jobs were lost under the Rendell administration. If you correct Daniels' error there were 1,800 education job losses under Ed Rendell, and 23,900 education job losses under Tom Corbett.

When Daniels' story first ran back in August, I followed up with her to explain that her construction of the data was mistaken. She thanked me for my feedback and promised to call me if she ever returned to the subject.  I also submitted a letter-to-the-editor pointing out her mistake, but the paper never published it.

There is, I think, a silver lining here.  This year’s gubernatorial race has proved definitively that there is a strong desire not to be associated with the cuts in school programs, rising property taxes and loss of thousands of jobs in education that have occurred in the last four years thanks to a cuts-only approach to resolving recession-induced state budget shortfalls.  I think we can expect future governors, regardless of party, to use a more balanced approach to resolving the budget shortfalls that always emerge when recessions reduce tax revenues.


Another Thumbs Down on Ride Sharing...Unless It Catalyzes New (OK, Old) Union Forms

September 25, 2014 - 11:00pm

A good friend earlier this week shared this story on ride sharing.

The story underscores the strong parallels between ride sharing and the deregulated trucking industry, which we pointed out a few months ago.

In both cases, in the context of an excess supply of drivers, a downward spiral can result in compensation, while hours of work mushroom as drivers try to maintain a decent weekly wage. Both cases also compromise service and safety because there is no effective method of monitoring insurance, driver quality and knowledge of routes, vehicle maintenance etc.

The only silver lining here is that the Uber/Lyft "ride sharing" example may lead more workers -- and more of the public -- to see the need for new forms of union that include all drivers (whether in a taxi or their own ride share vehicle) in a metro area, and therefore have the power to lift job quality standards. Those drivers could negotiate fair wages and benefits, or per mile rates, along with affordable insurance.

This wouldn't really be a new union form; it borrows heavily from unions in construction and in the arts -- and in trucking back when the National Master Freight Agreement set industrywide standards.

This kind of multi-employer and industrywide union only looks new becaue so many people (and workers) have come to associate unions with company or plant-level manufacturing unions.

One reason the Uber/Lyft example may help us rediscover forms of unionism that fit the "new economy" is the stunning gap between the rhetoric of the "sharing economy" -- and the rhetoric of a harmonious partnership between ride-share companies and drivers -- and the reality of a downward wage and upward hours spiral.

When the reality is so far from the rhetoric it calls the question: how can we create a sharing economy in which workers actually do thrive?

And having that question called is helpful.

Philly Cigarette Tax Hike Becomes Law

September 23, 2014 - 11:38am

It’s finally law! Philadelphia can now raise its own local cigarette tax by $2 per pack to fund its own schools and prevent further teacher losses and cuts in the classrooms.

Gov. Corbett signed the bill authorizing the increase today, after the state Senate passed it by a 39-11 vote last night, and the state House of Representatives approved it by a 114-84 vote on Monday.

The new tax, effective Oct. 1 on cigarettes and little cigars in the city only, is expected to raise $80 million for the Philadelphia School District, which has endured draconian budget cuts, school closures and widespread staff layoffs because of funding shortfalls.

The bill had been in limbo for months as legislators first wrangled over it and then refused to return from their summer vacation to vote on it before the start of the school year.

Each week of delay cost the school district $1.6 million in revenue. More school closures and another 1,000 staff layoffs were imminent without passage of the legislation.