Third and State
Bet that title got your attention!
This is of course a policy blog so wealth stripping refers to financial services offered to working families which, thanks to high fees and extended use, leave families poorer for having used them. The classic example is the neon lite storefront of a payday lender usually with a catchy title like Ca$h Now or Quick Ca$h (for our hip readers to the best of our knowledge there is no relationship between payday lenders and the artist formerly known as ke$ha)!
These firms offer small dollar loans to consumers with a cash flow problem but they carry high fees and more often than not working families end up taking out multiple loans. With each additional loan the lenders business model becomes more profitable while families sink themselves further and further into debt. We don’t have payday lending storefronts all over Pennsylvania because the Commonwealth has strong consumer protections which limit the fees that payday lenders can charge.
For years now the financial companies that operate these stores in other states have been lobbying to weaken consumer protections in Pennsylvania so they can operate profitably in the Commonwealth. Pennsylvania state Senator John Yudichak (D-Luzerne/Carbon) is circulating draft legislation to bring the payday lenders’ fee-laden, high-cost installment loans into our state.
Unlike a traditional payday loan which is paid back in 14 days an installment loan is as the name implies paid back in installments over a longer period of time. But that doesn’t make them any safer. What Senator Yudichak is proposing has no maximum cap on fees. Based on what payday lenders charge in other states, we know the fees could push the annual interest rate on these loans to 200-300%. The financial disclosure listed below is for an installment loan offered in California by the payday lender Check ‘n Go (read more about Check ‘n Go), the leader of continuing efforts to bring predatory lending to Pennsylvania. Note the high annual percentage rate over 200% and finance charges that exceed the amount borrowed. Looking at the terms below you have to ask yourself in what financial universe other than the fictional world of the Sopranos is it good for working families to pay fees of $4,654 for the privledge of borrowing 3,000 for a year?
The reason for the our alarm is the General Assembly is in the middle of budget negotiations the perfect time for industry lobbyists to attempt to sneak through this kind of change. Veteran budget watchers (a hardy group given this year’s never ending saga) will remember the payday lending lobbyists nearly derailed a budget agreement in July 2013 when the House inserted language favored by the payday lenders into the fiscal code in the hopes nobody would notice. An additional concern this year, the Majority Leader of the Senate Jake Corman (R-Centre) was the leader of a failed attempt in 2014 to advance legislation favorable to the interests of the payday lenders.
As ever we will keep you posted about further developments regarding this worrying proposal. The Pennsylvania legislature should be working to boost earnings for working families by raising the minimum wage rather than opening the door to financial products that promise to trap people in debt with high fees.
Majority Leader of the Senate Jake Corman suggested Monday that his caucus walked away from a deal to increase the sales tax to pay for property tax relief because Gov. Wolf and Democratic legislators were insisting on allocating the money in a way that was (1) unfair to Republican districts and (2) too generous to Philadelphia ("I could never have gone to my caucus and said: 'Vote for this increase in sales tax and a disproportionate share of the money will go to Philadelphia.' I couldn't have done it, and we could not have gotten the votes.")
While this sentiment fits with a familar Pennsylvania political narrative, it doesn't fit with what we know about how Gov. Wolf wanted to allocate property tax relief -- based on his original property tax relief proposal.
(1) As we documented in July, the original Wolf proposal was fair to Republican school districts, in most cases fairer than the May House Republican plan for property tax relief. In fact, homeowners in all but a small handful of the very richest school districts would have received a larger share of property tax relief under the Wolf proposal than the House Republican proposal. In more than half of rural Republican districts, typical homeowners would have received more dollars of relief under the Wolf proposal than the House proposal, even though the former gave out less total property tax relief.
(2) The original Wolf proposal gave out very little money in property tax relief to Philadelphia homeowners ($357), less, in fact, than the House Republican proposal ($474). To be sure, the Wolf proposal would also have given out $450 million in wage and cigarette tax relief to Philadelphia -- 12 percent of the total $3.8 billion in tax relief for a city with 12 percent of the state's population. Keep in mind, further, that suburban commuters would have received a portion of the wage relief for the city. Is this a disproportionate share of relief for Philadelphia? We don't think so.
Even this far along into this year's property tax debate, most Pennsylvanians and many lawmakers of both parties -- possibly including Sen. Corman -- still may not have processed how much tax relief middle-class and rural districts would receive under the allocation approach favored by Gov. Wolf, or how much relief would go to rich districts and businesses in the House proposal (the only public proposal put forward by Republicans). Allocating as much property tax relief as the House Republican proposal did to a small number of wealthy areas in which constitutents are neither clamoring for nor need property tax relief doesn't make sense on policy or political grounds -- for either major political party.
Better understanding of alternative property tax relief formulas might yet make possible a bipartisan compromise that benefits communities of modest means throughout the commonwealth.
Unintended Consequences? Property Tax Elimination Increases Taxes on the Middle Class to Reduce Taxes for high income families
The budget end game has focused a lot on property tax cuts. The budget framework agreement includes property tax relief, the allocation of which has not yet been worked out. And now the Pennsylvania Senate will consider SB 76, a bill to eliminate school property taxes early next week. Property tax elimination would be paid for by raising the sales tax rate to 7 percent and expanding it to cover more services, and by raising the personal income tax rate to 4.34 percent.
This blog will compare property tax elimination with two more targeted approaches that would reduce, but not eliminate, property taxes: the Republican proposal that passed the Pennsylvania House in May (HB 504) and Gov. Wolf’s original proposal.
The bottom line: property tax elimination would raise taxes on the middle class to give wealthy homeowners and businesses in wealthy communities a tax break. Both targeted property tax reduction approaches would be better for the middle class, but the Wolf proposal would be the best for moderate-income homeowners and also would cut non-residential property taxes the most in lower-income communities, a potential boost to community revitalization.
We think that if Pennsylvanians and lawmakers of both parties fully understood these differences, they would oppose property tax elimination and favor using a scaled-down version of the Wolf formula to allocate the amount of property tax relief funded by the budget framework. So please, help us spread the word.
Let’s start with the impact of property tax elimination on different groups of taxpayers. While we have not examined the tax incidence of the current SB 76 bill, the Institute on Taxation and Economic Policy (ITEP) did estimate for us the tax incidence of a similar proposal several years ago. That proposal, like the current SB 76, promised to eliminate school property taxes through an increase in the sales tax rate to 7 percent while applying it to more services, and an increase in the personal income tax rate (to 4.1 percent under the old SB 76 and to 4.34 percent under the new SB 76). One reason SB 76 now has a larger PIT increase is that the earlier proposal didn’t raise enough revenue: even the “new and improved” SB 76 does not raise enough revenue to eliminate property taxes permanently and to adequately and equitably fund schools going forward.
Who are the winners and losers of eliminating property taxes by raising sales and income taxes? As we explained in our release last Wednesday, the sales tax falls more heavily on middle-class and low-income families. The property tax also falls more heavily on middle-class and low-income families, but it is not as regressive as the sales tax – in part, because the wealthy choose to spend substantially more on housing than the middle-class and also to impose high property taxes on themselves to provide more funding for their local schools.
Given these realities, there is a danger that raising the sales tax to eliminate school property taxes will increase taxes on lower-income families to provide tax benefits to higher-income families. Underscoring this danger, ITEP’s analysis of the earlier property tax elimination proposal did, indeed, find that it increased average taxes on middle-income families, while lowering taxes, on average, on the top 20 percent of families. (This proposal also provided a small cut in average taxes for the bottom 20 percent of families). Property tax elimination amounted to a middle-class tax hike to pay for tax cuts for affluent households.
If property tax cuts are going to be a priority, a smarter approach for the middle class is to provide more targeted relief as a majority of the House proposed to do with the passage of HB 504 in early May, and as Gov. Wolf proposed in his initial budget address in March. Although we won’t explain the details of the differences in the allocation formulas of the House and Wolf proposals here, it turns out the Wolf proposal is more targeted to moderate-income homeowners and communities. (For more on the House and Wolf proposals and their allocation formulas, check out our late July trio of briefs).
To see the wisdom of the targeted approach and that property tax elimination benefits high-income families consider two school districts, the relatively low-income Reading School District in Berks County and the relatively affluent Wissahickon School District in Montgomery County (Table 1). If you want to make your own comparisons download our technical appendix, which has data on every school district. (If you want help with this, contact the Pennsylvania Budget and Policy Center at 717-255-7158 or firstname.lastname@example.org).
Table 1 reveals that SB 76, by eliminating all school property taxes, would cut taxes for the typical homeowner (i.e., “median value homestead”) in the Wissahickon School District by $3,630. It takes a lot of extra revenue, raised in part from middle-income families via higher sales and income taxes, to eliminate such substantial property taxes in affluent places. HB 504’s targeted approach would only have given affluent Wissahickon homeowners a property tax cut about half as big ($1,800). Gov. Wolf's more targeted plan would have trimmed the Wissahickon property tax cut further – to $1,000.
By contrast, Reading would receive almost the same property tax cut under all three plans – roughly $700.
Another key difference among these three proposals concerns the amount of non-residential property tax relief they provide – i.e., primarily to business owners of commercial property. SB 76 would eliminate all property taxes on non-residential property owners and pay for this by raising taxes on middle-income families.
The Wolf plan provided small or no property tax cuts for non-residential property owners in affluent school districts (e.g., 0 percent in Wissahickon) but large property tax cuts for non-residential property owners in less affluent school districts (e.g., 97 percentin Reading), potentially enough, along with more school funding, to spur community revitalization (Table 2). By contrast, HB 504 would provide a 20 percent cut in non-residential property taxes in Wissahickon -- to what purpose? – but only a 45 percent cut in Reading.
Summing up: property tax elimination amounts to tax relief for the wealthy and for businesses paid for by the middle class. The original Republican proposal for more targeted property tax relief would be less generous – but still generous – to wealthy homeowners and to businesses in wealthier communities. The original Wolf proposal for property tax relief would be much more generous to middle-class homeowners, renters (an issue not addressed here) and to businesses in lower-income communities.
We think a majority of voters and lawmakers – if they understood these differences -- would oppose property tax elimination: they don’t want to make the Pennsylvania tax system even more unfair, and they don’t want to threaten the adequacy of school funding.
In the context of Pennsylvania’s budget framework agreement, which includes scaled-down property tax relief (half as much relief or less than the original Wolf and HB 504 proposals), we also think that a majority of voters and lawmakers would favor a variation on the Wolf distribution approach for targeted tax relief. This would benefit the middle class more and lower property taxes in struggling communities, while giving less of a windfall to mall owners in affluent communities.
This morning the Bureau of Labor Statistics reported that the unemployment rate in Pennsylvania was down slightly to 5.1 percent, and nonfarm payrolls were up by 13,700 jobs last month, each from their respective September levels.
After two months of declines in nonfarm payrolls, the return to growth in October was a welcome change.
Although the month-to-month numbers have been up and down recently, the overall pattern in both the surveys that track employment is positive, with resident employment as measured in the household survey up 60,000 jobs, or 1 percent, over the last 12 months, and total nonfarm payrolls as measured in the establishment survey up by 48,600 jobs, an increase of 0.8 percent, over the same period.
Of note, the household survey has registered a sustained increase in the labor force in the last 12 months (up 62,000), another sign that stronger job growth is probably pulling people into the labor force.
Changes of Note by Industry:
Over the past year, employment in mining and logging is down by 2,900 jobs, or 7.7 percent. Though it is interesting to note, the Pittsburgh metro area has bucked this trend, adding 1,100 jobs, an increase of 9 percent, in mining and logging over the same period.
The primary driver of employment change in mining and logging in the past several years has been natural gas extraction. The number of gas drilling rigs operating in Pennsylvania so far this November stands at 28. That’s down from an average of 56 rigs in 2014, and down from the peak of rig activity in 2011, when there were 110 rigs operating in the state. Drilling activity is the primary driver of employment change in this industry, so it is no surprise that as rig counts have fallen employment in mining and logging also has fallen. Although drilling activity and employment are falling, natural gas production from June to August of this year was still up 9 percent over the same period last year (see the figure below).
As we have argued, the employment contribution of natural gas extraction is small relative to the overall economy. It is true that new well development has slowed, but that process began in 2012 in response to falling natural gas prices. Production, however, is still growing strong, signaling that the commonwealth continues to miss out on vital revenues that could fund our schools by not having its own severance tax on natural gas extraction. When natural gas prices rise in the future, new drilling activity will pick up, and it will be important for the commonwealth to have a severance tax in place to fully capture the tax revenues that other states already collect from this activity.
Another sector operating as a drag on employment is the public sector, which shed 4,800 jobs in the past year. An examination of the more detailed, but not seasonally adjusted, data indicate that in the past 12 months all of the weakness in public employment has been concentrated in public schools, which are still retrenching as their classroom funding has yet to be fully restored. Assuming the budget framework currently being negotiated in Harrisburg becomes law, schools are set to receive an infusion of $350 million, which should reduce somewhat the need for further layoffs in that sector.
Who Pays For An Increase in the Sales Tax: Analysis of the Tax Incidence of an Increase in the Sales Tax from 6% to 7.25%
Today we released new analysis of the tax incidence of a proposal to raise the state sales tax rate from 6% to 7.25%. Gov. Wolf and legislative leaders are currently negotiating over the terms of a plan to cut property taxes which would be financed by this sales tax increase.
As the figure below illustrates we find that the average taxpayer in the bottom 80% of taxpayers would pay higher taxes under the proposed sales tax rate increase than under an increase in the personal income tax rate to 3.57% which Gov. Wolf proposed in October. In stark contrast we find that average taxpayer in the top 20% of taxpayers would pay substantially less in new taxes with a higher sales tax rate than a higher personal income tax rate. By far, the biggest beneficiaries of relying on the sales tax to fund cuts in property taxes are the top 1% of taxpayers, who would see an average tax increase of $1,200 under the sales tax plan, less than a quarter of the average increase of $5,300 under the governor’s proposed higher income tax rate.
From a tax fairness perspective, these findings show, even an increase in the state’s flat personal income tax is far superior to a sales tax rate increase. If the General Assembly and Gov. Wolf must finance property tax cuts we urge them to do it with a higher personal income tax rate rather than with a higher sales tax rate. (They could also finance property tax relief with a severance tax which, according to the conservative Tax Foundation, would be paid mostly by people from out of state.)
If a sales tax rate increase remains the vehicle for reducing property taxes, it is imperative that the property tax relief in the final budget not further amplify the regressive nature of the tax increase by distributing a high share of property tax cuts to affluent property taxpayers. To this end, the final plan to cut property taxes should:
- include a rebate for renters;
- target property tax cuts to low- and middle-income homesteads; and
- increase the minimum wage to $10.10 per hour to boost the wages of low-income taxpayers who already bear the greatest relative burden of sales taxes.
In addition, lawmakers should take up Gov. Wolf’s proposal (made first in March and again in October) to expand personal income tax forgiveness to more low-income households.
What's It to Be on Property Tax Relief, PA Lawmakers? Reverse Robin Hood or Relief for Renters and Middle-Class Homeowners
This is an appeal to legislators in rural parts of Pennsylvania and in high-property tax areas such as the Poconos: we think that the evidence shows clearly that your constituents would benefit more from distributing the property tax relief promised by the tentative budget framework in a fair way, including a rebate for renters. There is a danger, however, that this relief will be distributed in an unfair way, without a renter rebate and with much tax relief going to businesses and high-income homeowners.
So unless you enjoy playing reverse Robin Hood -- taking from the poor to give to the rich -- more than representing your constituents, you need to raise your voice with legislative leaders. It is especially critical that Republican lawmakers raise their voice: if they do, a bipartisan consensus for fair distributions of property tax relief should be an easy win.
Here's the background to our appeal. Yesterday, in an analysis of the tentative state budget framework, the Pennsylvania Budget and Policy Center (PBPC) highlighted that this budget proposal would collect revenues for property tax relief from Pennsylvania's most regressive tax -- the sales tax. As a result, it is critical that distribution of tax relief be done in a fair way that offsets the impact of the sales tax.
Specifically, we called for a renter rebate as well as for property tax relief that targets moderate- and low-income homeowners, not businesses and affluent homeowners. Without a renter rebate, we explained, low-income renters could end up paying several hundred dollars in additional sales tax while getting nothing back in relief. If we combine revenue from an unfair tax with unfair distribution of tax relief, the net impact would be -- ta da -- unfair. That's that reverse Robin Hood thing.
We also noted yesterday that many Republican legislative districts, including most of rural Pennsylvania, would benefit from fair distribution of property tax relief, including a renter rebate -- more like the distribution proposed by Gov. Wolf's original plan than like the Republican property tax relief plan that passed the House. We documented in a late July trio of briefs how a fair distribution of tax relief benefits rural areas and many high-property tax areas -- in fact, most parts of the state except affluent suburbs (that, after all, aren't clamoring for and don't need tax relief).
After we laid out our arguments, we read today an Associated Press story quoting Gov. Wolf acknowledging the burden of the sales tax on lower-income people, including renters, and also highlighting, accurately, that the governor would have preferred that some of the revenue for property tax relief come from an income tax increase (which falls less heavily on lower-income Pennsylvanians). The better news in that story was a statement that "Wolf and Republican lawmakers are still battling over how that money would be distributed, a major point of contention in the ongoing negotiations."
From our perspective, the governor and Republican lawmakers shouldn't be battling because a fair distribution of relief, including a renter rebate, benefits the constituents of most legislative districts. So all we need is a bipartisan group from rural and high-property tax areas to step forward and say: "hey, that reverse Robin Hood thing is not working for me. I'd rather give hard-working families, my constituents, some relief."
Will Charlie Brown end up on his back again as Lucy whisks the football from the tee?
This budget season it looked like a severance tax on natural gas drilling was finally teed up to be successfully kicked through the uprights. Candidate Tom Wolf made it the centerpiece of his campaign for governor, vowing to use the revenue to replace the disastrous funding cuts to education made under former Gov. Tom Corbett. Voters rewarded Wolf with the governor’s office, and all subsequent polls show voters continue to strongly support a tax on gas drilling. All the public policy arguments are on the side of a drilling tax as well.
But recent news reports indicate a severance tax has been whisked from the budget negotiating table.
Gov. Wolf initially proposed a 5 percent tax on the value of the gas extracted from under our land and a 4.9-cents-per-MCF production tax – almost identical to the levy in place in neighboring West Virginia. His proposal would have directed the lion’s share of the revenue to education funding with smaller amounts earmarked for economic development, clean energy and oversight of the gas drilling industry. Again, polls showed that voters approved of his overall budget proposal and especially liked the tax on gas drilling.
The governor proposed compromises which Republican leaders simply rejected. By July, news reports indicated that the governor had dropped the proposed severance tax rate to 3.2 percent that would have been in addition to the existing impact fee, which goes to municipalities where drilling occurs.
In response, Republican leaders only stiffened their opposition to a severance tax, even though as production has soared, impact fee revenue has declined. Meanwhile, state corporate taxes paid by drillers have dropped below the amount they paid in 2008 at the start of the shale boom.
The shale industry claims it cannot afford a severance tax because its over-production has created a supply glut and lowered gas prices. Instead of cutting back on production, gas companies are looking to tap even more abundant gas resources in the Utica formation which lies underneath the Marcellus. The perverse economics of the industry promise to keep the prices low for many years to come.
From the perspective of the voters, now is the time to finally enact a severance tax in Pennsylvania as every other major gas-producing state has already done. From the perspective of the drillers, that time should never come, and they’ve spent $55 million (and counting) in campaign contributions and lobbying to ensure it never does.
If the gas drillers successfully pull the severance tax from the budget, Pennsylvania taxpayers are the ones who will land flat on their backs.
A new financial report for 2014-15 reveals that the Pennsylvania Liquor Control Board is still a cash cow that delivers more than half a billion dollars annually to commonwealth coffers. Pennsylvania taxpayers and state legislators should remain wary of anyone offering magic beans for this cash cow – an exchange more likely to leave Pennsylvania’s finances in bleaker shape than to produce the payoff magic beans did in the Jack and the Beanstalk fairy tale.
Using the same reporting method as previously (to allows comparison with 2013-14 financial performance), unaudited financial results released by the Pennsylvania Liquor Control Board at the end of October show the agency with a net profit of $132.8 million in 2014-15, an increase of 2.5 percent over the previous year. Assuming a transfer of $80 million to the state treasury out of this profit, and adding in liquor and sales taxes, revenues from the industry to state coffers will total $544.6 million for the year.
Interpreting PLCB financial performance is made more complicated this year because the PLCB applies for the first time a new accounting standard (GASB 68) requiring public entities to show on the books total unfunded pension liabilities accumulated over decades. As school boards and municipalities apply this rule, expect recurring communications that the sky is falling. Consistent with this expectation, when the PLCB’s new report showed $362 million in pension debt for the first time, the Commonwealth Foundation said that “the [PLCB] ended the year more than $238 million in the red.”
In reality, a bookkeeping net loss for the year says nothing about the financial viability of the PLCB long term. In fact, the PLCB reported, net cash generated by operating activities totaled $139.1 million for the fiscal year 2014-15.
Looked at from another angle, the report puts in proper perspective the manageable size of PLCB pension debt: PLCB’s entire accumulated share of pension debt is two-thirds of a single year’s transfers from the PLCB to the General Fund – that is, $362 million is two-thirds of $544.6 million. Paid down over 30 years, PLCB pension debt is a few percent on an annual basis of the income-generating power of the PLCB asset to the state.
What the comparison above shows is that the real issue for state revenues is not pension debt but what privatization will mean for the total revenues transferred on a sustainable basis from the wine and spirits industry to the state: how much of the annual flow of milk from the cash cow will the state lose and how big an upfront sale price will privatization yield? Taxes as well as PLCB profits need to be included in this analysis because once private profit adds additional wholesale and retail markups to price there may be consumer pressure to lower sales and liquor taxes. In addition, under state control 100 percent of sales and liquor taxes are collected. This share will likely decrease with privatization.
Recent research that looks at the total revenues states receive from alcohol distribution, including taxes, found that control states, such as Pennsylvania, raise the most total revenue from the industry. This research is a more reliable guide to the impact of wine and spirits store privatization on state revenues than is a Commonwealth Foundation blog post.
In the context of Pennsylvania’s recent debt downgrades, the red ink we need to be most concerned about is that of the state. And so far, the best evidence suggests that privatization of wine and spirits stores would put Pennsylvania’s budget more in the red over the long term.
There's been a lot of hand-wringing recently about "the robots are coming." They are going to take so many jobs that many people, especially in more vulnerable demographic groups, will end up jobless.
We and our friends in the community of progressive economic think tanks, the Economic Analysis Research Network (EARN), find this technological determinism misguided. Martin Wolf, chief economics commentator at the Financial Times, points out that with equitable distribution of the economic benefits, more robots will mean less work for people -- otherwise known as productivity growth. This productivity growth could pay for higher living standards, a shorter work week or some of both.
What brings this to mind are recent stories in The Atlantic and Fortune on the move by many Swedish businesses to a six-hour work day. These businesses are beginning to choose a future of high productivity growth and shorter work time. Sounds good to us.
A couple of weeks ago, Dean Baker, of the Center for Economic and Policy Research, blogged on the Swedish work-day shift. A year ago, in research for EARN, Baker ran the numbers on the kind of future we could have with different assumptions about income distribution and the rate of productivity growth. Baker's calculations (see chart below) show that, even with today's skewed income distribution, 2 percent productivity growth in 30 years would yield an increase in hourly compensation of 81 percent. This is sufficient to support a 50 percent increase in living standards combined with a one-sixth reduction in annual work hours – e.g., eight weeks more vacation for someone who works 40 hours per week, 48 weeks a year.
With 2 percent productivity growth and a return to the more equal income distribution of the late 1970s, Americans could enjoy a 50 percent increase in living standards, a six-hour work day -- compatible with caring for school-age children -- plus nearly 10 weeks of additional vacation. With more robots -- i.e., even higher productivity growth -- AND a decent income distribution, the future becomes even more attractive.
The infographic below shows our representative 90-percenter thinking about the additional income she could enjoy and also about the vacation time with children, lifelong education, care-taking for an elderly parent, and freedom from debt that might result.
This infographic brings to mind Samuel Gompers’ famous 1893 quote about what labor wants, delivered not long before manufacturing technology generated a leap forward in productivity: ““We want more schoolhouses and less jails; more books and less arsenals; more learning and less vice; more leisure and less greed; more justice and less revenge; in fact, more of the opportunities to cultivate our better natures…and [make] childhood more happy and bright.”
In other words, technological liberation from more work should be something to celebrate, allowing an easy political dialogue about how to split the bounty.
Sweden is already starting down this road of higher-productivity growth and shorter work time.
When will WE get started here in Pennsylvania and the rest of the United States?
Maintain Expansionary Monetary Policy
The Federal Open Market Committee (FOMC) of the Federal Reserve sets a target interest rate that depository institutions (banks) charge one another to borrow funds overnight. This interest rate in turn determines the interest rates that businesses and consumers face when borrowing money – for example, to buy a car or a house. All else held constant raising the target interest rate slows job growth and lowering the rate increases job growth. The current Federal Funds target rate is between zero and 0.25%. By historical standards this target is low and reflects the judgement of a majority of the Open Market Committee until now that inflation is low and the economy is below full employment and thus requires support to boost employment growth.
The FOMC is currently considering whether to raise its target for the federal funds rate. The labor market in Pennsylvania as we have demonstrated remains well below full employment. Inflation also remains substantially below normal with consumer prices in Pennsylvania rising just 1.3% in 2014, a figure less than half the average rate of inflation in the in the last 35 years and also below the Fed’s inflation rate target of 2%. Although inflation is low, the substantial excess capacity in the labor market has made the rate of growth in wages even slower. To raise the Federal Funds target interest rate now would dampen job growth and in turn slow the growth in wages for most workers. Keeping the federal funds target low is the course of action most likely to lead to real wage gains for the majority of Pennsylvania workers.A Jobs That Pay Action Plan – A Good Jobs Strategy for Pennsylvania
In his inaugural address, Gov. Wolf made “jobs that pay” one of three priorities for his administration (the others being “schools that teach” and “government that works”). To advance that goal, the administration should develop a comprehensive Action Plan that spells out a combination of achievable executive and legislative steps that would achieve more jobs that pay and lift the wages and incomes for the Pennsylvania 99 percent by 10 percent by the year 2018. At one level, this Action Plan would be similar in spirit to U.S. Vice President Joe Biden’s Middle Class Task Force, with an added emphasis on ensuring that the analysis of ways to strengthen the middle class translate into concrete actions that move the needle on wages.
The Jobs That Pay Action Plan should include the implementation of strategic, industry-specific enforcement of labor standards. Traditionally, enforcement of labor standards in the United has been complaint driven (i.e., reactive) and fragmented, with enforcement of each labor standard (wage law, overtime, health and safety, prevailing wage, etc.) done by separate agencies and with little or no communication or coordination across agencies. The Obama Administration and a growing number of states, however, have increasingly shifted to pro-active enforcement of labor standards in specific industries in which violations concentrate. They have also begun to increase communication and coordination between federal and state government – including through data sharing agreements – and across agencies within states. Pennsylvania is behind the curve on these innovations and it should be a best-practice state.
The Jobs That Pay Action Plan should also consider a wide range of other actions. For example, in discussions about raising local minimum wages some observers express concerns about the ability of small businesses to adapt. As long as it is not pre-empted by the state legislature, the state could partner with philanthropy (e.g., in Pittsburgh or Philadelphia) to increase the local minimum wage coupled with delivery of a program of technical assistance to help small employers reorganize to improve efficiency so that they can afford to pay higher wages. A third area for examination should be the “wage boards,” such as the fast food wage board that lifted the wage for fast food workers to $15 per hour in New York state. Are wage boards a policy innovation that could be applied in Pennsylvania, both in sectors such as fast food where the state is not a funder and in sectors such as long-term care, health care more broadly, and child care, where it is?
As implicit in the policies proposed above, a Jobs That Pay Action Plan should include a sector-specific focus – systematic analysis, sector by sector, of what government can do to create more jobs that pay. The nursing home industry, for example, is powerfully influenced by state government in its role as direct funder of services, indirect funder (e.g., by virtue of means-tested social programs accessed by many nursing home workers because they earn so little, or through funding for training nursing home workers), and regulator. How can each of these roles align in a way that lifts wages, improves the quality of services for consumers, and potentially reduces some costs? (Best-practice nursing homes streamline professional jobs by broadening direct care jobs. Their residents also tend to use less medication.)
Across the board, a comprehensive Jobs That Pay Action Plan would not just improve jobs. It would also improve economic performance – productivity, quality, service, and innovation. The reason is simple: in every sector, there are variations in competitive – or “business” – strategy. Some companies compete by combining sophisticated technology, smart operating practices, and committed, experienced workers who have “good jobs” (which pay higher wages and benefits than typical for the industry). Other companies rely much more heavily on paying workers low wages and benefits. High labor standards and effective enforcement plus technical assistance and smart public investment in training can shift more companies toward good jobs strategies.Conclusion
Our message to Pennsylvania policymakers this Labor Day is two-fold: first, “do no harm” – enact a sustainable state budget NOW that reinvests in education, communities, and jobs, and avoids a repeat of the economy-sapping austerity budget of 2011.
Second, do some good: enact policies that will lift wages and incomes starting in Pennsylvania – with a minimum wage increase, preferably as a bipartisan sweetener in the final budget deal
 To read more about the structure of the FOMC see http://www.federalreserve.gov/monetarypolicy/fomc.htm
 Figures based on the Consumer Price Index - All Urban Consumers in the Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD metropolitan area.
 On the particular importance of keeping interest rates low to African-American and minority workers, whose unemployment rates are much higher than white workers, and employment-to-population ratios much lower, see Connie M. Razza, Wall Street, Main Street, and Martin Luther King Jr. Boulevard, Center for Popular Democracy (CPD) and Economic Policy Institute (EPI), March 2015, online at http://goo.gl/m18Hn9. CPD, EPI, Action United Philadelphia, KRC and a variety of other national and state groups are partners on the “Fed Up” campaign which aims to shift Fed priorities toward a stronger focus on job creation and raising wages.
 See James Parrott. 2015. "Testimony before the NYS Department of Labor Wage Board Hearing on Increasing the Minimum Wage in the Fast-Food Industry.” Fiscal Policy Institute. http://goo.gl/kuqt0M and David Cooper. 2015. "Testimony before the New York State Department of Labor Wage Board
Hearing on Increasing the Minimum Wage in the Fast-Food Industry." Economic Policy Institute. http://goo.gl/6YKhF5
 For compelling examples of “good job strategies” in retail, see Zeynep Ton, The Good Jobs Strategy, New Harvest, 2014.
State House Majority Leader Dave Reed told Patriot-News/Pennlive.com Editorial Page Editor John Micek last week that the next few weeks will be critical in the ongoing state budget negotiations. Leader Reed said there is bipartisan support for more funding for education and a lot of interest in property tax relief. But there isn’t agreement yet on how these should be achieved. "We want to fix the structural deficit. We know you need recurring revenue to do so. But we don't think we need a personal income tax or sales tax [increase] for anything other than property tax [reduction],” he said.
While we’d to love to be convinced otherwise, we at PBPC think the representative’s numbers don’t add up. If we’re right, the legislative majority’s rejection of revenue increases means no significant boost in education funding and a continuing or worsening structural deficit.
In addition, while we appreciate a commitment to more education funding and fixing the structural deficit, we’re nervous that the favored revenue source might be a fire sale on the state’s profitable wine and spirits stores and/or booking all the purported savings from long-term pension changes in the first one to three years. Those moves could actually make the long-term structural deficit worse which would, in turn, doom prospects for sustained progress towards adequate and equitable school funding.
House Majority Leader Dave Reed Pennlive.com/Jan Murphy
Meanwhile, Moody’s revised its outlook on Pennsylvania’s general obligation debt from “stable” to “negative,” citing what was then a 107-day budget impasse (now a 117-day impasse). See KRC Executive Director Stephen Herzenberg’s comments to 90.5 WITF on the downgrade. Last week PBPC released Way No. 16 that the Budget Matters: Career & Technical Education. And PBPC Interim Research Director Mark Price wrote a blog post on what Pennsylvania’s budget experience means for other states for the Economic Policy Institute’s Working Economics Blog.
Putting students first … KRC and PBPC signed a letter sent to Gov. Wolf and the legislature last week, from the Campaign for Fair Education Funding, urging them to promptly reach a budget agreement that enacts the funding formula adopted by the state Basic Education Commission. The formula would invest significant new dollars in Pennsylvania’s public schools. PBPC is a member of the campaign.
To $15 and beyond – lifting wages in health care and the broader service sector. Steve Herzenberg testified last Thursday before a Pittsburgh wage review committee on the need to lift health care wages. The committee, established by the Pittsburgh City Council, was inspired by the example of the New York fast food wage board, which used a little-known statutory provision of New York’s minimum wage law to mandate an increase in fast food wages to $15 per hour across the state. While the Pittsburgh committee does not have power to mandate wage increases, it can advance the public case for them.
As Steve explained in his testimony, lifting health care wages would deliver multiple benefits, enabling more families to support themselves, setting a higher standard for other service industries, and slashing turnover while improving health care quality. KRC economists have long argued that lifting wages in “non-mobile” service industries (which have to stay near their customers) is THE answer to inequality – because most low-wage jobs are in such service industries! Whether you lift those wages through (a) area-wide unions, (b) industry-specific wage standards set by wage boards, (c) a much higher minimum wage, or (d) some mix of all three, that is how we can magically make the income distribution much more like that of the 1970s. So hats off to Pittsburgh City Council!
Laboring industriously for labor and industry … Check out what KRC labor economist Mark Price had to say in the Pittsburgh Tribune-Review about Pennsylvania’s September job numbers and the budget impasse. On Friday, Mark was a presenter at the Labor and Industry Workshop at the Pennsylvania State Conference 81st Annual Convention of the NAACP in Washington, Pa.
Last week was National Save for Retirement Week … But beware all the hype about how great 401(k)-style plan accounts are for public workers. Steve Herzenberg has written extensively on the subject as Pennsylvania grapples with its own pension crisis. This is a good time to review his Top 10 Facts on SB 1, which would remove future state and school employees from Pennsylvania’s existing defined benefit pension plans and establish for them individual 401(k)-style, defined contribution savings accounts and a supplementary “cash balance” account.
Looking at economic policies that raise wages … The latest bite-sized installment of The State of Working Pennsylvania 2015 landed on the Third and State blog last Thursday. It’s Part One of two parts on what economic policies will raise wages.
Doggedly working … And for a short time on Friday PBPC transformed into the Pennsylvania Beagle and Policy Center when Steve’s dog, and our mascot, Ellie “Policy Wonk” Mae paid us a brief visit just to make sure we were still hard at work on a sunny Friday afternoon. Fortunately, she isn’t a “ruff” taskmaster.
Ellie Mae checking to see if PBPC staff are keeping food in their desks
Pre-K Expansion Would Enhance Educational Opportunity and Economic Growth and Pay for Itself Many Times Over
14,000 more children statewide would gain entrance into pre-kindergarten
Reporter Erica Erwin noted in The Erie Times-News earlier this year, “The push to make quality pre-kindergarten available to all 3- and 4-year-old children in Pennsylvania has the support of someone familiar with a different kind of battle. Senior Judge Michael Dunlavey, a retired two-star general in the U.S. Army Reserve, said access to early childhood education is connected to the nation's ability to protect and defend itself.” Dunlavey spoke to a gathering of legislators and local business and community leaders in support of Pre-K for PA, a statewide, non-partisan campaign for high-quality pre-kindergarten access for all 3- and 4-year-old children.
Retired military officers and business leaders may not spring to mind as your typical advocates for early-childhood education. But over the past decade, they have become some of the strongest advocates for pre-kindergarten programs geared toward children at risk of later failing school.
These civic champions know that programs like Pennsylvania's Pre-K Counts help children stay in school and avoid a life of crime. The payoff is down the line when more young adults join the workforce – or are eligible for military service. Rigorous long-term studies estimate that high quality pre-kindergarten provides a significant return on investment – every dollar spent returns as much as $17 in reduced crime, education and welfare savings as well as higher earnings and increased taxes paid in adulthood.
Gov. Tom Wolf took office this year with a commitment to making publicly funded, high-quality pre-K available to every 3- and 4-year-old child in Pennsylvania. Legislative support for early learning investments also is strong. The bipartisan, bicameral Early Childhood Education Caucus is the largest issue-focused caucus in the General Assembly.
Even so, Pennsylvania’s progress in making smart investments in early childhood education has been too slow. Only one in six three- and four-year-olds has access to high-quality, publicly funded pre-K programs.
Gov. Wolf proposes to increase early childhood education funding by $120 million (88%), with $100 million going to Pre-K Counts. This increase would result in the enrollment of 14,000 more children in programs that help them develop academically and socially prior to entering the regular classroom. (To see an estimate of new pre-K slots in your state House or Senate district, click here.)
The Republican budget would increase Pre-K Counts funding by $25 million, adding only about 3,500 slots (including those created by funding for the Head Start Supplemental Assistance Program. These 3,500 children would account for only about 1 percent of Pennsylvania’s 3- and 4-year olds. To compare the number of high quality, early-childhood slots added in your state House or Senate district under the Republican and Wolf budgets, click here). Slow expansion of quality pre-school hurts children and employers and reduces economic growth in a job market finally generating more opportunities for parents.
First grade teacher Lindsay Kiefer said, “Kindergarten teachers have a really tough time if students come in at varying levels of prior experience. Kids that come in with a pre-K experience are ready to take the next step. I had a little girl in my class who had the privilege of a great pre-kindergarten experience. She started the year with all of the basic skills and more importantly the confidence to tackle problems. With that great head start going into second grade, she was ready to dive in head first to grade-level topics and skills."
Newspaper editors, civic leaders and Pennsylvanians from across the state have spoken out in favor of investment in quality pre-school programs.
For example, Snyder County District Attorney Michael Piecuch noted: “In Snyder County, 86 percent of 3- and 4-year-olds lack access to high-quality pre-K each year. In Northumberland County, 80 percent lack this access and in Union County, it’s 78 percent … I hope that the final negotiated budget will include more funding to expand access to high-quality pre-K, not only for its economic benefits but as part of a proven crime prevention strategy.”
Parent Jennifer Cebrick wrote, “Lawmakers and Gov. Wolf need to work together to create a budget that expands access to high-quality pre-K as much as possible so more children can benefit the way my kids did.”
Kiwanis leader Laura Katrenicz noted that, “Pre-K programs benefit not only the child, but also the community. High-quality pre-K reduces crime, supports economic development and growth, and saves taxpayer money that can be reallocated to other community needs.”
As the editorial board of the Pittsburgh Post-Gazette warned: “Only 31 percent of 4-year-olds [in Pennsylvania] attend preschool, most through public initiatives such as Head Start … What they don’t spend on early education today could be wasted on prisons tomorrow.”
For more ways the budget matters visit Why the Budget Matters: Let Me County the Ways.
Below is the fourth in a series of excerpts from The State of Working Pennsylvania 2015 report, released by Keystone Research Center on Sept. 2, which will appear on Third and State in the coming weeks:Raise the Minimum Wage
The most direct route to raising wages for low-wage workers is to raise the minimum wage. Federally the campaign to raise the minimum wage remains blocked by a Republican majority in the U.S. House and Senate.
Similarly here in Pennsylvania the leadership of the Republican majorities in both chambers of the General Assembly have yet to permit a vote on any one of several bills that would raise the minimum wage from $7.25 to between $8.75 and $15 per hour. So far this year only the Senate’s Labor and Industry Committee chaired by Lisa Baker (R) and minority chair Christine Tartaglione (D) has even held a hearing on the minimum wage. None of the minimum-wage bills have been voted out of that committee and considered by the full Senate.
Although Gov. Wolf included his support for a higher minimum wage in his initial state budget proposal he has not made passage of a higher minimum wage a condition of his final compromise with the Republican leadership over the state budget.
Continuing delay of a state minimum-wage increase is costly to millions of Pennsylvania workers. Raising the minimum wage to $10.10 would raise the wages of 1.2 million workers and boost total wages by $1.8 billion.
To examine the number of workers in your county that would see their wages rise if the minimum wage were raised go to httpgoo.gl/ORvzvJ
Currently 29 states including the District of Columbia have a minimum wage higher than $7.25. Across the country in the last year, there has been a growing movement to increase the minimum wage. For example, the City of Los Angeles adopting a proposal to raise the minimum wage to $15 per hour and most recently the state of New York adopted a minimum wage for fast food workers of $15 per hour.
There is broad public support in Pennsylvania for a higher minimum wage. Moreover, Republicans have introduced their own legislation to raise the minimum wage. All that remains is for leadership in both chambers to allow a vote.Overtime Pay
Most blue-collar workers are entitled to be paid 1.5 times their regular pay rate for each hour of work per week beyond 40 hours. Overtime eligibility for workers paid a salary depends on how much they are paid and the nature of their job duties. Currently, salaried employees earning less than $455 per week – $23,660 per year – are automatically eligible for overtime. The U.S. Labor Department has proposed a rule change which would raise this threshold to $933 per week. This change would benefit 493,000 or 24.6% of salaried workers in Pennsylvania.
The U.S. Labor Department published this rule change as a Notice of Proposed Rulemaking in the Federal Register on July 6 of this year and the period for public comment closes on Sept 4th. Once public comments have been collected and analyzed by the U.S. Labor Department the agency will decided whether to modify the current rule as proposed a process that will take another 6 to 10 months.
Like a minimum-wage increase, increasing the number of workers with a right to overtime will help boost the pay of thousands of Pennsylvania workers. Unlike a minimum-wage increase the salaried workers that would benefit have earnings that place them in the broad middle of the wage distribution, between $12 and $24 dollars an hour.Earned Leave
Another important dimension of pay is the right to earned leave when a worker gets sick. Access to earned sick leave is much less common among low-wage workers. The Institute for Women’s Policy Research estimates that in total 1.8 million Pennsylvania workers do not have access to paid leave.
Since that estimate was released, the City of Philadelphia enacted an ordinance entitling workers in the city of Philadelphia to one hour of earned leave for every 40 hours of work. Pittsburgh followed up this year with its own ordinance entitling worker in the city to one hour of paid leave for every 35 hours of work.
At the state level, Sen. Vincent Hughes (D) has introduced legislation that would entitle all workers in Pennsylvania to accrue one hour of paid leave for every 30 hours of work. A statewide ordinance that establishes a minimum amount of earned leave would benefit well over a million workers (i.e., 1.8 million minus workers already covered by the Pittsburgh and Philadelphia ordinances).
 Two thirds of registered Pennsylvania voters support raising the minimum wage to $10.10 per hour. http://www.fandm.edu/uploads/files/943825657393157904-franklin-marshall-...
 Salaried workers earning more than $455 a week are exempted from the right to receive overtime if their job duties fall into one of three categories: professionals, administrators, and executives.
 This is the 40th percentile of earnings for full-time salaried workers in 2013 (expressed in 2014 dollars).
 Lawrence Mishel and Ross Eisenbrey 2015. “Raising the overtime threshold would directly benefit 13.5 million workers: Here is a breakdown of who they are”, Economic Policy Institute http://www.epi.org/publication/breakdownovertimebeneficiaries/
 The workers affected have earnings that place them somewhere between the 30th and 70th percentiles of wage earners.
 See for example page 3 of Institute for Women’s Policy Research. 2015 “Access to Paid Sick time in Pittsburgh, Pennsylvania”
 Institute for Women’s Policy Research. 2010. “Fact Sheet: Access to Paid Sick Days in the States, 2010” http://www.iwpr.org/publications/pubs/access-to-paid-sick-days-in-the-st...
 With the maximum accrual set to 40 hours for workers employed in establishments with 10 or more employees, workers in firms with less than 10 workers are entitled to up to 40 hours of unpaid leave.
 With the maximum accrual set to 40 hours for workers employed in establishments with 15 or more employees, workers in firms with less than 15 workers are entitled to up to 24 hours of paid leave starting after May 13 2016.
 A most under SB 221 a worker could accrue 56 hours or seven days of paid sick leave in a year.
Gov. Wolf would restore $10 million in funds for industry partnerships.
The Republican budget would provide only $1.67 million for industry partnerships, undercutting their ability to help employers struggling to find skilled workers.
When manufacturing companies seek to expand in the Philadelphia region, they increasingly look to partner with the Southeast Regional Workforce Development Partnership. That partnership brings together 50 companies in manufacturing, rotorcraft and related industries. Since 2008, the partnership has conducted more than 2,300 classes to train employees at member companies in manufacturing jobs where wages typically range from $19 to $30 per hour.
In the Lehigh Valley, the Diversified Manufacturing Industry Partnership brings together more than 130 manufacturing and supply chain companies that are global and household names: Just Born, Kraft Foods, Nestle Waters North America, Samuel Adams PA Brewery, Lutron Electronics, Crayola … and many, many more. Lehigh Valley Chamber representative Michelle Griffin Young says that “we have seen firsthand how this public-private partnership increases the Lehigh Valley's competitiveness.” Partnership coordinators note that “we’ve had employers come for eight years and never ask for a dollar; the draw is the peer-to-peer learning and the networking.”
In industry after industry and region after region, Pennsylvania has been THE national leader in implementing a simple, low-cost, high return-on-investment idea. You bring employers with overlapping skill needs together. Those businesses and state government share the cost of designing and delivering training that makes workers more productive and companies more profitable and competitive. Then you stand back and watch the magic happen – there’s just no better learning environment than bringing together managers that wrestle each day with the same organizational and human resource challenges. Over the past decade, more than 100,000 participants have been trained with industry partnership funds.
Former Gov. Schweiker helped catalyze Pennsylvania’s national-model workforce strategy, and the legislature expanded it under former Gov. Rendell. Former Gov. Corbett signed a bill putting the program into statute in 2011 – with unanimous support from both chambers of the General Assembly. How often does that happen?
Business organizations have championed industry partnerships, including regional associations of manufacturers and technology businesses, local chambers and statewide associations of Pennsylvania’s biggest businesses. This year, more than 400 workforce stakeholders, most of them business people from every part of the state, signed a statement endorsing Gov. Wolf’s proposed $10 million increase in funding for industry partnerships.
Funding cuts of more than 90 percent that began under former Gov. Rendell now threaten the resilience and positive potential of this program. Pennsylvania’s ability to turn its industry partnership infrastructure into a source of enduring competitive advantage hangs in the balance. Gov. Wolf’s budget would seize this opportunity, investing a little to get back a lot. The Republican budget would not.
(Members of the media who want contact information for industry partnerships in their part of the state or business people active in those partnerships, should contact Ellen Lyon at 717-255-7156 or email@example.com.)
So Wednesday’s roll call in the Pennsylvania House on Gov. Wolf’s revenue package didn’t go quite as we’d hoped – a 73-127 vote almost entirely along partisan lines. PBPC issued a statement afterwards calling rejection of revenue for education and a responsible budget a mistake.
The good news is it’s clear the governor hasn’t given up hope as the budget impasse passed its 100th day this week, and both sides prepared to return to the negotiating table. "We put together a real big group of votes to do something really tough," Gov. Wolf said. "The fact that 73 were willing to do that... I think sends a strong signal of support for addressing the real problems that Pennsylvania faces." And he vowed, "I'm not taking anything off the table."
PBPC and allies held a press conference in the Capitol Rotunda Wednesday morning before the vote to urge legislators to support reinvesting in education and restarting Pennsylvania’s economy. We want to thank all of you who personally reached out to your legislator. You might want to contact them again and either thank or chastise them for their vote, whichever is appropriate. To find out how your rep voted click here.
PBPC and allies held a press conference Wednesday morning in the Capitol before the vote
Watch WFMZ-TV 69's coverage of the event -- rally footage begins at 00:48
Comparing the revenue-raising re-investors with the tax-and-funding cutters … PBPC released a timely brief, Pennsylvania at Another Crossroads, on Tuesday that examined the experience of five states, including Pennsylvania, since 2011. Three of the states – Kansas, Wisconsin and Pennsylvania – cut taxes and education funding. The other states – California and Minnesota – raised taxes to improve their fiscal health and reinvest in education. The states that invested have since experienced much higher job and revenue growth – revenues that increased partly because of faster economic growth. In addition, state funding per pupil in the investment states, compared to the tax-cut states, has increased by as much as 41 percent, enough to make a profound difference in the quality of education. Faced with this compelling evidence, Pennsylvania’s legislative majority now wants to double down on what didn’t work. Go figure.
Ways the Budget Matters on the Way Back . . . We temporarily suspended our daily “Ways the Budget Matters” emails this past week as everyone’s attention turned to the House vote. But we resumed with Way No. 13 (Intellectual Disability Community Base Funds & Emergency Services Waiting List) yesterday and Way No. 14 (Vocational Training) today. Special thanks to teams of advocates from The Arc of Pennsylvania for hand-delivering 160+ copies of Way No. 13 to legislators’ Capitol offices yesterday. We’ll take another brief hiatus on Monday for the holiday and then resume again with Way No. 15 on Tuesday.
Alexa Brill, communications associate at The Arc of Pennsylvania,
delivered copies of PBPC's Way #13 the Budget Matters at the Capitol yesterday
Making the case for public pensions "where the wind comes sweepin’ down the plain" . . . KRC economist and Executive Director Steve Herzenberg flew to Oklahoma City to lead off a Wednesday hearing before a state Senate Study on Pension Sustainability. Before speaking, Steve traded Harrisburg stories with former Senators and Washington Nationals pitcher Chris Schroder, a Sooner native now working for the Oklahoma County Commissioners. Oklahoma is a ruby red state with a 39-8 Republican Senate, a 70-31 Republican House and a GOP governor. Yet all but one of the state’s six main pension plans remain a traditional pension plan. Turns out that many conservative Republicans recognize that public safety personnel and teachers deserve a decent pension at the end of their careers. And heck, why not save money by giving it to them through a defined-benefit plan. Perhaps Schroder could bring a delegation of them on an educational mission to his old stomping grounds in Harrisburg.
Over the past few years, many other states, similar to Pennsylvania in 2011 and again today, have faced critical choices about whether to raise state revenues, hold firm to “no new taxes” or even cut taxes further. Today we released the results of our examination of the experience of four states, as well as Pennsylvania, and the different roads they each took.
Two of the states – California and Minnesota – raised taxes to improve their fiscal health and to reinvest in education. The other two states – Kansas and Wisconsin – followed the same path as Pennsylvania under Gov. Corbett, cutting taxes to varying degrees and cutting education spending.
The results of this policy experiment are in:
- The two states that raised revenues have enjoyed percent job growth since 2010-11 that is one-and-a-half to three times larger than the three states – including Pennsylvania – that cut taxes.
- The states that increased taxes have seen revenue growth – both as a result of the tax changes and as a result of stronger recoveries – of 15 percent and 19 percent. Kansas has seen its revenues fall 5 percent and Pennsylvania and Wisconsin have seen revenue growth of 5 percent and 7 percent, respectively, a meager enough recovery from the Great Recession to make fiscal stability and reinvestment in vital programs difficult.
- State school funding per pupil has increased 15-21 percent in Minnesota and California while plunging 9-14 percent in the three tax-cut states. That means the ratio of funding per pupil in Minnesota and California compared to any of the other three states has shifted 26-41 percent in just four years.
It seems likely that this 26-41 percent shift in relative funding per student means that fifth-graders today in California and Minnesota have a substantially better chance in life than fifth-graders in Pennsylvania, Wisconsin, and Kansas.
As we look back five years from now on Wednesday's vote, what will be the story that we have to tell about the choice lawmakers in Harrisburg made on that fateful Oct. 7, 2015? Will it be remembered as the day that legislators in both parties began governing based on the lessons of Pennsylvania’s own – and other states’ – past experience, the day they made common cause to raise revenues essential to giving all kids a fair chance – and to fixing the state’s finances? Or will this Wednesday be remembered as a day when Pennsylvania lawmakers again rejected common sense, dooming our children to more years of disinvestment in their schools?
Read the full analysis here
Gov. Corbett’s first budget, passed by the Republican-controlled General Assembly, cut funding for education by nearly $860 million. Two-thirds of these cuts – $570 million – remain in place, an average of $330 per student. In school districts attended by a quarter of students in the state – districts with lower incomes and higher poverty than in the rest of the state – the cuts remaining in place are much higher, $832 per student.
Each year, surveys conducted by the Pennsylvania Association of School Administrators and the Pennsylvania Association of School Business Officials document the impact of inadequate school funding. In 2013-14, for example, 47 percent of school districts expected to increase class sizes; 37 percent planned to reduce elective courses in subjects such as foreign languages, arts, music, physical education and, in some cases, math, science, English and social studies; and 23 percent planned to delay the purchase of textbooks.
The 2012-13 budget made deep cuts to seven county human service programs when the county human services block grant pilot program was implemented. These cuts impacted mental health services, services for those with intellectual disabilities, county child welfare, homeless assistance, and the Human Services Development Fund. These programs provide a bridge to a better life for hundreds of thousands of Pennsylvanians.
So it was heartening to hear strong Republican support for education funding and funding for services to the elderly, disabled, abused and addicted during the debate over the stopgap budget proposal.
House Majority Leader Dave Reed of Indiana County said, “Schools without textbooks and crisis centers with limited hours or closures are not ‘temporary inconveniences’ and are unacceptable.”
Speaker of the House Mike Turzai said, “That children sit in Pennsylvania schools today without new textbooks and victims of violence may not be able to get necessary support is unacceptable.”
Rep. Thomas Quigley of Montgomery County said, “I refuse to sit on the sidelines and watch as so many people needlessly do without necessary resources and services.”
Rep. Jack Rader of Monroe County said, “Human service programs are critical and valuable to those most in need, and ensuring they are adequately funded should be our priority.”
Rep. Doyle Heffley of Carbon County said, “At the end of the day, we need to be responsible and fund these vital services."
On Wednesday, these legislators will have the opportunity to turn their words into action. They can vote to finally enact a severance tax on the gas drillers to fund our schools and to increase the personal income tax to provide funding for the human services they so clearly recognize are needed for healthy communities.
Or they can demonstrate that they did not mean what they said by voting down the revenue necessary to honor their words.
They cannot have it both ways.
Pennsylvania does not bring in enough revenue through current taxes and other fees to support budgets that adequately fund education and programs that improve the lives of thousands of our fellow Pennsylvanians. That is the reality that is captured by the term “structural deficit.” It is the situation that has led Wall Street to downgrade the commonwealth’s credit-worthiness five times in the last three years.
Gov. Wolf has proposed a package of solutions to remedy this unsustainable situation – increases in the personal income tax, the sales tax and a new tax on gas drilling. The new revenue would increase funding for public education and programs that help the elderly, disabled, abused and addicted. In addition, some of the new revenue would be returned to taxpayers in the form of reduced property taxes. And some of it would fill the holes in the state budget so that there is enough money to pay the bills – this year and in future years.
News reports indicate that there will be a vote in the state House next Wednesday on a modified version of the governor’s revenue proposals.
There is a lot more at stake in that vote than “just” this year’s budget. If the House rejects the governor’s plan to put an adequate yearly stream of revenue into state coffers, the budget next year will fall off the cliff. We know this because the Republican budget vetoed by Gov. Wolf – which had one-time but no recurring revenue sources – would have ballooned the state’s structural deficit to $3.1 billion in 2016-17. As a result, in a mere nine months, on July 1, 2016, the budget will simply collapse and to balance the state books will require radical action, such as $1 billion cuts EACH to education funding and the Department of Human Services.
The last $1 billion cut to public education funding put 33,000 teachers, guidance counselors, school nurses, coaches and other education workers on the street. Schools shed music, art, language and sports programs. The last cuts to human service programs left people who desperately need treatment for mental illness or addiction or a safe place to escape an abuser on waiting lists or unable to get any help altogether. The drag of these devastating cuts slowed down the private-sector economy and made Pennsylvania 48th in job growth under Gov. Corbett.
That’s what is at stake in next Wednesday’s vote. Either House members vote for revenues that will begin to restore educational opportunity – and pay the bills – or they allow the state budget to collapse on the backs of school children and our most vulnerable citizens.
Gov. Wolf made a hard and painful decision when he vetoed the stopgap funding for schools and human service agencies. It is obvious to everyone that non-profits that rely on state and federal funding to serve the needs of the elderly, the disabled, the hungry and the abused cannot operate on thin air and good intentions. They need to pay staff, buy supplies and keep the lights on just like any other business. If they can’t pay their staff or their bills, they have no choice but to cut back services or close down altogether.
That’s the cold reality that Gov. Wolf had to face when he decided to veto the legislation that would have opened the funding spigots just enough to pay the bills through October. Hard as that decision must have been, the governor did the right thing to force the Republicans in the General Assembly to negotiate a responsible budget.
Last November voters, dismayed by the damage to public schools brought about by the disastrous budget cuts of the last four years, elected Tom Wolf. It turned out that Pennsylvanians apparently believe that every child deserves a decent education in safe, well-staffed public schools. When former Gov. Corbett cut $1 billion from public school funding 33,000 teachers, school nurses, guidance counselors and other education staff lost their jobs. School districts cut sports, music, art, language and other programs even as local school boards raised property taxes to keep the doors open.
Tom Wolf told the voters he would find the money to restore public school funding by enacting a severance tax on gas drillers, as every other major gas-producing state does. He also promised to disrupt Harrisburg’s politics-as-usual culture by refusing to play the cynical partisan games the voters are so tired of.
Unfortunately, he ran into intransigent opposition to increasing taxes on gas drillers. So far, legislative leaders will not discuss a severance tax, even if it means thousands of four- and five-year-olds will not get life-altering early childhood education, and their older siblings will find themselves in crowded classrooms within schools where programs such as music, art and foreign languages have been treated as disposable luxuries.
The new governor is getting a lesson in Washington, DC-style politics-as-usual. But Gov. Wolf is not a career politician. He has clearly articulated the values that underlie his budget – responsibility, equity, fairness, and transparency – values that the voters endorsed when they sent him to Harrisburg.
The governor was right to veto the stopgap budget to uphold the values that he and Pennsylvania voters share. That’s not politics-as-usual. It’s political courage.
The Pennsylvania Budget and Policy Center launched Why the Budget Matters – Let’s Count the Ways to compare specific funding choices and priorities in the budget Gov. Wolf unveiled in March and the Republican budget (HB 1192). This series lets Pennsylvanians count for themselves the many ways that a sustainable investment budget will positively impact real people.
Way No. 2: Higher Education Funding
Wolf Budget Would Help Stem Higher Education Tuition Hikes
Republican budget would continue PA’s underinvestment in higher education, sabotaging opportunity, long-run growth and quality of life
For decades, Pennsylvania has chronically underfunded higher education, crushing students with heavy debt burdens and undermining their future opportunities as well as the state’s economic growth and quality of life. The Republican budget would continue this destructive pattern because it would increase state funding for two- and four-year colleges by only $36 million, barely compensating for inflation and making up little to no ground after the deep funding cuts in 2011. This increase is only about two-thirds as big as the increase in funding the Republican budget proposes for the legislature ($51.5 million).
In comparison, the Wolf budget would increase funding for higher education nearly four times as much ($141 million). It would reverse, over a two-year period, the deep 2011 funding cuts. This increase would give the state a chance to develop a long-term bipartisan plan to reinvest in higher education, including in underserved rural regions.
For a comparison by legislative district of the impact of the two budgets click here.
Across the nation, student loan debt is now a staggering $1.2 billion. In Pennsylvania, college graduates’ debt averages $32,528, third-highest among the 50 states. “Pennsylvania stands out, in that public college graduates have about the same amount of debt, and are more likely to have debt, than private college graduates,” says Debbie Cochran, research director of the Project on Student Debt. Pennsylvania also ranks low among states – 41st – for the share of the adult population with at least some college education.
As PBPC reported last October, high student debt and low educational attainment reflect paltry state funding: Pennsylvania ranks 48th among states for higher education funding per capita. Pennsylvania has long ranked low on this measure yet still implemented a 12% reduction since 2010, the fifth-largest cut nationally.
Given strong evidence that higher education fuels opportunity for individuals and growth for regions, Pennsylvania’s underinvestment is short-sighted. College graduates typically earn more and have much lower levels of unemployment.
Growing student debt exacerbates the extent to which underinvestment in higher education undercuts growth, opportunity and quality of life. Mitch Daniels, president of Purdue University and the former Republican governor of Indiana, notes that student debt is “postponing marriage, childbearing and home purchases, and ... limiting the percentage of young people who start a business or try to do something entrepreneurial. … Every citizen and taxpayer should be concerned about it."
Researchers at the Federal Reserve Bank of Philadelphia and Penn State recently documented that more student debt led to fewer small businesses being formed. High student debt also undermines quality of life and the social fabric by leading more people to choose jobs that pay the bills instead of the pursuit of mission-driven careers.
Pennsylvania’s public four-year State System of Higher Education (SSHE) colleges pledged to freeze tuition for 2015-16 if the legislature enacted the funding increase in the Wolf budget proposal. When that budget was not passed, however, SSHE colleges increased tuition by 3.5%, a $240 increase for about 100,000 students.