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Low-Income, Minority Children Held Back By Racial, Socioeconomic School Segregation

January 30, 2015 - 5:24pm

A report by UCLA’s Civil Rights Project shows that racial and class segregation continued to worsen in Pennsylvania’spublic schools, with low-income minority children bearing the brunt of double whammy segregation.  And as minority and low-income children make up an increasing share of public school children in the state, this new era of double segregation is threatening our future.

For more than 50 years now, we have known that the two most powerful predictors of student achievement are, first, the socioeconomic status of a child’s family and, second, the socioeconomic status of a child’s classmates.  Over the past two decades, Pennsylvania has seen the number of intensely segregated schools—those in which more than 90% of students are minorities—more than double.  Furthermore, there is near-total overlap between race and class as 85% of children attending these schools are also low-income.  This one-two punch knocks out low-income, minority children academically.

On average, poor whites perform better on tests than poor blacks. Here’s a key reason why: Blacks are much more likely to live in concentrated poverty, areas with poverty rates of 20% or higherWhile only 12% of poor white children live in concentrated poverty, nearly half of poor black children do.

Across Pennsylvania, including Philadelphia and Pittsburgh, we see a disturbing rise in racial and class isolation even as the student population becomes more diverse.  Statewide, from 1989-2010, the share of Latino students tripled, while the share of Asian students doubled.  Despite Pennsylvania school children being 72% white in 2010-11:

  • ·      The typical black student attended a school that was 30% white.
  • ·      The average Latino student attended a school that was 39% white.
  • ·      The typical white student attended a school that was 85% white.

Looking at Philadelphia Metro schools, the report showed that in 2010-11:

  •         45% of schools are majority minority, meaning minorities make up at least half of student enrollment.
  • ·         31% are intensely segregated.
  • ·         17% are totally segregated as 99%-100% of the students are minorities.

·         When looking at racial and class segregation, we see just how isolated these children are, as shown by the graph below.

Figure 1: Civil Rights Project Analysis


Unlike Philadelphia Metro with its 53% white student population, Pittsburgh Metro schools are predominately white at 82%. Yet there were also similar signs of deep segregation:

  • ·         The typical black student attended a school with 43% white students
  •       The typical white student attended a school with 89% white students.
  •        The racial segregation was made worse by 88% of low-income students attending intensely    segregated schools.         

It doesn’t have to be this way.  Low-income children succeed in closing the achievement gap when allowed to attend low-poverty schools.  Nationally, low-income fourth-graders in low-poverty schools end up pulling ahead of low-income students trapped in high-poverty schools by two years in math.  We can break down racial and class segregation.  Montgomery County, Maryland, is already showing the way by requiring developers to include subsidized housing in their developments to remove pools of poverty.  Other counties and cities are looking at how to break down segregation too.  It’s critical that we join this fight.  If we don’t, we’ll be denying our state an essential source of human capital, and our children will be living the old lie of separate but equal.


Just the Facts: Sen. Wagner's Proposal Is Not a Real Increase in Minimum Wage

January 30, 2015 - 3:32pm

There are two fresh proposals circulating in the Pennsylvania State Senate this week which seek to raise the minimum wage in Pennsylvania. The first is Democratic Senator Tina Tartaglione’s Senate Bill 195, which would raise the minimum wage to $10.10 an hour by July 2016. 

The second proposal, from Republican Senator Scott Wagner, doesn’t have an implementation date but would raise the minimum wage for workers 18 and older to $8.75 over three years – by 2017 if the Senator’s bill went into effect this July. Senator Wagner also includes a proposed “training wage” that remains at $7.25 per hour for those under 18.

Senator Wagner’s recognition of the need to raise the minimum wage is very welcome. One question that has been raised about his proposal, however, is whether it is big enough.

One way to evaluate the adequacy of these minimum wage proposals is to look at their impact on the inflation-adjusted – or “real” – value of the minimum wage. The chart below contains such an analysis, using – for future years – projections of inflation published by the Congressional Budget Office (CBO).

Here is what the chart reveals:  For adults 18 and over, Senator Wagner’s proposal barely restores the purchasing power lost since the last Pennsylvania minimum wage increase in 2007, which was to $7.15 per hour. Within months after enactment, Senator Wagner’s proposal would lead to a Pennsylvania minimum wage below its inflation-adjusted value in July 2007.

Senator Wagner’s proposal would leave the U.S. (and Pennsylvania) minimum wage roughly 13% below its peak level reached in 1968.

The average minimum wage counting those receiving the $7.25 training wage would be lower still.

Senator Tartaglione’s proposal, on the other hand, restores all the purchasing power the minimum wage has lost since 1968.

The fact that the real minimum wage in Pennsylvania remains today close to its level in the late 1990s is part of why the bottom fifth of Pennsylvania workers have seen their wages decline by roughly 6% since 2001. In the current recovery – since 2009 – the bottom fifth of the Pennsylvania workforce has seen their wages fall by 4% to 6%. This is one reason why the top 1% have taken ALL of the increase in income in Pennsylvania in this recovery.

Summing up, the numbers show that Senator Wagner’s proposal would not be a real (or “inflation-adjusted”) minimum wage increase. It would not be sufficient to reverse the long-term stagnation of earnings for a million-plus workers at the low end of the Pennsylvania job market. It would not create more economy-boosting jobs or put enough additional money in the pockets of low-income families to begin to generate more robust job growth in Pennsylvania.




Education Fact: Public School Enrollment Falls Across PA

January 30, 2015 - 11:43am

Across the state, public school enrollment continued its long, downward trend with a 2.9% decrease since 2007-08.  This isn’t surprising when you realize that Pennsylvania has been a low population-growth state for 30-40 years.  Of all the states that had any positive population growth in 2013, Pennsylvania came in dead last with the addition of only 9,326 people.[1]  We also have one of the oldest populations. The 2010 Census showed that among states Pennsylvania had the 4th highest percentage of its population over age 65 (15.4%), and the 3rd highest percentage of its population over age 85 (2.5%).[2]


On the regional level, we see some differences in how this low growth has affected public school enrollment.  While all regions have experienced a net loss of students since 2007-08, some have fared worse than others:

  • Regions 4 and 8, in the northeastern and north central parts of the state, had the highest losses, 7% and 8.5%, respectively.
  • Only one region had losses of less than 2%: Region 1, in the southeastern corner, saw losses of 1.1%.


At the county level you see that:

he   The bottom five counties for student enrollment all had losses greater than 15%:

  • Cameron: 23.4%
  • Forest: 15.7%
  • Monroe: 15.6%
  • Pike: 16.2%
  • Susquehanna: 15.1%

·         Only three counties gained students:

  • Chester (6.5%)
  • Montgomery (1.0%)
  • York (0.5%) 

The losses across the state in public school enrollment reflect the reality that fewer people are moving to or remaining in Pennsylvania, and the population is aging.  Because people generally move to where the jobs are, and we need a younger and educated work force to provide for our elderly, strengthening our economy must be a top priority.  Providing the funding necessary to ensure a quality public education will help our state develop, attract and retain talent.  Restoring funding to our public schools will lay the cornerstone of a strong economy with ripple effects far beyond the classroom.

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





Pa. Fails Low-Income Preschoolers

January 16, 2015 - 5:15pm


 A national education report card gave Pennsylvania a grade of D+ and a ranking of 41st among states for early childhood education. 

Every year the Education Week Research Center releases its report card on K-12 school performances for each state. This year it added preschool data to its report.  Pennsylvania earned such a poor grade due to its low performance in providing equal access to quality preschool education for all children, regardless of family income.

The report looked at how family income affected preschool enrollment and found that in Pennsylvania:

  • ·  Two-thirds of children in households with annual incomes above $100,000 attend preschool.
  • ·  The same is true of only one in five children in households with annual incomes below $20,000. 

Education advocates blame state government policies that do not make it a priority to provide equal opportunities for low-income children to attend preschool.  While other states have increased their preschool education funding, Pennsylvania’s preschool funding has remained flat, causing its youngest students to fall behind.

Pennsylvania does have a state program to deal with this educational inequality, Pre-K Counts, but advocates say it’s overwhelmed by demand.  You can see that in Southeastern Pennsylvania.  Excluding Philadelphia, there are about 8,000 young children who qualify for Pre-K Counts, but only a few hundred participate on a first-come, first-serve basis.  Without public assistance, low-income families simply cannot afford private preschool, which can cost about $20,000 a year for two children.

To ensure low-income children receive a quality preschool education, advocates say it would cost hundreds of millions of dollars—but that’s still a bargain.  They point to research showing that for every $1 invested in quality preschool education for all, the state will receive at least $7 in return in reduced spending on public assistance and special education, and increased tax revenues thanks to higher earnings.

Whether Pennsylvania earns a better grade next year will be determined by what Gov.-Elect Wolf and the legislature do about preschool education funding.

Pa.'s Tax System Grows More Unfair: Low-Income Pay Price

January 16, 2015 - 11:38am

 Pennsylvania often falls near the bottom of state rankings – for instance, 47th in job growth and 48th in funding for public higher education per capita. So, at first blush, it might seem like good news this week that the commonwealth came in sixth place for something. Unfortunately, it’s in a ranking of how unfair states’ tax systems are.

The fifth edition of the biennial study Who Pays? A Distributional Analysis of the Tax Systems in All Fifty States put Pennsylvania on the “Terrible 10” list of states with the most regressive taxes for the fifth time, dropping it from eighth worst two years ago to sixth worst this year. Also in the top 10 are Washington State, Florida, Texas, South Dakota, Illinois, Tennessee, Arizona, Kansas and Indiana.

These states take a much larger tax bite from lower-income residents than they do from wealthy residents. In Pennsylvania’s case, the lowest-income earners pay three times more, and middle-income earners pay two times more, in taxes as a share of their income than the wealthiest earners. So the poorest fifth of Pennsylvania families, earning less than $20,000 annually, pay 12 percent of their income in state and local taxes, while the top 1 percent, with annual incomes averaging $1.24 million, pay 4.2 percent of their income. And that’s down from 4.4 percent two years ago.

 In comparison, middle-income taxpayers pay 10.3 percent of their income in taxes, up from 10.1 percent in 2013. Meanwhile, the top 1 percent’s income grew four times as much as the middle group’s income during this same period, 16.4 percent vs. 4.1 percent in non-inflation adjusted dollars. So the wealthiest Pennsylvanians are making more money and paying a smaller share of it in taxes than they did two years ago.

If this system seems unfair and illogical to you, that’s because it is. Ken Regal, executive director of Just Harvest, sums up the problem this way: “As one of Pennsylvania’s largest providers of free tax filing assistance to low-income households, we’ve seen first-hand for years the effect of regressive tax rates on the daily lives of the working poor. Levying high taxes on low wages is like trying to squeeze blood from a stone; it leaves state education and social programs underfunded and pushes more Pennsylvanians into poverty.”

This imbalance in “who pays” happens mostly because we have a flat income tax. In addition, we offer no income tax refund to low-income earners to offset the more regressive sales, excise and property taxes they also pay. Plus, previous legislatures failed to adopt combined reporting requirements to permanently close corporate tax loopholes.

So what’s the solution? PBPC Director Sharon Ward says “it’s time to halt Pennsylvania’s steady march to the top of the most regressive tax system list. A more progressive approach to income taxes, a refundable earned income tax credit for low-income families, and a commitment to close corporate tax loopholes once and for all will finally make our tax system fair for working- and middle-class Pennsylvanians.”

Governor-elect Wolf, who takes office in a few days, has made tax fairness a central goal of his administration. He has proposed revamping the tax system to give lower- and middle-income taxpayers a break and to require wealthy taxpayers to pay their fair share. Let’s hope the new legislature works with the new governor to make these needed reforms a reality.

NY Gov Proposes Property Tax Circuit Breaker. Will PA Follow?

January 15, 2015 - 11:17am

This week, New York Governor Andrew Cuomo proposed a $1.66 billion property tax "circuit breaker" as part of his 2015-16 budget. The New York plan would provide a state tax credit to offset local property taxes when they exceed 6% of a family's income. Homeowners with annual family income up to $250,000 and renters with annual family income up to $150,000 would be eligible for the credit. Once phased in over four years, the plan is projected to give 1.3 million New York households tax credits averaging $950.

While property taxes are higher in New York than in Pennsylvania, this is the sort of program PA could use to expand property tax relief.

Pennsylvania has had a similar program for years -- the Property Tax/Rent Rebate program (PTRR) -- but it is much more limited. PTRR provides checks to seniors with annual incomes up to $35,000 if they are homeowners and up to $15,000 if they are renters. The latest figures from the Department of Revenue indicate that more than 560,000 rebates have been issued at a cost of $270 million.

Adopting a New York-style program in Pennsylvania would expand property tax relief in several important ways. First, it would provide credits to working-aged families that currently are shut out of the PTRR program. Second, it would greatly expand the reach of the program. New York's income eligibility levels are almost 10x as high as PTRR's. Finally, it would focus on those taxpayers most in need of property tax relief. By setting a target percentage after which the credit kicks in, the program would give those families paying the highest rates relative to their income the most relief.

As we identified in our 2014 report, property taxes are high in certain places and for certain types of households in Pennsylvania. Offering targeted, means-tested relief here, as has been proposed in New York, would provide assistance to those families with the most need. Such a program could be part of an overall plan to correct our state's chronic financial problems and achieve much-needed tax fairness. 



For Pa. School Districts, the Rich Get Richer & the Poor Get Poorer

January 9, 2015 - 5:50pm

According to an Associated Press analysis, the gap between the haves and have-nots in public schools grew much worse during Gov. Corbett’s time in office.  In the past four years, as Corbett cut state aid to schools, the gap more than doubled.  The current gap is so severe that, according to one study, Pennsylvania is among the worst states in the country at providing equal funding.

AP found at least a $1B gap between the haves and the have-nots.  Here is a breakdown of that huge gap: Districts in the top half of the income bracket spent, on average, about $1,800 more per student in 2014-15, a $1,060 increase since 2010-11.

·         Districts in the top 20% of the income bracket will spend about $4,000 more per student in 2014-15 than the poorest districts, a $2,300 increase since 2010-11.

How did Pennsylvania get so bad?  Critics believe that the school funding system is to blame, specifically the relatively small share of state aid given to school districts even prior to the budget cuts.  This shifts the funding burden to local taxes to pick up the slack.  While wealthier districts were able to do so, poor school districts were left financially stranded.  Without additional help and facing long-delayed pension payments, poor districts were forced to cut classroom spending. 



Gov. Corbett failed to win re-election from voters in November, many of whom listed education as their top priority.  Acting Secretary of Education Carolyn Dumaresq says he didn’t deserve the blame for the vast inequalities among school districts, which she sees as caused by the choices of individual districts.  But in a school funding system that shifts the burden from state aid to local property taxes, poor districts have fewer choices.

This growing problem should be a top priority for the incoming legislature and governor.  Already, Governor-Elect Wolf has pledged to significantly increase the state share of school funding.  However, considering that it could take an additional $1.5 billion just to bring the bottom half of our schools up to level funding with the rest, it will be a difficult challenge for Pennsylvania.









Crush Unions and You Crush the Growth in Earnings for Workers

January 7, 2015 - 1:26pm

New analysis by David Cooper and Lawrence Mishel explores differences by state in wage trends and changes in union membership since 1979.

In that time the percentage of workers covered by a union contract fell 21 percentage points (from 35.6% in 1979 to 14.6% in 2012) in Pennsylvania.

Wages (real hourly compensation (wages plus benefits) to be precise) also grew the least in Pennsylvania and other states that experienced the largest declines in workers covered by a union contract. As the chart below shows, each 10-percentage-point fall in the share of workers covered by a union contract is associated with 12.6 percent lower hourly compensation growth since 1979.

This suggests one interpretation of why wealthy right-wing donors (many from outisde Pennsylvania) have funded the Commonwealth Foundation's legislative agenda, which includes so-called "right to work" laws and  “paycheck protection" proposals: Making it harder for workers to exercise the fundamental freedoms to associate, organize and bargain colletively ensures that a smaller and smaller share of productivity growth shows up in the paychecks of workers.  

Of course, as many enlightened employers know, suppressing workers' rights isn't in the self-interest of business in the long run -- because it tends to reduce the rate of innovation and productivity growth. So, in fighting to tilt the playing field even more towards employers, right-wing donors are cutting off their nose to spite their face.

Reflections on the One-Day Work Week

January 5, 2015 - 1:18pm

At the Keystone Research Center, we closed the office last week except for Friday, Jan. 2, giving our team an extra three days of well-deserved vacation along with the New Year's Day holiday. So we had a one-day work week.

Truth be told, I still came to the office on Monday and then worked at home much of the rest of the week.

Still, the quality of life that resulted from only "having" to come to the office on Friday provided a nice hint of what a world of shorter work time might feel like.

It's been some 50 years since America had a high-profile debate about shorter work time. That debate was prompted by 1960s' fears that widespread automation might leave vulnerable Americans without jobs. A recent radio show on "Visions of America Yet to Come" had a clip from the "Jetsons" cartoon of this period (go 41-43 minutes into this link), with George Jetson saying, "These three work days a week are killing me." In the cartoon, George the breadwinner (OK, so the show was socially backward) had a nine-hour week, three days for three hours each.

In the last year or so, a new debate about work time has been emerging in the United States, prompted in part by new warnings from researchers about widespread automation, including robotization. A recent paper by Dean Baker of the Center for Economic and Policy Research, summarized in pages five to 10 of this report to the Open Society Foundations' Future of Work initiative, looks forward 30 years to consider what a new wave of productivity-enhancing technology might mean for work hours and living standards under alternative assumptions about income distribution.

Assuming 2% productivity growth, Baker finds that 30 years from now a representative “bottom 90 percenter” (person in the bottom 90 percent of the income distribution) could enjoy a 50% increase in living standards while reducing working time by more than a third. This reduction would allow a four-day work week and 14 weeks of vacation. Or it would allow a six-hour work day, compatible with caring for school-age children, plus nearly 10 weeks of vacation. Higher rates of productivity growth shared broadly could yield even higher living standards and even shorter work time.

To be sure, when you run the numbers, it will likely take more than 30 years to get to George Jetson's nine-hour work week or to last week's eight-hour one-day work week. But the point of Baker's hypotheticals is that, if we make policy choices that share the benefits widely, a new wave of automation could make possible another advance in middle-class quality of life, analogous to when the 40-hour work week was first won.

Maybe we can take the first steps towards reduced work time in Pennsylvania by providing all workers with paid sick days.

Some futurists have wondered what people would do with the time on their hands given a much shorter work week. I'm not worried. As well as donating some time to my job when the spirit moves me, I might spend more time watching cricket. Today and tomorrow, for example, days four and five of the New Zealand-Sri Lanka test match on ESPN3 (5 pm to 11:30 pm) promise to be doozies.

A New Year's Resolution That Lawmakers Should Find Easy to Keep: Increase the PA Minimum Wage in 2015

December 31, 2014 - 1:46pm

As we close in on the end of 2014, here's our suggestion for a New Year's Resolution PA lawmakers should make along with losing weight and spending more time with the family: increasing the Pennsylvania minimum wage.

As detailed in our end-of year press release, 20 states and the District of Columbia will raise their minimum wages tomorrow but Pennsylvania will not.

We documented in the 2014 State of Working Pennsylvania (SWPA), there is a desperate need for a minimum-wage increase. As of 2013, nearly one in five Pennsylvania workers earned less than the $10.10 per hour level to which Senator Tina Tartaglione and Gov.-elect Tom Wolf have proposed increasing Pennsylvania's minimum wage (an increase of $2.85 above the current $7.25 Pennsylvania and federal minimum wage).

Our annual SWPA report also showed that the bottom two tenths of PA wage earners now have an inflation-adjusted wage about 6% below the level of 2001 -- that's a decrease of roughly 60 cents per hour or about $1,250 per year if someone works full-time, year-round. That's real money for families struggling to pay the monthly bills.

An increase in the minimum wage to $10.10 per hour wouild lift wages for about a million Pennsylvania workers, the vast majority of them adults 20 and over, two-thirds of them women, and with much of the benefits going to low-income families. (For details, see our Minimum Wage Fact Sheet.)

This added pay would represent a modest, but significant, boost to the spending power of lower-wage workers, growing the local Pennsylvania businesses where these workers shop. The benefits to business explain why more than 1,000 small business owners nationally, and the CEOs of large brands such as Costco, Eileen Fisher, Stonyfield and Dansko, have signed the Business for a Fair Minimum Wage Statement to raise the federal minimum wage to at least $10.10. These business leaders agree that raising the minimum wage will boost consumer spending, decrease employee turnover, increase productivity and customer satisfaction, and strengthen the economy. Increasing the minimum wage will also reduce taxpayer costs because inadequate wages increase dependence on the social safety net.

The most recent poll of small business owners with employees shows that 61% support raising the federal minimum wage to $10.10 and adjusting it annually to keep pace with the cost of living

Two thirds of Pennsylvanians also support a minimum wage increase, including moderates and Republicans.

In fact, even 62% of millionaires support a minimum-wage increase according to a new CNBC poll.

Bottom line, increasing the minimum wage should be a New Year's resolution that PA lawmakers not only find easy to make -- but easy to keep.

OK, now it's off to the gym with Sara to get a head start on those first two resolutions.

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.