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Top Universities Sued Because...401(k)-Style Retirement Plans Provide Less Bang for the Retirement Buck

August 12, 2016 - 8:23am

Earlier this week, MIT, Yale, and New York University were sued because their 401(k)-style retirement plans have had excessive fees and provided employees with a bewildering array of often-low-quality investment options. The Universities, in effect, allowed the transfer of a significant share of their employees' potential retirement benefits to Wall Street.

This should be a "teachable moment," an opportunity for the robotic chorus of 401(k)-style champions — including in Pennsylvania's legislature, editorial boards, and other news media — to register that typical 401(k)-style retirements are a lousy deal for workers.

The suit is on solid factual ground because an overwhelming amount of evidence exists that 401(k)-style plans have high fees and lower returns than pooled defined benefit plans. According to the National Institute on Retirement Security, achieving the same retirement benefit with a 401(k)-style plan can take nearly twice as much in contributions.

It is particularly telling that the suit comes from these elite Universities. If the faculty of MIT, Yale and NYU aren't well equipped to make good retirement choices when given too large a set of options, who is?

The high fees and low returns of 401(k)-style retirement plans mean that switching all or part of Pennsylvania's retirement plans to 401(k)-style savings will INCREASE, not decrease, taxpayer costs for public-employee compensation. For example, if contributions to retirement remain unchanged, but some of the money goes into 401(k)-style savings, future employees' retirement benefits will fall. With a lower retirement benefit, schools and the state would likely have to increase salaries to keep the overall compensation package competitive. (As documented by Rutgers economist Jeffrey Keefe, Pennsylvania public employees earn slightly less in total compensation than comparable private employees. Cutting retirement benefits by transferring more money to Wall Street would increase the amount by which public-employee compensation trails private.)

The most common argument for switching Pennsylvania's public employees partly or completely to 401(k)-style savings is to avoid the risk of future underperforming financial markets leading to additional unfunded pensions liabilities and costs to taxpayers. But because of the inefficiency of 401(k)-style plans, the proposed switch guarantees future higher costs to avoid the risk of higher future costs. That course of action doesn't make a lot of sense.

As we have repeatedly pointed out (including at the end of this brief), other states offer a variety of sound approaches to reducing the risk of future unfunded liabilities without abandoning the efficiency of pooled defined benefit pensions for the inefficiency of 401(k)-style savings. But getting to a negotiation of such a pension solution would require the proponents of 401(k)-style plans to be teachable.

A New Approach to Accountability: What PA Schools Can Learn From the U.S. Women's Gymnastics Team

August 10, 2016 - 2:36pm

Americans today are celebrating the astounding success of the U.S. women's gymnastics team at the summer olympics in Rio. The team won the gold medal last night, finishing nearly twice as far ahead of silver medalist Russia as Russia finished ahead of eighth place Brazil.

Believe it or not, the success of the U.S. women's gymnastics team contains within it a powerful suggestion for improving Pennsylvania's schools — a new approach to "accountability" that could result in gold-medal performances by more and more Pennsylvania children over time.

What was the secret of the U.S. gymnasts' success? Coach Martha Karolyi put in place a "semi-centralized" system. Gymnasts around the country still had their personal coaches, as they always have. But gymnasts and coaches also attended monthly, weeklong national team training camps at the Karolyis' ranch north of Houston. According to Aly Raisman, the team captain, “It’s where we are evaluated and compared to each other, in a healthy way. We wouldn’t be here without that system.”

"At camp, gymnasts stay in cabins together, eat meals together, hang out together. Coaches also socialize, which they rarely did in the past, and share training tips,"

“Once you install a system and unite the gymnasts and the coaches, you will be improving every year, and we have improved every year under this,” Karolyi said. “I think at this moment, that’s why we can say that United States dominates the world of gymnastics.” Even with intense competition among individual athletes and coaches, the focus has been on the success of the overall enterprise — winning gold medals for the team.

Compare Karolyis system with "performance (mis) management" and accountability in Pennsylvania and most U.S. schools. For  teachers (i.e., coaches) accountability has focused on the individual. Many public-school critics champion merit pay for individual teachers and pay-for-(individual) performance based on how much children improve while in an individual teacher's classroom. These suggestions carry with them the idea that teaching is a highly individualistic enterprise, the implicit prescription being that we should drive out the slow or lazy teachers by paying them less than others.

As in gymnastics — as demonstrated by the success of the U.S. women's team — overall excellence and improvement in schools is an inherently collaborative enterprise. It is a collaborative enterprise that most "pay-for-performance" approaches sabotage, at the cost of children's intellectual and social development.

Imagine a different approach to accountability and performance management in which all Pennsylvania educators are encouraged to seek a "gold medal" for all our children. To be sure, we don't have one single indicator of success quite so simple on which to focus as the "team gold" in women's gymnastics. But we can certainly imagine a dashboard of indicators that is relatively simple, such as third-grade reading levels, graduation rates, Pennsylvania rankings on the most respected multi-state assessment (the National Assessment of Educational Progress [NAEP]), and the share of children in buildings with high levels of children in poverty (a predictor of low performance, so this share needs to come down).

To support collaboration to improve success, the focus of attention should be on the school, the school district, the county, and the multi-county region. The focus should also be on narrowing gaps in performance, just as George W. Bush's Texas education reforms evaluated achievement by race and ethnicity as one step in narrowing achievement gaps.

Providing some discretionary resources at the county and multi-county regional level could enable a team effort to lift up lower-performing schools. (Remember Karolyi's approach required the funds to support get-togethers at the national level every year.) Such pots might provide supplemental salaries for the best teachers and mentors to focus on the places of greatest need — a form of "merit pay" that reinforces, rather than undermines, the team effort. There could also be funds available for multi-district (did someone say public school choice?) or regional efforts to ensure no school building has high proportions of children in poverty. Focusing on lifting up lower-performing schools also makes sense. Pennsylvania does well overall on NAEP tests, but could do better if we clased the gap in funding between the state's most affluent and lowest-income school districts. After all, Pennsylvania has the widest gap in funding between the wealthiest and poorest school districts.

A team effort to make all Pennsylvania schools the best that they can be would give Pennsylvania teachers a new lease on life and more of a sense of mission after two decades of public attacks. Now they would be valued members of a "semi-centralized" effort to apply well-known global best practices for schools. (Such best practices have just been documented yet again in this bipartisan study released by the National Conference of State Legislators).

The Pennsylvania legislature could also consider linking increases in total school funding to statewide school performance -- pledging, say, the additional $3.2 billion in state funding needed to fully fund Pennsylvania's new fair-funding formula as long as that is matched by movement in the state's "dashboard" indicators. How about we aim to have the nation's highest-performing and best-funded schools just 10 years from now?

Now that would be a real gold medal for Pennsylvania's children and families, and for the businesses who employ our public school graduates.

Pennsylvania Job Growth in June

July 22, 2016 - 3:46pm

This morning the Pennsylvania Department of Labor and Industry reported that nonfarm payrolls grew in June by 20,000 and the unemployment rate edged up slightly to 5.6%. A companion survey of Pennsylvania households registered a decline in resident employment in June of 7,000 — the third straight month of declines in this data.

Looking beyond the monthly volatility, nonfarm payrolls have increased by 4,200 jobs a month since December 2015 and resident employment over the same period by 5,900 a month. Both figures are slightly above the average over the whole expansion and signal that, despite the monthly volatility, employment overall is growing.

Although job growth remains above average for the recovery, the unemployment rate has climbed by nine-tenths of a percentage point since December 2015.  The rise in the unemployment rate is driven by a rapid rise in the Pennsylvania labor force, which is up 100,000 since December 2015. With resident employment rising 35,500 over this period, the remainder of the labor force increase has registered as a rise in the number of people looking for work.

 

To see the labor force rising isn’t a surprise.  Looking at the percentage of the population with a job in Pennsylvania (figure below) it is clear that there are far fewer people working today (roughly 153,000) than before the recession began. This explains why there remains room for continued growth in the Pennsylvania labor force. 

That said, the size of the surge in the labor force in the last six months is a surprise and something to keep an eye on in the months ahead. As long as the growth in the labor force slows from its current eye-popping pace and employment growth continues, I wouldn’t expect a lot more growth in the unemployment rate.

A Missed Recurring Revenue Opportunity on the Budget – Raising the Minimum Wage

July 22, 2016 - 12:47pm

This is the third in a series of blog posts assessing the 2016-17 budget and the budget negotiation process from PBPC and its allies.

A consensus exists that raising Pennsylvania’s minimum wage to $10.10 per hour would generate at least tens of millions of dollars for the state budget and possibly as much as $225 million (more on the different estimates at the end of this blog). If the minimum wage were indexed for inflation, as legislative salaries already are, this would be recurring revenue. The annual boost to the minimum wage would continue to put more money in the pocket of working families each year, driving up their buying power, growing the economy, and increasing state tax collections.

And yet, despite Gov. Wolf’s strong support for the increase, legislative leaders did not agree to raising the minimum wage in this year’s budget. A missed opportunity, plain and simple.

Since the new budget only partly solves the state’s structural deficit, however, the state will need to find new sources of revenue again next year. That means lawmakers get a chance to rectify their mistake as part of producing a genuinely balanced budget next year. Before November, members of the PA House and the 25 Senators up for re-election should be encouraged to state their support for raising the minimum wage to help the budget and the middle class

By now, most Pennsylvanians have heard the basic facts on a minimum wage increase to $10.10. It would benefit nearly 1.3 million Pennsylvanians (that’s according to KRC, but also according to the Independent Fiscal Office, p. 22 counting workers just above $10.10 that would likely get a bump). 

Nearly nine out of every 10 of the workers who benefit would be over 20, nearly six in 10  female. The increase would disproportionately benefit both minorities and rural Pennsylvanians: nearly three quarters of workers who would benefit are white. Sixty percent of the total increase in income would go to families earning $60,000 or less and 84% to families with incomes less than $100,000. 

In a growing number of cities and states, the minimum wage already exceeds $10.10 per hour. Elected officials in those places got the message that it’s time to raise America’s pay. It’s past time for Pennsylvania lawmakers to do the same. 

(With regard to the benefits to the state budget from hiking the minimum wage, some of these benefits result from increases in state sales and income tax collections because incomes and buying power rise. The Wolf Administration puts the increase in tax collections at $60 million [Governor’s Executive Budget, p. A1-12], the IFO $10 million to $40 million, and we estimate them at $121.5 million. The IFO estimates are lower partly because they leave out the boost to the wages and incomes – and hence to state sales and income taxes paid – of workers earning $10.10 to $11.15. We think that’s too cautious. In addition, our estimate is the only one that takes into consideration the savings for the state because some Medicaid recipients’ incomes would rise into the range covered by “Medicaid expansion,” within which the federal government pays more of the cost. We estimate this as another $104 million for a total of $225 million.)

A Missed Recurring Revenue Opportunity on the Budget – Raising the Minimum Wage

July 22, 2016 - 12:47pm

This is the second in a series of blog posts assessing the 2016-17 budget and the budget negotiation process from PBPC and its allies.

A consensus exists that raising Pennsylvania’s minimum wage to $10.10 per hour would generate at least tens of millions of dollars for the state budget and possibly as much as $225 million (more on the different estimates at the end of this blog). If the minimum wage were indexed for inflation, as legislative salaries already are, this would be recurring revenue. The annual boost to the minimum wage would continue to put a more money in the pocket of working families each year, driving up their buying power, growing the economy, and increasing state tax collections.

And yet, despite Gov. Wolf’s strong support for the increase, legislative leaders did not agree to raising the minimum wage in this year’s budget. A missed opportunity, plain and simple.

Since the new budget only partly solves the state’s structural deficit, however, the state will need to find new sources of revenue again next year. That means lawmakers get a chance to rectify their mistake as part of producing a genuinely balanced budget next year. Before November, members of the PA House and the 25 Senators up for re-election should be encouraged to state their support for raising the minimum wage to help the budget and the middle class

By now, most Pennsylvanians have heard the basic facts on a minimum wage increase to $10.10. It would benefit nearly 1.3 million Pennsylvanians (that’s according to KRC, but also according to the Independent Fiscal Office, p. 22 counting workers just above $10.10 that would likely get a bump). 

Nearly nine out of every 10 of the workers who benefit would be over 20, nearly six in 10  female. The increase would disproportionately benefit both minorities and rural Pennsylvanians: nearly three quarters of workers who would benefit are white. Sixty percent of the total increase in income would go to families earning $60,000 or less and 84% to families with incomes less than $100,000. 

In a growing number of cities and states, the minimum wage already exceeds $10.10 per hour. Elected officials in those places got the message that it’s time to raise America’s pay. It’s past time for Pennsylvania lawmakers to do the same. 

Raising the Minimum Wage won’t just help workers who receive it — every dollar in new wages will be spent generating economic activity that benefits every business and every community in the state. 

And at a time when legislators are struggling to find new revenues to balance the budget, that new economic activity will also generate new tax revenues for the state of $121.5 million. (Counties and municipalities that tax sales and wages will also see new revenues.) In addition, raising the minimum wage will generate another $104 million in savings in reduced Medicaid spending as thousands of Pennsylvanians move from traditional Medicaid, for which the state carries half the cost, to expanded Medicaid, 90% of which is paid for by the federal government.

This total budgetary savings is $225.5 million. And unlike so much else that the General Assembly has considered, the savings are real.  

(With regard to the benefits to the state budget from hiking the minimum wage, some of these benefits result from increases in state sales and income tax collections because incomes and buying power rise. The Wolf Administration puts the increase in tax collections at $60 million [Governor’s Executive Budget, p. A1-12], the IFO $10 million to $40 million, and we estimate them at $121.5 million. The IFO estimates are lower partly because they leave out the boost to the wages and incomes – and hence to state sales and income taxes paid – of workers earning $10.10 to $11.15. We think that’s too cautious. In addition, our estimate is the only one that takes into consideration the savings for the state because some Medicaid recipients’ incomes would rise into the range covered by “Medicaid expansion,” within which the federal government pays more of the cost. We estimate this as another $104 million for a total of $225 million.)

Your Activism (and c3 Dollars) at Work

July 18, 2016 - 8:32pm

This is the second in a series of blog posts assessing the 2016-17 budget and the budget negotiation process from PBPC and its allies.

Politics takes patience. Victories take time. And that goes for small victories as well as big ones.

While the 2016-17 Pennsylvania budget leaves much to be desired, it does close about half of the structural deficit this year with recurring revenues; that is, revenue that the state will receive year after year. And that revenue mostly comes from a series of good proposals that we at the Pennsylvania Budget and Policy Center have championed over the years.

One is the provision to close the sales tax vendor loophole. Stores, including big box retailers like Wal-Mart and Home Depot, have up until now been allowed to keep a portion of the sales tax revenue they receive from customers. That provision in the tax law in Pennsylvania and other states once had a genuine purpose. Retailers used to have to collect and add up sales tax receipts by hand and then write checks to the state. But technology has long made this discount obsolete. Pennsylvania was one of the last states to eliminate it.

PBPC first called for eliminating the sales tax vendor discount in June 2010. We came back to it again in a review of taxes April 2012; in a paper that called it antiquated in June 2012 and our Better Choices Coalition endorsed it as one of 19 ideas to make the tax system fairer the idea in February 2015.The revenue bill enacted this week caps the discount at $25 per month and brings in $55.5 million for the state.

PBPC first started talking about the bank shares tax when it was broadened and the rate lowered in the tax code passed in July 2013. We came back to it in July and September of the next year when, instead of being revenue neutral as expected, this change cost the state tens of millions of dollars.Fixing the tax was another one of the ideas put forward by the Better Choices Coalition in February 2015. The increase in the rate of the Bank Shares Tax in the legislation passed last week will bring the state $23.5 million this year.

For many years, PBPC has called for broadening the sales tax in a way that makes it more fair. We pointed to the unfairness of taxing DVDs and CDs purchased in stores but not music and videos downloaded from the internet as early as 2007 and came back to it in this piece in 2009. Those who download movies and videos tend to have higher incomes than those who purchase them in stores. So, by closing this loophole, the General Assembly not only brings $46.9 million in for the current fiscal year, but it also takes a small step toward making our sales tax a bit more fair.

We have long called for increasing and extending tobacco taxes. While they are regressive taxes that do fall more heavily on those with low- rather than high-incomes, they also reduce tobacco consumption and thus provide important health benefits to those with low incomes. We called for increasing the cigarette tax in 2009 and again, for the City of Philadelphia, in 2014. We have encouraged the General Assembly to tax smokeless tobacco, cigars, and e-cigarettes many times, including2009, 2010 (twice), and 2015. The increase in the Cigarette tax enacted by the General Assembly last week will bring in $431.1 million this fiscal year, while the addition of taxes on e-cigarettes, smokeless tobacco, and roll-your-own cigarettes will bring in in $64.6 million.

(So far, the General Assembly has not seen fit to tax cigars. Some legislators have defended this exclusion on the grounds that adding such a tax will lead Pennsylvania cigar wholesalers to move to other states. This rationale is pretty hard to credit since only two states, Florida and New Hampshire, do not tax cigars.)

All told, the recurring revenues included in the 2016-17 budget that come from ideas we have identified and championed comes to $611 million.

This list above includes what PBPC under the direction of Sharon Ward, my predecessor as director, and Michael Wood, who did the policy analysis, wrote on these tax proposals. They also testified and lobbied about them, and encouraged other to do so.

It took time to bring these proposals to fruition. It took a unique configuration of political forces; in particular, it took a serious structural deficit combined with the reluctance on the part of legislators to increase broad-based taxes in an election year, to get them passed by the General Assembly.

But it also took someone identifying the ideas, doing the research to show that they are plausible, and bringing them to the attention of editorial writers, reporters, and politicians, and then doing it again and again. That’s what we at PBPC—with the help of our coalition partners in the labor, human service, education and advocacy communities and citizens across the state—do year in and year out. That’s what our funders who provide the dollars mentioned in the title of this piece enable us to do.

We are going to be putting out a series of blog posts in the next two weeks about the missed opportunities in this year’s budget—missed opportunities to better fund education, human services and environmental protection on the one hand, and to raise taxes in a way that makes our horribly unfair tax system a little better, on the other. Keeping in mind our small victories will, I hope, help us all stay determined to do the long hard work that will lead to bigger victories in the future.

Victories

July 15, 2016 - 12:22pm

This is the first in a series of blog posts assessing the 2016-17 budget and the budget negotiation process from PBPC and its allies.

It’s hard to be a progressive in Pennsylvania. We think of ourselves as a modern, Northeastern state on a par with Massachusetts and New York, Connecticut and New Jersey. But when it comes to state politics, we find ourselves looking with envy at those states with their progressive taxes and higher (and much more equal) spending on education and human services than here at home. And it’s gotten worse in recent years as right-wing extremists have taken hold of one of our political parties.

This year is no different. I’ve already complained about an appropriations bill that does not invest enough in education and human services and the environment and a tax bill that relies too much on one-shot rather than recurring revenue and makes some dubious assumptions about how much the state will raise from liquor and gaming licenses

There were, however, some victories, big and small, this year to which I want to point out. And it’s important to recognize them because what brought us those victories this year will, if we ramp up our efforts, bring us bigger ones in future years.

The big victory this year is what didn’t happen—we didn’t have to make drastic cuts to close the structural deficit, which started the year at $1.8 billion. Governor Wolf made raising the revenue to close that deficit central to his political task this year. And, while closing a deficit may not be the most attractive political goal, we at PBPC and the Pennsylvania’s Choice campaign followed his lead simply because he was right. We and the Governor feared that without new revenue, devastating cuts in education and human services would be necessary.

Recovery in our economy and the new tax revenue it created reduced the deficit to about $1.3 billion. And while we closed about half of it with one-time revenues and borrowing from other funds, the General Assembly did raise recurring revenue through a variety of taxes PBPC has championed over the year to close the other half—and to fund new investment in K-12 and higher education. 

Avoiding a disaster isn’t a huge progressive achievement. But it is a real one. And at a time when extremists, especially in the House Republican caucus, seem determined to hold the government hostage to attain their goals, we should be glad to have secured it. 

So let’s take a moment to thank those who made that victory possible, starting with Governor Wolf, who set the course and held to it under a great deal of pressure. Legislative leaders in both houses negotiated long and hard to find a revenue package that could both close the deficit and secure a majority in both houses. 

And human service providers, labor unions and activists in the Pennsylvania’s Choice Campaign and CLEAR Coalition kept insisting that cuts in education and human services were not an acceptable way to close the deficit. We asked the General Assembly, over and over, to #namethecuts. The Republican extremists couldn’t and wouldn’t do so. And that meant that they had to come up with the revenues. 

They didn’t come up with enough. We are still not investing enough on education, human services, and the environment. We’re going to have to keep fighting for more revenue and more investment next year. So let’s keep in mind what we didn’t win this year, but also take some inspiration from what we did win, too.

We have a budget for 2016-2017. What does it mean for schools?

July 15, 2016 - 12:02pm

The 2016-2017 PA budget is now complete. Yesterday a bipartisan group of lawmakers from the PA House and Senate approved a revenue package and Governor Wolf signed it into law. But what does it mean for our schools?

This budget provides an increase of $200 million for K-12 Basic Education Funding, $20 million for special education, and $30 million for early childhood education programs.

Although this budget fails to provide the increase in K-12 funding than Governor Wolf requested and it falls far short of what Pennsylvania’s public school children need, it is important to recognize how important our advocacy efforts have been this year.

Legislative leaders listened to the concerns of parents and community members (your phone calls and emails!) and decided not to push through charter school legislation as part of the budget process.  It is critical that the PA legislature gets charter school reform right, and we applaud legislators for understanding that it was simply impossible to get charter school reform legislation right in the compressed time frame of budget negotiations. We expect them to revisit the issue in the fall.

In addition, lawmakers faced a $1.3 billion deficit in the 2016-2017 budget and did not make cuts in school funding, but instead raised revenues in order to provide schools with a modest increase. Although the revenue package lawmakers passed did not solve Pennsylvania’s long-term fiscal problems, as the Pennsylvania Budget and Policy Center notes, it was not easy for many lawmakers to vote to raise revenues.

Schools desperately need the $200 million increase in state funding this year, however, state-mandated cost increases for school districts for 2016-2017 far exceed $200 million. As a result, even with a $200 million increase, the 2016-2017 budget continues to load the cost of educating children in public schools onto the shoulders of local communities, pushing school districts farther and farther away from adequate levels of funding that are necessary to meet students’ needs.

An annual survey of school districts that was recently completed by the PA Association of School Administrators (PASA) and the PA Association of School Business Officials (PASBO) found that even with a $200 million increase in Basic Education Funding, 85% of school districts surveyed will raise local taxes, 50% will cut programming, 46% will reduce staff and 34% expect class sizes to increase. Many school districts will struggle simply to survive this year.

Looking forward, we need to demand better from our state government. Lawmakers must support new, recurring and sustainable sources of revenue to make the critical investments in school funding that Pennsylvanians want and that our children need.  Our children cannot afford another Band-Aid budget to put on schools that are hemorrhaging learning opportunities throughout the Commonwealth.

In the absence of political will in Harrisburg to adequately fund our schools, we were encouraged to learn that thePennsylvania Supreme Court will hear oral argument for Pennsylvania’s education funding lawsuit on September 13, 2016, in its Philadelphia courtroom. If the legislature refuses fulfill its constitutional obligation to provide for a thorough and efficient system of public education to meet the needs of the Commonwealth, then it is time for the courts to intervene. We will be sending out an email soon with more information about the school funding lawsuit.

If you are curious, here is the list of what is in the revenue package just enacted by state lawmakers and Governor Wolf:

  • CIGARETTES: Increases the per-pack excise tax on cigarettes by $1 to $2.60 to generate $430 million.
  • LOAN: Borrows $200 million from a surplus in a state medical malpractice insurance fund, to be paid by over a five-year period starting July 1, 2018.
  • WINE AND LIQUOR: Projects a month-old law liberalizing the sale of wine and liquor will generate $149 million.
  • TAX DELINQUENTS: Allows tax delinquents to pay back taxes without penalty to generate $100 million.
  • CASINO GAMBLING EXPANSION: Assumes $100 million from gambling legislation that is on hold until the fall, primarily from licensing fees for legalizing internet gambling.
  • PHILADELPHIA CASINO: Books $75 million in expected license fees from Philadelphia casino that was awarded a license in 2014.
  • SALES TAX DISCOUNT: Lowers the amount of sales tax collections that retailers may keep to generate $55 million.
  • TOBACCO: Imposes a 55-cents-per-ounce tax on roll-your-own tobacco and smokeless tobacco to generate about $50 million.
  • DIGITAL DOWNLOADS: Eliminates an exemption from the state’s 6 percent sales tax on the download of digital videos, books, games, music and applications to generate $47 million.
  • BANKS: Raises rate of shares tax on bank and trust companies to 0.95 percent, from 0.89 percent, to generate $23 million.
  • TABLE GAMES: Imposes a new 2 percent tax on casinos’ gross revenue from table games to generate $17 million.
  • INCOME TAX: Extends 3.07 percent state income tax to Pennsylvania Lottery winnings to generate $16 million.
  • ELECTRONIC CIGARETTES: Imposes a 40 percent tax on the wholesale price of electronic cigarettes, including vapor producing devices and liquid cartridges, to generate $13 million.

This is a guest post from Susan Spicka, Director of Education Voters of Pennsylvania. It was originally posted at their blog here.  

On the General Assembly Passing a Revenue Bill (HB 1198)

July 13, 2016 - 4:36pm

Pennsylvania Budget and Policy Center Director Marc Stier made the following statement on the General Assembly Passing a Revenue Bill (HB 1198):

"The General Assembly finally acted today to meet its constitutional responsibility by voting to raise the $1.3 billion in revenues needed to fund the recently passed appropriations law. But while the revenue package may technically balance the budget for 2016-17, in three respects it does not solve the long term fiscal problems of Pennsylvania. 

"First, too much revenue ($709 million) comes from one-time rather than recurring sources ($627 million). As a result, the state’s long term structural deficit has not been closed. Next year will bring another debate about how to fund the government over the long term. 

"This problem is exacerbated by a second one: the revenue package relies too heavily on dubious sources. Expected revenues from liquor privatization, internet gaming, the license fee for a second Philadelphia casino, and the tax amnesty program are all questionable. 

"Third, while new taxes on cigarettes and other tobacco products will discourage unhealthy practices, these taxes, as well as the tax amnesty program, exacerbate rather than reduce the inequity of our tax system. Pennsylvania will remain one of the “terrible ten” states that tax low income households at far higher rates than high income ones.

"The revenue package includes one important reform. The General Assembly has recognized that the sales tax vendor discount, which reimburses businesses for the cost of collecting the sales tax, has been made obsolete by computer technology. It has finally been capped.

"The entire package is inferior to the revenue proposals put forward by Governor Wolf in March. And noticeably missing from the package are smart ideas for raising revenues by instituting a severance tax on natural gas; reforming the corporate income tax to fully close the Delaware loophole; and taxing income from wealth at a slightly higher level than income from wages and interest. All of these proposals would generate recurring revenue while placing most of the burden on those who can most easily afford it."

Bad ideas under any label

July 11, 2016 - 3:14pm
We are hearing that some of the provisions in a House school code bill, HB530, are being included in a Senate-supported school code bill, HB1606. It is unclear which parts of HB530 will be included in HB1606, but we will be monitoring to determine if any of the very problematic provisions of the former bill wind up in the latter.   School districts in Pennsylvania contain a mix of traditional public schools and charter schools. Some local school districts want to add charters schools. Many do not. All of them should be empowered to evaluate the best way to educate students in their respective districts.    Unfortunately, provisions included in HB530 which might be amended into HB1606 will remove much of the supervisory and decision-making authority from local school districts in every corner of the state. Since charter schools receive funding from local school districts, the creation of new seats in charter schools without school board supervision and control diminishes the ability of school districts to establish and manage their budgets. That could result in the underfunding of traditional schools or significant local tax increases all over the state.   The Pennsylvania Budget and Policy Center opposes any school code that permits charter schools to enroll new students, add grade levels, or recruit students from outside the school district without the approval of the local school board.   We oppose any school code that creates an evaluation system for charter schools that makes it more difficult to compare charter school success with that of traditional schools or that undermines the ability of local school boards to hold charters schools accountable for financial management and educational success.   And we oppose the creation of a charter school advisory commission that does not represent all the stakeholders in the education of our children.   What we do welcome are provisions in the school code that finally create fair rules for reimbursing cyber charters and holding them accountable for what they do with public funds.   Here is our previous statement on the problems with HB530 as originally drafted.

Statement on Gov. Wolf's Decision to Allow the Appropriations Bill to Become Law

July 11, 2016 - 11:55am

Pennsylvania Budget and Policy Center Director Marc Stier made the following statement on Governor Wolf's decision to allow the appropriations bill to become law:

"Governor Wolf announced that he will let the general fund appropriation bill passed last week become law without his signature if the General Assembly does not pass a revenue bill that fully funds the spending it calls for.

"This is an unfortunate, yet reasonable, response to a difficult situation created by the unwillingness of extremists among House Republicans to agree to a revenue package.

"Given the ongoing difficulty of securing an agreement with the extremist faction of the Republican party to fund the government at an adequate level, it was reasonable for Governor Wolf not to risk vetoing the appropriation bill in whole or part. There is no guarantee that spending he vetoed in an already-austere budget would be passed again by the House of Representatives. 

"Yet Governor Wolf’s decision creates some risks as well. If the General Assembly fails to pass sufficient revenues soon, two consequences are likely:

"First, the state will face another credit downgrade, which will increase borrowing costs at both the state and local levels.

"Second, Governor Wolf will have to freeze spending so that the state budget remains balanced.

"The second result is problematic, and not just because a spending freeze is likely to fall on education and human services. Leaving decisions about where to suspend spending to the Governor violates the spirit of our constitution, in which spending decisions are made by the General Assembly together with the governor.

"Effective constitutional government in Pennsylvania, like anywhere else, depends on political opponents reaching agreement based on compromise and comity.

"For the second year in a row, extremists among House Republicans have been unwilling to compromise with the Governor or Democrats and Senate Republicans. And that is why we find ourselves in this difficult situation today."

Boom and Bust: Lessons From the Gas Patch

July 6, 2016 - 1:38pm

In 2011, the town of Towanda in Bradford County was at the epicenter of the shale drilling boom. A visitor would have been hard-pressed to find a vacant hotel room. There were waiting lines at the restaurants. The streets and roads were choked with big-rig diesels hauling the water, rigs, equipment, gravel, sand and chemicals needed to develop the gas wells. Rents doubled or tripled forcing some low-income families into homelessness.

Today, it’s a different story. Hotels sit nearly empty; business is off at the popular Weigh Station restaurant, and “For Rent” and “For Sale” signs are blooming in front of empty houses and apartments. The shale boom has busted.

The lull in the shale drilling frenzy caught towns like Towanda as much by surprise as the mass arrival of trucks, workers and money at the onset of the gas drilling boom. The lull also provides communities like Towanda with an opportunity to step back and assess what they learned, so they can be better prepared for the next, inevitable gas boom. 

To help communities prepare for the shale gas boom and bust cycles, the Multi-State Shale Research Collaborative has published a handbook for local governments, “Lessons from the Gas Patch: A Local Government Guide for Dealing with Drilling”. Drawing on research conducted by the MSSRC during the drilling boom, the handbook contains recommendations to help communities prepare for the next wave of intense drilling. The recommendations include:

  • Modernize the county recorder of deeds office;
  • Create a single point of contact in government;
  • Anticipate and address the need for more emergency personnel and police;
  • Anticipate and address rising rents, housing shortages and increased homelessness;
  • Anticipate and plan for increased heavy truck traffic; and,
  • Educate landowners about their rights if they lease to gas drillers and about the opportunities and risks of leasing.

Hydrofracking technology has opened up shale deposits that underlie many parts of the country that were previously unavailable for development. The new accessibility of these sources of natural gas and oil has brought drilling to many places without a history of extraction, most of them in rural areas where communities and local governments lack the capacity to deal with the intensely industrial character of unconventional drilling. Given the geographic extent of these deposits, especially the Marcellus and Utica shales, many communities will face the numerous changes drilling brings in the future. The recommendations in this handbook are based on the experiences of communities which have grappled with the disruptive changes that accompany the drillers and their rigs. As drilling technology changes and as drilling moves into new areas, there will be new challenges and lessons to be learned. 

School funding: What One Hand Gives Another Takes Away

June 29, 2016 - 3:22pm

As this dispiriting budget season ends, advocates for education could at least be grateful that the General Assembly seems poised to increase basic education funding by $200 million. This is far less than the $400 million necessary to put us on a path towards overcoming massive cuts and the most unequal education funding in the state. And it does little more than help school districts keep up with costs. But at a time when so many legislators are unwilling to find the revenues to invest in anything, it is better than nothing. 

Yet, at least as Philadelphia is concerned, it will all be for nothing if HB530 passes in its current form. That bill would undermine the ability of the School District of Philadelphia to control the growth of charter schools. Yet, under the present rules, every charter school enrollment disproportionately reduces the funds available in district schools. The result will be that much, if not all, of the new funding for basic education in Philadelphia will be eaten up by payments to charter schools. Students in district schools will never see the benefit of new basic funding.

Other school distrits around the state may suffer in a similar way from unlimited charter expansion.  

Aside from the funding issue, HB530 is an entirely unwarranted intervention in the governance of the Philadelphia School District and other school districts. Charters schools may sometimes improve education and may sometimes not do so. The decision about how, when, and where to expand them should be made by those who have the information and expertise to do so in ways that improve education. It is entirely inappropriate for the General Assembly, acting on an ideological commitment to charters schools at all costs — a commitment that has no basis in the research on good education — to override the decision of school districts around the state. 

HB530 does bring much needed reform to cyber charter payments and has other helpful elements as well. But the harm that it does far outweights the good. It would be a shame if one hand of the legislature undoes the good that another hand has done.

The Emperor’s New Liquor Stores

June 29, 2016 - 2:58pm

Act 39 flew through the House of Representatives and was signed by Governor Wolf too fast for us, and many others, to object. If we had a chance, we would have pointed out, as the IFO did soon after passage, that the estimates of new revenue from expanding wine and beer sales was way too high. And we would have added that much of the $106 million that the IFO expects will be generated by Act 39 is a one-time deal. Projections of additional sales of wine and beer at the new locations have to be weighed against the loss of sales at Wine and Spirit shops and beer distributors. 

And now, just weeks later, liquor privatizers are at again, loading up a bill to expand alcohol sales at the Democratic National Convention — as was done for the Republicans in 2000 — with a number of other proposals. One of them, a proposal to require discounts secured by the LCB to be passed on to consumers, could cost the LCB, and thus taxpayers, tens of millions. This proportional pricing requirement (which under current law is waived for the best selling wines and spirits) would undermine the LCB's ability to act like any other retailer and adjust prices to secure greater profits. And, ultimately it wouldn't even benefit consumers because it would diminish the LCB's incentive to secure better deals from its suppliers.

Another provision of the bill would reduce the fees that would be received from the casinos that secure licenses to sell wine and spirits.

These first two provisions of the law would undermine the profits of the LCB which ultimately flow to taxpayers. Additional provisions direct revenues from the sale of new licenses to the general fund instead of sending them to th ethe LCB and then onto the general fund. The purpose here is to undermine the appearance of the LCB's profitability, with the hope that this will make it easier to dismantle it in the future. 

Proponents of the legislation say, as they always do, that the aim is to benefit consumers. But proposals to modernize the state store system can do that as well. And they can do so without jeopardizing the three key reasons to sustain the system. 

The first is to regulate and discourage excessive alcohol consumption in part by managing prices. Alcohol remains by far the most dangerous drug, legal or illegal on the market. 

The second is to provide the $500 million plus in revenue that the LCB provides to the state.

And the third is to protect good-paying jobs.

All three goals would ultimately be undermined by Act 39.

It’s that third purpose, we suspect, that really motivates the privatizers. And it motivates us, their opponents, as well. Good paying, unionized public sector jobs — like the minimum wage, prevailing wage laws, and laws that protect labor organizing — help sustain good paying private sector jobs. As the middle class gets ever more squeezed in this country, this is not the time to be undermining those public sector jobs. 

It’s fine to be concerned about consumers. But we need to be even more concerned about the wages that allow people to consume. It’s high wages that create an economy in which prosperity is shared rather that concentrated at the top. And we need to be concerned about the taxpayers who will be asked to pay more as LCB contributions to the state decline. 

The emperor’s new liquor stores being pushed by the privatizers may serve consumers in some ways. But if we keep taking steps that undermine working class wages and consumption, they might not have customers for anything but expensive wines and single malt scotch. And no one except the 1% will benefit from that. 

Revenue Options Real and Fake: A Minimum Wage Increase and Gaming Expansion

June 29, 2016 - 2:46pm

Ten years ago was the last time Pennsylvania raised the minimum wage in advance of the federal government doing so. In those ten years, inflation has reduced the value of the minimum wage to a poverty wage. That’s why it’s time to raise it again, ultimately to $15 an hour, but immediately to $10.10.

A raise in the minimum wage to $10.10 will help 1.2 million Pennsylvanians who work hard but make less than $10.10 an hour right now. Eighty-seven percent of those affected would be over age 20 (not teenagers).  Eighty-four percent of workers who will be affected by a minimum wage increase have a high school degree or more.  And 30% of affected workers have some college education. 

Raising the minimum wage won’t just help workers who receive it — every dollar in new wages will be spent generating economic activity that benefits every business and every community in the state. 

And at a time when legislators are struggling to find new revenues to balance the budget, that new economic activity will also generate new tax revenues for the state of $121.5 million. (Counties and municipalities that tax sales and wages will also see new revenues.) In addition, raising the minimum wage will and generate another $104 million in savings in reduced Medicaid spending as thousands of Pennsylvanians move from traditional Medicaid, for which the state carries half the cost, to expanded Medicaid, 90% of which is paid for by the federal government.

This total budgetary savings is $225.5 million. And unlike so much else that the General Assembly is considering this week, the savings are real. 

The numbers flying around in the halls of the Capitol for gaming, on the other hand, seem fantastical. We don’t know which gaming proposal will ultimately see the light of day, but given what we have heard, we can confidently say that most of the proposed new gaming revenue comes from the one-time sale of new licenses. Even if the state receives all that is projected —and there are striking examples in the past of those projections being tens of millions too high —legislators will have to come back next year to replace them. And the on-going revenues from internet gaming are entirely uncertain — as is the impact internet gaming may have on reducing revenues from existing casinos.  

Rather than continue to spin fantasies, the General Assembly should to base this budget on reality. And the reality of a minimum wage increase is that it benefits working people who deserve a raise, businesses who will benefit from new consumption, and the taxpayers of the state who will be spared another $225.5 million in tax increases to close the deficit.

Some things are worse than a late budget.

June 21, 2016 - 12:51pm

As the June 30th deadline looms, we have little more than rumors about what kind of Pennsylvania budget might be enacted by the General Assembly for 2016-17. But while some may find optimism in talk of getting the budget done, the rumors we are hearing about the details of the budget in the works are extremely worrisome.

We know that everyone on both sides of the aisle wants a budget done more or less on time. All members of the House and half the members of the Senate face reelection in November, and none of them want a long drawn-out budget and delays in funding schools and human services. Yet to reach agreement on a budget legislators have to find their way between their determination to get one done and the structural deficit that requires either some new revenues or difficult budget cuts.

More importantly, reaching agreement is not the only thing Pennsylvanians want. The state has serious needs – for K-12 and higher education, for human services, and for environmental protection – that are not being met now. And those needs must be met responsibly, with an honest budget that closes the structural deficit with real revenues or genuine cuts, not smoke and mirrors.

Unfortunately, if the rumors we hear are true, the budget likely to come out of the House of Representatives later this week won’t meet any of those goals. We are hearing that the House is not looking for nearly enough revenue to close the deficit and is hundreds of millions short of where the Senate thinks it should be. We are hearing that this not only leaves almost no new funding for K-12 education, let alone higher education, but it will require cuts to human services. We are hearing that both those cuts and revenue projections will rely on estimates of lapsed spending, human service caseloads, and revenues that are extremely optimistic. We are hearing that the Liquor Bill, which we opposed, is projected to raise new revenues at a wildly optimistic rate. We are hearing that the extremely ambitious gaming and tobacco revenues the House is considering may not all get through the Senate. And we are hearing that the House is planning to pass a fiscal code bill that includes education provisions that are unacceptable to those of us who value public education.

And that means we are looking, at best, at one more dishonest Corbett-like budget, balanced with WD-40 and duct tape. No one in Pennsylvania, whether liberal or conservative, should want a budget like that. And no one who values shared prosperity in Pennsylvania should want a budget that fails to invest sufficiently in education, human services, and the environment.

It doesn’t have to be that way. No one, including we at PBPC, wants to raise broad based taxes on working people and the middle class. But, as we have shown, it is possible to institute a small .93% increase in the tax rate on what we call income from wealth (dividends, capital gains, business profits, royalties) and raise $775 million. Two-thirds of the revenue raised would come from those in the top 5% of incomes, while families in the bottom 60% would pay very little.

Right now, however, all the talk about the new found comity in the Capitol seems to be leading not to a genuine compromise, but to the House pushing an extremist agenda while everyone else is exhausted and rushing for the exits. Passing a budget on time is, however, far less important than passing a budget that meets the needs of Pennsylvania and is genuinely balanced. We hope the Senate and the Governor find the energy to stand up to what looks to be a disastrous House proposal.  

Why Philly Needs the Sugary Drink Tax

May 25, 2016 - 4:41pm

As we move closer to a City Council vote on the sugary drink tax proposal, I want to offer some final thoughts about the idea and correct some misapprehensions about it:

1.While the tax itself is regressive, and the Pennsylvania Budget and Policy Center almost always opposes regressive taxation, the program as a whole is not regressive. To begin with, the opponents of the tax are simply wrong about one aspect of it. They have been arguing that it is doubly regressive because members of low-income families consume sugary drinks at higher rates than middle- and high-income families or that African-Americans drink sugary drinks at higher rates than white people (and keep in mind that these are two groups not one). Those are myths. The research on this issue is equivocal and does not support that claim.

2. More importantly, the focus on just the revenue side of the Mayor’s program is the kind of fundamentalism that all of us should reject. The Scandinavian social welfare systems that Bernie Sanders and others admire are funded in large part with a Value Added Tax (VAT), which is a sales tax on steroids. The VAT may be a regressive tax, but the whole system very much benefits poor and working people. Much the same is true with Mayor Kenney’s proposal. The tax falls harder on poor and working people. But the benefits of pre-K and community schools and playground and recreation center renewal are great and very much go to those lower on the income scale. Moreover, the tax is not all that high and is totally avoidable. The average person who reduces his or her consumption of sugary drinks by half will pay about $21 a year. 

3. But that does not mean the sugary drink tax is an unreliable source of income in the near future. To think so is to take a very simple-minded approach to the issue. At best, the sugary drink tax will reduce consumption by 50% over five years. If we are lucky, over ten years there will be further reductions. But, by then the economic benefits of a substantial reduction in the consumption of sugary drinks will be felt among Philadelphians who will be paying less to manage chronic diseases and by the city which will have to spend less to treat those diseases in our health centers. 

4. Those economic benefits will arise because the benefits of the sugary drink tax are striking and substantial. And while there is an element of paternalism in a tax that discourages unhealthy behavior (just as there is for cigarette and liquor taxes), the paternalism is not class or racially based. Whites and middle-to-high-income households (and these are two groups not one) consume sugary drinks at high rates as well. What is true is that Blacks and those with low-incomes suffer from diabetes and heart disease at higher rates than others – but there are many other causes of that disparity. So the health benefits of a reduction in sugar consumption may flow more to Blacks and those with low-incomes. 

5. The sugary drink tax is not the only way the city and state are trying to encourage healthier eating habits. There is a very substantial, and successful, effort to bring supermarkets into low-income communities. The city and non-profits are also funding programs that encourage corner markets to improve their offerings and direct consumers to more nutritious and healthier foods. And the creation of this tax, like the creation of tobacco taxes, is just one part of a larger effort to inform people about the dangers of sugary drinks. 

6. The impact of the sugary drink tax will thus be felt far beyond Philadelphia. And that’s why the beverage industry has been putting so much money into their dishonest campaign against Mayor Kenney’s proposal. If they lose here, other cities will be emboldened to take similar action. And the health of hundreds of thousands of Americans will benefit. 

When I first started looking at this issue, I was inclined to oppose this regressive tax. But after a few weeks of study and after reading fifty academic articles on the economic and health impact of the tax, I changed my mind. This is a tax all progressives should support. 

 

Finally: Waste, Fraud, and Abuse!!!

May 24, 2016 - 6:09pm

After ribbing Senator Wagner and his fellow members of the taxpayer caucus for not understanding the basics of budgeting, I want to acknowledge that they did come up with a really good idea today.

It appears that the Pennsylvania State Police take two sheets of paper to print tickets. Some intrepid investigator discovered that they could get the whole thing on one sheet of paper if they printed in landscape rather than portrait mode. At 8 cents per sheet of paper for the 542,000 tickets they print, that’s a savings of $43,384.

We at PBPC are always interested in making government cost efficient and we acknowledge that this is a great idea. We hope it won’t be delayed while we study whether it’s better to print landscape mode or just use two-sided printing.

Now, at this rate of savings, we need 46,511 similar ideas to close the $2 billion deficit we face in the year beginning on July 1.

Make Believe Budgeting in Harrisburg

May 24, 2016 - 4:31pm

I’ve been doing political advocacy for over ten years and have been a teacher and writer about politics for a lot longer. I don’t surprise easily. But what I saw today at the press conference at which Senator Scott Wagner and the “Taxpayer’s Caucus” presented their three billion dollars in proposed budget cuts, left me almost speechless.

I walked into the room to see a list of cuts, and near the top was a $922 million cut to the Department of Human Services (DHS). I know how devastating real budget cuts of that magnitude would be to senior citizens who get long-term care through Medical Assistance, the working poor who get health care through the same program (which is called Medicaid everywhere else), and people who are intellectually disabled and mentally ill. So I was prepared for the worst.

But when I looked at the details, I almost started to laugh. Senator Wagner sounded and looked like a serious leader. But what he has proposed was a complete and utter fantasy.

He said we could spend the $500 million in savings that resulted from Governor Wolf’s acceptance of the Medicaid expansion on other programs.  That was a key part of his plan to close the structural deficit.

But Wagner seems not to understand that those savings are already built into the budget for next year. Why? Because every year health care costs go up and the population of those eligible for Medical Assistance increases. The savings were real, but must go to pay the increased costs of the ongoing Medical Assistance program.

It’s as if Senator Wagner couldn’t understand why the Medical Assistance line item didn’t go down or why there wasn’t another line item “Medical Assistance Savings” that he could then reallocate to other purposes. 

And this wasn’t the only example. Most of the other $922 million savings in DHS as well as the $158 million savings in GO-TIME are already included in the budget.

These supposed savings are simply fantasy cuts made with smoke and mirrors and the equivalent of monopoly money.

I don’t know whether Senator Wagner and his fellow Republicans are deliberately misleading people or simply don’t understand what they are talking about. But either way, it is shocking and appalling. These major parts of their proposal was simply not serious.

And, what’s worse, is that we are still facing an almost $2 billion deficit in the fiscal year that begins on July 1, and we still have no serious proposal from the Republican side of the aisle about what to do about it.

U.S. Department of Labor Scores a Victory for Working People

May 19, 2016 - 2:07pm

On Wednesday, the U.S. Department of Labor (DOL) raised the salary threshold under which working people can earn overtime pay.  Under the new rule, effective December 1 of this year, most salaried workers – including managers and professionals – making less than $47,476 will now be entitled to overtime pay (most charitable non-profits will be unaffected by this rule change - read more here). 

The Economic Policy Institute estimates this change will directly benefit just under half a million Pennsylvania workers or 22.6% of the commonwealth’s two million salaried workers.

Make no mistake, this is a huge win for middle class workers.  Honestly I have trouble identifying another recent policy change that so clearly benefits middle income workers. 

The reason this new policy will lift up families is because some salaried employees who regularly work overtime will get raises as employers find it more cost effective to raise their pay above the $47,476 threshold rather than pay overtime.  Other employers, rather than pay overtime, will respond to this rule change by hiring more staff. So some workers will see higher pay, others will work fewer unpaid hours.

The key fact to remember is that, before this change, the threshold income for requiring salaried workers to be paid overtime was a salary under $23,660.  Had the threshold kept pace with its 1975 level it would be $52,000 today. Allowing the threshold to fall by more than 50% removed overtime protections for millions of workers.  

This change drives home the larger point that policymakers can change the rules governing our job market to bring back the middle class – even though they have too often done the opposite for 40 years.

Now it’s time for Pennsylvania’s General Assembly to build on President Obama’s effort to lift up working families by raising the Pennsylvania minimum hourly wage. That could give another 1.2 million Pennsylvania workers a raise by the end of the year.  

Finally, for the policy geeks and groupies (what, it could happen?) out there, you may have heard that on June 8th and 9th we are organizing a conference.  Well, you are in for a treat, as Dr. Heidi Shierholz, chief economist of the U.S. Department of Labor who helped develop the new overtime rule, will be speaking at the Crowne Plaza in Harrisburg on the afternoon of June 9. Dr. Shierholz is part of an all-star lineup of some of the best and brightest minds working towards building an economy that works for everyone! Register online here.