Third and State
With the Corbett administration rolling out a new State Energy Plan today, I'll leave it to the energy policy experts to produce a comprehensive evaluation of it. Here, I want to focus on one narrow issue — the jobs impact of shale drilling.
To be sure, the cover of the report suggests that the jobs impact of energy production is not such a narrow issue. That cover has in large bold capitals the title "ENERGY = JOBS" and then in tiny type "Pennsylvania State Energy Plan." Not a lot of nuance in this narrative: energy industries — shale drilling — are simply equated with job creation.
This same narrative is in evidence within the report on page 17 which states:
Pennsylvania’s oil and natural gas industries have made a tremendous economic and workforce impact in recent years and will continue to do so in the future. Over 240,000 Pennsylvanians work in core and ancillary jobs associated with the oil and gas industry ...
Actually, no. As we explained in great detail in a recent report on shale's job impact (see pages 27-30), the vast majority of these 240,000 jobs existed before fracking began and have nothing to do with fracking. Counting every UPS driver as "associated with" the oil and gas industry — and every other job in many other industries in which only one or two jobs out of 100 supply drillers — is wrong. Plain and simple wrong.
StateImpact Pennsylvania makes the same point in its report on the plan.
By reiterating job claims that have been painstakingly demonstrated to be wrong, the Corbett administration undermines its own credibility. It should try a different tack.
In the weeks leading up to the release of a proposed state budget in February, governors typically schedule photo ops to announce some new budget initiative popular with the public. This signals the administration’s priorities, keeps the good news from getting lost in the overall budget story, and builds up political capital for the budget fight ahead.
So it was not a surprise to read in The Philadelphia Inquirer on Friday that the Corbett administration was considering a $200 million increase in basic education funding. The Governor was scheduled to appear at Philadelphia's Central High School that morning, and the release was no doubt an attempt to have reporters ask him about the planned funding hike rather than the ongoing effects of past funding cuts.
Things did not go so well. The Governor cancelled the planned visit, his first to a Philadelphia public school, moving the presentation to the Commonwealth’s offices at the swanky Bellevue on Broad Street. Protesters followed him there too, but the environment was somewhat more controlled thanks to a healthy contingent of state police.
As for the funding increase, opinions are mixed. The Inquirer article stated that the increase could be as much as $200 million, but $100 million of that could be linked to pension “reform” savings (remember the $800 million proposed last year from the proposed sale of the state liquor stores). Perhaps the savings comes from reducing the state’s employer contribution — again.
$200 million is better than the $90 million he proposed in last year’s budget, but a far cry from the $688 million needed to bring classroom funding back up to where it started in 2011. Philadelphia lost more than $200 million in funding that year and will need at least that much back to begin to recover its educational programs.
The Pennsylvania House of Representatives, meanwhile, signaled that it, too, wants to appear education friendly in anticipation of the 2014 elections. The House passed, by a vote of 187-9, State Representative Bernie O’Neill’s bill to establish a Basic Education Funding Commission.
The bill is modeled on the legislation establishing the Special Education Funding Commission, which released its final report on December 11. That commission, whose members came entirely from the General Assembly, was hailed by participants as a breath of bipartisan fresh air.
I had to see who voted against the Basic Education Funding Commission bill: here’s the roll call. No surprises there.
The Commission idea has some good points and bad points. Pennsylvania has no functioning funding formula and desperately needs a predictable and transparent way to distribute $5.5 billion in basic education funds to school districts. On the flip side, the Special Education Funding Commission sidestepped the issue of how much it will cost to fund Special Ed (which hasn’t seen a state increase in six years), and came up with a weighted funding plan that seemed to be pulled from thin air.
The challenge here will be to keep lawmakers focused on education and to ensure they do something real. No small task.
Finally, as if it couldn’t get any worse: the Commonwealth owes school districts another $1 billion in overdue payments for 350 approved construction and renovation projects. The state has a moratorium on funding for new construction projects which has left school districts in yet another bind. State Reps Seth Grove and Steve Santarsiero plan to introduce legislation to change the construction planning and approval process (known as PlanCon).
But hey, it’s all about the kids right?
A new report out from the Mercatus Center at George Mason University gives Pennsylvania low marks for its finances, placing it 42nd nationally in overall fiscal condition and 47th in cash solvency.
The report also provides new evidence that it is great to have gas (and oil) — if you tax it appropriately.
The report should be taken with a grain of salt. It’s a snapshot of fiscal health at a time when states governments are still feeling the effects of the recession. Big recession-related revenue shortfalls and reluctance to impose new taxes have left states in much worse condition than before the recession, despite deep budget cuts in virtually every state.
It should come as no surprise, though, that states with robust severance taxes are doing relatively better. Oil- and gas-producing states were last to fall into recession and first to recover. Gas prices were high through 2009, which kept state coffers flush in Oklahoma, Arkansas, and Wyoming, for example, and higher oil prices and new shale oil technologies have been a boon for Texas and North Dakota since 2011. Alaska always does well because they tax the heck out of oil and gas production.
The following chart shows that state revenues have not yet recovered from the Great Recession.
Let's take a look at North Dakota now. The state, with a population comparable to that of Bucks County, saw its severance tax revenue increase by $1.3 billion between FY 2011 and FY 2012. That will help any state’s cash position.
Check out this chart comparing states with high rates of budget solvency to the role severances taxes on oil and gas resources play.
Some observers will say that Pennsylvania’s poor position is caused by rising retirement costs. It’s not. Virtually every state has a large unfunded pension liability and, according to Paul Volker and Richard Ravitch, the forces behind the State Budget Crisis Task Force, many states shortchanged their pension contributions during the recession when they didn’t have cash, a big factor in the looming pension crisis.
Pennsylvania has two big problems. First, it continued to make big corporate tax cuts even while policymakers were ringing their hands over short-term budget cuts and long-term fiscal liabilities. The value of those tax cuts is now more than $3 billion, 10% of the General Fund budget, and the promised jobs haven’t materialized.
A second problem is Pennsylvania’s flat income tax. States with graduated taxes — higher rates for higher-income earners — have had a cash windfall, as wealthy investors took capital gains in 2012 before the new higher rate set in. Pennsylvania saw some growth, but not as much as in other states. And over the long term, Pennsylvania is unable to capture the income growth of high-income earners, who have pretty much had a monopoly on income growth over the past decade.
Spending isn’t much of a factor. Pennsylvania is pretty much in the middle, according to this survey, which looked at per capita revenue and expenditures. If you look at state spending as a share of the economy, we are pretty steady and below the national average.
Bottom line: Take this report with a grain of salt. States are having a hard time in general and the report captures that. But short-term finances are just that — short-term — and Pennsylvania can take action to improve its position.
The best thing Pennsylvania can do to improve its short-term financial position is to replace the state's local drilling impact fee with a real severance tax. State Representatives Tom Murt and Gene DiGirolamo are proposing a bill that would do just that, at a rate just below that in neighboring West Virginia.
With the 50th anniversary of the War on Poverty at hand, it is a good time to reflect on just how much of a positive impact President Lyndon B. Johnson’s landmark initiative has had in reducing poverty in the U.S.
The 1960s effort created the modern day safety net for working families, started important initiatives like college aid that boosted college access for a generation and expanded health coverage through Medicaid and Medicare.
Observers on the right have tried to argue that these initiatives have been unsuccessful and that we ought to give up.
As I lay out in an op-ed in the Harrisburg Patriot-News, economic changes in the late 1970s made the job of fighting poverty much harder, and without the efforts of the War on Poverty, poverty would be much higher today.
The growth in income inequality, erosion of middle-class wages, and the shift within the economy from higher-wage manufacturing jobs to lower-wage and part-time service jobs have all dragged the middle class down and made it harder for the poor to move up.
The War on Poverty has been fought on a treadmill; we’ve had to run faster just to move ahead a little bit. The large national public investment in anti-poverty programs has helped people to escape poverty even as the economy has failed us.
This chart from the Center on Budget and Policy Priorities helps to illustrate how difficult it has been for the lowest-income Americans to gain ground. The incomes of the lowest fifth of the population grew substantially through 1973, then barely at all through 2007, when the economy was booming. The value of SNAP (food stamps), refundable tax credits, and other non-cash income was responsible for a large part of the income growth in 2007 and played a critical role keeping incomes up and poverty down during the recession.
War on Poverty programs eradicated child malnutrition, caused senior poverty rates to decline, and kept millions out of poverty, even during recessions.
Just how have we done? Using the Supplemental Poverty Measure (SPM), which captures non-cash income including tax credits, nutrition and rental assistance, and deducts certain expenses, poverty has indeed fallen substantially since the war was declared.
The nation has made significant progress reducing poverty among the elderly. As you can see, in the 1960s poverty rates for seniors were higher than for the population as a whole, even with Social Security. Pulling seniors out of poverty is one of the War on Poverty’s greatest successes.
The role of safety net programs in reducing the rate of child poverty has grown. As the next chart shows, child poverty would have been significantly higher in 2012 as the nation limped out of recession. Far from being a waste of money, as some would claim, income supports have done their job protecting a large group of children from the lifelong effects of poverty.
I don’t want to sugarcoat things here. Poverty remains too high, even when the economy is growing. Child poverty has gotten worse, particularly during the Great Recession. There are still wide racial disparities in poverty rates. We need to make more progress growing the incomes of low wage workers — by increasing the minimum wage and supporting living wages for low-wage workers in industries like food service and retail.
We can’t give up the fight. Poverty must not win.
Halfway through the state's fiscal year, General Fund revenues are right on target — exceeding official estimates by a scant $2 million, or 0.02%. Tax and other collections in December came in $40 million, or 1.7%, below the monthly target, largely erasing the modest revenue surplus that had been generated so far.
One month of poorer-than-expected collections should not raise too many alarms, but we will be watching January closely. Another sub-par month of collections could mean trouble as the 2014-15 budget negotiations get under way early next month.
Of the major tax types, only corporate taxes exceeded estimate in both December and the fiscal year-to-date. December is typically one of the more important months for corporate tax collections, as many filers make quarterly payments. For the fiscal year, corporate tax collections are $58 million, or 4.6%, higher than projections.
December is typically a strong month for sales tax collections, due to increased holiday shopping, but sales tax collections fell $31 million, or 3.8%, short of the December revenue target and are now $15 million, or 0.3%, below estimate for the fiscal year.
For personal income taxes (PIT), December is typically a larger month than normal, due to quarterly tax payments. In December, PIT collections came in $24 million, or 2.7%, lower than estimate. This made PIT collections for the first half of the fiscal year fall to $29 million, or 0.6%, below estimate.
Hopefully, the PIT and sales tax shortfalls in December are one-time events, and not early indicators of a softening economy.
Compared to the prior year, December collections were $50 million, or 2.1%, less in 2013. For the fiscal year-to-date, total General Fund revenues have grown by $57 million, or 0.5%, from the prior year. PIT and sales tax collections have risen a collective $233 million from the same period in 2012-13, but corporate tax collections have fallen by $156 million, or 10.6%, due in large part to corporate tax cuts.
Going into the New Year, revenue collections are OK, but less OK than they were at the end of November. No need to hit the panic button, but another shortfall in January could be worrisome — and mean that balancing the 2014-15 budget could be that much more difficult.