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

February 6, 2015 - 5:15pm

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.




IFO Forecasts Lower Property Tax Revenue in Future

February 6, 2015 - 5:12pm

Act 1 may not be perfect, but it has slowed the growth of school property taxes. Since the passage of Act 1 in 2006, and its revision in 2011, the growth of school property taxes has moderated in Pennsylvania. A newly revised forecast from the Pennsylvania Independent Fiscal Office (IFO) shows more modest growth in coming years.

Earlier this week, the IFO released a revised school property tax forecast[MW1]  through 2019-20. Compared to their estimate from 2013, the IFO projects slower growth in school property taxes in coming years. The IFO cut its previous estimates by 4% to 5% per year over the next four fiscal years due largely to a reduction of the Act 1 index that limits property tax growth. On top of the lower index, fewer districts used exceptions to raise taxes in excess of the index in 2013-14.

In 2003-04, school property taxes increased 7.3% from the prior year. By 2012-13, the increase had dropped to 1.9%. The Act 1 base index, itself, is roughly half of what it was in 2006-07, dropping from 3.9% to 1.9%.

Act 1 limits the amount property taxes can increase in a district each year. School districts can ask voters to approve raising school property taxes more than the Act 1 limit, but it has to be for a specific reason – typically to meet pension, debt, or special education obligations.

The base index is recalculated each year, based on an average of the change in the statewide average weekly wage and the Federal employment cost index for schools. For 2015-16, base index growth is 1.9%, down from 2.1% the year before[MW1] .



Making Work Pay Coalition Forms to Help Working Families

February 3, 2015 - 1:17pm

More than two dozen advocacy and direct-service organizations from across the commonwealth, including the Pennsylvania Budget and Policy Center, have united to champion measures to help working families care for their children and get ahead.

Tens of thousands of hard-working, low-wage earners in Pennsylvania – such as domestic care providers, fast food employees, and retail workers – struggle every day to provide for their families. Despite steady income and long workdays, many of these families still have trouble making ends meet.

The Making Work Pay Coalition is recommending policies and programs that the state can implement to ensure that low-income families benefit when parents are employed, work longer hours, and earn promotions. These recommendations would improve existing family-sustaining programs, introduce a new tax credit and aid low-wage workers in providing for the needs of their families by: 

  • Eliminating asset tests for TANF and SNAP
  • Establishing a statewide earned income tax credit (EITC)
  • Increasing the income limit for childcare subsidies to 270% of the Federal Poverty Limit
  • Increasing the minimum wage to $10.10 per hour

Below are PBPC Research Director Mike Woods’ remarks explaining three of the recommendations at the audio press conference launching the coalition:

State EITC

The federal Earned income Tax credit, or EITC, is a widely heralded and effective program that helps 936K Pennsylvania working families each year. The average EITC benefit for PA families was $2,185 in 2013.

The EITC not only helps working families make ends meet by having extra cash in each paycheck, it is proven to reduce poverty and has documented long-lasting positive effects on families.

A PA-based EITC, set at a percentage of the federal credit (10%, 15%, or 20%), could do the same. This idea is far from new, as 25 states and the District of Columbia already have state-EITCs. By adopting a state-EITC, Pennsylvania could make a real difference in recipient’s lives – particularly if the credit is refundable (meaning once PA income taxes are offset, families receive the rest of the value of the credit in the form of a check).

From and administrative standpoint, implementing a state-EITC would be easy: adding a single line to the state’s income tax return. Taxpayers would indicate how much federal EITC they received and multiply that amount by the state percentage.

Tax Forgiveness

Pennsylvania’s Tax Forgiveness program reduced income taxes for nearly 1.3 million filers in 2012, but it has a problem. Income eligibility for the program drops off quickly once income thresholds are met. This is also known as the “cliff effect.”

For a married couple with two children, the program forgives all personal income taxes up to $32,000 in income. Then the benefits drop off quickly. By $34,251, that same family receives no benefits under the program. That means if that family makes $43 more dollars a week, it loses all program benefits. For a single taxpayer with a child, the income eligibility is much lower. Full benefits ends at $16,000 and at $18,251 – no taxes are forgiven.

Pennsylvania can improve this program by increasing eligibility income and making a longer phase-out of benefits. (Currently, this phase-out occurs over $2,250 in income).

Making these changes to Tax Forgiveness can certainly help make work pay.

Family Savings Account (FSA)

The Family Savings Account was a program Pennsylvania offered until 2009-10. Lawmakers should restore funding. Families with incomes up to 200% of poverty could receive state matching funds for money they save. The families would have to agree to save an average of $10 per week over a 1 to 3 year period to receive the state dollar-for-dollar match. In addition, the families receive financial management training and counseling to help them reach their specific goals.

Funds saved could be used for buying or fixing a house, going to school, purchasing a car, or starting a business.

These programs could help low-income Pennsylvania families move forward by making work pay.

The entire list of recommendations can be viewed on the coalition’s website.

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

January 30, 2015 - 6:24pm

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.


Pa. Fails Low-Income Preschoolers

January 16, 2015 - 6:15pm


 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 - 12:38pm

 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 - 12:17pm

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 - 6:50pm

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 - 2:26pm

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 - 2:18pm

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 - 2:46pm

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 - 6:49pm

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 - 11:05am

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.