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Memory Lane -- Larry Summers on Why Some People Mow Lawns and Others Don't

October 21, 2014 - 4:36pm
While searching for something else online, I just tripped over a letter to the editor from 1988. The letter was published during the 1988 presidential campaign, in response to a New York Times profile of the economists' advising George H.W. Bush ("Poppy") and Michael Dukakis ("Tankman").   Larry Summers was the economist advising Mr. Dukakis. The profile of Prof. Summers in The Times seemed to suggest that he thought the world was divided into people who mow lawns and people who have their lawns mowed based on how much people like mowing (i.e., based on what economists call people's "preferences.").   I thought that was a bit off key. So I wrote the following, published under the title "Economic Axioms."  
June 26, 1988

To the Editor:

According to the economic theory of compensating differentials, workers in unpleasant or hazardous jobs should be paid more highly to compensate them. A corollary is that a person like Prof. Larry Summers (''The Economists Behind the Candidates,'' June 5), who ''loves'' his work, should be paid less. Of course, then he might not have enough to pay for someone to mow his lawn.

Stephen Herzenberg, Washington, June 5

 

Good times.




Pennsylvania is now dead last in job growth since January 2011

October 21, 2014 - 3:10pm

As we reported on Monday new jobs data for September were not encouraging with payrolls in Pennsylvania falling 9,600 jobs over the month.

According to data for all the states released this morning by the Bureau of Labor Statistics, nonfarm payroll employment increased in 39 states.

Based on this data Pennsylvania’s rank for percent job growth since January 2011 has fallen to last place among states (50th). 

Today’s numbers drive home emphatically that you can’t cut your way to prosperity.

We were ranked in the top 10 for job growth in 2010.

Then tens of thousands of layoffs in education, and the state’s postponed investment in infrastructure and delayed acceptance of Medicaid expansion dollars delivered a body blow to Pennsylvania’s recovery, the effects of which are still being felt.  

In recession and recovery, Pennsylvania needs a balanced, creative policy and state budget approach that fuels the state’s economic engine, not an unbalanced one that slams on the brakes.

Here are the details on how we ranked the jobs data http://keystoneresearch.org/sites/default/files/KRC_JobRanking_Sept.pdf

Read The State of Working Pennsylvania 2014 (at http://keystoneresearch.org/state-working-pennsylvania-2014) for our complete examination of recent trends in economic data in Pennsylvania.

 

September job losses mark three consecutive months of job loss in Pennsylvania

October 20, 2014 - 12:44pm

On Friday the Pennsylvania Department of Labor and Industry reported that the unemployment rate fell from 5.6% to 5.7% while nonfarm payrolls fell by 9,600 jobs in September.  

Those disappointing payroll numbers in September plus revisions for August mean Pennsylvania has shed 3,700 jobs a month in the 3rd quarter of this year.  Resident employment drawn from a survey of households performed better in September registering a gain of 11,000 jobs. That’s the first gain in resident employment since April of this year. Still on average resident employment in the 3rd quarter fell by 19,700 jobs a month.

Over the last year weak growth in resident employment of just 16,000 meant that most of the improvement in the unemployment rate has been a result a decline in the labor force which has fallen by 93,000 in the last 12 months.

Exploring the change in payrolls by industry over the month the weakest sectors were Construction (down 2.1%), Transportation and Utilities (down 1.4%), Wholesale Trade (down 1.1%), and Information (down 1.2%).

Manufacturing had a good month adding 2,700 jobs but remains down by 2,100 over the last year.

All in all there is nothing to celebrate in the September job numbers for Pennsylvania.

Educational Tax Credits: Increasing Public Funding of Private Schools at the Expense of Public Schools

October 10, 2014 - 5:49pm

In the last few days of the legislative session, state lawmakers are fast-tracking a bill that would expand and unify the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC).  Tax credits provide taxpayer subsidies to businesses that fund scholarships to students attending private and religious schools, pre-K through 12th grade.  House Bill 1207, a proposal by Rep. Jim Christiana (R – Beaver County), would make more tax credits available for businesses and combine the tax credit programs so any money left in one program could be used by the other.  Taxpayers would pay up to 90% of the tab.

A PBPC analysis shows why taxpayers foot nearly the entire bill: the triple dip tax reduction.  In addition to the tax credits, businesses could file for state and federal tax reductions for “charitable” contributions.  Despite the heavy investment of taxpayer dollars, the Keystone Research Center notes that there is no enforcement of requirements or guidelines, and no data exists on how well these programs perform.  While public schools are required to let taxpayers know how well they perform, these programs still cannot answer the most basic question:  Do the students receiving scholarships or aid from these programs improve academically?  A House Amendment by Rep. James Roebuck (D – Philadelphia) took modest steps toward accountability by requesting descriptions of grant programs, including demonstrated or expected results, and basic auditing of financial statements.  The Amendment was not adopted.

Without evidence of academic improvement, proponents try to claim that these tax credits keep private enrollment from nose-diving, particularly in areas with struggling Catholic schools that have made it their mission to serve low-income children.  When we look at private school enrollment since 1997-98, we see that a decade of tax credits has not stopped a steady decline in students attending private schools, most of which are Catholic schools.  Meanwhile, we see that charter school enrollment grew substantially, suggesting charter growth possibly came at the expense of private schools.

Source: PBPC analysis of Pennsylvania Department of Education

We all care about improving the education of Pennsylvania’s children, especially those in poverty, but tax credits don’t work.  There is no proof that the students who have received any scholarship or aid have improved academically.  None.  Instead of giving taxpayer dollars to programs without accountability or a proven success record, we should instead use public money to reinvest in public education for the benefit of all our children and lay the groundwork for a strong economy for today and tomorrow.

Another victory in the fight to keep predatory payday lending out of Pennsylvania!

October 10, 2014 - 11:09am

As many of you are aware Pennsylvania law prohibits lenders from charging exorbitantly high interest and fees on small loans in Pennsylvania.  In the last several years the Payday lending industry which in other states regularly charges fees and interest of 300% or more has been lobbying the state legislature to offer similarly destructive financial products to Pennsylvania consumers.  In our briefing paper Bankrupt by Design: Payday Lenders Target PA Working Families we found that expanding this form of lending in Pennsylvania would cost consumers hundreds of millions of dollars and result in the loss of good jobs from the state’s economy.

Earlier this week Pennsylvania State Senator Jake Corman from Centre County attempted to get the Senate Banking and Insurance Committee to adopt a resolution that would authorize a study of payday lending in Pennsylvania.

The broad coalition that has been working hard to protect consumers from this form of predatory finance was alarmed by the proposed study design which in addition to being rushed included feedback from the organization lobbying on behalf of the payday lenders but not members of the coalition raising concerns about the harm of this product.

Thanks to the efforts of Senators Rafferty, Vance, Stack, Williams, Boscola, Farnese and Brewster the resolution did not get adopted!

You can bet the Payday Lenders and their lobbyists will be back so please don’t hesitate to reach out to these Senators and thank them for standing up for working families!

Your legislative champions need to hear from you when they do good!

 

A funny thing happened to our data on the way to Philadelphia

October 6, 2014 - 10:29am

If you have been following this gubernatorial election, or just watching television, you might have noticed that the Wolf campaign has been arguing that 27,000 jobs were lost in education in Pennsylvania.  That’s a figure my colleagues and I released in late August in our annual State of Working Pennsylvania.  To generate that number we used data from the Bureau of Labor Statistics to calculate education employment in local governments in the 2010-11 school year, which ran from July 2010 to June 2011. In that school year there were 308,000 workers employed in the education sector.  In the 2013-14 school year, which ran from July 2013 to June 2014, there were just over 280,900 workers employed in the education sector. Take the difference and round down, and you get 27,000 fewer people employed in that sector today than in 2010-11.

During the gubernatorial debate last Wednesday morning, Gov. Corbett claimed that 14,000 job losses in education occurred during the previous administration.  According to Dave Davies at WHYY, the Corbett campaign cites as the source for that claim a story by Melissa Daniels in the Pittsburgh Tribune Review.

In early August Daniels called me, asking questions about job loss in local governments. I shared with Daniels the monthly data since 2003 that I summarized above and explained that the bulk of losses in the education sector (just over 15,000 jobs, see Table 1 below) occurred between the 2010-11 and 2011-12 school years.  I noted that I prefer to use an annual estimate of employment in education tied to the actual school year as well as the state budget cycle, given the importance of state revenues to local education.

Daniels thanked me for the data and ran a story with the lede that education employment in September 2013 was at its lowest level since September of 2003.  Daniels reported that "Pennsylvania lost 11,200 teachers and staff during Corbett's term, according to state data."

Daniels defined job losses during the Corbett administration as the change in education employment between September 2011 and September 2013 (see Table 2 below). Corbett took office in January 2011, and his first budget, which impacted school district budgets for the 2011-12 school year, was signed in June 2011. In other words, employment in September of 2011 reflected the budget choices of the Corbett administration in its first state budget. But by Daniels construction, the lower level of employment in September 2011 was thanks to state budget choices by the Rendell administration made in 2010, which is clearly mistaken. Daniels article even says: “Corbett's first budget coincided with the expiration of the stimulus and a 4.19 percent decrease in education employment, the largest decrease during his term.”  That 4.19% decrease is the percent change in education employment from September 2010 to September 2011, which is 12,700 (see Table 2 below). But by reporting job loss under the Corbett administration as the change from September 2011 to September 2013, or 11,200, she implied that the 14,500 job losses that occurred between September 2009 and September 2011 were under the Rendell administration.

Shortly after the article appeared Stephen Miskin, press secretary to the PA House Majority Leader and spokesman for the House Republican Caucus, used Daniels' article to taunt the Pennsylvania Education Association on Twitter:

Then last week Tom Corbett, during the gubernatorial debate, went one step farther, cited the number in Daniels' article and claimed 14,000 jobs were lost under the Rendell administration. If you correct Daniels' error there were 1,800 education job losses under Ed Rendell, and 23,900 education job losses under Tom Corbett.

When Daniels' story first ran back in August, I followed up with her to explain that her construction of the data was mistaken. She thanked me for my feedback and promised to call me if she ever returned to the subject.  I also submitted a letter-to-the-editor pointing out her mistake, but the paper never published it.

There is, I think, a silver lining here.  This year’s gubernatorial race has proved definitively that there is a strong desire not to be associated with the cuts in school programs, rising property taxes and loss of thousands of jobs in education that have occurred in the last four years thanks to a cuts-only approach to resolving recession-induced state budget shortfalls.  I think we can expect future governors, regardless of party, to use a more balanced approach to resolving the budget shortfalls that always emerge when recessions reduce tax revenues.

 

Another Thumbs Down on Ride Sharing...Unless It Catalyzes New (OK, Old) Union Forms

September 26, 2014 - 12:00am

A good friend earlier this week shared this story on ride sharing.

The story underscores the strong parallels between ride sharing and the deregulated trucking industry, which we pointed out a few months ago.

In both cases, in the context of an excess supply of drivers, a downward spiral can result in compensation, while hours of work mushroom as drivers try to maintain a decent weekly wage. Both cases also compromise service and safety because there is no effective method of monitoring insurance, driver quality and knowledge of routes, vehicle maintenance etc.

The only silver lining here is that the Uber/Lyft "ride sharing" example may lead more workers -- and more of the public -- to see the need for new forms of union that include all drivers (whether in a taxi or their own ride share vehicle) in a metro area, and therefore have the power to lift job quality standards. Those drivers could negotiate fair wages and benefits, or per mile rates, along with affordable insurance.

This wouldn't really be a new union form; it borrows heavily from unions in construction and in the arts -- and in trucking back when the National Master Freight Agreement set industrywide standards.

This kind of multi-employer and industrywide union only looks new becaue so many people (and workers) have come to associate unions with company or plant-level manufacturing unions.

One reason the Uber/Lyft example may help us rediscover forms of unionism that fit the "new economy" is the stunning gap between the rhetoric of the "sharing economy" -- and the rhetoric of a harmonious partnership between ride-share companies and drivers -- and the reality of a downward wage and upward hours spiral.

When the reality is so far from the rhetoric it calls the question: how can we create a sharing economy in which workers actually do thrive?

And having that question called is helpful.

Philly Cigarette Tax Hike Becomes Law

September 23, 2014 - 12:38pm

It’s finally law! Philadelphia can now raise its own local cigarette tax by $2 per pack to fund its own schools and prevent further teacher losses and cuts in the classrooms.

Gov. Corbett signed the bill authorizing the increase today, after the state Senate passed it by a 39-11 vote last night, and the state House of Representatives approved it by a 114-84 vote on Monday.

The new tax, effective Oct. 1 on cigarettes and little cigars in the city only, is expected to raise $80 million for the Philadelphia School District, which has endured draconian budget cuts, school closures and widespread staff layoffs because of funding shortfalls.

The bill had been in limbo for months as legislators first wrangled over it and then refused to return from their summer vacation to vote on it before the start of the school year.

Each week of delay cost the school district $1.6 million in revenue. More school closures and another 1,000 staff layoffs were imminent without passage of the legislation.

August job growth disappoints in Pennsylvania

September 19, 2014 - 4:33pm

The Bureau of Labor Statistics reported this morning that nonfarm payrolls in Pennsylvania grew by 100 jobs in August and the unemployment rate edged up slightly to 5.8%.

To be clear that 100 is not missing a zero.

The jobs picture with respect to resident employment was actually substantially worse as 35,000 fewer residents reported having a job in August. 

The first point as always with employment data is we should be cautious about interpreting a single month of data.  As Figure 1 illustrates while Pennsylvania added 2,450 jobs a month in 2013, the pace of job growth so far this year has been stronger with the commonwealth adding 4,300 jobs a month.

The primary motor of job growth in Pennsylvania since January has been the construction industry which has been growing much faster in Pennsylvania than in the rest of the country.  That pattern reversed itself in August as the construction sector lost more jobs than any other sector (down 3,000 over the month). 

This drives home that job growth in Pennsylvania remains unhealthy in that when we have gotten good news in recent months that good news has depended on strong growth in one sector, construction. 

For more on Pennsylvania’s recent economic performance be sure to check out the State of Working Pennsylvania 2014.  As a final depressing note, remember slow job growth generally means slow or no growth in wages and incomes for most workers and that means a shrinking middle class and rapidly rising top incomes.

Number of Poor Pennsylvanians High, Income Growth Not Widely Shared

September 18, 2014 - 7:48pm

Poverty remained high in the commonwealth last year, highlighting that many residents have not yet recovered from the recession and underscoring the need for the state to do more to help struggling Pennsylvanians afford such basics as decent housing, nutritious food, and reliable child care and transportation.

Nearly one in seven Pennsylvanians lived in poverty in 2013, according to new Census Bureau data released on Sept. 18. For a family of four, that meant living on less than $24,000 last year. The median annual income in Pennsylvania, adjusted for inflation, did not rise between 2012 and 2013, and remained far below pre-recession levels.

The change in poverty varied across Pennsylvania, with 20 of 39 counties measured showing a difference from 2007 to 2012.

The child poverty rate in Pennsylvania increased from 15.9% in 2007 to 19% in 2013, making it the 28th highest in the nation.

Despite these increases, Pennsylvania’s overall and child poverty levels were below the national average.

Median household income in Pennsylvania was $52,007 in 2013, $243 below the national average and 23rd highest among the 50 states and Washington, DC.

Pennsylvania’s median income remained statistically unchanged from 2012. In inflation-adjusted terms, Pennsylvania’s median household income was $2,547 lower than it was prior to the recession.

Nationally, median household income showed a modest ($133) increase from 2012 to 2013. Pennsylvania needs to act to prevent the commonwealth from falling further behind as other states' household incomes grow.

This data on the stagnation of working families and the poor dovetails with the results of a Keystone Research Center report, released two days before these Census numbers, that showed that the top 1% of earners enjoy a larger share of income, while the middle class has shrunk, in every Pennsylvania county since the late 1970s.

Click on the highlighted words for tables detailing poverty and median income data by county and metro area and for a graph comparing Pennsylvania and U.S. poverty rates from 2007 to 2013.

Shortsighted Policies Led to Pa.'s Money Woes

September 16, 2014 - 4:48pm

 

Pennsylvania is already short of money and borrowing to pay bills less than three months into a new budget year. And that's after transferring $225 million from other state funds in July.

State officials can't blame a natural disaster, unfortunate accident or month of unexpectedly low tax collections. Instead, the culprit is a built-in imbalance between revenues and expenditures triggered, in large part, by policymaker choices.

Today’s action marks the first time in recent memory when the commonwealth has had to borrow operating cash so early in the budget year, particularly when the economy is expanding. The actions today should serve as yet another warning to both lawmakers and citizens of the growing price of failing to fix the state’s ongoing fiscal challenges.

This is not the first sounding of the alarm on this issue. In 2013, the Independent Fiscal Office warned of the state’s ongoing deficit. In July, Moody’s Investor Service cited the commonwealth’s “large and growing structural imbalance that reflects underperforming revenues, the continued use of one-time measures in the budget, and the ongoing deferral of restoring reserves,” when it downgraded Pennsylvania’s credit rating.

As the rating agency made clear, the state budget is fiscally unsound, and relying on optimistic revenue projections and one-time transfers that do little to correct a structural imbalance. The Rainy Day Fund hasn't been replenished since it was cleaned out in 2010 at the height of the recession.

The Corbett administration isn't exclusively to blame. Lawmakers made matters worse by adding new tax cuts the commonwealth clearly cannot afford. Examples include the House’s recent refusal to close a loophole in the bank tax that has further destabilized the state budget by limiting revenue growth as the economy expands.

A path to a more sustainable budget exists, but we need to stop digging the hole deeper. Lawmakers need to examine the tax cuts that have been whittling away at the state revenue base and adopt commonsense, recurring revenues such as a severance tax on natural gas.

We know the price of inaction: Pennsylvania’s budget situation will only grow more precarious, with more cuts to classrooms and critical services; more reliance on one-time revenues and other gimmicks to bring in quick cash; and more pressure on local property taxpayers to pick up the tab.

Property Tax Elimination Bill Advances in Senate

September 16, 2014 - 3:48pm

It was a good day for corporations that own land in Pennsylvania; not so much for individual Pennsylvanians who eat food and earn money.

The Senate Finance Committee voted 6-5 on Sept. 16 to advance SB 76 to the Appropriations Committee, often a bill's last stop before the full Senate takes up consideration of it.

Voting to advance the property tax elimination bill were: Republican Senators Mike Brubaker of Lancaster County, Pat Browne of Lehigh County, John Eichelberger of Blair County and Senate Pro Tem Joe Scarnati of Jefferson County; and Democratic Senators John Blake of Lackawanna County, and John Wozniak of Cambria County.

Voting against SB 76 were Republican Senators Pat Vance of Cumberland County, Stewart Greenleaf of Montgomery County, and Scott Hutchinson of Venango County; and Democratic Senators Rob Teplitz of Dauphin County, and Matt Smith of Allegheny County.

The bill's supporters will tell you that SB 76 would eliminate property taxes. What they are less vocal about is how it would make up that lost revenue.

SB 76 would raise the sales tax from 6 percent to 7 percent and expand the tax to cover such currently non-taxable items and services as food, non-presciption medications, garbage collection, funeral expenses, child care and non-housing charges at many nursing facilities, among other things. Many business-to-business services would be exempt from the sales tax.

The bill also would increase the personal income tax from 3.07% to 4.34%.

So SB 76 would be a true tax cut only for corporations and large businesses that would no longer have to pay local property taxes. For the rest of us, it would merely be a tax shift, and to some pretty essential items and services at that.

But worst of all, SB 76 would hurt Pennsylvania's public schools. It would make permanent recent state cuts to education. It would drain billions of dollars from schools in future years by artificially capping state education funding at levels unrelated to actual costs. And it would undermine local control of schools and hand over funding decisions to Harrisburg.

It's not too late to stop SB76. Watch this blog for further updates on the bill's status.

In the meantime, here's PBPC's statement on the Senate Finance Committee's action.

Giving Away the Golden Egg: Shale Tax Revenue Could Top $1 Billion by 2015-16

August 28, 2014 - 10:04am

Here’s one estimate that Pennsylvania exceeded in 2014—gas production in Pennsylvania’s Marcellus Shale region came in ahead of projections for the first half of the year. Had Pennsylvania adopted a severance tax - a prospect still on the table as late as June - the Commonwealth would have $1 billion in revenue by 2015-16, and $780 million in new funds. That’s enough to make a serious dent in two key areas: restoring cuts to public schools and closing an expected $1.7 billion budget gap in 2015-16.

The Pittsburgh Tribune-Review reported that Pennsylvania produced 1.9 trillion cubic feet of natural gas in the first half of 2014, a 14% increase from the prior six-month period. Because of rising natural gas prices, the value of gas produced grew from $6.4 billion to $9.6 billion in the same period.

The Trib reports that the number of new producing wells fell in Pennsylvania, but production grew, particularly in the northeastern part of the state: Susquehanna, Bradford, and Lycoming counties topped the list, with Washington and Greene in the southwestern corner rounding out the top five.

Dave Spigelmyer, Director of the Marcellus Shale Coalition, predicts that Marcellus wells will produce 4 trillion cubic feet of natural gas in 2014. That would mean production will grow by 29% over 2013’s output. While production is growing, the number of new wells fell from an average of 675 over the previous reporting periods to less than 500 in the first six months of 2014.

Source: Pittsburgh Tribune – Review Analysis of DEP Data

Pennsylvania remains the only significant gas-producing state that does not have a severance tax. With the new production numbers we estimate that a 5% severance tax could raise over $1 billion by 2015-16 and almost $1.5 billion by 2018-19. Assuming all current impact fee uses (local governments, housing, environmental programs) are fully funded, the additional revenue would grow from $780 million in 2015-16 to $1.2 billion in 2018-19. 

Pennsylvania’s impact fee falls short in several critical ways:

  • The impact fee is based on the number of new producing wells, not production. As the Trib article points out, drillers are improving technology, increasing per well production and reducing the need for new wells. As a result, Pennsylvania will receive less impact fee revenue than was expected. How smart is that?
  • Pennsylvania is losing out as natural gas prices rise. Over the winter natural gas prices increased from $3.50 to $6 a thousand cubic feet – so gas producers enjoyed a windfall. The impact fee doesn’t adequately capture the growth in gas prices, so Pennsylvania doesn’t benefit when gas prices spike.
  • As the price increases, fee revenue declines as a share of the economic value of the gas. The impact fee –by design— is barely affected by production or price. As a result, production doubled between 2011 and 2012 while impact fee revenue declined from $204 million to $202 million. This means that the gap between what the impact fee and a severance tax generates will grow even greater than was previously estimated.

Pennsylvania is letting the goose escape with the golden egg, leaving us with an empty nest to clean up. No other state would accept such a deal. North Dakota, in the middle of a shale oil boom, collected $2.5 billion in severance tax revenue in 2013 while Pennsylvania is getting less than a tenth of that from its impact fee.

Enacting a severance tax, despite the obvious advantages, will be tough. Ask our friends in Alaska  – Sarah Palin came to the governor’s office, believe it or not, as a reformer who fought the big oil companies to secure more revenue for state services and increased payments to residents. Her replacement, an oil company lobbyist, undid the reforms. Alaskans went to the polls on August 19 to vote on a ballot initiative to end the sweetheart tax breaks. The proponents of the change were outspent 10-1, and it looks as though the reform measure has gone down to defeat

 

 

Local Taxpayers Pick Up Slack in State's Basic Ed Subsidy

August 25, 2014 - 4:42pm

The second meeting of the Basic Education Funding Commission, on August 20 in Harrisburg, got off to a rocky start. Rep. Donna Oberlander (R-Clarion) read a statement on behalf of the House Republican caucus indicating a lack of interest in addressing the adequacy of education funding and great interest in protecting the hold harmless funding system (which ensures minimum funding increases for districts with declining enrollments).

Events soon turned more cordial as commission members expressed a willingness to gather as much information as possible, from all perspectives, and even to consider previously verboten topics, such as the 2006 Costing Out Study - the basis for the 2008 adequacy funding formula.

Deputy Secretary Nicole Duffy gave an overview of the multiple changes in Pennsylvania’s school funding formula that have effectively left the commonwealth without anything resembling a rational funding formula. Of note is the fact that the first formula, enacted in 1983, took into consideration student poverty, and subsequent formulas included additional funding based on district size, enrollment and tax effort, many of the same factors used in the 2008 formula.

The department’s presentation also noted that total basic education funding declined from $5.8 billion in 2010-11 to $5.4 billion in 2011-13.

Buried in the presentation was a key fact. The basic education subsidy, which is more than 50% of the Pre-k to 12 education budget and the largest state source of funding for districts, has grown more slowly than overall district revenue. Local property taxpayers and, to a lesser extent, federal funds have had to pick up the slack.

Jim Buckheit, of the Pennsylvania Association of School Administrators, and Jay Himes, of the Pennsylvania Association of School Business Officials, provided a detailed and informative primer on the overall public education system in Pennsylvania. I’ll share the highlights in my next blogpost.

The next commission meeting is on September 9 in the Lehigh Valley. You can follow the goings-on and download the presentations from the commission’s website.

Cutting Your Way to a More Sluggish Recovery

August 19, 2014 - 6:46am

New data on consumption spending from the Bureau of Economic Analysis further illustrates that Pennsylvania has cut its way not to prosperity, but to a more sluggish recovery.

As illustrated in Figure 1 below, the growth of consumer spending (per capita personal consumption expenditures) was greater than the national average in Pennsylvania from 2009 to 2011.

This early strength consumer spending was, in part, due to a relatively less severe recession in Pennsylvania and an unemployment insurance (UI) system that covered more workers and replaced more lost income than was typical in other states. These advantages helped fuel consumer spending in Pennsylvania that was above the national average during those years.

The 2011-12 state budget made deep cuts in education spending that ultimately resulted in the loss of 20,000 jobs in the education sector, which is roughly the equivalent of closing 40 factories.  Such high job losses played a critical role in depressing consumer spending and that, in turn, substantially slowed further job growth in the Commonwealth.

It’s also important to note that substantial cuts in corporate taxes also were enacted over these years, and the data suggest that those cuts did not boost job growth or consumer spending. Also, the share of lost income replaced by the Pennsylvania UI system was redeuced starting in 2013 by Act 60, which cut unemployment benefits and eligibility to the tune of $300 million a year. So we're less well positioned to come out of the next recession strongly.

Pennsylvania's Revenue-Estimating Process Doesn't Add Up

August 12, 2014 - 12:47pm

The Pennsylvania Budget and Policy Center’s analysis last month of the state’s 2014-15 budget cites a “myriad of dubious revenue sources, including an increase in collections well above what the Independent Fiscal Office projected.”

Now comes a timely, new report from the non-partisan Center on Budget and Policy Priorities in Washington, D.C., grading the process by which Pennsylvania (and other states) generate revenue estimates for annual budgets.

The Center evaluated states on a scale of one to five, based on the number of best practices they used to arrive at revenue estimates. The more best practices employed, the more reliable the estimate and the higher the state’s score.

Pennsylvania and five other states scored a two. Thirty-eight states and the District of Columbia scored higher; five states scored lower.

While that’s hardly a ranking to celebrate, Pennsylvania budget-builders do follow two of the report’s recommended best practices – publishing and making available online revenue forecasts and the assumptions underlying them, and revisiting the forecasts for the upcoming year during the budget session.

That leaves three of the report’s recommended best practices yet to be adopted by Pennsylvania: using consensus forecasting, including non-government experts in the forecasting body and developing the forecast in open meetings.

The PBPC believes Pennsylvania should pursue the following reforms to its revenue-estimating process:

· The governor and legislature should jointly produce the revenue estimate. For example, the Department of Revenue, the Budget Office and the Independent Fiscal Office could develop the estimate. Such a consensus process would increase trust in the numbers.

· The consensus estimate should guide development of the initial and final spending plans.

· Meetings of the joint revenue forecasting body should be open to the public.

In an Aug. 11 Capitolwire story on the report, Sen. Pat Browne, R-Lehigh, said his intent in drafting the legislation that created the IFO four years ago was to reduce the friction and delays in the budget process caused by competing revenue estimates from the governor's office and the legislature. Arriving at a revenue estimate should be an objective process rather than the result of negotiation, he said.

But lawmakers didn't want to cede ultimate authority in revenue forecasting to an unelected body, so they didn't mandate that the IFO's revenue estimate be the starting point of the budget process, Browne told Capitolwire.

To read the Capitolwire story click here.

As PBPC Director Sharon Ward observed, “Pennsylvania took one step forward by creating the Independent Fiscal Office in 2010. We need to complete the reform by instituting a transparent consensus process where the governor and legislature agree on a revenue number that is publicly vetted at the beginning and at the end of the budget process.”

The Real-Life Impact of Undermining Public Schools: A Philadelphia Inquirer Profile

July 15, 2014 - 11:37am

A profile of a teacher in this morning’s Philadelphia Inquirer brings to life the real-life consequences, for teachers and for children, of the deep funding cuts in the School District of Philadelphia in the past several years. Multiple obstacles to effective teaching -- including large classes and an assignment to teach special education without having trained for it and without mentoring or other support -- finally led a committed young professional to change careers. Still determined to serve others, she will train to become a nurse.

The scale of education funding cuts, which disproportionally hit Philadelphia, was documented in a recent PBPC report on school funding. These cuts -- and the draining of funds from public schools by charter schools, many of them underperforming -- led to the crisis summarized in the Inquirer profile.

The story paints a picture of a system that is taking its best teachers down with it. The teacher profiled fears that, deliberately or not, we are switching to a "high turnover" employment model, with teachers routinely leaving just about the time that they have the experience they need to be their most effective in the classroom.

The Corbett-Tobash pension plan – which the Governor is now selling on a statewide tour – would further destabilize teaching careers (as explained on page 14 of our pension primer analyzing the Corbett-Tobash plan). Under this plan, according to pension consultants to the Governor and the PSERS retirement system, benefits would be cut 40% or more for many career teachers. Given teacher salaries already 25% or more below comparably educated private sector employees on average -- further below in financially stressed urban districts (in which public salaries are lower than affluent suburbs by private sector salaries are higher) -- why remain a public school teacher?

The best teachers provide the best education, and the best teachers improve with experience. Our public schools, including in Philadelphia, need the resources to attract and retain the best teachers with adequate funding and an competitive benefit package. Where's the state plan for that?



Internet access taxes – let state and local government decide

July 14, 2014 - 10:01am

Since 1998 when it passed the Internet Tax Freedom Act (ITFA), Congress has banned state and local governments from enacting new taxes on internet access or including internet access in existing sales taxes. Now Congress is considering making the ban permanent. The House Judiciary Committee recently approved a bill that would do just that.

Permanently taking away the option of taxing internet access from states and local governments takes away the ability to raise new revenue from a growing sector of our economy for important public services like education. The Center on Budget and Policy Priorities estimates Pennsylvania loses $270,169,360 a year by failing to tax internet access.

With revenues from other sources falling, especially from corporate taxes, Pennsylvania policy-makers need the ability to consider other options to fund crucial state government services and balance the budget. This year’s state budget will not fund state government for the full fiscal year, but that could have been eased with new revenue by simply extending the sales tax to internet access.

Permanently banning taxes on internet access is the exact wrong way to go. Congress should instead lift the ban and let state and local governments decide whether or not to tax internet access.

You can help make sure Pennsylvania and your local government have the choice to raise new funds for important public services and education from an internet access tax by contacting your member of the U.S. House of Representatives and urge him or her to oppose IFTA.

Why Triad Strategies is Wrong on Ride Sharing

July 9, 2014 - 9:43pm

Our recent blog on 'the Non-Sharing Economy' prompted a response from Roy Wells at Triad Strategies. Triad is the Harrisburg lobbying and public relations firm secured by Lyft to make the case that its services should not be subject to the same rules that govern cabs. We appreciate Roy's weighing in and giving us the opportunity for a deeper back-and-forth.

The core issue, as Mark Price explained, is that Lyft and Uber compete head-to-head with cabs. If, however, they are subject to a different and less costly set of regulations that will put downward pressure on cab driver wages (which are already pretty low). Dean Baker of the Center for Economic and Policy Research (CEPR) makes a similar argument in a blog published last month. Dean also suggested that it may be appropriate in some cities to modernize regulations governing both cabs and so-called ride-sharing services. Given unhappiness with Yellow Cab, Pittsburgh may be one of those cities.

Dean and KRC are not saying that we should stop Lyft or Uber from entering the market. We are saying that we need a level playing field. Or as Mark Price explained in his earlier blog: "There is no reason that Lyft, Uber and traditional taxi cabs can’t compete with one another to the benefit of riders. All we need is a common set of rules for traditional cabs and Lyft and Uber..."

Given the need for common rules, the Pittsburgh Post Gazette is off base in its call for "different rules" for taxicabs and ride-share services. There's no ambiguity regarding whether taxicabs and ride-share services compete in different markets: the services pitch themselves as a cheaper, more customer friendly version of taxicabs.

The idea that reducing regulation within a transportation market can lead to a race to the bottom in wages and benefits isn't just theory. This is what happened in parts of the U.S. trucking industry after it was deregulated in the late 1970s. Shipments of a truck full of goods from point A to point B became a game of how little per mile drivers would accept. Many of the drivers ("owner-operators") participating in this downward spiral owned their own vehicles. Some effectively worked for close to the minimum wage once you take into account capital, maintenance, and operating costs for their vehicles -- and would then drive unsafe numbers of hours to try to maintain a decent income. See Mike Belzer's Oxford University Press book Sweatshops on Wheels for all the details. (A March NLRB settlement points to the possibility of owner-operators in trucking being able to unionize, potentially ending what a recent Huffington Post story calls "30 years of ruthless exploitation.")

Are we setting up a downward spiral in compensation (after costs) in the taxi-cab industry and within the new ride-share sector itself? (The price wars between Uber and Lyft make this more likely.)

Will "owner-operators" find themselves working for close to the minimum wage?

What mechanism is in place to prevent that?

Spend a few minutes reading employee ratings of Lyft on "glassdoor" (a website at which employees can rate their employer), and you will see that the danger of this downward spiral is already plain to some Lyft drivers. It is also clear that some employees think the company is great.

How about crafting regulations that would make positive views that many employees now have of their jobs the dominant one after these companies grow much bigger in Pitttsburgh or elsewhere? For example, we could set a driver minimum wage (like Australia's "safety wage" in trucking, set high enough the drivers don't have to work unsafe numbers of hours to earn a decent living); or how about a regional union that includes taxicab drivers and ride-share drivers and that negotiates wage rates and reimbursement for use of your own rate at the IRS rate (currently 50 cents a mile)? Maybe these regulatory approaches would allow the positive innovations of ride-share apps to flourish while creating more full-time middle-class jobs and flex jobs that still pay decent wages.

Not interested...? Because, as Dean Baker would say, that sounds "complicated"? Or because Lyft is interested in making money and favors PUC regulations and state legislation that open the door to that without addressing job quality issues, directly or indirectly...?

Thought so.

The broader challenge posed by the ride-share debate is to figure out how to embrace new technology and the efficiencies and new services it promises, but in a way that sustains the American Dream of opportunity. In the economy as a whole as in the local ride services industry we haven't figured that one out yet.

The Not Sharing Economy: Lyft and Uber take aim at Pennsylvania

July 8, 2014 - 10:18am

The companies Uber Technologies Inc. and Lyft Inc. offer smart phone apps that allow you to find drivers available for hire. The companies have expanded rapidly in the last year and are just now hitting the City of Pittsburgh. 

Investigators from the Pennsylvania Public Utility Commission responsible for regulating taxi cabs caught the companies operating in Pittsburgh and two judges have issued orders for the companies to stop offering their services in the city.

As Josh Eidelson in Business Week notes, the conflict in Pittsburgh is not a new experience for the companies. They have also met with resistance in some other states and localities in which the firms began offering services without first obtaining regulatory approval.

Serious financial heavyweights back both companies, with Google among those investing in Uber and the hedge fund Third Point Capital among Lyft’s backers. Third Point Capital came to public attention recently, as Matt Taibbi explains, because it collected fees from public pension funds while its chief executive made philanthropic donations to organizations actively campaigning to eliminate public pensions.

Lyft has secured a Harrisburg lobbying and public relations firm to make the case that its services are different from those on offer by cabs and therefore not subject to the rules that govern cabs. That argument falls flat as it is clear these companies compete head-to-head with traditional taxi services. Taxi services are regulated to ensure clean and safe taxi services which also has the effect of elevating driver incomes. 

Today in Pennsylvania the typical cab driver makes about $22,000 a year which is just above what workers would make working full time at $10.10 an hour. While we actively campaign to raise the minimum wage to at least $10.10, the expansion of Lyft and Uber raises the risk that the incomes of drivers may stagnate or fall. That’s because if these companies get their way in Harrisburg and are allowed to enter the state without being required to follow a reasonable set of safety and insurance rules that govern existing taxi services that will allow lower fares and lower safety standards to displace traditional cabs.  That’s not competition that’s a race to the bottom that puts passengers at risk.

There is no reason that Lyft, Uber and traditional taxi cabs can’t compete with one another to the benefit of riders. All we need is a common set of rules for traditional cabs and Lyft and Uber with the aim of guaranteeing passenger safety.

Lyft and Uber are following the same “business model” as oil and gas companies that came to Pennsylvania early in the shale boom and have been engaged in a full-court lobbying campaign (including full-page ad buys in The Patriot News) in recent weeks to head off a common sense severance that benefit everyone not just gas company stockholders. If the sharing economy is just an expansion of economic activity in which business lobbyists buy the policies they want that also translate into stagnant or falling incomes for most people there’s nothing very new about it. Perhaps we should call it the “not sharing” economy.