Pennsylvania Deficit Watch: December 2016

DECEMBER 2, 2016  | by BOB DICK

Pennsylvania Deficit Watch

State revenue collections came in at $79.5 million below the official estimate for November, according to the Pennsylvania Deparment of Revenue. Lackluster collections wiped away the little progress made during October when revenue collections slightly exceeded expectations.

Overall, Pennsylvania collected approximately $2 billion last month, which was 3.8 percent less than anticipated. To date, revenue collections are $261.8 million below estimate.

In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending. The revenue assumptions built into the billion dollar package are proving unrealistic.

The chart below shows revenue collections lagging official estimates in the first five months of the fiscal year.

Back in August, the Independent Fiscal Office (IFO) released a report identifying major problems with the revenue projections lawmakers used to create the appearance of a balanced budget. To present a more accurate picture of Pennsylvania's finances, the IFO made the following adjustments:

  • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have expressed an interest in passing gambling expansion to generate $100 million to cover CFA spending, but no enabling legislation exists.
  • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.

In reality, the budget was unbalanced from the start, counting on $260 million in one-time revenue and transfers from other funds. It also includes a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Ideas to consider include,

With seven months left in the fiscal year, revenue collections can improve. But lawmakers should start putting together a plan to balance the budget now in case revenues don't match expenditures come June. The last thing taxpayers need is another tax hike to cover last year's bills.


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Details Emerge on Philly Union Negotiations

NOVEMBER 29, 2016  | by JAMES PAUL

Intrepid reporter Kristen Graham of the Philadelphia Inquirer unearthed several details from contract negotiations between the school district of Philadelphia and the local teachers’ union, the Philadelphia Federation of Teachers (PFT). Currently, the district is operating under the most recent labor contract, which expired three years ago. Per Graham, the district proposed a $100 million offer—despite facing a $500 million shortfall by 2021:

The deal would include restoration of "step" increases, or pay bumps for years of experience. It would also include incentive bonuses over the life of the four-year pact for teachers in hard-to-staff schools, and it would give raises to teachers now at the top of the pay scale, according to sources familiar with the talks.

By way of background, 18 percent of Philadelphia students in grades 3-8 are proficient in math, with 32 percent proficient in English.

For union leaders, health care concessions have long been a sticking point:

The deal on the table would also require teachers to begin contributing toward their health-care costs. They do not currently pay toward those premiums.

That the district insists on teachers paying something toward health premiums is promising. These contributions are commonplace in the private sector and among public employees.

Notably, the district prefers to fill teacher vacancies with the best available candidates, not simply the teacher with the most seniority. This irks PFT President Jerry Jordan:

All future teacher vacancies would be filled by "site selection" rather than seniority, giving principals and school communities the power to hire candidates based on fit rather than be forced to accept them based just on experience.

Jordan called that proposal "very disrespectful to members." Now, principals can remove teachers from buildings not for performance, but for "compelling reasons," a practice he said sometimes results in unfair treatment.

Hite said that universal site selection has generated real improvements in schools and that it would be better to put processes in place to deal with potential unfair treatment than to scrap the system.

How strange that an organization billing itself as serving students’ best interests would defy reforms that staff classrooms with the most qualified candidates. Nevertheless, the union is not responding warmly to the district’s offer. Jordan says he will not even take it to his members for consideration. 

Where do negotiations go from here? It’s difficult to predict. Graham quotes a source who described the union’s counter-offer as “fiscally irresponsible and completely unworkable,” which doesn’t instill confidence in a quick resolution.

It would be illuminating to know more about the terms of each side’s proposal, but unfortunately these negotiations take place behind closed doors, without taxpayer input. All the more reason for enhanced contract transparency at the local level.


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Government Unions' Election Impact

NOVEMBER 22, 2016  | by ELIZABETH STELLE

One can't understate the scope of government unions' financial involvement in some of the key Pennsylvania races this fall. While final campaign finance numbers are still a few weeks away, total spending through the beginning of November shows government unions invested heavily in contentious races.

With the help of taxpayer funded-resources, government unions were able to direct $7.5 million to US senate candidate Katie McGinty and $253,465 to Attorney General-elect Josh Shapiro. In contrast, government unions spent zero dollars in favor of US Senator Toomey and $72,750 in favor of State Senator John Rafferty.

 

In fact, about $7,000 to support Katie McGinty came directly from union dues, not voluntary contributions from union members.

In the Attorney General race, government unions were responsible for $253,465 of the $6,401,746 spent in favor of Josh Shapiro. That's about three and half times the $72,750 government unions contributed to support John Rafferty. In total, $1,834,902 was raised to support Rafferty's bid.

Unlike any other private group in Harrisburg, government unions enjoy the special privilege of funneling PAC and election education spending through the taxpayer-funded payroll systems. In other words, they use taxpayer resources to collect purely political funds. That's a double standard that must end with the passage of paycheck protection.


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The Rust Belt's Labor Reform Wave

NOVEMBER 18, 2016  | by ELIZABETH STELLE

Lagging job growth, rising taxes and coercive union tactics created an appetite for labor reform throughout Rust Belt states.

Transforming Labor, our latest policy report, ranks states on their progress towards reforms that can produce budget savings, shield taxpayers from overspending, and guarantee greater protections of individual workers’ freedom of association.

The report also recounts recent reforms. Nowhere did labor reform make a bigger impact than Wisconsin.

Wisconsin’s Act 10 of 2011 made sweeping changes by limiting collective bargaining for public sector workers to base wages and requiring employees to contribute more toward their health and pension benefits. According to the MacIver Institute, state retirement savings alone amounted to $3.36 billion from 2011 to 2016, and Milwaukee Public Schools alone saved $1.3 billion in long-term pension liabilities. That’s a big win for taxpayers.

In 2012, Michigan, the historical home of unionization, passed a right-to-work law.

The Michigan Education Association (MEA) quickly moved to enforce its “maintenance of membership” or opt-out clause for public school teachers who wanted to leave the union: The teachers could do so only in August. Many teachers were unaware of the obscure union resignation window and missed the opening. With the help of the Mackinac Center Legal Foundation, frustrated educators filed an unfair labor practice charge asserting that the MEA’s opt-out window violated the state’s right-to-work protections against forced union association.

In September 2015, the Michigan Employment Relations Commission ruled in favor of the teachers (a decision later upheld by the Michigan Court of Appeals), forcing the MEA to change its rules and bylaws. Michigan teachers may now leave the union whenever they please, a major victory for educator freedom across the state.

This week the Detroit Free Press wrote:

Workers must be willing — even in the face of intimidation and fear — to withdraw their union membership and stop funding their union’s political prejudices. It is the only tool they have to protect themselves from the political bias of the people who claim to have their best interest at heart

The same discontent is now creating momentum for labor reform in Pennsylvania. This session, Governor Wolf signed contract transparency legislation, Pennsylvania finally outlawed stalking and harassment during labor disputes and paycheck protection cleared the state Senate.

Pennsylvania still has a long way to go. Transforming Labor gives Pennsylvania’s public sector labor laws a D. In comparison, Wisconsin earned an A, and Michigan a B.

Labor reform isn't just critical for economic resurgence, it has election consequences too.

Michigan, Wisconsin, and Pennsylvania all turned out to be a critical factor in the presidential election. Politico noted organized labor’s historically low support for the Democrat nominee. The Fairness Center's Right on Labor blog documents the historic shift in voting patterns.

However, the gap between union leaders and their members shouldn't come as a surprise. Pennsylvania union households overwhelmingly favor reforms, like paycheck protection, that their leaders vehemently oppose.

The wave of union reform moving through the states shows taxpayers, union members and non-union members alike, understand worker freedom is a key ingredient to restoring prosperity.


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Big Budget Deficits Show Need for Big Changes

NOVEMBER 16, 2016  | by ELIZABETH STELLE

Pennsylvania is in a pickle unless lawmakers make fundamental changes. That’s the message of yesterday’s Independent Fiscal Office Economic and Budget Outlook report.

Each November the IFO looks at the fiscal health of the commonwealth and, to no one’s surprise, they find our current budget isn’t balanced. The IFO projects a $524 million deficit by the end of this year, plus a possible $388 million in supplemental appropriations. That means lawmakers may have to find $912 million dollars come June to balance this year’s budget, let alone create a balance budget for next fiscal year.

Based on the IFO numbers, $650 million tax hikes on vape stores, cigarettes and digital downloads did little to fix Pennsylvania’s long-term fiscal issues. The IFO provided chart below shows expected budget deficits for years to come under the status quo.

General Fund Balance Sheet

Tax hikes are not a solution to Pennsylvanian’s annual budget deficit problem. State spending will continue to exceed state revenue until we make fundamental changes to the budgetary cost drivers.

What are the cost drivers? Human Services, pensions, debt services and employee/retiree health care. In fact, long-term living and Medical Assistance, both under the Department of Human Services will increase by a projected $844 million next year.

The doom and gloom predictions can be avoided if Pennsylvania takes bold action now. Letting another year go by without true pension reform, Medicaid reform and reductions to corporate welfare programs that run up our borrowing will increase the chances of broad based tax hikes.


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The Taxpayer Protection Act is Crucial for Pa.

NOVEMBER 11, 2016  | by BOB DICK

Under Gov. Wolf's administration, state spending has risen by $2.6 billion. For context, spending over the previous eight years grew by $2.7 billion.

Total spending would be higher if it weren’t for fiscally conservative lawmakers who opposed the governor’s budget requests. However, budgets approved by the legislature have not completely kept spending in check.
 

 

Failure to restrain spending makes the Taxpayer Protection Act (TPA) all the more necessary.

The TPA can reduce unsustainable surges in spending by capping this growth to an index of inflation plus population. The TPA index for the current fiscal year is 1.02 percent, which allows for a $305 million spending increase. This cap would have required lawmakers to prioritize spending. Without the TPA in place, an unusually large spending increase was the end result.

Now, tax hikes accompanying higher spending levels are having dramatic consequences for Pennsylvania residents. Further harm is possible if state government doesn’t embrace a course correction toward fiscal responsibility. A correction starts with the TPA, which will make a real difference in the lives of working people.

Here’s how: If the TPA were law during the last two fiscal years, spending would have increased by approximately $800 million—a savings of $1.9 billion, or $150 for every Pennsylvanian. If the TPA were law since 2000, taxpayers would have realized a cumulative savings of more than $22.2 billion or $1,738 per person.

With Harrisburg a little leaner, Pennsylvanians will have an easier time paying their bills, starting a business, or giving their employees a raise. This shift of economic power from government to Pennsylvanians is the key to economic prosperity.


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Pennsylvania Deficit Watch: November 2016

NOVEMBER 10, 2016  | by BOB DICK

Pennsylvania Deficit Watch

Last month we raised concerns about Pennsylvania's fiscal trajectory. At the time, state revenue collections were more than $218 million below the official estimate. The current revenue picture is slightly better.

Pennsylvania collected approximately $2.2 billion last month, which was $36.1 million more than anticipated. Still, to date, revenue collections are $182.4 million below estimate.

In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending. The revenue assumptions built into the billion dollar package are now proving unrealistic.

The chart below shows revenue collections lagging official estimates in the first third of the fiscal year.

Back in August, the Independent Fiscal Office (IFO) released a report identifying major problems with the revenue projections lawmakers used to create the appearance of a balanced budget. To present a more accurate picture of Pennsylvania's finances, the IFO made the following adjustments:

  • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have expressed an interest in passing gambling expansion to generate $100 million to cover CFA spending, but no enabling legislation exists.
  • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.

In reality, the budget was unbalanced from the start, counting on $260 million in one-time revenue and transfers from other funds. It also includes a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Ideas to consider include,

With two-thirds of the fiscal year remaining, revenue collections can improve. But lawmakers should start putting together a plan to balance the budget now in case there isn’t enough revenue to cover expenses come June. The last thing taxpayers need is another tax hike to cover last year's bills.


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A Dramatic Shift in Pennsylvania

NOVEMBER 9, 2016  | by ELIZABETH STELLE, DAWN TOGUCHI

From celebration to soul-searching, post-election analysis is everywhere.

While top-of-the-ballot results dominate headlines and your news feed, don’t miss the dramatic shift that occurred last night in Pennsylvania.

Republicans achieved historic majorities in both chambers. In the state House, Republicans will control 60 percent of the seats for the first time in 70 years. In the Senate, Republicans will field the largest majority of any party in 68 years. But that's only part of story.

For years, we’ve talked about the Taxpayer Party vs. the Big Government Party in Harrisburg. Partisan labels aside, the real question is whether a lawmaker represents taxpayers’ interests or toes the government union leaders’ line.

While the Taxpayer Party has grown over the years, it couldn’t always overcome the strength of the Big Government Party. We saw this last month. Pension reform legislation fell three votes short in the House.

Last night in Pennsylvania and around the nation, the Taxpayer Party saw significant gains in state legislatures. Election results in states like Wisconsin, Pennsylvania, and Michigan showed the political benefit of taking on powerful government union interests to protect taxpayers from tax hikes and special political privileges.

It is no coincidence that over the past five years, Wisconsin and Michigan took bold steps to strengthen the Taxpayer Party, including limiting collective bargaining and passing right-to-reelect and right-to-work legislation.

Similarly, as the Taxpayer Party has grown in Pennsylvania, we’ve begun to see results. For example, Governor Wolf signed contract transparency legislation, and paycheck protection cleared the state Senate. These steps are critical to address rising government spending that's consistently driven by the Big Government party.

Yet, despite the gains of the Taxpayer Party in the General Assembly, divided government will continue in Harrisburg. That's an opportunity.

With an extremely tough budget on the horizon in 2017, the newly minted Legislature must work quickly to address the underlying problems that drive budget debates: surging pensions costs and a broken and expensive welfare system.

What’s more, the strengthened Taxpayer Party has an unprecedented chance to seize opportunities like expanding access to quality education choices and finally removing the state from the booze business.

This will require immense effort and continued vigilance. We’re excited to work towards implementing these ideas to build a stronger, more prosperous Pennsylvania


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Can a Dwight Schrute Save Scranton?

NOVEMBER 8, 2016  | by BOB DICK

Dwight K. Schrute is an employee at Dunder Mifflin—a fictional Scranton paper company featured in NBC’s The Office. And he just may be the key to overcoming the city’s very real economic decline.

But before offering a way forward for Scranton, it’s important to understand why the city is struggling. A new paper from the Mercatus Center does an excellent job detailing the source of Scranton’s troubles.

The authors—Adam Millsap and Eileen Norcross—identify Scranton’s inability to adapt to changing economic conditions as one of the main reasons for the city’s economic and fiscal problems.

They specifically cite economist Ed Glaeser who wrote, “In the coal towns of central Pennsylvania, exodus, not innovation, was a more common response.” Glaeser's rhetoric matches reality. In 1930, the city’s population was 143,433. In 2014, it was just 75,281.

Regrettably, government policies only made things worse. Spending and taxes rose—forcing fewer taxpayers to pay for bloated budgets driven by public sector benefits. Millsap and Norcross cite the inflexibility of Pennsylvania’s collective bargaining process as the main culprit:

Act 111 is intended to give police and firefighters’ unions binding arbitration in exchange for a prohibition against striking. [26] However, the law evolved to “give uniformed employees the upper hand when it comes to collective bargaining.” [27] When negotiations between the city and unions break down, an arbitration panel of three people is selected. Municipalities are required to pay the full cost of arbitration, regardless of ability to pay. Arbitration sessions are not open to the public. The municipality has limited ability to appeal the panel’s decisions.

The chart below illustrates spending growth for police and fire services—a product of the state’s broken collective bargaining process.

Officials have tried to improve Scranton’s finances with a combination of tax increases, cost cutting, and asset sales but costs, thanks to pensions, continue to soar. They’ve also utilized government-subsidized development projects to boost economic growth but to no avail. Government-centric solutions simply aren't working.

To truly turn Scranton around, dramatic changes to state and local policies are necessary. At the local level, Millsap and Norcross recommend improving the city’s business climate by reducing the overall tax burden. Controlling spending is critical too. Officials can do this by privatizing government functionsthe city's parking authority is one possible option, according to the report.

At the state level, officials must reform the collective bargaining process to help distressed cities get control of their budgets. As it stands now, collective bargaining law imposes costs on cities without taking into account their ability to pay. By giving local officials more autonomy to negotiate with unions, they can better protect local taxpayers.

Back to Dwight Schrute. If you know the character, he has a reputation for being entrepreneurial and hardworking (also, a little quirky). If distressed places like Scranton and Uniontown are going to experience a revitalization, that's exactly the kind of people they'll need to attract. 

Ultimately, government can only lay the foundation for an economic turnaround. But if that foundation is strong, innovative, educated, and hardworking people can and will build upon it.


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Who Pays for SEPTA?

NOVEMBER 7, 2016  | by NATHAN BENEFIELD

Mass Transit

News reports today indicate SEPTA (the public transit agency serving the Philadelphia region) came to an agreement with the Transportation Workers Union Local 234—ending a six-day strike just before election day.

The agreement terms are not available, but SEPTA Chairman Pat Deon says:

It provides for wage increases, pension improvements, and maintains health care coverage levels while addressing rising costs.

Who will pay for this?

Currently, 49 percent of SEPTA’s operating budget comes from state taxpayers—almost double the average among transit systems nationally. In addition, 60 percent of SEPTA’s capital budget (i.e., funding for infrastructure improvement and new trains and buses) comes from the state.

What most people may not realize is most of this funding doesn’t come directly from taxes—though both the sales tax and lottery revenue subsidize transit systems. Rather, more than $925 million in driver charges, including Turnpike tolls and vehicle fees, are diverted to transit agencies, primarily SEPTA.

The Philadelphia Inquirer reports SEPTA will pay for the additional costs of the new agreement “out of its budget.”

Deon, who credited Evans with helping resolve the impasse, said SEPTA had the money in its budget to pay for the deal, and no new funds were needed. 

So, we can expect SEPTA won’t ask for an increased state subsidy? Or maybe will even refund some of the excess revenue to state taxpayers and motorists? Right?


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