A majority of Pennsylvanians want pension reform. In a poll conducted from October 4th to 9th, 54 percent of voters supported placing new state employees in a 401(k)-style retirement plan. Pension reform isn't a partisan issue: 67 percent of Republicans, 51 percent of Independents and a plurality of Democrats are in favor.
Lawmakers appear to be obliging voters. According to Capitolwire (subscription), legislative leaders are considering a side-by-side hybrid plan for new employees. The proposal is similar to the plan defeated in December, which was linked to a major tax hike.
As we've noted before, this type of pension reform fails to fully remove politics from pensions, but takes an important step in the right direction. Under a hybrid system, new employees enroll in a defined contribution plan and a defined benefit plan. Only the defined benefit component would be subject to political manipulation.
The details of the plan are still murky, but pension reform that moves towards a defined contribution, or 401(k)-style plan, is an improvement upon the status quo.
RELATED : TAXES & SPENDING, PUBLIC EMPLOYEE PENSIONS AND BENEFITS
This morning, APSCUF, the union representing 5,000 faculty at the State System of Higher Education schools, went on strike.
As we pointed out a few weeks ago, one of the sticking points in contact negotiations is APSCUF’s health care demands. Despite being offered a 12 percent pay increase, the union refuses to accept modest cost-sharing for health insurance. Nevermind that the proposed cost-sharing is far more generous than what most workers in the private sector receive from their employers.
To enforce discipline, APSCUF leadership has threatened faculty who don’t agree with the strike.
As reported by Fox43, here is an email sent from an APSCUF chapter president—using his university email address—to faculty, implying anyone choosing to work during the strike would be “forever” labeled a “scab” (emphasis added):
This is probably the last EMAIL you will receive from me using the SRU addresses. We begin using off-campus address today.
Dear Colleagues but especially to those who are unsure if they will work during the strike,
Personally I hate being told what to do by anyone – be they presidents of universities or unions. But at the risk of being too direct, I want to help you in your decision-making if you are thinking about working during the strike, also known as “crossing the picket lines.”
IF YOU CROSS THE PICKET LINE you will be effectively saying to your colleagues on the line that you disrespect the sacrifice they are making in terms of making a stand and going without pay and benefits. You would be effectively prolonging the strike by continuing to work so the administration can maintain a fig leaf of “business as usual.” By your actions you are saying that you choose to continue to enjoy pay and benefits hard-fought by colleagues over the decades, but will not do your part NOW to take a stand to defend those benefits. You are effectively saying to the SSHE that their proposals are OK with you to:
* Cut pay of our adjunct faculty (25% of our colleagues)
* Give up the concept of shared governance
* Be reassigned any time as needed by administration
* Have reduced say in tenure, sabbatical and promotion decisions
* Work for little or no net pay increase
If you decide to work during the strike, i.e., cross the picket line, you will be faced with:
* Colleagues who will try to convince you not to cross the line
* Peer rejection
* Being publicly identified as a “Scab” (strikebreaker) forever
What makes this university a great place to work is our colleagues. We look out for each other, we respect each other, we defer to each other, we support each other, and we value each other. This collegial atmosphere is a two-edged sword. If one betrays his or her colleagues, the reaction could be negative. Strikes are unpleasant – relationships can be harmed long-term. If we have a brief strike, do you want to be branded by your colleagues forever as one of the few who crossed the picket line? I don’t recommend it.
Sorry for the negative tone of this message, but I want it to be clear to faculty who are considering working during the strike that they will potentially face negative judgement by colleagues. If we are solid and unified, a strike will be brief. Plan to honor the picket lines and stand with us.
RELATED : HIGHER EDUCATION, UNIONS & LABOR POLICY
What are the roots of conservatism? How has conservatism and its messengers changed over time and what are the consequences for the nation?
Political commentator Matt Lewis, author of “Too Dumb to Fail,” answers these questions and more in our latest podcast.
Matt argues, “Conservatism started out as a thoughtful, intellectual philosophy,” but it has been “dumbed down” because of perverse incentives and short-term thinking.
To stay relevant, Matt says conservatives must overcome the media’s soundbite culture and advocate for long-term policy solutions consistent with the values of our nation’s founding.
RELATED : GENERAL, PRINCIPLES
Pennsylvanians shopping on the health care exchange are in for a rude awakening. Yesterday the Insurance Department announced premiums for individual plans will increase by an average of 32 percent. The largest hike is for Highmark customers who will see a 55 percent jump in premiums. Nine companies requested rate increases of more than 10 percent this year, roughly twice the number of double-digit rate hike requests from 2016.
As premiums and deductibles continue to climb, enrollment is on the decline. There were 412,347 Pennsylvanians using exchange insurance in March 2016, down from a high of 472,697 in January 2015. The lack of interest from healthy Pennsylvanians is driving insurance companies to the brink.
Wes Venteicher with the Tribune Review reports, "[Insurance Commissioner] Miller said the final rates followed a back-and-forth in which insurers threatened to abandon the market, which could have left some counties with no insurers selling the plans." It's a familiar refrain across the country.
Earlier this year, the insurance commissioner from Tennessee described the state's Obamacare exchange as "very near collapse" after approving significant premium hikes, including a 62 percent premium increase for Tennessee Blue Cross, Blue Shield.
But no amount of premium hikes could convince companies like Aetna or UnitedHealthcare to remain in Pennsylvania's exchange. Neither could hikes entice Blue Cross and Blue Shield of Minnesota or Texas’ Scott and White Health Plan to stay put.
The exodus of insurance companies from the exchange leaves many counties with one choice and, in the case of Pinal County, Arizona, no choice at all. Government officials have since convinced Blue Cross, Blue Shield of Arizona to provide insurance in the county. Back in Pennsylvania, residents in the southeast will have essentially one option since both participating insurers are subsidiaries of Independence Blue Cross.
What's more, Pennsylvania insurance companies are suing the federal government for "risk corridor" payments. The program was intended to stabilize the exchanges by collecting contributions from profitable insurers and redistributing those payments to insurers with significant losses. The problem is: insurers incurred $2.87 billion in qualifying losses, but ended up owing just $362 million in contributions. CMS paid $0.126 on the dollar to insurers—and plans to eventually pay out the rest, but insurers aren't waiting.
The slow death of state exchanges is a vivid example of Obamacare making health care more difficult to access. It's only a matter of time before the same trend appears for those using the Medicaid expansion.
Giving more control to regulators and bureaucrats failed. It's time to pursue health care reforms that empower patients. Namely, government should allow patients to decide which services health plans cover, end the tax bias towards employer-based insurance and provide genuine cost transparency. With these principles in mind, Pennsylvanians will finally be able to afford the care they need.
Note: This post orignially indicated Blue Cross and Blue Shield of New Mexico left the state exchange. While the company did not offer plans in 2016, they are reentering the exchange in 2017.
RELATED : JOBS & ECONOMY, HEALTH CARE
Why are taxpayers being charged for money left unspent? This question is posed by NBC 10 reporter Mitch Blacher to public school administrators in southeastern Pennsylvania districts. An NBC investigation found eleven of twelve districts overestimated—for multiple years—how much they would need to raise in new taxes.
NBC spoke with a former school member who blew the whistle on consistent over-budgeting in Unionville-Chadds Ford.
Oddly, a Downingtown Area Superintendent defended the practice by arguing, “There’s a history to this. This is 20 years of us doing this.”
Indeed, there is a history of Pennsylvania school districts requesting higher taxes while holding large sums of money in reserve funds. See CF’s recent analysis of all 500 districts comparing fund balance information with requests to raise taxes above the state-mandated cap on property tax increases.
RELATED : ACCOUNTABLE GOVERNMENT, TAXES & SPENDING, PROPERTY TAXES, TAXATION
Pennsylvania’s private school scholarship programs account for less than 2 percent of the $11 billion in state funds allocated for public schools. Yet it is impossible to overstate the significance of these programs for children and families.
Kevin McCorry of Newsworks tells the story of Thomas Short, a parent in South Philadelphia, who can send his sons to private school thanks to the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs:
The only way he's able to afford Catholic school tuition is because he takes advantage of a scholarship program that's funded by state tax credits. Tuition for two children normally runs north of $9,000 per year.
With the scholarship, he pays just $1,500.
"Without this, [they're] not going here," he said.
According to Mr. Short, St. Thomas Aquinas Elementary is a better option than the traditional district school:
Short's perception of the nearby neighborhood public schools is low.
"They're not trying to develop the person as much as just trying to get them through to the next grade," he said. "I don't know why I'm saying that. It's just my opinion. Maybe that's how the public schools used to be back in the day when I went."
If House Speaker Mike Turzai has his way, the EITC and OSTC will see a sizable boost during the next fiscal year. Speaker Turzai recently released a co-sponsorship memo for legislation increasing the caps on how much businesses may donate to both programs—up from $175 million to $250 million.
This, on the heels of a $25 million EITC increase last July, would be welcome news for families and schoolchildren across the commonwealth.
RELATED : EDUCATION, EDUCATION SPENDING, SCHOOL CHOICE
In the past six years, Pennsylvania taxpayers’ unfunded pension liability has more than doubled from less than $30 billion to $63 billion.
While the legislative debate over reform continues, Pennsylvania taxpayers and state workers are sinking deeper into the pension crisis. A recent Moody’s report on state pension liabilities concludes states with large gaps, like Pennsylvania, will be forced to direct more money toward their pension systems just to keep unfunded liabilities from growing. That means fewer dollars for schools, roads, and other basic services.
A big reason for the growing funding gap is lower than expected investment returns.
The State Employee Retirement System (SERS) assumes a 7.5 percent rate of return for investments, but the actual rate of return was only 0.4 percent in 2015. In the first half of 2016, SERS reported a 2 percent investment return.
The much larger Pennsylvania State Education Retirement System (PSERS) isn’t fairing much better. The fund earned just 1.29 percent for the fiscal year, ending June 30th. Recognizing the reality of today’s economy, the system reduced their assumed rate of return from 7.5 percent to 7.25 percent starting July 2016.
Unfortunately, Governor Wolf vetoed reform back in June 2015 which included a defined contribution, alongside a “cash-balance plan”, for new employees only. This legislation was itself a compromise from a straight 401k-style plan that would provide adequate retirement benefits while being, by definition, fully funded.
By December, the Senate crafted a side-by-side hybrid pension model. The hybrid model allowed new employees have both a (smaller) defined benefit pension and a defined contribution plan from dollar one. While less than ideal, the plan would significantly reduce taxpayer risk, a step in the right direction.
In June, a different reform proposal passed the state house. This stacked-hybrid plan includes a defined benefit plan for workers until they reach $50,000 in salary (or 25 years of service), followed by a defined contribution plan. However, the $50,000 threshold would increase by 3 percent annually--greatly limits the number and extent of employees participating in the defined contribution plan.
There’s no question pension reform is urgent. Lawmakers must prioritize proposals with a stronger defined contribution component while preventing political manipulation of pension payments. Anything less will keep government budgets squeezed and taxpayers exposed to tremendous risk.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, PUBLIC EMPLOYEE PENSIONS AND BENEFITS
In June, CF published a searchable database showing fund balance data for each of Pennsylvania’s 500 school districts as of 2015.
Given the recent Lower Merion School District lawsuit—in which a judge found Lower Merion’s school board improperly raised taxes despite flush fund balances—we have taken the database a step further and examined which districts have accumulated large fund balances while also requesting tax hikes.
This new database shows total fund balance along with requested tax increases, per student, for each school district.
Here’s why this is important:
The Taxpayer Relief Act of 2006 (Act 1) was intended to limit property taxes and empower Pennsylvanians with referenda on real estate tax hikes. Each September, the Pennsylvania Department of Education (PDE) calculates the base Act 1 index for the following fiscal year. This index is the maximum allowable school district tax increase, usually between 2 and 4 percent.
After the index is announced, districts must do one of two things: pass a resolution promising not to raise taxes above the index, or pass a preliminary budget identifying proposed tax increases above the index. Districts adopting a preliminary budget must either initiate a voter referendum on the tax hike or apply for referendum exceptions from PDE.
In practice, virtually all districts seeking to raise taxes above the index apply for, and receive, exceptions. Since 2006, there have been seldom few property tax referenda, and property taxes have continued to rise.
Our new database displays how much each school district requested to raise taxes (above the index) in its preliminary budget. A blank cell means the district did not request tax increases above the index. It does not necessarily mean the district avoided tax hikes altogether.
Further, see this list of 8 school districts with fund balance percentages larger than Lower Merion’s that also requested tax increases above the Act 1 Index in 8 or more of the last 10 years.
Unlike residents in the majority of other states, where school districts must hold a referendum vote in order to approve new taxes, residents of the commonwealth have little control over real estate tax hikes. All the more reason to pass SB 909, which would require both voter referenda for any school district tax increase, as well as public sector pension reform, which is each district’s largest cost driver.
RELATED : ACCOUNTABLE GOVERNMENT, EDUCATION, EDUCATION SPENDING, TAXES & SPENDING, PROPERTY TAXES
The National Center for Education Statistics recently released 2013-14 figures on revenues and expenditures for U.S. public schools. How does Pennsylvania stack up when it comes to funding?
On a per-pupil basis, Pennsylvania exceeds the national average in revenue from local, state, and federal sources. Overall, public schools in the commonwealth are funded 9th highest in the country and $3,500 more than the national average.
Note that these figures are for the 2013-14 school year and thus pre-date Tom Wolf's tenure as governor.
RELATED : EDUCATION, EDUCATION SPENDING
Pennsylvania’s state budget is three months old and showing signs of a major budget deficit.
Actual revenue collections are already behind $218.5 million through the first quarter, according to the Pennsylvania Department of Revenue. 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 optimistic. The chart below shows revenue collections lagging official estimates in each of the first three months.
In August, the Independent Fiscal Office identified problems with certain revenue projections used to balance the budget—at least on paper. Here are their major assumptions:
- 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.
Moreover, the budget was unbalanced from the start. The budget counts on $260 million in one-time revenue and transfers from other funds, and 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. Such as,
- Cutting back on $800 million in arbitrary corporate welfare,
- Immediately imposing a (real) hiring freeze and travel ban, and
- Reviewing funds outside the General Fund budget for savings.
As the fiscal year progresses, and more revenue collections are announced, we will continue to update our Deficit Watch.
RELATED : TAXES & SPENDING, CORPORATE WELFARE, PENNSYLVANIA STATE BUDGET, PORK SPENDING, PUBLIC EMPLOYEE PENSIONS AND BENEFITS, SPENDING LIMITS, TAXATION
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.