JULY 29, 2010

Tough Questions for Pennsylvania Turnpike Commission

The PA Turnpike Commission (PTC) testified before the Senate Transportation Committee during this summer's special session on transportation funding. Most senators on the committee expressed concern on several aspects regarding the PTC.

Senators inquired about the new toll increase, 3% for E-ZPass users and 10% for cash paying drivers, starting January 2, 2011. Specifically, Sen. Gordner asked about news that the new toll increases will make Pennsylvania the most costly in the nation. PTC CEO Joe Brimmeier said these claims are false, and that 14 states have costlier roads.

What Brimmeier neglected to mention was the Pennsylvania Turnpike will in fact become the most expensive long toll road (roads 100 miles or longer) in the nation. It is true that some states have more expensive toll facilities, but those are limited to short range highways spurs and bridges. The Turnpike will cost 8.5 cents per mile after the toll increases.

The PTC is also $6.5 billion in debt, a debt that has nearly tripled in the last three years. Last month, Moody's downgraded its rating on some Turnpike bonds, and issued a negative outlook due to rising debt. Standard and Poor's also issued an analysis warning that steep increases to tolls will create public and political backlash. The CFO said the Turnpike has taken steps to address the bond issues that were not reflected at the time of Moody's downgrading.

Still, Sen. Earll said the debt gives her the "heebie jeebies" and that the Senate Transportation Committee will need to maintain pressure on the PTC, and evaluate whether administrative overhead is in line with the overall budget.

Both Earll and the committee chairman, Sen. Rafferty, questioned some of PTC positions with high salaries and ambiguous names, asking about their purpose. The PTC has been successful in eliminating 15 management positions and 180 collector positions, but still has nearly 2,100 employees, and still has many more workers per mile than PennDOT.

The PTC has a long history of corruption dealing with patronage, inefficiency, and litigation.

To be fair to the PTC, the commission has made some improvements, which several of the senators attributed to talks of privatizing the Turnpike (the PTC was scared into an attempt at efficiency). The Commonwealth Foundation has touted the benefits of a Turnpike lease in the past. Some steps the PTC is taking to "act more like a private business" (in the words of the CEO) include:

• Outsourcing its plaza service to HMS Host and Sunoco, which is saving the expense of $170 million to build new service plazas.
• A partnership with State Farm to enhance road safety through the "State Farm Safety Patrol." State Farm has paid to brand PTC-owned and operated safety vehicles.
• A partnership with TransCore, to operate the "back-office" operations of the E-ZPass accounts.
• Becoming more transparent through the 2008 introduction of an Electronic Bidding System. Bids are advertised on the Turnpike website.

Many senators reiterated the necessity of having more frequent meetings with the Pennsylvania Turnpike Commission in order to promote progress and observe the debt situation.

posted by NATALIE ROGOL | 11:07 AM | 1 comment

JULY 28, 2010

Corbett on Death Tax and Farmers

Governor hopeful, Tom Corbett, has voiced support for phasing out the state's death tax. At a meeting organized by Farm Families for Tom Corbett and Pennsylvania Agricultural Republicans, Corbett cited the state death tax (inheritance tax) as one of the primary challenges to dairy farmers.

Pennsylvania is one of only eight states in the nation to still apply an inheritance tax, and in 2008, collected the highest percentage of state revenue (at 2.5%) of all states through the death tax. The death tax often hurts small, family owned businesses and farms. Last fall, the Pennsylvania Family Institute released a report outlining the costs the (primarily federal) death tax has on our state's economy.

Eliminating the death tax would present far more benefit to farmers than subsidies could achieve. Corbett seems to be following CF advice by supporting the phase out of the state death tax.

posted by NATALIE ROGOL | 00:38 PM | 1 comment

JULY 21, 2010

$316,000 Apartments for Low-Income Families in Tamaqua

The Pennsylvania Housing Finance Agency (PHFA) has approved $3.8 million in financing to convert an old building in Tamaqua into 12 apartments to house low-to-moderate tenants. The committee awarded Tamaqua Area Community Partnership (TACP):

• $500,000 from PennHOMES (a state agency)
• $2.3 million in federal housing tax credits
• $481,000 in historic preservation tax credits
• $450,000 will come from local equity

TACP was founded in 1994 with the help of now-Sen. Argall. If the organization sounds familiar, it might be because it was involved in a scandal-of-sorts, at the start of 2010, when they used taxpayer money to buy a property and then sold the property to a former board member for less.

At $3.8 million, 12 apartments will cost $316,000 each. With $3.8 million, PHFA could build 25 new $150,000 homes for families.

TACP was awarded historic preservation tax credits to convert the building, which originally was a boxing hall, and more recently, an archery range and gymnasium. You can check out the first link to see this "historic building" for yourself. This serves as yet another example of why taxpayers need greater spending transparency and accountability in Pennsylvania.

posted by NATALIE ROGOL | 03:30 PM | 0 comment

JULY 20, 2010

PA's Largest Employers Then and Now

The Center for Workforce Information & Analysis provides a list of Pennsylvania's top 50 employers in ranked order. In 1967, Pennsylvania's top five largest employers were:

• U.S. Steel Corporation
• Bethlehem Steel Company
• Westinghouse Electric Corporation
• Bell Telephone Company
• General Electric Company

In the 4^th quarter of 2009, the top five employers were:

• Federal Government
• Pennsylvania State Government
• Wal-Mart Associates Inc.
• City of Philadelphia
• University of Pennsylvania

Sears Roebuck & Co. is the only company that was on Pennsylvania's Top 50 Employers list from 1967 to remain on the 2009 list.

An important observation can be drawn from the list - the economy and business structure of Pennsylvania is constantly changing. Before (in the 60's and 70's) manufacturing, electricity, and a handful of merchandise stores dominated. Today, it's federal and state government employment with a strong presence of hospitals, large higher education institutions, and big box retailers.

It's natural for the business structure to change and impossible to predict which businesses will be around in 20, let alone 50 years. This is why government intervention in the form of corporate welfare is nonsensical at best. Bailouts and bribes take power away from the consumer and to concentrate it in the government.

posted by NATALIE ROGOL | 09:23 AM | 1 comment

JULY 19, 2010

Why States Delay on Fiscal Crisis

States have delayed taking substantial action in the fiscal crisis many now face. Though it appears unlikely that states will default on their debts, some pundits fear that option is not out of the question.  

An article from Real Clear Markets writes about options and practices of states dealing with debt.  States generally have two broad responses in controlling debt: raise taxes or cut spending.  Republicans generally prefer to maintain or cut spending without raising taxes, while democrats (and big labor) largely favor tax increases to fund spending.  States engaged in this deadlock make little progress as the "Left and Right are playing a game of fiscal chicken, believing the other side will blink when the state gets to the fiscal brink."    

The article comments on this discord (each side waiting for the other to give in) and explains how states could default in order to be bailed out by the federal government.  The article points out that legally, states are not allowed to go bankrupt, but the federal government should act now to create the expectation that states will not be bailed out. 

posted by NATALIE ROGOL | 04:30 PM | 0 comment

JULY 14, 2010

Combined Reporting Has Consequences

Lancaster Online recently produced a number of articles concerning Mandatory Unitary Combined Reporting, one of many tax revenue increases offered by Governor Rendell. Combined Reporting did not make it into this year's budget, but will likely continue to show up in future talks and legislation.

Combined Reporting would require every corporation - jointly with its subsidiaries and all affiliated businesses - to file under one unitary tax return, ostensibly to remove the "Delaware Loophole" and eliminate tax evasion.

The Commonwealth Foundation most recently addressed the topic in its Budget Facts: Corporate Taxes. Highlighting some of the more poignant myths, including the myth that 71% of businesses do not pay corporate income taxes. This is misleading as many of these companies do not make a profit, and are, therefore, not required to pay a corporate income tax. Also, a substantial amount of these companies are no longer in operation, and the proportion of businesses "not paying taxes" is similar in states with combined reporting.

In fact, the tactic is so above-board that several sources interviewed for this story said state officials advise corporations that are leery of Pennsylvania's high corporate income tax to contact an attorney or accountant about setting up a passive investment company.

The Pennsylvania Department of Revenue has audited companies, disallowed expenses for certain payments made to passive investment companies and issued tax assessments, Weyant said.

posted by NATALIE ROGOL | 00:33 PM | 0 comment

JULY 12, 2010

State Feeds Addiction by Creating A New Bureaucracy

Pennsylvania will soon be introduced to a new state bureaucracy. As lawmakers were finishing up the state budget, legislation was overwhelmingly approved and later signed by the Governor, to create a new department (subscription only), the Department of Drug and Alcohol Programs. Oversight of the state's drug and alcohol programs currently resides within the Department of Health.

Extra costs for this new department are estimated to be around $1.5 to $2.1 million. The bill's sponsor, Sen. Pat Browne, R-Lehigh, said the department will "consolidate" and create a "cohesive" strategy for the investment of dollars into state drug and alcohol programs.

Sen. John Wozniak, D-Cambria, voiced criticism against the department, saying the state has "just come off a very, very, very, very, very, very, very, very tough budget year back-to-back." He also pointed out that the department would start out small but would likely grow over the upcoming years.

However, Wozniak acknowledged the state does have drug and alcohol problems. In fact, state government also suffers from addiction, and their drug of choice is spending! In a budget year riddled with shortfalls and stimulus funds that will disappear, a $2.1 billion department seems financially burdensome.

Also attached to this bill were changes to the Pennsylvania Higher Education Assistance Agency, or PHEAA. Some legislative board members are to be replaced with private sector individuals experienced in finance, banking, and term lengths will be reduced to four years. These changes are a positive step towards privatizing PHEAA to create a more efficient and productive agency.

posted by NATALIE ROGOL | 03:51 PM | 0 comment

JULY 2, 2010

Credit to be Offered at PA Casinos

Last week, the Gaming Control Board approved regulations for "casino credit." Now patrons can effectively take out a loan of credit to play table games and slots, with no legal cap established.  The casinos are to have access to some of the applicant's financial information, such as bank accounts and credit information; and are also cross-checked against Central Credit, an international database.  Applicants can be approved within hours, and can even apply ahead, so their credit is available for pick-up upon arrival at the casino.  Casinos are responsible to collect the debt if patrons fail to pay back the credit. 

Offering credit is supposed to attract high spending players, who often spend hundreds of thousands of dollars, or more, during their visit.  In Atlantic City, one player walked away $10 million dollars poorer after using credit lines.  However, some question Pennsylvania's ability to attract high rollers.  Pennsylvania's casinos are not located very near each other, so players cannot easily switch venues.  Also, Pennsylvania has a higher tax on table games (16%) than do Atlantic City and Las Vegas.  This may hinder PA casinos' ability to offer free perks (i.e. airfare, limo rides) to attract high spenders. 

The Morning Call has a pretty good article about the new casino credit.  With, or without, casino credit, table games will not offer predictable tax revenue.   

posted by NATALIE ROGOL | 08:56 AM | 0 comment

JUNE 30, 2010

When Unions get Violent

Last Wednesday, men clutching baseball bats attacked construction workers at the King of Prussia mall outside Philadelphia. Workers arriving to the site of the new Toys-R-Us store found their entrance blocked by protesters of Local 401 of the Iron Workers Union. The non-Union construction workers waited in a mall parking for police assistance. Shortly after, a black sedan rolled up to the two construction vehicles, the passengers of the car proceeded to bash in the windows. When a few workers left the trucks, two were beaten, with one having to be hospitalized.

In another recent occurrence, towards the end of May, SEIU union members protested outside the home of Greg Baer, deputy general counsel at Bank of America. The union members were driven to the home in 14 school buses and received a police escort. Baer's terrified 14 year old son was home alone, and locked himself in a bathroom until his father arrived.

These are not a isolated events; since 1975, there have been more than 9,000 reports of union violence.

posted by NATALIE ROGOL | 08:47 AM | 0 comment