Pittsburgh Mayor Peduto Warns Wolf on Pension Bonds


Public Pension Reform

This week, Pittsburgh Mayor Bill Peduto criticized Gov. Wolf’s plan to sell $3 billion in pension obligation bonds. In a meeting with editors and reporters from the Pittsburgh Tribune-Review, the city’s Democratic mayor explained that this same plan nearly led Pittsburgh into bankruptcy and that:

“One out of every $5 we spend every year just goes back to paying those old bonds. Not only that, but our debt ratio is higher than New York City's when they went bankrupt.”

With Pittsburgh facing a $1.2 billion pension obligation, Peduto said “[t]here has to be a new mechanism from the state in how pensions are paid.”

Luckily, there is.

Peduto, along with a number of mayors and local government officials, supports state legislation that would reform the municipal pension plans. Specifically, these bills would put new employees into a 401k-style plan, and move pensions out of the collective bargaining process. There is a growing bipartisan support for municipal pension reform across the commonwealth. 

And Peduto is far from alone in criticizing Gov. Wolf's ill-conceived pension obligation bond plan. Financial experts and rating agencies across the country have warned against using pension bonds to try to repay debt with more debt. Many cities, like Pittsburgh, and several states have tried to use pension bonds to get out of a bad financial situation—it hasn't worked yet.

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Which States Have the Biggest Tax Increases?


Previously, we blogged on how Gov. Wolf’s tax proposal raises more revenue than the tax proposals in the 49 other states combined.

To put this another way, Wolf’s $4.6 billion tax increase is nearly $4 billion more than any other state. Only two other states—Connecticut and Alabama—had tax proposals even one-tenth as large as Tom Wolf’s proposal.

It is no wonder the House overwhelmingly rejected the governor’s proposal, which failed to garner a single vote as it was defeated 0-193. 

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Pay No Attention to Those Tax Increases!


The liberal Pennsylvania Budget and Policy Center—an arm of the union-funded Keystone Research Center—has a new claim that Gov. Wolf's "property tax relief" is similiar to that in a bill passed by the House of Representatives earlier this year.

Unfotunately, PBPC's analysis offers virtually no discussion of the tax increases in these plans.

For starters, PBPC never mentions that Gov. Wolf’s tax plan, overall, is a net increase of $3.8 billion in 2016-17, according to the IFO. This jumps to a net increase of $5.2 billion in 2019-20. The same IFO report finds that households in every income bracket would pay more in net taxes under Gov. Wolf’s plan.

Yet, PBPC's news release claims Wolf’s plan has "similar sales tax increases as in the House plan" and says the plans raise "revenues from the sales tax by similar amounts."

In reality, Wolf’s tax plan calls for almost $4 billion in higher sales tax revenues in 2016-17, compared to $1.7 billion in HB 504.

Those totals are nowhere close to similar. That’s the equivalent of saying a 6-foot tall man and a 2-foot, 6-inch child are similar in height.

Tax Increases, Reductions Full Year Effects (2016-17/2017-18)
in millions
  Wolf Plan HB 504
Income Tax Increase $2,396 $2,710
Sales Tax Increases $991 $1,655
Expansion $2,979 $0
Total Sales $3,970 $1,655
Total Sales + Income $6,366 $4,365
Other Tax Increases $1,009 $0
Total Tax Increase $7,375 $4,365
Property Tax Reductions $2,732 $4,160
Rent Rebates $369 $125
Philadelphia Reductions $452 $0
Total Reductions $3,553 $4,285
Net Tax Increases $3,822 $80
Source IFO Fiscal Note

PBPC notes that Wolf’s plan calls for much more in additional spending than the dollar for dollar shift in the House bill, but claims this is "substantially paid for by a proposed severance tax on gas drillers."

I guess that depends on what your definition of "substantially" is—but about $3 billion of the $3.8 billion net increase in 2016-17 is paid for by taxes other than the severance tax (primarily the excess sales and income tax increases).

Meanwhile, neither plan addresses the inherent flaws in tax shifting. By relying only on a shift, taxpayers will still be hurt—even if in state taxes rather than in property taxes—by the cost drivers in education, including pension costs, mandated costs, and unaffordable union contracts.

Tax shifting creates winners and losers—families that would pay more under the shift and districts that would pay more under the shift. The PBPC analysis fails to consider this at all.

The House Appropriations analysis shows that 80% of school districts would pay more in income and sales taxes under Wolf’s plan.

Finally, PBPC's assertions about how we fund schools are misleading. Our state funding per student is similar to the national average, and overall, Pennsylvania schools spend about $3,000 more per student.

Moreover, our high poverty schools spend more than high poverty schools nationwide.

Claims of "similarity" aside, the truth is that Wolf's tax plan would cost Pennsylvanians dearly. 

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When Will Gov. Wolf Compromise?


My letter to the editor in the Times Leader today takes Gov. Wolf to task for claiming to compromise, while still insisting on his sales and income tax increases—the largest tax increase in the nation—that received zero votes in the state house.

Bill O'Boyle's July 16 column, "Did we elect a dysfunctional government," concludes, "it appears the governor is the only participant who has made significant concessions." Yet he fails to identify any actual concessions – only that the governor’s spokesperson claims he would make them.

In fact, that same spokesman told the Patriot-News in Harrisburg, "Wolf hasn’t moved off his initial positions." At a separate July 14 press conference, he told reporters, "The governor is sticking to the property tax relief plan articulated in his March budget address."

The truth is, less than 4 percent of the revenue for that property tax proposal comes from the severance tax, though that is the only tax the Wolf administration wants to talk about. Wolf’s cradle-to-the-grave tax increases – taxing everything from diapers and day care, college textbooks and meal plans, to nursing homes and funerals – would harm poor and middle-class families.

Moreover, that plan calls for twice as much in state tax increases as in property tax relief – a net increase of $1,400 per family of four – while providing no property tax reductions until October 2016.

The state House of Representatives even held a vote on Gov. Tom Wolf’s tax proposal. It received zero votes, even from Democrats. So why is Gov. Wolf continuing to insist on his original budget proposal?

We agree with state Rep. Aaron Kaufer that it is time to come to the negotiating table. But that means Gov. Wolf must drop his demands for unpopular sales and income taxes. And Gov. Wolf must also consider the priorities of legislative Republicans – who were also elected by an overwhelming majority of voters – including liquor privatization and pension reform.

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Wolf Truth Squad: The Dirty Dozen


Gov. Tom Wolf is touring the state, touting an energy tax for education—while omitting several important facts. 

He's not mentioning that a severance tax will hurt real people with higher utility costs and lost jobs. Nor is he mentioning that his severance tax isn’t dedicated to education. The revenues are going first to pet projects including corporate welfare for alternative energy companies.

Wolf also shies away from an honest discussion of his other proposed tax hikes. As we’ve pointed out, his proposed severance tax is just a sliver of his tax package, dwarfed by rate increases in income and sales taxes.

But his plan to expand the sales tax to more than 45 goods and services is larger than his income tax increase and larger than his sales tax rate increase. In fact, its more than triple the (dubious) estimate of $1 billion from an energy tax. Wolf's sales tax expansion would generate more than $3 billion in new taxes once fully implemented in 2016-17.

Below are the "dirty dozen"—the 12 categories that would generate the most new tax revenue in Wolf's sales tax scheme by 2016-17. These dozen items alone account for a $2 billion tax increase.

The Dirty Dozen

Largest Revenue Sources from Wolf's Sales Tax Expansion (Dollars in Millions)
Category 2015-16 2016-17
Basic Cable Television $106.2 $260.5
Amusement and Recreation Services [1] $94.1 $258.7
Social Assistance (Including Day Care) $72.6 $200.4
Real Estate Agent and Broker Services $67.3 $195.1
Personal Care Services (Including Hair, Nail, and Skin Care) $57.1 $157.1
Nursing and Residential Care Facilities $55.2 $152.4
Legal Services $55.3 $152.0
Non-Prescription Drugs $58.0 $151.8
Other Personal Services (Including Pet Care, Personal Trainers, Wedding Planning) $48.5 $133.5
Higher Education (Meal Plans and Student Fees, not Tuition) $102.4 $120.9
Waste Management and Remediation $40.5 $110.9
Candy and Gum $43.8 $107.9
Total, Dirty Dozen $801.0 $2,001.2
34 other categories $380.9 $1,025.6
Total, Sales Tax Expansion (includes reduction due to rounding) $1,177.5 $3,003.9

[1] Definitions:

  • Amusement and Recreation Services: Amusement parks and arcades, fitness and recreational sports centers, bowling, skiing, golf course fees, and marinas
  • Social Assistance: Child care, community food and housing, emergency relief, vocational rehabilitation, and individual and family care services
  • Personal Care Services: Hair (including hair removal and non-medical hair replacement), nail, and skin care (including tanning, spa treatments, makeup, permanent makeup, and tattoo) services
  • Other Personal Services: Pet care and boarding, photofinishing, parking lots, garages, and all other (personal trainer, personal shopper, wedding planning, house sitting, dating services, etc.)
  • Higher Education: Higher education charges for meal plans and fees not included as part of tuition

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Strange Arguments Against Seniority Reform

JULY 22, 2015  | by JAMES PAUL

An amusing opinion article in the Pittsburgh Post-Gazette takes aim at pending legislation that would protect high-performing teachers and change incentives in persistently failing schools. Authors Adam Schott and Kate Shaw have various misleading things to say about both HB 805 and SB 6, but this sentence sums it up: 

An increasing number of state policy proposals…[treat] teachers as an interchangeable commodity, rather than highly skilled professionals.

What a peculiar claim about legislation that clearly respects the art of teaching and treats teachers as individuals.

HB 805 stipulates that, in the unfortunate event of furloughs, teachers be retained by virtue of job performance, not merely their years of service in the classroom (seniority). Under HB 805, teachers are evaluated based on the state’s new evaluation system, which currently rates 98.2 percent of teachers as distinguished or proficient. HB 805 would protect a teacher rated “distinguished” in favor of a teacher rated “failing.”

Only 15 percent of the evaluation system is based on test scores from each teacher’s classroom, so crocodile tears about an overreliance on “high-stakes testing” ring hollow. Reasonable people can debate the components of Pennsylvania’s evaluation system—which was endorsed by the state’s largest teachers' union—but teacher quality is closely connected with student learning, and measures of teacher effectiveness are quite reliable.

Above all else, it takes real chutzpah to claim that retaining teachers based on actual job performance treats them as “interchangeable commodities.”

The argument from Schott and Shaw boils down to: “Teachers are much more than widgets, so let’s treat them as widgets.” It is, ironically, opponents of seniority reform who view teachers as interchangeable commodities that cannot be evaluated like other professionals. 

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The Law Should Not Condone Violence


Yesterday, Ironworkers Local 401 union leader Joseph Dougherty was given a 19 year prison sentence for encouraging sabotage and intimidation to advance his union’s interests.

The judge in the case offered a scathing rebuke of Dougherty and an indictment of tolerance for union violence in Pennsylvania:

Comparing Dougherty to Lady Macbeth, U.S. District Judge Michael Baylson chastised the 73-year-old business manager for acting behind the scenes and relying on "an army of ironworkers" to commit crimes for him.

"That's the real tragedy of this case," Baylson said. "His leadership led to a lot of damage. It led to a lot of crimes. It continued the bad reputation Philadelphia has for tolerating union violence."

Incredibly, other union leaders continue to support Dougherty. Anyone reading the facts of this case should be appalled, not celebrating or supporting Dougherty with rallies.

Speaking to his union subordinates, Dougherty repeatedly referred to nonunion contractors as "subhuman" and "pigs."

"You should be able to do whatever you want to them, and it should be legal," he said on one recording. "There shouldn't be a crime."

Still, argued Dougherty lawyer Mark Cedrone, there was no proof that his client ordered - or even knew about - many of the attacks union members carried out on construction sites across the region.

That list included some of the most high-profile incidents in the city's recent history, such as the 2012 arson of a Quaker meetinghouse in Chestnut Hill, the baseball-bat beatings of nonunion workers outside a King of Prussia Toys R Us in 2010, and an all-out brawl in 2013 between ironworkers and members of the Carpenters union. …

Members rose through the ranks by participating in goon squads that struck back at contractors who refused to hire their union ironworkers. One group openly referred to itself as "the Helpful Union Guys" - "T.H.U.G.S." for short.

While Dougherty may not have participated in or ordered all of attacks, Livermore said, he rewarded his union's saboteurs with plum job assignments and his support for elected union posts.

The violence and sabotage are an all too real part of labor disputes in Pennsylvania. And yet, inexplicably, Pennsylvania law carves out exemptions for hostile and aggressive behavior if the behavior occurs during the midst of a labor dispute.

That’s not a typo. While state law rightly criminalizes harassment, stalking, and threats involving weapons of mass destruction (WMD), “a party to a labor dispute”—including labor union leaders—are exempt. There is no plausible justification for tolerating stalking, harassment, or threating to use WMDs on another person.

Readers may think this is just some crazy, archaic law we never fixed—like laws preventing carrying an ice cream cone in your back pocket. Reality paints a different picture. The exemptions were created relatively recently, and they have been used to excuse union violence.

Take the case of Sarina Rose who, along with her young children, suffered harassment and was threatened by union members. Yet, a judge dismissed the case, citing the exemptions in the law, essentially saying this kind of behavior is to be expected when dealing with unions.   

It’s pretty clear we need to get serious about ending a culture that accepts violence or threats of violence as just the cost of doing business.  

It starts by passing HB 874, which moved out of the state House in April. The legislation, sponsored by Rep. Ron Marsico, ends the ability of labor disputants to stalk, harass, and threaten with impunity.

The bill currently sits on the Senate floor, awaiting action. 

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A Cooked Goose Lays No Golden Eggs

JULY 21, 2015  | by GORDON TOMB

Gov. Wolf continues to promote a severance tax on natural gas, even as Pennsylvania energy companies report financial losses and job reductions.

This week, Consol Energy projected a second quarter loss—largely because of low energy prices—and said it would record a significant write-down on certain oil and gas assets. Consol stock is down 43 percent over the past three months. It is cutting 470 workers across its coal, gas and corporate operations.

Numerous other energy companies have instituted cutbacks in Pennsylvania operations. Among them are Noble Energy, Chevron Corp., Universal Well Services and Halliburton.

As is often said, those who cannot remember history are doomed to repeat it. Wolf's tax push brings to mind the federal windfall profits tax on oil companies 35 years ago.

Ignoring huge tax receipts routinely generated by the oil industry, politicians reacted to rising gasoline prices with the enactment of the Crude Oil Windfall Profit Tax Act of 1980 to punish "greedy" energy producers.

The tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted, according to a 1990 Congressional Research Service study.

The view that energy companies are geese with an infinite supply of golden eggs flies in the face of economic reality, and is refuted by news reports almost daily.

With such a backdrop, a Wolf energy tax won’t bring the fabled golden eggs, but could fatally cook the goose of Pennsylvania's economy. 

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Lawsuit Inspires Teacher to Speak Out

JULY 20, 2015  | by JAMES PAUL

Over the weekend, Adam Brandolph of the Pittsburgh Tribune-Review penned an excellent story on James Williams, a Mercer County science teacher standing up for his rights against the Pennsylvania State Education Association (PSEA).

Williams was long displeased with how the union spent his dues, but he only recently decided to resign his membership. The final straw was learning about the landmark lawsuit filed by Jane Ladley and Chris Meier, who sued Pennsylvania’s largest teachers’ union for violating their basic rights as religious objectors. (Read more about the lawsuit here, here, and here.)

Upon learning about the Ladley/Meier case, Williams took the necessary steps to leave the union and is planning to become a religious objector himself.

The entire Tribune-Review story is worth your time, but here’s a significant section:

[Williams] left his district's union this year when he learned about a lawsuit filed by two Pennsylvania teachers who, like he does, oppose the liberal causes and political candidates on which the Pennsylvania State Education Association spent money.

A 1988 state law allows teachers' unions to require those who opt out of the union to pay a “fair share” payment in lieu of membership dues to compensate the union for the collective bargaining benefit the non-member receives. If someone opts out based on religious grounds, the money is donated to a nonreligious charity agreed upon by both sides.

The teachers sued the PSEA in September when the union refused to remit their money to charities they chose.

“I had been thinking about it for a while but I pulled the trigger when I saw that lawsuit,” Williams said. “The union has an agenda, which I vehemently oppose. They've consistently not done what I think they should be doing.”

Williams joins Jane Ladley, Chris Meier, Linda Misja, and a growing chorus of Pennsylvania teachers who refuse to accept the PSEA's mistreatment. Fortunately, Rep. John Lawrence has moved to correct this injustice. His legislation, HB 267, ensures religious objectors can donate their “fair share fee” to a non-religious organization of their choosing—without interference from a union.

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A Severance Tax "Like Other States"? Not so fast


Gov. Tom Wolf and special interest groups continue to insist Pennsylvania needs to enact a severance tax because "other states have one." This, of course, ignores the fact that Pennsylvania has an "impact fee"—which functions like a tax and has generated more than $800 million since 2011. It also ignores that Pennsylvania drillers pay all the taxes common to every other business, more than $300 million since 2009.

As we've pointed out, lawmakers need to consider the overall tax burden when comparing Pennsylvania to other states.

So, how does Pennsylvania stack up to states with severance taxes?

According to Census data, 11 states collected more than $200 million in total severance taxes in 2014. Pennsylvania would be the 12th state, if our "impact fee"—which generates more than $200 million every year—were counted.

Of those 11 states:

  • 3 have no individual income tax
  • 2 have no corporate income tax
  • 5 have no death tax
  • 2 have no general sales tax

The visualization seen below—or click here to view in your browser—shows that if lawmakers want Pennsylvania to "be like other states," especially energy producing states, we should cut or eliminate other state taxes

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