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.
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.
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.  However, the law evolved to “give uniformed employees the upper hand when it comes to collective bargaining.”  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 functions—the 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.
Americans finally got a raise! That's the gist of recent headlines hailing significant economic growth in 2015, but in Pennsylvania the economy is still struggling.
From 1991 to 2015, Pennsylvania ranked 46th in job growth, 45th in personal income growth, and 46th in population growth while the size and scope of state government grew dramatically.
Consider the state's unemployment problem:
- Pennsylvania’s unemployment rate rose again in August—the fourth time in the last six months.
- The unemployment rate now sits at 5.7 percent, which is nearly 1 percentage point above the national average.
- Of all 50 states, Pennsylvania experienced the second largest increase in the unemployment rate over the last year.
So what’s the solution to the state’s decades-long stagnation? Some have proposed government mandates like a minimum wage hike and raising taxes to pay for more government spending.
Neither will solve our economic challenges.
Let’s take the minimum wage first. In practice, it harms the very people it intends to help.
For example, Chicago restaurant owners Mark Robertson and Mike Sullivan recently closed their Mexican restaurant because of the city’s wage mandate. The owners stated,
Unfortunately, the rapidly changing labor market for the hospitality industry has resulted in immediate, substantial increases in payroll expenses that we could not absorb through price increases” … “In the last two years, we have seen a 27 percent increase in the base minimum wage, a 60 percent increase in kitchen wages, and a national shortage of skilled culinary workers.
Increasing government spending is another popular proposal that harms the economy. States with the highest tax rates experience slower income growth and job growth than states with the lowest tax rates.
The commonwealth must head in a new direction.
The first step is restraining government spending—starting with $800 million in corporate welfare—and lowering taxes to put more money in the pockets of working people.
Another critical step is improving the quality of education. Increasing school choice options—such as expanding tax credit scholarships is critical to creating a society where all Pennsylvanians can seize economic opportunities.
Together, these solutions will empower Pennsylvanians and reinvigorate the state's economy.
posted by ANDREW RYAN | 10:31 AM | Comments
Last year, nearly 42,000 Pennsylvanians left the state to pursue their dreams elsewhere—that's one person every 12 and a half minutes. Why is money walking out of Pennsylvania?
That’s the topic of the second episode of Commonwealth Insight, our new, bi-weekly podcast featuring state and national entrepreneurs, policy makers, and thought leaders tackling issues critical to Pennsylvania's economic future.
First, we talk with Travis Brown, Forbes contributor and author of How Money Walks, who says Pennsylvanians are “voting with their feet and taking their wallets” to states like Florida, North Carolina, and Arizona because of our state’s tax burden.
He explains that states compete with each other to attract investment and residents:
Just like the Steeler Nation would look competitively across state lines and do the scouting and reporting to see how we can be better and better next year against the New England Patriots, every competitor would look to the North and say: How can we attract these residents and how do we keep the residents we have?
Travis says there are three major policy areas Pennsylvania can change to be more competitive: regulation, taxation, and litigation.
To reverse out-migration and make Pennsylvania attractive to families and businesses, we must avoid higher taxes, more government spending, and greater regulation.
We also talk with Bob Dick, senior policy analyst for the Commonwealth Foundation, about how the Pennsylvania state budget works—and doesn’t work. Bob says state spending is growing beyond its citizens' ability to fund it, resulting in tax hikes that kill jobs and slow private sector growth. The politically unpopular, but fiscally responsible, solution is to control spending.
posted by DOUGLAS BAKER | 01:57 PM | Comments
Amy Crivella was addicted to cigarettes. She tried everything—gum, patches, going cold turkey—but nothing worked. Then, she tried e-cigarettes, or vaping, and she didn’t need a cigarette for the first time in 17 years.
The mom of two closed her bakery and took out a loan to open East Coast Vapes in Cranberry Township near Pittsburgh. Amy estimates her business has helped about 700 people reduce smoking or quit cigarettes altogether since she opened her doors almost a year ago.
“I didn’t choose to do this to make a buck,” she says. “If I can pay my bills, I’m happy. We’re helping the grandmas and the grandpas quit smoking. We’re not looking for a handout.”
But Amy’s business and her family’s livelihood are in danger. Tucked away in this year’s budget is a retroactive 40 percent wholesale tax on e-cigarettes that goes into effect on October 1. This means Amy will have to send Harrisburg a check for 40 percent of the wholesale value of her entire inventory—including the inventory she purchased well before this tax was even considered.
Not only will the tax force Amy to lay off all three of her employees, but it may financially ruin her.
I don’t know if I’m going to make it. I don’t even have the option to close. I signed a five-year lease, and I’m personally responsible for those payments. I’m going to lose everything. My parents helped me take out that loan. The bank will go after their house if I don’t make my payments. I don’t know what I’m going to do.
Unfortunately, Amy has learned how dangerous big government can be:
I didn’t know too much before, and the more I learn the more scared I get. I didn’t even know what a lobbyist was until about four months ago. I should never fear my government, and I fear them right now. We hired them to stand up for the little people, and I feel like a punching bag. They don’t care that we pay $16 million in other taxes every year.
This fall, lawmakers have a choice: They can shut down businesses across the state for a mere (in relation to the rest of the budget) $13 million in projected revenue from the tax, or they can spare people like Amy from losing their livelihoods.
For starters, lawmakers should support a move spearheaded by Rep. Jeff Wheeland (R- Williamsport) to replace the 40 percent tax with a 5-cents-per-milliliter tax, similar to what exists in North Carolina and Louisiana.
If additional savings are needed, lawmakers should cut hundreds of millions in corporate welfare tax credits and optimize state health care spending. Pennsylvania could save $153 million a year if state workers contributed to their health care at the same rate as private sector workers. Common sense solutions to savings and revenue exist that don't unfairly punish businesses like Amy's.
Like other vape entrepreneurs, Amy plans to empty her inventory to avoid the 40 percent floor tax. In the meantime, she hopes lawmakers will act quickly to repeal or replace the tax instead of sending families like hers to financial ruin.
Buried in a little debated 267-page tax code bill is a provision emblematic of Pennsylvania’s corporate welfare culture.
The provision directs hotel tax revenue generated inside a Neighborhood Improvement Zone (NIZ) to hotel owners and developers. The revenue can be used to pay for hotel renovations or to finance entirely new hotels.
The hotel tax normally funds tourism promotion and economic development for the Lehigh Valley. But now, rather than using the revenue to promote the Lehigh Valley, it will be used to subsidize a small group of private enterprises.
“This is blatantly unfair competition,” said Bruce Haines, who is a managing partner of the Hotel Bethlehem, which competes directly with hotels inside the NIZ. “We worked hard to get where we are. We put our own capital on the line. We did it the old-fashioned way.”
The new rule governing the NIZ will make it harder for entrepreneurs like Bruce to compete. Businesses inside the NIZ already had access to tax dollars before the change. Now they’ll have an even larger pool of tax dollars to use for new projects.
This raises an obvious question: Are the subsidies necessary? Research and experience both say no.
According to scholars from the Cato Institute and the Lincoln Institute of Land Policy, NIZ-type programs generally don’t create new wealth; they just shift its location. These findings are consistent with Bruce’s experience: “The NIZ isn’t really creating new businesses. They’re just moving from the surrounding areas into the NIZ. The market works for hotels. It doesn’t need subsidies.”
Bruce understands that competition is a necessary part of any free market. “If more businesses open in the Lehigh Valley without subsidies, that’s okay because it’s fair. But I should not have to lose potential customers because of crony capitalism. Philosophically, that bothers me.”
Handing out tax dollars to businesses, carving out special exemptions, or creating new rules benefiting a select few dampens economic growth. To promote broad-based prosperity, government must refrain from tilting the playing-field in favor of any business.
As Harrisburg searches for politically acceptable tax hikes to fund a record-breaking budget, Pennsylvania’s attractiveness to manufacturers continues to decline. According to a study reported by the Central Pennsylvania Business Journal, local manufacturers operate under an already onerous tax load.
The report, prepared by Ball State University’s Center for Business and Economic Research in Indiana, graded states on a number of factors, including benefit costs and tax climate. Manufacturing in the commonwealth earned a grade of C- this year, down from a C in 2015.
The study examines factors most likely to be considered by site selection experts for manufacturing and logistics firms, and by the prevailing economic research on growth, according to the researchers.
Michael Hicks, director of the research center, says high taxes are particularly problematic for Pennsylvania manufacturing.
The Keystone State earned a D for worker benefit costs and a D- for tax climate in the study.
“I think it’s fair to state that in Pennsylvania the effective tax rate is rather burdensome,” Hicks said.
Pennsylvania, like many states, offers tax-abatement programs for business, but Hicks noted that they may not help.
“The problem is that most job growth in manufacturing comes from existing companies,” which may not have access to incentives aimed at startups, he said.
With Pennsylvania already bearing the 15th highest state and local tax burden in the nation and the state’s manufacturers withering under its weight, what good reason is there to increase taxes?
None is the answer.
Governor Wolf and legislative leaders present Pennsylvanians with two options. The first requires taxpayers to fork over hundreds of millions in higher taxes. The second calls for steep cuts to essential government programs. In the words of Wolf, “We’re going to have cuts the likes of which this Commonwealth has not seen in a generation, if ever.” Taxpayers, we are told, must choose between lousy outcomes: higher taxes or painful cuts.
Make no mistake—this is a false choice. A responsible appropriations bill can be crafted that controls spending and holds the line on tax hikes. New revenues are not necessary to balance the budget—especially not $1 billion worth.
Recall that just last year, Wolf claimed Pennsylvania’s $2.3 billion “structural deficit” mandated $4.6 billion in higher taxes. When the dust settled after a 9-month impasse, the legislature balanced the budget without taxes while also boosting funding for education ($250 million in non-pension spending) and human services ($83 million).
The 2015-16 General Fund spent roughly $30.0 billion. The final revenue projection from the Independent Fiscal Office projects 2016-17 revenues of $30.4 billion. If, in other words, lawmakers merely limited spending increases, there would be no need for higher revenues.
Some argue government programs must assume a “cost-to-carry”—baked-in spending increases from one year to the next. Surely, though, this does not apply to Community and Economic Development programs, which see a $10 million bump under the House budget plan. Or the Department of Conservation and Natural Resources, which would enjoy a $44 million boost. Is there a "cost-to-carry" for House Caucus Operations (R and D), which are set to increase by $16 million?
The spending plan, as currently written, also assumes another $250 million in non-pension education spending, at a time when school district reserve funds are at all-time highs.
Don’t fall victim to the taxpayers’ false choice. By limiting spending increases to $400 million worth of core government functions, lawmakers can protect working families from harmful tax increases.
Pennsylvania's economy isn't looking so hot this summer. The Bureau of Labor Statistics reports:
- Pennsylvania lost 23,600 jobs in the last two months (nonfarm, payroll jobs).
- Over the same time frame, the unemployment rate climbed 0.6 percent with 43,900 more individuals officially counted as unemployed. Over a three month span, the unemployment rate rose 0.9 percent, and 60,500 more individuals were unemployed.
- Pennsylvania now exceeds the national unemployment rate.
Here’s some worse news: Our poor economic performance is part of a long-term trend.
- Pennsylvania lost 41,600 residents in net moves to other states last year—one person every 12.5 minutes.The Keystone State has lost 295,000 residents with $11.6 billion in annual income since 1992.
- From 1991 to 2015, Pennsylvania ranked a dismal 46th in job growth, 45th in personal income growth, and 46th in population growth.
- Pennsylvania currently has the 15th highest state and local tax burden.
This bad news comes at a critical juncture in state budget negotiations. The question for lawmakers: Will raising taxes on families offer good news?
History indicates it won't.
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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.