FEBRUARY 13, 2012

House Moves Unemployment Compensation Reform

More Unemployment Compensation reform is moving through the Pennsylvania House. Yesterday, HB 1754 sponsored by Rep. Ron Miller, and HB 1852 sponsored by Rep. Seth Grove, cleared the Labor and Industry Committee. Both bills are designed to strengthen anti-fraud provisions.

Specifically, HB 1754 would establish a definitive definition of "willful misconduct." Currently the vague definition often allows employees who are fired for their own misconduct to collect unemployment benefits. HB 1852 increases the number of weeks individuals who commit UC fraud are barred from collecting benefits, called penalty weeks, from four to 10 weeks. The bill also removes the four-year limit on the imposition of penalty weeks.

Pennsylvania's Unemployment Compensation system is broken and bankrupt. The state paid $227 million in fraudulent claims last year and still owes about $3 billion in loans. The state started borrowing money from the federal government to pay claims in March 2009 and ran up a debt of almost $4 billion at its peak.

These bills are a step in the right direction, but far from the substantive reform the House dismissed last spring.

posted by ELIZABETH STELLE | 05:55 PM | 0 comment

FEBRUARY 13, 2012

Reforming State Borrowing for Corporate Welfare

Since 1986, state lawmakers have authorized more than $4 billion in borrowing for the Redevelopment Assistance Capital Program (or RACP). This is effectively debt for corporate welfare and other pork-barrel projects.

Last week, Gov. Corbett approved funding for the Arlen Specter memorial library, a Rendell-era RACP project Corbett campaigned against in 2010. In the end, the administration couldn't find a legal way to refuse the funding. Now House lawmakers are out to reform RACP and prevent future monuments to politicians.

HB 2175, unveiled at a press conference Wednesday with Rep. Mike Turzai and Rep. Rosita Youngblood, proposes to reform the way the Commonwealth incurs debt and shrink the RACP program. The bill reduces the RACP debt ceiling from $4.05 billion to $3.5 billion and then gradually to $1.5 billion over 20 years.

Pennsylvanians already owe $120 billion in combined state and local government debt—almost $10,000 for every man, woman, and child. Reforming RACP is an important first step in getting our debt under control, but a better solution would be to eliminate future RACP borrowing entirely.

Apart from the staggering amount of taxpayer debt, paid off over decades, the program is littered with economic projects of questionable benefit, from corporate headquarters to sports stadiums. Most recently, RACP was the source of a $3 million grant to the Second Mile, the charity founded by accused child molester Jerry Sandusky.

HB 2175 seeks to open up the process, requiring notification of the legislators affected, a public meeting to be held in the affected community, and certain information to be posted online.

HB 2175 was voted out of the House Finance committee today.

posted by ELIZABETH STELLE | 03:10 PM | 0 comment

JANUARY 11, 2012

Turnpike Commission Defends Ballooning Debt

Following our post yesterday, the Pennsylvania Turnpike Commission wanted to make sure we saw their response to Auditor General Jack Wagner's warning on their growing debt.

The Turnpike Commission wanted to ensure bondholders that, "the PTC remains committed to meeting all its financial obligations—including obligations to bondholders—by sound management of our debt load and by reinvesting in our toll-road system."

But while bondholders (and bond attorneys) may rest assured, taxpayers and drivers should not.

Act 44 may not result in a default—as a government monopoly, the Turnpike Commission can raise tolls without threat of competition, and bonds are further backed by Pennsylvania taxpayers—but that doesn't make it sound policy.

The Turnpike Commission's Annual Financial Report (see page 24) shows that the PTC lost $523 million, $1 billion and $891 million respectively each of the last three years. That should worry taxpayers and motorists.

Indeed, Moody's rating agency latest grade of Turnpike bonds gives it a "negative outlook." Why? The Turnpike Commission needs to keep raising tolls.

The negative outlook reflects the possibility that larger than currently forecasted toll rate increases will be necessary to maintain sound financial operations and targeted debt service coverage levels. The outlook also incorporates the possibility that the turnpike could be tapped to pay for more of the state's growing unfunded infrastructure needs.

Let's not forget, Act 44 was created as an alternative to leasing the Turnpike to a private investor and manager. The claim was that a private company would ... wait for it ... raise tolls!

So is the commonwealth better off having borrowed $5 billion under Act 44 compared to getting $12 billion in an up-front lease payment?

The Turnpike Commission's persistent defense of Act 44 might make one think that its Chief Operating Officer is the Senate staffer who wrote the offending legislation.

posted by NATHAN BENEFIELD | 01:38 PM | 1 comment

DECEMBER 19, 2011

Time to End Borrowing for Corporate Welfare

The Pa. House is expected to vote this week on SB 1054, legislation to authorize $1.66 billion in state borrowing for the "capital budget." The annual cost of this bill would be $115 million per year for 20 years in annual interest and principle payments. In a memo to legislative leaders urging passage, Budget Secretary Charles Zogby claims the additional debt is needed to finance projects the commonwealth is already contractually obligated to fund.

Of this borrowing, $270 million would be for Redevelopment Assistance Capital Projects (RACP). Borrowing for RACP is one of the drivers of Pennsylvania state debt—a growing problem as interest payments continue to rise, while taxpayers' debt continues to grow year after year.

RACP borrowing has been used to fund everything from corporate headquarters to sports stadiums to the Arlen Specter Library. Most recently, RACP was the source of a $3 million grant to the Second Mile, the charity founded by accused child molester Jerry Sandusky.

In response, Rep. Rosita Youngblood (D-Philadelphia) is holding a press conference tomorrow to call for reforms to the RACP program to promote greater transparency and accountability. These reforms are much-needed, but better yet would be to eliminate future RACP borrowing altogether and stop accruing debt for corporate welfare.

posted by NATHAN BENEFIELD | 05:10 PM | 1 comment

JUNE 13, 2011

Unemployment Compensation Reform on Tap

This week, the House is expected to take up SB 1030, which would change Unemployment Compensation guidelines to ensured continue benefits for about 45,000 Pennsylvanians and help bring the fund, now $3.8 billion in debt, into balance.

A few of the reforms SB 1030, as amended by the House, would address include:

• Requiring those collecting benefits to actively seek a new job.  This would require taking actions like posting a resume on Careerlink, registering for employment services within 30 days, and applying for similar positions within 45 minutes of home.
  
• Limiting the ability to collect both unemployment benefits and severance pay. Under SB 1030, laid off workers could get $11,000 in severance pay and still collect state unemployment benefits on day one.  Currently, there is no limit on collecting severance pay and unemployment compensation simultaneously.
  
• Increasing the earnings necessary to qualify for unemployment compensation from $50 per week to 16 hours at minimum wage ($116 per week).
  
• Tightening eligibility requirements for those who leave work voluntarily and extending the misconduct definition to include threatening co-workers, theft, certification expiration, or coming to work under the influence of drugs or alcohol. In the past, fuzzy definitions have allowed disruptive employees to qualify for benefits.

The amended bill now contains an estimated $140 million in savings [subscription to link].  This would be enough to balance the fund in 27 years. HB 916, Rep. Perry's bill which was defeated on the House floor on second consideration in May, contained an estimated $632 million in savings, enough to pay back the $3.8 billion the state owes to the federal government by 2018.

Pennsylvania currently has one of the highest unemployment tax rates per employee. Moreover, when the fund is insolvent, as it is now, it triggers an automatic unemployment tax increase—that is, a higher tax for each job, making it more expensive to retain workers.

The current proposal is a good start, as fundamental changes are essential if Pennsylvania's unemployment compensation fund is to remain solvent.

posted by ELIZABETH STELLE | 10:17 AM | 0 comment

JUNE 2, 2011

The Phony "Surplus"

The Pennsylvania Department of Revenue released May General Fund tax collection data, and many lawmakers are clamoring to spend this "surplus". But the idea there is any "surplus" is bogus. For starters, the $500 million tax collection exceeds estimates is a windfall, not a surplus. A surplus represents money left after all spending.

But even if there is any surplus left at the end of the fiscal year, it is a completely contrived notion. Consider these facts:

• The 2010-11 budget was balanced using temporary stimulus money, transferring funds from other accounts, and other one-time gimmicks. The state is spending far more than it is collecting in revenue.
• Governor Corbett's proposed $27.3 billion budget for 2011-12 already consumes an expected surplus, spending almost $500 million more than projected revenue.
• Pennsylvania is paying unemployment compensation by borrowing from the federal government. The state already owes $3.8 billion, and continues to go deeper into debt.
• The surplus has been created by not paying and delaying requirement payments into state pension plans. The actuarial note accompanying Act 120 notes:
  

  However, it should be noted that the employer contribution collars (in effect through 2015) represent a departure from the norms of actuarial funding practice. The effect of the bill as amended would be to suppress the employer contributions to both PSERS and SERS resulting in significant underfunding of both retirement systems.

In other words, the surplus has been created by accounting gimmicks—effectively the state is not paying its bills. Any surplus must be used to pay off our obligations, not fund pet projects.

posted by NATHAN BENEFIELD, RICHARD DREYFUSS | 11:08 AM | 0 comment

MAY 4, 2011

A Half-Billion Saved is a Half-Billion Earned

After April's General Fund tax collections came in at 9 percent above forecasts, some lawmakers are clamoring to spend any surplus Pennsylvania has at the end of the year. Gov. Tom Corbett, however suggests being prudent and holding some back in reserve.

There are several reasons why Gov. Corbett's advice should be heeded. For starters, one month of strong tax collections does not establish a trend. While April's collections were ahead of estimates, March's tax collections were behind. For the year, the state is 2.3 percent ahead of projections. (Note that many erroneously call this a "surplus"—in reality, it is merely a difference from estimates. The surplus is what the state has remaining after all spending occurs).

Secondly, Gov. Corbett's proposed budget already relies on a surplus—starting the next fiscal year with $586 million in the bank. The state would end the fiscal year (based on Gov. Corbett's budget book) with less than $4 million remaining. That is, the budget already spends more money than the state will collect in taxes.

Most importantly, Gov. Corbett and lawmakers must consider the annual budget in light of Pennsylvania's long-term fiscal picture. Over the past eight years, state debt nearly doubled, growing by $21 billion. Annual interest payments on bonds tripled, to over $1.1 billion in the proposed budget—a total sure to rise.

This debt doesn't include short-term borrowing, such as the $3 billion the commonwealth owes to the federal government for Unemployment Compensation, or the $1 billion in tax anticipation notes borrowed this year (money borrowed just to ensure state checks don't bounce).

The largest looming cost on the horizon is our state pension payments. While Act 120 of 2010 delayed the "pension spike", it created a pension staircase. Taxpayer contributions to pensions of state workers (SERS) and the state share for school district employees (PSERS) are projected to rise from $700 million this year to more than $4 billion by 2017, as the chart below shows. That is a 500 percent increase.

So yes, saving a few dollars for the future (or even putting any surplus into pensions) would be fiscally prudent.

posted by NATHAN BENEFIELD | 01:20 PM | 0 comment

FEBRUARY 16, 2011

Is State Bankruptcy a Solution?

What do New York, California and Illinois have in common? They are in fiscal disarray and may soon be asking for a bailout from Congress. Bailing out these states would send a terrible message to other states with significant legacy costs and upcoming budget shortfalls, i.e. Pennsylvania.

To avoid the issue some politicians and political pundits are urging a path to state bankruptcy,  a viable option that would need to overcome Constitutional hurdles. 

Others say state bankruptcies are not a solution at all. Nicole Gelinas, with the Manhattan Institute, explains why:

States' problems aren't pretty. The solutions may be messy. But bankruptcy wouldn't be a messy answer; it would be no answer at all. For starters, states like New York run up "their" debt indirectly. They issue bonds through tens of thousands of separate legal entities. Legally, each is not a government but a "public-benefit corporation." Each has its own board, its own rules and its own contractual agreements with creditors, from bondholders to unions. Each of those agreements offers creditors different protections.

Like New York, Pennsylvania has a number of independent agencies with significant debt, such as the Commonwealth Financing Authority and the Turnpike Commission.

E. J. McMahon points out another flaw. He argues states already have the power to renegotiate lucrative union contracts, including widespread layoffs and a reopening of a state's collective bargaining statutes.

At least 18 states already outlaw collective bargaining with some categories of government employees; Virginia and North Carolina prohibit it for all public workers. Two newly elected Republican governors, Scott Walker in Wisconsin and John Kasich in Ohio, have threatened to dismantle their state bargaining statutes if unions fail to make concessions.

It appears the only real solution to the state's debt problem is reasserting their sovereignty over very powerful public employee unions. Pennsylvania, California, Illinois, and other states with large obligations must insist their political leaders show a little backbone and reform their pension and other long-term obligations.

On top of outlawing public sector collective bargaining, the state should redefine the prevailing wage law, transition state workers to defined-contribution retirement plans, and look at more opportunities to save billions of dollars so we reduce our state oblications.

posted by ELIZABETH STELLE | 11:30 AM | 0 comment

JANUARY 12, 2011

Rendell's Last Round of Pork

Governor Rendell recently released his 2010 commitment list for RACP funds (subscription). The Redevelopment Assistance Capital Program, or RACP, is a taxpayer-funded state borrowing program for "economic development," i.e. corporate welfare. As the commitment list shows, RACP became a slush fund for Governor Rendell and his politically connected friends.

Not surprisingly, the City of Brotherly Love topped the recipient list, with 43% of the $408 million going to projects in Philadelphia. Comparatively, only $39 million went to projects near Pittsburgh and $36 million went to Philadelphia's four suburban counties.

Also high on the funding list of recipients were Gov. Rendell's political allies, John Murtha and Arlen Specter; the Murtha Center and Specter Library combined received almost $12 million. Gov. Rendell also committed $30 million to the American Revolution Center in Philadelphia.

Unfortunately RACP, like all economic development schemes, only redistributes jobs and wealth for projects that most likely would have happened anyway, like the new Penguins Stadium, or for businesses that will continue to fail, like TastyKake. Instead of more handouts, maybe Gov. Rendell should have done the responsible thing and resisted the urge to pile on the debt, leaving office with a projected General Fund deficit of $5 billion.

Below is a detailed list of the recipients, courtesy Capitolwire.

Rendell RACP 2010

posted by NICHOLAS FETT | 06:00 PM | 0 comment