Pennsylvania State Budget

Elected officials are standing strong in their opposition to the Medicaid expansion under the Affordable Care Act, despite a number of "independent studies" touting the benefits of "free money" from the federal government and constant lobbying by the health care industry.

Last week, State House Republicans introduced their 2013-2014 budget proposal, devoid of Medicaid expansion. House Appropriations Chairman Rep. Bill Adolph stated, "When and if the governor decides to expand Medicaid, then we’re going to be taking a look at those figures."

Here are a couple reasons to pass on Medicaid expansion.

Medicaid doesn't make people healthy. An Oregon study designed to figure out whether Medicaid patients are healthier than the uninsured found no evidence that Medicaid improves the physical health of enrollees.

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first two years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.

Estimated Medicaid expansion savings are significantly skewed. Department of Public Welfare Secretary Beverly Mackereth challenged rosy predictions cited in the Independent Fiscal Office’s analysis.

Overall, the Department has serious concerns regarding several assumptions included in the report . . . the IFO report contains what we believe to be several material problems that merit further review and analysis before the report’s conclusions could be relied upon.

Altogether, she estimates the IFO overstates savings by about $515 million for 2014. Why the difference? Mackereth contends the analysis underestimates needed staff and training costs, underestimates the number of Pennsylvanians who will sign up for coverage, and overestimates the savings from moving patients from state programs onto Medicaid, where they qualify for more "federal dollars".

Finally, we still don't know what's in the bill. Last week we learned from Senator Jay Costa that federal officials will force children enrolled in CHIP (Children's Health Insurance Plan) to enroll in Medicaid regardless of whether Pennsylvania expands [pay wall]. Even the Governor's office was unaware of this provision until recently. Unlike Medicaid, CHIP patients can choose from a wide variety of private plans, which the government subsidizes on a sliding scale. Kicking kids off CHIP could force families to find new doctors since many CHIP doctors do not accept the lower Medicaid reimbursements.

Governor Corbett should reject any expansion to avoid what Michael Cannon calls a "fiscal timebomb" in the Morning Call and pursue Medicaid reform that improves outcomes by giving patients choice and control.

Landmark pension reform legislation was unveiled today, as the Commonwealth Foundation stood with Gov. Tom Corbett, state lawmakers, business leaders, school board members and other groups. 

The new bills, introduced by Sen. Mike Brubaker (co-sponsor memo) and Rep. Chris Ross (co-sponsor memo) would create a defined-contribution plan for new state and school employees, and reduce future pension benefits for new employees.  A summary of this proposal is included in our 2013 State Budget Overview.

As special interest groups have created a slew of myths to fight off pension reform, we have two new fact sheets addressing the most common myths.  The first examines the truth behind the pension crisis—how we got here, and why we must act now.  The second looks at the benefits of moving to a "Defined Contribution" plan, like a 401(k).

Here's the key facts on pension reform:

• The politics inherent to traditional plans are a major factor in causing the current pension crisis.
• Defined contribution plans (which are now the standard in the private sector) can and do provide adequate retirement benefits.
• Shifting to a defined contribution plan will help remove politics from pension funding, and contrary to claims about "transition costs"can actually save taxpayers.

Stay tuned as we debunk each pension reform myth in greater detail here over the next few weeks.

In a guest post, State Rep. Glen Grell addresses the pension reform myth that Act 120 has fixed the pension crisis.  For more facts & myths, click here.

The Commonwealth operates two public pension programs: the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). The funding issues surrounding these programs are complex, but as it stands now, these systems together are operating with an unfunded liability of at least $41 billon – and growing.

Act 120, of which I was one of the authors, was signed into law in 2010. The legislation established a new plan design for state and school employees coming into service from 2011 onward. It also offered short-term relief to school district budgets by applying “rate collars” to the required annual employer contributions to the pension funds.

Act 120 was an important first step in addressing the funding crisis facing SERS and PSERS. But it was only a first step. It was never represented as a long-term solution to our public pension funding issues. Unfortunately, some people do not realize that Act 120 does not address the larger problems with our pension systems. They have begun urging lawmakers to adopt no further pension reforms and, in their words, “let Act 120 work.”

The truth is that if we just “let Act 120 work,” the school districts in our area and across the Commonwealth will face substantial increases in their required employer contributions to PSERS. These contribution increases will require districts to make difficult decisions to balance their budgets, resulting either in substantial property tax increases, severe cuts to programs or both. It would be irresponsible to sit idly by and “let Act 120 work.” To put this into perspective, consider the three school districts I represent.

The current employer contribution for PSERS in the Camp Hill School District is $527,329. If we “let Act 120 work,” that contribution soars next year to $746,000. By the 2017-18 school year, the employer contribution skyrockets to $1,434,000.

For the Cumberland Valley School District, this year’s PSERS contribution is just over $2.9 million. Next year under the Act 120 provisions, the amount increases to $4.1 million. By 2018, the district would be required to disburse more than $8 million to the PSERS fund.

The present PSERS contribution for the East Pennsboro Area School District is $932,233. Next year, it will rise to nearly $1.4 million, and by 2018, the district would be paying $2,657,000 into the pension system.

As you can see, “letting Act 120 work” would have major adverse consequences for our schools and their students and it is not a viable long-term option. It is necessary to craft a comprehensive approach to pension reform that addresses our unfunded liability without doing damage to the reasonable retirement expectations of current employees. In the coming weeks you may hear me being critical of Governor Corbett’s proposal and offering a different, collaborative approach to address this important issue, because I believe doing nothing is not an option.

Bad revenue collections and updated projections highlight a big problem in the state budget: We are spending more than we are collecting. The problem is much worse than a recent shortfall—spending has been exceeding revenue for several years, and the gap will widen.

In February, as part of the proposed budget, the Budget Office forecast General Fund revenues would come in $232 million above the original estimates for the year. But February and March numbers came in well short of expectations. Following April, the state is still $67 million above estimates for the year, but short (and unlikely to hit) the number included in the proposed budget. Lower than expected sales taxes drove recent shortfalls—evidence that the federal payroll tax increase in January is hurting the state, as people have less take- home pay to spend.

Adding further worry, the Independent Fiscal Office (IFO) released projections for next year which are about $320 million less than than the amount forecast in February.

This shouldn't cause panic, but those who hoped for more money to spend will be disappointed. But what is often overlooked is that the state is spending more than revenue this year and in the proposed budget. With the new numbers those gaps are much larger, and in fact, that level of spending would be impossible, as the state would exhaust its fund reserve (see table below).

The recent shortfall is part of a long-term fiscal crisis. Spending has been exceeding revenue for several years, and the gap will widen in the future. In December, the IFO released analysis show spending was likely to grow significantly faster than revenue over the next few years.

The two main drivers of this crisis: Medicaid spending and pension costs. In other words, we need real reform to slow unsustainable Medicaid spending, rather than expanding the beleaguered program. It also means we must tackle pension reform to prepare for the tsunami that will hit taxpayers over the coming years.

The recent bad economic news puts pressure on lawmakers to balance next year's budget by June 30, but the more important challenge is putting our fiscal house in order.

A letter to the editor I sent to the Pittsburgh Post-Gazette takes on some of the myths and facts of pension reform:

Nina Esposito-Visgitis, president of the Pittsburgh Federation of Teachers, wrote that Gov. Tom Corbett is taking aim at the retirement benefits of public school employees ("Let Pennsylvania Pension Reforms Work," Feb. 21 Perspectives). Teachers have a right to be fired up about their pensions, but Ms. Visgitis offers misleading information to fire them up at the wrong targets.

Current and retired teachers would see no changes in the benefits they've already earned, though Ms. Visgitis falsely claims the benefits of current employees might be cut in half. Additional benefits that current workers could gain in future years would be lowered by at most 20 percent for those with higher-level benefits.

Despite Ms. Visgitis's assertion, the current system is not sustainable. In fact, the pension systems will require dramatically higher taxpayer payments to keep going -- upwards of $1,000 per year in additional taxpayer payments per household.

The truly sustainable answer is placing teachers in a 401(k)-type plan, as the governor suggests. This won't cost more but would create an affordable and predictable system -- one that is not subject to political manipulation.

Pensions were hurt by the economic downturns of the last decade and by underfunding of the plans. But Ms. Visgitis forgot to mention the huge pension increase in 2001, which created $10 billion in pension debt. That increase, along with the "vacation" that lawmakers enacted by delaying pension payments, illustrates the political manipulation inherent in the system.

Only by switching to a 401(k)-style plan can we remove politics from pensions and protect retirement benefits for future generations.

Where does the federal government get its money? Does it grow on trees? Does it fall from the sky like manna from heaven? Is there a genie who keeps granting wishes for unlimited funds?

Of course not, it comes from taxpayers. Government has nothing to give anyone except what it first takes from someone else.

So why do supporters of expanding the troubled Medicaid program in Pennsylvania not recognize that government spending is taken out of the economy through taxes or borrowing (paid with interest by future taxes)? Consider this quote by state representative Gene DiGirolamo:

DiGirolamo called it a "huge infusion" of money. "I'd hate to see us leave that money in Washington. ... These people are going to show up at the hospital anyway. We're going to pay for it somehow."

Not spending more taxpayer dollars doesn't leave "money in Washington." It leaves money in the hands of hard-working men and women. In contrast, the Affordable Care Act requires 20 new taxes to pay for all of this spending. Even Democrats like Sen. Bob Casey want to repeal some of these tax hikes, realizing they are killing jobs across the country.

The second part of DiGirolamo's claim about Medicaid spending is also myth. Because of low reimbursement rates, Medicaid costs are shifted to those with private insurance, resulting in higher insurance premiums for everyone. In fact, Medicaid cost-shifting greatly exceeds cost-shifting from "uncompensated care."

Moreover, low reimbursement rates explain why one-third of doctors don't take Medicaid patients, and Medicaid recipients have longer wait times and often get lower-quality care.

In other words, what DiGirolamo and others are calling for is higher federal taxes, higher state spending, higher costs for health insurance, and worse health care for the poor. Instead of hoping for magical money for Medicaid, lawmakers should look to real solutions to lower health care costs.

As we head into months of meetings, hearings, and special interest protests at the Capitol, here are five must-know facts about Governor Corbett's budget proposal:

Gold Stars:

1. "Recommends against" an unaffordable and unsustainable Medicaid expansion.  Gov. Corbett's proposal refused to expand Medicaid under the Affordable Care Act.  An expansion would have cost state taxpayers billions in additional costs over the next few years, on top of new federal taxes, and would put more families into a failed program that offers low-quality care and long wait times.
   
   
2. Would end the government-run monopoly over wine and liquor sales.  Gov. Corbett proposes selling private licenses for new wine & spirits stores, allowing grocery stores and convenience stores to sell wine and beer—delivering Pennsylvanians the convenience they demand.
   
   
3. Creates an affordable and predictable retirement plan for new employees, removing politics from pensions.  Gov. Corbett would put all new state and school employees into a 401(a) plan, similar to a 401(k), in which taxpayer costs are capped.  His plan does not adequately address the current pension bomb—kicking the can down the road—but his proposed reforms will stop throwing more workers into an unsustainable system and end the political manipulation of pension plans.

Needs Work:

4. Spending is at an all-time high.  Governor Corbett's proposed General Fund and total operating budget both represent record levels of spending ($28.4 billion and $66.7 billion, respectively).  Spending on K-12 education and public welfare are at record highs—even exceeding periods when billions in temporary federal stimulus funds were spent.
   
   When budget gimmicks are factored in (supplemental appropriations and shifts to other funds), the spending increase exceeds inflation plus population growth.
   
   
5. It spends more than we make.  Proposed General Fund spending is $514 million more than total revenue.

The Patriot News reports that private lottery manager Camelot Global Services may not be willing to extend its bid beyond the current expiration date of Saturday. Attorney General Kathleen Kane has 30 additional days to review the contract, after submitting a series of questions (which have not been made public) to Gov. Corbett.

Unfortunately for taxpayers, this delay could jeopardize $34 billion in profits that Camelot has guaranteed for the state. Camelot's guarantees would generate at least $3 to $4.5 billion more than current Lottery projections—including $50 million for this year's budget. These guarantees would be lost if incessant delays push Camelot to withdraw its bid.

This may sound familiar. In 2008, Pennsylvania had the opportunity to realize $12.8 billion in up-front payments for leasing the Pennsylvania Turnpike. But lawmakers refused to act on this opportunity, instead opting to empower the Turnpike Commission via Act 44.

As a result, Turnpike tolls have increased 71 percent for cash drivers and 35 percent for E-ZPass customers since 2008. Tolls are set to climb another 3 to 5 percent every year for the next 15 years. The Turnpike Commission has continued its history of wasteful and extravagant spending.

Instead of earning interest on a lease payment, taxpayers are paying interest on Turnpike debt, which now exceeds $8 billion (a $3.5 billion increase in just four years). This debt burden is so onerous, former Auditor General Jack Wagner suggests the Turnpike Commission could be bankrupt in a few years.

Moreover, despite these toll hikes and borrowing, lawmakers are back at the drawing board, trying to come up with even more funding for transportation. 

For the sake of taxpayers, let's not repeat mistakes of the past.

We've received several requests for our assessment of Governor Corbett's transportation proposal, in light of our principles for transportation funding. Here is our take.

First, transportation is a core function of government. Therefore, it should be prioritized in the spending of taxpayer money.

Second, people should pay for the government they use; in this case, our roads, highways, bridges, and mass transit systems. Therefore, taxes and fees for our transportation infrastructure and systems should be paid for, as directly as possible, by those who benefit from and use them. User fees on toll roads and actual ride-cost fares on transit are just a few ways to tie the funding by the users to the services rendered.

Third, before any taxes or fees are raised, current transportation tax/fee revenues must be maximized. Therefore, in addition to maximizing PennDOT and Turnpike Commission efficiencies, we should repeal prevailing wage, require mass transit to engage in competitive contracting and reduce subsidies for those users who can pay their own way, and utilize Public-Private Partnerships to bring private-sector capital and risk-sharing to fund our transportation needs.

Transportation funding is an important issue to address, but the taxpayers should not be asked to pay a penny more until state government better spends the billions it already receives from them.