Education-Industrial Complex Strikes Again

MARCH 16, 2015  | by JAMES PAUL

Much has been made of recent comments from U.S. Education Secretary Arne Duncan regarding school funding in Pennsylvania. According to Duncan, Pennsylvania's families are “being shortchanged when it comes to state and local education funding.”

Several observers pounced on these remarks—particularly the notion that Pennsylvania per-pupil spending in low-income districts is one-third less than in wealthy districts—and used them as justification for higher taxes and greater school spending.

Is it true that Pennsylvania’s low-income students are underfunded? Let’s examine the facts.

Duncan’s comments are based on data from the National Center for Education Statistics (NCES), which organizes school districts into quartiles of family income: low poverty, low-middle poverty, high-middle poverty, and high poverty. (Note that NCES figures exclude costs for construction and debt, as well as federal funds).

In each quartile—even among high poverty districts—Pennsylvania exceeds the national average in spending per student. Put another way: the vast majority of schools in the commonwealth are overfunded. It just so happens that Pennsylvania’s richest districts are particularly overfunded, while low-income districts are slightly overfunded.

Current Education Expenditures, Per-Pupil, 2011-12

Low Poverty


Low-Middle Poverty


High-Middle Poverty


High Poverty


Pennsylvania $12,529 $11,111 $11,069 $9,387
National Average $10,721 $8,804 $8,040 $9,270

The key takeaway from NCES is that affluent Pennsylvania districts raise enormous levels of local taxes to fund their public schools. Hypothetically, the discrepancy in district level spending could be eliminated by capping the local effort in high-income districts. This would make Pennsylvania’s schools appear more “equal,” but it wouldn’t result in better academic performance—nor would it direct more funding to low-income districts.

As Jason Bedrick from the Cato Institute recently explained, the education-industrial complex incessantly lobbies for higher school taxes regardless of student outcomes or fiscal reality. Given that Pennsylvania's schools are better funded than the national average but produce middling achievement, perhaps it’s time to consider other education reforms. 

At the state level, reform should include weighted student funding. This revenue neutral approach offers a more rational, transparent school funding mechanism. At the same time, Pennsylvania should protect and reward its most effective teachers, while expanding school choice for families trapped in persistently failing public schools.

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The Case for More Educational Choice in Philadelphia


Will’s family thought he was one of the chosen few: A Philadelphia student who managed to secure a seat at the high-performing Christopher Columbus Charter School. But something wasn’t right. He struggled with reading and did not enjoy school. With each passing day, it became clear to his mother, Elizabeth, that he needed a different approach to learning.

That’s where Philadelphia Classical School (PCS) fills a void. At PCS students are more than readers and writers. They are musicians and artists, too. The arts aren't merely enrichment; they are incorporated into the curriculum from the earliest grades. That’s not to say traditional learning is de-emphasized: For students in kindergarten through second grade, reading is emphasized above other homework assignments.

PCS Will

The classical approach is precisely what Will needed when he came to PCS as a second grader. The curriculum and support structure at PCS changed everything. After enrolling, Will’s reading level improved and he loves to write stories, according to Elizabeth.

The decision to enroll at PCS was not easy. Will’s father teaches at a public school and his family values the public education system, but Will needed a school suited to his individual needs. Elizabeth is thrilled with the quality at PCS. She explains, “PCS cares about life learning.” Elizabeth’s younger son, a kindergartner named Gavin, also enrolled at the school.

Although the classical approach is steeped in history and tradition, it represents a unique educational choice. PCS is the only classical school in Philadelphia, and it serves as a lifeline for dozens of families unsatisfied with their neighborhood options.

Jessica, mother of current PCS student Arabella, looked into private school because she was concerned about safety in their assigned public school, Alexander Adaire. “I wanted to be 100 percent comfortable with safety. I would be terrified to send Arabella to Adaire. It wasn’t an option.” Philadelphia District schools reported nearly 2,500 violent incidents in 2014.

Before learning about PCS, Arabella languished on the waiting list at eight different charter schools. Jessica explains, “Without PCS, we would have to move to the suburbs. Every year many of my friends move out and we did not want to be like that.”

Without the Educational Improvement Tax Credit (EITC) program, schools like PCS would be out of reach for Will, Gavin and Arabella. Each student benefits from the EITC, a linchpin of school choice in Pennsylvania which allows businesses to contribute private scholarships in exchange for tax credits.

Another unique characteristic of PCS? It leases space in a shared building with the Chinese Christian Church and Center. This means that on Friday afternoon, many classrooms are disassembled to make room for the church’s weekend activities. PCS intends to expand to its own space with the help of generous philanthropists. For the time being, though, the shared space suits PCS just fine—it stands as a testament to school’s entrepreneurial spirit, community focus, and the appetite for expanded choice in the city.

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Alternative Energy: The Promise That Never Pans Out


Green jobs and the broken window fallacy

One third of the $675 million in new corporate welfare under Governor's Wolf budget proposal is reserved for alternative energy programs. In this week's House budget hearings Community & Economic Development Secretary Dennis Davin defended the new borrowing saying,“We think when you look at those opportunities as a whole ... Pennsylvania will do much better.”

But history indicates otherwise.

A common target of Gov. Rendell's "economic development" schemes was alternative energy companies, who enjoyed $1 billion in renewable energy grants, tax breaks and loans, but only created 8,300 "green" jobs, costing taxpayers over $120,000 per job. In other words, using tax dollars to subsidize green jobs resulted in a net loss.

Worse yet, taxpayers don't have the funds for this program. The Governor wants to borrow the money and pay it back with natural gas severance tax revenues.

Even if placing more debt on Pennsylvania families created jobs, it is still wrong to ask the natural gas industry to subsidize their competitors. Kevin Sunday with the PA Chamber put it well, "It's very ironic that Gov. Wolf expects one industry to subsidize its competitors," he said. "We certainly shouldn't be picking winners and losers."

At the end of the day, Pennsylvania has given more than a billion dollars to alternative energy companies with nothing to show for it: from 1991 to 2014, our state ranked a dismal 45th in job growth. Handing out tax dollars based on political calculations is stifling economic progress. Common sense tells us it's time to try a different approach—letting Pennsylvanians keep more of their money.

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Wolf's Tax Plan: Three Things Every Family Needs to Know


Here are three things to know about Gov. Wolf's proposed tax plan:

  1. Wolf's budget calls for a net tax increase of about $1,400 more per family of four this year (with $0 in property tax rebates), and $1,400 next year (a $2,500 increase in state taxes with about $1,100 in property tax rebates).
  2. Under Wolf's plan there will be no property tax "relief" until October 2016, and it won't prevent future property tax increases.
  3. Only 30 cents of every dollar in new state taxes over the next two years would be redistributed to school districts for property tax rebates.

A thorough reader pointed out that our analysis of Gov. Tom Wolf's proposed tax increases had double-counted tax refunds (the amount the state returns to taxpayers who overpaid).

As a result, we underreported the impact of Wolf's tax plan. In fact, the net increase for next fiscal year is $1,425 per family of four, slightly more than our previous estimate.

Proposed Tax Changes in Gov. Wolf's Budget (Totals in Thousands)
2015-16 2016-17 Two Year Total
Total State Tax Increases $4,554,600 $8,053,000 $12,607,600
Property Tax Rebates $0 ($3,666,000) ($3,666,000)
State Tax Increases Less Property Tax Relief $4,554,600 $4,387,000 $8,941,600
Net Tax Increase Per Family of Four $1,424.73 $1,372.31 $2,797.04

For a more detailed look at Governor Wolf's budget proposal, read our latest policy memo.

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Audio: Governor Wolf's Big, Bad Budget


Gov. Wolf’s budget plan spends taxpayers’ money at $1,000 per second and would burden a family of four with an additional $1,419 in taxes at a time when Pennsylvanians already face one of the highest tax burdens in the nation.

CF’s President & CEO Matt Brouillette spoke with radio host Chris Stigall on WPHT’s Morning Show about the truth behind Gov. Wolf’s budget.

Matt sheds some light on the details of Wolf’s property tax rebates—which don’t go into effect until 2016-17, though tax increases would be in place for 2015-16. Beyond that, there’s nothing stopping property taxes from continuing to climb in the future.

Gov. Wolf’s tax increases, as Matt points out, also create an uninviting environment for potential business moving into Pennsylvania. His budget would ensure Pennsylvania continues to see some of the country’s lowest rates in job, income, and population growth. 

Listen for more of Matt’s insight on Gov. Wolf’s budget plan:

The Chris Stigall Show airs daily on WPHT Talk Radio 1210 in the Philadelphia area.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

And for mobile listening, get the SoundCloud iPhone and Android apps.

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Families Benefit from Natural Gas Without Tax

MARCH 10, 2015  | by GORDON TOMB

Of the many tax hikes in Gov. Wolf's  budget proposal, the natural gas severance tax on the surface seems less damaging to Pennsylvania families. But a severance tax could hit families in a very personal way, their natural gas bill.

For now, Lancaster OnLine reports that the average residential heating bill of UGI Utilities’ customers has dropped nearly 46 percent since 2008. The latest reduction of 3.8 percent–attributed to abundant supplies of Marcellus Shale gas–was instituted March 1.

Stated in terms of dollars, the average monthly bill has gone from $151 to $82 in the past seven years for 391,000 customers in 15 counties.

Those are but the latest benefits added to the gas industry’s billions of dollars paid in wages, impact fees, leases, royalties, dividends and taxes – and just one more example of why state government should not hamper the industry with unnecessary levies such as the governor’s proposed severance tax.

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Thirty Cents in Tax Relief for Every Dollar in New Taxes


Gov. Tom Wolf touts property tax relief in his new budget, but fails to mention taxpayers are going to pay more—a lot more—in higher state taxes.  Over the next two years, less than $0.30 of every dollar in new state taxes will be used for property tax rebates.

Indeed, Gov. Wolf's budget offers no property tax relief next fiscal year (2015-16) while increasing state taxes by $4.5 billion—$1,425 per family of four in Pennsylvania.

The following year (2016-17), Wolf calls for $8 billion in state tax increases and $3.7 billion in property tax rebates. This still represents a net tax increase of nearly $1,400 per family of four.

Proposed Tax Changes in Gov. Wolf's Budget (Totals in Thousands)
  2015-16 2016-17 Two Year Total
Total State Tax Increases $4,554,600 $8,053,000 $12,607,600
Property Tax Rebates $0 ($3,666,000) ($3,666,000)
State Tax Increases Less Property Tax Relief $4,554,600 $4,387,000 $8,941,600
Net Tax Increase Per Family of Four $1,424.73 $1,372.31 $2,797.04

Editor’s Note: This chart and post have been updated. A previous version counted tax refunds as a result of proposed changes twice and did not include the proposed expansion of the Tax Forgiveness Program.

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Lesson from Washington State: Privatization Works

MARCH 9, 2015  | by BOB DICK

Is liquor privatization in Washington State a “failed experiment"? That's the bold assertion from opponents of unshackling Pennsylvania from the chains of a government liquor monopoly. It’s also wrong.

Washington State’s Office of Financial Management released a report back in January on the impact of liquor privatization. Their findings decimate the claims that privatization is a failed experiment. On the contrary, privatization led to a number of positive developments:

  1. Liquor sales increased by 13 percent.
  2. Revenue collections increased by 18 percent.
  3. The number of liquor stores increased by 327 percent.
  4. Liquor store employment increased by 91 percent. (The report states that some of this growth may have occurred absent privatization.)
  5. Per-liter prices increased by 8 percent on average. This increase can be attributed to additional fees included as part of the privatization conversion and the state’s $35.22 per gallon excise tax— the highest spirits excise tax rate in the country.
  6. The costs of running the liquor system fell by 77 percent.

If Pennsylvania turns over the sale of liquor to the private sector without increasing taxes and fees (and we’re one step closer!), expect more jobs, better convenience, and competitive pricing.

For more on liquor privatization, check out this one-stop shop

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How Big, Bad is Wolf's Budget?


The first point of contention on Gov. Tom Wolf's budget isn't about his tax increases, or any specific policy item, but rather over the true size of his proposals. Andrew Staub of PA Independent runs down the "shell game":

Gov. Tom Wolf claims his budget proposal spends $29.9 billion. Republican lawmakers — and the math within his plan — say it’s actually $33.8 billion.

What’s the deal?

Here’s what’s happening: Wolf isn’t counting three transfers in his spending number. He’s putting $1.75 billion for school employee pension costs into a restricted account and $2.14 billion to an account for property tax relief and rent rebates. He’s also transferring $10 million in severance tax revenue from the general fund budget, making his total appropriation figure about $29.9 billion.

Readers may notice that the Commonwealth Foundation refers to a $31.6 billion General Fund budget—an almost 9 percent increase over last year. This falls between Gov Wolf's $29.9 billion claim and Republicans' $33.8 biillion estimate. Why the discrepancy? 

Our analysis makes an apples to apples comparison of spending next year vs. this year. We include school pension payments ($1.75 billion) but do not include the property tax transfer ($2.14 billion). 

This year, the state is spending $1.1 billion for school employee's pensions. Next year, the state would contribute $1.75 billion—a $675 million increase. Moving it "offline" doesn't make it a spending cut, as Wolf's budget secretary implies.

Not counting school pension payments as part of the General Fund budget is a parlor trick to disguise the true spending increase. These costs will be incurred next year, and they should count as General Fund spending. 

But what about the $2.1 billion transfer for property tax relief? Republican legislators counted that as part of his General Fund budget, while we did not. Our rationale: That money won't be spent next year, but hoarded in a special account.

To be clear, taxpayers would certainly pay $2.1 billion in higher taxes for "property tax relief" as part of the $4.5 billion in state tax increase (see chart below) next year. But that money isn't leaving Harrisburg for another 12 months.

To reiterate: There will be no property tax relief next year. Property tax rebates begin in 2016-17—when the net state tax increase reaches $8 billion.

In total, Wolf's budget takes in $33.9 billion in state taxes—a 17 percent increase, which includes $4.5 billion ($1,419 per family of four) in net tax increases—and spends $31.6 billion (a 9 percent increase), while hoarding $2.1 billion for another year for future property tax rebates.

Proposed Tax Changes in Gov. Wolf's Budget
Item 2015-16 2016-17
State Tax Rate Changes Total Revenue Per Family of Four Total Revenue Per Family of Four
Corporate Net Income Tax Rate Reduced to 5.99% on January 1, 2016; Mandatory Combined Reporting; Reduction of Net Operating Loss Carry Forward. Future reductions in 2017 and 2018 to get rate to 4.99% ($249,300) ($78) ($390,000) ($122)
Severance Tax of 5% and 4.7 cents per MCF - Jan 1, 2016 $165,700 $52 $1,015,000 $318
Personal Income Tax Rate Increase to 3.7% - July 1, 2015 $2,376,700 $743 $2,468,800 $772
Personal Income Tax Imposed on Lottery - July 1, 2015 $15,700 $5 $15,700 $5
Sales Tax Increase to 6.6% and Expanded to untaxed items and services - January 1, 2016 $1,554,300 $486 $3,876,400 $1,213
Bank Shares Tax - retroactive rate increase $339,200 $106 $150,000 $47
Cigarette Tax increase $1 per pack - October 1, 2015 $358,400 $112 $380,700 $119
Tobacco Products and eCigarettes tax of 40% on wholesale price - October 1, 2015  $84,100 $26 $133,900 $42
Tax Forgiveness ($90,200) ($28) ($90,200) ($28)
Total State Tax Increases $4,554,600 $1,425 $8,053,000 $2,519
School Property Tax Relief Total Revenue Per Family of Four Total Revenue Per Family of Four
Transfer to Property Tax Relief Fund $0 $0 ($3,666,000) ($1,147)
Net Tax Increase Total Revenue Per Family of Four Total Revenue Per Family of Four
State Tax Increases Less Property Tax Relief $4,554,600 $1,425 $4,387,000 $1,372
Note: Italicized breakdown of 2016-17 revenue increase do not add up to Governors’ total proposed revenue changes.

For a more detailed look at Governor Wolf's budget proposal, read our latest policy memo.

Editor’s Note: This chart and post have been updated. A previous version counted tax refunds as a result of proposed changes twice and did not include the proposed expansion of the Tax Forgiveness Program.

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Historic Spending and Tax Hikes Will Hurt Pennsylvanians

MARCH 5, 2015  | by BOB DICK

Gov. Wolf’s budget proposal expands the size of government and shrinks the size of your wallet.

His 2015-2016 budget calls for a net $4.5 billion tax increase, which amounts to $1,425 per family of four. His proposal comes at a time when Pennsylvanians already shoulder one of the highest tax burdens in the country.

The governor argues that his property tax relief plan would offset the brunt of these tax hikes, but this relief is delayed until 2016-17. In the meantime, the state will collect higher taxes and retain those funds.

Should Gov. Wolf's property tax plan pass the General Assembly, there's no guarantee school districts will stop raising property taxes. Even if local governments did manage to hold the line on property taxes, Pennsylvanians would suffer a net tax increase of $4.3 billion in the 2016-2017 budget. 

These tax hikes will grease the wheels for record levels of spending. Under Gov. Wolf's plan, true General Fund spending in 2015-16 would reach $31.6 billion (Governor Wolf moves $1.75 billion in school pension payments to a new fund, which makes the General Fund increase appear smaller). This amounts to the largest spending increase in 25 years.

Of course, the General Fund is only a portion of Pennsylvania’s total operating budget. If each of Gov. Wolf’s proposals were enacted, Pennsylvania’s total operating budget would surpass $78.6 billion—the highest spending level in the commonwealth’s history.

Unsustainable spending growth and tax increases have been the pevailing trend in Pennsylvania since the 1970s. As a result, Pennsylvania ranks near the bottom in job, income and population growth. Governor Wolf's proposals would accelerate this trend despite evidence of its harmful consequences.

There is a better alternative. 

We need to grow the economy by limiting government. This means unleashing innovators and protecting working families—not weighing them down with higher taxes.

For a more detailed look at Governor Wolf's budget proposal, read our latest policy memo

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