PA's Liquor Monopoly is in Red Ink Again

SEPTEMBER 14, 2016  | by ANDREW BECKER

The Failure of Government-run liquor stores

The Pennsylvania Liquor Control Board (PLCB) is boasting about record sales again. But as we've pointed out in the past, that’s not much of a feat when you have a monopoly over liquor sales. And the claim is even less impressive when you realize the agency is $238 million in debt.

Like a private business, the PLCB now has to include pension liabilities on its balance sheet. These liabilities are in excess of the agency's assets, putting the PLCB (officially) in the red for the second year in a row.

Despite the agency's financial position, it's generated positive attention recently by allowing grocery stores to sell wine, but this is only a small step in the right direction. The most effective way to serve Pennsylvanians is to fully privatize the system. This is important for two reasons.

First, it eliminates any potential future bailout of the PLCB. Approximately 85% of PLCB’s revenue comes from taxes. That means the state will still collect revenue with a privatized system, but the $238 million debt will only grow as the pension liabilities rise. We should take the initiative to privatize the system before it becomes a bigger burden on taxpayers.

Second, privatization would benefit consumers. It would give consumers more choices, convenience and competitive pricing.

It’s time Pennsylvania joins the 48 other states that enjoy more efficient government and consumer convenience.


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Local Union Complains About Transparency

SEPTEMBER 13, 2016  | by BOB DICK

The school board and the local teachers union in the West Shore School District are in conflict. The two sides have been unable to agree on a contract for two and a half years, and now the negotiation process itself is in dispute.

In a nod to transparency, the school district decided to publicize its contract offer to the West Shore Education Association (WSEA). The union—upset with the move—accused the district of hijacking negotiations. The president of the WSEA claimed the district promised not to negotiate in public.

Ideally, all public-sector contract negotiations should involve the public. After all, the taxpayer is footing the bill. 

Instead, the typical collective bargaining process is conducted in secret, shutting out the very people who make the process possible.

To give communities a greater voice, Senator Pat Stefano introduced SB 645—legislation that would require public employers to provide public notice of collective bargaining agreements two weeks before they’re approved. Releasing the details before final approval gives taxpayers the ability to advocate for changes to contracts they deem unacceptable.

School boards could go even further, opening up negotiations to the public and providing a summary of each contract. Of course, the district should make it clear these steps will be taken before the process begins to avoid accusations of negotiating in bad faith.

Pennsylvanians are already benefiting from transparency over state contract negotiations. Lawmakers now have an opportunity to build on their good work.


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Gov. Wolf Is Exacerbating Inequality

SEPTEMBER 13, 2016  | by BOB DICK

Gov. Wolf is embracing a government that works for the wealthy and well-connected. Yesterday, his administration announced its intention to commit more than $20.5 million to Aramark just to keep the corporation located in Philadelphia.

The governor’s preferential treatment of Aramark stands in stark contrast to his treatment of the state’s 300 vape shops. In short, he's putting shop owners out of business for $13 million in revenue, while handing over $20 million to a multi-billion-dollar corporation. 

In each of Wolf's first two years in office, his budget included a 40 percent excise tax on the vaping industry. It failed the first year. Unfortunately, lawmakers relented and passed the tax in July as part of a larger $650 million tax increase.

The results have been disastrous. Dozens of shops—like Scottie Freeman’s— have closed their doors and many more are on the verge of closing if the tax is not repealed. Despite the devastation sweeping through the industry, Gov. Wolf hasn’t demonstrated any urgency to undo the damage he’s responsible for.  

Maybe the most exasperating aspect of the tax is how much pain its causing for a relatively insignificant impact on the state’s budget picture. The tax is projected to raise about $13 million in total revenue—representing only 2 percent of the $650 million tax increase package. This figure is also $7 million less than what the state just committed to Aramark. Is there a better example of government playing favorites?

Gov. Wolf has made a conscious choice to treat some businesses and people better than others. Aramark and Amazon—they get subsidies. Vape shop owners—they get a platitude-filled press statement about their concerns. Talk about inequality.

Pennsylvania has a history of handing out corporate welfare. It’s hasn’t worked. And it creates a system people grow to resent—one where government picks winners and losers without worrying about the economic consequences. It needs to end.

If Gov. Wolf and lawmakers want to make things right, they can start by repealing the excise tax and reducing corporate welfare. This will help bridge the inevitable budget deficit, but more importantly, prevent further harm to Pennsylvanians.


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Faculty Benefits Driving Up Tuition Costs

SEPTEMBER 7, 2016  | by NATHAN BENEFIELD

APSCUF—the union representing faculty at state-owned universities—has begun a vote to authorize a strike.

One of APSCUF's complaints with the proposed contract is higher health care expenses. In a recent email to faculty members, APSCUF touted the fact that employees would now have a deductible with their health insurance plans--$250 for singles and $500 for families. That is, their current contract offers a ZERO deductible.

In contrast, the average deductible nationwide for employer-provided coverage is more than $1,300 for single coverage and more than $2,000 for family coverage, according to the Kaiser Family Foundation.

Likewise, APSCUF is complaining about out-of-pocket limits on health care since employees currently pay $0 out-of-pocket. The proposed contract would limit out-of-pocket expenses to $1,000 for single coverage and $2,000 for family coverage.

Nationwide, 83 percent of employee-sponsored individual plans have an out of pocket maximum of more than $2,000, according to the Kaiser Family Foundation.


If students and parents wonder why tuition costs so much, they should look to faculty health care benefits that are out of whack compared to the private sector.


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Podcast: Killing Jobs & Playing Favorites - Meet Pa.'s Tax Code

SEPTEMBER 7, 2016  | by DOUGLAS BAKER

Did you know Pennsylvania has more than 3,000 taxing authorities? It’s a staggering number that exceeds almost any other state in the nation. Not only does this create confusion and raise costs for job creators, it also enables politicians to manipulate the tax code to benefit special interests.

The result, as we discussed with Travis Brown of Forbes, is entrepreneurs and job-seekers take their talents to other states.

In this episode of Commonwealth Insight, we discuss solutions to Pennsylvania’s job-killing tax code with our guest Jared Walczak, a policy analyst at the Tax Foundation and a Western Pa. native.

Jared says simplification and neutrality are the keys to a tax structure that promotes, rather than stymies, business investment. We talk with Jared about what Pennsylvania can learn from North Carolina, which is enjoying a boom after responsibly reforming its tax code.

What can we change? Pennsylvania’s high tax rates, coupled with carve-outs for special interests, means politicians pick winners and losers. This system is both inefficient and unfair. Jared says there’s a better alternative. “Neutral, across-the-board rate reductions is the best incentive package you could create,” he says, “And it would apply to every business, not just those favored few.”

Here’s the bottom line: Broadening our tax base and reducing rates for everyone will make us more competitive.

Click here or listen below, and stay tuned for more by subscribing on iTunes, SoundCloudGoogle PlayStitcher, or via RSS.


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The Legacy of Pension Debt: Pay More, Get Less

SEPTEMBER 7, 2016  | by ELIZABETH STELLE

Pennsylvania's pension debt stands at $63 billion or more than $4,900 per resident. It's a big number to be sure, but what does it mean for the average Pennsylvanian? What does it mean for lawmakers struggling to close budget gaps?

We've broken down the pension debt by state agency to show how many tax dollars are being diverted from services and taxpayers to personnel costs.

For instance, the share of pension debt for corrections officers is $3.3 billionabout $1 billion more than this year's entire corrections budget. Human services personnel account for about $2.3 billion in pension liabilities. Likewise, the state currently has a $1.7 billion obligation to transportation workers.

These obligations will command a large portion of future tax dollars, which means state government will be providing fewer services at a higher cost to taxpayers. Any system that charges taxpayers more to provide people with less is broken.

State workers deserve a decent retirement, but many may not see one unless the current unsustainable system is reformed. If pension reform isn't taken up soon, pension payments will be reduced again and eventually deteriorating finances will cause retirees and current workers will lose benefits.

Pension reform that protects benefits from politics isn't just fiscally prudent; it's about making our government work for all Pennsylvanians.


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Transparency Improves the Collective Bargaining Process

SEPTEMBER 1, 2016  | by BOB DICK

On August 30, Secretary of Administration Sharon Minnich announced the details of a new three-year labor agreement between the Wolf Administration and the American Federation of State, County, and Municipal Employees (AFSCME).

In previous years, details of an agreement would rarely, if ever, be released until after it was approved by both parties. However, with the passage of Senate Bill 644 (now Act 15), the commonwealth must provide the Independent Fiscal Office with the details and costs of state collective bargaining agreements before they’re ratified. The change allows the IFO to offer an independent assessment and gives Pennsylvanians a chance to review the contracts before they are stuck with the bill.

According to an Office of Administration (OA) press release, the major provisions of the AFSCME contract include a change to the rules governing public employee healthcare and a 7.25 percent wage increase over three years. However, this increase is understated. Over the three year contract, employees will experience five wage increases, boosting the average pay for an AFSCME employee by 12.31 percent.

OA puts the total cost of AFSCME’s contract at $292.4 million or $97.5 million annually. The total cost would have been higher if the Wolf Administration did not negotiate healthcare concessions with AFSCME. This change saved taxpayers $13.6 million, according to OA estimates.

If the deal is approved, lawmakers will need to figure out how to pay for the additional costs mandated by the contracts. Pennsylvania is already facing a $264 million deficit this year and will likely need to make significant policy changes to balance the budget next year. Adding nearly $100 million in labor costs annually will make lawmakers’ jobs even harder.

Anticipating this problem, Rep. Garth Everett introduced HB 2289, which empowers the legislature to either approve or disapprove of state collective bargaining agreements. The bill would provide a much needed check on the collective bargaining process, which generally operates outside public view and involves government unions negotiating with the same officials they help elect to office.

Rep. Everett’s legislation and a requirement to post school district teacher contracts before they’re ratified—Senate Bill 645, would further enhance transparency and oversight of the bargaining process.


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Judge: District Exaggerated Shortfall, Improperly Raised Taxes

AUGUST 31, 2016  | by JAMES PAUL

Lower Merion School District must revoke a portion of its most recent tax hike, according to a Montgomery County court. In his ruling, Judge Joseph A. Smyth said the district misled taxpayers by projecting large budget shortfalls despite squirreling away millions of dollars in reserve.

Kathy Boccella of Philly.com has the full report:

Between 2010 and 2015, the 8,300-student Lower Merion district - which, with a $259 million spending plan, is one of the wealthiest public school systems in the Philadelphia area - predicted large annual budget deficits, yet had millions stashed away in its reserves, Smyth said in his ruling.

For instance, in 2009-10, the district projected a $4.7 million budget hole but ended the year with a $9.5 million overage. In 2011-12, it anticipated a $5.1 million gap but wound up with $15.5 million to the plus side.

How did the school district manage to continually raise taxes above the Act 1 index? By overstating special education and pension costs:

According to the judge's findings, the district got away with raising taxes above the Act 1 index of 2.4 percent by telling state officials the money was needed to cover soaring special-education and employee pension costs, two of the biggest expenses for most public school districts.

However, audits of Lower Merion's budgets show it had year-end surpluses ranging from hundreds of thousands to millions of dollars for special education. The district also had $15.3 million tucked away in a retirement fund that was never used for pensions; instead, those benefits were paid from the general fund, according to the findings.

Because the Pennsylvania School Code does not permit a district of Lower Merion's size to store more than 8 percent of its money in reserve funds, the district transferred its surpluses to other accounts, the court found.

The last paragraph, above, is crucial—and has implications for all Pennsylvania school districts. If school board directors can so easily shift funding between various reserve funds (assigned, committed, and unassigned) then there is essentially no distinction between them. This undercuts the argument made by many school directors, as well as the Pennsylvania School Boards Association, that districts should only be judged on their unassigned fund balances.

By law, districts can only raise taxes if their unassigned funds are less than 8-12 percent of total expenses. From the CF fund balance database, you’ll notice many districts keep their unassigned funds stocked to the maximum legal amount, while holding millions earmarked as assigned or committed.

At the end of the 2014-15 school year, roughly 100 school districts had larger total reserve balances (as a percentage of spending) than did Lower Merion. Could this suggest administrators in other districts also mischaracterize their financial hardships?

Back to Lower Merion, whose school board wasted no time sensationalizing the judge’s ruling:  

The ruling could eliminate $4 million targeted for special education and retirement benefits in the coming year, according to the board, which added, "If the court's decision stands, the financial health of LMSD and districts across the state is in jeopardy.

In a separate letter to parents, the board said the decision "could significantly impact the quality of school programs," and warned it might have to impose personal income taxes to make up for shortfalls.

Of course, money is fungible. If the directors at Lower Merion decide to cut funding for disabled students and elderly teachers, that will be by choice. Much like they chose to systematically mislead the very taxpayers financing their schools.


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Facing Likely Deficit, Lawmakers Should Reduce Spending

AUGUST 31, 2016  | by BOB DICK

Fiscal responsibility is at a premium across the country, and Pennsylvania is no exception.

In June, lawmakers passed a budget that increased spending by $1.6 billion. Weeks later, they passed a revenue package, which included a $650 million tax increase to pay for more spending.

Yet, the budget still remains unbalanced. We have already mentioned how how the fiscal plan relies on a $200 million loan and other questionable revenue assumptions. 

Now, a new analysis from the Independent Fiscal Office (IFO) explains that some of the revenue Gov. Wolf and lawmakers are counting on to balance the budget may not materialize.

Below is a look at the projected deficit using the IFO’s numbers, contrasted with the General Assembly’s estimates.

2016-17 Budget Picture (in thousands)
  Official Estimates (July 2016) IFO Estimates (August 2016)
Beginning Balance $1,991 $1,991
Total Base Revenue $31,559,653 $31,553,400
One-time/New Revenue $1,216,850 $957,000
Less Tax Refunds ($1,300,000) ($1,300,000)
Prior Year Lapses $57,400 $57,400
Funds Available $31,535,894 $31,269,791
Total Spending $31,533,732 $31,533,732
Balance $2,162 ($263,941)
Sources: Independent Fiscal Office; Senate 2016-17 General Fund Financial Statement

The table contains various assumptions, which explain the differences among estimates:

  • The legislature’s base revenue figure (the amount of revenue expected before any policy changes & based on economic growth) is $6 million higher than the IFO’s estimate.
  • The most significant difference is between the "One-time/New Revenue" estimates. Lawmakers estimate policy changes will raise approximately $1.2 billion. The IFO, using more reasonable assumptions, projects the changes will raise just $957 million. Here are the major assumptions explaining the disparity:
    • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have said they want to pass a gambling expansion to generate $100 million to cover CFA spending, but this is far from certain. 
    • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million, a $76 million difference.
    • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less the official projections.
    • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate—they do not expect that to occur during the current fiscal year. 

So what’s the major takeaway from the IFO’s estimates? Lawmakers must figure out how to eliminate a $264 million deficit this year. Liquor modernization, tobacco taxes, and gaming may bring in enough revenue to balance the budget, but in the likelihood it doesn’t, lawmakers should be ready to reduce spending to match revenues.


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Public Remains Supportive of School Choice

AUGUST 30, 2016  | by JAMES PAUL

That’s the upshot of the 10th annual public opinion survey from Education Next, which covers a range of topics including school choice, school spending, personnel policy, testing, and accountability. The entire poll results are worth reading—check out the interactive results from 2016, as well as trends over the last decade—but here are a few key findings.

On the topic of school choice:

  • Tax credit scholarships are favored 53-29 by the general public, 64-17 by African Americans, and 60-25 by parents. Tax credit scholarships, including Pennsylvania’s Educational Improvement and Opportunity Scholarship Tax Credits, are the most popular school choice mechanism.
  • The general public supports charter schools by a 51-28 margin, including 45-33 among Democrats.
  • Support for both means-tested and universal vouchers is slightly greater among Democrats than Republicans. Hispanics support universal vouchers 57-24.

Regarding school spending:

  • The general public underestimates the average amount spent on children in public schools, which mirrors the experience in Pennsylvania. When asked to estimate the per-pupil cost, respondents guessed $8,500. The actual average is more than $12,000.
  • The general public estimates the average yearly teacher salary is roughly $40,000, which is 30 percent below the actual average teacher salary ($58,000) reported by the National Education Association. Even teacher respondents underestimate average teacher salaries—they guessed $46,000.

Finally, on personnel policy:

  • 62 percent of the public supports “basing part of the salaries of teachers on how much their students learn,” also known as merit pay. Only 20 percent of teachers are supportive of merit pay.
  • Support for teacher tenure has declined by 10 percentage points since 2013, with the general public opposing teacher tenure 54-28.
  • By a margin of 44-35, the public opposes agency fees—which require non-union members to nonetheless pay roughly 80 percent of full-member dues to the union.
  • The public is split, 33-32, on whether unions have a negative effect on public schools.

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