Why are taxpayers being charged for money left unspent? This question is posed by NBC 10 reporter Mitch Blacher to public school administrators in southeastern Pennsylvania districts. An NBC investigation found eleven of twelve districts overestimated—for multiple years—how much they would need to raise in new taxes.
NBC spoke with a former school member who blew the whistle on consistent over-budgeting in Unionville-Chadds Ford.
Oddly, a Downingtown Area Superintendent defended the practice by arguing, “There’s a history to this. This is 20 years of us doing this.”
Indeed, there is a history of Pennsylvania school districts requesting higher taxes while holding large sums of money in reserve funds. See CF’s recent analysis of all 500 districts comparing fund balance information with requests to raise taxes above the state-mandated cap on property tax increases.
RELATED : ACCOUNTABLE GOVERNMENT, TAXES & SPENDING, PROPERTY TAXES, TAXATION
Pennsylvania’s private school scholarship programs account for less than 2 percent of the $11 billion in state funds allocated for public schools. Yet it is impossible to overstate the significance of these programs for children and families.
Kevin McCorry of Newsworks tells the story of Thomas Short, a parent in South Philadelphia, who can send his sons to private school thanks to the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs:
The only way he's able to afford Catholic school tuition is because he takes advantage of a scholarship program that's funded by state tax credits. Tuition for two children normally runs north of $9,000 per year.
With the scholarship, he pays just $1,500.
"Without this, [they're] not going here," he said.
According to Mr. Short, St. Thomas Aquinas Elementary is a better option than the traditional district school:
Short's perception of the nearby neighborhood public schools is low.
"They're not trying to develop the person as much as just trying to get them through to the next grade," he said. "I don't know why I'm saying that. It's just my opinion. Maybe that's how the public schools used to be back in the day when I went."
If House Speaker Mike Turzai has his way, the EITC and OSTC will see a sizable boost during the next fiscal year. Speaker Turzai recently released a co-sponsorship memo for legislation increasing the caps on how much businesses may donate to both programs—up from $175 million to $250 million.
This, on the heels of a $25 million EITC increase last July, would be welcome news for families and schoolchildren across the commonwealth.
RELATED : EDUCATION, EDUCATION SPENDING, SCHOOL CHOICE
In the past six years, Pennsylvania taxpayers’ unfunded pension liability has more than doubled from less than $30 billion to $63 billion.
While the legislative debate over reform continues, Pennsylvania taxpayers and state workers are sinking deeper into the pension crisis. A recent Moody’s report on state pension liabilities concludes states with large gaps, like Pennsylvania, will be forced to direct more money toward their pension systems just to keep unfunded liabilities from growing. That means fewer dollars for schools, roads, and other basic services.
A big reason for the growing funding gap is lower than expected investment returns.
The State Employee Retirement System (SERS) assumes a 7.5 percent rate of return for investments, but the actual rate of return was only 0.4 percent in 2015. In the first half of 2016, SERS reported a 2 percent investment return.
The much larger Pennsylvania State Education Retirement System (PSERS) isn’t fairing much better. The fund earned just 1.29 percent for the fiscal year, ending June 30th. Recognizing the reality of today’s economy, the system reduced their assumed rate of return from 7.5 percent to 7.25 percent starting July 2016.
Unfortunately, Governor Wolf vetoed reform back in June 2015 which included a defined contribution, alongside a “cash-balance plan”, for new employees only. This legislation was itself a compromise from a straight 401k-style plan that would provide adequate retirement benefits while being, by definition, fully funded.
By December, the Senate crafted a side-by-side hybrid pension model. The hybrid model allowed new employees have both a (smaller) defined benefit pension and a defined contribution plan from dollar one. While less than ideal, the plan would significantly reduce taxpayer risk, a step in the right direction.
In June, a different reform proposal passed the state house. This stacked-hybrid plan includes a defined benefit plan for workers until they reach $50,000 in salary (or 25 years of service), followed by a defined contribution plan. However, the $50,000 threshold would increase by 3 percent annually--greatly limits the number and extent of employees participating in the defined contribution plan.
There’s no question pension reform is urgent. Lawmakers must prioritize proposals with a stronger defined contribution component while preventing political manipulation of pension payments. Anything less will keep government budgets squeezed and taxpayers exposed to tremendous risk.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, PUBLIC EMPLOYEE PENSIONS AND BENEFITS
In June, CF published a searchable database showing fund balance data for each of Pennsylvania’s 500 school districts as of 2015.
Given the recent Lower Merion School District lawsuit—in which a judge found Lower Merion’s school board improperly raised taxes despite flush fund balances—we have taken the database a step further and examined which districts have accumulated large fund balances while also requesting tax hikes.
This new database shows total fund balance along with requested tax increases, per student, for each school district.
Here’s why this is important:
The Taxpayer Relief Act of 2006 (Act 1) was intended to limit property taxes and empower Pennsylvanians with referenda on real estate tax hikes. Each September, the Pennsylvania Department of Education (PDE) calculates the base Act 1 index for the following fiscal year. This index is the maximum allowable school district tax increase, usually between 2 and 4 percent.
After the index is announced, districts must do one of two things: pass a resolution promising not to raise taxes above the index, or pass a preliminary budget identifying proposed tax increases above the index. Districts adopting a preliminary budget must either initiate a voter referendum on the tax hike or apply for referendum exceptions from PDE.
In practice, virtually all districts seeking to raise taxes above the index apply for, and receive, exceptions. Since 2006, there have been seldom few property tax referenda, and property taxes have continued to rise.
Our new database displays how much each school district requested to raise taxes (above the index) in its preliminary budget. A blank cell means the district did not request tax increases above the index. It does not necessarily mean the district avoided tax hikes altogether.
Further, see this list of 8 school districts with fund balance percentages larger than Lower Merion’s that also requested tax increases above the Act 1 Index in 8 or more of the last 10 years.
Unlike residents in the majority of other states, where school districts must hold a referendum vote in order to approve new taxes, residents of the commonwealth have little control over real estate tax hikes. All the more reason to pass SB 909, which would require both voter referenda for any school district tax increase, as well as public sector pension reform, which is each district’s largest cost driver.
RELATED : ACCOUNTABLE GOVERNMENT, EDUCATION, EDUCATION SPENDING, TAXES & SPENDING, PROPERTY TAXES
The National Center for Education Statistics recently released 2013-14 figures on revenues and expenditures for U.S. public schools. How does Pennsylvania stack up when it comes to funding?
On a per-pupil basis, Pennsylvania exceeds the national average in revenue from local, state, and federal sources. Overall, public schools in the commonwealth are funded 9th highest in the country and $3,500 more than the national average.
Note that these figures are for the 2013-14 school year and thus pre-date Tom Wolf's tenure as governor.
RELATED : EDUCATION, EDUCATION SPENDING
Pennsylvania’s state budget is three months old and showing signs of a major budget deficit.
Actual revenue collections are already behind $218.5 million through the first quarter, according to the Pennsylvania Department of Revenue. In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending.
The revenue assumptions built into the billion dollar package are now proving optimistic. The chart below shows revenue collections lagging official estimates in each of the first three months.
In August, the Independent Fiscal Office identified problems with certain revenue projections used to balance the budget—at least on paper. Here are their major assumptions:
- 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 expressed an interest in passing gambling expansion to generate $100 million to cover CFA spending, but no enabling legislation exists.
- 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 than the official projections.
- $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.
Moreover, the budget was unbalanced from the start. The budget counts on $260 million in one-time revenue and transfers from other funds, and a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.
Borrowing money to pay our bills is the very definition of unbalanced.
If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Such as,
- Cutting back on $800 million in arbitrary corporate welfare,
- Immediately imposing a (real) hiring freeze and travel ban, and
- Reviewing funds outside the General Fund budget for savings.
As the fiscal year progresses, and more revenue collections are announced, we will continue to update our Deficit Watch.
RELATED : TAXES & SPENDING, CORPORATE WELFARE, PENNSYLVANIA STATE BUDGET, PORK SPENDING, PUBLIC EMPLOYEE PENSIONS AND BENEFITS, SPENDING LIMITS, TAXATION
North Philadelphian Carol Johnson* saved $2,000 from her pension checks by storing the money in an upstairs bedroom. One day, the 87 year old's savings vanished in a matter of minutes—taken by law enforcement after Carol’s husband Kevin* was found with two marijuana joints in their home.
Carol was never charged with a crime, but it didn’t matter. Under Pennsylvania’s civil asset forfeiture laws, cash, cars, and even homes can be forfeited without a hearing. As opposed to most legal proceedings, civil asset forfeiture turns justice on its head, forcing property owners to prove their innocence and that their property itself is innocent. It’s a system in desperate need of reform.
SB 869, sponsored by Senators Mike Folmer and Anthony Williams was designed to stop the abuse of this practice by requiring a conviction before a person’s property can be seized. Unfortunately, the bill was gutted in the Senate Judiciary committee last week. The new bill language makes a few procedural changes to the process, but it continues to allow confiscation without a conviction. That’s why we've withdrawn our support of the bill along with the Philadelphia Bar Association, the Pennsylvania Institutional Law Project, and the ACLU of Pennsylvania.
No one should have their property taken away from them because of a crime they didn’t commit. The new version of SB 869 does nothing to prevent this injustice.
*Names have been changed to protect of privacy.
RELATED : PROPERTY RIGHTS, TAXES & SPENDING, CRIMINAL JUSTICE
In a recent interview with Stephanie Renee, host of WURD AM’s The Mojo, Nathan Benefield discussed the roots of Pennsylvania’s pension crisis and how to fix it.
Pension debt has stacked up significantly since 2001, when lawmakers retroactively increased pensions for state workers, public school teachers, and even themselves. Nate noted that an increase in pension benefits, coupled with reliance on the not-so-reliable stock market, have led to our $63 billion pension debt.
Additionally, overly optimistic assumptions that our pension investment funds will return 7.5% interest each year haven't borne out. More than a decade of underfunding our pension system has only served to push the burden of skyrocketing pension debt onto future generations.
The Department of Corrections alone owes over $3.3 billion in pension liability, while the Department of Human Services owes over $2.3 billion. The Turnpike Commission, which rounds out the list of PA’s ten agencies with the most pension debt, faces over $300 million in pension liability.
To see the impact of this debt, just look at higher tolls on the turnpike, higher tuition at state universities, and higher prices at our state-run liquor stores.
Nate explained that moving to a defined contribution plan, similar to the private sector’s 401(k) plans, would alleviate some of the pending pension trouble. Not only would it protect the system from the uncertainties of stock market returns, but it would also protect public employees and taxpayers from political influence.
Click here or listen below for the full interview:
RELATED : ACCOUNTABLE GOVERNMENT, GOVERNMENT DEBT
All men are created equal.
This simple idea—just five words—changes world history, according to Matthew Spalding, author of We Still Hold These Truths and Associate Vice President and Dean of Educational Programs for Hillsdale College in Washington, D.C. “It’s the key to everything. It’s the key to understanding America.”
In this week’s episode, we talk to Matthew about the forces that shaped the American mind and why now, more than ever, people fear the federal government.
Election season is in full swing, but so is the fall legislative session. This time of year elected officials walk a narrow line to avoid the illegal practice of using public resources for politics. Yet, public resources are used all-year round to funnel union dues and campaign contributions from workers' paychecks to union leaders.
Since 2010, PSEA, AFSCME 13, SEIU, UFCW and PFT unions have contributed $18 million from Political Action Committees (PAC). These same unions reported spending $40 million on "political activities and lobbying" using union dues. A significant chunk of PAC money is donated to state legislator's campaigns. The following Pennsylvania elected officials are the largest recipients of government union PAC contributions.
It's time to end this unfair use of public resources to collect political money by passing paycheck protection. Paycheck protection strengthens the rights of all government workers, giving them power over their own money and choice of political association.
RELATED : UNIONS & LABOR POLICY, UNION DUES AND POLITICS
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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.