Governor Wolf's Budget Hostages


Tom Wolf finally admitted he held school children hostage in hopes of higher taxes: “We're now at a point where I don't want to hold the children of Pennsylvania hostage.” But the governor’s six month crusade for tax hikes hurts more than children. His refusal to sign earlier emergency funding measures resulted in unnecessary pain and worry for countless Pennsylvanians.

Here are ten of Wolf's budget hostages from 2015: 

  1. Children on the brink of returning to failing or violent schools: The governor waited until Christmas Eve to release authorization letters that allow businesses to donate private school scholarships, even though these programs are part of the tax code and have nothing to do with the budget. This resulted in confusion, and possibly fewer donations, which could disrupt the education for thousands of low- and middle-income students. 
  2. Human service employees: Delayed funding to human services agencies caused more than 700 furloughs, according to a United Way survey. Others employees lost benefits or took salary reductions.
  3. Pre-kindergarteners: At the start of December, 15 early childhood centers were closed, according to the state Department of Education, affecting about 540 children from low-income families.
  4. Domestic abuse victims: Wolf cut off all funding—including federal—for domestic violence programs, forcing workers at shelters like Survivors Inc. in Adams County to turn away pregnant women and over 100 children. At the beginning of December, Wolf released some federal funds for these victims.
  5. Charter school students: Across Pennsylvania, charter schools were forced to reach into rainy day funds in order to remain open. Since charters are viewed as riskier investments than traditional school districts, it is more challenging for charters to borrow money. Pennsylvania charters were also denied revenue from the state Treasury when local districts were unwilling or unable to contribute per-student payments. 
  6. Senior citizens: Senior centers around the state closed during the impasse. All four senior centers in Mercer County closed and laid off 50 percent of their employees.
  7. The hungry: Food banks across the commonwealth struggled throughout the impasse and some dipped into their reserve funds to keep putting food on the table.
  8. Local taxpayers: Interest payments for schools borrowing money to stay open have reached nearly $1 billion
  9. Local taxpayers II: Municipalities and counties have skimped on payments and considered borrowing funds to remain afloat. These measures resulted in tax increases or even bond rating downgrades.
  10. College students: State and federal grants for college students were on hold, as well. East Stroudsburg University offered bookstore credit to PHEAA grantees beginning in November and Penn State added the grants as a credit to bills even though the money hadn't yet come through.

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A Governor's Resolution List for 2016

JANUARY 5, 2016  | by BOB DICK

Last year, Gov. Tom Wolf promised he would take state government in a "different direction" and grow the middle class. He pledged to do this by making Pennsylvania a magnet for private sector entrepreneurs without giving massive tax breaks to special interests.

Throughout 2015, the governor has strayed from those promises by vetoing a budget that held the line on taxes, privatized liquor and made an effort to protect the state's credit ratings through pension reform.

Of course, a new year provides new opportunities…or should we say a fresh start. So with the new year in mind, here are five resolutions the governor can work toward to deliver on his promises to Pennsylvanians:

Resolution #1: Return to the campaign promise not to raise taxes on working people.

As a candidate, Tom Wolf promised to protect low and middle-income people from a tax increase, but in 2015, he broke that promise. Fortunately, the governor has an opportunity to stand on the side of an overtaxed working class, and prevent policies that will expedite the exodus of Pennsylvanians.

Resolution #2: Level the playing field and cut spending on corporate welfare programs. 

Unbelievably, government spending has increased in 44 of the last 45 budget years. Cutting down or eliminating nearly $700 million in corporate welfare is a great way to save tax dollars and level the playing field for all Pennsylvanians.

Resolution #3: Deliver property tax relief by signing real pension reform.

Over the past year, the governor highlighted the onerous property tax system in Pennsylvania and proposed a tax shift to help, but such a shift does not solve the real problem: school budgets squeezed by pension costs.

To provide relief to homeowners, we need comprehensive pension reform that stops adding new debt and provides a method to pay down existing debt. That means converting to a 401k-type system and finding additional revenue (either through spending cuts or non-tax revenue sources) to pay for the more than $53 billion in benefits promised to public employees.

Resolution #4: Make government work smarter by getting out of the booze business.

Selling wine and liquor is not a function of state government. Government booze control leads to higher prices, fewer choices, less convenience, an inefficient bureaucracy. Selling the state stores would be a windfall for both taxpayers and consumers alike.

Resolution #5: Create "government that works" by increasing transparency and ensuring taxpayer resources are not used for politics.

Government should not grant any private organization unfair political privileges. This includes using taxpayer resources for the collection of political money. A true “transparency governor” will end these favors and restore accountability to taxpayers.

To strengthen our state and give Pennsylvania a real fresh start, these are five resolutions worth keeping.

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Wolf's Newest Education Funding Scheme

JANUARY 5, 2016  | by JAMES PAUL

When Gov. Wolf finally agreed to sign the majority of an emergency funding bill, it remained unclear how his administration would distribute the increased education funding approved by the legislature. Without passage of an Education Code—legislation typically enacted in conjunction with an appropriation bill—the governor had no specific instructions for doling out education dollars.

Wolf is taking full advantage of this opening to distribute funds in a highly political “formula” that ignores the recommendations of the bipartisan education funding commission. On Monday, the administration announced a “hybrid funding formula that would have been fully enacted as part of the bipartisan framework budget agreement.”

From the Department of Education, here’s what Wolf’s hybrid-formula essentially boils down to:

  1. Line item veto roughly $3 billion in education funding (continuing a political game of chicken and setting the stage for further student hostages)
  2. With the remaining funds: send each district the same amount it received in 2014-15.
  3. With the new, increased education funding (prorated over six months, thanks to Wolf’s veto):
    1. Send out $50 million based on the allocation of the previously eliminated Education Assistance Program
    2. Send $12 million to Chester-Upland School District
    3. Send $3 million to Wilkinsburg Borough School District
    4. The rest is distributed to districts on a pro-rated basis to restore federal stimulus dollars which expired 2010. Although the Department of Education intentionally mischaracterizes these funds as “cuts under the previous administration," the only true cut to state education funding occurred last week, when Wolf vetoed $3 billion.
    5. The governor uses a portion of the increased Ready to Learn block grant to subsidize districts with high levels of charter school enrollment

Wolf is distributing education dollars on a whim, on his decree. What is listed above is not a formula; it is a political scheme. If not for Wolf's $3 billion education funding veto, this highly-politicized formula would be unnecessary. Instead of providing dollars based on enrollment or student need, Wolf is creating winners and losers as he sees fit.

The School District of Philadelphia, for example, receives more than 36 percent of the new education funding. Wilkinsburg Borough SD receives a 46 percent increase over 2014-15 levels and Chester-Upland receives a 25 percent increase. The average district receives 2.76 percent more than last year’s appropriation.

Speaking to the Pittsburgh Post-Gazette, Republican staffers indicate that Wolf’s “formula” is not, in fact, related to any framework budget agreement:

At the state Capitol, legislative Republicans took issue with how the Wolf administration plans to distribute the money.

“We’re still reviewing the numbers at this point,” said Jennifer Kocher, spokeswoman for Senate Majority Leader Jake Corman, R-Centre. “It doesn’t appear to adhere to anything that we had talked about in the framework, but this governor has certainly proven he wants to do things his own way.”

“He just chose to do it his own way,” said Steve Miskin, spokesman for House Republicans. “We’re still trying to determine exactly what type of formula he used to do it.”

Where do we go from here? The governor should release the billions of education dollars he’s currently withholding—providing the largest state support of public schools in Pennsylvania history—and the legislature should approve an Education Code that distributes those dollars based on the Basic Education Funding Commission’s student-based formula.

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Union Dues Fund New Political Attack Ads


America Works USA launched a new round of political attack ads opposing the latest state budget. These highly misleading ads again talk about “cuts to education.” However, the budget increases funding for public schools—or at least did, until Gov. Wolf chose to veto $3.1 billion in funding for public schools.

Dennis Owens of ABC 27 reports the organization will spend at least $500,000 on the latest round of TV ads.

So who is behind these ads?

We have found—based on reports filed with the U.S. Department of Labor—that government unions have given more than $1.1 million to America Works USA in the last year. These funds come from the union dues of teachers and state workers, not political action committees.

  • $1 million from the National Education Association (NEA), money taken from the paychecks of school teachers.
  • $115,000 from AFSCME Council 13, representing Pennsylvania state workers—funds collected from workers’ paycheck by the State Treasurer at taxpayer expense.

As we pointed out before, America Works USA is an arm of the Democratic Governors’ Association, which received $14 million from government unions last election cycle.

Many union members have no idea their dues are being used for political attack ads—in fact, many members believe their dues can’t be used for politics.

The latest rounds of political ads, funded by government union dues and collected using taxpayer resources, shows the need for immediate passage of paycheck protection. Teachers and state workers should never be forced to fund political speech.

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Is Gov. Wolf Ignoring Credit Rating Agencies?


Public Pension Reform

Last week, Gov. Wolf once again resorted to defending his latest budget vetoes citing the fear of credit rating downgrades. Oddly, he seems to miss that pension reform and pension funding are mentioned eight times in the latest memo from S&P.

In fact, in every credit downgrade, rating agencies mention our pension crisis and the need for reform.

  • Here is Moody’s in 2012: “Rapidly growing pension contributions will absorb much of the commonwealth's financial flexibility over the next five years.”
  • In 2013, Fitch echoed this concern, citing “Sizable increases in [pension] contributions,” and expressing the fear that it is “unclear if any pension reform will be enacted.”
  • S&P said much of the same in 2014, citing “inaction on pension reform” and questioning the political appetite for tackling the issue: “It is unclear to us whether the state has the willingness to address its significant pension issues.”
  • And again in 2014, Moody’s writes that “Material reduction in long-term liabilities, including unfunded pension liabilities” could make the ratings go back up.

To be clear, these ratings reports also cite a structural imbalance—though one which can be solved by reducing spending or addressing the cost drivers (including pensions) in the budget. Most credit downgrades also provide warnings about Pennsylvania’s slow economic growth—a problem that will only be made worse, not better, by raising taxes.  

Nonetheless, every credit warning has cited our pension liability and the need for pension reform.

But what kinds of reform will improve our credit rating? As we’ve noted here many times before, it isn’t pension obligation bonds—a solution favored by Gov. Wolf. 

Financial experts warn that pension bonds would only weaken our fiscal condition. Moody’s actually called pension obligation bonds a “red flag.” Earlier this year, Fitch issued a very strong warning against pension bonds:

Pension obligation bonds (POBs) will not correct unsustainable benefit and contribution practices and are not a form of pension reform, Fitch Ratings says. Issuing POBs is neutral for some governments' credit quality and negative for others. 

In contrast moving new employees to a defined contribution plan (like a 401k) or even a "hybrid" plan is seen as a positive financial move. Here is S&P on the subject of moving to a new plan design in a 2014 report:

According to NCSL, between 2012 and 2014, 17 states and Puerto Rico passed 43 bills related to defined contributions, cash balance, or hybrid plans. Among these are Kentucky, Louisiana, Tennessee, and Virginia. Earlier this month, Oklahoma became the 18th state to join the ranks after Gov. Mary Fallin signed a bill that moves future employees of the state's non-hazardous plans to a 401(k) defined contribution plan. …

We believe that such reforms, despite potentially adding more near-term budgetary costs, can be important components of a government's overall liability management and contribute to greater plan affordability over time.

If Gov. Wolf truly wants to work on improving our credit rating, he needs to support real pension reform.

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The EPA's Plan Will Hike Your Electricity Bill


Cap and Trade

A new analysis from NERA Economic Consulting projects Pennsylvania electricity bills will increase between 10 and 19 percent from 2022 to 2033a consequence of a U.S. Environmental Protection Agency (EPA) plan to reduce carbon emissions. In fact, all 47 states covered by the EPA's "Clean Power Plan" would experience rate increases, including double-digit hikes in 41 states.

The Clean Power Plan is really Cap and Trade in disguise with an enormous price tag. NERA estimates the plan's annual cost to be between $29 billion and $39 billion. The Institute for Energy Research (IER) notes it’s at least,

three times greater than the cost of EPA’s (proposed) Mercury and Air Toxics rule, to which the U.S. Supreme Court stated: ‘It is not rational…to impose billions of dollars in economic cost in return for a few dollars in … benefits'.

What’s the benefit of this costly regulation? IER explains:

Carbon dioxide emissions will decline by less than 1 percent and global temperatures by less than 0.02 degrees Celsius by 2100. Policymakers should know that this costliest of electric power regulations actually achieves meaningless progress towards the goal that EPA uses to justify it.

As we’ve pointed out here, the plan is an extension of the Obama administration’s “War on Coal” that threatens at least 13,000 good-paying jobs in Pennsylvania and thousands more throughout the nation’s energy sector.

In a piece entitled “Obama’s Appalachian Tragedy,” the Wall Street Journal reports,

Since 2009, 332 coal mines in West Virginia have been closed, and 9,733 jobs—roughly 35% of the industry’s total employment in the state—have been lost.

With such a high price tag and thousands of jobs at stake Pennsylvania shouldn’t rush to complete a state plan this spring but rather take the two year extension granted by the EPA.

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Wolf Signs Stop-Gap Budget With Punitive Line-Item Vetoes


This morning, Gov. Tom Wolf signed the state budget on his desk, using his line-item veto (and item-reduction veto) power to cut the spending by more than $6 billion, targeting certain areas.

Calling the budget “garbage” and an “exercise in stupidity” while lambasting lawmakers because “they ran out of town,” Wolf asked for more compromise, saying, “Let’s get back to work.”

Of course, such overtures are unlikely to improve his relationship with legislative leaders.

So what did Gov. Wolf strike from the budget? Here are some notable cuts from the veto message:

  1. Reducing the “basic education” line item by $3.1 billion. Ostensibly, this provides six months worth of funding and is intended to get lawmakers back to the table. The real difference between the current budget and what Wolf wants is about $250 million in K-12 education funding.

    As we pointed out this morning, Wolf’s claim that the budget would “cut” education funding by $95 million is a lie. The budget provides a $400 million increase in public school funding. The only item being reduced is for school construction—this isn’t being “cut” but will be funded with state bonds. In fact, that proposal is part of the framework budget too, as you can see from Gov. Wolf's own spreadsheet.

    The only cut to education is the one Wolf made today.
  2. Reducing Medicaid by $2 billion and Corrections by $900 million. Wolf reduced the line items “Medical Assistance – Capitation” (Medicaid) and “State Correctional Institutions”—also to provide six months of funding.

    But these reductions don’t make much sense. Is the commonwealth not going to make Medicaid payments after January 1? Will the state stop paying prison guards in the new year? That seems unlikely—these payments have been going out already, even without a budget.
  3. Zeroing out the Public Employee Retirement Commission (PERC). This makes little sense—unless Wolf wants to prevent PERC from issuing analyses of pension legislation, which is a requirement for passing pension reform. Oh…I see what he did there.
  4. $69 million in line-item vetoes in the Department of Agriculture.
  5. $6 million in line-item vetoes and reductions in Community and Economic Development. This includes items the Commonwealth Foundation has identified as “corporate welfare”—we actually had more suggestions for line item vetoes here.
  6. $9 million in line-item vetoes from the Department of Health.
  7. A $31 million reduction for the Senate and $19 million reduction for the House of Representatives. I wonder who he is trying to punish with those vetoes? Wolf also vetoed $14 million from legislative support agencies.

Gov. Wolf did well to release emergency funding for schools and nonprofits. But that’s something he should have done six months ago. Wolf’s own comment, “We're now at a point where I don't want to hold the children of PA hostage,” confirms this is exactly what he’s been doing by vetoing the entire budget in June and vetoing subsequent stop-gap measures.

His signing of the budget today releases some of those hostages, for the time being at least. But his punitive vetoes show he’s not yet done playing political games.

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Wolf Misleads About Education "Cuts"


On Christmas Eve, Gov. Tom Wolf posted a blog attacking Republicans and the “extremist” budget now sitting on his desk—which passed the Senate on a bipartisan 33-17 vote. Wolf claims it “cuts” funding for public schools, while the “framework” budget presents an increase for public schools.

It is difficult to understand, much less justify, Gov. Wolf’s shoddy claims.

  • Under HB 1460, the budget sent to the governor on Dec. 23, “Support for Public Schools”—a subtotal of education spending that excludes higher education, nonpublic school funding, and library subsidies—would increase by $404 million.
  • The increase for public schools in the “framework budget,” which would require hikes in the income and/or sales tax to fund, was $672 million (a difference of $269 million).

PA Budget Education Spending HB 1460

So why does Wolf consider HB 1460 a “cut”?

School Funding Less Pensions

Perhaps Gov. Wolf is excluding the costs of pension contributions in his comparison.  His logic: While taxpayers will pay more, this funding cannot be used to hire more teachers.

In both the framework budget and the enacted budget, state payments to public schools for pension costs would increase by $567 million. Taking this funding away does make it appear that funding is being cut—but doesn’t explain Wolf’s position.

  • Under HB 1460, public school funding minus pension costs would decline by $163 million.
  • Under the “framework,” public school funding minus pension costs is increasing by $106 million (a difference of $269 million).

School Funding Excluding PlanCon

All of the “cuts” are in the line item called “authority rentals and sinking funds requirements”—a program known as PlanCon. These are reimbursement for school construction projects.

This funding is not actually being cut. Rather, the proposal shifts this from an ongoing expense—part of the budget—to a capital project funded with a $5 billion bond issue. This shift would occur in both the framework budget and HB 1460

Schools would actually get more funding for construction, even though the line item in the budget is being reduced. (As a consequence, annual state debt payments will increase in future years).

 Figuring in PlanCon adjustments changes the dynamic dramatically:

  • Under HB 1460, public school funding excluding the PlanCon shift would increase by increase by $711 million.
    • Taking both PlanCon and pension reimbursements out of the equation means a $143 million increase.

In every scenario, the difference between HB 1460 and the “framework” is $269 million in support for public schools.

What about Under a Veto

Should Wolf choose to veto this budget again, he would be denying $10.466 billion in public school funding—a new record high. Instead, schools would get nothing.

   2014-15 Available  HB 1460 Difference
Support of Public Schools $10,061,550 $10,465,948 $404,398
Authority Rentals and Sinking Fund Requirements  $306,198 $0 ($306,198)
School Employees' Retirement $1,157,853 $1,725,000 $567,147
Public School funding excluding Pensions $8,903,697 $8,740,948 ($162,749)
Public School funding excluding Plancon $9,755,352 $10,465,948 $710,596
Public School funding excluding Pensions & Plancon $8,597,499 $8,740,948 $143,449

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Senate Passes Budget, Sends to Governor


Things have changed quickly in the Capitol this week. On Monday, we wrote about a potential House vote on an emergency funding bill. That plan was scrapped.

Yesterday, we talked about the reversion to a $30.8 billion budget that would require broad-based tax hikes. But that didn't happen either. 

Today, there was no vote on the $30.8 billion budget, nor is a vote coming. There simply isn't support for the the tax plan, which hasn’t even been agreed to or announced yet.

Instead, the state Senate just voted to pass HB 1460, which spends $30.26 billion, with a bipartisan 33-17 vote. Here is the roll call. This spending plan now goes to the governor’s desk.

This move means there is no broad-based tax increase vote looming. It probably means pension reform will not be part of the budget deal—though that is up to Gov. Wolf, as he would likely veto that again. 

It will now be up to the governor. Below is our statement, calling for Gov. Wolf to end the impasse and stop holding kids and nonprofits hostage to his demand for higher taxes.

End of Budget Gridlock in Wolf’s Hands
Legislature Sends State Budget to Governor’s Desk

December 23, 2015, HARRISBURG, Pa.—Today, the state legislature, with bi-partisan support, sent a$30.26 billion budget to Gov. Wolf’s desk, giving the governor the chance to end the six-month budget gridlock.

“With Christmas just two days away, only one person stands between budget gridlock and moving Pennsylvania forward, and that’s Gov. Tom Wolf,” commented Matthew Brouillette, president and CEO of the Commonwealth Foundation. “The budget heading to the governor’s desk delivers record-high funding for education and meets all state spending priorities without drastically increasing Pennsylvanians’ state and local tax burden. It’s time for Gov. Wolf to lay down his demand for higher taxes and pick up his pen and sign this budget.”

Gov. Wolf set off the budget impasse by vetoing a no-tax hike budget in June. Since then, he’s refused to approve emergency funding for schools and social service agencies, bringing them to the brink of closure. Instead, Wolf has continued to demand tax increases on Pennsylvania families, who already shoulder the 10th-highest state and local tax burden in the nation.

“The governor has inflicted enough pain on Pennsylvanians by dragging out this impasse for months on end,” Brouillette continued. “What better Christmas gift to give Pennsylvanians than ending the pain and passing a budget that benefits, not burdens, Pennsylvania families? We urge Gov. Wolf to sign this budget immediately.” 



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A Christmas Spending Spree is in the Works

DECEMBER 23, 2015  | by BOB DICK

In an unexpected move, the House voted to revive the Senate’s $30.8 billion budget yesterday, which many thought was dead after a pension reform bill went down in defeat last weekend.

The vote is already proving controversial, with lawmakers accusing their colleagues of “ghost voting” in order to advance the legislation. A final vote on the bill is expected today. If it passes, it will be sent to the governor.

The bill includes significant spending increases in education and human services, along with $85 million for programs known for funding WAMs or “Walking Around Money.” In total, the budget represents a nearly $1.75 billion increase in government spending.

How do lawmakers plan to fund this growth in government spending? By raising your taxes in some form or another. However, neither legislative chamber has yet to vote on a tax package to pay for the $30.8 billion budget. It is widely seen as the heaviest lift of all the budget-related bills.

As we pointed out last week, potential tax increase proposals include raising the sales tax, eliminating sales tax exemptions, raising the income tax, hiking tobacco taxes, bank taxes, and insurance taxes, along with the imposition of new fees on businesses and limiting the business “vendor discount.”

The final tax package could reach $2.3 billion over two years, according Charles Thompson of PennLive. The increase would add to Pennsylvania’s excessive tax burden—the 10th highest in the country—and only worsen the state’s already poor business climate.

Sadly, this is not the first debate over a Christmastime tax increase. In 2003, Gov. Ed Rendell was able to convince a Republican-controlled legislature to raise the Personal Income Tax. Lawmakers still have an opportunity to avoid making the same mistake. 

Ramming through an enormous spending bill two days before Christmas is neither good policy nor good politics.

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