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.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, PUBLIC EMPLOYEE PENSIONS AND BENEFITS
Medicaid expansion is bad news for all Pennsylvanians. Here are four reasons why:
1. Expansion undermines the quality of health care. Medicaid patients suffer from limited access to care. A pediatric practice in Harrisburg recently cut hundreds of Medicaid patients, forcing one mom to call five different offices before she could find a pediatrician willing to see her autistic children. Statewide, one third of doctors do not accept new Medicaid patients. Adding more patients without increasing the number of doctors accepting Medicaid will create longer wait times and continue to discourage preventative care.
2. Rejecting the expansion will reduce the federal deficit. If Pennsylvania chooses not to expand Medicaid those funds do not go to another state, federal spending simply declines. According to Christina Corieri from the Goldwater Institute;
Using figures compiled by Kaiser and our own research at the state level, the Goldwater Institute estimates that the federal tab for Medicaid expansion has been reduced by more than $424 billion in new federal spending over the next eight years thanks to the 18 states that have already opted out. If the 12 still-undecided states also decide to opt out, there will be an additional $185 billion in savings.
The more than $609 billion in total savings from these 30 states would represent over 50% of the expected federal spending on the Medicaid expansion. A drop in the bucket? That's more than seven times the $85 billion in 2013 sequester cuts and more than half the projected federal deficit for this fiscal year.
Pennsylvania alone can reduce the deficit by $43 billion.
3. Medicaid spending is already unsustainable. Even without expansion, state Medicaid spending is projected to continue to grow faster than revenues, requiring significant tax increases or reductions in other areas of spending, like education. An expansion would only exacerbate the already bleak fiscal situation. Expansion will cost state taxpayers an additional $2 billion by 2022, on top of current spending.
4. We can't count on federal politicians to keep their promises. Studies promoting Medicaid expansion include rosy assumptions that are far from certain. President Obama has already proposedlowering the federal matching rate. The Obama administration has also proposed delaying reductions to the reimbursements hospitals receive for charity care (DSH payments), something supporters of expansion claim Medicaid expansion is needed to offset.
Finally, acting Secretary of the Pennsylvania Department of Welfare, Beverley Mackereth, is concerned about the federal government’s review of state provider taxes, which are used to draw down more federal funding. If the federal government changes those rules, Pennsylvania could face an additional $1.5 billion hole after seven years.
For more on the downsides of expansion, read Medicaid Expansion Myths and Facts.
RELATED : JOBS & ECONOMY, HEALTH CARE
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.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, PUBLIC EMPLOYEE PENSIONS AND BENEFITS, PROPERTY TAXES
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).
Proposed Budget (February)
IFO Estimates (May)
|Revenue - Spending||-$239||-$514||-$481||-$835|
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.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, PUBLIC EMPLOYEE PENSIONS AND BENEFITS, MEDICAID
In second grade, Rachel Coleman vividly remembers classmates teasing her about her high test scores and ability to learn at a sixth-grade level. "You'll never get a husband!" girls taunted her. Over the following years, Rachel struggled with getting the right support as a gifted student, dreading how she would cope socially if she was promoted too fast. She found that support at Commonwealth Connections Academy (CCA), one of Pennsylvania's 16 public cyber charter schools.
At CCA, Rachel was able to graduate by age 15, and is now a junior psychology major at Mary Baldwin College in Virginia. "If anything, I got more personal attention in cyber school," she said at CCA's May 2 official opening of its second blended learning center in Pennsylvania. Rachel is not alone: More than 32,000 students are now enrolled in cyber schools, finding the flexible, personalized programs best fit their learning needs.
At the grand opening of CCA's Harrisburg blended learning center, students carried on with their day as dignitaries filed in and out. "Success coaches" guided students on their lesson plans. A math teacher tutored two students on polynomials, while others gathered round laptops as an English teacher led class. Cyber school students do most of their learning online, but blended learning centers allow for more face time and coaching—and a place to hang out.
"I wish this had been here when I was a student," Rachel said. Her older brother, also a CCA student, now spends much of his time at the blended learning center. Now reconciled to her extraordinary gifts, Rachel is thriving at college and wants to earn a doctorate in child psychology. For her, cyber school made the difference.
For more on how cyber schools help students like Rachel, see Cyber Schools Save.
RELATED : SCHOOL CHOICE, CYBER SCHOOLS, EDUCATION
While advocates of expanding the welfare state are using new studies to push Gov. Tom Corbett to expand Medicaid, his position of resisting the "free money" argument is wise given the political realities.
For starters, the Department of Health and Human Services has not approved a single state's Medicaid expansion, according to PA Department of Public Welfare Secretary Beverly Mackereth in a Capitolwire interview (subscription required).
In fact, lawmakers in several states voted to reject such ill-advised plans after their Governors' calls for approval.
In Ohio, Gov. Kasich's expansion proposal was rejected by House and Senate Republicans. In Arizona, lawmakers are resisting Governor Brewer's expansion proposal, while the Florida House and Senate squashed Governor Scott's expansion effort. Most recently, the Michigan House passed a budget without Medicaid expansion despite Governor Snyder's pro-expansion stance.
Moreover, Tennessee Governor Bill Haslam's request for an Arkansas-style deal with added flexibility was rejected. HHS then promptly released a memo explaining that any flexibility granted to states would be extremely limited and the Arkansas plan will expire in 2017.
Earlier this month at a Heritage Foundation event, Governor Corbett noted Pennsylvania would consider Medicaid expansion only if the flexibility to reform Medicaid was on the table:
I can't consider doing anything on expansion until I see reform. We'll see whether they are willing to give us the reform that is necessary.
Unfortunately, the federal government seems unwilling to allow states any real flexibility to reform Medicaid, while federal officials constantly change the rules. From President Obama's budget proposal to reduce the 90% Medicaid expansion match, to Congress's attempt to repeal the Medical Device Tax, to elimination of the CLASS entitlement program, it should be clear the Affordable Care Act is in serious trouble. Governor Corbett is wise in his reluctance to further entangle the state in this mess.
RELATED : TAXES & SPENDING, MEDICAID
A recent Philadelphia Inquirer piece tries to give both sides of the debate over liquor privatization. But one key fact ingored was that the Community Preventive Services Task Force report—a report often cited by privatization skeptics—admits there isn't evidence linking liquor store privatization to social harms.
In its own analysis of "research gaps," the Task Force writes that there is "limited available evidence of effects of privatization on alcohol-related harms" and "insufficient evidence to determine the effects of privatization on excessive alcohol consumption and related harms." They even note this is inconsistent with their own recommendation.
The Task Force reviewed 21 studies with more than 30-year-old sales data, some of which found increased consumption following privatization; others found no change or decreases. None of the studies found increases in alcohol-related harms. In 2007, the Task Force took no position on privatization of liquor sales—then changed their position without any new evidence!
The bottom line? There is widespread agreement on liquor privatization. We agree with the Task Force report that ending the government-run monopoly will make buying wine and spirits more convenient for consumers. But we also agree that there is no evidence linking social ills to liquor store privatization.
You can find more information on liquor store privatization and social impacts here.
RELATED : PRIVATIZATION, LIQUOR STORE PRIVATIZATION
Applause to Brianna Shinn, a ninth-grade student who wrote a letter to the editor of the Bucks County Courier Times. Brianna is thriving at Pennsylvania Virtual Charter School and wants to tell Pennsylvanians why cyber charter schools need our support.
Did you know more than 32,000 students statewide also thrive at cyber schools? But recent proposed legislation could hurt schools like Brianna’s. Parents and students are choosing charter schools, cyber schools and other types of alternative education that best fit their needs. In addition, cyber schools frequently offer a safe haven for students escaping violent or failing schools.
In 2010-11, Pennsylvania public schools spent, on average, nearly $14,200 per student. Cyber schools spent 81 percent of that, or $11,500 per student. In other words, public schools retain funding for students they no longer have to educate. And statewide, cyber schools cost $319 million, or just 1 percent of Pennsylvania's total K-12 education spending.
Recent proposed legislation would arbitrarily cut portions of cyber school funding, based on the misguided assumption that cyber schools and online learning must cost less than traditional public schools. Cyber schools have a different learning model, but they still offer extracurricular activities, maintain facilities such as blended learning centers, and have higher technology costs. And cyber schools already receive less than their traditional public school counterparts. Carving into their budgets this way would hamper their ability to offer high-quality education.
As Brianna wrote, “Parents and students should have the right to choose the learning program that’s best for them because everyone learns differently. If this type of schooling is proven to be helpful, why should it be taken away?” Good question, Brianna! Pennsylvania families are wondering the same thing.
Sen. Daylin Leach's editorial on liquor store privatization repeatedly misstates facts. Here is my letter to the editor in the Delaware County Times to set the record straight:
To the Times:
Senator Daylin Leach, a former stand-up comedian, is one of Pennsylvania’s funniest politicians. Unfortunately, his letter on liquor store privatization is little more than a bad joke.
For starters, Leach claims government-run liquor stores generate $500 million for the state treasury that would vanish under privatization. But this revenue is simply what the stores collect from consumers in taxes and excess charges. Not only would it continue under privatization, an economic analysis of Gov. Corbett’s proposal projects private stores would produce even more in taxes and fees for the state.
Leach then delivers his punch lines — first, that privatization would push prices up and convenience down, then that private alcohol sales would jeopardize public safety.
But the facts tell a different story. The journal Addiction found liquor prices were about $2 per bottle lower in states with private stores than those with government retailers, like Pennsylvania. And, according to a survey of its own customers, the PLCB found nearly 45 percent of Philadelphia area residents buy alcohol in other states—breaking the law to do so — to get the prices and convenience they want. This border bleed costs Pennsylvania hundreds of millions in sales every year.
Moreover, government control of liquor sales has little impact on social problems like underage drinking or driving under the influence, something the Commonwealth Foundation has extensively analyzed and posted on our website, BoozeFacts.com. In fact, most alcohol in Pennsylvania is already sold by private vendors like restaurants, taverns, and beer distributors.
As the Senate debates liquor store privatization, lawmakers like Sen. Leach should rely on facts, not punch lines, to win the argument.
RELATED : PRIVATIZATION, LIQUOR STORE PRIVATIZATION
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