Young Teachers Pay the Price for Pension Politics


The first month of a new school year is an exciting—but stressful—time for school teachers. This is particularly true for young, newly-hired teachers who must quickly acclimate to their students, colleagues, and a professional environment.  

In Pennsylvania, however, rookie teachers face an additional burden. A recent article in the Wall Street Journal explains how the commonwealth’s hemorrhaging pension system stacks the deck against young teachers:

The pension plans…are structured to favor the small minority who teach in a single system for a working lifetime, at the expense of the vast majority who leave the system much earlier in their careers. 

Our state’s backloaded defined benefit pension system is a bad deal for younger teachers—not to mention workers who begin their career late or shift to another job. Fewer than 25 percent of Pennsylvania’s teachers will remain in the school system long enough to even become vested in their pension.

The WSJ article continues:

Under current plan structures, teachers accrue almost no retirement wealth in their first several years—then accrue substantially more as they near retirement age. The hypothetical Philadelphia teacher earns an average of about $1,326 in retirement compensation (in present-value terms) during each of her first 25 years of employment, followed by an average of about $37,593 during each of her last 10 years.

The Pennsylvania Public School Retirement System’s actuaries expect that about 80% of teachers will leave the system before their pension benefit is worth a single dollar. And according to a report last year from Bellwether Education Partners, more than half of all public-school teachers nationally will exit their school systems before their pensions vest.

Pennsylvania’s young public school teachers deserve better. They deserve a retirement account that is portable, and they deserve to own their retirement savings. Helping young teachers is yet another reason for Gov. Wolf to re-consider his veto of meaningful pension reform.

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Free the Budget Hostages


This week, lawmakers are expected to vote for a “stop-gap budget”—funding state services and programs for a few months, while continuing to negotiate a budget compromise.

Yet, some politicians oppose even this measure and want to keep holding children and social service agencies hostage to their demands for higher taxes. Ironically, this opposition comes on the heels on House Democrats requesting, and receiving, an advance on the funding for payroll they expect to get whenever a budget is passed.

This hypocrisy—“money for me, but none for thee”—shows exactly why we need to fix the budgetary process.

More than a stop-gap budget, lawmakers need to adopt real reforms that prevent this practice—frequently used by former Gov. Rendell—of holding funding for schools until lawmakers meet the demands for higher taxes. As we pointed out in a recent op-ed, legislation has been introduced that would prevent these budget breakdowns from happening again:

One possibility is a bill introduced by Rep. Dan Truitt to ensure important government services remain open during the impasse. Separate legislation sponsored by Sen. Ryan Aument and Rep. Dave Hickernell would ensure school districts receive funding if summer break ends before the stalemate.

Alleviating the temporary pressure and freeing the hostages would allow for honest budget discussion and compromise.  

This starts with dropping any pretense of higher sales and income taxes on working families. Clearly, there is zero appetite for raising income and sales taxes on working Pennsylvanians. Even if you question the vote on Wolf’s tax plans on June 1 (which failed 0-193), the fact remains that to this day NO House Democrat has even introduced the Governor’s sales and income tax increase proposals.

No one—except Gov. Wolf—really supports increasing taxes by more than $4 billion this year and $8 billion next year. If we accept that such broad-based tax increases are simply untenable, then they must be off the negotiating table entirely.

Furthermore, imposing a new and higher severance tax on natural gas will not even come close to covering the spending sought by Governor Wolf.

In order for both sides to leave the negotiating table satisfied, they must be willing to cut the current subsidies to their favored special interests.

Governor Wolf will need to inform his government union supporters that he will trade liquor privatization (complete divestiture of the wholesale and retail business) and pension reform (401k-type plans for all new hires and legislators) for more money for education. 

The Republican legislature will need to inform their business supporters that they are cutting their subsidies (approaching $1 billion) to the film industry, the horseracing industry, and many other business interests that enjoy selective tax benefits and handouts.

A compromise will be found only when both sides are willing to surrender some of the demands of their preferred special interests. We should never negotiate the taxpayers’ interests with hostage-takers.

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The PLCB: Fermented Grape's Gatekeeper

SEPTEMBER 14, 2015  | by BOB DICK

Last week 90.5 WESA published a story about the PA Preferred Wine Program—a tool designed to help promote Pennsylvania wines. The program allows in-state wine producers to apply for the chance to sell up to 10 products in state stores.  

According to the rules governing the program, wine producers must pay $150 for each wine application, which can only be submitted during a short “listing period.” Apparently, this is what qualifies as a "business-friendly practice" in the world of the Pennsylvania Liquor Control Board (PLCB).

In reality, the PLCB hinders entrepreneurs looking to sell their products in Pennsylvania. One PLCB-created roadblock is the uncompetitive price system imposed on its vendors. WESA explains:

That system can be a non-starter for some wineries. Reduce their profit margin too much to offset the state markup and they won’t make any profit; sell the wine at a higher price and potentially turn off customers. Some Pennsylvania wineries are simply too small to provide enough wine to sell in stores, while others only want their product available at their home-base, liquor lawyer Mark Flaherty said. [Bold mine.]

If wineries don’t believe they can make a profit selling to state stores, their consumer base in Pennsylvania shrinks dramatically because of the PLCB's retail monopoly:

Pennsylvania is one of the largest buyers of wine and spirits in the world. Because the state owns the system, there’s only one gatekeeper accepting or rejecting the products that make it into the stores.

Concentrating so much power in one agency has predictably led to corruption and mismanagement. To continue with the current system as-is would be a slap in the face to Pennsylvanians. The people of this state deserve better.

To improve the system, the state's liquor laws need to be modified to reflect the age of Uber, rather than the age of Capone.

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Setting the Record Straight on Pensions


Government union leaders argue against meaningful pension reform with radical rallying cries like, "Your pension is under attack!" and mounds of other misinformation. Here's a quick fact check on some of the most common pension reform myths:

1. Myth: “Pension reform will cost taxpayers $40 billion.”

Fact: The Pennsylvania Employment Retirement Commission (PERC) estimates Senate Bill 1—passed by the legislature but vetoed by Governor Tom Wolf—would save taxpayers $10.1 billion over 32 years. The $40 billion figure refers to a different bill from a different legislative session. Moreover, the number is misleading because it assumes pension funds would generate a lower stock market return under the reform proposal.

2. Myth: “Defined contribution plans are bad for workers.”

Fact: If this were the case, unions would not offer defined contribution plans to their own employees. But they do. PSEA, SEIU, UFCW, AFSCME, AFT, AFL-CIO and PFT all offer a defined contribution plan, like a 401(k), to their employees, either alone or as part of a hybrid plan.

Union PSEA SEIU UFCW 1776 AFSCME 13 AFT-PA AFL-CIO Pennsylvania Philadelphia Federation of Teachers

Defined Contribution Plan Started





1972 & 2013


1979 & 1997

Also has Defined Benefit Plan?








Source: U.S. Department of Labor form 5500 searchable database

3. Myth: “Defined benefit plans provide a superior retirement.”

Fact: The Pew Research Center suggests state workers who leave their jobs after 10, 15 and 18 years of service would enjoy higher retirement income under Senate Bill 1, relative to the current system. This is due to the design of defined benefit plans, which tend to backload benefits.

Defined contribution plans are more generous for workers who begin their careers late or shift to another job—in other words, for the vast majority of today’s workforce. For example, fewer than 25 percent of Pennsylvania’s teachers will stay in the school system long enough even to become vested in their pension.

4. Myth: “Defined contribution plans cost more to administer and provide inadequate investment returns.”

Fact: In practice, large defined contribution plans cost less to administer than the average public sector defined benefit plan, as highlighted in a new study by Dr. Josh McGee for the Manhattan Institute.

In fact, McGee points out fees for the Pennsylvania Public School Employees Retirement System (PSERS) have tripled the average cost of the largest defined contribution plans. Gov. Wolf, who has expressed concerns about the investment fees state pension plans pay each year, should take note.

McGee's study also finds that investment returns are similar for defined contribution plans and that most defined contribution plans offer annuities—providing predictable annual income.

The facts are clear: meaningful pension reform is a critical protection for union workers. It would fulfill promises to current workers while providing future workers a more secure and flexible retirement.

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Audio: Budget Impasse Debate


With the state budget impasse in its third month, funding for critical things such as education and social services remains in question. 

CF’s Elizabeth Stelle spoke with WHYY’s Marty Moss-Coane and opposite Keystone Research Center’s Stephen Herzenberg regarding the impasse and why a compromise has not been reached in Harrisburg.

Among the key points at issue in the budget discussion have been education funding, Wolf's proposed severance tax, pension reform, and liquor privatization.  

While Gov. Wolf claims to have made concessions on everything, his “compromise” contains most of his original plans to hike taxes on hardworking Pennsylvanians. And despite the legislature's offer to meet in the middle, the governor continues to push for income and sales tax increases.  

Click here or listen below to hear Elizabeth explain what can be done to pass a taxpayer-friendly and fiscally responsible budget.    

Radio Times with Marty Moss-Coane airs weekdays 10-11 a.m. and 11-noon.

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Union Dues are Used for Politics (and Members Don't Know It)


America Works DGA union duesYesterday's blog post and infographic noted how union dues from Pennsylvania teachers and state workers fund political ads from America Works USA.

In response, on both Twitter and Facebook, union members repeat the idea that union dues cannot be used for politics.

Unfortunately, union members have been misled by their union leadership. On annual reports filed with the US Department of Labor, unions report exactly how much they spend on "political activity and lobbying".

Last year, AFSCME Council 13 reported spending $992,118 on political activity. PSEA reported a whopping $3.6 million spent from dues on politics.

Unions are also required by the IRS to notify members about how much of their dues go to politics. PSEA, for instance, estimates 10 percent of dues will be used on politics. To keep members in the dark, PSEA buries this disclosure notice deep within their magazine, and no longer posts it online.

The only thing unions cannot spend dues money on is direct contributions to candidates. These contributions come from Political Action Committees (PACs)—though these campaign contributions are also deducted from government workers' paychecks at taxpayers expense.

Union dues can also be funneled to "SuperPACs." These political committees support candidates for office—explicitly calling for or against the election of a candidate (though spending cannot legally be coordinated with a candidate).

As the Pennsylvania Department of State notes, these SuperPACs—technically called "independent expenditure committees"—can receive unlimited amounts of union dues. Last year, three government unions (AFSCME, the National Education Association, and the American Federation of Teachers) gave $1.6 million in union dues to a SuperPAC called Pennsylvania Families First—which supported Gov. Tom Wolf's election.

It is unfortunate that union leaders continue to mislead their members on how much they are spending from workers' dues on politics.

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Corporate Welfare's Hazards

SEPTEMBER 9, 2015  | by BOB DICK

State officials often hail the Redevelopment Assistance Capital Program (RACP or R-Cap) as a tool for "economic development" projects across the commonwealth. The program uses borrowed money—with interest payments financed by taxpayers—to help pay for these projects. But does R-Cap really support economic growth?

R-Cap gives state officials license to hand out grants for private projects meeting certain requirements. These corporate welfare programs transfer wealth to and concentrate power in government at the expense of taxpayers, with little benefit.

A new study authored by Dr. Adam Millsap of the Mercatus Center focuses on the R-Cap program, its effects on state employment, and the inherent problems associated with corporate welfare.

On the employment side, Millsap finds a positive benefit between R-Cap grants and economic growth:

The analysis shows that a one standard deviation increase in the natural log of RACP funding per capita in 2010 resulted in a 1.1 percentage point increase in county employment growth from 2010 to 2013.

Put simply, by increasing R-Cap funding above a certain level, a county could expect to see an increase in job growth. So government spending can create economic growth. Case closed, right? Not quite. Millsap notes:

It should be emphasized that the positive effect found here is not surprising, and it does not show that the grant led to a net increase in Pennsylvania’s economic growth. [Bold mine.]

Yes, government spending increased employment in the areas where it was directed, but this doesn’t mean government spending is good for the entire state. Millsap explains:

Instead of spending time and energy inventing new products or improving production processes, entrepreneurs are incentivized to expend resources pursuing government grants. Since the grant is simply a transfer of resources from one group to another—in this case from taxpayers to the winning businesses—the resources spent on acquiring the grant do not create new output…

Not only does government create perverse incentives for businesses, but it also misuses taxpayer dollars by diverting those dollars to politically-savvy groups, instead of allowing those who earn it to spend it as they wish.

While Millsap's study does not analyze R-Cap's effect on total employment growth in the state, evidence compiled by CF suggests corporate welfare does not improve a state's economy

Rather than requiring taxpayers to fund government grant programs or horse race prizes, lawmakers should cut corporate welfare and use the savings to lower the tax burden on all business, putting the economic decision-making authority where it belongs: with working people in the private sector. 

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How Public Employees are Forced to Fund Attack Ads


America Works DGA union duesPennsylvania school teachers and state workers are being forced to fund political attacks—with money collected at taxpayer expense through public payroll systems. Here’s how it works:

Last year, 228,291 Pennsylvania school teachers and state workers were forced to pay dues to national unions—the NEA, AFT, UCFW, AFCSME, and SEIU.

State government and school districts took these dues out of worker’s paychecks and sent it to union bank accounts. National dues cost about $200 for most employees—on top of what workers pay in state and local dues.

In 2014, the NEA, AFT, UCFW, AFCSME, and SEIU gave $14 million in combined union dues to the Democratic Governors Association to be used for political purposes.

The Democratic Governors Association in turn supports a nonprofit called “America Works USA” which has reportedly spent more than $1 million in Pennsylvania in the last few months on TV commercials, radio ads, and political attack mailers calling for higher taxes on working families.

Here is an infographic showing the flow of union dues from worker's paychecks to political attack ads. 


Audio: Is Gov. Wolf Taking Hostages?


Gov. Wolf still refuses to back down from his budget demands–which include the largest tax hike in Pennsylvania’s history. Not only would this add an additional $1,425 in taxes on every family of four, but it would also cripple small, family-owned businesses.

As the budget impasse continues, CF’s Nate Benefield spoke with WNPV’s George Toth about the latest developments.

Nate explains that the hold up in negotiations is the result of Gov. Wolf’s unwillingness to compromise on his proposed tax increase and expansion of taxable goods and services. “He is still demanding his variety of tax increases…income tax increase, sales tax increase, expanding it to different services from nursing care to day care to accounting services," Nate says.

The House Republican leadership has offered Gov. Wolf a $400 million increase in education funding in exchange for much-needed pension reform. Two weeks after this offer was made, Gov. Wolf has still not responded.

The silence from Gov. Wolf’s camp means schools and social service organizations continue to operate without crucial state funding. Nate elaborates, saying, “It seems like he’s using social service agencies and school children who are not getting any funding right now as pawns in this political debate."

Click here or listen below to hear more.

Regarding Your Money with George Toth airs Tuesdays from 11:10am-noon.

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Tax Hikes Threaten Debbie's Flower Shop


Debbie is a small business owner. She operates Pealer's Flowers with her husband in Camp Hill, and they're worried about Gov. Tom Wolf's tax hikes. Debbie explains:

"We're all doing a ton more with less people than we were eight or ten years ago. I don't think the governor understand the impact of every 50 cents or a dollar. Every one of those 50 cents or dollar can't go to the community, can't go to enriching our coworkers or increasing benefits."

Tax increases--be they income, sales, or severance taxes--harm real people. Taking dollars out of the economy mean lost jobs, less growth, and smaller paychecks. According to an analysis using the Beacon Hill Institute's STAMP program, an estimated 30,000 jobs will not be created next year if Wolf’s plan is enacted.

Can your family afford $1425 in new taxes

Watch more Pennsylvanians respond to the governor's proposed tax increases at

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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.