Pennsylvania State Budget
Nearly 100 days since the budget deadline, Governor Wolf had proposed three separate tax increase plans—each the largest tax hike in the nation. But when Wolf stepped up to the plate on Wednesday and choked up for one last swing, he whiffed—strike three was called on his tax plans.
Wednesday’s vote on Gov. Wolf’s tax scheme was latest in a long line of political gimmicks aimed at reeling-in Wolf’s white whale: paradigm-shifting tax increases on Pennsylvania families and small businesses.
This spring, Governor Wolf swung for the fences with a $1,400-per-family-of-four tax hike; in September he whiffed at a $1,000 increase; today, after choking up for a $750 rise, Governor Wolf has struck out.
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When you assume an investment return rate of 7.5 percent and your actual returns are 3.04 percent you have a problem. If you are the Pennsylvania Public School Employees' Retirement System you have a BIG problem.
This week, PSERS announced an investment return of 3.04 percent for the 2015 fiscal year. In other words, local school districts and state taxpayers will have to find even more cash to make good on retirement promises.
The PSERS system already carries a $35 billion unfunded liability, $39 billion if you look at the market value of assets rather than the actuarial value of assets. This shortfall will add roughly $2 billion to these deficit figures, when the official results are released this December.
Experts note the system's 7.5 percent return on investment assumption is overly optimistic. Chris Comisac over at Capitolwire (subscription) explains:
Wilshire Associates, an independent investment management firm . . . calculated the median return of public plans with more than $5 billion in assets at 3.4 percent, meaning PSERS fell short of that median level.
. . . since the most recent financial market meltdown in 2008-09, PSERS hasn’t had investment returns actuarially valued above 6 percent, with a few below 5 percent. Meaning that since 2008-09, PSERS’ investment returns have fallen short of their target, increasing the system’s unfunded liability.
PSERS is disguising how broken the pension system is by operating under the current investment return assumptions. Without substantial pension reform including compliant funding policies, the unfunded liability will continue to increase and stretch school districts and gobble up state tax dollars, leaving less and less for the rest of state government.
The one silver lining is lower investment fees. For the second year PSERS’ investment expenses have declined, from $558 million in FY 2012-2013 to $455 million in FY 2014-2015, an 18 percent reduction. But $100 million in savings pales in comparison to a liability growing by billions each year.
PSERS overly optimistic investment return assumptions are just one more example of how the system is broken. Pension reform isn't an option as budget negotiations continue; it's a necessity.
Today, the Wolf tax hike was resoundingly defeated in the state House (73-127).
Repeatedly, Gov. Wolf has failed to convince lawmakers—including those of his own party—to impose his massive hikes on Pennsylvania families. The message is clear: smarter spending, not more spending, is what Pennsylvanians want.
The governor recently said if he loses, Pennsylvania loses. But today, Pennsylvania won because lawmakers—Democrat and Republican alike—refused to bow to the governor’s demands.
You can read the rest of our news release here, but first, please join me in thanking the lawmakers on both sides of the aisle that stood for taxpayers by sending a note of encouragement to your representative. Click here to see the full roll call.
The budget battle continues, so we'll remain vigilant in fighting for a state budget that—as our mission states—allows all Pennsylvanians to flourish.
Today, lawmakers will vote on Gov. Wolf’s third proposal for a tax increase. This “third time’s a charm” scheme reveals that Gov. Wolf has acknowledged his lack of support for both his original budget proposal and his September proposal.
CF’s Matt Brouillette spoke with WPHT’s Dom Giordano about this latest tax proposal and today's tax hike vote.
The latest tax proposal still calls for higher taxes on working families and would raise the personal income tax from 3.07 percent to 3.57 percent—a 16 percent increase in taxes on working families. Matt explains that these huge tax increases “would be primarily leveled at the middle class”.
Gov. Wolf’s proposal also includes a severance tax on natural gas–which would be in addition to the existing impact fee. Matt points out that this severance tax “would only pay for about 5% of all of Wolf's spending, the other 95% is going to come out of working Pennsylvanians’ paychecks in the form of a higher income tax”.
Click here or listen below to hear more.
The Dom Giordano Show airs every weekday from 9 am – 12 pm.
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