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CAPITALWATCH VOL. 5 NO. 7
INSIDE Winners and losers in budget deal PAGE 4 Geist’s landmark public-private partnership bill signed into law PAGE 8 Former state senator heads new coal alliance PAGE 9 Details of ethane “cracker” tax credit unveiled in Tax Code PAGE 10 Senate Democrat troubled by stagnant job creation figures PAGE 11 EDITORIAL “The check is in the mail” and “government doesn’t create jobs” and other tall tales PAGE 12 Corbett, Aichele, get high marks for staff performance PAGE 14
Gov. Corbett signs budget in the eleventh hour Gov. Tom Corbett signed into law a $27.66 billion budget just minutes before the start of the 2012-2013 fiscal year. This budget continues the phase-out of the Capital Stock and Franchise tax and guarantees critical tax credit incentives for companies committed to bringing business and jobs to Pennsylvania. Corbett was able to increase spending from his originally proposed budget because state revenues have increased in recent months, a result of following the course of reform, restraint and responsibility. Highlights of the 2012-13 budget include:
workers, such as JOBSFirst PA, which invests in small and large businesses, offering initiatives to cultivate and create new industries and jobs. • Providing employer-driven, on-the-job training opportunities for unemployed workers through a new program called Keystone Works. This program will allow jobless Pennsylvanians to keep receiving unemployment benefits while being retrained and helps employers identify the best candidates before they hire. “We are making real progress on our state’s foremost goal: growing new jobs,’’ Corbett said. “Our goal is to transform Pennsylvania so we’re not only a supplier of natural gas, but also a processor and manufacturer. Simply put: we will usher in a new industrial revolution in Pennsylvania.’’
EDUCATION • This budget restores, or in some cases, increases funding for early, basic and higher education, for a total of $11.35 billion. State-related and state system universities will receive $1.58 billion, the same amount of funding as last year. • Funding for school districts is increased over last year and the Accountability Block Grant is funded at $100 million, supporting full-day kindergarten in many school districts. • The current educator evaluation system, which has been unchanged for more than 40 years, will undergo across-theboard reforms, based in part upon multiple measures of student achievement. • Expansion of the state’s successful Educational Improvement Tax Credit (EITC) program, which uses business
Gov. Tom Corbett signs his no-tax-hike state budget into law 15 minutes before the fiscal year expires.
donations to provide scholarships to low- and moderateincome students in exchange for a tax credit. ECONOMIC GROWTH • The governor’s budget continues to lower taxes on businesses and will preserve critical tax credit programs, including a new manufacturing tax credit
which will help create tens of thousands of jobs. • Long-term tax incentives for companies committed to bringing business and jobs to Pennsylvania. Companies can earn tax credits over a span of 25 years proportional to the industry’s activity in the state. • Creating programs that will support employers and
TAXES • Continuing the effort to eliminate the Capital Stock and Franchise Tax. “This tax is a jobkiller,’’ Corbett said. “We don’t need it. We don’t benefit from it and we must get rid of it.’’ • Elimination of the Pennsylvania Inheritance Tax for farming families, previously levied when property was transferred from one generation to the next or between family members. The law goes into effect immediately. HUMAN SERVICES This budget sets in motion responsible reforms to the Department of Public Welfare continued on page 3
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These unfortunate factoids are representative of planning failure. Worse yet, more examples of poor planning pop up each day in our global village world. Our too acquiescing national media push this off as the “new normal.” We at Capital Watch do not necessarily subscribe to that sentiment. We’d rather instill some measure of change and provide relevant and lendable advice for not falling into the failure trap. Considering a continuum of such unsettling negatives, personal financial planning has never been more crucial. It can be argued personal financial planning is virtually mandated these days considering omnipresent socio-economic contagion not to mention Wall Street and Main Street hyperbole. To the guy on the street intent on generating investment profits with a fix on capital preservation today’s economic environment unfortunately serves up a sauce
of ambivalence, indecision, and forfeiture. There never has been a more urgent need for the individual to gain a realistic perspective on personal financial planning to gain footing than now. That stated, Capital Watch is committed to expand our present “read” to include an upcoming financial editorial series from the pen of Scott Weaver, CFS,CAS President/ Owner of Academic Wealth Strategies LLC and Investment Professional with NEXT Financial Group, Inc. Scott is well versed in most things financial with a + 25 year successful track record in South Central Pennsylvania and has also branched out in Southern Florida and several other states. He is especially knowledgeable addressing trend lines with support quant analytics, back testing markets, and assessing financial planning and execution
on a wide variety of investment disciplines including education, retirement, long term care and estate planning. Important to note, Scott Weaver’s Capital Watch’s editorial will not be that of a pudit or stock touter. Rather, his series promises to target financial planning needs of individuals looking to stay a step ahead of the curve and to address the prerequisites of successful financial planning in face of today’s constant paradigm shift of socio-economic issues and solutions. Therefore, this series will deal more from a macro than micro view line on given financial subjects. Capital Watch looks forward to bringing Scott’s insightful financial editorial to our readers beginning with the September issue; in this case timely to educational planning. We trust you’ll enjoy this series and of course welcome your feedback.
Securities and investment advisory services offered through NEXT Financial Group, Inc. Member FINRA/SIPC. None of the entities named herein are affiliated with NEXT Financial Group, Inc.
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JULY 2012 CAPITAL WATCH
CAPITALWATCH www.capital-watch.com PUBLISHER/AD DIRECTOR Jim Laverty (717) 233-0109, ext. 122 EDITORIAL Editor-in-chief Jacqueline G. Goodwin, Ed.D. email@example.com (717) 418-3366 Contributing Writers Peter L. DeCoursey Kevin Zwick News Service Capitolwire Graphic Design Lisette Magaro Production Shawn Skvarna Capital Watch is published every month. Reproduction of this publication in whole or part is prohibited except with the written permission of the publisher. Capital Watch is non ideological and nonpartisan.
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Gov. Corbett signs budget in the eleventh hour continued from page 1
that will safeguard assistance programs for our neediest residents, now and into the future. It also transforms the way state government works with county government in the funding of local assistance programs. For example: • The Human Services Block Grant pilot program, including up to 20 counties, will combine several funding appropriations such as child welfare, mental health, drug and alcohol, into one. Not only will this allow counties greater discretion in spending the money, but also streamlines reporting requirements into one, unified document. The program will allow for more personalized services to those in need while providing the flexibility counties need to provide services during times of reduced funding. • Foster children will receive support until the age of 21. Previously, foster care ended at the age of 18, removing the children from a support system during a critical period in their lives. • The budget increases funding for state programs for people with intellectual disabilities, addressing vulnerable popu-
lations currently on the waiting list. • Healthcare providers for those in need, including nursing homes and hospitals, will receive full funding in this budget. “We’re also going to enable more personalized services for people in need with the Human Services Block Grant pilot program. This program will allow 20 participating counties decide for themselves how best to allocate their human services funding,’’ Corbett said. “This will allow service providers to be more focused on helping people than on dealing with red tape.” COST CONTAINMENT In a continuing effort to reduce the size and cost of government, this budget also: • Provides for the merger of the Department of Banking and the Securities Commission, realizing $1 million in savings. • Improves the criminal justice system with the adoption of Justice Reinvestment Initiative legislation, which will help save the state hundreds of millions of dollars by making prisons and parole more effective and efficient. • Enables the Department of Envi-
ronmental Protection to rely less on taxpayer dollars and more on accurate cost-accounting from funds supported by fines and permit fees. • Makes the Department of Environmental Protection more efficient. With the same number of inspectors, the Department of Environmental Protection conducted twice as many oil and gas site inspections in 2011 versus 2010. • Reduces expenditures for employee travel by more than $2 million. Through a collaborative effort by the Office of Administration, Office of the Budget and Department of General Services, policies were reformed in January 2012 for the reimbursement of travel expenses and requiring employees to use the most cost-effective means of vehicle travel. • Trims costs in the Office of Administration by $2.9 million without impacting productivity and sustainability. • Consolidates the Bureau of PENNSAFE, resulting in savings of nearly $1 million a year. To review the budget in entirety, visit www.budget.state.pa.us. CW
State Capitol evacuated for bomb threat The state Capitol building was evacuated July 6 following a bomb threat. At about 4:15 p.m., Pennsylvania State Police received a call from an individual claiming a bomb was on the premises and that it would detonate in two hours. State Police determined the threat was credible, Department of General Services spokesman Troy Thompson said. Instead of sounding an alarm and shutting down the building, police decided to alert people individually, Thompson said. The building was cleared and police and bomb sniffing dogs swept the building for explosives. Thompson said no explosive device was found and people were allowed back into the building later that night. Thompson said it was the first bomb threat to the Main Capitol building in years, although bomb threats have been made at Strawberry Square and the state Department of Education within the past year. CW
JULY 2012 CAPITAL WATCH
Winners and losers in budget deal. Who got things done and how?
BY PETER L. DECOURSEY, CAPITOLWIRE
The biggest winner in the 2012 budget deal was Gov. Tom Corbett. He succeeded in major changes that will affect teacher evaluation, educational opportunity, the cost and effectiveness of the corrections system and, he hopes, job creation. It was a set of budget deals that would rival in magnitude and transformative legislation any of the mega-Junes of former Gov. Ed Rendell. But with this many bills flying to passage past 1 a.m. on July 1, more than an hour after the governor signed the general appropriations bill and revenue estimate, there are a lot of other winners and losers to review.
House Majority Leader Mike Turzai, Sen. Tony Williams, the Three Voucheteers, The REACH Alliance, the Catholic Conference, both Students Firsts, PA and national, The Bridge Educational Foundation and Reps. Mike Vereb and Jim Christiana. Students First, the national organization led by former Washington D.C. Chancellor Michelle Rhee, had a great budget. They influenced the teacher evaluation bill and generally helped work with the governor and House on the other education reform pieces. They had a very good budget and established themselves as an influence. But if they had a terrific budget, and they did, what do you say about Students First PA and their three Voucheteer funders? Students First PA has mostly been a one-trick pony, pushing their vouchers for poor kids in bad schools bill since Joel Greenberg and his partners at Susquehanna Investment Group and allies, across the nation spent $7 million in the 2010 elections. Most of it was on a voucher-backing ad campaign for Sen. Tony Williams’ third-place campaign for the Democratic gubernatorial nomination. But if the short-term result underwhelmed, it got the attention of lawmakers and led to this bill getting passed. In other words, for guys who made themselves hundreds of millions of dollars investing, they spent $7 million to give thousands of kids a path to safe, functional schools. That’s probably the best investment ever on a third place finisher in the Democratic gubernatorial primary. And while Greenberg for much of the last year viewed House Majority Leader Mike Turzai, R-Allegheny, as the bottleneck for Williams’ and Sen. Jeff Piccola’s voucher bill, the REACH Alliance and Bridge Educational Foundation, with their deep set of EITC and christian school allies, with Turzai, ended up put-
ting together a plan. While Greenberg wanted to stick to his old Williams & Piccola voucher plan, REACH, Turzai and a group of lawmakers saw EITC as the key and got others to see it that way too. That plan used business tax creditfunded scholarships to rescue the poor kids in bad schools to which the PiccolaWilliams bill gave vouchers. By doing it through EITC, Turzai and Williams mostly avoided the state’s education establishment from being violently against the idea, with them instead being too busy to do more than grimace at it occasionally. But first it took Williams, REACH, Bridge and Turzai and a cast of dozens six months to persuade the Philadelphia Archdiocese and Greenberg to accept scholarship funding from tax credits, and to start the program at $50 million. Williams said a month ago he thought $50 million was the minimum acceptable, and after the diocese and Greenberg balked and held out first for vouchers and then for $25 million more, it took a lot of work to calm them down and not lose the whole deal. But Turzai, Williams, Rep. Mike Vereb, R-Montgomery, and others both advocated for the program and got the diocese and Greenberg to realize $50 million was a good start. Rep. Jim Christiana, R-Beaver, also played the role of public advocate for this bill, helped sell it in caucus, and move his caucus towards doing this voucher bill. Pete Gleason and the Bridge Foundation and Otto Banks and the REACH team also played key roles in this. Vereb and Christiana also sold this as a way to stop Catholic schools around the state from closing, which added votes. Former Gov. Tom Ridge even helped a little, with a few late strategic phone calls, both by encouraging leaders and making everyone realize that chances to make a change this big are rare and don’t come often, and telling some insiders this was a bill he would have loved to
pass during his tenure. Basically, all these folks combined to create a publicly-funded, tax credit voucher program for poor kids trapped in bad schools and, at the same time, increased the funding for the state’s existing tax credit scholarship program for middle-class kids.
Charter schools. If the EITC vouchers team did a great job of getting all the diverse interests they needed on the same page and making them work together, the charter schools were the opposite. The House and Senate GOP and governor all wanted to pass a charter school bill, and it should have been an easier pass than teacher evaluations or EITC vouchers. But the sides ultimately outsmarted themselves while they were trying to outsmart each other. The governor and House thought the Senate would blink and approve the House’s charter school bill which would exempt charter and cyber charter vendors from the state Right to Know law. The Senate didn’t blink and now that issue will have to wait until the fall. The governor, who, quietly, wanted more statewide power than either bill gave him, will also have to wait until the fall to see if he can get that. Corbett and Turzai say this will get done before the end of session, but it may now have to wait for the budget next year, while concerns about charter schools continue for another year.
Speaker Sam Smith, R-Punxsutawney. While Turzai pushed for vouchers and bold education reform, Smith worked quietly so the teacher evaluation bill and more funding for regular public schools was in the budget. Smith and House
Appropriations Committee Chairman Bill Adolph, R-Delaware, made sure the education block grant Smith and Rendell started years ago still got funded at $100 million, the same way they shoehorned it back into last year’s budget. And this year, it is actually in the budget, not backdoor-funded as it was last year. The teacher evaluation bill looked stalled between the demands of groups like Students First and Corbett and the PSEA. But Corbett’s team had brought that legislation a long way, and Smith was able to get everyone to finish the last details. Conservatives still say it should let parents see their kids’ teachers’ evaluations and provide a faster path to firing unsatisfactory teachers. Teachers are hinky about the new system and the addition of student performance measures. Rhee still has concerns some of the evaluations may not be statewide and duplicable. But unlike charter school reform, where Smith and Senate Majority Leader Dominic Pileggi, R-Delaware, played chicken and both lost, Smith steered this home, pushing the negotiations that solved the final language issues and getting everyone to agree, and stay agreed until it passed. As charters showed, that can be tough sometimes. Smith is very good at seeming reasonable and getting other people to try to be a little more reasonable, too. And he did that here, with education funding and teacher evaluations. Kudos go to Adolph as well. Smith and Senate President Pro Tem Joe Scarnati, R-Jefferson, also made sure the budget did not raid the Horsemen’s Fund except for $5 million for agricultural programs.
Senate Majority Leader Dominic Pileggi, R-Delaware. Pileggi shares credit with Sen. John Rafferty, R-Montgomery, for the quiet deal that passed Rafferty’s and Rep. Rick Geist’s public-private transportation partnerships bill in exchange for the Rafferty-Pileggidemanded bill to authorize redlight cameras in Philadelphia and expand them to the suburbs and other counties. But Pileggi started out this budget with the biggest school district and largest GOP patronage employer in his district sure to run out of money. No one thought when he raised the distressed school funding in the budget from $24 million that it would all stay in until the final budget. And they were right: Pileggi only got $49 million. From a governor who has cut overall school aid on his watch. continued on page 6
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JULY 2012 CAPITAL WATCH
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CW: Tell us about Knouse’s history.
Chairman, CEO & President Knouse Foods Cooperative Ken Guise, President & CEO, serves as just the third president in the company’s sixtythree year history. Having been raised in ‘apple country’, upon graduation from Biglerville High School in 1968, he enrolled in the Pennsylvania State University, where he graduated with honors while majoring in Accounting, with a Minor in Economics. He and his newlywed wife Juanita (Carey) Guise then moved to New York City where Ken worked as an accountant for the firm of Arthur Andersen, public accountants. He qualified as a Certified Public Accountant, then studied finance, marketing, and international business at Columbia University, earning a Master’s degree in Business Administration. The couple returned to Pennsylvania and Ken began his employment with Knouse in January 1978. After several promotions, Guise was named Chief Executive Officer in 1996, and in 2000, was named Chairman of the Board. Outside of Knouse Foods, Ken has been very active in the industry, serving on, and leading associations focused on apples, associations of food processors, and charitable organizations – several of which he has chaired. These organizations include: U.S. Apple Association, Apple Processors Association, The Pennsylvania Food Processors Association, the Greater Harrisburg Youth for Christ, Grocery Manufacturers’ Association, National Food Processors’ Association, Pennsylvania Business Council Policy Roundtable, Pennsylvania Chamber of Business and Industry, Farm Credit’s Rural American Leadership Council, Penn State Mont Alto Advisory Board, and Salt’n Light Youth Ministries. In 2009, the State Horticultural Association of Pennsylvania honored him with the “Outstanding Grower Award” and in 2011 he was named as an “Honorary Master Farmer”, becoming only the 8th individual to receive this honor since its first recipient, Dwight D. Eisenhower.
KG: In April 1949 a group of prominent fruit growers in Pennsylvania, Virginia, West Virginia, and Maryland joined forces to establish Knouse Foods Cooperative, Inc. Over the years, our Adams County-based grower-owned fruit processing cooperative has become one of the largest apple-processing companies in the world. Today it is made up of approximately 100 members, buying fruit from more than 600 growers, reaching over 70,000 acres of orchards. CW: What are your products? KG: Knouse is best known for its Musselman’s, Lucky Leaf, Apple Time, Speas Farm, and Lincoln brands of apple sauce, apple butter, apple juice, and pie fillings. But, much of what Knouse sells is not visible to consumers: we process fruit for nearly every top-selling private label, and as ingredients for commercial users as part of their large food service division. CW: Where do you do business? KG: Today, the company operates six processing facilities located at Peach Glen, Chambersburg, Orrtanna, Biglerville, and Gardners, Pennsylvania; and Paw Paw, Michigan, with approximately 1,400 employees. With the capacity to store more than 3.6 million bushels of apples (including over 650,000 in controlledatmosphere storage), the company has been able to change a highly seasonal business into a year-round commercial operation. CW: What are your short-term and long-term goals for the organization? KG: During my tenure, Knouse’s sales have quadrupled and the amount of apples we take from growers has quadrupled; helping to create a stable and profitable expanded market to cover grower needs. We have a ‘get better to get bigger’ approach that has its origins in the ‘Growing through Quality’ philosophy of my predecessors. Our efforts have been focused
on improving all aspects of Knouse’s operations including productivity, efficiency, sustainability, and systems, while maintaining its unique culture. Knouse Foods currently is the only processor in their industry who is Safe Quality Foods (SQF) Level 3 Certified in all of their facilities. Knouse’s improved performance in recent years has also come about as a result of our focus on becoming world -class in terms of systems we have in place. With the Oracle suite of products that Knouse has installed, we are able to give our employees better information quicker, allowing them to make better decisions and significantly improve Knouse’s results. Knouse has also focused on building a team of people with succession planning in mind and who thrive in the culture they have created. Knouse’s focus, from strategic planning, mission, core values, and execution, all centers around what they can do to improve the returns to their growers. I am keenly aware of the need to have a strong relationship between grower and processor. Working with in some cases fifth or sixth generation growers to navigate today’s challenges that face both the growers and the industry, the longer term focus of the cooperative is to provide and maintain a foundation for protecting and preserving family orchards for future generations. CW: What does the future hold for your industry? KG: I am very optimistic. I am firm in my belief that God has blessed Knouse Foods Cooperative, Inc. with people who have a passion for this business. I am lucky enough to head a team dedicated to carrying on the legacy, the tradition, and the integrity which the company stands for and to fulfilling the hopes and dreams of its founders. I am convinced that the “Growing through Quality” approach is still the best way to achieve a profitable market for the cooperative’s grower-members. We have developed a market that encourages our growers to continue to plant trees rather than convert orchards to housing developments,. Every day we reaffirm that an
excellent relationship between growers and a processor can bear exceptional fruit. CW: Tell us about your involvement in public policy and politics. KG: I belong to, serve on, or lead associations focused on apples, and business. I have been politically active because I understand that decisions made in Harrisburg and Washington have as much influence on the lives of the cooperative’s growers, as do the operations of Knouse Foods. CW: What recommendations can you offer to policymakers. KG: I fully accept the need for some rules and regulations in the industry to protect consumers, and I take very seriously the responsibility of providing safe, quality foods. My contemporaries in the industry and I are simply working to achieve a ‘level playing field’ of competition for domestic growers. It makes no sense to create a regulatory environment favorable for outsourcing to foreign providers. When policymakers give domestic growers and cooperatives a fair playing field on taxes, infrastructure, legal and regulatory issues and other business matters, they not only help the 1,400 employees and grower members of Knouse, but they also protect the hundreds of jobs at companies which supply bottles, caps, cans, ingredients, packaging, and other related items and services – many of which are produced in Pennsylvania.
JULY 2012 CAPITAL WATCH
Winners and losers in budget deal. Who got things done and how? continued from page 4
House Democratic leaders. Watching the Pennsylvania House Democratic caucus on June 30 made anyone experience a profound disconnect: Their spokesman and members blistered the governor for not reading bills, for hurting pretty much every resident of the state, but every time the House GOP needed a suspension of the rules to vote on something much earlier than the rules allowed, the Democrats went along. In other words, the Republican bills and budget were bad, evil and wrong, and would lead to deaths and blighted lives, but they weren’t worth inconveniencing the Sunday schedules of House Democrats. If the bills really were that tragic, they should have been worth a day or a few more hours by the House Democrats. So they not only lost the substantive debates, but also showed they didn’t care enough to stay in town another day to fight. Unlike the Senate Democrats, who had some effect on the budget, the House Democrats had no impact and mostly existed to help the GOP get out of town a day earlier than the rules allowed. Even worse, when Rep. Greg Vitali, D-Delaware, was peppering the House GOP with questions - many of the timewasting category, to be sure - he did hit on a few real points. How could we tell? Because those were the times when his own House leaders backed Turzai’s contentions, and did not have their top staff tell Vitali he was on to something. And tried to hurry him along when he almost hit on the charter school vendors issue, for example. But without time or staff, Vitali, who has the inclination to expose facts, was undone mostly by the House GOP, but also by his own leaders throwing him under the bus.
Senate Appropriations Committee Chairman Jake Corman, R-Centre. Corman said in last year’s budget fight he wanted to restore all of the funds Gov. Tom Corbett cut from that
year’s budget for Penn State, Pitt and Temple universities. He managed to reduce those cuts, and this year vowed again to restore the new cuts Corbett made to the three universities and the 14 state-owned universities. OK, they got added because Corman needed the votes those 14 and Adolph could put behind restoring all of the higher education cuts. And Adolph, who sometimes seems to love PHEAA as much as he loves the state system, or block grants, knew that PHEAA had enough money to make up their cut by themselves. Like Pileggi and distressed schools, a lot of people said Corman asked for the cuts to be restored and would take less. But he got all of it back. How big a deal was that? When Corman announced his plan to restore the cuts and get the 18 universities involved to limit tuition increases, Corbett said it was a good idea but didn’t commit to it, fearing the $200 millionplus it cost. By late last week, the governor got all the college presidents on-stage with him in the media center to talk about what a great idea it was, and take some credit, while sharing some with Corman. That’s a win.
Senate President Pro Tem Joe Scarnati, R-Jefferson, Sens. John Rafferty, Stewart Greenleaf and Chuck McIlhiney. Greenleaf, R-Montgomery, has been pushing for substantial corrections reform for years. It finally happened. Corbett played a big role in reassuring the district attorneys association and getting it passed. But Greenleaf didn’t succeed at first, and nearly 20 years ago after he led the hearing on Corbett’s appointment to attorney general, he tried and tried again, and finally succeeded. Greenleaf deserves credit for his perseverance. A less lengthy gestation period occurred for language in another bill that exempted parts of suburban Philadelphia
from natural gas drilling in case a formation there turns out to be drill-able. The recent news that the gas may be drill-able panicked enviros in Bucks County and when they get nervous, Sen. McIlhinney, R-Bucks, feels his pulse rate rise, too. McIlhinney got Scarnati and Pileggi to help him get a study commissioned and an embargo until the study is done. That was done very quickly and fairly easily. But it could prove to be a longterm issue. Scarnati and Rep. Brian Ellis, R-Butler, said that region deserved an exemption while the study occurred. Drilling opponents and environmental groups said so did the rest of the state. Ellis said the kind of drilling done in the rest of the state had been proved to be safe, but the new kind of drilling to access the deeper reserves under Bucks and part of Montgomery County needed study. And just to repeat that point, this is a different kind of formation, and many believe the gas can’t be gotten at. But still, the perception of unfairness may linger. This is the budget win that has the most potential to turn into a loss. In addition to his P3 and redlight camera bills, Rafferty also won passage of his bill to take half the fines of municipalities with more than 3,000 people and use them for state police funding. Of the non-leaders, Rafferty had perhaps the most productive and substantive wins of any lawmaker, mostly because he is good at sharing bills and credit, which always helps productivity. Like Pileggi, Scarnati was behind a lot of Senate measures, making various things happen. His most public stands were making sure the Shell/ethane cracker tax credit happened, and that it was drafted so it was defensible. There were some challenges there. Days after the governor said Shell or whoever built the cracker could only sell the credits to companies upstream or downstream on the ethane production system, Shell demurred. Now if they can’t sell the credits to other ethane-using companies after 60 days, they can sell them to anyone.
But several safeguards remain and the key here was to pass the bill, quiet the anti-Shell fervor that Corbett’s secrecy and initially-ham-handed defenses created, and keep Shell happy. All three of those happened. Scarnati also ensured he had the governor’s attention for rural projects when Corbett releases the next round of RACP projects this summer, and delayed Turzai’s RACP reform bill until fall, if not later.
State cash assistance welfare recipients. The Corbett administration says the state program was cut so the saved money could be used for health care for the poor and to help keep the state’s welfare spending in check. A vigorous campaign by Senate and House Democrats to restore it never got close to the kind of public support it needed to win. Unlike the county human services funding fight, in which providers managed to at least stave off the impact in most of the state, cash assistance defenders only managed a delay, for a few weeks, of this lost fight on behalf of cash assistance recipients.
Public school districts. After last year’s cuts, this year school districts had to fight very hard to stay about where they were. State pension payments went up, but that actually triggers higher spending requirements for districts. So while state dollars are helping pay for the pensions, the money doesn’t replace school district dollars as other state aid does. And most of the new public education funding in this budget goes to a double-handful of fiscallydistressed school districts. It is better than last year, of course, but EITC is getting more new money than all the public school districts, if you leave pension dollars out of the equation. That shows you where the governor is on this issue, and where public schools rank. CW
Schools now allowed to retain law officers As part of the 2012-13 state budget package, Gov. Tom Corbett signed into law legislation updating the Commonwealth’s education code containing a measure authored by Rep. Todd Rock (R-Franklin) that allows school districts in Pennsylvania to retain school resource officers (SROs) such as municipal police officers, as well as probation personnel, who are experienced in juvenile issues. Previous law did not permit school districts to use taxpayer funds to contract with local police departments or
county probation offices in order to have their personnel keep regular hours and interact with school personnel. Rock undertook this effort because one of the school boards in the district he represents had seen surprisingly positive results from having SROs in their school, but had to end the practice when it came to their attention the education code did not permit them to hire SROs. With a large student population, and concerns rising about school safety in the district – there were as many as 31 arrests in Waynesboro schools during
the 2008-09 school year – the school district in 2008 hired Waynesboro Police Officer Travis Carbaugh to be its SRO. The results were dramatic, with arrests in 2010 dropping by half and students and teachers alike praising Carbaugh’s ability to serve as both a mentor to students and a deterrent to disruptive behavior and criminal activity. But, the grant money to fund the SRO position ran out in 2010, and the school district’s legal counsel determined a combination of the state school code and prior case law prohibited the district
from continuing to employ a police or probation officer using taxpayer money. Rock’s legislation corrects this problem, allowing schools to now use their regular funds to have the professional presence of probation and law enforcement personnel on their premises. “Just by having a police officer or a probation officer in the school that kids recognize and have a relationship with deters them from hanging out with the wrong crowd and reminds them to concentrate on their school work,” Rock said. CW
JULY 2012 CAPITAL WATCH
Dinniman says House GOP proposal lets charters, big GOP donors duck Right To Know law BY PETER L. DECOURSEY, CAPITOLWIRE
One of the Democratic authors of the Senate charter school reform bill praised Senate Republicans for standing up to House GOP efforts to conceal currently available records of taxpayer funds spent by vendors for charter schools and cyber charters. House GOP officials and staff said no such attempt occurred, but acrimony endured on both sides after the House and Senate stalled on charter school reform last weekend over that issue. The Senate version of the legislation, House Bill 1330, did not have that provision exempting vendors from the Right To Know Law, while the House’s version, amended to Senate Bill 1115, did. After the language was found, the Senate declined to pass the House bill while House leaders insisted their amendment was better. “We were within a sentence of getting it done,” Gov. Tom Corbett said on Tuesday. “A sentence!” Charges and Counter-charges The debate over the provision, and over the failure to pass a charter school reform bill swiftly turned acrimonious. Late in the evening on June 30, with Corbett and the charter school association pressuring the Senate to pass the House version of the bill, Senate Education Committee Minority Chairman Andy Dinniman, D-Chester, questioned the motivations behind the House proposal. Dinniman works closely with Senate Education Committee Chairman Jeff Piccola, R-Dauphin, despite notable ideological differences and contrasting voting records. Both publicly stated the House vendor proposal was a problem. Dinniman said the fact that the House proposal would exempt “large [campaign] contributors to Republicans and the governor from the Right-To-Know Law is almost unbelievable.” Dinniman said that “in order to embarrass” Pileggi, House GOP leaders had their “… members vote for what was really contrary to their interest and the public interest.” But House GOP spokesman Steve Miskin said: “The Senator is claiming our legislation does something when it does not... he is wrong. There is no ‘big donor exemption.’” The Controversial Provision Of the bill, Miskin stated: “What we are making clear is that anything currently open to RTK is unchanged, but clarifying about the vendor... while the vendor’s contract is open to RTK, the rest of the company is not.” Melissa Melewsky, media law coun-
Sen. Andy Dinniman questions the motivations behind letting donors duck Right To Know Law in the House charter school proposal.
sel for the Pennsylvania Newspaper Association said: “You don’t get access to third party records under the Right to Know Law if it’s not related to the public function the contractor is performing. There is only access directly relating to the government function they are performing.” And contractors do more than provide food and other items to charter schools, Dinniman said. Melewsky said: “If the charter school is farming out their statutory duties, running a school with public taxpayer dollars, the company that takes that contract takes on all the duties of a public school, including accountability and disclosure. You can’t contract your way out of accountability for performing government work.” “This provision would eviscerate that provision in regard to charter schools. It should not become law.” Miskin said: “That is wrong. That is not what our bill does.” Senate Majority Leader Dominic Pileggi, R-Delaware, on June 26 said he did not think it would be useful to publicly discuss the disputes over the legislation. But like House Majority Leader Mike Turzai, R-Allegheny, and Corbett, Pileggi predicted it would be enacted into law in the fall session. A senior House GOP aide said Dinniman and Senate GOP leaders misread and misunderstood the House GOP proposal. “As to Sen. Dinniman’s accusations, I think he has a lot of free time on his hands to sit around and dream up conspiracy theories,” the House GOP aide said. “There is only one reason he thinks
Sen. Pileggi is correct, that’s because he is owned by the Senate Republican majority. Maybe he should use his free time to read the Right to Know Law.” The political background Dinniman said the House provision was meant not only to help charter school operating vendors, but also to embarrass Pileggi. The biggest charter school in Pileggi’s district, one of the largest in the state, Chester Community Charter School, is run by Vahan Gureghian. Gureghian has been a major donor to Republican campaign committees in southeastern Pennsylvania, a sizeable contributor to Senate GOP campaigns and a lesser, but considerable source of funds to House Republican candidates and campaign committees. Gureghian both runs the charter school and owns the private company that contract with the school to run various operations. Dinniman said the House bill would allow Gureghian to shield the school operation records of the private company. Since the school has collected tens of millions of state dollars over the years – it has a high student population because of the academic and fiscal failure of the Chester-Upland School District – those records need to be kept public, Dinniman said. Gureghian is also allied with House Speaker Sam Smith, R-Punxsutawney, who shaped the House GOP charter reform proposal. Speaking of the House’s proposed vendor language, which would benefit a major Pileggi – and Smith – ally, Dinniman said: “In my judgment,” the House bill “… purposefully did that
to hit Dom, … to get Vahan to maybe give more money to the House GOP… Those charter school operators, they contribute a lot of money to political interests.” “Sen. Pileggi’s the hero in all this… he wasn’t about to let Right-To-Know be sacrificed.” “Right To Know would not be sacrificed under our bill,” Miskin said. Dinniman said: “In all the focus on transparency and Right-To-Know… you take the people who are making mint on charter schools and they will now be exempt” under the House proposal, “from Right-To-Know. That is a pretty serious attack on the public interest.” Miskin responded that Dinniman was wrong and needed to read the bill. Speaking of the Senate proposal, House Bill 1330, Dinniman said it made pragmatic compromises, and did some things, but not everything desired by various interest groups. “In 1330, everyone got real,” he said. “Except the House Republican leadership.” What’s next? Miskin noted that Turzai and the governor have both said they can now pass a charter reform bill in the fall. Pileggi agreed. “Charter reform is not dead,” Miskin said. “We will continue working on this and reach a compromise to fix the various issues this fall by working with Sen. Pileggi and the governor.” Dinniman said that may not occur. “I think it’s disappointing that the charter reform parts of the bill are not going to become a reality until fall. But you only have eight days in the fall. It’s very hard to do anything in eight days around here. So it might have to be next January. Then we start from scratch again. And we know how difficult it is when you have to do that, and re-fight some of the same battles.” One such battle with the potential to block any fall deal could be the charter school funding formula, Dinniman said. Both versions of the charter bill contained a funding commission proposal. Some now hope Corbett will simply name a commission so that issue can be dealt with next fall when the charter reform bill passes. Corbett declined to say if he would do that or consider doing that. “… This is depressing. We were so close to a good bill that gave everyone something they wanted, but also gave them things that are good for the public, and the kids, not just the special interests,” Dinniman said. CW
JULY 2012 CAPITAL WATCH
DOC awards $292 million contract for prison health services BY KEVIN ZWICK, CAPITOLWIRE
The Department of Corrections awarded a five-year, $292 million contract for correctional health care services to Pittsburgh-based Wexford Health Sources Inc. However, the contract doesn’t include outsourcing nursing services at state correctional institutions, which the Corbett administration sought as a costsaving measure for the department. State employees will continue to perform nursing services, according to the department. “Extensive review found that we could provide it the best as far as financial, the hours provided, and the experience of our staff,” said department spokeswoman Susan Bensinger. “There was a multitude of factors looked at, and at the end of the process, they feel it’s best to leave it in place as it is and provide it with our staff.”
Wexford Health Sources Inc. was formerly owned by Allegheny County GOP Chairman Jim Roddey, a long-time close Corbett ally and a top official in Corbett’s 2010 gubernatorial campaign. The recommendation for Wexford Health Sources Inc. was posted to the state’s e-marketplace website on June 29. The department issued a Request for Proposals in September that contained two options, one of which would have replaced the department as the primary provider of the comprehensive medical services to the department’s inmates in 27 institutions located across the state. The other option, which was chosen by the department in the procurement process, was to provide base services for all correctional institutions and two community correctional centers, which includes nursing and medical records
staffing only for SCI-Pine Grove and SCI-Chester and staffing for the dialysis units at SCI-Laurel Highlands and SCIMuncy. Sen. David Argall, R-Schuylkill, and Rep. Mike Fleck, R-Huntingdon, each of whom having state prisons located in their respective districts, introduced legislation last year aiming to prohibit the outsourcing of nursing services at state correctional facilities. “My constituents do not want to see public safety solely dependent upon the lowest bidder. We agree that there are many, many things that the private sector does much better than government. However, there is not a more important role government plays than protecting the public,” Argall said via email. “With two State Correctional Institutions located inside the 29th Senate District,
I appreciate the administration taking into account the concerns raised by local residents.” Fleck told WITF in May that he would like to pass his bill to prevent nursing privatization efforts. The state currently subcontracts some medical, pharmaceutical and psychiatric services. SEIU Healthcare PA, which represents 300 state correctional institution nurses, lobbied against the proposed nursing privatization option. The union’s website said it had received word in May from DOC Secretary John Wetzel that the department decided to not pursue the nursing privatization route. An organized labor coalition, including SEIU Healthcare PA, released a report in March critical of privatizing state prison nursing services. CW
Geist’s landmark public-private partnership bill signed into law Following a nearly decade-long effort in crafting and advocating legislation designed to explore and create publicprivate partnerships (P3) in transportation, Rep. Rick Geist (R-Altoona), chairman of the House Transportation Committee, announced Gov. Tom Corbett signed House Bill 3 into law, making it Act 88 of 2012. “This act opens a new chapter in the way Pennsylvania can fund projects designed to repair and replace our structurally deficient roads and bridges with the cooperation, financial resources and efficiencies of the private sector,” said Geist. “I am grateful to the governor for supporting and signing this bill into law. It is an important step in rebuilding our infrastructure. We can and must continue to move forward and do more for Pennsylvania.” In addition to the P3 legislation, Corbett also signed Geist’s House Bill 864, becoming Act 98 of 2012. The new law reorganizes and reconstitutes the Pedalcycle and Pedestrian Advisory Committee (PPAC) that was created in 1995 to advise and comment on bicycling and pedestrian program activities operated or financially assisted by PennDOT or other state government agencies. Act 98 increases the overall membership from 15 to 17 members, with 11 being appointed by the governor. “There have been some organizations involved with PPAC that are now defunct and a good reworking of the committee structure was long overdue,” said Geist. “This committee can effectively aid in
Rep. Rick Geist recognizes the House Transportation Committee for their hard work on behalf of his two bills.
bicycle and pedestrian safety in addition to dealing with other issues that relate to those constituencies.” The law allows any government entity at state or local level to enter into a P3, but all P3s - named public-private transportation partnerships (PPTPs) must be approved by a Public-Private Transportation Partnerships Board composed of: the state secretary of transportation, state budget secretary or designee, a Governor’s appointee, appointee of president of the senate, appointee of minority senate leader, appointee of the house speaker, and appointee of the minority leader of the house
The legislature can block an approval by the PPTB Board if it acts within 20 calendar days or 9 legislative days. This power to block a PPTP only applies to facilities owned by the state. Every transport facility in the state is open for a PPTP except the Mainline of the Pennsylvania Turnpike, unless that is specifically permitted by new legislation. Privatization of the whole Turnpike system was proposed by former Governor Ed Rendell in 2007 and a concessionaire (Abertis) selected for an upfront fee of $12.8 billion, but enabling legislation was defeated in the legislature, and the deal fell through.
The Turnpike was excluded from the new PPTP law - except for the concessioning of the extension components of the Turnpike - to remove it as a sticking point. PPTPs may be initiated by the private sector or by public entities owning transport facilities. In all cases the concessions must be open to competitive procurement with a RFP and the concessioning owner must apply an open best value analysis to the bids. Concession terms may be up to 99 years. PennDOT will have a monitoring and supervisory role. Any transport modes may be the subject of PPTPs and they may cover any combination of new capacity, rehabilitation, modernization, operations. Revenues are to belong to the concessionaire, but the concessionaire may pay with upfront payments or a share of revenues. Projects involving some state or federal funding are OK. Ownership of the facility is to remain with the public entity and they must be turned back to that public entity in good condition at the end of the concession. Geist praised the efforts of the House Transportation Committee in moving these bills to completion. This is the third Geist prime-sponsored bill that has been signed into law during the current legislative session. In addition, numerous other bills he cosponsored have also been signed. Geist said he is hopeful that a transportation funding bill will be passed in the fall. CW
JULY 2012 CAPITAL WATCH
National voting rights organizations file lawsuit against state The Black Political Empowerment Project (B-PEP) and ACTION United have filed suit against Secretary of the Commonwealth Carol Aichele, Secretary of Public Welfare Gary D. Alexander and Secretary of Health Dr. Eli N. Avila in the U.S. District Court for the Eastern District of Pennsylvania. The plaintiffs, represented by a coalition of national voting rights groups, including Demos, Project Vote and the Lawyers’ Committee for Civil Rights Under Law, allege that the Commonwealth has systematically failed to comply with the National Voter Registration Act (NVRA). Since its 1993 enactment, the NVRA has helped ensure that low-income residents receive an opportunity to register to vote by mandating that all public assistance agencies offer voter registration services. The plaintiffs allege that the majority of clients seeking public assistance services in Pennsylvania are simply not being offered voter registration opportunities, and some public assistance agencies do not even have the voter registration forms available on request. Specifically, the complaint alleges that, based on Pennsylvania’s own submissions to the U.S. Election Assistance Commission, the number of voter registration applications submitted at Pennsylvania public assistance offices decreased by a staggering 93 percent in recent years, from 59,462 in 1995-1996 to just 4,179 in 20092010. This steep decline in voter registrations is particularly significant because it occurred during the same period that both the population of the Commonwealth and the number of applicants for public assistance were increasing. As a result of the Commonwealth’s failures, the Plaintiffs say they are forced to expend resources helping to register citizens who would otherwise be registered by the Commonwealth. In the past several years, lawsuits filed by the same voting rights groups have forced other states that had been disregarding the NVRA to comply, with dramatic results. For example, applications from Missouri public assistance agencies skyrocketed, from fewer than 8,000 a year to more than 130,000 a year, following settlement of a suit in that state in 2009. More than 360,000 low-income Ohioans have applied to register since a similar case was settled there at the end of 2009. Cases were also recently settled in New Mexico, Indiana and Georgia.
“Public assistance clients greatly benefit from accessible voter registration. Congress decided that these citizens shouldn’t have to jump through additional hoops to register,” said Bob Kengle, co-director of the Lawyers’ Committee’s Voting Rights Project. “Our interviews with public assistance clients showed that few had received voter registration applications when they should have, and some offices didn’t even have voter registration applications on site when we asked for them.” “Public assistance offices are in a unique position to increase voter registration rates among low-income citizens, the disabled and racial minorities,” said Sarah Brannon, director of the Public Agency Voter Registration Program for Project Vote. “Pennsylvania should realize this potential and correct the inadequacies within its system.” The national coalition had been attempting to work with the Commonwealth collaboratively on NVRA compliance for a number of years. Only when it became clear that the Commonwealth would not voluntarily come into compliance prior to the voter registration deadline for this year’s elections did the group opt to take legal action. Among other things, the Complaint seeks an order directing defendants, under a court-approved plan, to take all actions necessary to remedy the past and continuing violations of Section 7 of the NVRA. “The people in the Commonwealth of Pennsylvania, and indeed the nation, who might benefit the most from having an ongoing, consistent and accessible opportunity to register to vote are low-income residents. The opportunity for political empowerment and the opportunity to vote in each and every election cannot be underestimated,” said Tim Stevens, chairman and CEO of B-PEP, “It is imperative that the Commonwealth of Pennsylvania meet its NVRA obligation.” “Voting is the cornerstone of civic engagement and a critical part of being a citizen,” said Lucille Prater-Holliday, president of ACTION United. “Public assistance offices should be not just facilitating but encouraging low-income citizens to participate. These offices particularly are the front line of engagement for many citizens who are disengaged and all but disenfranchised. Their absolute failure to do their duty required by the NVRA only perpetuates this disenfranchisement and disengagement.” CW
Former state senator heads new coal alliance BY KEVIN ZWICK, CAPITOLWIRE
Former Sen. John Pippy, R-Allegheny, says a group of coal workers and companies are joining together “to give coal a bigger and better-heard voice, so Pennsylvanians and Americans will understand what a great opportunity we have.” Greater public awareness of the opportunities for coal is needed because federal environmental regulations are holding the industry back, Pippy said, as the new Pennsylvania Coal Alliance was announced in Pittsburgh July 9. The new coal alliance combined coal companies, suppliers and workers and their families, said Pippy “to give us a 40,000-member strong, unified voice not only for coal industries, but also the employees and their families, to advance issues that affect all of us,” Pippy said. The alliance combines the Pennsylvania Coal Association, with long-time association head George Ellis remaining involved, and FORCE, the workers and families group. Pippy will be the new CEO, and resigned his seat in the Senate just before July 1 dawned. “This fits perfectly with my background as an environmental engineer,” Pippy said, “and someone who under-
stands that coal is not the enemy of our environment, but something that can be a cheap source of energy and something we can use much more cleanly, if only we can get the federal government to let us.” Federal regulators have long balked at that argument from coal boosters. They say the coal companies got concessions to allow older coal-fired plants to remain in operation in exchange for agreeing to much tougher emission standards for newer and modified plants. Past and present EPA officials, under Democratic and Republican presidents, have treated coal as a “dirty” energy and tried to run national policy to diminish its use Now, the federal environmental regulators say, the coal companies want to be able to ignore the new regulations, keep the old plants and refit or modernize them so they are cleaner than the grandfathered plants but well short of the mandates established by regulations. So while the coal industry and elected officials from coal-abundant states like Pennsylvania, Ohio and West Virginia advocate for less strict emissions standards, and the regulators reply that coal is trying to renege on the deal that keeps the old plants running, Pippy says the federal standards prevent major
improvements from happening now. “We can make the plants much cleaner than they are now, but the federal government won’t let us,” he said. “The only reason we don’t have a more efficient infrastructure is that Washington hasn’t allowed us to do that. We could cut carbon in half. But if we made a plant more efficient, made it burn less coal, we would fall under new regulations that are designed not to keep affordable energy or make coal cleaner, but to shut down the coal industry.” “The technology exists and you see
this in other countries, but they won’t let us implement it here. Because if you do, the company has to start a new regulatory review which is designed to shut us down. Our message is: Let us become better. It is regulations and policies from Washington that say we don’t want coal.” “So our job is to fight the good fight and make sure people know if you turned up you’re A/C this weekend, coal was powering it. Coal is affordable energy, and it can be much cleaner, if that was our goal, instead of Washington having the goal of driving coal out of business and raising the average consumer’s energy costs by 15 percent to start, and up from there. “We have increased the amount of coal we burn by 270 percent but decreased emissions by 80 percent. That is great and we can do more of that. What I like to call Coal 2.0 is better, cleaner, more efficient and more reliable.” Pippy also sees major synergies between the interests of coal and those of the growing natural gas industry which he says will boost both. He also plans to advocate for carbon-capture technologies for coal companies, another step he says the EPA is blocking. CW
JULY 2012 CAPITAL WATCH
Details of ethane ‘cracker’ tax credit unveiled in Tax Code BY KEVIN ZWICK, CAPITOLWIRE
Details of the tax credit proposal to lure a Royal Dutch Shell petrochemical plant to southwest Pennsylvania were made available during a Senate Appropriations Committee meeting on June 29. Although the tax credit, dubbed the “Resource Manufacturing Tax Credit,” wouldn’t be available until 2017, the proposal will be included in the Tax Code for the 2012-13 fiscal year. The initial cracker plant, to be located in Beaver County, will process ethane from natural gas into ethylene used for producing a variety of products, including footwear, tires, diapers and detergent, among other things. The new proposal removes the $66 million annual tax credit cap that was part of the original plan. The proposal would allow tax credits to be sold to ancillary companies for a period of 60 days before they can be sold or assigned elsewhere. The new proposal also requires a company to invest at least $1 billion constructing the plant and requires a company to create at least 2,500 full-time jobs during the construction phase. The Corbett administration cited a study from the American Chemistry Council, an industry trade association, saying the Royal Dutch Shell petrochemical plant complex could lead to at least 10,000 construction jobs, 400 direct plant jobs, and about 17,000 jobs from associated industries that will grow as a result of the cracker plan. During the committee meeting, Sen. Tina Tartaglione, D-Philadelphia, offered an amendment for Sens. Shirley Kitchen and LeAnna Washington, both D-Philadelphia. It would have required the Department of Community and Economic Development to determine if sufficient jobs were created by each of the tax credit’s operation, and to reduce the tax credit proportionally with any job creation shortfall. DCED has projected that roughly 1,000 will be attributable to the so-called petrochemical cracker or industries in the first year the credit is available. The number of jobs grows to 10,000 in 202122, and 15,000 in 2024-25. Tartaglione said the amendment was just to ensure the jobs the tax credit is supposed to create actually occur. Senate President Pro Tem Joe Scarnati, R-Jefferson, responded: “This is a company with an estimated $4 billion investment. Your amendment gives much instability to ... us bringing these jobs here.” Sen. Larry Farnese, D-Philadelphia, said: “This amendment gets at the heart of the issue: how many jobs? And it utilizes DCED to count” jobs.
What does an ethane cracker plant do? • The ethane cracker plant converts ethane from the abundant Marcellus shale natural gas liquids into chemicals such as ethylene, which is in turn used to produce products such as plastics, tires and antifreeze. • A cracker plant closely resembles a gasoline refinery, with large storage tanks and miles of pipe lines. • A cracker breaks down large molecules from oil and natural gas into smaller ones. An ethylene cracker produces base petrochemical “building blocks” which are the first stage in the chemical’s manufacturing chain. • Derivatives are the chemicals that are made during subsequent processing stages, using products from the cracker. Polyethylene is a derivative of ethylene. • Natural gas companies have to remove Natural Gas Liquids (NGLs) from methane to make it “pipeline quality.” • NGLs are made up of ethane, propane, butane and other compounds. These can be used as feedstock to produce chemicals. • Propane and butane are types of Liquefied Petroleum Gas (LPG) and can also be used as fuels. • Ethylene is a very important base chemical in the chemical and plastics industries. • Ethane is a feedstock for ethylene. Democratic Appropriations Chairman Vince Hughes, D-Philadelphia, added that the amendment would provide accountability. Sen. Bob Mensch, R-Montgomery, called the amendment “quasi-regulation.” Scarnati compared the attempts to quantify jobs to those made, largely unsuccessfully, to do the same for the Film Tax Credit, which he called “a great success.” “We need a Shell to build this plant” even if critics note the company’s profits,” he said. “This is significant investment.
This is significant jobs.” Sen. Wayne Fontana, D-Allegheny, responded that efforts have been underway over the past few years to make the Film Tax Credit’s jobs impact clearer. Appropriations Majority Chairman Jake Corman, R-Centre, said: “There will be a study after 10 years, and there is a clawback in the bill ... if the job goals are not met.” According to the fiscal note, a report is required to be filed in 10 years to include the total number of jobs created, the
amount of tax revenue generated from the qualified taxpayers and upstream or downstream companies, and other economic impact information. If the 10-year report shows the total amount of the tax credit exceeds the total amount of tax revenue generated, the report shall include recommendations for changes in the calculation of the tax credit, the fiscal note says. The amendment was defeated on a 16-10 party-line vote. The bill was reported out 25-1, with Hughes voting no. CW
JULY 2012 CAPITAL WATCH
Senate Democrat troubled by stagnant job creation figures BY KEVIN ZWICK, CAPITOLWIRE
A top Senate Democrat believes Pennsylvania is on track to becoming “51 out of 50 states” in job creation, saying the state’s national ranking in employment growth plunged from 7th when Gov. Tom Corbett began his term to 44th as of May. Senate Democratic Appropriations Chairman Vince Hughes, D-Philadelphia, cited U.S. Bureau of Labor Statistics figures showing Pennsylvania had a 0.01 percent change in total employment between December 2011 and May 2012. “That is not a direction we need to be going in,” he said. “And the Shell petroleum deal … which really doesn’t commence until 2017, will not get us where it is that we need to be in terms of putting Pennsylvania’s people back to work.” “At the rate of direction we’re going as a commonwealth, we’ll be 51 out of 50 states in terms of job creation,” he said. He made the comments on June 25 just a few hours after Corbett, Philadelphia’s Democratic Mayor Michael Nutter, and U.S. Rep. Bob Brady, D-Philadelphia, announced a deal between Sunoco and
Pay Less with Senate Democratic Appropriations Chairman Vince Hughes
would have liked to see a more aggressive jobs strategy. “We could get major deals done at refineries, we could get the Shell petroleum deal done, but the refinery jobs are jobs that existed. The Shell plant in southwestern Pennsylvania, that’s a couple years away. What about everybody else now? “ Hughes said. “There’s no commitment from the reduction of the Capital Stock and Franchise Tax, no commitment from
“We could get major deals done at refineries, we could get the Shell petroleum deal done, but the refinery jobs are jobs that existed. The Shell plant in southwestern Pennsylvania, that’s a couple years away. What about everybody else now?” the Carlyle Group, a private equity firm, to re-start operations at an oil refinery in Philadelphia. The agreement would reportedly save 850 jobs and produce 100-120 new jobs. “I think it’s pretty evident that the focus of the Corbett administration is job creation and we’ve had some success,” said Steve Kratz, spokesman for the Department of Community and Economic Development, citing the state’s consistent below-national-average unemployment rate, the Sunoco-Carlyle refinery deal, and the petrochemical tax credit. “We strongly disagree and believe and we’re heading in the right direction,” he added. Hughes, who voted in favor of the recent $27.656 billion general appropriations budget said Senate Democrats were able to help shape part of the budget and were successful getting certain restorations included. However, he said Senate Democrats
any of those companies to put people back to work,” he said. “Usually when you give that kind of break to folks you ask for something in return: ‘Now, we’re gonna give you a tax break, now what about this job creation, could you put some people back to work?’ No commitment.”Kratz said the administration is “tackling the business climate issue” by moving to eliminate the Capital Stock and Franchise Tax, which he said will help Pennsylvania compete against other states for more businesses and more jobs. Hughes was also critical of other aspects of the budget, including the elimination of the Cash Assistance in the Department of Public Welfare budget, which he said would impact 70,000 individuals. DPW agreed to a 30-day extension on the elimination of the program to notify recipients of the elimination and other existing assistance programs they may qualify for, he said. CW
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JULY 2012 CAPITAL WATCH
“The check is in the mail” and “government doesn’t create jobs” and other tall tales Sometimes, when you say something often enough, people just start believing it’s true – until they say it isn’t. Such has been the experience in the past few weeks as folks around Harrisburg in both political parties have been struggling with not whether government can create jobs through investment but just how many jobs can be created through a $1.7 billion tax break to business to lure the Shell Oil Corp. ethane cracker to Pennsylvania. We’ve seen numbers as high as 20,000 or more and as low as 10,000. And now, the actual legislation sets a floor of 2,500 jobs – a pretty low threshold for success compared to the hyperbole of early June. The first point, though, is that nobody is contesting whether government can induce job creation. The question is, “How many?” Straight-line, it’s pretty much a matter of long division. Say you wanted to hire a lot of policemen – traditional government jobs – and you had $1 billion jobs. How many jobs could you create? Let’s say you calculated out that a typical police officer’s salary plus fringes and an overtime allowance averaged out to $100,000 per year per police officer. Divide $1 billion by $100,000 and you get 10,000 jobs. The place where it gets tricky is when you begin to calculate “spinoff ” jobs and “induced” jobs – those created directly in the industries and services that support police like armorers, uniform manufacture and sales people, etc. Induced jobs are those supported by all that spending in the community by the new police officers, themselves, and the people who prosper from supporting the police officers, etc., etc. But, at least, we can agree to the concept that when government hires police officers, they do create jobs. Jobs with a community purpose and with an outcome – safer streets and communities. There are those, though, who argue, repetitively, that government isn’t much good at creating other kinds of jobs – although they are not very good at explaining why, in what is generally recognized as a “service economy,” that government service is somehow different from private sector service. It seems that better minds than ours have given a lot of thought to just this very issue. They’ve tried to answer the question, “What kind of investment generates more jobs? Military spending (the quintessential government job)? Tax cuts (freeing up private dollars for investment or consumption)? Clean energy investments (recycling, wind, solar and whatever)? Healthcare (a real growth area)? Or education? The good folks at the University
of Massachusetts’ Public Economic Research Institute (PERI calculated that each military jobs – with fringe benefits – costed out at about $90,000 a year. Thus, a billion dollars created 11,200 direct jobs. Tax cuts did much better – at 15,100 jobs – primarily because it created lower paying jobs in the retail sector. Health care (more low pay) generated 17,200 jobs while education (remembering that this report was from an institution of higher education) was clocked at creating 26,700 jobs. None of this is destined to end the “how many jobs can you create on the head of a pin” debate. All estimates are based on economic models and econom-
ic projections and are subject to some degree of error. What’s probably most useful about the PERI study is the comparison between industries (notwithstanding that they didn’t include ANY category for traditional manufacturing). It also compares credibly with studies of the construction industry by other educational institutions and the Federal Highway Administration that place the number of jobs created by a billion in infrastructure investment at somewhere between 15,000 and 25,000 jobs (including spin off and induced jobs). The point is that we are talking about government money – collected from taxes from you and us – and it is creat-
ing and sustaining jobs. And, even if you never use the service the dollars are paying for, you can take comfort in the fact that the worker paid through state tax dollars spends them pretty much in the community supporting other people (maybe even you). How do we know this to be true? Haven’t people been saying that government doesn’t create jobs, the private sector does? Oh, yeah? Those same people just voted overwhelmingly to invest $1.7 billion in tax credits – credits that you will have to make up with your taxes – on their belief that it will create thousands of jobs. It’s not what they say that you can believe, it’s what they do. CW
JULY 2012 CAPITAL WATCH
House amends the Tax Code before sending it to Gov. Corbett
In the late hours of June 30 the House amended the Tax Code, which includes the so-called ethane “cracker” tax credit, with a last-minute addition of the EITC and EITC 2.0 language. The House then approved the amended Tax Code on a vote of 140-56, sending the code to the Senate, which then concurred on a 48-1 vote. The Senate also voted unanimously to send the funding legislation for the state-related universities, and voted 43-6 to send Fiscal Code to the governor. After an impasse between the House and Senate over charter school reform on June 29 and June 30 in the face of a looming year-end deadline, the House Rules Committee amended the Tax Code with language to continue the EITC program and create the EITC 2.0 scholarship program. Known as EITC 2.0, the scholarship program would allow businesses to pay what they would owe in state taxes toward scholarship organizations for students who live in the boundaries of low-achieving schools for other public and nonpublic schools. Republican Policy Chairman Dave Reed, R-Indiana, who worked for months on the single-sales factor included in the bill, thanked his colleagues for their support. The single-sales factor changes the
corporate net income tax so it is based only on sales, not on assets as it is now. House Democrats made several lastminute attempts to suspend the rules to amend the ethane cracker tax credit portion of the code, but all attempts were voted down. House Minority Policy Committee Chairman Mike Sturla, D-Lancaster, had planned to offer amendments to require companies using the tax credit to use workers and natural gas from Pennsylvania. The cracker plant would process ethane from natural gas into ethylene use for producing a variety of products, ranging from footwear to detergent. Two western Democrats, Reps. Rob Matzie, D-Beaver, and Jaret Gibbons, D-Lawrence, spoke in support of the cracker tax credit, saying it would help spur the struggling manufacturing industry in western Pennsylvania. “This is what needs to be done, we need to support this tax credit, this administration, and make this happen,” Matzie said, noting the credit doesn’t affect the next fiscal year. The credit is not available until 2017 and companies would need to guarantee an investment of at least $1 billion and at least 2,500 full-time jobs during the construction phase. CW
Poll: Obama’s swing-state voters not as enthusiastic A new Gallup poll suggests that supporters of President Obama in key swing states are not as highly enthusiastic as those that support Mitt Romney. The June swing-states poll showed 47% of registered voters across the 12 swing states backing President Barack Obama for president and 45% backing the presumptive Republican nominee, Mitt Romney. However, voters in swing states who support Romney for president are more likely than those backing Obama to say they feel “extremely enthusiastic” about voting -- 31% to 23%. The same pattern is seen by party, with 32% of Republicans in the swing states and 25% of Democrats reporting extreme enthusiasm. However, these candidate- and party-level differences disappear when one looks at total enthusiasm, defined as those either extremely or very enthusiastic.
The findings contrast with the May USA Today/Gallup Swing States poll, in which supporters of Obama and Romney expressed equal levels of extreme enthusiasm, while Obama led Romney in their respective supporters’ overall enthusiasm. Nationally, Romney and Obama voters report similar levels of both extreme and overall enthusiasm, as do national Republicans and Democrats. Thus, to the extent extreme enthusiasm proves to be a benefit to Romney in terms of voter turnout this fall, it is currently a factor only in the swing states, not nationally. The USA Today/Gallup poll was conducted June 22-29 with 1,200 registered voters in Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin. The margin of error is +/- 4 percentage points. CW
JULY 2012 CAPITAL WATCH
Corbett, Aichele, get high marks for staff performance BY PETER DECOURSEY, CAPITOLWIRE
I wrote six weeks ago that making Steve Aichele his chief of staff would not fix most of Gov. Tom Corbett’s problems. I was very wrong. Six weeks is an awfully short sample size from which to judge, but appointing and empowering Aichele certainly led to the policy high watermark of the Corbett administration so far. And you don’t have to believe me. Senate Majority Leader Dominic Pileggi, R-Delaware, said: “Last budget, the chief of staff was not really part of the budget negotiations. … This year he was central in representing the governor in budget negotiations. Given that he had to hit the ground running, he did an exceptionally good job.” Given that Corbett got all but one of his top eight or so legislative priorities into this budget, Pileggi is right. Nor is he alone in saying that. Senate and House Democrats were ready to make a huge issue out of the fact that few recipients of state-paid welfare cash assistance were told it would end July 1, even as late as June 29. Aichele met with them, heard their concerns, brought
Welfare Secretary Gary Alexander to meet with Senate Democrats, and the real-estate dealmaker made a bargain: a 30-day, $12 million to $20 million extension of the cash benefits, so recipients had a month to prepare. Senate Appropriation Committee Minority Chairman Vince Hughes, D-Philadelphia, said: “We wanted more, obviously, but we are grateful to the governor, to Steve and to the Senate Republicans for working with us and coming to a compromise that will at least give people some time to get ready for this cut that will hurt a lot of families.” And while another dealmaking Philadelphia lawyer, Charlie Kopp, gets the most credit for the Sunoco deal that got the Carlyle Group to rejuvenate a Philadelphia refinery, Aichele played a key role there, and in the Marcus Hook refinery deal to be announced this week, more than a dozen sources said. He also directed the staff. As I wrote six weeks ago, Corbett’s top advisors were very tired of the patient, cautious and sometimes-avoidant governor allowing his staff to “no-comment” on the
majority of stories in the newspapers and online. A similar problem existed in legislative relations. Aichele came in, and Corbett gave him the power to manage even long-time loyalists whom Ward was essentially not allowed to manage. Also, to be fair, the two top aides in question, Annmarie Kaiser and Kevin Harley, are smart people who want to do well and deeply want to serve Corbett as well as they can.
One person who has played a similar role in past administrations, said: “One of the things Steve has is an understanding of is when to declare victory. You have to be pragmatic in that job.” Harley, the governor’s top message guy, shone during the last month. After one last pre-Aichele era cone of silence prevailed for the first week after the Shell ethane cracker tax credit became publicly known, and that deal began to
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take on water, Harley used his considerable intelligence and experience to answer questions willingly and well. Aichele, Harley and others also did an outstanding job of prepping Corbett so he exuded confidence in June. Even when his facts got a little twisted – Shell can sell its tax credits to folks not in the ethane-train after 60 days, not never as he said – Corbett sold the Shell deal and worked hard and agreed to spend millions so the Sunoco deals came off, shar-
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ing the shale bounty with southeastern Pennsylvania. Corbett isn’t used to being a salesman and it isn’t natural for him. But he was better than he has ever been in June, and Aichele and Harley deserve credit for that, as does Corbett, obviously. Kaiser got slightly more mixed reviews, but no legislative leaders like the legislative secretary during or right after budget negotiations, and many lawmakers credit her work with helping the passage of EITC 2.0 and other bills. Plus, when you nearly sweep the governor’s top 10 list, the person who laid the groundwork deserves credit. And, to the credit of Kaiser and Harley, neither could care less if they get any credit. Now that Harley is answering questions and Corbett is selling his agenda better than he ever has, and much more like predecessors Tom Ridge and Dick Thornburgh than he ever has, Kaiser has become the default legislators whipping horse. There is always one in an administration, usually the policy secretary, as those who had that job, including Charles Zogby for Ridge and Donna Cooper for Rendell. In this administration it’s Kaiser, partly because she has a much more aggressive personality than policy secretary Jen Branstetter. But by integrating her more into the team, and letting her be bad cop, she and the team were more productive, close allies said. But the real change was not that Corbett and his staff were smiling after the deal was done and they got almost all they wanted. It is that they were smiling and confident for most of June. I am not sure why they waited a week to roll out cogent defenses of the Shell deal, but once they did so, the defenses held. And Corbett looked as if he were selling, not defending. Because he is not continued on page 15
JULY 2012 CAPITAL WATCH
Corbett, Aichele, get high marks for staff performance continued from page 14 great at defending or explaining, so even when he was catching up on Shell, they put him on the offensive, which is his most appealing role. Aichele appeared to help with that also. He is one of the smiliest, mostpositive-appearing people you will meet, not quite at the candlepower of Ridge, but not far behind. That sends two messages: 1) positivity and a can-do attitude about the budget and the Legislature; and 2) if Aichele and Corbett are smiley, what are you so sourpuss about? In sports, there is often an assumption that if a good team is in place, a manager can make a big difference. That was the theory Corbett employed with Aichele. And it is working even with those in the administration who were widely viewed as successes. Last year’s budget talks were dominated by Budget Secretary Charles Zogby, so naturally they were about spending less almost to the exclusion of other goals. Aichele and Zogby, having to feel each other out as they negotiated their first spending plan together, did a good job of compromising with each other and the Legislature. Zogby acted as an anchor on spending, while Aichele persuaded the governor and Charles that the shopping list was worth the price. The fact that the shopping list included so much education reform - EITC expansion, EITC Vouchers, teacher accountability – also probably made it easier for Zogby to avert his gaze and mutter “OK.” Plus, at least so far, Corbett is giving Aichele a big portfolio, and the governor and his team trust him. One person who has played a similar role in past administrations, said: “One of the things Steve has is an understanding of is when to declare victory. You have to be pragmatic in that job.” Another insider and veteran of a prior administration said: “Aichele is both feared and respected, smart as hell, and appears to have a vision for his new role and a personal and gubernatorial commitment to pursue it; something his predecessor lacked.” Now there are a lot of things that helped Corbett and Aichele get this far: they made better use of their assets, including Lt. Gov. Jim Cawley; a lot of activist groups were pushing hard to help on various issues; and large chunks of the Legislature wanted to pass most of Corbett’s agenda already, etc. But that was also true for the first 17, less successful months. When things got so bad, Corbett’s insiders sent the governor their message in the newspapers. Corbett and Aichele had as good a first six weeks as he could have had, and Corbett and he and their team deserve recognition and credit for that. CW