w w w. ca p i ta l- wat c h . c o m
CapitalWatch VOL. 5 NO. 6
inside House GOP Ok with Senate budget of $27.65 billion PAGE 3 House passes Daley aviation tax exemption bill PAGE 4 No lame-duck session in 2012 PAGE 6 House panel reports out performancebased budget bill PAGE 9 EDITORIAL: Pensions, anyone? A valid response that doesn’t answer the question PAGE 12
See PAGE 13 for details
May revenue collections not likely to change budget negotiations By Kevin Zwick, Capitolwire
The state’s three-month streak of better-than-anticipated revenue collections has come to an end, as the Revenue Department reported a shortfall of $43.8 million in the month of May. The below-estimate May collections followed three straight months of positive collections, including a $99 million aboveestimate revenue collection in April. General Fund collections are $332.9 million Budget appropriators closely watched the May revenue collections as lawmakers gear up to negotiate a $27.65 billion proposed budget for fiscal year 2012-13. “I don’t think this changes anything, it’s $40 million behind, we expect June to make that up,” said Senate Appropriations Chairman Jake Corman, R-Centre. “We’ll pass the budget before the June numbers are in, so I don’t think we are going to assume any more revenue than we assumed before. “As far as overall spend, the House and governor said they don’t want to spend more than the Senate budget did, and now it appears we can’t afford to spend any more. “I imagine the spend will be around what we approved or a little less,” Corman said. The poor collections in May puts a damper on arguments made by House Democrats last month who urged a $300 million spending increase to restore funding for items with bi-partisan support, including block grants used for all-day kinder-
garten, human services, and hospitals and nursing homes. The House Democrats’ plan would have used a portion of an $800 million revenue projection made by the IFO. Senate Republicans used the IFO’s revenue projection to increase the budget spending level $500 million above Gov. Tom Corbett’s proposed $27.14 billion spending level. But last month, House Appropriations Committee Republicans said economic indicators pointed toward less-rosy May revenue collections. “It definitely validates the concern we expressed at the committee hearing, that we can’t spend
what we have not collected,” said Mike Stoll, spokesman for House Appropriations Chairman Bill Adolph, R-Delaware. “Much like last year, if we followed the Democrats’ call for spending what they perceived to be $1 billion surplus, we’d be in a billion dollar hole.” “The $300 million isn’t materializing to the extent [House Democrats] may have thought. We definitely need to be cautious about the spending decisions that we make,” he added. Barry Ciccocioppo, spokesman for Democratic Appropriations Chairman Joe Markosek, D-Allegheny, via email said compared to this point in the last fis-
cal year, General Fund revenues are 2.4 percent higher. “Despite the May revenue collections being reported today, the House Appropriations Committee (D) believes the yearend revenue will be approximately $380 million higher than the governor’s estimate. “Combined with preliminary revenue estimates for 2012/13, the General Assembly should have more than $700 million to restore some of Gov. Corbett’s budget cuts; but not nearly enough to ease the pain and suffering inflicted by the current Republican-passed budget. “Current revenues provide continued on page 4
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june 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 Chris Comisac 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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House GOP OK with Senate budget of $27.65 billion, while Gov. still wants it lower By Peter L. DeCoursey, Capitolwire
House Majority Leader Mike Turzai agreed with Senate Majority Leader Dominic Pileggi’s statement that there is “no need to reduce the level of spending” proposed in the Senate-passed budget. Turzai, R-Allegheny, has signaled that $27.65 billion number is acceptable before. He continued to call it a ‘ceiling.’ But he also said “it is a good parameter” for the budget discussions. Gov. Tom Corbett has said that total spending proposal, a 1.8-percent spending increase, is “unsustainable” and too high. The governor had expressed hope the House would help him lower it closer to his $27.15 billion proposal. But Turzai and Pileggi, R-Delaware, while acknowledging Corbett’s key role in the budget process, both seemed confident that spending level would survive into the final budget. Pileggi and Turzai acknowledged continuing negotiations between their chambers on various issues. Those issues, budget negotiators have said, include:
• The House wanting to restore $50 million more for the Education Achievement Block Grants. Corbett cut them to zero, the Senate put back in $50 million; • The House wanting to restore the remaining $84 million cut by Corbett from the welfare block grant counties get for human services. The Senate already restored $84 million; • Pileggi defending $50 million he inserted into the budget for fiscallydistressed schools from House members who want it to be in education block grants instead; • The House wanting to either insist on an in-state tuition freeze in exchange for agreeing to the Senate higher education restorations of $245 million Corbett wants to cut, or to use some of that money for counties or other programs. The education negotiations continue to be over “not only dollars, but where the money will be spent,” Pileggi said. Pileggi said they did not know the gov-
ernor’s reaction, but planned to meet with him to present the House-Senate agreement “in the beginning of next week.” Turzai said he expected a bill to reform state economic development borrowing and reduce the amount of borrowing “will pass with the budget” and be enacted into law. He also said his caucus is pressing for $13 million to abolish a part of the state corporate tax in-state companies pay on property and equipment. That levy has been reduced steadily for years, and Turzai said he hopes that this budget will finish the job, so in-state and out-ofstate companies each pay the tax only on sales in Pennsylvania. Gov. Corbett and his administration, unlike last year when they prioritized only a budget in June, have asked for four pieces of legislation to be passed before the Legislature adjourns: • A bill creating the Liberty Loan Fund, consolidating many state borrowing programs within the Department of Community and Economic Development; • A major corrections reform package that would put fewer non-violent offenders in state prison. Corbett said it will save taxpayers $351 million. One bill in that package, Senate Bill 100, is positioned to potentially reach the governor’s desk in June, while additional legislation in the reform effort has yet to be introduced; • Two education bills: one to reform charter schools and give the state the power to oversee, regulate and charter them, or at least do so in the worstperforming districts; and an educator accountability and testing bill. Turzai said he did not believe the governor would make those bills an impediment to the passage of the budget. He also said that while he continues to work on a bill to sell the state liquor stores, that will also not hold up the budget. He also reaffirmed his caucus’ support for the concept of moving future state employees to a 401(k)-style retirement plan, not the state’s more lucrative and expensive traditional state pension plan. Pileggi and Turzai said taxpayers had 401(k)-style plans, and those whose benefits they were paying should also have them. Pileggi said a bill to pay for the costs of moving future employees out of helping to fund current and past employees would have to move “at roughly the same time.” He added the bill should become law before any similar bill would be passed regarding municipal employees and elected officials. “We think we should lead by example” on that issue, said Pileggi. CW
june 2012 CAPITAL WATCH
DCED’s Walker says negative prognosis on shale economy misses big picture By Kevin Zwick, Capitolwire
The state’s chief economic development official rebuked some news reports that have been painting a grim picture of one natural gas company’s viability and the potential impact on the burgeoning natural gas industry. “The supply definitely got ahead of the demand,” said C. Alan Walker, secretary of the Department of Community and Economic Development, said of the historically low natural gas prices and the predictions of a ‘shale bubble” they have led to. “But I see something entirely different (than the media reports). “We’re just touching the tip of the iceberg of what is going to happen in the Appalachian part of Pennsylvania,” he said. “Not only are we going to do a lot of drilling for gas, there’s gonna be a lot of support industries that come in around it. The health of Chesapeake Energy Corp., the nation’s second-largest natural gas producer, has been the subject of recent Wall Street Journal reports, including criticism of the company’s chief executive officer. According to the Journal, Chesapeake made a number of long-term commitments to Wall Street banks that require it to deliver specific amounts of oil and natural gas each month through 2022, in exchange for upfront cash. However, with historically low natural
C. Alan Walker
gas prices, the company is seeing a lull in production of natural gas and is moving toward more lucrative oil and wet gas production. Earlier this month, oil and gas magnet T. Boone Pickens dumped his stock in Chesapeake due to the low natural gas prices, Bloomberg Businessweek reported. The Journal also noted stockholder criticism and the recent board chairman ouster of Chesapeake Energy co-founder
Aubrey McClendon, who has been accumulating small stakes in thousands of wells drilled by Chesapeake through an unusual compensation perk. To cover his share of the costs of drilling these wells, McClendon arranged to borrow up to $1.4 billion from a private equity fund that was buying assets from Chesapeake. When the board found out about this and other financial activities, it stripped Mr. McClendon of his chairman’s title and negotiated an early end to the perk recently, the Journal reported. But Walker said the low gas prices could lead to the development of new markets. “What the Wall Street Journal hasn’t tied in yet is the petrochemical industry that can develop around the gas industry because of the inexpensive source of raw material,” he said. Walker highlighted the Royal Dutch Shell’s announcement of early-stage planning for an ethane “cracker” in western Pennsylvania, which breaks down natural gas into ethylene used for plastics. “So if big corporations like Shell are making decisions like that, with all due respect to the Wall Street Journal, I think Shell’s research is as every bit as good as theirs. They’re not an impulsive company. They’re very deliberate,” he said. Walker cited the recent announcement of a $500 million investment
from Colorado-based MarkWest Energy Partners to purchase Keystone Midstream Energy Services in Butler County because of the close proximity to the proposed ethane cracker. “We’re already starting to see some of the side benefits of just one operation coming to western Pennsylvania, and there’s going to be a lot more,” Walker said. The Wall Street Journal reported some investments tactics of Chesapeake CEO Aubrey McClendon, and a recent credit downgrade of Chesapeake by Standard & Poor’s Corp. S&P cited “an even wider gap between its operating cash flow and planned capital expenditures than we had previously anticipated,” the Journal reported. But Walker doesn’t see the situation as dire. “Let’s say they (Chesapeake) go down. Number one, you don’t know what that’s gonna do to the price of natural gas? And, number two, somebody’s gonna pick up their assets. The wells are there,” Walker said. “They’ve just had a very unique way of financing their expansion. No one else does it. If it works, great, if it doesn’t, they’re in deep do-do,” he added. But their properties, and the shale industry, Walker predicted, will move forward regardless of the fate of the company. CW
House passes Daley aviation tax exemption bill The Pennsylvania House has passed a bill, by a vote of 179 to 19, to exempt aircraft purchases and maintenance from the state’s 6-percent sales tax in action supporters said would return jobs and competitiveness to the state’s aviation industry. AOPA and the Aviation Council of Pennsylvania have aggressively worked for passage of House Bill 1100 since its introduction in April 2011. The bill cleared the House May 21 and will now be referred to the Senate. The measure was sponsored by Peter J. Daley, D-Washington/Fayette
and has been supported by about 60 cosponsors from both sides of the aisle. AOPA reported in October 2011 that during hearings, legislators heard testimony from businesses and aviation colleges who said that while other northeastern states passed competitive provisions, Pennsylvania was experiencing a flight of aviation companies and skilled industry workers. Mark Kimberling, AOPA director of state government affairs, testified before a House committee that
May revenue collections more evidence that last year’s Democratic estimate of a two-year, billion-dollar surplus over Gov. Corbett’s February 2011 revenue estimate were right on target. We finished 2010/11 with $785 million (nearly 80 percent of the billion dollars) more than the governor estimated; this year, even by conservative estimates, we expect to finish the year with approximately $380 million more than the gov-
while Pennsylvania has more airports than states like Connecticut and
Massachusetts, they have significantly fewer aviation workers employed in the state, who work elsewhere for “good, livable wages.” Kimberling also recently visited Harrisburg to meet with House leadership on the issue, whom he states, are “fully committed to the legislation as a vitally important jobs measure.” Kimberling went on to say that AOPA and the Aviation Council of Pennsylvania will now turn their full attention to the Senate. CW
2.2 percent, below estimate. • Corporation tax revenue of $81.3 million was $18.4 million below estimate. Year-to-date corporation tax collections total $4.3 billion, which is $141.6 million, or 3.2 percent, below estimate. • Sales tax receipts totaled $710.5 million for May, $44.4 million below estimate. However, the year-to-date sales tax collections total $8 billion, which is
$29.7 million, or 0.4 percent, more than anticipated. “We’re closely tracking the revenues and we’ll take that into account when we do a revised estimate later this month,” said Mark Ryan, deputy director of the IFO. The IFO is scheduled to release its official revenue estimates for fiscal year 201112 and fiscal year 2012-13 on June 15. CW
continued from page 1
ernor estimated in February. The three major General Fund revenue streams – Personal Income Tax (PIT), Corporation tax, and Sales tax – all came in below estimate in May, the department says. • PIT revenue in May was $803.6 million, $300,000 below estimate. This brings year-to-date PIT collections to $9.8 billion, which is $224.8 million, or
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june 2012 CAPITAL WATCH
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CW: What products or services does your firm provide?
Robert M. Talley
President – Corporate, General Counsel & Secretary Johnson Matthey, Inc. Mr. Talley has been with Johnson Matthey since 1989 and has been general counsel since 1997. He is responsible for the legal affairs of Johnson Matthey’s North American operations, also holds other executive positions, and serves as a director on the boards of Johnson Matthey’s U.S. legal entities. He also serves on the North America Compliance and Executive (NACE) Committee, is the North America liaison to the Group Corporate Social Responsibility (CSR) Committee, is a member of the Group Contracts Review Committee (CRC) and is co-compliance officer for the U.S. anti-money laundering program. Mr. Talley was previously with U. S. Steel Corporation for 15 years where he held senior human resources management positions at a large integrated steel facility, last having top responsibility for all areas of HR, safety and security. He was later an attorney in the USX law department based in Pittsburgh specializing in employment, benefits and labor litigation. Mr. Talley graduated from the College of New Jersey (formerly Trenton State College (B.S. Business Management)) and received his law degree from Temple University School of Law (cum laude, 1984). He was admitted to practice in Pennsylvania and New Jersey in 1984. He has been an active member of the Association of Corporate Counsel (ACC) and the Delaware Valley chapter (DELVACCA: Pennsylvania, New Jersey and Delaware) since 1989. He has been a member of the DELVACCA board of directors (2004-2005), 1st Vice President (2006), President (2007) and immediate Past President (2008). He served on the 2008 ACC Nominating Committee. Mr. Talley is a member of the Pennsylvania Business Council Policy Roundtable, and the Union League of Philadelphia. He has been a frequent speaker at professional conferences on a variety of legal topics, notably compliance-related issues.
RT: Johnson Matthey's principal activities are the manufacture of autocatalysts, heavy duty diesel catalysts, pollution control systems, catalysts and components for fuel cells, catalysts and technologies for chemical processes, fine chemicals, chemical catalysts and active pharmaceutical ingredients and the marketing, refining, and fabrication of precious metals. [Editor’s Note: A catalyst is a substance that increases the production of a chemical reaction by lowering the energy necessary to initiate the reaction. The catalyst itself is not consumed by the reaction.] Our products can be found in cars, trucks, heavy equipment, but also equipment such as stationary power generation units like turbofans in back-up power systems in public buildings and hospitals. Johnson Matthey also makes membranes for fuel cells and fine chemicals for the pharmaceutical industry. For many years, the firm has been the world’s leading marketer of platinum. Our New York sales office supplies jewelers with platinum and precious metals. Our Alfa Aesar® research chemicals company catalogue lists more than 30,000 products. CW: Can you tell us a little bit about the history of their firm? RT: The firm’s origins in PA go back to Joaquim Bishop, a machinist, instrument maker, and platinum refiner who developed his skills under the famous Dr. Robert Hare at the University of PA. In 1842, he founded J. Bishop & Co. Platinum Works in Philadelphia which specialized in scientific apparatus. Bishop was a skilled gentleman and in 1845 he received the prestigious Premium Award at the Exhibition of the Franklin Institute for his work in platinum. In 1858, the business moved to Chester County where its melting, refining, machining, laboratory and platinum works operations thrived. Joaquim Bishop died at age 80 in 1886. The business was continued by his grandson, Joaquim Bishop Matlack. After a disastrous fire in 1903, the operations moved to Malvern, not far from where Johnson Matthey’s facilities are located today. The business was incorporated in 1909. It was described as operating in a small way, producing
platinum apparatus, crucibles, dishes, wires and scientific equipment. In 1927, a British firm that dates to 1817, Johnson Matthey acquired a small interest in the company to handle distribution of its products in the USA. By 1933 Johnson Matthey held the majority interest and by 1951 had acquired all of the shares. In 1934, the company began making hypodermic needles on a small scale and by 1942 over two million per month were being produced, mainly for the armed forces. By 1950, the company’s ‘Chemicals Division’ was expanding. It was producing a special platinum catalyst for the petroleum industry for upgrading low octane value gasoline and recovering the platinum from the spent catalyst. It was also handling materials from many other sources, separating and purifying all the platinum group metals. In 1967, the company’s name was changed to Matthey Bishop, Inc. to publicize its link with Johnson Matthey and to display the emerging diversity of products and services on offer. In 1980 Matthey Bishop, Inc. changed to Johnson Matthey Inc., its present name. CW: When did you join the firm? RT: I joined Johnson Matthey as corporate counsel in 1989 after 15 years with US Steel and 3 years with C&D Charter Power Systems. At US Steel, I was originally in HR and worked directly with some of the mills and eventually moved to the law department in the Pittsburgh HQ. After a few years at Johnson Matthey, I became Associate General Counsel then Division General Counsel, and in 1997 was appointed Vice President/General Counsel, North America. Subsequently I was made PresidentCorporate. I work with the operating presidents who have direct responsibility for production of the various product groups. It’s something of a matrix management approach keyed to business sectors. CW: Where are your PA operations? RT: About 1,000 of Johnson Matthey’s 10,000 global employees are located in PA. Our North American headquarters are in Wayne where we also have a major manufacturing facility for emissions control catalysts and other precious metals. In King of Prussia and Malvern we have manu-
facturing facilities that serve the heavy duty diesel and stationary emissions control industries. In Smithfield, we have another heavy duty diesel operation. In West Chester we manufacture noble metals and precious metals products. This is also the location of our fuel cell division. In Downingtown, we manufacture colors, coatings and pigments. CW: Where else does the firm have operations? RT: Johnson Matthey operates globally in over 30 countries and is a FTSE 100 company. In the US we have varied operations. Of course we are a European company, but we also have a presence in Central and South America, Australia, and Asia. CW: Compare doing business in PA to those other locations RT: Doing business in PA is tough: it’s very costly compared to other states and parts of North America. A key difference is the corporate tax rate, PA being much higher. We also see advantages in other jurisdictions related to workers’ compensation and unemployment compensation. A positive in PA has been the Fayette County Keystone Opportunity Zone. The inducements we received resulted in our decision to locate an important and strategic heavy duty diesel emissions control facility at Smithfield. CW: What public policy changes do you support to make your firm stronger and PA more competitive? RT: There are several tax polices: finish the phase-out of the capital stock franchise tax and reduce the CNI from 9.9% to something closer to the national average. Revamp Workers’ Comp – particularly PA’s liberal standards for permanent disability. Reform Unemployment Comp – especially the high standard of “willful misconduct” and the eligibility for benefits after a voluntary resignation. Of course we need a well educated and well trained workforce. Because of the nature of our business we employ a number of PhDs and advanced technicians. We support early childhood education efforts and funding.
june 2012 CAPITAL WATCH
Corbett administration pushes Liberty Financing Authority for quick passage By Kevin Zwick, Capitolwire
One of the governor’s key budget issues is quietly getting a push in the Legislature, but some top House Republicans so far have been cool to the Liberty Financing Authority proposal. The original LFA concept caused some anxiety among lawmakers last year when it was proposed as a replacement for the Commonwealth Financing Authority – an economic development grant program controlled largely by the four legislative caucuses. That aspect has been dropped under the new proposal, which leaves much of the CFA intact, but moves two of its loan programs under the LFA umbrella. Department of Community and Economic Development Secretary C. Alan Walker said the new LFA – still to be introduced in legislative form by GOP Rep. Dick Hess of Bedford County – is not controversial as the original proposal.
going to go in that direction. It will focus more on job creation and industrial development,” he said. “It’s a proposal that I know is near and dear to Secretary Walker’s heart. A lot of folks agree with the streamlining of programs. I’m not really sure from a legislative perspective that it’s been fully vetted,” said House GOP Policy Chairman Dave Reed, R-Indiana. “It’s going to go through the committee process and will be thoroughly reviewed by House staff,” said Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Allegheny. Other House GOPers said the proposal would not move until a pair of CFA disputes over alternative energy funding and converting Harrisburg loans to grants were resolved. In September, Sen. Jane Earll, R-Erie, introduced LFA legislation that Walker told a Senate panel in February he sup-
The LFA structure gives power to the governor over the legislative leaders. “The new piece of legislation adjusts to all the pushback we got from the leadership in the House and the Senate,” he said, noting he would like to see passage by June 30. “I think we have adjusted to what they want,” he added. Walker said the LFA would only be loans, leaving the infrastructure and economic development grants with the CFA. “The Commonwealth Financing Authority is unique in that it does a lot of infrastructure projects, sewage treatment plants, water treatment plants. The Liberty Financing Authority is not
ported. Her bill has been in the Senate Appropriations Committee since late March. The LFA would create a 15-member board based on the structure of the Pennsylvania Industrial Development Authority Board. The LFA structure gives power to the governor over the legislative leaders. A simple majority vote is needed to approve or deny a loan. The board is made up of four cabinet heads from DCED, Banking, Budget and Agriculture and 11 private sector appointees, seven of which are handpicked by the governor, while the four legislative
caucuses pick the remaining four. Eight financing programs would be consolidated under the purview of the Liberty Financing Authority to help finance small businesses and nonprofits, some businesses in distressed communities, and socially or economically disadvantaged businesses. • The Small Business First Program provides low-interest loans and lines of credit to small businesses for capital development projects. The new proposal would expand this program to include non-profit entities that create jobs. It would also allow the LFA board to set maximum loan amounts and job creation requirements, and gives the board to leverage to adjust the job requirements and loan amounts. • The Community Economic Development Program provides loans for small businesses in distressed communities, which are involved in business-to-public service, mercantile, commercial, or point of sales. The LFA board would be able to set maximum loans, instead of setting those limits in statute. • PA Industrial Development Authority Program provides loans for industrial development projects, industrial parks, and multiple tenant building projects. The new proposal would lift some restrictions allowing loans to go to private-owned entities, not just Industrial Development Corporation-owned properties. The current formula for establishing loan participation rates by county would be replaced with a rate of 50 percent for all projects. • PA Minority Business Development Authority Program provides low-
interest loan financing to businesses owned and operated by socially and economically disadvantaged businesses. • Machinery and Equipment Loan Program provides loans to businesses involved in industrial processes, manufacturing, mining, production, agriculture, information technology, or biotechnology for the purchase, installation or upgrade of equipment and machinery, including computer hardware and software. • First Industries Program is one of two loan programs to be transferred from the Commonwealth Financing Authority to the LFA. It provides financial assistance loans for projects located within the commonwealth related to tourism and agriculture. • The Second Stage Loan Guarantee Program is the other loan program from the CFA. It provides loan guarantees to commercial lending institutions that make loans to life sciences, advanced technology or manufacturing. The new proposal would remove a requirement that businesses in this program be at least seven years old. Instead of a declining guarantee over time, the new proposal would guarantee 50 percent of the outstanding balance for the life of the loan. The consolidation of the eight programs under the Liberty Financing Authority would provide $1.1 billion in resources, and greater “flexibility,” as eight different loan applications will be reduced to one, uniform application, Walker said. House Democratic Policy Chairman Mike Sturla, D-Lancaster, would like to see more checks and balances. “I think with more ‘flexibility’ there needs to be more scrutiny,” he said. CW
No lame-duck session in 2012 Senate President Pro Tempore Joe Scarnati, Speaker of the House Sam Smith, Senate Majority Leader Dominic Pileggi and House Majority Leader Mike Turzai have announced that the Senate and the House will not convene for a lame-duck session this year. “This will be the third consecutive legislative session in which the Senate does not convene for a lame-duck session,” Senator Scarnati said. “This decision reflects our ongoing commitment to ensuring that members of the General Assembly are accountable to the public for the decisions we make.”
“This legislative session has seen a remarkable number of reform-related bills signed into law,” Representative Turzai said. “New laws will create an online budget database, strengthen the Sunshine Law and reform the regulatory process. This announcement is another significant step forward in our commitment to change how Harrisburg operates.” “Fewer than a dozen states even allow for the possibility of a General Assembly convening in a lame-duck session,” Senator Pileggi said. “The citizens of Pennsylvania are right to demand increased accountability from state gov-
ernment, and there’s no compelling reason to schedule a lame-duck session.” “This legislature must address many important issues – and has done much already,” Representative Smith said. “We will continue working together with Governor Corbett to complete our legislative business prior to the fall election.” The days between the November election and November 30 are known as a lame-duck session because if the General Assembly convened during that period of time, some members would be able to vote on legislation despite the fact that their successors have already been elected. CW
june 2012 CAPITAL WATCH
Rep. Frankel denounces newest Pennsylvania attack on women’s rights State Rep. Dan Frankel, D-Allegheny, denounced what he calls the latest attack on women’s rights: a bill introduced that would ban Planned Parenthood and prevent many other family planning clinics statewide from receiving any family planning funding, funding for cervical cancer and breast cancer screening or money to test for sexually transmitted infections that is distributed by the state Department of Health. Frankel, an outspoken critic of the ongoing legislative agenda related to restricting women’s health care, immediately voiced his opposition to a bill intro-
duced by Rep. Daryl Metcalfe, R-Butler. “The right-wing Republicans that control their party’s agenda want to control women’s basic health care, even down to telling them where they can get their annual cancer screenings,” Frankel said. “To my mind, this is just one more battle in the Republican war on women.” Frankel continued, “The names of these bills always put women first: The Women’s Right to Know Act, The Whole Woman’s Health Funding Priorities Act. But let’s be honest, these bills don’t put women first. They put
the Republican agenda first; so, let’s give them their real names: • “The Republicans Promote Invasive Procedures Act.” • “Rep. Metcalfe’s Priorities for Women’s Health.”
Rep. Dan Frankel
“Now the legislation sounds as absurd as it is. The last time I checked, Rep. Metcalfe was neither a doctor, nor a nurse, nor a woman. Most Pennsylvanians know that being a member of the extreme right wing of the Republican Party does not qualify you to set the priorities for women’s health.”
Former House speakers cellmates at prison By Peter L. DeCoursey, Capitolwire
Ten years ago if you had asked former House Speaker John Perzel what he would have thought of being locked up with Bill DeWeese, the answer would have been vigorous and scatological. Now Perzel made it happen. Really. Still can’t believe it. Heck, I was amused when House Speaker Sam Smith used to room with Senate President Pro Tem Joe Scarnati, his Jefferson county neighbor. But that famous “Felix [Scarnati] and Oscar [Smith]” pairing has now been supplanted by my all-time favorite pair of legislative leader roommates ever: The former House speakers, Perzel, R-Philadelphia, and DeWeese, D-Greene, are cellmates in Camp Hill prison, according to friends who have visited them. And wait – it gets better. Or if you are DeWeese, worse. For DeWeese’s first three nights at Camp Hill on the unit that gets prisoners ready for their ultimate prison placement, his cellmate was Mike Manzo, his former chief of staff whose testimony helped put DeWeese in jail. That kinda sucked, DeWeese said, telling friends he thought it was another shot at him by the Corbett administration and not a nice one. Being DeWeese, of course, he then argued with himself, noting that of the 256 male inmates at Camp Hill State Correctional Institution being readied for transfer, he, Manzo and Perzel were the only first-time offenders. So choices were a bit limited when it came to non-dangerous roomies. Even more fun? Guess who was Perzel’s roommate at Dauphin County Prison, and some friends say, for a few days at Camp Hill too: Perzel’s former chief of staff, Brian Preski. Once Preski moved on, Perzel had to pick, and didn’t pick Manzo. Once DeWeese arrived, and was not thrilled bunking with Manzo, Perzel told DeWeese he wanted to room with him. DeWeese was enthusiastic but skeptical, telling the most powerful legislative leader of the last 20 years: “John, I don’t think we pick who we room with here.” Perzel told him not to worry, and that if and when DeWeese came back after an anonymous Superior Court judge briefly freed him, “It’s a done deal.” When DeWeese came back, it was a done deal,
and the two men are apparently making the experience more endurable for each of them. State Corrections Department spokeswoman Sue Bensinger confirmed the two and Manzo are at Camp Hill and housed in the same 120-prisoner unit. The prison system, understandably does not saying who is cellmating with whom. Asked why Manzo would be paired with DeWeese, when his testimony helped imprison the former Speaker, Bensinger said it would not happen with violent criminals but sometimes would with non-violent offenders. Asked if it wasn’t odd to have two ex-Speakers rooming together, Bensinger said: “It’s an unusual occurrence to have this many former lawmakers there at the same time. Very unusual.” DeWeese, by all accounts is still irrepressible and his knack for making legislators like him – he got a standing ovation for 30 seconds for his last speech as a member before he went to prison because a jury convicted him of misusing his office – apparently works well at prison, too. Which may be one reason Perzel wanted to be his roomie. Another may be the legal theory that Perzel can go before a judge who knows DeWeese and argue that one day with DeWeese should count as seven against his sentence. The rationale would be that, as Perzel once said of his friend and rival, DeWeese talks as much in a day as anyone else can in a week.
While Perzel and DeWeese were phone pals even when they ran opposing caucuses, now they have a lot more time to talk. Another reason might be moments like a recent trip to the prison dining room, where a guard teased DeWeese: “Here comes Sticky Fingers.” DeWeese roared with laughter, as he tells the story and responded: “I’m Sticky Fingers?” He pointed at himself: “They accused me of [misusing] $100,000.” He pointed at Perzel: “They accused him of $10 million! He’s the Sticky Fingers!” Perzel, guards, other inmates crack up. Perzel’s long-time Harrisburg roommates used to call him Oscar, and anyone who has seen DeWeese spritz his hands with sanitizer or order “a small salad in a big bowl” will know who Felix is. And, hey, PCN. If you ever do a reality series, this is the one: Speakers Behind Bars. Just imagine it: DeWeese rattling on, making friends, while Perzel puts on his best Three Stooges face and says: “This guy never shuts up.” And Manzo trying to get them thrown into The Hole. Each could revenge themselves on the other for party switches and other maneuvers where each one cost the other the speakership. So there could be late-night scenes where Perzel is tearing up DeWeese’s history books spitting the words “Denny O’Brien! 2007!” between clenched lips. DeWeese would be seen next revenging himself by moving Perzel’s stuff - Perzel doesn’t seem like someone who would like other people touching his stuff shouting: “This is for that damnable Stish!” It would be like a reality version of Midnight Run with Perzel as Robert DiNiro and DeWeese as Charles Grodin. Hopefully they get transferred to the same prison next. Maybe they can bring Feese in and Veon. I’m telling you. Seriously. Best. Roommate. Combination. Ever. The Coen Brothers could not make this up. And I am betting that the more popular they get, the more WAM applications will be coming from inmates at Camp Hill Prison. I am guessing DeWeese for inmate president, Perzel as campaign manager. CW
JUNE 2012 CAPITAL WATCH
Orie sentenced to 2 ½ to 10 years Former state Sen. Jane Orie has been sentenced to spend 2-1/2 to 10 years in state prison for public corruption and forgery. She was immediately taken into custody instead of being allowed to report to jail as her attorney, William Costopoulos, had requested. Orie was convicted in March of five felonies and nine misdemeanor counts, including theft, ethics violations, conspiracy, forgery and tampering with evidence. Orie was charged with forgery after a first trial in early 2011, in which she was accused of using her legislative staff to perform campaign work. That trial came to an abrupt end during the first full day of jury deliberation when prosecutors accused Orie of submitted doctored documents to the court to support her case. “The sin is overborn by the deflection; the crime overshadowed by the cover up,” Judge Jeffrey A. Manning said. The Pittsburgh Post-Gazette reported that during his comments to Orie, Judge Manning called that day, March 3, 2011, “the most disturbing and disheartening” in his 24 years on the bench. The Post-Gazette stated that Judge Manning acknowledged Orie’s decades of public service, as well as nearly 100 letters he received citing her good character. “But we do not earn credits in life for the good we do to weigh against
our misdeeds,” he said. “That might well be of value on the final day of judgment, but in this life, we must penalize the wrongdoer to set the standard of conduct for the rest of us.” Costopoulos said following the hearing that he will appeal the conviction, and top among his issues will be the idea that the office of Allegheny County District Attorney Stephen A. Zappala Jr. was the entity to prosecute the case. Orie has contended from the beginning that she was being targeted because of various disagreements on legislative issues with the Zappala family.
Orie has been temporarily suspended from the practice of law as a result of her conviction.The state Supreme Court issued the suspension on May 7. Orie’s sister, state Supreme Court Justice Joan Orie Melvin, did not participate in the decision. She has since been charged with nine criminal counts alleging misuse of state resources for campaign purposes. Orie also resigned May 21 from the 40th Senatorial District seat she held for more than 10 years. “It has been an honor and a privilege for me to have served in the Senate of Pennsylvania,” she wrote in a brief resignation letter. CW
Education block grant, conservation fund among items restored by House Negotiations continue as legislative leaders and the governor move toward a finalized budget. As Capital Watch goes to print, the budget bill is now on final consideration in the House. Partisan lines were drawn on the restoration of the Accountability Block Grant program, as an amendment from House Appropriations Chairman Bill Adolph, R-Delaware, proposed using $24 million from the basic education subsidy to increase the block grant funding to $100 million. His amendment was approved 116-81. The remainder of the funding for the block grant would come from the Department of Community and
Economic Development: $14 million from the Commonwealth Financing Authority; $9.7 million from the Infrastructures and Facilities Improvement grants; $1.5 million from Discovered in PA, Developed in PA; and $811,000 from PA First. Another Adolph amendment that reversed Gov. Tom Corbett’s redirection of funding for the Keystone Recreation, Park and Conservation Fund, otherwise known as the Key ’93 Fund, was unanimously approved. The same amendment also reversed Corbett’s proposed a $13.8 million redirecting of PHEAA money to the General Assembly and
a $494,000 redirection of the State Restaurant Fund to the General Assembly. The House also approved an amendment, 160-97, from Rep. Greg Vitali, D-Delaware, to transfer $17 million of the DCED’s transfer to the Commonwealth Financing Authority to restore state funding to the Department of Environmental Protection to 2010-11 budget level. A number of amendments proposed by House Democrats were also approved for Medical Assistance Trauma Centers, Domestic Violence, Rape Crisis, Regional Cancer Institutes, Public Libraries and Child Care Services. CW
june 2012 CAPITAL WATCH
House panel reports out performance-based budget bill By Kevin Zwick, Capitolwire
The House State Government panel on June 5 reported out a performancebased budgeting bill to require executive branch agencies to consider population growth or the consumer price index when drafting budget proposals. “[HB 726] is to provide a tool ultimately to the Legislature to be able to judge whether or not the Executive Branch is actually meeting the objectives that they should, based on the objectives of a department,” said committee chairman Daryl Metcalfe, R-Butler. “That’s ultimately the objective of the legislation ... to make sure that policies are changing in a way that drives a department to better deliver on the objectives they’ve set for that department.” The bill, introduced by House Whip Stan Saylor, R-York, was voted to the House floor by a party line vote. The bill was amended, on party lines, by Metcalfe to require funding levels for agency programs to be equal to or less than the prior fiscal year, unless the consumer price index or the rate of population growth increase. “And if you’re going to make a budget proposal on status quo, then you’re going to need to make sure you’re limiting your status quo spending growth to the population criteria,” he said.
Metcalfe said the index and population growth cap would not be a binding measure of spending, noting the use of this type of indicator would allow more leniency. “At the same time, it is creating a new taxpayer protection that would ultimately save taxpayers a lot of money over the course of a decade, upon implementation,” he said. Had the similar cap been in place over the past decade, Metcalfe said the current budget would be about $1 billion less. “If we would have had this type of legislation in place in the past, our current budget proposal this year would be about $26.8 billion, instead of the $27.5 billion that it is right now being batted around back and forth between the House and the Senate and the governor’s office,” he said. Committee Democratic Chairwoman Babette Josephs, D-Philadelphia, expressed concerned the bill would impose requirements on the Independent Fiscal Office, which would be required to craft a Commonwealth performance budget, and establish a performance-based budget division within the IFO. “Is this muddying the waters, making it more difficult to understand what the Independent Fiscal Office is supposed to
do?” Josephs said. “If we decide to alter the mission of the IFO, that’s the Legislature’s choice,” Metcalfe said. “I don’t believe this is necessarily doing that without further research. … It’s important that the Independent Fiscal Office be able to deliver this information to us.” Josephs responded: “My concern is that the mission we originally gave the IFO is to be independent. I’m concerned [under] your amendment it becomes no longer independent. Of course, in the long run we could change anything we want, anytime that we want, because we have enough votes. But I’m trying to see whether the words in the bill say what its proponents are trying to make happen.” Metcalfe said, “How is it not independent? We’re not changing who they report to, or who’s running the IFO, or giving them a direction as far as information we want them to deliver to the General Assembly.” The amendment would require the IFO to recommended funding reductions, program alterations, or termination if an agency didn’t meet one or more of the goals of a program activity. Josephs was also concerned the legislation would violate the separation of powers doctrine. However, Metcalfe said the legis-
lation would affect a portion of the Administrative Code where the Legislature already requires the governor to propose a budget. He said the bill would add performance measures to what is already required. Under the bill, agencies would be required to submit a four-year strategic plan to the Budget Office and the Legislature. A performance budget would be submitted by the Budget Office to the Legislature and Legislative Budget and Financing Committee prior to the governor releasing a proposed budget. Performance budgets would include actual outputs and outcomes achieved in each agency and their actual costs, showing past performance for the most recent year for which results are available and planned performance for each subsequent year. The agencies would also include a recommended funding level for each program. Some Republicans said the bill would provide more transparency in the budgeting process, showing how or why certain program funding was cut or increased. The Office of Administration would be required to develop and implement a management-training program for agencies managers. CW
See Gershwin, Mozart, Gill and Tchaikovsky come to life!
Wednesday, June 20, 2012 | 7 PM | Free Dance
Company premiere from choreographer Laszlo Berdo kicks off four days of performances, along with an inspiring collection of ballets showcasing the young talent of CPYB’s next generation. CPYB’s special buy-one-get-one-free ticket price makes it an evening your entire family can enjoy!
Thursday, June 21, 2012 | 7 PM | new Dance Plus
New works from FirstSteps, artful choreography by CPYB students set to the music of Glass, Richter and Poulenc, plus the first original ballet created in America by the legendary George Balanchine – Serenade.
Friday, June 22, 2012 | 7 PM | see the Music Dance
Mozart, Gershwin and Gill! The stage ignites with Balanchine’s splendid Divertimento No. 15 and infectious Who Cares? and the world premiere of Alan Hineline’s contemporary classic 25. The new collaboration between Hineline and the critically acclaimed Philly composer Jeremy Gill, 25 features live music by noted chamber ensemble Concertante directed by Xiao-Dong Wang.
saTurday, June 23, 2012 | 1 & 6 PM | last Dance/last chance
Encore performances featuring 20th Century masterpieces and modern day classics close the season!
Whitaker Center for science and the arts TickeTs: 717.214.ARTs (2787) or whitakercenter.org
Design: lancedietrich.com Illustration: lesliewalsh.com Calligraphy: lilasymons.com
Central Pennsylvania Youth Ballet
The Central Pennsylvania Youth Ballet celebrates the start of summer with exciting dance, from contemporary to classical, through the music of renowned composers.
june 2012 CAPITAL WATCH
Corbett’s corrections reform proposals get one step closer to his desk By Chris Comisac, Capitolwire
A bill incorporating most of the corrections reform proposals made by Gov. Tom Corbett’s Justice Reinvestment Initiative (JRI) is on its way to the House floor for consideration. “This will allow us to address our corrections issues in a smarter way,” said Rep. Glen Grell, R-Cumberland, who sponsored the amendment in committee to add more of the JRI proposals to Senate Bill 100. “This will allow the Department of Corrections to better manage its budget, save some money for the taxpayers of the commonwealth, while, at the same time, not posing any risks to public safety. “In fact, hopefully, through the processes set in place, [it will] reduce recidivism and improve the overall state of public safety in Pennsylvania.” When the initiative’s proposals were unveiled on May 23, the Corbett administration said the changes would yield $351 million in savings during the next five years. Grell said the Senate bill now incorporates all of the changes that would yield those savings, although state corrections officials have more recently revised the savings figure to between $250 million and $300 million. Grell noted, however, the bill does not include the JRI’s reinvestment components. Said Grell: “There is another piece of legislation – the reinvestment part – that is not before us today, but that is imme-
pletion of their minimum sentence, except for inmates who have been convicted of crimes of violence or crimes requiring registration under Megan’s Law; • Phase out the state’s existing Prerelease Program, to be replaced by a reinvented community corrections system; • Have the state Sentencing Commission establish resentencing guidelines for revocation of probation and intermediate punishment, parole guidelines, and recommitment ranges following revocation of parole; crime, such as those involving hot spot policing, problem oriented policing, and to collaborate with local, state, or federal partners in order to better address specific jurisdictional challenges; • Statewide initiatives that will benefit all law enforcement agencies through cost-effective training strategies and improvements to criminal justice data systems; and • Investments targeted at area of the greatest level of victim and survivor need. Grell, before the June 5 meeting, said all interested parties, including the
“I think it’s important to point out many of these individuals are sentenced to prison and having served their minimum sentence for a non-violent crime, are not released because of a backlog in paperwork in reviewing their cases.” diately following, and that will take some of the savings that are generated ... and put them back into local law enforcement, so that our local law enforcement officials and county corrections officials will have the resources and tools necessary to better do their job.” The reinvestment portion of the proposal, which will likely have to wait until the Legislature returns to session in the fall given the short amount of time remaining before lawmakers break for the summer, intends to take $86 million of the expected savings during the next five years and put those dollars into: • Grants to police departments to implement data-driven responses to
House, Senate and Corbett administration, are supportive of the new legislation. Gov. Corbett on May 23 urged legislators to get the JRI, in legislative form, to him before the end of June. Regarding the bill’s prospects, Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Allegheny, wrote in an email that House GOP leaders “are working to finalize” things within the chamber so that it is “hopefully ready for [a vote] next week.” Senate Republican leadership said the new version of the bill has the caucus’ support. Prior to the meeting Tuesday, Dauphin County District Attorney Ed Marsico said the District Attorneys Association, which in the past has expressed concerns
about putting budgetary concerns ahead of public safety, is “on board” with the legislation as amended by the committee. House Judiciary Committee Majority Chairman Ron Marsico, R-Dauphin, before the final committee vote, sought to make it clear the legislation wasn’t ignoring public safety in favor of fiscal concerns. “It’s important for the members to know we are not lessening sentences, we’re just making the system more efficient,” said Marsico. He added: “I think it’s important to point out many of these individuals are sentenced to prison and having served their minimum sentence for a non-violent crime, are not released because of a backlog in paperwork in reviewing their cases.” According to the Department of Corrections, between 2004 and 2010, the percentage of people paroled by the time they had reached their minimum sentence dropped from 43 percent to 26 percent. During that same time frame, the percentage of people paroled between six months and one year after their minimum sentence climbed from 16 percent to 23 percent. In an effort to increase the efficiency of the state’s parole process and use prisons for serious offenders and criminals with longer sentences, the bill, as reported from the committee, would: • Expand the use, for non-violent offenders, of County Intermediate Punishment (CIP), State Intermediate Punishment (SIP), State Motivational Boot Camps (BC), the Recidivism Risk Reduction Incentive (RRRI) program and the create a Safe Community Reentry Program; • Ensure violent offenders and Megan’s Law violators can’t participate in the aforementioned programs; • Allow for deportation of inmates illegally in the country prior to com-
• Alter the state’s current sanctioning process for probation violators in an attempt to offer more punishment options than imposing lengthy and costly prison terms; • Allow the Board of Probation and Parole to award time credits for convicted parole violators for time spent at liberty on parole, except in cases involving violent crimes, Megan’s Law crimes or individuals who have returned to this country illegally after having been deported prior to serving their minimum sentence for a prior crime. • Create the HOPE Program, a high intensity supervision program for use by county courts for certain probation violations; • Allow most non-violent technical parole violators to be housed in secure community corrections centers and community corrections facilities, instead of prison. Caps would be placed on the length of incarceration for such individuals in these facilities to six months for first recommitment, nine months for second recommitment, or one-year for third or subsequent recommitment, subject to certain exceptions for poor behavior in prison. The Department of Corrections would also be allowed to enter into contracts with county jails to house technical parole violators who are recommitted. • Allow the Board of Probation and Parole to use advanced communications technology in parole hearings in order to increase the agency’s productivity and reduce delays; and • Prohibit inmates serving sentences for ungraded and third-degree misdemeanors from being sentenced to state prison, unless the Secretary of the Department of Corrections has consented to the commitment.
june 2012 CAPITAL WATCH
House holds hearing on eliminating school property tax The House Finance Committee held a lengthy public hearing on Representative Cox’s HB 1776 or the Property Tax Independence Act to eliminate the school property tax code in favor of raising sales and income taxes on June 4. The committee hosted six outside speakers to discuss the impact of this legislation but first in the hot seat was Representative Cox himself. He began by summarizing the legislation, which boasts 70 cosponsors. Were the bill to be adopted, schools and school boards would no longer be permitted to raise or levy school property taxes, except to cover the cost of their preexisting debt. Cox provided information that there are approximately 19 school districts in the Commonwealth who are debt-free, and the average school’s debt takes up 10 percent of their budget. In these districts, property owners would see a 90 percent decrease in their school property taxes, and when the debt was paid off, the tax would disappear. To make up for the school’s lost revenue, Cox proposed an increase in the sales and earned income taxes. Both
Pay Less with Federation of Independent Businesses, the Pennsylvania Bar Association and the Pennsylvania Budget and Policy Center. Retailers and NFIB opposed the legislation on the grounds that the taxation would slow consumers and that compliance to this complicated bill would cost businesses time and money. The bill also would place a tax on legal services, which the PA Bar Association opposed, saying that legal services are more often than not an essential service.
Clothing purchases under $50 would not be taxed and food items on the WIC list, essentially a list of foods considered nutritious and necessary, would also not be taxed. right around a 1 percent, the increases also have several caveats. Clothing purchases under $50 would not be taxed and food items on the WIC list, essentially a list of foods considered nutritious and necessary, would also not be taxed. Cox believes that this will increase will still provide enough revenue to schools, as well as lessen the burden on property owners who are forced out of their home due to high and ever-increasing school property taxes. Speaking in support of the legislation were the Pennsylvania State Grange and the Pennsylvania Farm Bureau. The State Grange agreed wholeheartedly with Cox’s belief that property taxes are unfair, especially to farm owners; the Grange went as far as to call them “cumbersome, burdensome and costly.” The Farm Bureau went on to explain that farmers are particularly hurt by property taxes because often, they are “land rich and cash poor” which makes their property taxes high despite their lower revenues. In opposition to the bill were the Pennsylvania Retailers Association, a representative from the National
However, the harshest critic of the legislation was the Pennsylvania Budget and Policy Center. Michael Wood, research director of the Center, questioned nearly all of the merits of the bill. He pointed out that while property taxes are unpopular; eliminating them at the state level was meddling into local issues and applying a one-size-fits-all approach to the many different and diverse municipalities of Pennsylvania. He called it bad policy that depends wholly on risky and unknown factors, especially since there is no funding formula in place for how schools will be allocated money without their property taxes. Despite these criticisms, Cox remained confident through the hearing that with amendments and continued education on his bill that he would garner the support of the majority of the House. CW Reprinted with permission from the Triadvocate. The Triadvocate is a publication of Triad Strategies, LLC, a bipartisan lobbying, public affairs, strategic communications, grassroots advocacy, issue management consulting firm located in Harrisburg, Pennsylvania, with offices in Philadelphia and Pittsburgh.
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june 2012 CAPITAL WATCH
Pensions, anyone? A valid response that doesn’t answer the question Two guys are watching a baseball game. One asks the other, “What’s the score?” The other responds, “It’s the bottom of the third inning.” Spectator #2 may be right. It may be the third inning; but that’s not the score. This describes effectively what is happening in Harrisburg as leaders of the permanent majority party in the State Senate propose to replace the Commonwealth’s current “defined benefit” pension plan for all new employees – including first-time legislators – with a “defined contribution” plan not unlike the 401(k) programs popular in private industry. The institution of 401(k) type plans for state employees and school teachers may be popular with stingy taxpayers who gripe that it’s unjust that government workers get better pension programs than they can get in the private sector (although it wasn’t too many years ago that defined benefit programs were the standard in both public and private sectors). The issue is that they won’t do much to avert the looming crisis in pension funding in Pennsylvania and may, in some ways, exacerbate the problem. First and foremost, converting to a defined contribution program doesn’t solve the problem of the legacy deficit in the current pension program. For that problem, the current members of the General Assembly have their predecessors of more than a decade ago to blame. Those were the guys who said that the 20 percent returns that the state employee and state teachers pension systems were earning on their portfolios was the new standard in investing. Somehow, the gnomes in the state pension system vaults were supposed to be able to double their assets every five years or so through shrewd investing strategies. They had achieved that level of return for a couple of years; why not forever. This fountain of gold was supposed to make it possible to increase state employee and teacher pensions by 25 percent – something the unions had not asked for – and hike state legislative pensions by 50 percent (on account of, the public reasoning went at the time, that state legislative posts were not lifetime jobs). The gnomes were minting so much money that the Governor and the legislators were able to cut back on the state’s annual contributions to the pension funds – from an “industry norm” of 5 to 8 percent to virtually nothing for several years in the first decade of the new century. Remember, this was okay – legally – because the state has a defined benefit program not a defined contribution program. As
long as the actuaries calculated that the pension funds had enough money to meet most if not all of their obligations into the foreseeable future, everything was hunky dory. State employees and state teacher were ponying up 5 to 7.5 percent of their salaries into the system and the investment machine was cranking out the double digit returns. Life was good. The crash of 2008 changed all that. Now we’re back to the classic expectation that a very well managed pension system should be able to return 7 to 8 percent earnings on investments – on the average. Instead of doubling in asset value every five years, the pension fund portfolio could be expected to double in value in 12 years. Not schmata but not a hot fudge sundae with a cherry, either. But that level of return, coupled with on going contributions of 7.5 percent of salary from future annuitants, would not be enough to keep the pension systems anywhere near “fully funded.” The state and school districts have to pay their full share as employers and – because of the payment holiday of almost a decade – government has to play catch-up to replenish the piggy bank. Switching to a defined contribution program would solve the problem for
the distant future. Individual pensions would be based on the actual performance of individual retirement accounts accruing value in “real time” – growing or diminishing in response to actual investment market conditions. Some people retiring after a sustained period of economic growth like the 1990s would be the beneficiaries of sweet pension payouts. Those who might want to retire in, say, the current decade, are looking at potentially unappetizing numbers. Mediocre. Maybe terrible. Maybe not enough to retire on after all. Another aspect of a “defined contribution” program not yet discussed by the legislature is what would be the government’s contribution. This entire discussion has come up because the state and school districts are now looking at contribution levels in the double digits as a percentage of employee payrolls – mainly because they took a vacation from paying in at a more rational rate of 5 to 8 percent of payroll. Employer contributions for 401(k) plans are all over the lot. Some employers might match employee contributions dollar for dollar. Others, maybe one dollar for every three employee dollar invested. Some provide no match at all. The clunker here is that by switching
over from defined benefit to defined contribution, the state will be setting up – in effect – two separate pension systems: one is the legacy system with more than a quarter million annuitants currently collecting pensions and maybe half that many already members of the current system and, therefore, “grandfathered in.” This will be, by definition, a less than fully-funded pension system and the state’s obligation for new cash investment would be substantial. The second system would be fully funded by definition and might or might not involve the need for investments by the Commonwealth and school districts. It would be a less generous system for its participants than the current system. Eventually, over time, those receiving legally-binding payments from the legacy system would die off. When, considering the advances of modern medical science, is a good question. Fifty years? Seventy-five years? Will there be a ceremony in Harrisburg in, say, 2085 marking the payment of the last check out of the State Employees Retirement System or the Public School Employees Retirement System? None of us will be around the enjoy a piece of the cake. CW
june 2012 CAPITAL WATCH
Harrisburg and its residents deserve better from the state By Rob Teplitz
The state’s disenfranchisement of the citizens of Harrisburg must end. It began with the takeover of the schools in 2000. They were finally returned to the control of the elected school board at the end of the decade. But the community’s power over its own destiny turned out to be short-lived. The commonwealth’s paternalistic, heavy-handed and disrespectful approach toward Harrisburg resurfaced in 2011 with a vengeance: the removal of all significant leverage that the city could use to negotiate a way out of the current financial crisis, the placement of the city under a state receiver whose main function under the law appears to be to sell off city assets and then the apparent ousting of the first receiver for striving for a fair and constructive solution. Just in case city residents tried to achieve change via the ballot box, the Republican leadership of the General Assembly pursued an illegal and illegitimate redistricting of the city out of its historic and natural home in the Dauphin County legislative seat. But expelling city voters into a completely different legislative district still
burdens placed on the city by virtue of serving as the state capital, such as large amounts of tax-exempt government property and the need to provide fire and emergency services to that property. A new approach also would include significant investments in public education in Harrisburg and across the state. The current policy of treating education as merely one more cost to be cut in tough budget years is shortsighted and dangerous. It will doom our kids and kill our economy. My experience in state government has taught me that there is tremendous waste in the state budget and numerous opportunities to redirect savings else-
It is time for a new approach, one that accepts the obvious premise that Harrisburg is the core of this region and the center of state government. wasn’t enough — the new voter ID law will suppress the ability of minorities, the elderly and other vulnerable groups to vote at all. And we now come full circle, with yet another takeover of the schools working its way through the General Assembly, only this time clearly determined to privatize them. Enough is enough. This is no way to treat our capital city, much less 50,000 of our fellow Pennsylvanians. It is time for a new approach, one that accepts the obvious premise that Harrisburg is the core of this region and the center of state government. If the city goes down, it will drag this region and the entire commonwealth down with it. So whether you live in the city, in the suburbs or anywhere else in Pennsylvania, these are your problems, too. The next step is for all of the insiders and dealmakers to put their selfinterest aside and give the new receiver the tools needed to achieve a workable fiscal recovery plan. Such a plan must include recognition of and compensation for the special
where — in other words, to invest in our priorities without raising taxes. Instead of looking for gimmicks and magic bullets in education, we should focus on targeted investments in proven reforms such as early childhood education, smaller class sizes, tutoring, technology and before- and after-school programs. The overwhelming majority of Pennsylvania children attend public schools — and they always will. They need the state’s helping hand, not its clenched fist. Finally, the Legislative Reapportionment Commission must approve a redistricting map that, by keeping our community united, will give city residents a fighting chance of being heard in the state Capitol. Harrisburg’s serious challenges can be solved, but only with more citizen involvement, not less. The state must embrace a new approach and be part of the solution, not part of the problem. CW Rob Teplitz is the Democratic candidate for state Senate for District 15.
June 2012 CAPITAL WATCH
‘Keystone Works’ legislation reported out by House panel Legislation establishing a five-year onthe-job training program for unemployed workers has been unanimously reported out of the House Labor and Industry Committee . The “Keystone Works” program, a budget initiative of Gov. Tom Corbett, aims to match those collecting unemployment benefits with eligible businesses for on-the-job training for eight weeks. Corbett’s budget proposal for 2012-
efits may be matched by the Department of Labor and Industry, which will administer the program. The trainee would not be paid a wage from the employer, but instead would be able to continue collecting unemployment benefits while training up to 24 hours per week for a maximum of eight weeks. At the end of the training period, the business has to consider hiring the
“These individuals in the program are already receiving unemployment benefits? . . . So what’s this stipend for?” 13 already earmarked $2.5 million for the program. It is based on the Georgia Works program. The program would “get recently unemployed back to work as quickly as possible,” Corbett said in his budget address in February. To be eligible for the program, a business must have a job opening to which a worker collecting unemployment ben-
trainee, but is not required to hire. If the business hires the trainee, the business would be eligible to receive $375 every four consecutive weeks for up to 16 weeks the trainee remains employed for a minimum of 30 hours per week. The commonwealth would arrange and purchase workers’ compensation for the worker in the training program, based on the worker’s total unemploy-
ment compensation benefit. An amendment from Committee Majority Chairman Ron Miller, R-York, and worked on by Republican and Democratic committee staffers and the Corbett administration, replaced most of the language of the original bill. The committee’s Democratic chairman, Rep. Bill Keller, D-Philadelphia, introduced several agreed-to amendments that were added to the bill. A number of other Keller amendments were withdrawn or voted down. Keller proposed a $45 per week stipend for trainees to cover possible costs associated with transportation, childcare or dependent care, or other supportive services. He said the Georgia Works program has a similar stipend for $240 per week. “These individuals in the program are already receiving unemployment benefits? … So what’s this stipend for?” asked Rep. Scott Perry, R-York. “When people go on unemployment they only receive half of their wages and this would be just like Georgia did it. Incentive to get people on the programs … just a stipend if the job is a lot further
elegance at hershey
away than they are now,” Keller said. The amendment was voted down on party lines. The panel also adopted four Keller amendments unanimously. The amendments made the program voluntary for trainees; added a definition of “training” to conform with the Fair Labor Standards Act; allows trainees to opt-out of the program during the eight week period; and requires an annual report submitted to the General Assembly. Keller was also concerned about the adequacy of the $2.5 million to be appropriated to run the program. “That $2.5 million, we’re gonna pay administration out, we’re gonna run the program, we’re gonna pay workers’ comp out of it. … That’s a lot for $2.5 million,” Keller said. He estimated the amount could handle only 1,500 people. Miller said the majority of the program’s cost is borne by the unemployment benefits trust fund. “They [participants] still collect their unemployment comp benefits, it’s the cost of any workers comp insurance plus adding administration of the program,” Miller. CW
June 8-10, 2012 hershey, pennsylvania
The Elegance at Hershey Honorary Chairs Cynthia & Edsel Ford II
The Grand Ascent Returns June 8 & 9, 2012 Sponsored by McCarthy Tire & Automotive Centers Revival of the historic Hershey Hill Climb expands to 2-days this year. More than 60 vintage race cars – many pre-WWII - roaring up the challenging back road to The Hotel Hershey ® A vSCCA Sanctioned event with Open pits, special spectator areas, unique car displays, a vendors midway , food & more! Donation/admission: $10.00/day
ages 15 and under are free. Plus free parking.
Event benefits: Juvenile Diabetes Research Foundation, AACA Museum and AACA Library & Research Center
june 2012 CAPITAL WATCH
Employers would see some changes under unemployment trust fund bill Although unemployment eligibility changes were the primary focus of discussion during the June 4 Senate committee meeting to amend and consider Senate Bill 1310, the bill also contains changes for employers. The largest change within the legislation would authorize the state Department of Labor and Industry to issue up to $4.5 billion in what would be called “UC solvency bonds” to repay what Pennsylvania borrowed from the federal government during the recession and its aftermath. As of this month, the state is in debt to the federal government for about $3.9 billion it has borrowed – and continues to borrow – because Pennsylvania’s Unemployment Compensation Trust Fund hasn’t had enough money to keep up with its benefit payment obligations, largely due to the extended high unemployment rate. The commonwealth is not responsible for this repayment, however. The state’s employers are, and are staring at having to pay an additional $4.125 billion – above what they currently pay – in federal unemployment taxes and interest
on the debt. As of Jan. 1 of this year, Pennsylvania employers began paying the federal government for the borrowed money, and Pennsylvania assessed an interest tax on state employers to make those payments. The interest payment totaled $244 million. In addition to the interest payment, as long as there is an outstanding debt, the federal government will assess, on an annual basis, an additional 0.3 percent penalty upon the normal federal UC tax (FUTA) credit state employers receive. For this entire year, that penalty is going to cost state employers approximately $110 million. And while employers would still be on the hook for repayment, under this proposal they would be repaying the state – to satisfy the solvency bonds – instead of the federal government, which would be paid by the proceeds of the bond sale. Senate Appropriations Committee staff estimate employers would pay $3.5 billion in additional payments between 2013 and 2019. But those payments could potentially be between $160 million to $265 million less, during the the course of their repayment period,
compared to what they would have had to pay to the federal government. The bonds would allow the state the option of giving employers a longer time to pay off the debt without the financial impact of federal penalties. But while that addresses a short-term concern for employers, the bill also takes aim at more long-term reforms to generate savings within the UC system. The legislation seeks to update and alter the calculation of an employer’s UC tax burden, which hasn’t changed much since 1988. During the next six years, the bill proposes increasing the taxable wage base – the amount of employee wages upon which employers pay UC tax – and a reduction, over the same six-year period, of the state adjustment factor, which is used in calculating an employer’s UC tax. The increase of the wage base, from $8,000 to $10,000, and the reduction of the adjustment factor, from 1.5 percent to 0.75 percent, during the next six years will, in effect, cancel each other out and not cost state employers any additional money. Current law would also be altered
to ensure a greater level of trust fund solvency. Existing law requires that solvency tax measures for both employers and employees be triggered when the trust fund’s solvency rate goes below 125 percent. The bill would change that “trigger” to 250 percent for both, increasing the length of time both would have to contribute extra to ensure the fund remains solvent. Currently, the fund is far below even the 150-percent solvency rate, with Senate analysts saying it will take until 2019 just to reach a solvency rate of 100 percent. In addition to those components, the bill would also permit a one-time amnesty program to allow employers to pay unpaid UC taxes. It would also increase the statutes of limitations for the state to collect both fault (from six years to 10 years) and non-fault (from 3 years to 6 years) overpayments of UC benefits to unemployed individuals. Also the bill would allow five percent of the taxes paid to the UC trust fund by employees to be deposited into a fund for reemployment programs that assist UC beneficiaries. CW
3/27/2012 12:48:32 PM