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CA P I TA LWAT C H PA . c o m

CAPITALWATCH 5TH YEAR

ANNIVERSA

VOL. 6 NO. 5

RY ISSUE

INSIDE Will Turnpike elimination be included in transportation funding package? PAGE 3 House GOP defeats amendments to business tax cut bill PAGE 4 VP Biden to get Pennsylvania Society’s highest honor PAGE 5 PA Supreme Court decides shale mineral rights case PAGE 7 EDITORIAL Keep schools in use for polling places PAGE 11 Should the Turnpike Commission be abolished? PAGE 14

Got a tip? Got a lead? Got a news story? Send it to us at goodwinpin@comcast.net. If you would like to post something to Capitalwatchpa.com go to www.capitalwatchpa.com and click on “New Releases.” Capitalwatchpa.com gives readers access to all press releases, memos, speeches, position papers, legislative committee testimony and correspondence to and from executive agencies, lawmakers, lobbyists and interest groups that it receives. Post yours today!

MAY 2013

2014 governor’s race off to an early start The addition of Katie McGinty to the field of Democrats eying the governorship sets the scene for a possible primary battle in the Philadelphia region for woman voters. McGinty’s candidacy could make for an interesting fight between her and U.S. Rep. Allyson Schwartz, D-Montgomery, over the crucial female demographic and Philadelphia-area votes. And with Gov. Tom Corbett’s weak poll number among women – a poll shows a majority of women disapprove of his job performance – some Democrats think a strong woman candidate would be best to unseat him. “I think as a new candidate – and I’m not a career politician – but I got out there and in a month, talked to people I have known and worked with for a long time,” McGinty said after politicking at a recent Cumberland County Democrats dinner. “And I put the better part of a million dollars together in that short period of time.” “I think that says, one: people have hope and confidence that I can drive the state forward; and second, that see the potential for Pennsylvania to be a leader in manufacturing and the life sciences and in sustainable agriculture. But they want somebody who they know could get the job done, and that’s me,” she said. McGinty, who was born in Northeast Philadelphia and now resides in Chester County, has never held elected office, but has extensive experience in the governmental realm. She spent time in Washington as an environmental advisor to then-Sen. Al Gore and also at the Clinton White House. She then was a policy advisor to Gore’s presidential campaign and eventually the Democratic National

Committee. In 2003, she became Rendell’s first Department of Environmental Protection secretary, where she worked until 2008. She has since worked at Weston Solutions Inc., an environmental engineering company. If a power struggle ensued over suburban Philadelphia votes – state Treasurer Rob McCord of Montgomery County is another possible candidate – it’s unclear who would have the most appeal statewide. McCord has won two statewide elections. “I think we also need candidate who has lived and worked in the various corners of Pennsylvania. I was born in Philadelphia. I lived 10 years in central Pennsylvania,” McGinty said. “But I spent six years working and engaging with people in every county in this commonwealth.” Currently, the Democratic

field includes three former Gov. Ed Rendell cabinet members – McGinty, fellow former DEP secretary John Hanger and former Revenue Secretary Tom Wolf. Rounding out the field are Schwartz, McCord and Cumberland County minister Max Myers. McGinty didn’t take any shots at her fellow Democrats, which party leaders hope is an attitude that carries into what could become a heated primary. State Democratic Party leadership is looking to conduct a bloodless primary to have a viable contender against Corbett in the fall. The governor is expected to have a large campaign war chest, and Democratic Party leaders are looking to avoid a large money loss in the primary. Pennsylvania Democratic Party chairman Jim Burn, who spoke at

the Cumberland County dinner, warned Democrats that candidates shouldn’t engage in infighting or tearing each other down, but should have “a productive and fruitful conversation.” Wolf so far leads the money race, pledging $10 million from his personal wealth, while Schwartz recently transferred about $3 million from her congressional campaign account for the race. McGinty hired Attorney General Kathleen Kane’s deputy finance director, so she may try to tap into Kane’s campaign infrastructure from 2012. And with connections to Clinton and Gore, she could have some pull for national funds. Schwartz does as well, and as the former co-chair of the Democratic Congressional Campaign Committee, she has a vast national network available. continued on page 5

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Manufacturing Here Is On Its Way Back.

Long ago, our local rivers and natural resources helped industry take root here. Soon manufacturing became part of our very being. It made our nation strong and our workers proud. Now a new wave of manufacturing is rejuvenating the region. That’s because the natural gas we drill for in Southwestern Pennsylvania is an important raw material used in the making of steel, paints, fertilizers, plastics, medicine, and more.

Drilling is just the beginning.


NEWS 3

MAY 2013 CAPITAL WATCH

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EDITORIAL Editor-in-chief Jacqueline G. Goodwin, Ed.D. goodwinpin@comcast.net (717) 418-3366 Contributing Writers Chris Comisac Peter L. DeCoursey Kevin Zwick News Service Capitolwire Graphic Design Lisette Magaro Production Shawn Skvarna Cartoonist Billy Twist 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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Will Turnpike elimination be included in transportation funding package? BY KEVIN ZWICK, CAPITOLWIRE

Some House Republicans say they want to include the elimination of the Pennsylvania Turnpike – traditionally a patronage haven for the state Senate and governor’s office – in a transportation funding proposal now gaining traction in the Legislature. “We’re not here to put any guns to people’s heads,” said Rep. Mike Vereb, R-Montgomery, the House GOP caucus secretary. “We want to make sure people know it is a priority for us.” The transportation funding proposal introduced by Sen. John Rafferty, R-Montgomery, is strongly supported by Senate GOP leadership, all four Transportation Committee chairmen and several prominent business and labor groups. It calls for an additional $2.5 billion in spending to repair roads, bridges and multiple modes of transportation in Pennsylvania. It would do so by uncapping a tax on wholesale gasoline, increasing fees for licenses and registrations, and charging higher fines for traffic violations. The Turnpike elimination proposal,

introduced by Rep. Donna Oberlander, R-Clarion, would merge the scandal-ridden Pennsylvania Turnpike Commission with PennDOT as a cost-saving measure. “Some members of our caucus have started to advance that idea as well, and we believe it is an issue worth discussing,” said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-Delaware. The House Republicans are taking advantage of a recent grand jury report that shows the Pennsylvania Turnpike is the target of an ongoing state attorney general investigation into corrupt “pay-to-play” business practices and political patronage. Investigators say much of the bid rigging and bribery, where political contributions were traded for multi-million dollar state contracts, was driven by former Senate Democratic Leader Bob Mellow and several former Turnpike officials. “Before we could ask our constituents and the people of Pennsylvania to dig into their pockets to make higher investments in

the infrastructure, we have a responsibility to spend the dollars that we are already spending on infrastructure more efficiently, eliminate waste, and redundancy,” said Rep. Jim Christiana, R- Beaver. “And if we go forward in this transportation debate and only talk about increased revenue, we are doing a disservice to the taxpayers, a disservice to Pennsylvania, and I don’t think that could continue,” he said. The state currently spends about $5.3 billion on roads, bridges and public transit. “We may be able to separate the Turnpike here in Harrisburg, but the people back home just think it’s one big ball of money,” Vereb said. “And we have to work to make sure, for our constituents,that they understand we’re going to make changes.” He continued, “There’s no statement or suggestion that this is going to be put up against the transportation bill. However, if we’re going to ask our taxpayers and our citizens to spend more money for transportation, we want them to know we are going to work on the accountability side.” He says Gov. Tom Corbett is open to the proposal. Oberlander’s plan would abolish the Pennsylvania Turnpike Commission and create the Bureau of Toll Administration under PennDOT, which would oversee the operations, maintenance, construction and other responsibilities of the 545 miles of roadway under the Turnpike’s control. The commonwealth would assume the financially troubled Turnpike Commission’s outstanding bonds and create a commission consisting of the state Treasurer, Auditor General, Governor, House Speaker and Senate Pro Tem to examine how to retire Turnpike’s $7.5 billion of debt. If the legislation were approved, Oberlander stressed that any collective bargaining agreement would be honored. In a statement, Turnpike spokesman Carl DeFabo said the commission has not taken a position on the proposal, but said the commission understands the need for reform in response to the grand jury allegations. He said the Turnpike has been collaborating more with PennDOT, is moving toward all-electronic tolling, and makes annual payments of $450 million to PennDOT for transportation as required by law. “We are working hard to earn the public’s trust, and this work will continue. Our customers, our employees and our business partners deserve no less,” he said. CW


4

NEWS

MAY 2013 CAPITAL WATCH

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House GOP defeats amendments to business tax cut bill A bill containing the governor’s expansive business tax cut proposal has survived amendment attempts from House Democrats. The House Democratic protests focused mainly on the bill’s language addressing a corporate tax loophole. The bill was criticized by detractors as “window-dressing” that doesn’t go far enough to close the so-called “Delaware Loophole.” The bill is expected to be a bargaining piece in year-end budget negotiations between the Legislature and the Corbett administration. House Bill 440, introduced by House GOP Policy Committee chairman Dave Reed, R-Indiana, was amended in committee to include the multi-million dollar tax cuts favored by Corbett and the state’s business lobby. The bill would reduce the Corporate Net Income Tax by 3 percentage points over 10 years, starting in 2015, bringing the rate to 6.99 percent. The bill also would extend the net operating loss cap from $3 million to $5 million, allow businesses to avoid up-front tax liability on exchanging similar equipment or property, and offer incentives for start-up businesses. Corbett’s tax cut proposal would mean a loss of at least $800 million in tax revenue for the state annually. That includes the completion of phase-out of the Capital Stock and Franchise Tax by Jan. 2014, which was set in motion in last year’s budget. The administration says the policies could create thousands of jobs, increase the state domestic product by $2.8 billion and grow personal income by $1.9 billion by 2030, while generating $1 billion in new tax revenue through 2030. The bill also would require the Department of Revenue to review transactions to weed out those using the Delaware Loophole to avoid paying Pennsylvania’s levy on corporate income. The loophole is a tax avoidance scheme

used by some to skirt the Corporate Net Income Tax on “intangible property” like logos or other royalty-producing property. The companies establish and transfer funds to subsidiaries in Delaware, which doesn’t tax royalty income. Reed’s bill would require the Revenue Department to review transactions and “add back” any revenues they determine were subject to taxation but were not taxed. House Finance Democratic chairwoman Phyllis Mundy, D-Luzerne, said without substantive changes to the bill, it’s “just another corporate giveaway.” “The language is so broad and riddled with exemptions that it is ineffective and meaningless in terms of closing the Delaware Loophole,” she said. Among the “exemptions” is the allowing for deductions for what is considered a “valid business purpose,” which she said is too broad. Mundy proposed an amendment modeled after the Multi-State Tax Commission’s language, which she said would have been more effective in requiring businesses to report add-back expenses to their taxable income for the use of patents, trademarks, copyrights and interest expenses. The companies would also have to prove to the Revenue Department whether a deduction is valid. “No other state has adopted the MultiState Tax Commission’s add-back proposal, because the other states find it overly burdensome to businesses, to job creators, but also to the regulatory agencies that are tasked with actually collecting those revenues,” Reed responded. Mundy, and House Democratic Policy chairman Mike Sturla, D-Lancaster, offered a number of amendments that were rejected on party lines. A technical amendment from Rep. Gordon Denlinger, R-Lancaster, was approved unanimously. The Pennsylvania Budget and Policy Center, a left-leaning Harrisburg think tank opposed to the bill, says the state could see a loss of $7 for every $1 in new revenue under the proposal. CW


MAY 2013 CAPITAL WATCH

5

Court sides with AP over access to Corbett’s calendar A Pennsylvania appeals court has sided with The Associated Press in a battle over public access to Gov. Tom Corbett’s calendar entries and emails, saying his legal team failed to justify the redaction of certain information. The seven-member Commonwealth Court panel unanimously upheld a ruling by the state Office of Open Records ruling that the governor’s office must turn over the requested records without redacting portions that it claimed are protected by exceptions to the state Right-to-Know Law, according to an Associated Press report. The AP report stated that the news outlet sought records covering an 18-day period shortly after Corbett took office in 2011. The governor’s office provided some records but blacked out 17 emails and 28

calendar entries, including the subject of scheduled meetings on grounds that the information could suggest the nature of private internal deliberations that are exempt from disclosure under the law. The open-records officer for the governor’s office submitted an affidavit attesting that the redactions reflected “internal deliberations that preceded decisions related to subjects including the transition into the new administration, personnel, budgetary and policy decisions, related courses of actions and implementation of changes in the direction of the administration.” The court panel said that, while calendar entries can be exempt, the affidavit was not specific enough to justify exempting the records from disclosure. As reported by AP, “It is not enough

to include in the affidavit a list of subjects to which internal deliberations may have related. The affidavit must be specific enough to permit the OOR or this court to ascertain how disclosure of the entries would reflect the internal deliberations on those subjects,” Judge Renee Cohn Jubelirer wrote in the panel’s 15-page opinion. Pennsylvania lawmakers overhauled what had been one of the nation’s weakest open-records laws in 2008. The changes that took effect in 2009 established a presumption that government records are public and required officials to justify why a record should be withheld rather than forcing requesters to establish why it should be made public. The law includes more than two dozen exceptions

involving personal privacy, public safety and internal deliberations by public officials. The panel did not rule on the issue of whether the open records office exceeded its authority by directing the governor’s office to provide unredacted copies of the governor’s calendars so they could be privately reviewed to determine whether they qualified for a Right-to-Know law exception. The governor’s office appealed, arguing the open records office was exceeding its authority. In a separate opinion that concurred with other aspects of the ruling, Judge Patricia McCullough said the Right-toKnow Law gives the open records office authority to hold hearings, but not conduct private reviews. CW

VP Biden to get Pennsylvania Society’s highest honor Vice President Joe Biden will become the first sitting president or vice president of the United States of America to receive the Gold Medal of the Pennsylvania Society. The Pennsylvania Society is a Manhattan weekend for many of the state’s political and businessmen and women and takes place in a series of New York hotels and restaurants. The linchpin of the weekend is the

McGinty enters governor’s race continued from page 1

Meanwhile, Former Democratic State Committee Executive Director Mary Isenhour has joined the Democratic gubernatorial primary campaign of Wolf as a senior advisor. Isenhour, a top political advisor to former Gov. Ed Rendell, state House Democrats and long-time chief staffer to former Democratic State Committee Chairman T.J. Rooney, said: “We have a great field of good Democrats, and I just feel Tom would be a great governor, the same way I felt about Ed Rendell in 2001. He has the experience and the resources. I am very excited to help him run.” Isenhour has both political clients on her own, currently, and lobbying clients for the Isenhour-Rooney firm, with Rooney. Rooney said he is joining Rendell and President Bill Clinton in backing McGinty against incumbent Gov. Tom Corbett. “But not because of them, because of Katie,” Rooney said in a phone interview. He acknowledged that having the former president and governor make fund-raising phone calls for McGinty “is a big help, but I was a yes even before Katie asked me. She is equally comfortable at a policy forum and in a bar room, she is just very outgoing and makes a great impression on people. It’s a tough process, especially for a first-time candidate, but Katie has the personality to win over voters, and I am helping any way I can. CW

annual dinner, where past Gold Medalists have included children’s TV host Fred Rogers, comedian Bill Cosby, President George H.W. Bush, Andrew Carnegie, Andrew Mellon, Charles Schwab, Henry Ford, Herbert Hoover, Generals George C. Marshall and Dwight Eisenhower, J. Edgar Hoover, Arnold Palmer, Joe Paterno, Govs. Dick Thornburgh and Tom Ridge, Sen.

Arlen Specter and many others. Biden, before his election as vice president in 2008, and again in 2012, was a six-term senator from Delaware, and as a Scranton native and close ally of many Pennsylvania members of Congress and the U.S. Senate, was known as “the third senator from Pennsylvania.” His ability to help President Barack Obama with working class white voters like

those Biden grew up with in Scranton is a major reason he was selected, and Biden’s campaigning for Obama in Pennsylvania, Ohio and other key states in 2012 was considered key to Obama’s successful re-election. The 115th Annual Dinner of The Pennsylvania Society will take place on Saturday, Dec. 14 in The Grand Ballroom of The Waldorf Astoria in New York City. CW

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MAY 2013 CAPITAL WATCH

May 2013 Auditor General says $35.4 million owed in corporate taxes could offset budget cuts Auditor General Eugene DePasquale has announced auditors found corporate tax return errors amounting to $35.4 million in unpaid taxes owed to the commonwealth. “We can debate tax rates all day. . .,but I think everyone can agree that if you owe the tax you should pay it, and we found $35.4 million in corporate taxes that is owed to the commonwealth,” DePasquale said at a news conference in the Capitol April 15. “This money should be part of the state budget and could be used to offset some of the devastating budget cuts made in the past two years.” The Department of the Auditor General’s Bureau of State and Federal Audits reviews corporate tax returns after being processed by the Department of Revenue, in accordance with Act 119 of 2006. More than 20,000 corporate returns were reviewed between Feb. 1, 2012 and Jan. 31, 2013 revealing more than 1,250 returns with errors amounting to $46.3 million. Overall, corporations underpaid $40.8 million; overpaid $5.5 million; resulting in $35.4 million owed to the commonwealth. “Working with the Department of Revenue to verify corporate tax returns is one of the valuable services we provide to taxpayers,” DePasquale said. “We all want to know that the other guy is paying their fair share.” DePasquale sent a letter to Revenue Secretary Daniel Meuser about the findings and urged him to aggressively collect all taxes that were underpaid, return the overpayments and send the difference to the state treasury so it can be factored into the on-going state budget debate. “In a $28 billion budget, $35.4 million may not seem like a lot, but it is enough to restore some of the devastating budget cuts made in the past two years,” DePasquale said, noting: • $8.9 million in cuts could be restored for environmental programs such as state parks and forests; • $12.4 million in cuts could be restored for education programs such as adult and family literacy, school safety and job training; • $4.3 million in cuts could be restored for health programs and services such as school district health services, and local health departments; • $768,000 in cuts could be restored for law enforcement programs such as the child predator interception unit, and drug law enforcement; and • $7.6 million in cuts could be restored for veterans homes. “After restoring all of those budget cuts, we would still have about $1.3 million to restore other cuts,” DePasquale said. CW


MAY 2013 CAPITAL WATCH

7

PA Supreme Court decides shale mineral rights case The Pennsylvania Supreme Court has ruled on a case with huge consequences for the natural gas drilling industry in the state. In Butler v Powers, the Supreme Court justices took up the issue of whether or not natural gas rights should be part of the broader concept of “mineral rights” in Pennsylvania. In most states when a deed or lease agreement is signed for mineral rights it includes natural gas as well, on the theory that the gas comes from a mineral— shale rock. But that has not been the case in PA. Going all the way back to a case in 1882, Pennsylvania has had “the Dunham

rule” which separates natural gas rights from the broader concept of mineral rights . A case filed several years ago in Susquehanna County, Pennsylvania sought to overturn the Dunham rule and join gas and mineral rights back together, which would have been disastrous for thousands of lease and royalty agreements already in place. Dissolving the Dunham rule would have “changed the rules of the game” long after the game had started and likely would have thrown the drilling industry in Pennsylvania into chaos–stopping drilling activity until agreements

could be renegotiated and/or litigated. A real mess. With the PA Supreme Court ruling to keep the Dunham rule in place drillers and landowners can breathe a sigh of relief. The court sided unanimously with a Susquehanna County couple in ruling that legal precedent going back at least 130 years “remains viable and controlling.” The Supreme Court’s review was prompted by the lower Superior Court’s action in 2011 that suggested that perhaps the precedent set in an 1882 case, Dunham v. Kirkpatrick, could not be used

to separate mineral rights from gas rights in instances involving the Marcellus Shale. But the Supreme Court soundly rejected that view, saying that natural gas is not a mineral, regardless of what it is trapped in or what method is used to extract it from the ground. “In our view, neither the Superior Court nor appellees have provided any justification for overruling or limiting the Dunham Rule and its long-standing progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries,” the court wrote. CW

News of facility coming to western PA promising for future of cracker plant Corbett team says BY KEVIN ZWICK

The Corbett administration hailed plans for a new natural gas processing facility as a “milestone” in the process of bringing a multi-billion dollar ethane cracker plant to Beaver County. Williams Partners L.P. announced last week a joint venture with Royal Dutch Shell, called Three Rivers Midstream, would provide gas gathering and processing services for production in northwest Pennsylvania. The new facility aims to compliment the petrochemical industry in the northeast, as the Corbett administration continues negotiations with Shell for the ethane “cracker” plant – the target of the production-based tax credit approved last year. “The announcement of the Three Rivers Midstream joint venture is certainly welcome news, and a key milestone in the effort to locate an ethane processing facility in Pennsylvania,” said Gov. Tom Corbett’s energy executive Patrick Henderson. Shell has until June to decide whether to build the 300-acre cracker plant in Beaver County. The company is considering the site for a multi-billion-dollar project to build and operate the facility to process ethane from Marcellus Shale natural gas to supply ethylene for producing a variety of products, including footwear, tires, diapers and detergent, among other things. The new facility would provide infrastructure for wet gas and dry gas in the Marcellus and Utica shale. Williams has signed a long-term gathering and processing agreement to service Shell’s roughly 275,000 acres, with plans for gathering and processing with other producers in northeast Ohio and northwest Pennsylvania. “This new joint venture builds on our strategy of creating large-scale infrastructure solutions that will provide Shell and other producers with access to the best markets for their natural gas and natural gas liquids, whether they be in the Northeast or the Gulf Coast,” said Alan Armstrong, chief executive officer of Williams Partners’

general partner, in a press release. “The system is expected to be connected to two major proposed developments in Pennsylvania – Shell’s proposed ethylene cracker (feasibility still being studied) in Beaver County and the proposed Williams-Boardwalk joint venture to develop the Bluegrass Pipeline system that

would deliver Marcellus and Utica liquids to the rapidly expanding Gulf Coast and export markets,” Armstrong said. Williams Partners will own and operate all assets of the Three Rivers Midstream initially, and Shell has the right to invest capital and increase its ownership prior to mid-2015, Williams says.

“All that I have heard about the prospects of landing the Cracker plant has been generally positive. So I would think this too is encouraging,” said Drew Crompton, chief of staff to Senate Pro Tem Joe Scarnati, R-Jefferson. “That being said, we will never be certain until the deal is inked.” CW

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8 NEWS

MAY 2013 CAPITAL WATCH

May 2013 Sen. Rafferty’s transportation bill calls for $700 million more than Gov. Corbett’s plan BY KEVIN ZWICK, CAPITOLWIRE

Flanked by the Senate GOP leaders and fellow Transportation chairmen, Senate Transportation Committee Chairman John Rafferty unveiled a funding plan that calls for the largest investment in transportation infrastructure in decades. PennDOT Secretary Barry Schoch also stood alongside Rafferty and said Corbett is willing to negotiate the differences between the proposals. Rafferty, R-Montgomery, said his bill would generate a little more than $2.5 billion over five years by lifting the decadesold Oil Company Franchise Tax on wholesale gasoline, increasing and setting certain fees to inflation, and charging higher fines for some traffic violations. “We recognize the need to do a little bit more in the way of transportation funding to meet the needs of the commonwealth going forward,” said Rafferty. His proposal aims to generate $700 million more than Gov. Tom Corbett’s $1.8 billion proposal, while uncapping the oil franchise tax in three years instead of five years, as the governor proposed. Rafferty debuted his proposal at an April 16 press conference with Senate Republican leaders, the three other Transportation Committee chairmen, and dozens of supporters, including leaders in labor and business, who offered glowing support for the proposal. Although Schoch wouldn’t give “a blanket endorsement” of Rafferty’s plan, he said the bill starts the discourse over a final proposal. “This is beginning the dialogue in comparing the two,” Schoch said. “At this point, we’re endorsing the leadership the Senate’s shown in getting this to us. We’re going to compare it to our bill and do the balancing.” “I think you’re going to see various amendments and counterproposals going forward,” he said. “…What’s the balance in what to charge people versus the benefit and that’s what we’re going to look at.” House Transportation Chairman Dick Hess, R-Bradford, said he supported the proposal because it would promote jobs, economic development and safety. “There’s so many bridges in Pennsylvania, so many highways in bad shape, and we have to step up to the plate and do something for them,” he said. “We very, very much need this package, and I’m sure there’s going to be some alterations to it, some fine-tuning to it, but in the end, I hope we really get a package that’s going to be beneficial to Pennsylvania and bring jobs and safety to our people.” Noticeably absent from the press conference were House Majority Leader Mike Turzai, R-Allegheny, and Speaker Sam Smith, R-Jefferson. Senate Transportation Democratic chairman John Wozniak, D-Cambria, said

the Senate Democratic caucus supports Rafferty’s efforts, and indicated the bill will likely face hurdles in the House. “This is not going to be an easy political decision,” he said, noting after the press conference: “A lot of these guys, especially in the House, haven’t been here for this big a tax vote. And you have a lot of guys in the House who signed that pledge the governor signed” banning any net increase in taxes. House Transportation Democratic chairman Mike MeGeehan, D-Philadelphia, said the House Democratic caucus supports the proposal and said bipartisan support would help pass the bill in the House. “We share the same priority to see that this is done,” he said. “As a cautionary note, though, the other heavy lifts that have gone before in this current legislative session, have been done without bipartisan support. This must be done with bipartisan support. This has to have significant Democratic support in the House to enable it to pass.” Senate Majority Leader Dominic Pileggi, R-Delaware, said after the press conference that Rafferty’s bill is “obviously not the final product, but a very well developed product with a lot of work put into it.” “Now the plan would be to move that bill out of committee and see how that process goes, probably in the month of May when we get back, and make sure we could do everything we can to get the bill

“This funding proposal is an investment not only in our transportation infrastructure but in our state’s future,” said Sen. John Rafferty at his April 16 press conference conference.

bicycle and pedestrian programs. The bill calls for increased fees, which in the past Corbett didn’t support, and which could mean a bumpy road going forward in the Legislature. PennDOT Secretary Barry Schoch has said the administration wouldn’t close the door to increased fees, and that Rafferty’s “leadership” and proposal begins the dialogue to reach a final product. Current annual vehicle registrations would be replaced with a two-year registration, increasing the fee from $36 per year to $104 every two years. The driver’s license fees would go from $29.50 to $50.50 once every six years. Licensing, registration and permitting fees would be updated to reflect inflation since they were last raised and

jobs brought out construction unions and business. Wozniak estimated the proposal could bring tens of thousands of construction jobs, a boon to both labor and business. Schoch said if the bill is not passed at the end of the fiscal year in June, the construction and supply industry could see a loss of about 12,000 jobs. In a statement, Pennsylvania Business Council president David Patti said his organization supports the proposal made by Rafferty, including the uncapped tax and increases in fees. “It’s simple cost-benefit analysis: the cost of doing nothing is far higher to the business community in safety, vehicle wear and tear, detour miles, wasted fuel, and additional drivers and equipment,” he said in a statement. “We need transit systems to bring our most valuable assets – our employees – safely and efficiently to work each day.” With current high unemployment in the construction sector, Pennsylvania State Building and Construction Trades Council president Frank Sirianni said improving roads, highways and transportation facilities is a boon for the sector and could provide economic benefits for businesses around the project sites. “It’s been a long time coming. If it ends up the users pay for it, they’ll feel like they’re getting their money’s worth,” Sirianni said.

“It’s simple cost-benefit analysis: the cost of doing nothing is far higher to the business community in safety, vehicle wear and tear, detour miles, wasted fuel, and additional drivers and equipment.”

on the governor’s desk before we break on June 30th,” he said. He said it’s too early to judge how Senate Republicans might react to the proposal by way of amendments, but said: “I don’t think the amendment process will be a difficult one. I think it will be more around the edges of the bill.” Senate Bill 1 includes, as did the governor’s plan, a reduction of the at-the-pump motor fuels tax of two cents over the first two years, as a way to lessen any potential impact on consumers. The state would lose about $58 million in the first year and $121 million in and annually after the second year from the reduction. In the fifth year, Rafferty’s proposal is estimated to generate $1.9 billion for state and local roads and bridges, $510 million for urban and rural transit agencies, $115 million for railways, airports, ports and

indexed to inflation going forward. The Rafferty plan also would impose a $100 surcharge for moving violations, such as running a red light. For “catch-all” traffic violations, which take no points off a driving record, fines will increase on a sliding scale from $25 to $300. Drivers who allowed their insurance to expire would have the opportunity to pay an optional fee instead of the current threeyear license suspension. Those monies would be directed to transportation funding. Rafferty said he hopes the higher traffic fines deter speeders. A major, multi-billion dollar transportation funding push brings together a wide range of interest groups, as was evident in the crowded press conference in the Capitol Media Center on Tuesday. The promise of new projects for contractors and thousands of construction

It wasn’t only labor and business groups either. Public health organizations, a group of bike safety advocates, a national security organization said after the press conference that the bill would promote good health by opening new trails for pedestrians and cyclists. Ross Willard, an avid cycler and bike safety advocate, said the higher fines, future cyclist-minded road construction projects and walking trails could make roads safer for bicyclists and pedestrians. Jen Ebersole, of the American Heart Association, said an increase of walking and cycling trails would be good for the public health. Stephen Doster, of the “Mission: Readiness,” a national security organization, said funding for walkways and bike trails would promote better health, and ultimately better soldiers. CW


The

elegance at hershey June 14-16, 2013 | The Hotel Hershey® • Hershey, PA WEEKEND ACTIVITIES INCLUDE:

Vintage Race Car Hill Climb Charity Dinner & Auction 5K Run Automotive Garden Party


The

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Grand

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Friday, June 14 • 10:00 a.m. - 4:00 p.m. Saturday, June 15 • 9:30 a.m. - 4:00 p.m.

Grand

The

ascent

FRIDAY, JUNE 14 10:00 A.M. - 4:00 P.M. SATURDAY, JUNE 15 9:30 A.M. - 4:00 P.M.

An exciting revival of the historic Hershey Hill Climb, featuring many pre-WWII race cars. Watch cars climb the Hotel Hershey hill in a timed competition sanctioned by the Vintage Sports Car Club of America (VSCCA)

• Celebrity drivers; Dick Vermeil, former Philadelphia Eagle coach and Wayne Carini, from Chasing Classic Cars will be participating in the driving competition. • Open Pit area get a close up look at the cars and chat with the drivers. • Special Spectator areas on the hill, great view of the driving activity • Vendors, food and more!

Daily admission $10 per day with free parking. Ages 15 and below FREE. Make Father’s Day Weekend special - limited rides reserved day of the event. DIRECTIONS: From Hersheypark Drive go Rt 39 at the Giant Center and turn into Boathouse Road.


The

elegance at hershey

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A Garden Party with Special Flair Sunday, June 16 • 9:00 a.m. - 5:00 p.m.

The Elegance is the ultimate automobile garden party. In the tradition of the finest European and American Concours d’Elegance we proudly gather more than 60 of the world’s most sought-after vintage and antique motorcars. Stroll the gardens viewing vintage Cord, PierceArrow, Packard, and Rolls-Royce, visit our lifestyle vendors, view fine art while creating a memorable day with family and friends. JDRF on site representation will talk with guests about Type 1 diabetes and educate on health issues. Special presentations of cooking, flower arrangement and wine tasting. Truly a special day to benefit very special charities. Ages 15 and under free. Perfect for a father’s day outing, special VIP packages for couples and families. Limited VIP packages purchase in advance.

Presented by

Tickets $25.00, including FREE parking and full-color program. Ages 15 & Under Free. To avoid lines, purchase advance tickets at:

www.TheEleganceAtHershey.com

5K Run

Sponsored by:

SATURDAY, JUNE 15 • REGISTRATION OPENS 6:45 A.M. - RACE BEGINS 7:45 A.M. $25 entry fee, benefits The Elegance at Hershey charities. With registration you receive: T-shirt, certificate, medals, access to cool-down tent with snacks sponsored by Fromuth Tennis. Cash prizes to top runners in each bracket totaling $1,500. Visit the web site for full details and easy online registration.

DINNER & CHARITY AUCTION COCKTAIL ATTIRE - 6:00 - 10:00 P.M.

Includes cocktail and hors d’oeuvres, dinner with entertainment, silent auction and French desserts and wines; $200 per person. This special themed cocktail and dinner party is entitled “French Curves: A tribute to Le Mans” The Hotel Hershey®, preregistration required – dinner sells out quickly For reservations call (717) 534-1910.

Fri/Sat

sun

Vintage HIll Climb • Garden Party All Events at The Hotel Hershey®

name address

TheEleganceAtHershey.com

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“A MUST ATTEND EVENT” - LET US TELL YOU WHY A weekend long event dedicated to delivering an exceptional experience while raising contributions for our chosen charities. The Elegance at Hershey is a 501(c) 3. To date more than $400,000 has been contributed to JDRF (Juvenile Diabetes Research Foundation), the AACA Museum and AACA Library. All made possible by generous sponsors and supportive attendees. This social gathering will deliver an unforgettable experience! Look at the wonderful activities our weekend offers, choose to participate multiple days or select the activity that is most appealing. Businesses are equally encouraged to include The Elegance at Hershey into their mix of corporate entertainment and charitable giving. The highlight to our wonderful weekend of activities begins at 9:00 a.m. on Sunday, where guests will arrive at The Hotel Hershey® to view the magnificent display of vehicles arranged throughout the gardens on the Hershey property. Some of the very finest vehicles from private collectors will be displayed; Bugatti, Delahaye, RollsRoyce, Packard and more; a total of 60 each exceeding millions of dollars. This collection of vehicles rarely available for viewing will be shown up-close on the beautiful landscape of The Hotel Hershey.® See the magnificent machines in motion. The day concludes with an award ceremony.

A unique weekend of charitable events benefitting:

Thank you to our contributing sponsors (Partial Listing)

HERSHEY ENTERTAINMENT & RESORTS

MIDLANTIC MACHINERY

UNIVERSAL VINTAGE TIRE

MILLERS MUTUAL

J.C. TAYLOR INSURANCE

PNC WEALTH MANAGEMENT

CLEVELAND BROTHERS

THE VINEYARD AT HERSHEY “OFFICIAL PA WINERY OF THE ELEGANCE AT HERSHEY”

HAGERTY INSURANCE HEACOCK CLASSIC CAR INSURANCE MECKLEY LIMESTONE

HARRISBURG MAGAZINE “OFFICIAL MAGAZINE OF THE ELEGANCE AT HERSHEY”

Weekend activities begin Friday; offering a rare opportunity for motorsport enthusiasts to walk among, watch the action and mingle with the drivers at the Grand Ascent. The Grand Ascent captures the historical race offered originally in the 1920s to 1962; skilled drivers will take priceless race cars up the challenging winding back road. Onlookers can follow their favorite car throughout the Friday and Saturday competitions. In addition to the vintage race car competition, Saturday morning runners will gather to compete in a 5K foot race. All weekend events offer unique vendors, food and special opportunities for socializing between attendees near and far.

Fri/Sat

sun

Vintage HIll Climb • Garden Party All Events at The Hotel Hershey® Present Day of or avoid lines Buy Online - Code: CW2OFF

TheEleganceAtHershey.com

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$2.00 Off

The Elegance at Hershey 501 W. Governor Road, Hershey, PA 17033 Phone (717) 534-1910 | Email: elegance@aaca.org The Hotel Hershey® Official Hotel of The Elegance at Hershey 100 Hotel Road, Hershey, PA 17033 717-533-2171


NEWS 9

MAY 2013 CAPITAL WATCH

House Gaming Oversight Committee unanimously supports resolution to study how Philadelphia uses gaming revenue With unanimous bipartisan support, the House Gaming Oversight Committee advanced a proposal offered by Democratic Chairwoman Rosita C. Youngblood, D-Phila., which would require the commonwealth to study the allocation of gaming revenue provided to Philadelphia from licensed casino gaming. The resolution (H.R. 86), which was backed by Philadelphia Reps. Angel Cruz, Maria Donatucci, Stephen Kinsey and Ed Neilson, would ask the state to study whether or not money provided to the city by casino gambling can help offset the massive tax increases facing hundreds of thousands of city residents with the advent of the city’s new property tax reassessment plan, known as Actual Value Initiative, or AVI. Currently, Philadelphia is the only county that uses money from the Property Tax Relief Fund to reduce the city’s wage tax, Youngblood said. When casino gaming was first legalized in Pennsylvania, financial analysts believed that wage taxes

were more of a burden to residents than property taxes, since property assessments were below market value. But with AVI in full swing, Youngblood believes a study is necessary to see how gaming money should be appropriated in Philadelphia. “In 2006, when the General Assembly passed the Taxpayer Relief Act, and we determined how gaming money would be used across the Commonwealth, reducing the wage tax instead of property taxes may have made sense,” Youngblood said. “But now, with property tax increases looming for so many in communities in Philadelphia, we need to at least take a look at how the city is using this important revenue, and make sure that it is being used in the best way possible to help the most residents.” Kinsey echoed Youngblood’s sentiment, stating that while the Commonwealth’s casinos offer a great source of public revenue, they also bring with them public needs. “We need to follow the money and ensure that it’s making a fair and direct

impact on the communities that directly support the casinos – especially in Philadelphia, where increased demands are made on everything from policing to transportation infrastructure,” Kinsey said. In North East Philadelphia, Neilson said his constituents are still waiting to see the benefits from casino gaming they were promised when the law passed several years ago. “Many residents of North East Philadelphia are still waiting for relief from property tax that was promised to them,” Neilson said. “As they wait, individuals that work in the city, but live outside of it are eligible for a double benefit because of a local tax relief, which is why I support this study of gaming revenue.” Donatucci, who represents communities in South Philadelphia, said she supported the resolution because property taxes are going to skyrocket in her district as a result of AVI. “Property taxpayers in every county across Pennsylvania, except for

Philadelphia, see some relief on their property tax bill thanks to casino gaming,” Donatucci said. “Philadelphia’s new property tax assessment plan has hit the neighborhoods that I represent the hardest, and it’s about time that we take a look at how we can use gaming money in the best manner that represents the needs of our citizens. Youngblood said the next step is for her colleagues in the Republican majority to allow the full House of Representatives to vote on her proposal. “I am simply asking the state to take into account Philadelphia’s new reassessment plan and study whether or not Philadelphia’s taxpayers would be better served with property tax relief, or to keep the current wage tax relief,” she added. “It’s a simple request that will have significant impacts for the taxpayers of our city. I am hopeful that we can get this resolution on the voting schedule this spring.” CW

New IFO report says PA would benefit from Medicaid expansion BY CHRIS COMISAC, CAPITOLWIRE

A new report from the Pennsylvania Independent Fiscal Office April 23 said Medicaid expansion could be a major boon for the commonwealth’s economy and the state budget. “The analysis finds a significant budget impact from Medicaid expansion for Pennsylvania,” according to the IFO study. The report, done at the request of the Senate Democratic Caucus and looking solely at the impacts of expansion between 2014 and 2021, bases that finding on what it sees happening due to an expected average $4 billion per year increase in federal funding associated with expansion. The IFO says that amount of new federal funding would produce an average of $3.1 billion in annual gross state product increases and a $2.1 billion per year boost to taxable earnings and income in Pennsylvania through 2021. The report notes those impacts were determined without consideration of the expected costs to the state’s economy from the federal Affordable Care Act, or the potential impacts due to the new health insurance exchanges. Those changes for Pennsylvania are federally mandated while the state has a choice on whether to join the expansion. The identified expansion benefits to the state economy, in turn, have positive impacts on the state budget, the report claims. On the revenue side of things, the report shows tax revenues derived from personal and corporate income taxes rising by $65 million per year, sales taxes growing by $40 million annually and gross receipts taxes increasing $115 million each year. Along with growing revenues, the report asserts state expenditures would fall by approximately $220 million annually, on average, producing a net positive yearly budgetary effect of $430 million. The IFO states the expenditure reduc-

tion is due primarily to the transfer of the General Assistance population – currently paid for with state funding – into Medicaid. About 80,000 General Assistance adult recipients would be moved into Medicaid, with an annual average savings to the state of about $664 million. The report explains its average impacts take place during an eight-year period, and notes that savings will be greatest during the first three years of expansion – 2014 through 2016 – due to the federal government covering 100 percent of the costs of those newly eligible for Medicaid due to the expansion. So while annual budgetary expenditures experience an average drop of $220 million, the reports finds the state realizes declining savings through 2019, and then in 2020, the budget begins to experience overall costs. However, the IFO states those costs will be minimal in 2020 [$16 million] and 2021 [$21 million]. Senate Minority Leader Jay Costa, D-Allegheny, whose Senate Democratic Caucus has lobbied hard for Pennsylvania to expand its Medicaid program said of the report: “I think our point has been made by three independent, respected groups. You have RAND, you have the Economy League and now the IFO says this makes sense for Pennsylvania; all of them say we get dollars into the budget for doing this. Which is what we have been saying for months.” In their own analysis, Senate Democrats claim expansion will result in annual cost savings of $670 million for the state and help to insure 650,000 people. Costa said that part of the reason his caucus’ savings estimates were higher than the IFO estimates was due to the IFO not counting the partial gross receipts tax (GRT) revenue the Senate Democrats believe the state can collect this year.

However, the IFO does express some caution regarding its budgetary analysis and that GRT. The study assumes the federal government will continue to allow the state to impose the GRT upon managed care organizations; the tax generates revenue used to cover some of the state’s Medicaid costs. The state also levies a tax on hospitals for the same purpose, although the IFO does not reference that tax. Together those taxes are expected to generate in Fiscal Year 2013-14 more than $1 billion. The GRT would deliver even more revenue under an expansion scenario, writes the IFO, due to an increase in the Medicaid population. However, regarding the GRT, the IFO notes: “Currently, it is unclear whether the federal government will allow this tax to be levied on new federal spending. Because the federal government [under expansion] reimburses at 90-100 percent, they may disallow these types of levies. If disallowed, that outcome will have significant budgetary impact.” That’s a similar concern Acting Department of Public Welfare Secretary Bev Mackereth voiced during a recent interview with Capitolwire and again on Tuesday in a letter to the Legislature regarding the IFO report. “I’m very concerned that not everyone has the facts, and this includes the fact that over a billion dollars for our Medicaid program is in doubt,” Mackereth said regarding the GRT component of IFO report. “That’s why we continue to push for full clarity from the federal government before we make any decisions about the future of the Medicaid program here in Pennsylvania. It just makes sense.” Gov. Tom Corbett has said before he makes a final decision regarding expansion, his administration has plenty of questions

that need to be answered by the federal government, such as the GRT situation. He’s said he wants more flexibility in running the state’s Medicaid program so that it can be adjusted to become a sustainable program now and in the future. Elizabeth Stelle, a policy analyst for the conservative-leaning Commonwealth Foundation, questioned what she said was the report’s over-arching assumption: “In a nutshell, the IFO finds transferring General Assistance patients from state to federal support generates enough savings to compensate for the billions in state costs of adding some 400,000 additional Pennsylvanians to the Medicaid rolls.” According to the IFO, expansion would put 440,000 new individuals into the Medicaid program: 240,000 who were previously uninsured and 200,000 that previously had been paying for their own private insurance policy or who had been insured through their employer. Stelle expressed concern about the second part of the new population, those that were previously insured: “Such a large influx of individuals from the private market to a public program, where the reimbursement levels are about half, will only exacerbate our problems with undercompensated care – one of the key drivers of higher insurance premiums and higher health care costs.” As mentioned earlier, expansion would also move 80,000 General Assistance adult recipients into Medicaid, as well as 55,000 children currently enrolled in the state’s CHIP program. That second population might not end up moving into Medicaid, though, if state lawmakers and the Corbett administration are able to convince the federal government to give Pennsylvania a waiver to the provision in federal law that moves them. CW


10 NEWS

MAY 2013 CAPITAL WATCH

Game Commission moves to block spread of chronic wasting disease in state deer herd The Pennsylvania Game Commission has moved aggressively to block the spread of chronic wasting disease (CWD) in the Pennsylvania deer herd, effectively quarantining deer meat, bones and other animal parts from being removed from six Central and Western Pennsylvania counties. Affected by the Game Commission order, which will remain in effect indefinitely, are parts of Adams and York Counties, designated as Disease Management Area 1, and Bedford, Blair, Cambria and Huntingdon counties, designated Disease Management Area 2. Last year, for the first time after several years of testing, chronic wasting disease was detected in several farm-raised and wild deer in Pennsylvania. Previously, the alwaysfatal disease which is known to affect deer, elk and moose, was considered a problem primarily in the Far West and Canada. Chronic wasting disease is a neurological disease that attacks the brain through the accumulation of abnormal proteins called prions. It has been compared to bovine spongiform encephalitis (BSE) or “mad cow disease” and scrapie in sheep. Although mad cow disease created a worldwide health scare a decade ago when it appeared that the disease was moving from the cow herd, particularly in Great Britain, to the human population, Pennsylvania disease experts say that no known link has been established between CWD in deer and any human ailments.

“As far as we know, CWD (chronic wasting disease) is not a serious threat to humans. Based on various studies transplanting the prion protein in other species, we believe the CWD protein is pretty resistant to moving to humans,” says Dr. Perry Habecker, a veterinarian and lead pathologist at the New Bolton Center of the University Of Pennsylvania School Of Veterinary Medicine. As chief of service at the New Bolton lab, part of the Pennsylvania Animal Diagnostic Laboratory System, Dr. Habecker has conducted thousands of tests for chronic wasting disease on deer parts collected by the Pennsylvania Game Commission over the past few years. Last year alone, Dr. Habecker’s lab tested about 3,800 samples submitted by the Game Commission, equal to a about one test for every 100 deer harvested in Pennsylvania during the last hunting season. The Game Commission’s preventive quarantine is aimed at protecting the deer herd and the sport of hunting as well as protecting humans from even the smallest risk of infection. “The handful of cases of CWD that we’ve seen in the captive deer and the wild deer population is of concern because now we know that it does have a toehold in Pennsylvania and we don’t know how many more deer might be incubating the disease,” said Dr. Habecker. “It changes our strategy in how to control it. It chang-

es how we think about the disease. There is certainly public concern. No one wants to eat animals infected with this disease even though there is no evidence that shows that it transmits from deer to people.” The Game Commission order includes: • A ban on “removal or exportation of high risk cervid (deer, elk or similar animals) parts” from the Disease Management Areas (DMAs). High risk parts include the head, spinal cord, spleen, meat and hides. • A testing regimen for all deer killed in a DMA. • A prohibition on the use of urine- based animal lures or attractants. • Feeding of wild deer in the DMA. • A ban on removing vehicle-killed deer from the DMA. The Game Commission’s action indicates that it considers CWD a serious risk even though there are no known cases of deer-to-human transfer of the disease. The commission has been conducting a series of educational meetings with hunters across he state and has prepared a number of “tip sheets” and guides on how to recognize chronic

wasting disease in deer and how to avoid possible contamination when handling deer parts including these warnings: • Do not shoot, handle or consume an animal that appears sick. • Wear rubber or nitrile gloves when field dressing. • Bone out the meat from your animal. • Minimize the handling of brain and spinal tissues. • Wash hands and instruments after field dressing.

The Penn veterinary pathologist had a special warning for hunters and cooks who would be tempted to treat CWD as a typical pathogen that could be destroyed by the heat of normal cooking. “A deer that’s identified with CWD; there’s no way you’re going to get rid of those prions. And no one should be consuming them; cooking will not get rid of them,” warned Dr. Habecker. “ It’s an unusual protein – an unusual abnormal protein – because the body has no way of metabolically disabling it. Ordinary cooking, freezing, microwaving is not going to destroy the prion. To destroy the prion you essentially will have to be destroying your food. You would have to incinerate it.” CW


OPINION 11

MAY 2013 CAPITAL WATCH

Editorial

Keep schools in use for polling places

BY JACQUELINE G. GOODWIN, Ed.D.

Some Pennsylvania school officials are among those who want to quit using schools as polling places, saying they believe the practice someday will result in a Pennsylvania tragedy similar to the Newtown, Connecticut slayings last December. “It seems an unnecessary risk to open schools to uncontrolled mass access, says Bethel Park Superintendent Nancy Rose, whose district hosts polls in six of eight schools. The district is closed for the May 21 primary but wants to relocate polls for the November general election and beyond. Anthony Angotti, president of West Jefferson Hills School Board, agrees. “We buzz everybody into our buildings. We don’t just allow people to walk in freely. The polling place is allowing the community to freely walk into our buildings that we have no control over.” With all due respect , such dire predictions may be a bit overblown. After all, schools have been used as polling places for years without such a problem. Like it or not, schools are public buildings paid for by the taxpayers. They are often among the only public buildings in the community —

especially in small towns — that are suitable for polling places since there has to be a convenient, handicapped-accessible place to vote and schools fit the bill. Some have suggested that if schools continue to be used as polling places, perhaps children should not attend classes on Election Day. But this solution could create other problems. Many parents who work already have difficulty finding enough time to get to the polls while they are open. If, on top of that, they have to make special arrangements to have someone watch their children that day, or even have to stay home themselves, the effect could be to decrease voter turnout. There’s really no valid reason to rule out schools as polling places based solely on fear that an event like the Newtown tragedy, awful as it was, might happen again. If we remain vigilant and courageous, Pennsylvania schools can carry on their historic role as havens of democracy and civility on Election Day as they always have. CW Dr. Jacqueline G. Goodwin is editor of Capital Watch.

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12 NEWS

MAY 2013 CAPITAL WATCH

L & I to layoff 108 workers; AG also sees furloughs in future The state Department of Labor and Industry is furloughing 108 employees, impacting union and management workers who administered unemployment compensation and workforce development programs, L&I Secretary Julia Hearthway said April 30. Hearthway says the furloughs were a result of decreased federal funding the state had received to handle an increased workload of unemployment claims during the Recession. “It’s a difficult time for them, we recognize that, and we’re going to do everything we can to help them find a job,” Hearthway said in a phone interview. Not all 108 employees have been notified of the layoffs, but notifications will continue to be sent until May 3, she said. The layoffs come as the Office of Auditor General also is looking at furloughing 50-70 employees in July due to budget constraints. As the economy slowly turns around, the federal government reduced funding to the state by $30 million, which was used to fund an increased workload in unemployment benefit claims as the recession hit, Hearthway said. “A large portion of Labor and Industry is funded using federal funds, and those funds have shrunk dramatically,” she said, noting Pennsylvania is not the only impacted state. “We’re not getting as much from the federal government as we used to.” “The workload is less,” she said. “The problem is when you bring all these people on board during the recession and the workload decreases, the furloughs happen.” She said there’s very little to make up for the loss of federal dollars to keep those people employed. The lay offs includes 94 union workers and 14 managers, department spokeswoman Theresa Elliot said. Hearthway said none of the furloughs were made to unemployment compensation call centers, which were plagued with technical issues earlier this year. “We took a careful and close look at our operations to manage this in the most responsible way possible. We think we’ve done that,” she said. “…Would we prefer not to have the reduction and keep these individuals? Yes, that’s just not reality.” Hearthway said the layoffs are spread across the state, impact 41 counties. But the Dauphin County, where the Capitol is located, will see about a dozen. The department will assist its own employees to find employment. CW


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14 OPINION

MAY 2013 CAPITAL WATCH

Should the Turnpike Commission be abolished? YES

NO

Then the LORD rained upon Sodom and upon Gomorrah brimstone and fire from the LORD out of heaven; and he overthrew those cities, and all the plain, and all the inhabitants of the cities, and that which grew upon the ground. -- Genesis 24-25

Longtime TV partners, Tony May and Charlie Gerow provide commentary and analysis on political matters every Sunday on WHPTV-CBS 21’s program, “Face the State,” in addition to being regularly featured on the Pennsylvania Cable Network (PCN). In their other lives, May is a partner at Triad Strategies, and Gerow is CEO of Quantum Communications.

Integrity and efficiency. They’re the two best reasons to modernize Pennsylvania by eliminating duplicative administrative structures and rolling the Turnpike Commission into PennDOT.

BY TONY MAY

BY CHARLIE GEROW

If the Attorney General of Pennsylvania and her investigators are correct, the Pennsylvania Turnpike Commission is riddled with serious flaws in the way it goes about its business. If the allegations are true, favoritism and cronyism are commonplace and criminal misconduct has occurred. To some, the solution is simple. Get rid of the Turnpike Commission and the problems go away. That, apparently, was God’s intent when – according to the Book of Genesis – he wiped out the towns of Sodom and Gomorrah as punishment for their sinfulness. The people of the two cities never got a chance to demonstrate whether they had learned a lesson – being buried under fire and brimstone and all. Lot was spared from destruction although his wife was turned into a pillar of salt for wanting to look back at her hometown one last time. Later on, Lot ended up fathering two sons by his two daughters – another unforeseen consequence. And, it appears that the motel industry in the Jordan River Valley has never adequately recovered from the hellfire treatment. Deep-sixing the PTC could have its own unforeseen outcomes. Abolish the Turnpike Commission? Is that is truly possible under the terms of the billions of dollars in bonds floated to finance the turnpike reconstruction and maintenance and other transportation funding responsibilities now loaded onto pike operations? Abolition would bring mainly the end to a five-member panel of part-time commissioners appointed by the Governor and confirmed by the Senate. Some administrative jobs could be cut. Will motorists get improved services? Probably not. In fact, a logical case could be made that the condition of the ‘pike would deteriorate if a merger with the Pennsylvania Department of Transportation made it easier to comingle staff and equipment. If the Turnpike Commission itself is dismantled, what remains will be the infrastructure, the people who tend to it and maintain it and a mountain of debt piled on by prior Turnpike Commission appointees and the General Assembly. PennDOT was once itself a fabled patronage haven where all the employees – not just the top dogs – were subject to dismissal by the Governor when the party affiliation of that office changed. Two things killed patronage abuse in state government; first, Civil Service and then unionization. The nature of the people that ran PennDOT didn’t change so much as the rules under which they operated. The same principles can and should be applied at the Turnpike Commission. In fact, the shocking thing about the turnpike indictments is that they come despite gradual and haphazard efforts to merge the operations of the two entities. For some two decades, the Secretary of Transportation has been an automatic member of the commission and has, in the past, served as its chairman. Under the terms of Act 44, enacted during the Rendell years, the Turnpike has been underwriting more than $400 million a year in general transportation and mass transit costs from toll dollars. This is the fallout of the failed attempt to toll Interstate 80. In other words, tolls paid by motorists using the Turnpike to get from Ohio to New Jersey or from Philadelphia to Scranton are subsidizing road repairs in other parts of the state as well as bus service in the cities. These are “merges” that should be undone, not exacerbated. Obliterating the turnpike commission won’t work any better than demolishing Sodom and Gomorrah brought an end to sin. CW

Thirty five years ago, a former United States Attorney, Dick Thornburgh, rode a white horse into town promising to restore integrity and efficiency to PennDOT. By the end of his first term, the Department was hailed in the national press as “one of the best managed--and financed--public works agencies in the country.” Four years ago, Governor Thornburgh called for abolishing the Pennsylvania Turnpike Commission. He advocated rolling it into PennDOT which he had worked so hard to reform. “Millions of tax dollars could be realized if the state Legislature were to dissolve this bloated bureaucracy and move its functions into PennDOT,” he wrote. That was long before the Attorney General charged the former CEO of the Turnpike, its former Chairman, another top Turnpike executive, a former State Senator (already in jail for corruption) and others with public corruption for allegedly operating a sophisticated scheme involving “pay to play” bribes, gifts and political contributions. In the aftermath of the alleged scandal, outlined in a stinging 85 page grand jury report of the four year investigation that led to the charges, Rep. Donna Oberlander introduced House Bill 1197. Co-sponsored by nearly 3 dozen members, her legislation would abolish the Turnpike Commission and turn over its operational responsibilities to a newly formed Bureau of Toll Administration within PennDOT. Reaction to the legislation has been interesting. One prominent supporter Rep. Mike Vereb, part of the House Leadership, said abolishing the Commission was necessary because corruption there “...was organized crime which has now formed into a tumor beyond radiation.” The Commission itself has taken no position on the legislation but has acknowledged that “...we understand the need for reform in response to the serious allegations in the grand jury presentment.” Aside from the glaring issue of the need for integrity at the turnpike, there is real concern for old fashioned efficiency and good management. The turnpike has said that “CEO Mark Compton has launched even more aggressive reforms in the wake of the investigation to improve accountability and operations.” That is, of course, a de facto admission that there were major deficiencies. At the heart of the efficiency argument is a very simple question: “Why is it necessary for taxpayers to fund two separate governmental entities dealing with transportation?” It is fair to say that part of the reason is the debt financing mechanism the Commission has been. Rep. Oberlander’s Bill would have the Commonwealth assume the outstanding bond debt of the turnpike --roughly $7.5 billion. The impact on the state’s bond rating, a concern set forth by proponents of the current system, could be mitigated by savings from eliminating corrupt practices, increasing efficiencies and sound management thus allowing the turnpike to steady the income it already receives and throws to non-turnpike transportation. As a footnote, it should be noted that Moody’s recently downgraded the turnpike’s own bond rating. PennDOT currently manages more than 40,000 miles of roads. They employ seven executives. The Turnpike Commission has nine execs. They have less than 550 miles to manage. When the fat is boiled from the rhetorical bone, that stands as evidence of the relative efficiencies and costs to taxpayers. Integrity and efficiency. They’re the two best reasons to modernize Pennsylvania by eliminating duplicative administrative structures and rolling the Turnpike Commission into PennDOT. CW


OPINION 15

MAY 2013 CAPITAL WATCH

Psychology of stock market highs and illusory stability BY SCOTT C. WEAVER, CFP, CFS, CAS

Irrational exuberance became a famous phrase on a cold night in Washington, D.C., when Allen Greenspan in 1996 used the phrase to describe investors’ behavior at the top of bull stock market. THE THEN Chairman of the Federal Reserve commented that irrational exuberance causes investors to overlook deteriorating economic fundamentals in the pursuit of everhigher returns. Unfortunately, this high doesn’t last forever, and at some point this greed turns to panic and fear. Just the mention of irrational exuberance by Greenspan caused stock markets around the world to sell off the next day. Ironically, the theme

of the Greenspan speech that evening was “The Challenge of Central Banking in a Democratic Society”. This challenge has never been greater than it is today. Understanding the Fed’s hand in this stock market rally is very, very important. Unfortunately, when it comes to the stock markets, most people are both too smart and too naïve at the same time. They are also inhibited by its complexity and constant state of flux. The purpose of this article is not to predict the future. Its intent is not to motivate you to buy stocks or scare you into selling stocks. My purpose is to enlighten you

Why stocks may continue their run (glass half full):

1. The housing market is starting to turn around 2. Some economic data such as durable goods suggest an improving economy 3. Alternative investments such as CD’s, saving accounts offer such little return 4. Bond investors will look for other places to invest their money and many will become stock investors. Since interest rates are at historic lows, overtime, there will be only one way for interest rates to go and that is up. Increasing interest rates will hurt most bonds. 5. If you’re bullish and think this market is here to stay and you feel you missed this run, historical data (which is no guarantee of the future), suggests you may get another chance to buy this market during the summer months and at a lower price. Looking back to January 2004 using our system that tracks the breath of 7,000 plus stocks, you can see over 90% of the time, the market ran hot and heavy from January through April or May. The market sold off in the summer months and in most cases, returned to new highs by year end.

2004-2013

6. The U.S. stock market is attracting international money and particularly from Europe since their markets are struggling. 7. Stocks are in vogue right now; every time the market drops, investors aren’t running for cover. They see it as an opportunity to buy more. 8. Most important, the Fed is committed to its QE3 or bond purchasing program until conditions improve and in particular unemployment 9. In the short run, money managers will buy stock so their performance does not trail their peers. 10. Accountants and CPA’s will recommend for the 2012 tax year to fund IRA’s to lower tax burdens. Investors have until 04/15/2013. This rush to meet the deadline will bring more money into the market.

The information contained herein is obtained from sources believed to be reliable but its accuracy and completeness is not guaranteed. Any tax or legal information in this piece is merely a summary of our understanding and interpretation of current laws and regulations and is not exhaustive. Neither NEXT Financial Group, Inc., nor its representatives are qualified to give tax or legal advice. 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. 1250 N MOUNTAIN RD STE 4 HARRISBURG, PA 17112 (717) 652-4965. Toll free (877) 837-3024.

about what is happening in the financial world around you and why this stock market is setting new highs. I encourage you to re-evaluate your risk and your time horizon. Back in 1996, Allen Greenspan was discouraging irrational exuberance, Ben Bernankie in 2013 is encouraging it. The Fed has driven interest rates so low that even the most conservative investor needs to leave the nest of a secure investment and venture out into more aggressive assets. This drive of your money did not happen by mistake. The Feds want you taking on more risk and investing in the economy. We have no historical precedents to go by because the Feds have never

Scott C. Weaver, CFP, CFS, CAS done this at this magnitude before, EVER! We are all part of one big experiment. The Fed is trying to ignite the economy so it can stand on its own two feet. The Fed has intervened before but never at this magnitude. Here is a current scoreboard of what is happening:

OR…..

Why stocks may eventually run into trouble (glass half empty): 1. Herd Mentality. Unfortunately, investors will chase performance. From the bottom of the 2008 stock market until April of 2013, the stock market is up 100%. Unfortunately, from 2008 until the end of 2012, most investors got out of stocks and did not buy them; consequently, suffering big losses and missing out on the subsequent rebound. It is only recently that the herd is coming back into this market and driving it to new highs. The crowd or the herd has been wrong so many times over history. Is this time any different? 2. Many experienced professionals feel that this market is an artificial one just waiting to collapse. Listen to just a few headlines:

Mohamel El-Erian – PIMCO’s CEO and co-CIO: “the impressive stock market rally is “artificial,” being driven by central banks’ super-low interest rates. Moving forward the market will need more “genuine growth” David Stockton – Former Senior Managing Director at Blackstone Group, Lp, Budget Director under Ronald Reagan and Former Congressman from Michigan: “The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years” Richard Fisher – Dallas Fed President: “The country’s economy is stuck in “neutral” more than three years after the recession” Jim Rogers – Co-Founded the Quantum Fund “I’m certainly not investing in the U.S., the U.S. is making all-time highs based on money printing” Robert Windermere – Author of Aftershock “The economic recovery is 100% fake” Robert Shiller – Yale Economist (http://www.econ.yale/edu/-shiller/data.htm) “One sees a decline in both nominal earnings as well as real earnings declining” Jim Rogers – Co-Founder Quantum Fund “I’m certainly not investing in the U.S., the U.S. is making all time high based on money printing” 3. Sluggish recovery that just never gets going 4. Nation’s debt 5. The market is disconnecting from the economy 6. No history to judge 7. The medicine (QE3) may become the poison 8. Geopolitical risk at a premium, North Korea, Iran, and the Middle East, to name a few. 9. Real income is dropping not increasing. Real income dropped by -3.6% in January 2013. 10. Biggest concern of all is what happens when the Fed stops its bond buying 11. Increase in interest rates will hurt bonds, housing and increase payment on the national debt. 12. Corporate profits as a whole are actually stagnant. Stocks can only match corporate profits in the long run.

Unfortunately, I wish I could report that the stock market rally of 2013 was caused by a robust economy, low unemployment rates, real income growth, low energy prices and soaring consumer confidence, but I can’t. Right now, all we can count on is more borrowing and more QE3. I hope, like everyone else, this experiment goes well and we as a nation continue to be the world’s dominant economic power. As I mentioned earlier, reassess your risk, take time to understand this market and then place your bets. Happy Investing! CW



Capital Watch May 2013