Most Diverse Economy Is Pennsylvania’s

Most Diverse Economy Is Pennsylvania’s

By Leo Knepper

Bloomberg’s latest release, the Economic Diversity Index, found that Pennsylvania has the most diverse economy in the country. We even edged out Texas. Economic diversity is essential, because it allows the Commonwealth to avoid the worst impacts of economic downturns. It’s like the adage of not having our eggs all in one basket. Our geographic proximity to a large swath of the US population, abundant natural resources, and world-class, high-tech research should be the perfect mix for a booming economy. But, it is not what is happening. Although our growth rate is higher than many of our neighbors, we continue to be held back.

Why?

The problem can be traced to two primary sources (which as loyal readers you can probably guess): a high corporate tax rate, and over-regulation. Pennsylvania’s corporate tax rate is 9.99 percent. The second-highest in the nation. Our elected officials are quick to point out that due to various corporate welfare programs, and “economic incentives,” most businesses do not pay that rate. While technically accurate, when we look at the last fifty years, we need only ask ourselves if the legislature’s preferred approach of picking winners and loser has paid off? Judging by the shortage of newly formed businesses, and the relative loss of population, the answer is clearly NO.

The second and more pernicious source of drag on our economy is the Commonwealth’s regulatory environment. Businesses face a literal mountain of regulations. In 2017, James Broughel painted a stark picture in testimony to the Pennsylvania House Committee on State Government:

“As of earlier this year, Pennsylvania has 153,661 regulatory restrictions in its administrative code. Some of these restrictions are vital for protecting the health and safety of citizens, but others just make the code unnecessarily complicated. There are 208 restrictions governing the design and use of ladders in the state, and there are 190 restrictions setting standards for consumer packages and containers. Surely some of these restrictions are not necessary for safeguarding public health, safety, or the environment.” (Emphasis added)

The scope, and occasionally contradictory nature, of Pennsylvania’s regulations, means that small and medium-sized businesses are forced to divert their attention from the actual “business.” They spend considerable time and money focused on complying with regulations; not making money and growing. Larger businesses are by no means exempt from the regulatory burden, but their size allows them to delegate the task of compliance to dedicated staff. There is no doubt that the money larger businesses spend on compliance could be better spent, but the impact is relatively higher for smaller firms.

The practical impact of overregulation cannot be overstated. Referring back to Mr. Broughel’s testimony:

“If Pennsylvania’s economy were to grow at 4 percent per year, it would take just 18 years for its real GDP to double. This means that if a child were born in Pennsylvania today and the state grew at 4 percent per year, that child would enter college in an economy twice the size of the economy in which he or she was born. By contrast, growing at 1 percent per year takes 70 years to double real GDP, just 9 years shy of the life expectancy at birth of someone born in the year 2014. Since the year 2000, Pennsylvania real GDP growth has averaged just 1.5 percent per year.” (Emphasis added)

Cutting the corporate tax rate and the overall regulatory burden would unleash Pennsylvania’s economy. It is, unfortunately, the road less traveled in part because politicians don’t have the same opportunity to get their picture taken with a giant cardboard check.

There are currently twelve pieces of legislation waiting for action that have been assigned to the Senate Committee on Intergovernmental Operations. Four of those bills have already passed the House. The Senate has an opportunity to make long-term changes in how the Commonwealth approaches regulation.

Please take a moment to contact your Senator. Ask them to take action that will encourage growth and could help make Pennsylvania the economic success story of the 21st century.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Most Diverse Economy Is Pennsylvania’s
Most Diverse Economy Is Pennsylvania's

Pennsylvania Incumbent Protection Plan

Pennsylvania Incumbent Protection Plan

By Leo Knepper

A recent report from LancasterOnline outlines the cost of one component of the “Incumbent Protection Program” operated by the General Assembly:

“Welcome to the state Capitol, where elected officials and their staffs operate a massive, sophisticated and partisan media machine that costs taxpayers nearly $10 million a year at a time when the number of journalists serving as watchdogs on government is shrinking…In a building home to one of the largest, most expensive legislatures in the country, there are at least three of these television studios built to produce state-run, news-like programs for state lawmakers.” (Emphasis added)

That’s right, $10 million per year to operate three television studios and an impressive public relations (PR) operation. Each of the four caucuses operates their own private, tax-payer funded, PR firms. These slick PR operations produce everything from news-letters to tele-town halls to professionally made videos of lawmakers touring businesses in their districts.

Lawmakers would argue that all of these expenses help them to connect to their constituents. One has to wonder how many of these “essential” communication attempts would be made if lawmakers were term-limited. Or, if they weren’t trying to hold onto an $85,000 per year salary and a golden parachute.

The PR expenses are only one component of a system that the General Assembly has built up over time to protect themselves from the electoral competition. This year, the legislature has a budget of over $350 million. They abuse this system to build their own name ID and ensure they enter every electoral cycle with an advantage that is costly to overcome. Communicating with constituents is one thing, but most of these expenses don’t even pass the laugh test as being necessary to accomplish that goal.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Pennsylvania Incumbent Protection Plan
Pennsylvania Incumbent Protection Plan

HB 1410 Weakens Budget Oversight

HB 1410 Weakens Budget Oversight

By Leo Knepper

Please, take a moment to contact your Representative and Senator. Ask them to oppose HB 1410.

Pennsylvania’s annual budget process is ripe with problems. Members of the General Assembly are typically given a day to review hundreds of pages of proposed spending, and accounting gimmicks hide the size of spending increases. One of the tricks used to disguise spending is the use of “special funds.” Special Funds frequently become part of the shadow budget with minimal accountability over the spending. One bill gaining traction is the House would add to the problem. HB1410 purports to address a vacated military base that has polluted the water system for the surrounding area.

HB 1410 establishes a Keystone Opportunity Zone around the “qualified former Military Installation.” It allows the municipality to establish a “qualified authority” to fund military installation remediation. The legislation provides a formula to collect a percentage of taxes (CNI, Sales & Use, Personal Income Tax, Realty Transfer Tax, & Local Taxes,) to fund the authority.

HB 1410 directs the State Treasurer to create a new Special Fund known as the Military Installation Remediation Fund to collect monies. Note that the Commonwealth has 36 environment-related special funds. Specifically, Pennsylvania has a safe drinking water special fund, an industrial sites cleanup fund, and a hazardous sites cleanup fund. Any or all of those funds could be utilized for a remediation project such as this if authorizing legislation was passed to allow qualified former military installation projects to be eligible for the monies in these various special funds.

Finally, HB 1410 directing the State Treasurer to establish restricted accounts within the special fund for each qualified former military installation. The funding can be used for funding transportation infrastructure, economic development costs, payment of debt service for construction, infrastructure, site preparation, etc. In other words, it can become a slush fund for pet projects. Raising additional concerns is the provision that allows the State Representative and Senator in that municipality, or an adjacent one, to serve as a board member of the established authority.  The Representative who introduced the legislation, Todd Stephens, just so happens to meet the qualifications to sit on the board.

HB 1410 addresses a problem with questionable methods, and grants the board, and potentially select members of the General Assembly, overly broad discretion in what projects to fund. It runs the risk of becoming one more shadow budget item.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

HB 1410 Weakens Budget Oversight Please, take action on HB 1410.

HB 1410 Weakens Budget Oversight

Wolf Condemns Children To Failed Schools

Wolf Condemns Children To Failed Schools

By Leo Knepper

In 2018, over 50,000 students were denied education scholarships through the EITC (Education Improvement Tax Credit) and OSTC (Opportunity Scholarship Tax Credit) due to a lack of funds thanks to statutory limits. There is currently a waiting list of eligible businesses willing to provide $80 million to the programs in exchange for the tax credits offered. Who could possibly think that standing in the way of expanding educational opportunities is a good idea? The answer is, sadly, Governor Tom Wolf.

Wolf Condemns Children To Failed Schools
Does he really hate children that much? Yes, yes he does.

Almost immediately after passage, Governor Wolf announced his intention to veto HB 800. The legislation would have increased the EITC and OSTC limits by a combined $100 million. The bill would have also expanded scholarship eligibility to include more middle-class families. Despite his lofty rhetoric that a zip code shouldn’t determine the quality of a student’s education, his veto guaranteed that children will be trapped in failing schools. Pennsylvania currently spends more than $16,000 per student, on average, per year. Despite that amount being well over the national average, too many schools fail to provide the education that students deserve.
 
The EITC and OSTC provide assistance to families who live in school districts that underperform and allow students an opportunity to reach their full potential. Our friends at the Commonwealth Foundation estimated that the increased tax credits and eligibility requirements in HB 800 would have benefited 90,000 students over the next five years.
 
Expanding educational opportunities and empowering parents should be a bipartisan issue, but it isn’t. Thanks to the opposition from teachers’ unions and their allies in the Governor’s Mansion and General Assembly, Pennsylvania’s students pay the price.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Wolf Condemns Children To Failed Schools

Budget Season Bad Ideas

Budget Season Bad Ideas

By Leo Knepper

It’s June in Harrisburg, and that means that the Capitol is teeming with lobbyists trying to convince lawmakers to spend someone else’s money on their client’s causes. Sometimes that takes the form of subsidies like the nuclear power bailout, or the $250 million Race Horse Development Fund. However, bad ideas are not limited to spending tax dollars. One popular, and harmful policy, that continues to pop-up while lawmakers look for horses to trade is an increase in the minimum wage.

A recent article from the Associated Press notes that Republicans in the General Assembly have until now rebuffed efforts to increase the minimum wage. According to the article, there is now some movement among Republicans in the Senate to raise the minimum wage:

“In that chamber, Labor and Industry Committee Chairwoman Camera Bartolotta, R-Washington, is preparing legislation to boost the minimum wage by a ‘cost-of-living increase,’ which she said would protect business owners from crushing new costs.

“She declined to give details.

“Senate Majority Policy Committee Chairman David Argall, R-Schuylkill, said he also supports some sort of minimum-wage increase and that Senate Republicans have discussed the idea of tying an increase to policies to get more people into the workforce and off public assistance programs.”

Lawmakers who advocate increasing the minimum wage are no doubt well-intentioned, but there are always unconsidered, or unintended consequences to their interference in the labor market. One item that is rarely discussed in debates on minimum wage is the simple fact that government-mandated wages, by their nature, interfere with an individual’s freedom of contract. Freedom of contract is a person’s right to bargain and create an agreement without interference. When the government sets a minimum wage, that freedom is diminished.

A second problem with increasing the minimum wage is more practical; it harms the people that the policy change purports to help. The Independent Fiscal Office estimated that raising the minimum wage to $12.00/hour would destroy 33,000 jobs in Pennsylvania. Their report may underestimate the impact substantially. Ontario, Canada increased their minimum wage by 20 percent from 2017 to 2018, and there was a nearly immediate elimination of over 59,000 part-time jobs. Most of the wage proposals being floated would surpass Ontario’s wage increase on a percentage basis.

The real minimum wage is zero. When politicians forget that and try to set wages, they may feel good about themselves, but workers pay the price in lost jobs and decreased hours.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Budget Season Bad Ideas
Budget Season Bad Ideas


Alternative Power And Nuclear Plants

Alternative Power And Nuclear Plants

By Leo Knepper

In 2017 the nuclear power industry began lobbying Pennsylvania lawmakers to institute a bailout scheme. Due to federal regulations and an abundant supply of natural gas, the electricity produced by nuclear power plants costs more than electricity generated by other sources. Lobbyists for the nuclear power industry found little appetite in the General Assembly for the kinds of bailouts enacted by other states. The nuclear power industry has been undeterred and is now attempting to convince lawmakers to support a stealth bailout of the industry via Pennsylvania’s Alternative Energy Portfolio Standards (AEPS).

You may not have ever heard of the AEPS, but you are paying for it every month in your electric bill. Simply put, AEPS requires an electric company to purchase a certain percentage of their electricity from solar, wind, and other “alternative energy” sources regardless of cost. Because it costs more to generate electricity from alternative energy sources, consumers pay more for their power than they would under free-market conditions.

Being included in the AEPS list has certainly given alternative energy sources an unfair advantage over traditional energy sources. The best thing for consumers would be to eliminate the AEPS list. However, the nuclear power industry has decided that they want in on the game. They and their allies argue that being included on the AEPS shouldn’t be called a bailout; they have a point, but it is something far worse.

With a bailout, taxpayers would know up front just how much we will be responsible for adding to the nuclear industry’s bottom line. By lobbying for inclusion in the AEPS, the financial commitment from consumers is open-ended and undefined. According to the Commonwealth Foundation, the cost to Pennsylvania for the current AEPS regime is estimated to be a $700 million increase in energy costs and the loss of 11,400 jobs by 2025.

Members of the General Assembly should be appalled by the suggestion to expand the AEPS. If they wanted to help the nuclear power industry compete, they should take the government’s finger off the scale entirely and eliminate the preferential treatment given to some producers over others. Let the free-market work; not only would this help the nuclear power industry, but it would also reduce the costs for consumers.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.
Alternative Power And Nuclear Plants
Alternative Power And Nuclear Plants

Pennsylvania Ranks Low For Business

Pennsylvania Ranks Low For Business

By Leo Knepper

Pennsylvania Ranks Low For Business

Every year tax dollars are used to bribe businesses to come to or stay in Pennsylvania. The General Assembly, the Governor, and local governments may call it “economic development” but it’s another version of engaging in central planning for economic growth. Based on lackluster job growth, and an ever-dwindling population you would think that our elected officials would have learned their lesson after fifty years of failure; they haven’t.

For evidence of their failure, look no further than the Commonwealth’s rank in terms of overall business tax climate. According to the Tax Foundation’s latest analysis, Pennsylvania ranks thirty-fourth out of the fifty states for business taxes. An article from Watchdog.org gives a good breakdown of the methodology used in the comparison:

“The analysis examined more than 100 variables involving the states’ primary methods of taxation: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes. Many of the top-rated states lack one of those five major taxes, but a few apply all the taxes with low rates and broad bases.

“Pennsylvania ranked No. 43 for its corporate tax; No. 18 for its individual income tax; No. 21 for its sales tax; No. 34 for its property tax; and No. 46 for its unemployment insurance tax.”

Our poor tax climate, an overly-burdensome regulatory environment, and a reputation as a place ripe for lawsuit abuse all combine to put Pennsylvania at the bottom of the list as far as a place to start a new business. If the legislature were really interested in fostering economic growth in the Commonwealth, lawmakers would make a concerted effort to move Pennsylvania into the top ten states to do business.

For evidence of their failure, look no further than the Commonwealth’s rank in terms of overall business tax climate. According to the Tax Foundation’s latest analysis, Pennsylvania ranks thirty-fourth out of the fifty states for business taxes. An article from Watchdog.org gives a good breakdown of the methodology used in the comparison:

“The analysis examined more than 100 variables involving the states’ primary methods of taxation: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes. Many of the top-rated states lack one of those five major taxes, but a few apply all the taxes with low rates and broad bases.

“Pennsylvania ranked No. 43 for its corporate tax; No. 18 for its individual income tax; No. 21 for its sales tax; No. 34 for its property tax; and No. 46 for its unemployment insurance tax.”

Our poor tax climate, an overly-burdensome regulatory environment, and a reputation as a place ripe for lawsuit abuse all combine to put Pennsylvania at the bottom of the list as far as a place to start a new business. If the legislature were really interested in fostering economic growth in the Commonwealth, lawmakers would make a concerted effort to move Pennsylvania into the top ten states to do business.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

 

Pennsylvania Ranks Low For Business

Spending Curse Is Bipartisan In Pa.

Spending Curse Is Bipartisan In Pa.

By Leo Knepper

A common sentiment among our followers on social media is that Pennsylvania would be much better off if everyone just voted “red” or elected more Republicans. We can certainly appreciate the sentiment, but it ignores two critical facts from recent history. First, when the General Assembly increased their own pensions by 50 percent, and other government employees by 25 percent in 2001, it was a bipartisan effort. The Governor who signed the bill into law was a Republican, Tom Ridge. Second, when the proposal to increase Pennsylvania’s gasoline tax to the highest in the nation was floated in 2013, it was Republicans who were behind the wheel. Governor Corbett, along with Republican leadership in the House and Senate twisted the arms of other Republicans to make this regressive tax increase a reality.

Not every example of profligate spending has such widespread effects. Consider the $1 million price tag for renovations recently completed at the Capitol in Harrisburg. From an article in The Caucus (subscription required):

“The chief clerk of the Pennsylvania Senate has new office digs — at a cost of more than $1 million in taxpayer money, including $30,000 for draperies and a set of fancy $800 chairs. The spending on the office’s relocation from near the Capitol cafeteria to formerly vacant space on the first floor of the North Office Building included furnishings, renovations and consultants, records show…

“The spending included:

  • More than $30,000 on draperies from Decorating Den Interiors, a Harrisburg-based interior-design company. The cost of outfitting one room with draperies was more than $3,700.
  • $2,300 for a desk of “heritage oak on cherry.”
  • $6,000 for eight “exec swivel” chairs, or $750 per chair.
  • $10,000 for 34 other chairs, or about $294 apiece.”

Every budget season, taxpayers are told that spending has been “cut to the bone” and every year taxpayers are forced to pay an exorbitant cost for pet projects and non-essential programs. In 2017, the General Assembly was sitting on a $95 million slush fund. The money comes from over-allocating funds to themselves, and not returning the surplus to the general fund; making matters worse, the General Assembly’s accounts are not subject to independent audit. Instead, they select the auditing firm and pay them directly. While this is no guarantee of mismanagement, it does set up the possibility of a conflict of interest for the auditing firm.

Further compounding the problem, the General Assembly has no legal obligation to make the changes recommended by their auditor. Therefore, we see many of the same reforms suggested and then ignored year after year. The legislature’s unwillingness to reform its financial process is one of the reasons that CAP supports a limited state constitutional convention. If the legislature is incapable of correcting its own deficiencies, then it is up to taxpayers to impose those reforms ourselves.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Spending Curse Is Bipartisan In Pa.

Spending Curse Is Bipartisan In Pa.

Pennsylvania Budget Violates TPA

Pennsylvania Budget Violates TPA

By Leo Knepper

Last week the Pennsylvania House and Senate adopted the 2018-2019 budget by overwhelming margins. Thanks in large part to the economic growth generated by federal tax cuts enacted by the Trump administration, and the fact that it is an election year, the voices calling for tax increases were more subdued than usual this year. Because the underlying cost drivers were not dealt with in any meaningful way in this budget, the reprieve will be temporary.

The first problem with the budget was that it exceeded the growth cap established by the Taxpayer Protection Act (TPA). The TPA limits spending growth to the rate of inflation plus population growth. As noted by the Commonwealth Foundation:

“The budget plan increases General Fund spending by more than $718 million—an increase of 2.2 percent. (Note that House leaders place the increase at 1.7 percent—adding $159 million of ‘2017-18 spending enacted in 2016-17’ to the baseline.) That means Harrisburg is demanding nearly $300 million morefrom Pennsylvanians than it would under TPA.”

In addition to the accounting gimmicks used to hide a portion of the spending increase, this year’s budget continues to underfund the Commonwealth’s substantial pension obligations. Members of the General Assembly will argue that this budget meets the actuarily recommended contribution (ARC). Meeting the ARC would be meaningful if the calculations were based on realistic assumptions; sadly, that is not the case. The ARC is artificially constructed and significantly underestimates pension liabilities and overestimates the overall return on the pension assets.

An on-time budget would be something to celebrate if it made significant changes to the Commonwealth’s fiscal trajectory. The 2018-2019 budget avoids making any tough choices. It overspends and fails to prioritize in any meaningful way. We are running out of road for the proverbial can to be kicked down. The longer the General Assembly postpones reform, the fewer options we will have, and the more painful the changes will be for everyone.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Pennsylvania Budget Violates TPA

Pennsylvania Budget Violates TPA

Education Access Now Piggy Bank

Education Access Now Piggy Bank

By Leo Knepper

The Education Access Program (EAP) budget item has increased by nearly 600 percent since the 2014-2015 budget cycle. Initially, the EAP had a $3.95 million budget. It grew to over $23 million last year. If you dig into it a little, you’ll find that the funds from the Program have been requested and spent on projects mainly to benefit Senate Democrats. In some cases, the funds go to school districts directly, but the majority of the funds have gone to support organizations like: The Philadelphia Clef Club of Jazz and Performing Arts, The Bryn Mawr Film Institute, and The Pittsburgh Opera.

Private individuals making donations to charitable organizations is a vital part of civil society. When government forces taxpayers to support particular organizations, that is another matter entirely. Lawmakers’ ability to present giant cardboard checks to local charities is a pernicious part of the “incumbent protection” program designed to make it harder to dislodge elected officials once they are elected to office. Furthermore, over the course of recent history, we have seen members of the General Assembly direct tax-dollars to “charities” that directly benefited them financially, or organizations that were run by their campaign contributors.

Beyond the problems associated with doling out tax dollars to favored charities for good public relations, sending funds to school districts via the EAP is never a one-time deal. One of the quirks in how Pennsylvania funds school districts is a “hold harmless” provision. Essentially, the amount of money sent to a school district from state taxpayers cannot be decreased. In other words, the payments from the EAP to school districts will always be included in the “Basic Education Funding” the school receives from the Commonwealth. A $10,000 grant automatically turns into an additional $10,000 included in the next year’s (and the next, etc.) baseline funding.

Despite an insistence almost every year that the state budget is “cut to the bone,” questionable spending through the EAP and other programs illustrates that that is not the case. Too many members of the General Assembly confuse wants and needs when it comes to spending tax dollars. As we move through the budget process, our elected officials would be wise to take a closer look at where our money is actually going.

Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Education Access Now Piggy Bank  By Leo Knepper  The Education Access Program (EAP) budget item has increased by nearly