HB 1690 Is Mild Liquor Reform

HB 1690 Is Mild Liquor Reform HB 1690 Is Mild Liquor Reform

By Leo Knepper

On Tuesday, (June 7) the Pennsylvania House overwhelmingly passed HB 1690 to modernize Pennsylvania’s Prohibition-era alcohol sales. The bill passed the Senate in December of 2015. By all indications, Governor Wolf will sign the legislation into law. If HB 1690 is signed, it will make the purchase of wine and beer somewhat more convenient for consumers.

The biggest changes will be that some grocery stores will now be able to sell wine in addition to beer if they have a separate checkout area. Also, some gas stations meeting specific criteria will also be able to sell beer.

Gas stations will require special approval from the PLCB and must have a separate checkout area for beer purchases. Unfortunately, the PLCB will still control wholesale of wine and spirits. State stores will still be the only show in town when it comes to making the purchase of spirits. Furthermore, the PLCB will now be able to engage in promotional pricing to encourage increased consumption of alcohol, but they will also be charged with enforcing the law and encouraging “responsible” consumption.

One final negative we came across when reviewing the fiscal notes for the legislation was the inclusion of $2 million in corporate welfare. Pennsylvania government will now be able to award up to $1 million in grants to increase the production of wine and an additional $1 million in grants to increase the production of beer and malt beverages. Oddly enough, Pennsylvania became the number one craft beer producer in the country earlier this year without any government assistance. Keep this $2 million over the course of the upcoming budget debate when you hear someone say spending has been cut to the bone.

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

HB 1690 Is Mild Liquor Reform

Pennsylvania Baseline Budgeting Must End

Pennsylvania Baseline Budgeting Must End

By Leo Knepper Pennsylvania Baseline Budgeting Must End

Some Pennsylvania legislators are proposing revolutionary changes to the state budget process.

And, by revolutionary we mean doing something that the private sector has been doing for decades.

On Tuesday, the “Taxpayers Caucus” released a report highlighting over $3 billion dollars in potential savings this year. Many of the items have been discussed separately in the past, but this is the first time anyone has compiled them in one place. In reviewing the report, there were items related to the budget process that stood out in terms the scope of the changes proposed.

The most interesting thing was the proposal to modify the budget process completely. Although this change did not have a dollar amount attached to it, following the report’s recommendations could save taxpayers billions over the medium term. Specifically, the report called for Pennsylvania to shift from “baseline budgeting” to a hybrid budget process comprised of performance-based budgeting and priority-based budgeting. Discussions about budgeting processes are usually enough to make one’s eyes glaze over, but switching to a hybrid budgeting process would represent a radical shift in how the Commonwealth spends your money.

Baseline budgeting is a simple (and terrible) way to allocate resources. What it means is that an agency or department looks at what their budget was this year and assumes that they will get a certain percentage more next year. Baseline budgeting means that spending will essentially never decrease. Furthermore, it is how agencies can claim that their funding got cut even though they got more money year over year.

Let’s say Agency X received $1 million last year. Their assumption is that they will get 5 percent more this year, or $1.05 million. Instead, the legislature increases Agency X’s budget by “only” 3 percent, to $1.03 million. Under baseline budgeting Agency X would now state that their funding was “cut”, but in reality, they just got a smaller increase.

In contrast, performance- and priority-based hybrid system eliminates the assumption that Agency X will automatically get more money, and more importantly it raises the possibility that the funding might go away entirely if the programs it administers aren’t performing as well as alternatives or if the priorities of the Commonwealth change. Most programs run by the state and federal government do not have a clear objective, or if they do there is very little information available on what progress is being made to achieve that goal. Economic Development, i.e. corporate welfare, and social welfare programs are notoriously bad at setting objectives and measuring performance. A real world example would be for a business to invest in all new servers to reduce downtime, but never measuring the downtime to see if it worked.

Priority-based budgeting is what CAP called for during the last few budget cycles. It is similar to how families budget. They know their income and make financial decisions based on the amount of money they have, which is a stark contrast to how government typically operates. The government generally decides how much to spend and then tries to figure out where to get the necessary money.

The changes proposed by the Taxpayer Caucus would drastically alter the culture of government from one of entitlement to one of results. The budgeting process is not particularly exciting and does not make good headlines. However, the basic assumptions underlying the allocation of resources affects Pennsylvanians in a profound way, and it is worth examining carefully.

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

Pennsylvania Baseline Budgeting Must End

Tobash Plan Bad Pension Reform

Tobash Plan Bad Pension Reform Tobash Plan Bad Pension Reform

By Leo Knepper

There are times when we can almost repost an old blog verbatim, and this is one of those times. On May 17, the House State Government Committee voted HB 1499 out of committee to the floor of the House; this is the third iteration of bad pension legislation.

As we noted last year:

“The Tobash plan was introduced last year [2014] as an amendment to HB 1353. At that time, it set up a ‘stacked’ retirement benefit system. The first $50,000 in state employee pay is eligible for a traditional pension; beyond that there is a 401(k) style plan. It is worth noting that the average state employee salary was $52,655 for 2014. In other words, the Tobash plan as introduced last year would have had impacted very few future employees. According to actuarial analysis done last year, 98.8% of the ‘savings’ projected under the Tobash plan is 15 years or farther into the future, which is a pretty big problem since SERS and PSERS are on course to be bankrupt in 15 years.”

The current version of the Tobash plan has all of the same problems and does not address the pension problem in any meaningful way. Instead, it is a reform in name only.

By their very nature defined benefit pension plans leave employees at the mercy of politicians. The current pension systems have a combined unfunded liability of more than $60 billion because elected officials are loath to make hard decisions when it comes to paying for the promises that they’ve made. HB 1499 does nothing to protect new employees or members of the current system. It creates an illusion of reform designed to avoid making government union bosses too angry and appease taxpayers who don’t have time to look into the legislation beyond the “pension reform” headline.

In their analysis of the legislation, the Commonwealth Foundation found further problems with the plan design:

“Moreover, this model provides poor plan design for workers. Public employees should be contributing more toward a defined contribution plan at the front end of their career to give their investments time to grow. Under a stacked hybrid, workers invest more in a defined contribution plan as they near retirement.

“Research shows defined contribution plans provide stable and substantial retirements when workers invest over their career.”

If Tobash’s “reform” is the best the General Assembly can muster, taxpayers are in for a double-dose of trouble. Senate Majority Leader Jake Corman (R-34) has indicated his willingness to trade a tax increase for an “overhaul” of the pension system. There is no need for a tax increase. The Legislature needs to prioritize spending. Furthermore, taxpayers should be livid that Corman would trade their hard earned money for reform that, at this point, will do little to nothing for solving the pension problem now or in the future.
Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Tobash Plan Bad Pension Reform

Corruption Caused Pension Crisis

Corruption Caused Pension Crisis

By Leo Knepper Corruption Caused Pension Crisis

No matter what pension plan design reforms the legislature enacts for future employees, the Commonwealth will still have a massive unfunded liability. The unfunded liability is the result of over-promising retirement benefits, poor investment performance, investment performance, but mostly a willful redirection of necessary pension contributions by the Pennsylvania government to other purposes. This gross negligence on the part of elected officials has been bipartisan. It started with the 2001 pension increase signed into law (Act 9) by Governor Ridge and continued through the Rendell years when he signed legislation that purposefully underfunded the pension systems (Act 40 in 2003 and Act 120 in 2010).

Decades of mismanagement have resulted in a combined $63.3 billion in unfunded liabilities, based on the market value of assets. The longer the unfunded liability persists, the worse it becomes. It’s helpful to look at the unfunded liability as a loan. This “loan” has a 7.5 percent annual rate. In Year 1, the principal is $63.3 billion. If no payments are made, the amount due increases to $68 billion next year, then $73.2 the following year and so on. In other words, the unfunded liability grows year after year unless the payment made exceeds interest and the cost of newly earned benefits.  And, just like any other loan we need to be making payments on the principal.

The loan example conveys the basics of the problem. Rep. John McGinnis (R-79) introduced HB 900 last year to address the unfunded liability. In his co-sponsorship memorandum, McGinnis states:

“Right now, just the annual interest on the pension debt is over $4 billion, equivalent to the full yearly salary and benefits for over 50,000 teachers.  The situation is so dire that there are likely scenarios where the pension assets will become exhausted in the next 8 to 15 years.  When that happens, benefits paid to retirees may well consume 40 percent to 50 percent of the general fund.  The consequences for our future only get worse as we delay dealing effectively with this problem.

“The right approach is to follow the recommendation of the 2014 Blue Ribbon Panel on Public Pension Funding commissioned by the Society of Actuaries and commit ourselves to paying off the current UALs [unfunded accrued liabilities] of SERS and PSERS over 20 years with level dollar funding.  It is not just the responsible thing to do after more than 10 years of serious underfunding–it is absolutely necessary to prevent substantial and irreversible harm to the future of Pennsylvania.”

We can avert the fiscal catastrophe. However, every day the General Assembly does not act, the unfunded liability grows. HB 900 is currently in the House State Government Committee. Please, contact your representative today at this link and urge them to take action.

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

Corruption Caused Pension Crisis

DEP Math Doesn’t Add Up

DEP  Math Doesn’t Add Up

By Leo KnepperDEP  Math Doesn't Add Up

 

First, a little background. In 2010, the EPA in Washington, DC imposed regulations governing nutrients that made their way into the Chesapeake Bay. The Susquehanna River is part of the Chesapeake Bay Watershed; giving the EPA authority over nearly half of Pennsylvania’s landmass due to the various tributaries feeding into the Susquehanna. The cost to Pennsylvania taxpayers to meet the EPA’s mandates will be nearly $5.6 billion over the next 10 years under the current reduction system. Here is where the Secretary of the Department of Environmental Protection (DEP), John Quigley comes into play.

Earlier in March, Quigley was questioned about the cost savings Pennsylvania taxpayers might enjoy if the nutrient reduction targets were achieved using competitive bidding via the private sector versus the current model that is driven by large-scale government infrastructure spending. A rebuttal from The Coalition for Affordable Bay Solutions (CABS) neatly summarized the duplicity of Quigley’s response:

“…[I]f $2 per lb. nitrogen reduction credits from riparian buffers are available to meet the Bay mandate . . . [then] the total cost to meet the 24 million lbs. of nitrogen mandates would be $48 million annually. Yet the Secretary continues to state that the most reliable estimate of the resources required to meet the mandate is $5.6 billion including operations and maintenance through 2025.”

The numbers that Quigley uses to argue against competitive bidding total $480 million over 10 years, but at the same time, he is stating that the DEP needs more money because the cost will be $5.6 billion in the same period. Both statements cannot be true.

In further researching the subject, we reviewed a 2013 report completed by the Legislative Budget and Finance Committee (LCBF) that found using a competitive bid process would reduce the cost to taxpayers by 80-85 percent versus maintaining the status quo. It is no surprise that the competitive bidding option would save taxpayers money. However, it is unfortunate that the Secretary of the DEP would oppose a more cost effective method for complying with a federal mandate.

Unless the EPA reverses course on Chesapeake Bay Watershed requirements, Pennsylvania taxpayers will have to pay to comply. The question is how much money it will take to comply. To reduce costs, Pennsylvania must embrace a competitive bidding program. Currently, there is legislation in the Senate (SB 724) that would set up the necessary legal framework. We will monitor the legislation and keep you informed on its progress.
Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

DEP  Math Doesn’t Add Up

Wolf Accepts Reality

Wolf Accepts Reality

By Leo Knepper

Wolf Accepts Reality
Gov. Tom Wolf

At a press conference Wednesday (March 23), Governor Wolf begrudgingly accepted reality and announced that he would allow the recently passed budget to become law. He will not sign the budget, but the Pennsylvania Constitution allows legislation passed by the General Assembly to become law ten days after passage if it is not signed or vetoed.

Initially, the Governor stated he would veto the budget, yet again, and drag the nearly nine-month saga out even longer to force the General Assembly to raise taxes. Wolf’s strategy was met with widespread criticism from within the Democratic caucuses and the usually friendly news media. On final passage, Democrats in the House and Senate joined with their Republican colleagues in voting for passage of the budget. Media reports also indicated that there would be widespread defections in the House and Senate among Democrats leading to a veto override if Wolf went down that path again.

While the budget could have done more to reign in out of control spending, it is a far cry from the Governor’s original proposal that would have required a multibillion-dollar tax increase to pay for even higher levels of spending. The enactment of this budget has an impact broader than funds being released to schools. Wolf’s 2016-2017 proposed budget had, in a flight of fancy, assumed that he would have gotten his way from the General Assembly in the 2015-2016 budget. By finally accepting lower spending for the current year, the baseline for the next budget decreases substantially. This would not have been possible without CAP members in the General Assembly, and other conservatives in Harrisburg.

We hope Governor Wolf learns some long-term lessons from his budget battle. However given his previous pronouncements about spending levels, we won’t be holding our breath.

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

Wolf Accepts Reality

PSERS Loses Money

PSERS Loses Money




PSERS Loses Money

By Leo Knepper

The Pennsylvania Public Schools Employee Retirement System (PSERS), released its 2015 performance results last week, and they weren’t good. PSERS assumes a 7.5 percent rate each year to avoid appearing even more underfunded than its publically stated $44 BILLION in unfunded liabilities. For 2015, PSERS lost nearly 1.8 percent. When we’re dealing with billions of dollars, the difference between the pension plan’s expected returns and actual returns is a substantial amount of money.

Last year’s loss comes despite PSERS spending a small fortune on “active” fund managers who are supposed to anticipate future market conditions and invest resources accordingly. As noted by the Philadelphia Inquirer:

“PSERS’s extra losses reflected its unusually large bets on commodity fund managers. The system posted a 33 percent loss for funds invested in “Master Limited Partnerships” (typically oil and gas investments), an 18 percent loss for commodities investments, and an 8 percent loss in “risk parity” investments, which can look a lot like hedge fund strategies.”

No fund manager can outperform the market every time, and this isn’t just the opinion of CAP. It a position widely held by well-respected academics and folks like Warren Buffet.

The previously mentioned Inquirer article notes that Montgomery County adopted a low-cost index fund investment approach two years ago. Last year, they substantially outperformed PSERS with a modest .3 percent return on investments. Montgomery County’s performance was not a fluke. In his book “Future Forsaken”, John McGinnis compares PSERS performance (and the others SERS system) to an index fund approach. He found that the low-cost option outperformed the current actively management funds across a thirty-year time horizon.

On top of outperforming active managers, switching to lower cost index funds could save taxpayers $750 million per year. Given the facts, there is no reason for the state’s pension systems to maintain the status quo and every reason to explore alternatives to protect taxpayers and future retirees.

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

PSERS Loses Money

Wolf Pension Commission Reversal

Wolf Pension Commission Reversal By Leo Knepper

One of the casualties of Governor Wolf’s budget veto was a little-known agency that independently reviews proposed changes to pubic pensions and regulates municipal pensions. The Public Employee Retirement Commission (PERC) was established by law in 1972, and its duties were expanded by two separate laws subsequently. Despite its statutory basis, Governor Wolf decided he could eliminate PERC with the stroke of a pen.

Representatives Stephen Bloom and Seth Grove disagreed and filed a lawsuit to keep PERC open. The Governor continues to argue that he has the authority to eliminate the agency without any input from the legislature. However, the administration entered into an agreement with the lawmakers to keep PERC open, and it was approved by a court.

Governor Wolf’s position is that the work performed by PERC can be performed by other agencies. He may be correct. PERC’s role might be able to be filled by non-dedicated employees at substantial savings to taxpayers. However, Wolf does not have the authority to eliminate an agency created by law on a whim. Instead, he should go through the legislative process and respect the separation of powers.Wolf Pension Commission Reversal

Governor Wolf is taking a nice leisurely stroll down the road toward authoritarianism and taking a page out of President Obama’s playbook on executive overreach. Limitations on the authority of the executive branch does not seem to be something the he is inclined to observe. Wolf is in the process of creating a constitutional crisis by vetoing prison funding and then requesting the same funds to be distributed by the Treasurer. Finally, he unilaterally raised the minimum wage for state employees.

We are just over a year into Wolf’s tenure. It will be interesting to see what he tries to get away with next.

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

Wolf Pension Commission Reversal

Tomlinson Funeral Business Called Conflict

Tomlinson Funeral Business Called Conflict By Leo Knepper

In early January, we noted the conflict of interest between Senator Robert “Tommy” Tomlinson’s (R-6) role in the legislature and professional life as a funeral director:

“These two careers shouldn’t interfere with each other, but Sen. Tomlinson’s role as chairman of the Senate of Consumer Protection and Professional Licensure Committee is putting his two jobs in conflict, raising profound ethical questions that should concern Pennsylvania taxpayers. Tomlinson Funeral Business Called Conflict

“Despite no documented consumer complaints, his committee and the Senate have approved SB 874, pushed by Sen. Tomlinson and his fellow funeral directors to stop legitimate competition with cemeteries in the area of pre-need sales. The name of the committee is ironic since the legislation would create less competition and higher prices for families burying loved ones.

“While he isn’t the prime sponsor of SB 874, Capitol insiders refer to it as ‘Tommy’s bill.’ Many are rightly calling this bill a product of a ‘turf war’ between southeastern Pennsylvania funeral homes and a company called StoneMor.”

Rather than backing off of the legislation that would benefit him personally, Senator Tomlinson has not only doubled down he is now using his position as Chairman in an attempt to extort the House:

“He has warned lawmakers he will not run certain bills out of his committee until his counterparts in the House Consumer Affairs Committee pass the cemetery bill, a source said. As a result, two water companies, which have no connection to the funeral industry, are lobbying the House to approve the cemetery bill so their bills, already approved by the House, get a fair shake in the Senate, that source said…Rep. Robert Godshall, R-Montgomery, chairman of the House Consumer Affairs Committee, declined to comment, saying he did not want the situation to get worse for the Legislature.” (Emphasis added)

Sen. Tomlinson denies that he is using his position to benefit his family business. Despite statements from the Federal Trade Commission indicating that the changes are unnecessary and would result in higher prices, Tomlinson insists that he wants to change the law for the benefit of consumers.

We will keep you informed about the legislation if there is any movement, or if Tomlinson can explain how higher prices and reduced competition are good for you.

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

Tomlinson Funeral Business Called Conflict

Kathleen Kane Hearing Theater Of Absurd

Kathleen Kane Hearing Theater Of AbsurdKathleen Kane Hearing Theater Of Absurd By Leo Knepper

Under the Pennsylvania Constitution, the Governor can request the removal of certain “civil officials” outside of the impeachment process. After the suspension of Kane’s law license, and refusal to resign, a Special Committee on Senate Address was convened to determine if Kane should remain in office without her law license. On Tuesday, (Jan. 12) the Special Committee on Senate Address held its final hearing on Attorney General Kathleen Kane.

The hearing was eye-opening, to say the least. Although Attorney General Kane did not testify, her Chief of Staff, Jonathan Duecker, addressed the Committee in her stead. Duecker was frequently backed into a corner, mainly because his positions defied logic and were self-contradictory. When his statements didn’t put him into a corner, they were hedged and revealed how little Duecker knew about the operations of the Attorney General’s office. For example, Duecker had no idea what Kane’s day to day schedule was and couldn’t say for sure when she had last worked in Harrisburg. He also didn’t know if Kane had provided written instructions to the Attorney General’s legal staff about changes to procedure after she had her law license suspended. Duecker also was unable to answer fundamental questions about the contracting process Kane went through when she appointed a “Special Prosecutor” related to her investigation into pornographic emails. His unfamiliarity with the details of this contract comes as a surprise considering its high profile and the controversy it caused among the legal staff in the AG’s office.

If you have two and a half hours and want to watch the testimony, it can be found here. However if you wish to maintain any confidence in the operational capacity of the Attorney General’s office, you should probably skip it.

Rounding out the hearing was testimony from Ed Rendell. He didn’t exactly speak in defense of Kane. Rather, he talked about his time as the Philadelphia District Attorney and how a large part of his work did not require him to have a law license. Although Rendell seemed to enjoy his walk down memory lane, his testimony was only marginally relevant because District Attorneys are not subject to the Commonwealth Attorneys Act. The Act defines the role of the AG as an elected position and what legal responsibilities it has in the Commonwealth. Despite Rendell’s commentary, his experience as a District Attorney is hardly relevant to Kane’s ability to function with a suspended law license. He also urged the General Assembly to go through the impeachment process, instead of the Senate utilizing the Special Committee on Senate Address to resolve the issue of Kane’s suitability for office.

The Senate Committee will issue its final report by the end of January and make its recommendation to the full Senate.
Mr. Knepper is executive director of Citizens Alliance of Pennsylvania.

Kathleen Kane Hearing Theater Of Absurd