Capital Watch August 2011

w w w. ca p i ta l- wat c h . c o m

CapitalWatch t s i l o d o t VOL. 4 NO. 8

inside

Readin,’ writin,’ and Marcellus Shale?

PAGE 4

Natural gas, diverse economy help keep PA jobless rate below national average PAGE 6

august 2011

Scarnati lists legislative

The state budget is done, the General Assembly won’t be back in voting session until September - Sept. 19 for the Senate, Sept. 26 for the House of Representatives - and things Red-light cameras are fairly quiet right now in the could soon be state Capitol.

In the meantime, Senate Pro coming to you Tem Joe Scarnati, R-Jefferson, PAGE 10 has set out three priorities he hopes the legislature will conWas it human error or sider. They include: reapportionlack of oversight? ment, Marcellus Shale legislaPAGE 11 tion and transportation funding.

Scarnati didn’t initially list vouchers as one of his top priEditorial: orities, but when asked about The time has come it, said it was a “major policy for a Ben Franklin change,” and ranked it fourth Permanent Fund among his fall session prioriPAGE 13 ties. He said that the Senate was essentially waiting for the House to get on board.

House Majority Leader Mike Turzai, R-Allegheny, said the Senate took the lead on school choice and the House is waiting Check us out online at www.capital-watch.com for them to send over a bill.

“The Senate took the lead on school choice the way we Have a news tip or story took the lead on fair share and suggestion? New hires? Births, welfare reform and passed them engagements, sightings? Got a better first.

The Senate is just going idea? Know of an interesting state to have to decide what they or local government program that can pass and send over to the addresses a real need or solves House,” Turzai responded. “One a problem in an innovative — chamber has to start all these and widely replicable — way? bills, and we started a bunch.

Know of a study, report, They took the lead on school guidebook, website or other resource choice.

Now we will see if they that would be helpful to your peers can deliver a bill to the House.” in state or local government?

Scarnati said his number one Tell us about it. priority for the fall session is E-mail the information to reapportionment, where legislagoodwinpin@comcast.net. tive and congressional districts Anonymity is assured. are re-drawn and re-organized according to new Census data.

Sen. Joe Scarnati ranks school vouchers number four on the legislative “to do” list.

“Clearly we have a responsibility in front of us of redistricting. That’s probably the number one priority we need to face. Making sure we have adequate time to do our 10-year redistricting process. I would rank that as number one,” he said. Staff for Gov. Tom Corbett and House GOP leaders agreed with that.

Unlike Turzai, Scarnati did not list liquor store privatization as a top priority.

Scarnati said a “close second behind redistricting” is passing an impact fee on Marcellus Shale drilling.

“This is year three now with-

out a comprehensive package or shale fee not being finalized,” he said.

Scarnati said he would support a “reasonable” transportation plan and said he has faith in Pennsylvania Department of Transportation Secretary Barry Schoch to get the message out to the public. He also said the public should be engaged as the state debates how to tackle the crumbling infrastructure.

On a Marcellus Shale impact fee, he said he was disappointed about not getting impact fee legislation passed before the end of the break.

“I would have liked to see a

fee done before we left in June and I think everybody in this room knows that,” he said. “I was disappointed that we did not get it done because I think it complicates getting the environmental and safety side done, so we’re going to need to work more diligently to bring this all together.”

Scarnati, who said the Senate is known to have an “independent streak,” said: “I’m not a commission advocate. ... I think that we’ve all been elected here to do a job and some of the people on the commission - they’re fine people, I don’t dispute their continued on page 3

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This is my motivation.

This is my environment.

This is my natural gas drilling company.

– Frank Hnat Leaseholder

Whether it’s a cardinal, a blue jay or a duck, Frank Hnat says he can’t wait to capture one of these beautiful creatures on canvas: “Birds are the most colorful things in nature and I just love to draw them.”

As a wild bird artist, Frank considers himself a friend of the environment. That’s why he supports natural gas drilling and is a leaseholder with Range Resources. Frank sees natural gas as clean-burning energy that can be extracted with little impact on the environment: “I think natural gas is the perfect fuel and I have no problem with them drilling.”

Frank has always loved seeing the wild birds he draws right in his own back yard. That’s not going to change now that natural gas has been found there, too.

Let Frank tell you the whole story in his own words at MyRangeResources.com.

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AUGUST 2011 CAPITAL WATCH

CapitalWatch www.capital-watch.com PUBLISHER/AD DIRECTOR Jim Laverty (717) 233-0109, ext. 122 EDITORIAL Editor-in-chief Jacqueline G. Goodwin, Ed.D. goodwinpin@comcast.net (717) 418-3366 Contributing Writers Peter L. DeCoursey Deena C. Malley News Service Capitolwire Graphic Design Lisette Magaro Production Shawn Skvarna Capital Watch is published every month.

Reproduction of this publication in whole or part is prohibited except with the written permission of the publisher. Capital Watch is non ideological and nonpartisan.

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Scarnati lists legislative to do list continued from page 1

qualifications or their intent - but the bottom line is I’m the one who’s gotta vote on the bill.”

Scarnati said he would have preferred that the governor’s Marcellus Shale Advisory Commission included input from legislators.

“So although it’s nice now that we have a report, we still need to have legislative action, and what it’s done is it’s delayed that. Basically that’s what we’ve done – we’ve delayed legislative action.”

He said Gov. Tom Corbett should work closely with the Legislature early on so the legislation fits Corbett’s parameters.

“I’ve tried to work within his parameters when I introduced Senate Bill 1100, and clearly my goal is to get a bill through the Legislature, and one that the governor could sign. I really don’t wanna go through a bunch of smoke and mirrors and two ships passing in the night and let’s the House and Senate exchange some bills and we all walk out of here in December and say, well we tried again.

“I wanna get a bill to the governor that he could sign. And I think the

governor is gonna have to work very closely with us early on to give us those parameters of what a bill looks like that he could sign. Whether or not there is some statewide component [funding statewide environmental programs, or programs outside the shale region] to that, we need to hear that from the governor.”

Scarnati said protecting and reserving the quality of the state’s water “is a lot more important than getting a fee done.”

“In my eyes, we could put out any fee or tax, but if we’re not protecting the water supply, that fee isn’t going to do anything to help that,” he said.

Scarnati’s impact fee legislation included a zoning law, which essentially said if a municipality zoned out drilling, they should not receive any money from impact fee revenues.

“If you want to zone them out, you just shouldn’t share in the money, the revenue,” he said. “And if townships and municipalities take great exception, we could modify, change the zoning aspect of it, but you dilute the money from going back to where the drilling is.”

Scarnati also said talk about transportation funding for roads and bridges shouldn’t be regulated by Grover Norquist, director of the Washington D.C. –based Americans for Tax Reform.

“Transportation issues, again another issue we’ve been discussing for several years. State government, if it has one real responsibility, it is to provide for safe, adequate infrastructure in the Commonwealth. And that’s gonna be quite a debate when we’re talking about $2.5 to $3.5 billion. That isn’t gonna be just be done within a week.

“I’m not sure where Mr. Norquist is on this, I haven’t seen anything yet, but to me it becomes doing the right thing at the right time,” he said.

“This is going to take leadership, this going to take statesmen to articulate the message why we need more infrastructure and if we can’t articulate that message and have support for that then I’d have to say shame on us. But to have anyone from Washington D.C. tell us that we shouldn’t be raising funds to fix crumbing bridges, I find that troubling,” he said. CW

Health insurance rate hikes on small business to be studied Pennsylvania is one of 10 states that will be part of a federal review of health insurance rate increases on small businesses, reports the Morning Call.

The U.S. Department of Health and Human Services (HHS) will conduct the review to determine if Pennsylvania is doing enough to protect insurance consumers in the small group market. The Morning Call writes that due to a loophole in Pennsylvania law, that market is only partially regulated by the state.

According to the Morning Call, a policy change announced in May under the auspices of the federal health care law would give the federal government the power to regulate that market, starting Sept. 1, if it determines the state isn’t doing a good enough job.

“Effective rate review works — it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace,” said HHS Secretary Kathleen Sebelius, who added that publicizing excessive rate increases will act as a brake on other companies’ considering similar moves. CW

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NEWS

AUGUST 2011 CAPITAL WATCH

Readin,’ writin,’ and Marcellus Shale?

Questions and answers about pooling

Natural gas drilling may become part of the curricula taught to the state’s primary and secondary school students.

In their final report, the 30-member Marcellus Shale Advisory Commission recommended that the governor look into developing educational material for its use in primary and secondary schools.

That recommendation came out of the Economic and Workforce Development Committee, chaired by C. Alan Walker, secretary of the Department of Economic and Community Development.

“Pennsylvania should undertake a comprehensive effort to develop and disseminate education material and curriculum for use in primary and secondary education institutions regarding the development, extraction and uses of natural gas within the Commonwealth,

What is “pooling?”

sylvania is that the gas deposits are in the areas of the state most in need of economic development.”

In response, Steve Robinson, director of public relations and publication at the Pennsylvania Schools Board Association stated, “The opportunities associated with the Marcellus Shale natural gas industry have the potential to revitalize the Commonwealth’s economic development efforts, and education and cuttingedge training for our next generation of Pennsylvanians will be critical to that success.

“In a year when our school districts are being forced to cut staff and programs to cope with a loss of nearly $1 billion in funding, mandates that require school districts to provide responsible education on the development and use

In Pennsylvania, natural gas development education is already present in the realm of higher education. drawing upon expertise from within industry, environmental, public health, academic, government and other sectors,” according to the report text.

During the commission meeting, Walker said, “The good thing for Penn-

of natural gas and mandates that require career and technical education centers to provide technical training to ensure students are prepared for careers in the natural gas industry must be accompanied by substantial funding at the state

Pooling is a practice used by oil and gas companies to group adjoining mineral rights leases to form a larger drilling unit. This is an important issue for producers seeking to drill horizontal wells because a larger land unit would allow for longer and more cost-efficient drills. Typically companies attempt to pool through agreements, but when they encounter mineral rights owners who are unwilling, for whatever reason, to lease their rights, the companies have resorted to “forced pooling.”

level. School districts cannot continue to bear the burden of unfunded educational mandates at the expense of hard-working taxpayers.”

In Pennsylvania, natural gas development education is already present in the realm of higher education. The Pennsylvania College of Technology (PCT) offers degrees focused on most aspects of natural gas development, from engineering and land surveying to welding technology and robotics.

PCT, in collaboration with the Penn State Cooperative Extension, co-operates the Marcellus Shale Education and Training Center. The center works to connect the industry with its community, providing workforce training, research, and a connection with interns and graduates, among other things. CW

Shale commission report contains updates to pooling law The shale commission’s final report contains recommendations for pooling, a controversial topic that a Senate Republican and Democrat called a “deal breaker.”

“It’s been very clear to me for over a year now that that issue could be a deal breaker, when we start talking about Marcellus Shale,” said Senate President Pro Tem Joe Scarnati, R-Jefferson, adding that he is against pooling.

“If the commission wants to recommend pooling, I think they’re adding a fatal flaw to our getting this process done,” he said.

Gov. Tom Corbett’s shale commission released their final report on July 22.

Senate Environmental Resources and Energy Committee chairman John Yudichak, D-Luzerne, reiterated what Scarnati said about pooling.

“I thought it was interesting that [the commission] said we were not going to discuss a severance tax or a statewide impact fee because the governor would veto,” he said. “But yet, the governor also said he’s not for pooling and they recommended pooling.

“I don’t see that happening in the General Assembly. Republican and Demo-

crats are on record being opposed to it. I would not support it. I think that would be a deal breaker in any proposal,” he added.

Pooling - sometimes referred to “forced pooling” by opponents and “fair pooling” by the gas industry - is, under the Oil & Gas Conservation Law, the allowance for the extraction of oil or gas from underneath a property, from a well in an adjacent property.

The law authorizes “the Commonwealth to integrate, either through voluntary agreement or through involuntary compulsion” pooling, according to the report. However, the current Oil & Gas Conservation statute prevents pooling unless the well bore penetrates the Onondaga, a geographic layer below the Marcellus Shale.

Previously, state energy executive Patrick Henderson said the law should be updated to include Marcellus Shale drilling and to “conserve the gas and use it and extract it more efficiently.”

To modernize the Oil & Gas Conservation Statute, the shale commission recommends: • Include the Marcellus Shale and

other deep unconventional geologic formations currently excluded from existing conservation statutes; • Conform with the best practices for shale gas development in the great majority of states with said production; • Ensure the protection of property rights for both surface and mineral rights owners; • Account for the opportunities afforded by advances in technology of natural gas extraction practices, including horizontal and directional drilling and well stimulation; • Ensure the minimization of surface impact through the proper placement and spacing of well pads; • Prevent the waste or stranding of natural gas so as to maximize job and revenue-generating opportunities for the Commonwealth and its citizens.

The commission report says that when the Oil & Gas Conservation Law of 1961, was enacted “at a time when horizontal and directional drilling and modernscale hydraulic fracturing techniques were not utilized, perfected or envisioned.” CW

What is “forced pooling?”

Forced pooling is a government process by which the unwilling or unavailable mineral rights owner would be forced to lease his or her interest in exchange for a royalty share. Currently, some form of forced pooling exists in Oklahoma, Louisiana, Texas, Colorado and New York, although the applicability of forced pooling as well as the rights and duties of those force-pooled vary considerably.

The process is that a gas producer would file a pooling application with the appropriate government agency, and following notice and an opportunity to respond, the agency may issue a pooling order setting forth the terms and conditions of the forced pooling, including compensations for the unwilling owner.

Economic Efficiency v. Eminent Domain

Proponents of forced pooling assert that, as a policy matter, pooling promotes economic drilling and limits the environmental footprint of drilling.

They also assert that pooling protects the interests of the willing mineral rights owners in the drilling unit who want to maximize their financial benefits and also protects the unwilling owner by counteracting the Rule of Capture—which states that any gas migrating from an unleased property into a well drilled on a leased property is fair game for extraction.

However, critics of forced pooling call it an eminent domain for mineral rights for the pure benefit of private companies.

Pennsylvania Law

In Pennsylvania, there already exists a forced pooling provision in the Oil and Gas Conservation Law, but there is no official record indicating that this law was ever invoked or used. The provision would allow the state to administer forced pooling applications and issue a forced pooling order after a public hearing. Importantly, this provision applies only to wells penetrating the Onondaga formation, just below the Marcellus, and Marcellus wells thus would not be covered.

Complied from House Environmental Resources and Energy Committee Chairman Camille “Bud” George’s May 2010 Update: Special Update on Serverance Tax and Forced Pooling.

news 5

AUGUST 2011 CAPITAL WATCH sponsored by pcua

Pennsylvania’s Credit Unions Share Branches to Drive Convenience

C

In Pennsylvania, shared branching is offered via the Pennsylvania Credit Union Service Centers, Inc. (PaCUSC) an affiliate of the Pennsylvania Credit Union Association (PCUA). According to PCUA President/CEO Jim McCormack, “sharing branches provides members with greater convenience, as well as helps credit unions retain members that relocate.”

redit unions are financial cooperatives where members pool their resources in order to provide financial services to one another. Owned by their members, credit unions routinely offer more attractive rates on deposits and loans than what is typically available in other financial institutions.

To provide better member service, credit unions are taking “cooperation” to new heights … by sharing branches.

There are currently 45 Pennsylvania credit unions that offer their members the ability to access their accounts at over 4,300 “shared” branches nationwide, including 130 credit union branches in Pennsylvania. The nationwide credit union shared branching network represents the fourth largest branch network of any financial institution in the United States.

The growth in shared branching is driven by the operational efficiencies in sharing facilities, combined with the ability to offer the member greater convenience.

McCormack says, “It’s a fantastic service for members that travel and affords them additional locations near where they might live or work.”

McCormack noted that PaCUSC recently launched a consumer website, ShareIt.coop, to educate members about shared branching. The website enables credit union members tools to locate shared branch locations, through an online search or a toll-free number. Members can also obtain a smart phone app for locations.

Unlike ATM networks, using a shared branch does not require an ATM or debit card. Members of participating credit unions simply provide their credit union account number and valid ID to conduct transactions at shared branch outlets. Members can conduct withdrawals, deposits, or virtually any type of teller transaction.

To find out more about credit unions or to find one to join, visit www.iBelong.org.

Shale commission’s final report recommends fee The final report from the state shale commission calls for a limited impact fee that directs most money to local governments.

But the report also allows for fees to pay for proven environmental impacts across the state.

The 137-page report – 96 recommendations in all – contains the local impact fee recommendation adopted at last Friday’s commission meeting.

The report contains a limited statewide component, based upon whether it could be proved that unconventional natural gas development was the cause of the impact.

The impact fee should be enacted for “mitigating and offsetting the uncompensated portion of demonstrated impacts borne by citizens and local governments of the Commonwealth attributable to unconventional natural

gas development,” the report states.

The report also includes cost samples from local governments, which include: growth and planning, emergency response, environmental issues, human services, housing, tourism, and the criminal justice system.

The report lists 13 impacts that are appropriate for compensation, including local infrastructure, environmental remediation associated with natural gas development, increased demand on social services, emergency response training and public health issues.

The report says the impacts appropriate for compensation are not limited to the 13 on the list.

The impact fee legislation also calls for “fair and consistent municipal regulation that does not unreasonably impede the development of natural gas.”

The 13 impacts listed in the report: •

• • •

•

• •

• •

• • •

•

Local emergency response, planning, coordination, training, equipment acquisition, communication and implementation; Public safety, including police and fire protection; Public water and sewer infrastructure extension; Costs associated with inspection and long-term maintenance of road and bridge improvements; Increased demand on social services, such as housing, domestic relations, drug and alcohol assistance and education; County and municipal general land use planning; Increased judicial system (Court of Common Pleas and Magisterial District Judges) demands, including training, defendant processing and associated needs; Environmental remediation associated with natural gas development; Community-based projects to protect and restore land, wildlife, water resources and outdoor recreation opportunities; Local conservation agency oversight; State-administered emergency response training, planning and coordination; Public health evaluation, citizen and health care provider education, data collection and investigation; State natural resource agency oversight, permit review and enforcement.

6 NEWS

AUGUST 2011 CAPITAL WATCH

Natural gas, diverse economy help keep PA jobless rate below national average Although oil and gas extraction in Pennsylvania is the fastest growing industry, it’s not the only reason Pennsylvania’s employment rate is lower than the national average, a labor department spokesman said.

“Pennsylvania fared better because of its diverse economy,” said Christopher Manlove, spokesman for the state Department of Labor & Industry.

“No reliance on a single industry or a few industries” kept the state below the national unemployment average in June.

With a slight uptick, the state’s seasonally adjusted unemployment rate for June was 7.6 percent, or about 479,000 unemployed, up from 7.4 percent in May. Even with the June increase, Pennsylvania has seen its jobless rate stay below the national average for 38 consecutive months. The rate has been equal to or below the national rate for 56 consecutive months, according to state labor figures.

The national jobless rate is 9.2 percent, or about 14.1 million unemployed.

Manlove said oil and gas extraction is a “dynamic part” of the state’s diverse economy.

All industry sectors have grown since June 2010, but Manlove said oil and gas extraction is the fastest growing industry based on percentage, not volume.

“It’s not that big, but it is far and away the fastest growing [industry in Pennsylvania],” he added.

According to state labor figures, the mining and logging industry – which includes oil and gas extraction – grew by 19 percent since June 2010. The information industry, the second closest by percentage, grew by 3.5 percent since June 2010.

About 48 percent of the increase in mining and logging employment over the past decade took place in the past 12 months, according to the labor department’s Marcellus Shale FastFacts webpage.

The Northern Tier Workforce Investment Area (WIA) – Bradford, Sullivan, Susquehanna, Tioga and Wyoming counties - experienced the “most rapid

growth in Marcellus Shale core industries of all WIAs in terms of both volume and percentage.”

The state’s 22 WIAs provide residents with employment training and educa-

tional services. WIAs are clusters of counties that share common geographic and economic factors, according to the labor department.

While natural gas drilling has seen strong employment growth in the last few years contributing to lower employment, it remains an open question whether that impact is large enough to be precisely quantified, says one labor economist.

Mark Price, a labor economist with the liberal-leaning Harrisburg-based Keystone Research Center, said there is a “complicating issue” with correlating between increases in drilling and decreases in unemployment.

“The regions that have seen some drilling are also the regions heavily dependent on manufacturing, a sector which employs a lot more people and has had a pretty good two years. In other words, simple correlations might be linking the decline in unemployment to drilling when in fact the chief cause is relatively robust growth in manufacturing payrolls,” Price wrote in an email.

“To sum up, there is no question that oil and gas extraction is creating jobs in Pennsylvania and thus helping reduce unemployment. But it remains an open question precisely how big the impact is given how small employment in that sector is relative to an economy that employs 5.8 million people,” he wrote.

The state’s seasonally adjusted civilian workforce was down 17,000 in June to 6,327,000, according to the Labor and Industry Department. The civilian workforce is made of people working or looking for work.

Resident employment also fell by 25,000 to 5,848,000, while the number of unemployed residents was up 8,000 to 479,000. Pennsylvania’s labor force was 12,000 below its June 2010 level. CW

news 57 NEWS

AUGUST 2011 CAPITAL WATCH

AUGUST 2011 CAPITAL WATCH advertorial

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CW: What are your major products?

Anthony P. Campisi President & CEO Glatfelter Insurance Group

Anthony P. "Tony" Campisi joined the Glatfelter Insurance Group in 1980 as the Controller. The firm is a regional and national insurance agency specializing in the design of insurance programs to meet the unique needs of specific industries, businesses and organizations. Through its retail agency operations, and its wholesale/specialty program operations doing business through a network of over 4,000 independent agents and brokers, the Glatfelter Insurance Group writes in excess of $400 million in written premium and serves over 25,000 insureds in 50 states from its corporate HQ in York, PA. In 1983, Campisi was promoted to Vice President/Finance, a role in which he served very successfully for about 10 years. In 1994, Campisi was made Executive VP of Operations and CFO of the firm. In 2000, he became the President and CEO , leading the continued growth and development that made Glatfelter a brokerage of national scope.

Prior to joining Glatfelter, Campisi began his career as a certified public accountant.

He is a chartered property and casualty underwriter (CPCU), a Board member of the Council of Insurance Agents and Brokers and Target Markets Program Administrators Association, a member of the Independent Agents & Brokers Association, and a member of the American and PA Institutes of CPAs. Campisi is very involved in his South Central PA community. He chairs the Board of Directors of the YMCA of York County; is the Chair of the Board of the Strand Capitol Performing Arts Center; serves on the board of trustees of York College of PA; is a board member of the York County Economic Development Corporation; is a board member of Junior Achievement of South Central PA; and is a board member of York Hospital.

Campisi is also a member of the PA Business Council Policy Roundtable.

AC: Glatfelter Insurance Group, founded in 1951, is an all lines, full service insurance broker marketing property, casualty, life, accident and health insurance products and risk management services to individuals, businesses and organizations on both a retail and wholesale/specialty basis throughout the U.S. Our retail products include personal lines insurance such as homeowners, personal auto, personal umbrella, individual life, disability and health to commercial lines insurance such as business property, auto, commercial general liability, professional liability, umbrella/ excess liability and workers compensation. In addition to our wide array of personal and commercial coverages, we also market specialty insurance programs that offer tailored insurance coverages and risk management services to various targeted market segments such as nonprofit fire and ambulance organizations, municipalities, water and sewer entities, school districts, independent school bus operators, car washes and hospice and home health care agencies.

CW: When did you join the firm?

AC: I graduated from York College of PA in 1976 with a B.S. degree in accounting. I began my career in the world of public accounting, but after 4½ years decided I did not want to remain in this field of work. When I advised the clients assigned to me that I would be leaving the firm, a number of them called me about working for them. One of those calls was from Art Glatfelter, Founder, President and CEO of Glatfelter Insurance Group. After a one hour breakfast meeting with Art, there was no doubt in my mind that he was a man of tremendous integrity and vision who cared about his associates, clients and the community. It was very clear that joining Glatfelter Insurance Group was a great opportunity. That was November 1980 and Glatfelter Insurance Group had about 25 employees and one location.

Today, we are an employee-owned company with over 500 associates and eight locations throughout the country.

CW: What are your near-term and long -term goals for the firm?

AC: We will continue our tradition of providing high quality insurance products and risk management services to our customers. Our job is to help our customers manage risk, which means we must work closely with them to make sure they understand all their loss expo-

sures and the options they have for managing those exposures. When customers decide they want to transfer their exposure to loss, our goal is to secure responsive insurance coverages and services from stable insurance carriers at a competitive price. Because we live in an ever-changing world and our customers are always involved with new activities and opportunities, our near-term goals will always be to stay close to our customers, make sure they understand their loss exposures and help them manage risk.

Over the long-term, we will continue to invest in our staff and infrastructure to enable us to continue to deliver the high quality insurance coverages and risk management services that our customers expect from us. Since our most important asset is our people, and like all other service businesses we want to ensure we have the talent to continue to serve our customers, succession planning is a major objective at virtually every level in the organization. While the insurance business is a mature industry, we believe there are numerous opportunities for long-term growth, both organically and via strategic acquisitions. Even in these challenging economic times, we continue to add staff and invest in new technology to enable us to remain responsive to the changing needs of our customers and to be positioned for future growth.

CW: Are your customers local, regional, national or global?

AC: We have customers around the globe. In general, our local and regional customers are served by our retail division, The Glatfelter Agency. Our national and international customers are served by one of our wholesale/specialty insurance programs that we market throughout the U.S. and Canada. Today, Glatfelter Insurance Group serves over 25,000 insureds through our headquarters in York, PA, our six regional offices located throughout the country and through a network of over 4,000 independent agents and brokers who place business in one or more of our specialty programs.

CW: Where else does the firm have business locations?

AC: In addition to our corporate headquarters and retail operations in York, Pennsylvania, we also have offices in Exton, PA; Annadale, NJ; Albany, NY; Boca Raton, FL; Joplin, MO; and Stockton, CA.

CW: Would you invest more in PA? What would you do to improve PA’s competitive business climate?

AC: As a business already headquartered in York, PA, with over 140,000 square feet of total office space, we have already made a tremendous investment within PA. Because of our significant presence in PA, we would certainly continue to invest more as required to maintain and grow our business. However, PA can help businesses be more competitive by improving its attractiveness as a place to operate a business.

CW: What are your thoughts on recent political developments? Are there public policy changes your firm is advocating?

AC: Our recent election will have a favorable impact on business in both the short and long term because of Gov. Tom Corbett’s platform: no tax increases for PA’s families and businesses; reform our legal system by restoring fairness; rebuild our transportation infrastructure; reform government by reducing the size and cost; increase transparency; restore fiscal discipline; improve the quality, accountability and effectiveness of our educational system; and continue economic development incentives.

We watch any legislation dealing with Employee Stock Ownership Programs (ESOPs) because that’s how we are organized. Broadening capital investment and business ownership makes America stronger. We’re wary of any proposals to change the ESOP rules, but we are not seeking changes.

I think fiscal policy – federal and state – is the most pressing issue. Exercising fiscal discipline is critical to everyone. It’s fine that people want public facilities and programs, but sooner or later we have to pay for them. We have “kicked the can down the road” for too long. We’ve weakened our nation because our “wants” exceed the capacity to pay. It’s economic suicide. We’re finally confronting these realities. It will be bitter medicine, but we’ll be better off. It means hard choices and an understanding that government can’t do everything. We need public policy that promotes a strong economy and vibrant business climate because only that will create jobs and improve the quality of life in our local communities, our state and our country."

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August 2011 CAPITAL WATCH

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EPA says emissions from natural gas drilling need to be reduced The federal Environmental Protection Agency has announced it has drafted regulations to reduce natural gas drilling air emissions as part of a lawsuit settlement.

Prompted by a lawsuit filed against the agency in 2010 by two environmental groups, the EPA proposes reducing the release of air pollutants, such as methane and benzene, by the drilling and natural gas extraction process.

The state Department of Environmental Protection (DEP) did not comment on the EPA’s proposed rules, explaining they were just released and the agency hasn’t had an opportunity to review them yet. In an interview with The Patriot-News, a representative of the natural gas industry called the EPA’s proposal a “sweeping set of potentially unworkable regulations.”

The Patriot-News reports the DEP has conducted short-term monitoring

surveys at several drilling locations throughout the state and found the level of air pollutants have not been above “National Ambient Air Quality Standards or in concentrations likely to trigger air-related health issues.”

However, DEP’s air pollution studies do caution that the department has not been able to determine the potential impact of the cumulative emissions from natural gas activities in the state.

Nevertheless, the EPA wants to impose the new rules because it argues they will not only “cut toxic pollution” but also produce a net savings of nearly $30 million for the nation’s natural gas companies, since the proposed rules would require capturing the natural gas air emissions.

Gina McCarthy, assistant administrator for EPA’s Office of Air and Radiation, told the Patriot-News the savings would result from “giving these operators additional product to bring to market.” CW

Are teachers being added to state’s growing unemployment figures?

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The Pittsburgh Tribune-Review says that while Gov. Tom Corbett argues that the teacher furloughs and layoffs taking place around the state aren’t due to his budget cuts, one thing is for sure, those educators losing their jobs are adding to the state’s growing unemployment rate.

The Tribune-Review writes nearly 4,000 teachers and about 1,700 school support workers across Pennsylvania have already received furloughs from their school districts. In the recent Pennsylvania employment situation report released on July 21, the Department of Labor and Industry stated the largest decline in jobs experienced by the com-

monwealth in June was in the Education and Health Services employment sector, down 7,800 in one month. That report also indicated the state’s unemployment rate went up from 7.4 percent in May to 7.6 percent in June.

The Pennsylvania State Education Association and the American Federation (PSEA), the state’s largest teachers union, said the layoffs in education are unprecedented.

“It’s pretty much across the board in the state. We’ve never seen anything like this,” Butch Santicola, PSEA’s western regional spokesman for four decades, told the Tribune-Review. CW

AUGUST 2011 CAPITAL WATCH

9

Turzai lobbies key House panel on privatization House Majority Leader Mike Turzai, R-Allegheny, lobbied the House Liquor Control Committee for three-and-a-half hours on his liquor privatization proposal on July 27.

“Pennsylvania is not ahead of the curve,” Turzai said, flanked by over 60 yellow-shirted, United Food and Commercial Workers union members opposed to his plan.

“Change is always difficult, but that doesn’t mean we shouldn’t do it,” he said.

Turzai was the only witness at the state Capitol hearing.

Chairman John Taylor, R-Philadelphia, said the hearing was the first of many on Turzai’s “comprehensive and far-reaching” privatization legislation.

“We’d love to be able to guarantee to our constituents that the most attractive, well run stores are the ones were talking about, and not the rundown places that really look like they’re out of a horror movie” Taylor said. He represents parts of the poorest sections of the city, and has often complained about some of the stores in his district. “Everybody. . .always references the beautiful stores – they’re not all beautiful.”

Turzai said privatizing the state’s liquor system could generate up-front revenue - which includes selling the

that chamber.

Under the Turzai plan, the state’s 18 percent Johnstown Flood Tax and the Pennsylvania Liquor Control Board’s 30 percent markup would be replaced by a “gallonage tax” ranging from $8.25 to $12, depending on the types of liquor or alcohol content, Turzai said.

The PLCB would also be slimmeddown to handle licensing, alcohol education and assist in liquor law enforcement.

The state’s 1,250 liquor licenses would be auctioned off. The Department of General Services would be in charge of the divestiture.

Rep. Mark Mustio, R-Allegheny, asked Turzai whether he would be open for amendments to his legislation.

“I think it’s a pretty good model,” Turzai responded, also admitting that his legislation wasn’t perfect.

Rep. Dante Santoni, D-Berks, the panel’s ranking Democrat, asked Turzai whether he would help to modernize the current system if his bill didn’t pass.

“This is a privatization bill and that’s what we’re talking about,” Turzai responded.

Rep. Kevin Murphy, D-Lackawanna, a former auditor of the state’s liquor stores, debated with Turzai over different points of the bill.

R-Jefferson.

The Pennsylvania Driving Under the Influence (DUI) Association released a statement earlier this week, saying they were opposed to the bill, due to social problems that could arise from an increase in retail stores and consumption.

“Our main concern and focus has

A 2009 study by the conservative-leaning, Harrisburg-based think tank The Commonwealth Foundation found that “evidence from 48 states over time shows no link between market controls and these social goals.” inventory – of about $2 billion.

Union officials have said it would produce one-fifth of that sum or less.

Many lawmakers have said the size of the revenues from the sale may influence whether a plan like Turzai’s can succeed.

Turzai said his plan can easily pass in the fall, but Senate GOP leaders have suggested it is not a high fall priority for

“We’re wasting time on this issue,” Murphy said, pointing to pending Marcellus Shale and school voucher legislation.

“We can’t give the authority to the board to conduct a broader array of initiatives? I believe [Senate President Pro Tem Joe] Scarnati said let’s remove the handcuffs?” Murphy asked, reiterating a point made last week by Scarnati,

always been on the responsible sale and distribution of wine and spirits. The fact is an increase in retail outlets will lead to an increase in consumption and that is a problem,” said Stephen Erni, executive director of the Association.

“Going from state control to private sales has been proven to lead to an increase in consumption and an increase

in alcohol related highway crashes and fatalities. It just isn’t good policy,” he added.

However, a 2009 study by the conservative-leaning, Harrisburg-based think tank The Commonwealth Foundation found that “evidence from 48 states over time shows no link between market controls and these social goals.”

The study’s authors claim: “While alcohol consumption in license states is slightly higher than in controlled states, among controlled states, greater levels of control are actually associated with increased consumption rates.

“Rates of underage drinking and underage binge drinking are virtually identical in license and control states.

Similarly, there is no difference in alcohol-related traffic deaths in license versus control states.

“However, among control states, states with the most controls also exhibit the highest rates of alcohol-related traffic deaths—even after adjusting for differences in enforcement of DUI laws. In short, evidence suggests that control of alcohol markets does not imply control of alcohol consumption.” CW

Advocates express concern about welfare budget cuts A lot of the money used to work out a balanced budget deal for the 2011-12 fiscal year came from reducing funding to the state Department of Public Welfare.

As part of the state budget, legislators and the governor approved a welfare code bill giving the department wide latitude to find the more than $400 million in welfare savings mandated by the budget.

Part of the expanded powers given to the department include “expedited rulemaking authority” to establish or modify program eligibility, assistance categories; create or revise provider payment rates, fee schedules and qualifications; and authorize providers to condition the delivery of care or services on the payment of copayments.

The expedited rulemaking authority, which has been granted to departments a few times in the past, allows the Welfare Department to avoid the normal regulatory review process that, in some cases, can take up to two years to complete. However, the new authority is for only one year, and the department will still have to provide the Legislature with notice of

planned changes and there would be a 30-day public comment period on any changes.

But the Associated Press reports that welfare advocates claim the department has already tried to make some changes, without seeking public input, and has since suspended at least four of those changes due to public outcry against them. CW

10 news

AUGUST 2011 CAPITAL WATCH

McCord defends government investments State treasurer Rob McCord said it is “bone-headed” to claim it’s impossible to make profitable investments with taxpayer money.

“To make the claim that … it’s impossible to have a profitable investment from the public sector is bone-headed and misguided, and frankly flies in the face of good business logic. It’s just not true,” he said at the July Pennsylvania Press Club luncheon.

McCord, a Democrat facing re-election in 2012, said he also disagreed with the “no-tax pledge” signed by Gov. Tom Corbett and other lawmakers in Pennsylvania and in Washington D.C. The pledge is the brainchild of Grover Norquist, director of the conservative think tank Americans for Tax Reform.

“I believe we are getting painfully close to government by talking point,” McCord said. “And when you sort of outsource your policy-making to a lobbyist in Washington, I think it’s very unwise.”

McCord pointed to public sector investments and grants that he said

helped in the formation of the Internet, as well as large-scale infrastructure projects such as airports.

“Think about Chicago without O’Hare Airport, and then have the nerve to come up to me and say there’s not such a thing as a profitable investment in something like infrastructure,” he said.

Matthew Brouillette, director the Commonwealth Foundation, a Harrisburg-based conservative think tank, wrote in an email that public sector investments take away from private sector investments.

“Treasurer McCord does a great job of looking at one side of the ledger while forgetting that every ‘investment’ by the government sector is a lost investment by the private sector,” Brouillette wrote.

“Government has no money to invest of its own. It only has that which it first takes from the private sector.”

“To be sure, there are things government can and should do for the common good (e.g., infrastructure), but to suggest this means government should

become an investor in anything some politician believes is a ‘good investment’ is precisely why our state and federal governments are swimming in red ink today.”

McCord said Corbett’s budget could have been better, saying that portions of the surplus should have been used to off-

set cuts in education or other areas that would “yield long-term returns.”

“I think we could have had a better budget, but I also really respect the urge to honor a promise,” he said. “I just think it’s even more important to make the right promise in the first place. In my view, I am saying, it was not.” CW

Red-light cameras could soon be coming to you Gov. Tom Corbett’s Transportation Funding Advisory Commission, as part of its bevy of recommendations, has suggested a statewide expansion of trafficlight cameras.

While the proposal has sparked a sharp debate between transportation officials and critics who say the cameras don’t make roads safer, there is growing evidence that the cameras can provide much-needed revenue.

Red light cameras automatically photograph vehicles whose drivers run red lights. The cameras are connected to the traffic signal and to sensors that monitor traffic flow just before the crosswalk

prior to entering the intersection on a red signal, as well as the vehicle’s progression through the intersection. Cameras record the date, time of day, time elapsed since the beginning of the red signal, vehicle speed, and license plate.

Tickets typically are mailed to owners of violating vehicles, based on a review of photographic evidence.

A 2011 Insurance Institute for Highway Safety study comparing large cities with red light cameras to those without found the devices reduced the fatal red light running crash rate by 24 percent and the rate of all types of fatal crashes at signalized intersections

equipped sites, the effect carried over to signalized intersections not equipped with red light cameras, indicating community-wide changes in driver behavior.

In Oxnard, significant citywide crash reductions followed the introduction of red light cameras, and injury crashes at intersections with traffic signals were reduced by 29 percent. Front-into-side collisions – the crash type most closely associated with red light running – at these intersections declined by 32 percent overall, and front-into-side crashes involving injuries fell 68 percent.

An Institute review of international red light camera studies concluded that

Institute studies in Fairfax, Virginia, and Oxnard, California, found that in addition to the decrease in red light running at camera-equipped sites, the effect carried over to signalized intersections not equipped with red light cameras, indicating community-wide changes in driver behavior. or stop line. The system continuously monitors the traffic signal, and the camera captures any vehicle that doesn’t stop during the red phase. Many red light camera programs provide motorists with grace periods of up to half a second after the light switches to red.

Depending on the particular technology, a series of photographs and/or a video clip shows the red light violator

by 17 percent.

Previous research has shown that cameras substantially reduce red light violations and crashes. Studies by the Institute and others have found reductions ranging from 40 to 96 percent after the introduction of cameras. Institute studies in Fairfax, Virginia, and Oxnard, California, found that in addition to the decrease in red light running at camera-

cameras lower red light violations by 40-50 percent and reduce injury crashes by 25-30 percent.

Still, acceptance of cameras always has been strong. A 2011 Institute survey in 14 big cities with longstanding red light camera programs found that two-thirds of drivers support their use.

A 2002 nationwide survey sponsored by the National Highway Traffic Safety

Administration found that 75 percent of drivers support red light cameras.

More than 600 U.S. cities use some form of red-light cameras, and the number is expanding.

Cities using red light cameras include Albuquerque, Atlanta, Baltimore, Chicago, Denver, Los Angeles, New Orleans, New York City, Philadelphia, Phoenix, San Diego, San Francisco, Seattle, and Washington, DC, plus many smaller communities.

Any expansion of traffic-light cameras in Pennsylvania would require approval from the General Assembly and the governor. CW

NEWS 11

AUGUST 2011 CAPITAL WATCH

A Capital Watch exclusive

Was it human error or lack of oversight?

On July 21, workers at the Pennsylvania Department of Environmental Protection (DEP)—one of the state’s largest agencies— were without their computers due to a problem that affected their system. The problem also extended to the Environmental Hearing Board. The Patriot-News reported that DEP workers were told in the morning not to turn on their computers. According to the paper, DEP officials said the problem was generated by a contractor performing scheduled maintenance, not by a hacker or virus.

DEP employees told the PatriotNews the problem virtually left the department’s workforce at a standstill while the problem was being detected and fixed. Some workers were reported to have used the time to clean up their desks and others just complained about not being able to do their work.

Curious about what really happened, Capital Watch technology writer Deena Malley contacted chief information officers for both DEP and the Commonwealth for their take on what they believed caused the problem. In response to questions that were given to them via email, here is what George White, Commonwealth CIO, and Jim Knudson, DEP CIO, had to say verbatim about the computer problem that affected DEP. White serves as the head of information technology under the Office of Administration. He is charged with leading and coordinating the state’s information technology services.

DEENA MALLEY: Was there any data lost?

JIM KNUDSON: Yes, the local C drive on several hundred personal computers was impacted by the login script. As of July 28, DEP system coordinators have reported 26 computers that have not been able to completely recover deleted files following initial attempts.

Further data recovery efforts on the PCs are ongoing, utilizing staff and forensic tools from the Office of Administration/Office for Information Technology.

No Enterprise databases were impacted.

DEENA MALLEY: What was the estimated cost of lost productivity, system fixes, etc.?

JIM KNUDSON: DEP is still calculating the cost.

DEENA MALLEY: Why were the script changes being made?

JIM KNUDSON: To correct an earlier script action that placed a duplicate Office2010 Training icon on each user’s desktop.

DEENA MALLEY: Was this part of a project or an existing system maintenance/operations support agreement?

JIM KNUDSON: Part of normal operations.

IT Procedures DEENA MALLEY: Were the login script changes done in a test environment first or directly to the production environment?

JIM KNUDSON: For this event, changes were made directly to the production script, contrary to established procedure.

DEENA MALLEY: Was there technical documentation?

JIM KNUDSON: A standard operating procedure and logon script change form was available, indicating the expected process to follow and form to be completed when changes are made so that they are identified and tested.

DEENA MALLEY: Were the procedures involving the script documented?

JIM KNUDSON: They were not in this event, contrary to established procedure.

DEENA MALLEY: Were coding standards followed?

JIM KNUDSON: No, the changes were not logged and commented within the script header and commented in the body of the script in this particular event.

DEENA MALLEY: If yes, what are those standards?

JIM KNUDSON: First, update the script header with the date and a description of change made and to provide inline comments for the change.

Second, submit a Quality Assurance Checklist to peer Sr. Staff Technician for review and approval.

Situational Analysis

DEENA MALLEY: Was/Is there a root cause analysis being conducted?

JIM KNUDSON: Yes, initial diagnoses concentrated on discovering the root cause. The login script was imme-

By Deena C. Malley

diately identified, but it was unclear at the time if the cause was user error or malware-related.

DEP’s network was shut down to contain the user impact and the login script was taken offline shortly before 8 a.m.

Since the change was not logged as it was supposed to be, some analysis and testing occurred to verify what the login script did in the first hour of the DEP and OA/OIT incident response activities as well as identifying the impact to users, and the login script fix was verified within two hours and put back online.

DEENA MALLEY: What corrective actions are being taken?

JIM KNUDSON: • Data recovery efforts on affected personal computers • Reinforcement of procedures that ensure IT Best Practice methodologies and procedures are followed.

• Review and improve DEP operational procedures and documentation to not allow future incidences. continued on page 12

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12 news

AUGUST 2011 CAPITAL WATCH

A Capital Watch exclusive

Was it human error or lack of oversight? continued from page 11

•

•

Increase storage space on shared network drives to minimize any future impacts to staff personal computers where data is not regularly backed up.

Improve DEP communications with regional office staff when interruptions that impact email operations occur.

DEENA MALLEY: What best practices does the Commonwealth follow in IT program management?

GEORGE WHITE: A governance structure ensures that IT programs are aligned with higher level performance and organizational strategic objectives.

The Commonwealth’s program management function ensures that IT projects and programs are coordinated and prioritized based on the specific business requirements in order to meet the required goals, outcome, improve performance, and meet objectives.

Resources are managed as needed across various projects and program managers are assigned that have oversight of the purpose and status of respective projects and use this oversight to support project-level activity to ensure that the overall programs goals are likely to be met.

Vendor Management DEENA MALLEY: For whom did the contractor work?

JIM KNUDSON: Acclaim Systems, Inc. DEENA MALLEY: Was he/she employed through the staff augmentation contract?

JIM KNUDSON: No.

DEENA MALLEY: Is this person being retained? If so, what additional training will be done?

JIM KNUDSON: Under consideration.

DEENA MALLEY: How is a contractor’s work performance reviewed and evaluated?

JIM KNUDSON: For this purchase order between DEP and Acclaim: • By continuous day-to-day interaction with DEP PC help desk staff and section chief, • Bi-weekly direct on-site management meetings, and • Quarterly review meetings with Acclaim Regional Director and BIT management DEENA MALLEY: Does the Commonwealth’s vendor management program include routine evaluations?

GEORGE WHITE: While no formal vendor evaluation program or scorecard exists, the Commonwealth evaluates its vendor management program as needed to look for areas of improvement. Currently, the commonwealth is looking into the possibility of incorporating additional language into our contracts with our vendors to ensure that, at a minimum, our vendors follow the commonwealth’s security requirements.

DEENA MALLEY: Will the vendor be compensating the Commonwealth for the department’s lost time?

JIM KNUDSON: Under consideration, yet to be determined.

Project Governance DEENA MALLEY: What oversight does the DEP information technology staff have over contractors/vendors?

JIM KNUDSON: For the contract with Acclaim: • Continuous day-to-day interaction with DEP PC help desk staff and section chief, • Bi-weekly direct on-site management meetings, and • Quarterly review meetings with Acclaim Regional Director and BIT management For other Bureau of Information Technology (BIT) contracts for Onsite IT Services: • Continuous day-to-day interaction with BIT contract/project manager, • Regular on-site operational and project meetings between contracted staff and BIT managers, and • Monthly, Bimonthly, or Quarterly performance review meetings with DEP contract/project manager, BIT procurement lead, CIO and other BIT management DEENA MALLEY: How are system failures reported from departments/ agencies/bureaus?

GEORGE WHITE: Depending on the nature and scope, general system failures may be handled and remediated by the agency. If a system failure causes widespread damage to systems and resources, an incident report is submitted to the Office of Administration.

Incidents are to be reported to the Office of Administration as required by policy. A system failure in the context of DEP’s incident constitutes as a

reportable incident.

Enterprise policies establish required processes for agencies to report incidents.

All agencies are to report security related incidents to the Office of Administration via an Incident Response form within a specified time period.

The Office of Administration tracks all agency reported incidents through an incident database.

DEENA MALLEY: How many have there been in the last two years?

GEORGE WHITE: Counting the incident at DEP, there have been two.

DEENA MALLEY: What type of visibility does the Office of Administration have into projects across the Commonwealth?

GEORGE WHITE: The Office of Administration currently receives descriptions of new IT projects from agencies as part of the project request and approval process.

The Office of Administration is in the process of implementing a tool to track projects after they have been initiated.

DEENA MALLEY: Is there a dashboard or some other type of management tool being used?

GEORGE WHITE: Clarity is the tool used that is supported for Enterprise Project Management.

The Office of Administration is currently looking at incorporating additional tools to provide additional dashboard type features that can be utilized.

(Capital Watch Editor Jackie Goodwin also contributed to this article).

Editor’s Note: Several attempts were made to reach Acclaim Systems, Inc., at both the Philadelphia and Harrisburg offices of the company. All calls and voicemails were not returned. The intent was to give Acclaim Systems, Inc., a chance to respond to the claims made by state officials and to ask them the following questions:

•

What is your screening process for technical employees?

•

Was your employee given training by your company on DEP’s processes and procedures?

•

Was your employee given training by DEP on DEP’s processes and procedures?

•

Was your employee aware of the expectation to follow DEP procedures and coding standards?

•

What type of training or education will the employee receive if he/she continues on the DEP project?

•

Does your company or employees have continuous day-to-day interaction with DEP PC help desk staff and section chief ?

•

Does your company have biweekly direct on-site management meetings with DEP?

•

Are there quarterly review meetings with Acclaim Regional Director and BIT management?

•

What are you contracted to do at DEP and for how long?

•

How long has Acclaim Systems, Inc. been a contractor with the Commonwealth of Pennsylvania?

OPINION

AUGUST 2011 CAPITAL WATCH

13

Editorial

The time has come for a Ben Franklin Permanent Fund Lots of politicians claim to be probusiness but few, truly, have an entrepreneurial mind. How else can you explain the lack of awareness of the opportunity presented the Marcellus Shale?

Most Pennsylvania elected officials look at the shale and (1) see an opportunity for growth and income for entrepreneurs or (b) a threat to the environment or (c) something somewhere in between.

None, so far, has expressed the thought that (1) the shale is a public asset and, therefore, the public is entitled to a “taste” of the action or (2) when you are talking trillions of cubic feet of natural gas, even pennies add up over time.

Ben Franklin, arguably Pennsylvania’s most famous entrepreneur/politician (think Silvio Berlusconi in a powdered wig and knee breeches), said it best of the opportunity offered government by the Marcellus Shale: “A penny saved is a penny earned.”

So let’s imagine WWBD (What Would Ben Do) if he were to be with us today again – as Speaker of the House once more or in some other high ranking political role. I think he would propose that we see Marcellus Shale gas as a partnership opportunity between the private sector and the public and, at the same time, apply some of his common sense financial skills to the situation.

He would recognize that – as reflected in our current state constitution – natural resources are a common asset, not simply a private property issue. He would want to balance the Commonwealth’s pecuniary interest against the potential harm to the environment and against the knowledge that natural gas, like all resources, is finite.

He would counsel government to get some compensation for its interest in natural resources but to also set aside a portion against future unforeseen impacts.

Interestingly enough, there already is a model to emulate: the Alaska Permanent Fund. It’s hard to remember back to the 1970s – especially if you were not yet born – but there was deep national concern about developing North Slope oil in Alaska and the threat that it posed to the environment both short and long term. With the exception of the Exxon Valdez tanker spill in an Alaskan harbor, North Slope oil has been a generallyaccepted success environmentally. Certainly, it’s not the disaster that some people forecast.

And yet, to make the deal, oil companies were willing back in the 70s to pay extra fees into a special state account, called the Alaska Permanent Fund (APF), which would pay out some dividends on an annual basis – most Ameri-

cans are aware that each Alaskan gets an APF dividend check each year averaging in the range of $1,000 – and some would be held for long term growth. The fund now stands at some $28 billion and will continue to grow because the principal is constitutionally protected against raiding by the Alaskan General Assembly.

How would those numbers translate to Pennsylvania, a state with 17 times the population? Hard to structure fairly except to say that natural gas, according to news releases from the Marcellus Shale Coalition, is booming in Pennsylvania with 2011 production estimated at 3.5 billion cubic feet per day with the potential to grow to 17.5 billion cubic feet per day. If you followed Ben Franklin’s maxim and just had the Commonwealth extract pennies per day per 1,000 cubic feet of gas flow (the most typical commercial measure of natural gas is in 1,000 cubic foot increments) the annual revenue would be substantial.

The liberal think tank, the Pennsylvania Budget and Policy Center, sees a fair yield of somewhere around $250 million

a year from a Marcellus Shale gas revenues – a current production rates.

Let’s just say we collected, on the average, $200 million a year from the shale gas industry for the PA equivalent of the Alaska Permanent Fund (Sentimentally, let’s call it the Ben Franklin Permanent Fund). At $200 million a year at a straight 8 percent interest (the average earnings goal of the state pension systems) compounded monthly, would mushroom to more than $3 billion. Compounded at the same rate over a 30 year period (a conservative estimate of the life of the Marcellus field, not counting on the potential of the additional shale layers below it) would yield a permanent fund of nearly $25 billion.

Tapping only the income from that – at a rate of 5 percent – would yield $1.25 billion a year.

Yes, it’s hard to imagine that successive General Assemblies could resist the notion of tapping into this piggy bank.

Unless we all recognized that someday, when the shale play is played out, it would be nice for the Commonwealth to

have something to fall back on; or something to invest; or something to show for allow another generation or two of opportunists to squeeze the state dry of natural resources before moving on to the “next big thing.”

Ben Franklin would say, “You watched them do it with timber; you watched them do it with coal; you watched them do it with oil. Will you pay attention to history, please?” CW

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14 OPINION

AUGUST 2011 CAPITAL WATCH

It’s not the money. It’s the percent.

In the last few years, there has been much discussion by the Auditor General, legislators, reporters, industry leaders, and industry competitors on state technology contractors who are perceived to capture too big a slice of the state IT pie. There has even been court cases and canceled contracts.

Much of the brouhaha seems to castigate a cloud of suspicion on vendors who have the most contracts in terms of dollars. They are portrayed as some evil empire that must be up to no good.

They are discussed in not so hushed conversations within industry circles with folks casting aspersions that these companies must be on the take and they have somehow paid off everyone in the process.

It is laughable to hear so many smart people so focused on just the dollars.

The time has come to shift our thinking on how information technology contracts and vendors are evaluated. It is time to focus on the percent.

Focusing on the percent means developing quality standards and a metrics program for the entire state IT portfolio. With this type of program, it would put the focus on actual delivery than contract value. After all, it is an industry best practice to evaluate and measure a project.

An IT firm with a higher rate of quality delivery is worth their weight in gold.

These firms save the Commonwealth more money and produce higher levels of innovation.

There are many small IT projects that fly under the radar because of their low contract value that are never delivered on. They never make the news or rankle and legislators ire.

They should. They add up - fast.

The fact is there are some companies who make a business decision to spend their time and energy learning the state’s complex and arduous procurement process. For most of them, the investment has paid off. However, being a successful

By Deena C. Malley

winner does not make the company a loser. It does not mean the company is unworthy of providing services, or that the company is unethical, and it certainly does not make the company an evil empire.

It just means their competitors need to produce better value-added bids. There also needs to be an end to running to legislators or the judicial system when the competition wins. This is not meant to strip any company of their rights, it is just time to get back to providing good solutions for the taxpayers and holding the entire technology industry to a higher standard. Raise the bar to focus on quality delivery.

So the next time you hear of an IT contract being discussed for its dollar amount, stop and ask what is their percent of quality delivery. CW Deena C. Malley is a technology and business consultant with more than 20 years experience. Her website can be found at www. deenamalley.com.

Deena C. Malley

What do budget cuts mean?

What kind of control you got?

By Peter L. DeCoursey, Capitolwire

Before everyone goes all nutso about the political and government implications of the federal debt deal and what it will mean for Pennsylvania, keep one thing in mind: we have no idea now what it means.

It is a last-minute deal and nobody is all that invested in it, except the conservative Republicans who control only the House. And while they will cling to it as best they can, since this is their big moment as budget-cutters, the 1980s offer an instructive comparison.

Back then, Republicans and conservatives passed the Gramm-Rudman bill.

Like this bill, it imposed big cuts in spending if budget cuts were not made. Due to a mess of court decisions and Congressional cuteness, its targets got honored in various deals where savings were supposed to come later, and never did.

Now, if this deal passes both chambers of Congress, a similar process of congressional and White House cuteness will ensue. Fake targets will be set, and said to have been achieved, just like in the 1980s. The courts will get dragged in, and all kinds of fun will ensue.

And deficits will continue, although some spending will be cut. Back then, of course, the president – Ronald Reagan – was Republican, the House was Democratic and the Senate was mostly Republican, with some switching of party control.

Now the House is Republican, but the Senate and White House are Democratic.

Remember, Gramm-Rudman was a bill the Congress passed, then kept on

addressing. Unlike this bill, it was not a last-second solution to a bigger problem, which again will make this deal get reinterpreted every couple of months.

Read “The Ambition and The Power” by John Barry or any congressional book about the 1980s for examples of this silly process.

Because it is not what the law or debtlimit bill says that matters. It is how much control you have over the levers.

Pennsylvania is a good example of this: Republicans have the governorship , and both chambers of the Legislature, whereas nationally they control only one of these three levers.

Therefore, whatever happens today on the budget bill, it is only the first pitch in that budget battle.

But in Pennsylvania, the budgetcutting continues. Look at the Welfare Department. It was slated for a $400 million reduction, with much of that sum coming from “waste, fraud and abuse.”

House and Senate Democrats scoff and say there isn’t that much waste, etc. to be found, so the GOP will have to come back and pass a supplemental bill adding $150 million to $200 million to the welfare bill.

Republicans say: no. Instead, Gov. Tom Corbett and his top staff have been clear that the department is expected to live within its budget, although a usual - not special - supplemental budget may occur, as it normally does. The Corbett team wants to keep any supplemental

welfare budget down in the double-digit millions, not in the $200 million to $400 million range often used by former Gov. Ed Rendell.

But how can Welfare Secretary Gary Alexander find that much waste, fraud and abuse in time to tell Corbett this month and the public and Legislature in September, how he will get the budget down to size? Especially since the inspector-general’s office is just now hiring its new staff to target the welfare department, to find all that waste, fraud and abuse?

Welfare advocates think Alexander will cut his way there. And they are likely right: whatever the inspectors-general find in the way of new welfare fraud, and whatever they do to delay benefits going to the deserving and undeserving, Alexander has to cut his way to a balanced budget, present it in September, then hope the inspectors help too.

If the Democrats held even a chamber of the Legislature, as the House Republicans do nationally, they could have fought this battle in the budget, and thereafter. But now, with no power, there

is not much they can do.

Republicans are now making good on the welfare cuts in the budget, fleshing them out. Advocates and Democrats are protesting that the budget funds programs now likely to feel the budget knife.

But they have no control over the House, Senate or governor’s office.

In Washington, D.C., where there is divided control, the real test of the debt deal and its various budget cuts will be in the 2012 elections. If President Obama wins re-election, and restores House Democrats to power, or close to it, the debt deal will mean little. If it becomes the staging ground for the debate over government-cutting that gives the GOP the White House and/or Senate, it will mean a lot.

But right now, in states like Pennsylvania, real budget-cutting that will actually happen is underway, and programs will get hacked. In Washington, if the deal goes through, things will be scheduled to happen, then renegotiated on the eve of their occurrence. Until voters resolve who is in charge there. As they did last year in Pennsylvania. CW

NEWS 15

AUGUST 2011 CAPITAL WATCH

Statewide poll shows consumer apathy toward electric competition A new statewide poll shows that nearly 90 percent of Pennsylvanians know that they can choose their own electricity supplier. Despite this knowledge, only 20 percent of consumers have actually switched.

According to the poll, the number one reason (40 percent) that consumers do not take advantage of the state’s competitive energy market is they do not believe the savings is worth the effort to switch. The low rate of consumers switching energy suppliers is surprising given the fact that they could realize significant savings.

“In these tough economic times, it is startling that people are passing up on what is essentially free money,” said Kevin Johnson, CEO of Alphabuyer, a Paoli-based group buying company that commissioned the poll. “On the whole, we need to do a better job of communicating the cost savings to consumers and simplifying the process, making it easier for people to compare and switch.”

On July 28, the state Public Utility Commission (PUC) voted 5-0 to launch a second phase of a statewide investiga-

tion to explore what changes are needed to allow consumers to best realize the benefits of competition. The PUC plans to hold a hearing on the matter on October 27.

“The Commission’s goal is to make Pennsylvania the most competitive electricity market in the country,” said PUC Chairman Robert F. Powelson.

The Alphabuyer poll surveyed 477 people across the state from June 9 to June 13. The survey was conducted by Zoomerang Data Service and consisted of 10 questions asking respondents about their awareness and attitudes regarding energy deregulation.

While consumer apathy was cited as the most common reason for failing to switch energy providers, 24 percent of Pennsylvanians replied that they are confused about the process of switching or are overwhelmed by the number of alternative energy providers and their various rate structures.

Johnson estimated that residents could save 5 percent of more changing to an alternative energy supplier.

For example, he said an average PPL customer could save $50 or more per

year with no switching fees or early cancellation costs and no risk to their current electricity service. Some households could save more than $100 per year, Johnson said.

Alphabuyer (www.alphabuyer.com), a new group buying company for essen-

tial household services such as electricity and natural gas, negotiates deals with energy suppliers and offers them to consumers. The more consumers switch, the lower the cost for energy for all consumers who sign up during the offer. CW

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