Capital Watch June 2013

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

CAPITALWATCH 5TH YEAR

ANNIVERSA

VOL. 6 NO. 6

RY

INSIDE How high is the state’s pension unfunded liability?

PAGE 3 New study says tax reform would boost state’s economy PAGE 4 SPECIAL FEATURE The Pennsylvania Turnpike: Unsafe at any speed PAGE 7-10 Sen. Wozniak considering a run for lieutenant governor PAGE 6 EDITORIAL Caution—Highway construction ahead PAGE 21 Will legislators pass liquor privatization, pension reform and transportation funding before the June 30 budget deadline?

PAGE 26

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JUNE 2013

House budget battle gears up House Republican leaders presented their budget proposal May 29 which they described as hewing closely to Gov. Tom Corbett’s February spending proposal, with some fiscal and spending updates.

They propose spending $28.339 billion, about $100 million less than the governor proposed, and a 2.1 percent increase in spending, $578 million above the current year’s $27.66 billion budget. The House GOP leaders said it could begin being amended or debated as early as June 10.

House and Senate GOP leaders also collaborated on a new revenue estimate, more pessimistic than that issued by the governor in February, but projecting a $200 million-plus shortfall by the end of the next fiscal year, compared to the $520 million overall shortfall issued by the Independent Fiscal Office earlier this month. The House/Senate GOP leaders forecast 1.5 percent revenue growth for next year.

“Our House/Senate projections now estimate revenues will be at a $45 million surplus at the end of the budget year. This will leave us with an ending balance of $356 million. Projecting a 1.4 percent revenue increase for 2013/14 and the Governor’s spend number of $28,439,734, would leave us with a $324 million hole to fill,” said Senate Appropriations Committee Chairman Jake Corman, R-Centre.

The House’s reduction of $100 million leaves that gap at $224 million.

The GOP budget bill will hike spending by elected officials: at least 1.5 percent increases for the Legislature, governor’s office, row offices and courts.

BUDGET

Auditor General Eugene DePasquale, who has said he would have to lay off workers unless he got a major increase, is slated for a $2.6 million, 6.2 percent spending hike.

The House GOP also responded to the state Open Records Office requesting more resources to deal with a deluge of requests: an 18.7 percent increase, $257,000, to lift their budget to $1.6 million. And gave a 6 percent increase to the State Ethics Commission.

House Appropriations Committee Chairman Bill Adolph

estimated that the budget line items were roughly 85 percent the same as the governor’s proposal.

The biggest House GOP change from Corbett’s proposal was not presuming $175 million from pension reform and reducing the state’s contribution due to the governor’s pension reforms.

Instead, the House GOP leaders said that pay freezes, layoffs and retirements among teachers over the last two years meant the state had overpaid $140 million and that largely offset the Corbett proposal’s savings proposal.

“We commend the House Republicans for finding a way to meet our pension obligations in the budget, without the harmful reforms that Gov. Corbett is pushing. However, it is important to note that the decrease in the Public School Employees’ Retirement System is because there are 20,000 fewer public school employees as a result of the cuts to education. This is not something the Republicans should be patting themselves on the back for,” said House continued on page 5

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who probably includes most of the people Those of you who know me (and that some ing around Harrisburg for decades – will read this) know that I’ve been kick a career rtation issue that pushed me toward 60 years and counting. It was a transpo these all for d age tion issues have kept me eng in government relations. Transporta that I wish to discuss here. years. And it’s a transportation issue ion fundrring to Senate Bill 1, the transportat As you’ve probably guessed, I’m refe TransRafferty, majority chair of the Senate ing measure introduced by Sen. John rside con for se moved that bill to the Hou portation Committee. The Senate has end of this fiscal year on June 30. ation and, I hope, enactment by the between I have rarely if ever seen such a nexus lition. Its In my years in the public policy arena, Keystone Transportation Funding Coa the t rrec resu to me ired insp us nex t need and opportunity. Tha ting notices – and more ’s the number of people who receive mee that – 250 ut abo bers num now hip members the membership list at eekly online newsletter. (You can find biw n’s litio Coa the to be scri sub ple than 1,000 peo ReConnectPA.org.) ion agenway builders and the public transportat high the are n litio Coa the of rs pilla As you would expect, the up: labor unions, farm organizadiversity of the remainder of the gro the is ect exp not ht mig you at Wh . ns, associations repcies advocates, air and seaport organizatio -use land tes, oca adv ian estr ped and travel and tourism tions, bicycle s groups and chambers of commerce, ines bus l loca and e stat ts, men ern ties, truck resenting local gov ger rail organizations, health care enti sen pas and ght frei tes, oca adv tal organizations, environmen freight haulers and even AARP. tion to Pennsylvania’s prehensive, multimodal, long-term solu com a l: goa ple sim le, sing a by ted We’re uni transportation funding needs. system. Accordt a safer, less congested transportation wan y The . pen hap to this for y read with this Pennsylvanians are they’re paying a greater amount to live n, atio aniz org arch rese ion rtat spo ing to TRIP, a national tran cent, according to a recent Terry blem. A significant majority – 59 per pro the fix to take ld wou it than pen. problem st at least $2.50 per week to make it hap inve to ing will is – poll h earc Res n Madonna Opinio ld do that. It’s builders back to work, although it wou way high ting put than re mo ch mu ut . It’s about much Ultimately, it’s abo congestion, although it would do that ving relie and ty safe ing rov imp about much more than bicyclists and pedestrians, sit services, and providing access for tran l rura and an urb ting por sup than and people through more re than moving goods and materials mo ch mu ut abo it’s And . that do ld although it wou ld do that too. our sea and airports, although it wou em, one that will revive our in a 21st Century transportation syst It’s about making a prudent investment s future and a better quality of grandchildren for a more prosperou and n dre chil our n itio pos and y nom eco slator who supports a this, and we will stand behind any legi and erst und n litio Coa our of bers life. The mem rtation funding needs. m solution to Pennsylvania’s transpo comprehensive, multimodal, long-ter Be of Good Cheer!

“The Wolff ” t Fund Paid for by the APC Educational Trus

NEWS 3

JUNE 2013 CAPITAL WATCH

CAPITALWATCH

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How high is the state’s pension unfunded liability?

The combined unfunded liability for the state’s pension plans earlier this year was reported at about $41 billion. It has since been revised a few more times, to $44.2 billion, and more recently $47.4 billion.

That unfunded liability for the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) is anticipated to rise to about $65 billion before contributions to those funds – rates that will at least double our current rates and last for more than 15 years - begin to reduce that liability and, according to projections, bring it to zero in about 30 years, for SERS, and about 24 years for PSERS. And much of that unfunded liability will have to be erased by taxpayer dollars.

Sounds like a tough situation for state elected officials? What if it’s actually worse than that?

According to Richard Dreyfuss, a retired actuary and senior fellow with the Commonwealth Foundation, a Harrisburgbased conservative-leaning think tank, far more needs to be done than what the state

is currently doing to address the pension unfunded liability, with the first thing being fully understanding the condition of the state’s pension systems.

While Act 120 of 2010 has been hailed by many as a significant piece of pension reform that addresses the unfunded liability, Dreyfuss, and others, claim post-Act 120 pension system assumptions have been used to make Act 120 and its impact on the state pensions look better than it is.

That means, according to Dreyfuss, that this reform plan will likely prove much more costly to taxpayers than originally projected. Stated differently, the liabilities will be significantly higher and the future savings will be much lower.

Regarding public pension systems, Dreyfuss said, “The problem is when you get them into the political domain people tend to overpromise and they tend to underfund, and one of the ways they do it is to not pay the proper amount, but another way is to use these rosy economic assumptions, which sorta keep the costs visually lower than they should be.

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“Because if they were to fund them on the standards consistent with the private sector, these unaffordable costs would go up in multiples.”

When asked if any concerns raised about the future of the pension unfunded liability are warranted, SERS spokesperson Heather Tyler cautioned that “making judgments over a two-year window about math that’s done over 30 years is kinda a mistake.”

And PSERS spokesperson Evelyn Tatkovski argued the pension systems’ assumptions are not inappropriate, and that public sector pension system are different from private sector ones.

“There are some groups that want to make public sector look and function like private sector,” wrote Tatkovski in an email. “Private sector, however, is different from public sector.

“The private sector has a different set of accounting rules and requirements than the public sector. For example a private business can close up shop and go out of business without notice tomorrow and thus has different accounting rules.”

However, Dreyfuss notes that the assumptions made by the pension systems have already changed since Act 120 became law, and that has added to the costs that taxpayers must pay.

Act 120 of 2010, by making several changes to how future pension benefits are calculated for new employees, was expected to save the state about $33.1 billion between now and fiscal year 2033-34.

But the act also smoothed out a pension contribution spike, that would have hit the state during the last few years, using what are called “collars.”

Smoothing out the contribution spike and deferring the actuarially recommended contributions with those collars came with a cost over the long term: $13.1 billion. And there were other costs involved with Act 120, totaling, with the collars included, $30.2 billion between now and fiscal year 2033-34.

So the actual net savings of Act 120, when the bill was signed into law, was about $2.9 billion over the next three decades.

But because of assumption changes by the pension plans- such as the expected return on pension investments - that $2.9 billion in savings is already gone, according to Dreyfuss.

He notes pension-related taxpayer costs could continue to rise if investment returns don’t meet new expectations or those expectations are lowered again; if, as they did this past year, employee payrolls don’t meet expectations; or state lawmakers choose not to fully fund the contributions planned by Act 120, as they have done in the past. CW

4

NEWS

JUNE 2013 CAPITAL WATCH

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New study says tax reform would boost state’s economy A new analysis conducted by the Commonwealth Foundation and the Beacon Hill Institute shows that Governor Tom Corbett’s tax reform proposal would significantly improve Pennsylvania’s economy.

The study concluded that, by 2018, the Governor’s plan would lead to more than 1,200 additional private sector jobs across the state, nearly $460 million in additional disposal income, and more than $1 billion in additional investment through savings and purchases.

“This study shows that Governor Corbett’s tax reform proposal is a winner for Pennsylvania’s families, as well as our state’s economy,” said Nathan Benefield, Director of Policy Analysis at the Commonwealth Foundation. “This is exactly what Pennsylvania needs at a time of economic trouble and mounting competition from our neighboring states. Rather than raise taxes that hinder job growth and investment, the legislature should pursue this tax reform immediately.”

The study, which uses the PA-STAMP econometric model and was co-authored

by Michael Head of the Beacon Hill Institute, analyzed the economic effects of the proposed tax reform that would, among other things, cut the corporate income tax rate from 9.99% to 6.99% between 2015 and 2025.

The analysis looks at only the first few years of the plan. Further job creation would be expected as the reduction in the corporate income tax rate continues.

Pennsylvania’s corporate income tax rate is currently the 2nd highest in the nation, and combined with the federal rate, the 2nd highest corporate tax rate in the industrialized world.

Benefield concluded: “Job creation needs to be a top priority for lawmakers.

As demonstrated by this analysis and realworld evidence, reducing taxes on families and employers is the best way to facilitate job growth.” CW

Senate expected to vote this week on transportation bill Most observers agree that June is a makeor-break month for enactment of a transportation funding bill. If the Legislature recesses without passing a bill, action is unlikely this year.

Senate Transportation Chairman John Rafferty, R-Montgomery, said he expects that chamber to vote on Senate Bill 1, which has broad bipartisan support. It would increase the tax on gasoline wholesalers, possibly leading to a rise in pump prices, and raise most vehicle fees to match the inflation that has occurred since 1997. The measure also would increase fines for traffic violations.

Fully implemented, the changes would cost a typical driver about $3 per week.

Action in the House is less certain, with lawmakers acknowledging that funding mass transit is a difficult sell to rural lawmakers.

Rafferty, sponsor of S.B. 1, said it would provide not only for repairs and resurfacing of roads and highways but allow for expansion projects to reduce congestion. “It’s a tough vote for us,” he said. “Pennsylvania is ranked 35th in infrastructure among the 50 states. That’s a tell-all sign that we have to do something.” CW

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6 NEWS

JUNE 2013 CAPITAL WATCH

Sen. Wozniak considering a run for lieutenant governor

BY KEVIN ZWICK, CAPITOLWIRE

A long-time Democratic state lawmaker is considering a run for lieutenant governor.

Sen. John Wozniak, D-Cambria, told Capitolwire that while the potential reelection is not until 2016, he’s considering adding his name to the field of candidates for the number-two slot in 2014.

“I haven’t ruled it out,” he said. He’d take a crack at running for governor, but said: “I can’t raise $60 million dollars.

That’s just the reality.”

Another reality he faces is the shifting layout of his senatorial district after the latest reapportionment round. His district retains Cambria County, a Democratic bastion in local races that swings in statewide contests, but it loses the trending-Democratic Clinton County. His district shifts south into the solidly Republican Bedford County, so the Johnstown suburb lawmaker’s district becomes notably redder.

And although Wozniak hasn’t fallen in line behind Democratic leadership on every vote, Senate Republicans spent $450,000 last fall to try to oust him. He survived that attempt and was re-elected with 51.2 percent of the vote last year. Next election, he may not be so lucky.

The addition of Wozniak adds an interesting element to the race, as it could set up a showdown with former U.S. Rep. Mark Critz, a Johnstown resident who said he’s considering a run.

Both have strong ties to organized labor, whose get-out-the-vote effort is credited

C E N T R A L

the race. “Those individuals who might have been limited to give him a few thousand can certainly give more” under state campaign finance law.

Wozniak, the Senate Democratic Transportation chairman, says his close relationship with House and Senate lawmakers would be a boon to a new administration and he would rely on his colleagues

Sen. John Wozniak may try to get on the Democratic ticket in 2014. He’s considering a run for Lieutenant Governor.

with securing Critz’s member-againstmember primary victory last spring against Jason Altmire and also helped Wozniak’s re-election. And either one would satisfy the party’s need to balance out a gubernatorial ticket where the major candidates hail from the Philadelphia suburbs.

Pennsylvania AFL-CIO president Rick Bloomingdale says both Wozniak and Critz have been good to labor over the years, but it would come down to who can raise the money

P E N N S Y LVA N I A

to boost their name recognition statewide.

He said both have done well under their own fund-raising circumstances: Critz, being a congressman who had to raise money almost daily under strict federal contribution limits, and Wozniak being in the realm of unlimited contributions on the state level.

“Critz certainly learned how to raise money,” said Bloomingdale, noting neither Critz nor Wozniak talked with him about

YO U T H

B A L L E T

“Senate Republicans spent $450,000 last fall to try to oust him. He survived that attempt and was re-elected with 51.2 percent of the vote last year. Next election, he may not be so lucky.” to support him around the state. Wozniak has served in the Legislature since 1980, when he was first elected to the House. He was elected to the Senate in 1996.

Other lieutenant governor candidates include Harrisburg City Councilman Brad Koplinski and Bradford County Commissioner Mark Smith, while state Rep. Brandon Neuman, D-Washington, is considering a run. CW

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FEATURE 7

JUNE 2013 CAPITAL WATCH

The Pennsylvania Turnpike: Unsafe At Any Speed

PART ONE

BY ERIC J. EPSTEIN

T

he Pennsylvania Turnpike Commission (PTC) was created in 1937 to construct, finance, operate and maintain the Pennsylvania Turnpike.

When it opened in 1940, the Pennsylvania Turnpike made history as the first limited access superhighway in the nation. Constructed across and through 160 miles of rugged ridges and narrow valleys, the Turnpike was both an engineering marvel and precursor of the national interstate highway system.

In Part One of a special Capital Watch two-part series, Citizen Advocate Eric J. Epstein presents compelling evidence that proves while the physical infrastructure that is the Turnpike is an essential artery for Pennsylvania, the PA Turnpike Commission is an outdated political patronage den where tolls, bonds and perpetual debt are its lifeblood and the reason for its existence.

C

oming in the July issue of Capital Watch: Epstein focuses on how The Turnpike Commission is expending millions of your toll dollars to underwrite its inefficient operations and perpetuate “pinstripe patronage.”

Epstein’s conclusion? Starting a toll war will not lead to economic prosperity or fix a broken system. Don’t buy into the PTC’s latest marketing burp that “this is not your father’s turnpike.”

8 FEATURE

T

he Pennsylvania Turnpike was a landmark achievement for Pennsylvania motorists when it officially opened on October 1, 1940. America’s first superhighway gave Pennsylvanians greater access to work and recreation and the freedom to roam the open road. Many of us harbor happy motoring memories: stopping to picnic, eating clam rolls at Howard Johnson’s or taking Sunday afternoon jaunts to view fall foliage.

That era is gone. The Greatest Generation has yielded to the Greatest Burden. Cheap gas, friendly attendants and clean restrooms are in history’s rear view mirror.

So too is the old way of doing business at the toll road, according to former Pennsylvania Turnpike Commission (PTC) Vice-Chairman Timothy Carson. Six years ago, Carson ushered in a new era proclaiming, “We’re not your father’s Turnpike.”1 The turnpike should not be my granddaughter’s debt burden either.

Former Gov. Ed Rendell did not create the kleptocracy that is the Turnpike, but he did conspire with both Republican chambers to construct an excruciating debt burden embedded in the passage of Act 44. According to former Auditor General Jack Wagner, the turnpike’s “long-term debt has increased by more than 200 percent, from $2.6 billion to $8.3 billion, since the General Assembly approved Act 44 of 2007.”2 And the debt continues to rise: “The ratio of debt-per-vehicle rose from $6.47 in 2003 to $35.62 in 2012. The Turnpike still owes PennDOT $450 million every year until 2058.”3 The PTC is run by a chief executive officer and a chief operating officer. Governance is set by appointed turnpike commissioners. The Turnpike is a major business enterprise and a historical marker, covering 546 miles of roadway with 21 maintenance facilities, five tunnels, 64 toll interchanges and 17 services plazas.

While the physical infrastructure that is the turnpike is an essential artery for Pennsylvania, the PA Turnpike Commission is an outdated political patronage den where tolls, bonds and perpetual debt are its lifeblood and the reason for its existence.

There has to be a better way than the status quo.

We scream when gas blinks upward and support military action to pay less at the pump.

But Pennsylvanians remain respectfully indignant when the Turnpike holds them hostage and charges an arm and leg for a cold slice of pizza. The cost for a one-way trip ticket per automobile is about the same as the price to sit in the outfield bleachers at a Phillies game and on par for what we charge a nonresident to shoot to a bear.

The PTC raised tolls 42.5 percent in 2004. Holy crap! That was more than the raises legislative leaders (16 percent to 34 percent) gave themselves on July 7, 2005 at two in the morning. As the economy tanked, tolls steadily increased for motorists using cash or EZ Pass. Increase after increase was met with quiet despair and editorial outrage.

Then came the “see-no-evil” toll increase of 2010. The commission decided to stop printing fares on tickets as a 10 percent increase was set to explode. The commission argued that eliminating fare information would save $100,000 in printing costs. Then Auditor General Jack Wagner countered that “the removal of fare information was an attempt to conceal the rate increase from the public.” He also said that motorists would be confused because, “without the fare printed on the ticket they would not know how much their trip would cost.”4 The Turnpike’s logic was bizarre: Let’s save money on printing costs but reimburse commissioners for re-enacting Sodom and Gomorra. Fresh from PHEAA facials, falconry lessons and mud baths, Wagner “found commissioners racked up $539,000 in expenses between 2007 and 2011, including $45,992 for lodging, $15,356 for meals, and $406,497 for cars.” 5 And these guys don’t even pay tolls.

The Turnpike later reversed its decision and printed the actual cost of fares on tickets.

Whatever happened to truth in advertising?

Well before the “guess-your-charge” fiasco, former turnpike CEO Joseph G. Brimmeier - who was indicted by Attorney General Kathleen Kane (D-Lackawanna) on March 13, promised on Jan. 24, 2004, “Further, I pledge that this will be the last toll increase for at least the remainder of this decade, so Pennsylvania Turnpike customers can once again enjoy a respite from toll increases while driving a better, safer road.”6 The following year, “The number of cars using the Pennsylvania Turnpike is down

JUNE 2013 CAPITAL WATCH

by less than 1percent since last summer’s toll increase.” 7 Brimmeier broke his bond three years later and maneuvered to increase Turnpike tolls by 25 percent. In 2009 - the first year of a full throated recession - the promise-keepers increased tolls by 3 percent.8 Maybe I’m too old school, but I was taught that a decade constitutes ten years.

Brimmeier bragged that the turnpike hadn’t raised their tolls since 1991. While that’s true, it’s only half of the story: Turnpike tolls were increased by 30 percent in 1987 and another 30 percent in 1991.

In 2007, House Bill 1590 became Act 44. It gave the PTC “full discretion to set toll rates subject to bond covenants giving bondholders rights in circumstances of default.”

In other words, “Tolls shall not be subject to supervision or regulation by any other state commission, board, bureau or agency.” 9 This was a chilling reminder of former Senator Allen Kukovich’s (D-Westmoreland) warning that the Turnpike’s bond business “just seems to be pay-backs to political folks all the time.”

Since the General Assembly approved Act 44 there have been five annual toll increases, and the PTC’s “long-term debt has increased by more than 200 percent, from $2.6 billion to $8.3 billion.” Meanwhile, traffic volume stagnated between 2007-2012. During fiscal year 2010-11, traffic volume on the Pennsylvania Turnpike totaled over 189 million vehicles, including 165 million passenger vehicles (87 percent) and 24 million commercial vehicles (13 percent). The total net revenue generated from tolls in fiscal year 2010-11 was $763 million ($436 million or 57 percent from passenger vehicles, and $328 million or 43 percent from commercial vehicles). An increasing percent of revenue (47 percent in 2011) goes toward debt service mainly due to the burdens of Act 44. 10 But this is hardly a surprise given the structure of the Turnpike and its propensity to bond itself into financial servitude. Inviting more bond indenture for this crew was like asking an Edsel to tow a Pinto to a repair shop. The Philadelphia Inquirer’s Editorial Board concluded in 1997: Political considerations are routinely a factor in the turnpike’s selection of bond underwriters, turnpike documents show. The documents list turnpike bond deals with the name of the underwriting firms, their share of bonds and their profits, and the political party that sponsored them. The commission has issued or refinanced more than $2 billion in bonds to pay for road projects since 1986 [without bids]. Turnpike officials said the bonds were split 50-50 between the parties...Several studies have concluded that municipal bond issuers pay significantly higher costs on negotiated underwritings, such as the Turnpike’s, than on competitively bid offerings. 11 Since the Inquirer’s investigation was published, Pennsylvania has been served by four governors and two attorneys general. It also has experienced six toll increases. This year’s bump was actually more than the price of a gallon of gas. EZ-Pass customers now pay $3.98 more to cross the state, or $30.17, while cash hostages were assessed at an additional $4.75 and pay $35.15. With health insurance outpacing inflation and property taxes steadily increasing, can consumers afford to drive on a road with never-ending toll hikes?

The uncomfortable irony is that toll hikes defeat the beauty and freedom that the Turnpike delivered in 1940. The PA Turnpike’s mission is: “To operate and manage a safe, reliable, cost-effective and valued toll-road system.” Seventy-three years ago we figured a way to blow holes in mountains to connect people. Now we extort soccer moms to underwrite the politically connected.

MANAGERS, EMPLOYEES, AND LOBBYISTS It’s difficult to imagine a more inefficient use of labor and toll dollars. Does the PTC really need 480 managers and 1,799 employees to staff, manage, and operate the Turnpike? That’s 2,279 employees making sure 546 miles of road run on time. 12 Or 4.17 employees (including one manager) per mile of toll road.

In 1957, under a Democratic administration , there were 1,560 employees at the turnpike.

Fifty years later, the number mushroomed to 2,279. By 1997,under a Republican regime, the turnpike was considered overstaffed when its employee/mile ratio was 3:1 compared to 1:1 at PennDOT. Some bureaucratic whack job would view this as economic development.

FEATURE 9

JUNE 2013 CAPITAL WATCH

Staffing numbers decreased by 2011 as ATM’s supplanted ticket takers. “The turnpike’s workforce consisted of 2,104 employees as of May 31, 2011.”13 Not bad if you don’t count the contractors or relatives and the 7,000 folks who pay no tolls. Those who “ride for free represented a 60-percent increase from 1997.” 14 Can you imagine how “efficient” our schools would be if we deployed one teacher for every four students? The student-to-teacher ratio in Pennsylvania for primary schools is 15 kids to one teacher. 15 In 2007 the PA Turnpike Commission reported 10 managers earning from $125,320 to $178,427.16 How many fireman or policeman or nurses make that much money? Turnpike wages (not factoring health benefits and pension plans) are vastly superior to the private sector in Pennsylvania in comparable supervisory fields:

Supervisory Scale

17

Job Title Regulatory Affairs Manager Product Line Manager II General Supervisor General Accounting Supervisor Collection Manager Human Resource Manager Sales Promotion/Manager

2006 $64,101 $92,039 $52,488 $51,627 $55,168 $69,644 $109,467

2007 $75,731 $107,939 $57,922 $56,908 $54,465 $68,062 $97,336

% change +18.14 +17.28 +10.35 +10.23 –1.27 –2.29 –11.08

Gov. Corbett’s first selection for turnpike CEO, Roger Nutt, made $196,753 a year. Gov. Corbett, the nation’s highest paid chief executive, made $183,255. But you don’t have to be a Nutt to receive a lucrative compensation package. Pennsylvania’s four appointed turnpike commissioners are nominated by the Governor, confirmed by the Senate and meet no more than twice a month. They receive $26,000 a year or $1,083.34 per meeting. Chairman William Lieberman receives $28,500 or $1,187.50 per meeting.

Ah, the Senate, the den of inequity according to former Chairman of the House Transportation Committee Richard Geist who stated,“ The Turnpike is totally a plaything of the (state) Senate.” Other politicians charge the pike “exists as much to provide jobs for the friends and relatives of Democrats and Republicans politicians as it does to provide a thoroughfare for drivers.” 18 The commissioners enjoyed $539,201 in benefits over an audit period covering 2007-2011. In the post-Pay Raise and post-PHEAA aftermath, the commissioners posted an impressive array of “benefits.” No limits were placed on expense accounts for commissioners traveling to conferences around the world. Commissioners stayed in luxury hotel suites and received free vehicles and electronic devices for personal use, all paid for with toll revenue. The report cited one commissioner writing off a $494 restaurant bill in Harrisburg in February 2010. 19 These stewards of the Pennsylvanian autobahn even found a way to blow a gasket in the Turnpike’s automobile fleet. “Between Jan. 1, 2007, and Aug. 31, 2011, the Turnpike spent $406,497 buying new cars for commissioners (not including $39,799 for Lieberman’s newest Jeep), $29,642 on fuel, and $20,328 on maintenance.” 20 One recent commissioner was a refugee from the Senate who stepped down due to conflicts of interest.

On March 22, 2013, former Commissioner J. William Lincoln resigned after admitting he accepted a $3,000 gift certificate to Nemacolin Woodlands Resort from an engineering firm, shook down campaign donations from Turnpike contractors, and served as the point of contact between the Senate and commission. Lincoln was the former Senate Majority Leader (D-Fayette). The grand jury’s presentment declared that: “Commissioner J. William Lincoln testified before the grand jury pursuant to a grant of immunity.

Commissioner Lincoln admitted that he received the gift certificates and failed to report them on his annual Statement of Financial Interests.”

Apparently, Lincoln will be able to retain his pension and lifetime of free health care on taxpayers’ dimes.

federal tax laws, pled guilty to obstructing an IRS investigation, and insisted on staying on at the Senate. Even Senator Vince Fumo (D-Philadelphia), later dispatched to federal prison for five years, asked him to step aside.

Loeper seems like the right guy to argue against leasing anything other than himself. He was sent to prison in Fort Dix, NJ but kept his pension and free healthcare as part of the plea bargain. It’s hard to imagine that tax cheat and former Senate Majority Leader David “Chip” Brightbill (R-Lebanon) and a former President Pro Tempore and Lieutenant Governor Robert Jubelirer (R-Blair) and their staffs did not have their hands in the Turnpike cookie jar. If a 60/40 split at the Turnpike didn’t include Senate Republicans, who got the split?

According to Jubelirer, pay-to-play was “completely foreign” to how Republicans behaved when he was running the joint.

“We recommended people who were very competent,” said Jubelirer, who also said he was not contacted by law enforcement. “Sometimes they got hired, sometimes they didn’t.” 23 Jubelirer’s “recommendations” carried weight. Deborah Eckert started working at the Turnpike in 1994 making $42,000 as a “marketing department representative.” In 1997, John Durbin, the former executive director of the turnpike told the Philadelphia Inquirer that Jubelirer had called him in mid-1996 to say, “Deb was extremely qualified for a promotion...” She was promoted.

The couple married on August 17, 1997. When Deborah Eckert Jubelirer quit her job on August 6, 1999, she was making $66,539 as assistant deputy executive director of marketing. Jubelirer and a computer technician were fired “after officials learned that a nude photo of her was in the computer system in the turnpike commission offices.” 24 Clearly, there was a need for the turnpike to display a more professional public image.

Yet, if we reduce turnpike appropriations by the amount spent on lobbying fees, taxpayers can save at least $312,000 annually.

And then there is Washington, D.C. You may remember the PA Turnpike Commission’s star lobbyist, Ann Eppard, who secured $20 million in funding for the Mon-Fayette Expressway. John Martino, legislative liaison for the commission, called Eppard, who passed away in 2005, “one of the most intelligent persons I’ve ever met in all my years in government and public service.”25 “A week later, however, she was hit with an indictment charging that during her tenure as [Bud] Shuster’s chief of staff she accepted $230,000 in illegal payments in connection with an enormous Boston highway project and embezzled $27,500 from his campaign.” 26 Not a problem for the turnpike or Eppard’s clients: “Frankly the indictment did not affect our business relationship at all,” said Pennsylvania transportation consultant Joseph W. McMahon, whose firm paid Eppard about $60,000 last year [1997]. McMahon was clear about Eppard’s value to his firm: “She helped us to get to visit with a number of legislators—Chairman Shuster, of course.” 27 The article was written 17 days before Eppard caught a break from the Supreme Court which ruled gifts to government officials are legal unless the official performs a “special official act” in return for the favor. 28 The unanimous decision was written by Justice Antonin Scalia. On November 1, 1999, after most of the charges were dropped, Eppard was fined $5,000 and admitted to a misdemeanor.

The PTC was well aware of the Eppard-Shuster lobbying highway to transportation riches. Congressman Bud Shuster (R-Bedford) employed Eppard as his top Congressional aide for 22 years before she founded Ann Eppard Associates, Ltd., in 1994. Eppard’s enterprise was a “lobbying firm that primarily represents transportation interests before Chairman Shuster’s Transportation & Infrastructure Committee...”

Roll Call reported that Rep. Bud Shuster...acknowledged in a statement that his campaign is based in the home office of a lobbyist whose main business is representing clients before his committee.” Eppard was paid $3,000 per month by Shuster’s campaign committee.29 One way to address the issue of subsidizing lobbyists is to de-fund state bodies from renting mouthpieces. Rep. Tina Davis, (D-Bucks) is seeking to “prohibit all state government entities from using public money to hire outside lobbyists to lobby sister agencies or branches. The bill would prohibit any arm of government from entering into a contract or otherwise paying an outside lobbyist. That would include boards under the

IS THIS A GREAT SYSTEM OR WHAT? If you spend that much time on the road, you certainly need to hire a gaggle of lobbyists.

Pork-a-polooza hit the fan at the Turnpike in 2007.

The PTC paid the Bravo Group more than $26,000 a month to lobby the legislature and governor not to privatize the turnpike. That’s the same amount a turnpike commissioner is paid annually in 2013. This is on par with the Pennsylvania Higher Education Assistance Agency (PHEAA), which paid more than $1 million a year to eight lobbying firms, including $235,000 to a single lobbyist—also to avoid a hostile privatization takeover. 21 In 2007, the Department of State listed 11 lobbyists from Bravo working on behalf of the Commission, including Jill Asher, a founding member of the Pennsylvania Future Fund and daughter of GOP power broker Bob Asher. The commission lobbying staff included: Commonwealth Strategic Solutions (headed by Mike Long, the former chief of staff to Senate President Pro Tempore Robert Jubelirer (R-Blair), who bagged $41,000 in taxpayer-funded bonuses); Eckert, Seamans, Cherion & Mellott, LLC.; Rosscommon Consulting International; and Twain Marketing. 22 The commission also contracted with former state Senator Joseph Loeper, (R-Delaware County). He was Senate majority leader from 1989-1992. Loeper admitted to violating

1. Rep. Tina Davis, (D-Bucks) is seeking to prohibit all state government entities from using public money to hire outside lobbyists to lobby sister agencies or branches.

2. In 1997, former Turnpike Commissioner Robert Gleason, current Republican Party Chairman, was accused of using his power on the commission to drum up business for his insurance agency.

3. Former Turnpike CEO Joseph G. Brimmeier, who was indicted by Attorney General Kathleen Kane (D-Lackawanna) on March 13 of this year in part of the “Pay to play” scheme, pledged in 2004 that “this will be the last toll increase for at least the remainder of this decade.”

4. Lobbyist Ann Eppard and former House Transportation Committee Chairman Bud Shuster so intertwined their official, professional, political and personal lives that the Washington Post said “it is often hard to discern one kind of activity from another.”

(Illustration by William Duke)

10 FEATURE

JUNE 2013 CAPITAL WATCH

governor’s jurisdiction, judicial agencies, the legislative branch, independent agencies and state-affiliated entities such as PHEAA and PTC.” 30 Davis introduced similar legislation with 14 bipartisan sponsors last year, but Rep. Daryl Metcalfe (R-Butler), chairman of the State Government Committee, did not allow the bill to come up for a vote. Davis put the bill back on the table.

On April 2, House Bill 1085 was referred to the State Government Committee, co-sponsored by 24 Democrats and Republicans. 31 The size of Pennsylvania’s legislative staff (the second-largest in the nation) more than doubled from 1,430 (1979) to 2,947 (2003), and by 2005 the cost of running the Pennsylvania Legislature was $23 for every resident. 32 I’m not a big fan of the Legislature, but even these guys acknowledged the need to reduce its bloated size. In 2007, the Speaker’s Commission on Legislative Reform recommended cutting operating costs 10 percent to save $32 million.

In 2012, the Pennsylvania Legislature –the largest full-time legislature in the nation— cost $297 million to operate and support a 3,000-person work force. The Pennsylvania Legislature is also the most expensive chamber maid in the nation, weighing in at a per capita toll of $23.28 per resident. However, it is still more costly to travel across the state (Warrendale to the Delaware River Bridge)--$26.71 per car using EZ Pass or $33.90 if you pay with cash. 33 This year, The Turnpike pared down its size to 2,104, but provided more than $4.1 million of toll-free travel to nearly 5,000 consultants, contractors, and other state government officials. 34 The Turnpike’s approved budget for 2011-2012 was $315,650,000. The adjusted budget for 2012-2013 increased by 3.5 percent or $11,029,000 and crested at $326,679,000. 35 “The Commission added an office of inspector general in 2009 and retained a privatedetective agency in April.” On September 21, 2012, four years after the attorney general’s office began investigating the turnpike, the commission hired former-FBI agent David A. Gentile as its chief compliance officer.36 Has the lobby machine fortified with political power brokers and quintessential outsiders given way to “a much improved turnpike organization?”

By 2011-2012 the Turnpike’s governmental affairs budget was $163,308. This combined with a communications and public relations outlay of $3,651,053 for a total of $3,803,361.

This was the same budget season in which $860 million was stripped out of the state’s K-12 education budget. This year, with the addition of new oversight staffing and fresh

indictments, the commission’s government affairs budget increased by 23.3 percent to $200,175, and the communications and public relations price tag jumped 18.5 percent to $4,330,256. 37 The new, improved turnpike’s PR machine budget increased by $526,895. By comparisons, the toll increase in 2013 for automobiles was 3 percent for EZ Pass and 10 percent for cash.38 It’s a hard sell convincing folks that increased tolls and blinding debt burden is in their best interest.

The net result, in the words of a veteran PennDOT official, is that, “You have a bloated bureaucracy, you have patronage that is egregious, and contracts that are poorly managed.” 39 That was the same year—1997— former commissioner Robert Gleason, current Republican Party Chairman from Cambria County, was accused of using “his power on the commission to drum up business for his insurance agency.” 40 Gleason was appointed by former Gov. Robert P. Casey (D-Lackawanna) to the commission. “He served on the Commission until September 1997, during which time he helped determine policy on construction, operation, and maintenance issues, as well as addressing finance and contract issues.” 41Former Gov. Thomas J. Ridge (R-Erie) demoted Gleason to the State Transportation Commission in 1997. Gleason left the commission to advocate full-time for the Gleason Agency, his family’s Johnstown-based insurance firm.

“During my four-year term with the commission, critical changes and accomplishments occurred that resulted in a much improved turnpike organization. However, the job was extremely time-consuming, requiring a great deal of energy. My future priority, by necessity, will be my rapidly expanding insurance business.” 42 Gleason was able to successfully lobby himself at the PTC. “I’m sure that my being a turnpike commissioner doesn’t hurt, OK, whenever it comes to doing anything politically.” Gleason said. “He saw no problem with doing insurance business with companies having turnpike contracts, as long as they were insurance clients before he joined the commission...Officials of two turnpike contractors told The Inquirer they had been solicited by representatives of Gleason’s firm after he joined the commission. Gleason admitted his family business “did not have insurance business with EADS [Engineering Architecture and Design Services based in Altoona] before he became a commissioner, but he regarded the firm [turnpike contract] differently, because EADS was “local” and it was “an account we had been after for some time.” 43 Who says history doesn’t repeat itself?

Eric J. Epstein is Rock the Capital’s coordinator and a community advocate for good government for over 25 years. Epstein is also Chairman of the Three Mile Island Alert, Inc., a safe-energy organization founded in 1977; President of EFMR Monitoring Group, Inc., a non-profit economic development corporation established in 1977, and Chairman of the Stray Winds Area Neighbors (SWAN), a smart growth association organized in 2005.

Rock The Capital was formed in August 2005 as a nonpartisan, voter education organization that was enacted after the Pennsylvania legislative, judicial and executive branches conspired to enact a compensation package in violation of a state constitutional provision.

NOTES “Turnpike lease of I-80 is best way to fix road.” Timothy J. Carson, The Morning Call, Allentown, November 23, 2007.

Timothy J. Carson of Philadelphia was the vice chairman of the Pennsylvania Turnpike Commission, a former chairman of the Delaware Valley Regional Planning Commission, a former partner at the law firm of Saul Ewing LLP, and a principal in the public policy consulting firm of CHH Partners LLC. Carson served on the Turnpike Commission for nine years. He resigned from the Turnpike on February 8, 2009 after he was convicted of two DUIs while driving Turnpike-issued vehicles in 2003 and 2006. Both incidents involved traffic accidents in which Mr. Carson said he paid for the damages. (Harrisburg Patriot-News,” February 9, 2010) 2 Auditor General Jack Wagner Says Pa. Turnpike’s Dealings in Risky Swaps Has Cost Taxpayers and Motorists At Least $108 Million, January 8, 2013.

3 Interview with Pennsylvania Turnpike Commission Chairman Mark Compton by Jeff Frantz, Patriot-News, March 22, 2013.

4 News Release, “Auditor General Jack Wagner Commends Turnpike Commission for Decision to Print Fares on Tickets,” December 23, 2010.

5 Angela Couloumbis,”Report cites lavish spending by Pa. Turnpike Commission members.” The Philadelphia Inquirer, January 09, 2013.

6 News Release, “Turnpike Commission approves first toll increase in over 13 years; Every penny of the increase will be spent on improving the road.” Pennsylvania Turnpike: Harrisburg, PA, January 21, 2004.

7 Daniel Machalaba, “Steep Increases Set for Toll Roads Moves Affect More Than a Third of Highways, Bridges and Tunnels That Currently Charge Fees,” The Wall Street Journal, April 12, 2005.

8 Peter Samuel, Penn Pike’s Joe Brimmeier trumps state Governor comes out of fight with growing road portfolio, Toll Road News.

9 House Bill 1590 passed on July 17, 2007.

10 News Release, “Auditor General Jack Wagner Says Pa. Turnpike’s Dealings in Risky Swaps Has Cost Taxpayers and Motorists At Least $108 Million,” January 8, 2013.

11 Editorial, “Turnpike run as a sty for patronage, inefficiency.”

Philadelphia Inquirer, October 29, 1997.

1

Source: Pennsylvania Turnpike Commission.

News Release, “Auditor General Jack Wagner Says Pa. Turnpike’s Dealings in Risky Swaps Has Cost Taxpayers and Motorists At Least $108 Million,” January 8, 2013.

14 News Release, “Liberal policy has cost more than $7 million in lost revenue,” Auditor General’s Office, December 10, 2012.

15 Source: Pennsylvania Department of Education, “Demographic Profile Report: 2005-06 Pupil-Teacher Ratio,” National Center for Services, 2007-2008;2012, http://www.statemaster.com/graph/edu_ ele_sec_pup_rat-elementary-secondary-pupil-teacher-ratio9, 16 Jan Murphy, “Top 10 salary lists, Patriot-News, April 2, 2007.

17 Jane M. Von Bergen, Ups and Downs of Wages, The Philadelphia Inquirer, August 13, 2007.

18 Peter Samuel, “Media Murder; Penna pike pounded by Philly paper,” Toll Road News, December 24, 1997.

19 “Auditor Blasts Pennsylvania Toll Road Mismanagement: Motorist toll revenue exploited by Pennsylvania Turnpike officials for personal use, according to state auditor,” January 11, 2013.

20 Paul Nussbaum, “Pennsylvania Turnpike commissioners keep getting new cars at public expense,” Philadelphia Inquirer, January 23, 2013.

21 Source: Bravo Group.

22 Source: Pennsylvania Department of State Lobbyist Directory.

23 “Many steering clear of Pa. turnpike’s 60/40 scandal.” WilkesBarre Times Leader, March 16, 2013.

24 Joe Grata and Tom Gibb, “Jubelirer’s wife quits Turnpike commission,” Pittsburgh Post-Gazette, August 7, 1999.

25 Juliet Eilperin. “ Eppard Left Tracks in Highway Bill,” Washington Post, Saturday, April 11, 1998.

26 Ibid.

27 Lorraine Adams, “Lobbyist Prospers as Charges Loom,” Washington Post, April 10, 1999; p. A1.

28 United States v. Sun-Diamond Growers of California, (98-131) 526 U.S. 398 (1999) No. 98—131. Argued March 2, 1999–Decided April 27, 1999138 F.3d 961, affirmed.

29 Congressional Accountability Project, “Ethics Complaint Against Representative Bud Shuster and Call for Investigation into Possible Violations of Criminal Law and House Rules.” Washington, DC, September 5, 1996.

12 13

Melissa Daniels, “Cut taxpayer-funded lobbying, lawmaker says,” PA Independent, January 31, 2013.

31 House Bill 1085, Regular Session 2013-2014. http://www.legis. state.pa.us/cfdocs/legis/PN/Public/btCheck.cfm?txtType=PDF& sessYr=2013&sessInd=0&billBody=H&billTyp=B&billNbr=1085& pn=1312.

32 Source: National Conference of State Legislatures to the Speaker’s Commission on Legislative Reform, May 9, 2007.

33 Source: Pennsylvania Turnpike Commission: “Fare Schedule.”

34 News Release, “Auditor General Jack Wagner Says Pa. Turnpike’s Dealings in Risky Swaps Has Cost Taxpayers and Motorists At Least $108 Million,” January 8, 2013.

35 Pennsylvania Turnpike Commission, Operating Expenses for the Fiscal Year Ending on May 31.

36 “Pa. Turnpike board hires compliance chief, Anthony R. Wood,” Philadelphia Inquirer, September 21, 2012.

37 Pennsylvania Turnpike Commission, Operating Expenses for the Fiscal Year Ending on May 31.

38 Pennsylvania Turnpike Commission, Operating Expenses for the Fiscal Year Ending on May 31.

39 Thomas Larson, a longtime PennDOT head, was quoted: “You have a bloated bureaucracy, you have patronage that is egregious, and contracts that are poorly managed” Peter Samuel, Philadelphia Inquirer, December 24, 1997.

40 Robert Moran and Rich Heidorn Jr., “Millions in contracts go to the connected; money-saving competitive bidding is often shunned. Pa. Turnpike officials say political allegiance often plays a role in who gets the Commission’s business,” Philadelphia Inquirer, October 27, 1997.

41 Gleason Agency, Gleason Company Directory (info@gleasoninc.com).

42 Turnpike Commission News Release, “Gleason Departs Turnpike Commission to Assume Post on State Transportation Commission,” September 16, 1997.

43 Robert Moran and Rich Heidorn Jr., “Millions in contracts go to the connected; money-saving competitive bidding is often shunned. Pa. Turnpike officials say political allegiance often plays a role in who gets the Commission’s business,” Philadelphia Inquirer, October 27, 1997.

30

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JUNE 2013 CAPITAL WATCH

Metcalfe to hold hearing to probe nonprofit ads seeking to influence elections

BY KEVIN ZWICK, CAPITOLWIRE

Recent advertisements blasting Gov. Tom Corbett’s budget policies have prompted a House GOP chairman to schedule a hearing to question what he calls a lack of enforcement.

“It doesn’t seem like there’s a loophole in the way the law is written, but a loophole in the way it’s being enforced,” said House State Government Committee chairman Daryl Metcalfe, R-Butler.

But the Department of State says the group in question appears to be following the law.

Metcalfe’s concerns were spurred by an anonymously-funded group filing for 501c(4) status that calls itself “Pennsylvanians for Accountability,” which is running advertisements critical of Corbett’s budget policies and criticized Republicans in four House races last fall.

The organization is a “social welfare” non-profit group incorporated with the Department of State. Social welfare nonprofits are not required to reveal donors or expenditures, while political groups are.

The ad says Corbett is running “a shell game” by cutting education to bankroll corporate tax cuts. However, it stops short of expressly telling the viewer to support another candidate or oppose Corbett, sim-

ply criticizing the governor’s policies, and leaving out overt political words like “elect” or “defeat.”

This is where the line between a social welfare nonprofit and a political action committee is blurred, since the tone of the ad is clearly opposed to Corbett’s policies.

It has some questioning the group’s own accountability.

“The law says unless a TV spot or mailer expressly advocates election or defeat of a candidate, it falls into issue advocacy,” said Department of State spokesman Ron Ruman.

To fall into the auspices of a political action committee, which would require the group to file campaign finance disclosures, they have to be expressly advocating the election or defeat of a candidate or ballot question, Ruman says.

“They have to use specific phrases like ‘vote for’ or ‘vote against,’” he said. “If they’re not expressly saying ‘vote for’ or ‘vote against’ a candidate, they’re not political ads, they’re issue ads.”

Metcalfe insists the group is operating outside of the law.

“I’m interested in any organization that is working here in Pennsylvania to influence the outcome of the election that is working

outside of our law or ultimately violating our law by what they might be doing,” he said. “So this organization, I think it’s clear from the way the law’s written, that they should have been reporting what they’re receiving and what they’re expending on these races they’ve been involved in, and they have not been.”

“This hearing is nothing more than a partisan attempt to silence the real concerns

Metcalfe denied just picking on a Democratic-friendly group, saying he’s not aware of other groups doing the same.

“No matter who you are, you should be operating by the law,” he said.

Metcalfe plans to hold a committee hearing to discuss enforcement with officials from the Department of State, Office of Attorney General and other enforcement.

He wants the Department of State to devel-

“They have to use specific phrases like ‘vote for’ or ‘vote against,’” he said. “If they’re not expressly saying ‘vote for’ or ‘vote against’ a candidate, they’re not political ads, they’re issue ads.” that Pennsylvania taxpayers have with Governor Corbett’s budget and the direction that he’s taking our state. What taxpayers really care about are the struggles to find steady work and overcrowded schools and that middle class families are facing devastating cuts in the budget while the Governor’s campaign donors are getting tax breaks,” Lynsey Kryzwick, a spokeswoman for the organization, said in an email.

She said the group is pursuing 501(c) 4 recognition pursuant to the law.

op clear guidelines for nonprofits regarding political activity and how the attorney general or county district attorneys can enforce existing law governing nonprofits and election ads.

“We’re happy to work with chairman Metcalfe on the issue. But as we see it, they’re complying with the law – that’s how we view it and that’s how the courts view it,” Ruman said. “If we think an activity is being done to require a group to register as a PAC, we could do that.” CW

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L & I to layoff 108 workers; AG also sees furloughs in future The state Department of Labor and Industry is furloughing 108 employees, impacting union and management workers who administered unemployment compensation and workforce development programs, L&I Secretary Julia Hearthway said April 30.

Hearthway says the furloughs were a result of decreased federal funding the state had received to handle an increased workload of unemployment claims during the Recession.

“It’s a difficult time for them, we recognize that, and we’re going to do everything we can to help them find a job,” Hearthway said in a phone interview. Not all 108 employees have been notified of the layoffs, but notifications will continue to be sent until May 3, she said.

The layoffs come as the Office of Auditor General also is looking at furloughing 50-70 employees in July due to budget constraints.

As the economy slowly turns around, the federal government reduced funding to the state by $30 million, which was used to fund an increased workload in unemployment benefit claims as the recession hit, Hearthway said.

“A large portion of Labor and Industry is funded using federal funds, and those funds have shrunk dramatically,” she said, noting Pennsylvania is not the only impacted state. “We’re not getting as much from the federal government as we used to.”

“The workload is less,” she said. “The problem is when you bring all these people on board during the recession and the workload decreases, the furloughs happen.”

She said there’s very little to make up for the loss of federal dollars to keep those people employed. The lay offs includes 94 union workers and 14 managers, department spokeswoman Theresa Elliot said.

Hearthway said none of the furloughs were made to unemployment compensation call centers, which were plagued with technical issues earlier this year.

“We took a careful and close look at our operations to manage this in the most responsible way possible. We think we’ve done that,” she said. “…Would we prefer not to have the reduction and keep these individuals? Yes, that’s just not reality.”

Hearthway said the layoffs are spread across the state, impact 41 counties. But the Dauphin County, where the Capitol is located, will see about a dozen. The department will assist its own employees to find employment. CW

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House panel discusses Common Core standards House Education Committee Chairman Paul Clymer, R-Bucks, says he would vote in favor of the Common Core academic standards for Pennsylvania sometime in June, when his committee gets to vote on the new state standards.

His comment followed 90 minutes of testimony on May 15 from Education Department Deputy Secretary Carolyn Dumaresq, who testified in place of her boss, Education Secretary Ron Tomalis.

Secretary Tomalis will leave the administration of Gov. Tom Corbett later this summer.

Pennsylvania’s State Board of Education, which adopts education regulations for the state, adopted the Common Core standards in 2010 and is now finally adopting statespecific standards which will drive subject matter tests at various grade levels.

Critics say it is a federally-driven, state-

imposed curriculum, and that Pennsylvania was already doing a good job of preparing students in math and English. He and Dumaresq argued several times over whether the standards were imposed on districts or generated by them. He said less than 10 percent of districts participated in working on the standards.

Proponents like retired Rear Admiral Thomas Wilson say this will help both businesses and the military by making more students master basic skills, but he cautioned it will not be quick.

“At first there is likely to be a decrease in test scores, but having common core standards is likely to increase performance over time,” he said.

David Patti of the Pennsylvania Business Council said while concerns about students meeting standards for employment or the military have been pressing for decades, a new

approach under Common Core would help.

Patti and Dumaresq said under the new system, students would be tested for items like Algebra I right after they learned the material in class.

“And then, if the test shows the student didn’t master it, you remediate, work with the student, and fix it right then, not wait for years later as we do now,” said Patti.

That graduation test has become a point of controversy, as Senate Minority Education Committee Chairman Andy Dinniman, D-Chester, has introduced legislation to halt the standards until a dispute over them is resolved.

Dinniman noted that when he backed the standards in 2010, the Keystone tests were to count as one-third of the grade in three key subject areas. The new regulations make them graduation tests the students must pass. Dinniman has made a major issue of

this, but some of his traditional allies say the change makes little difference.

While Dinniman says this change will mean good students who are bad testtakers would fail unfairly, even under the one-third-of-the-grade system, students would get a zero if they failed the Keystone exam. That would mean the rest of their grade going into the test would have to be higher than 90 to still pass. Educators said few students with a 90 average otherwise are going to fail the test.

Rep. Jake Wheatley, D-Allegheny, asked if e-mails he had received were accurate about the proposed regulations “forcing our students to read from a national reading list?”

Dumaresq responded: “There are no required booklists in PA. We have never had a required booklist. … I don’t know where that is coming from.” CW

for an increase to $4 million which he said was the full cost borne by the city.

House Appropriations Committee spokesman Mike Stoll said that prior to the

current budget year, fire services had been funded at $500,000. In order to afford other restorations to the budget, that line item was restored to that level, he said. CW

House budget battle gears up continued from page 1

Minority Appropriations Committee Chairman Joe Markosek, D-Allegheny Corbett had proposed a $90 million basic education funding increase which the House GOP moved to $100 million.

Higher education funding remained flat as proposed by Corbett.

Markosek responded that he was disappointed that “the meager amount of funding the House Republicans add to the governor’s proposed basic education funding ($10 million) does not come close to restoring the $1 billion in cuts made to public education since Gov. Corbett took office.”

“We are disappointed that the House Republicans did not assume Medicaid expansion in their budget proposal. By opting into Medicaid expansion we can provide health care to half a million uninsured Pennsylvanians, bring tens of billions of federal dollars into Pennsylvania, save money in the General Fund and create new jobs,” added Markosek.

Sen. Rob Teplitz, D-Dauphin, also attacked the House GOP budget for reducing the state payment for Harrisburg city fire services from $2.5 million to $500,000. Teplitz had pressed

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JUNE 2013 CAPITAL WATCH

DeWeese appeals sentence before Superior Court panel

BY PETER L. DECOURSEY, CAPITOLWIRE

The attorney for former House Speaker Bill DeWeese, D-Greene, said Dauphin County Judge Todd Hoover misruled in DeWeese’s official corruption trial, denying DeWeese 15 or more witnesses to help make the defense’s case.

And two members of the three-judge Superior Court panel peppered the prosecutor with questions about that charge by DeWeese’s attorney, Bill Costopoulos of Lemoyne.

DeWeese was convicted of using staffers to do campaign work and personal chores on taxpayer time from 2001 to 2006. He said he not only did not do that, but also established through personal orders and legislative staff policies that such conduct was not permitted. Top staffers said those policies were distributed, but not followed, and DeWeese knew that.

In the case last year, Hoover ruled that the witnesses whose testimony he disallowed would just repeat the “mantra” of the defense, already testified to by eight witnesses who said DeWeese made it clear to staff they could only do campaign work during the legislative staff workday if they were on leave.

That ruling is sufficient grounds, Costopoulos said, to reverse the verdict and grant DeWeese a new trial, after the former Speaker has served 13 months of a sentence that Costopoulos said will require

Former House Speaker Bill DeWeese

DeWeese to be imprisoned at least 22 months. He was sentenced to 30 to 60 months in prison.

“DeWeese had a right to his day in court and he didn’t get it,” with these witnesses, whom the prosecution refused to let testify, or even to agree to tell the jury who they were and what they would have testified, Costopoulos said.

But Amy Zapp of the Pennsylvania attorney general’s office said it did not matter how many witnesses testified they heard or saw DeWeese insist that employees not do campaign work on taxpayer time, since the evidence showed they did so, and he knew it and supported it.

“It’s more than just saying I have this policy. It’s adherence to the policy” that matters, Zapp said. “There’s no way we can conclude from the transcript that he didn’t have his day in court.”

Zapp noted that six prosecution witnesses and eight defense witnesses testified that there was a policy. She said DeWeese had the right to a defense but “he doesn’t have the right to keep saying it over and over and over.”

Superior Court Judge Jack Panella followed up on Costopoulos’ argument, asking Zapp since it is possible one of the 15 to 20 excluded witnesses would have been found credible by the jury, and rebut the staff testimony, “How can you prevent him from presenting the witness who might have been able to bring that message home” to the jury?

Panella said it was DeWeese’s burden to establish that he did enforce the policies against campaigning or fund-raising for campaigns on state taxpayer time: “It’s his burden to establish that. Without put-

ting the case in front of the jury,” with the denied witnesses, “how can he do that?”

Zapp replied: “There’s no absolute entitlement to do this.”

Panella continued: “What right does the trial judge have to take over the defense tactics in the case?”

Zapp replied: “There is no constitutional guarantee for unlimited witnesses” and Hoover was correct to not hear from duplicative witnesses.

Both sides confined their oral argument on the appeal to that issue, asking the court to decide other issues based on written submissions. Those included allegations that Costopoulos should have been allowed to ask former DeWeese chief of staff Mike Manzo about his affairs with various employees, on the stand during the trial.

Costopoulos said he expects a decision within two to three months.

He said he speaks to DeWeese weekly and “I admire his strength and attitude under these circumstances.”

Those close to DeWeese said the irrepressible former lawmaker was having “fun” and that other inmates refer to him as “senator” or “governor,” and that he coaches third base for the prison Texas Rangers team, and is one of the oldest men on the team. CW

Even House GOP backers of transportation bill shows its hard path

BY PETER L. DECOURSEY, CAPITOLWIRE

Gov. Tom Corbett was forceful and convincing last week as, backed by cops, foremen, businessmen and several House and Senate Republicans, he demanded a transportation funding bill reach his desk

by June 30.

But a number of House GOP hurdles loom. And the longer the Senate GOP declines to pass its bill, which Senate Transportation Committee Chairman John Rafferty, R-Montgomery, originally wanted to send to the House in May, the more questions about it will grow.

And the Senate will have to pass a liquor bill to get transportation, a House GOP leader confirmed.

Rep. Stan Saylor, R-York the fourthranking House GOP leader, ended long months of the House Republicans not publicly admitting that liquor privatization is tied to transportation funding.

“People don’t understand what is driving this,” Saylor said. “It’s not the leaders making this decision. House Republican members are insisting liquor gets done. If there are going to be tax hikes for transportation, the members also want to do something probusiness and pro-consumer. Tax votes are very difficult and there has to be some give

from the Senate on this, not just taking their transportation bill and having us pass it.”

And Saylor, keep in mind, supports the transportation bill, wants it to pass, and is on Corbett’s side in this, turning up on a scorching day to be part of the governor’s backdrop.

Standing in front of a major Cumberland County road improvement project that Transportation Secretary Barry Schoch says will be one of the last of its kind if no new funding bill is passed, because the state’s funding will go just to maintenance, Corbett asserted the House GOP was no bar to a transportation bill.

He said this the day after House Speaker Sam Smith, R-Punxsutawney, told reporters: “Well, if you look at the House and Senate on transportation, you can see where that might be a little higher priority to them than it is over here.”

The evidence for that? Under the state constitution, revenue bills have to originate in the House and the GOP leaders made a big deal about doing their budget bill so it will be ready when the deal is struck weeks from now.

I asked Smith why the need to do that was so prominent and the House had yet

to even look at a transportation bill. He responded by conceding that a transportation bill would eventually have to be passed in the House, and put into a House bill to become law, and then noted the priority gap.

A calm but sorta feisty Corbett replied that June is the month when things become higher priorities to people when the governor and other groups push issues.

But many House Republicans think the governor is doing too little too late and he needed to be doing this months ago to tee it up for June.

And Smith and House Majority Leader Mike Turzai, R-Allegheny, kept noting that they had already passed their priority bills, and Turzai noted the Senate had yet to pass its $2.5 billion-a-year transportation bill.

And once it was passed, Turzai said, then the House would have to vet it. How long will that take? Some Turzai loyalists say it should be the same three months the Senate has taken to rake the House liquor privatization bill over the coals in that chamber. Saylor said: “This is a bill we would have liked to have sooner. We have to have at least two to three weeks so we can have hearings and vet it. Some members don’t like the higher fines, and we

need time to show each member what they will get. Because that is what these bills all come down to in the end.”

Which means the Senate needs to pass the bill this week or June 10 to meet the schedule set by the House.

And if the Senate does not pass it by then, then the House GOP’s disinterest in the transportation funding bill will be the main reason.

And the Senate has to do more than pass it. As Saylor noted, House members, including Transportation Committee Chairman Dick Hess, R-Bedford, support a lower overall price tag and oppose some of the fines in the Senate plan.

Plus southeastern members want it to provide stable funding for mass transit while Turzai and the House GOP want the turnpike’s subsidies of mass transit to end within seven or fewer years.

And while Corbett and Rafferty say business is lobbying hard for the transportation bill, House GOP leaders say they are not hearing from business leaders. Hess said he believes that lobbying of House members by businesses and other groups and those awaiting local projects will start more in June once the Senate passes its bill. CW

18 NEWS

JUNE 2013 CAPITAL WATCH

Feds tell Sen. Costa receipts tax OK, but won’t let PA keep CHIP

BY PETER L. DECOURSEY, CAPITOLWIRE

After a lengthy conversation with a key federal official, Senate Minority Leader Jay Costa, D-Allegheny, says Pennsylvania’s Children’s Health Insurance Program likely will have to be subsumed by the federal Medicaid Expansion.

But another key to the revenue side of the Medicaid expansion is no longer a concern, said Costa, who explained there is no question Pennsylvania will be able to continue collecting and using its Gross Receipts Tax to fund health care and nursing care.

But a spokeswoman for Gov. Tom Corbett says Costa is wrong and should not be willing to compromise health care for children to enter the Medicaid expansion.

Twenty-six states have said they would enter the expansion to draw down federal funding to pay for the poor, but none have yet formally signed up. Costa and Senate Democrats have pushed Gov. Tom Corbett to decide to join and intensify negotiations, saying they fear he will turn down billions of dollars a year in federal health Medicaid payments while awaiting resolution on various issues.

While the Corbett administration says the federal government’s determination to turn CHIP into Medicaid is reason to hold up entering the expansion, Costa says it is time to move ahead and expand the program, even with CHIP as a casualty.

CHIP is the rare program: Republicans and Democrats agree that the subsidized health insurance program has been highly successful, even becoming a national model for such programs.

It is a program where Pennsylvania developed, in 1992, an innovative way to have public funds pay for private insurance, one that was later a blueprint for the federal S-CHIP program.

But in April, the U.S. Department of Health and Human Services indicated children in the new expanded Medicaid would have to be in Medicaid, not get higher Medicaid-level reimbursements while remaining in state programs with greater choices for insurance, like CHIP. Pennsylvania and other states pushed back hard to try to change that decision, but that is not going to happen, Costa said.

“We had a lengthy conversation with Cindy Mann, Director of CMS,” the Center for Medicaid Services, the federal agency which is negotiating with states seeking to enter the Medicaid expansion, said Costa.

“She reiterated that they will not likely deviate from the national guidelines published in April of this year,” ruling out the state’s staying in CHIP and getting Medicaid-level reimbursements, Costa said.

Costa and Senate Democratic leaders,

like the Corbett administration, had sought that waiver, he said: “Yes, we would prefer that we keep the kids in CHIP, but it is doubtful that CMS would have us do that. … in the end, we want to also keep CHIP, but, we hear and see the CMS position on this and feel it is imperative to get Medicaid expansion resolved favorably.”

Carey Miller, spokesperson for the state Department of Public Welfare, responded by e-mail: “PA CHIP is a highly effective program providing health care to 187,034 Pennsylvania children, and it served as a model for the national program. Senator Costa readily admits in his comments that Washington is leveraging CHIP and the health care coverage for thousands of Pennsylvania children in order to force Pennsylvania to expand Medicaid. It is unfortunate that he is willing to dismantle a nationally-recognized program in his rush to blindly expand an entitlement program without all of the facts and the true impact of an expansion on Pennsylvania.

“Governor Corbett has long said that he believes all Pennsylvanians should have increased access to affordable, quality health care. We must find a sustainable path that is built upon common sense reforms that provide coverage options to our most vulnerable Pennsylvanians while protecting taxpayers.

Senate Minority leader Jay Costa

“As Governor Corbett indicated to Secretary [Kathleen] Sebelius during their meeting in April, he is very concerned that a child in CHIP may not, in some instances, be able to stay with their current health care provider and will not have as broad of a choice of health care provider if moved to Medicaid as a requirement of ACA. In fact, he specifically asked that PA CHIP be preserved intact for the children and families that currently enjoy its benefits.”

Costa responded in an e-mail: “The CHIP issue is a smokescreen that is being used again to mask the administration’s attempt to avoid making a decision on expanding Medicaid. … The truth is the administration is throwing up chaff like the CHIP question, the reimbursement issue, and other administrative issues that may be encountered down the line to divert responsibility and confuse the issue.”

Costa reported better news from Mann and the federal government on the Gross Receipts Tax. Acting Welfare Secretary Bev Mackereth has said CMS has yet to certify in writing that under a Medicaid expansion the state would still be able to apply the tax to increase federal Medicaid matching funds - worth hundreds of millions of dollars to the state - as it has since the Rendell administration. The Independent Fiscal Office has estimated Medicaid expansion could increase the GRT revenues by as much as $142 million annually.

Costa said after his conversation with Mann: “GRT is not in jeopardy. No conversation about discontinuing the GRT.” He added in his e-mail that CMS is “very willing to work with and be flexible, within the framework of the managed care and MCO [managed care organization] system that we use to deliver Medicaid services in Pennsylvania.”

Miller did not respond to Costa’s assertion on this issue, one that Mackereth has said is still in doubt while Senate Democrats say it is essentially resolved.

Costa also disputed the administration’s claim that it has until fall to decide if it will formally enter the Medicaid expansion: “While there is no formal deadline to opt in and states can opt out at any time as well, the longer the governor delays his decision, the less federal funds the commonwealth would receive.”

Miller did not respond.

Costa likewise criticized the administration for saying they wanted to be sure no welfare work requirements would be affected by entering the Medicaid expansion.

“Most of the people that would receive coverage under the expansion would be the working poor,” said Costa. “This is not cash assistance this is medical coverage for people who are already struggling. We would not request a work requirement so obviously we wouldn’t hold it up for that. “ CW

20 OPINION

JUNE 2013 CAPITAL WATCH

Pennsylvania must properly fund transportation infrastructure

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Pennsylvania is a keystone to the U.S. market. The Commonwealth is located within just a day’s drive of 60 percent of North American consumers. Major north/ south and east/west interstate highways run through Pennsylvania, which is also home to international ports and major railroads.

As such, a safe and efficient transportation network is essential for business investment and growth and the free flow of goods and services, not to mention the safety of the motoring public.

Unfortunately, the state’s aging transportation system has been woefully underfunded over the years, leaving the state with nearly 4,400 structurally deficient bridges and 9,000 miles of roadway in poor condition. In fact, according to a report released by TRIP, a Washington, D.C.based national transportation organization, Pennsylvania has the nation’s highest share of “structurally deficient” bridges.

The Commonwealth is in desperate need of a long-term, comprehensive and multi-modal transportation funding plan, one that not only rebuilds roads and bridges, but that considers the financial needs of urban and rural transit agencies, railways, airports, ports, and bicycle and pedestrian programs, and stresses their efficient operation.

The Pennsylvania Chamber of Business and Industry, which represents thousands of businesses of all sizes throughout Pennsylvania, applauds the Corbett admincontinued on page 22

OPINION 21

JUNE 2013 CAPITAL WATCH

Editorial

Caution – highway construction ahead If members of the Pennsylvania General Assembly are looking for a sign that they should cast a vote in favor of raising new revenues for roads, bridges and mass transit they got two in the last month in the form of major bridge failures without loss of life. First, a tanker truck overturned on an off ramp from Interstate 81 north of Harrisburg leading to a fire which incinerated the overpass. Then, a truck hauling an oversize load was forced into a bridge abutment on an Interstate 5 bridge in Washington state, collapsing the span and forcing several cars into the Skagit River.

Legislators should heed the call because – according to a new report from the Federal Highway Administration – Pennsylvania is first among all 50 states and the District of Columbia in both the number and percentage of structurally deficient bridges. More than 5,500 of Pennsylvania’s 22,660 bridges are currently rated structurally deficient, meaning that a bridge has deteriorated in one or more of its major components but is not unsafe. That’s better (or worse) than one out of four bridges that need major remedial efforts.

But, Pennsylvania is running out of money to make needed repairs, maintain existing roads and highways, fund a significant part of the cost of mass transit, operate the State Police and provide for road clearance in the winter.

It’s the result of a double or triple whammy in that we have more vehicles on the roads, more and bigger trucks combined with an aging infrastructure and reduced fuel consumption (in a system funded primarily by fuel taxes). It’s made even worse by the drying up of the cash cow known as the federal highway trust fund. There was a time when the feds would fund 80 to 90 percent of the cost of new highway construction. Now, we’re lucky if they authorize new highway construction – much less pay even half the cost.

So it’s time for the General Assembly to bite the bullet and remove the cap on the wholesale price of gasoline and diesel fuel. Based on the current wholesale price of fuel, it’s likely to bring the state and extra 12 cents a gallon in revenues. But it’s not at all clear just how much of that increased cost will be passed along to consumers at the pump or how they will be able to tell in an environment where fuel prices can fluctuate by 5 to 20 cents a week depending on the price of crude oil by the barrel.

What we can know is that each $1 billion spent on highway and bridge construction

translates to about 35,000 well-paying jobs. And that removal of highway hazards and improving traffic safety saves lives. And, according to The Road Information Program (TRIP), a transportation advocacy program, poor road conditions and congestion is costing the typical Pennsylvania family more than $1,000 in extra fuel and repairs and other associated transportation costs.

What was the last time a legislator could say to a constituent, “My yes vote will save you $1,000 over the next year?” CW

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22 OPINION

JUNE 2013 CAPITAL WATCH

Pennsylvania must properly fund transportation infrastructure continued from page 20

istration and legislative leaders for presenting proposals to provide a sustainable funding source for the Commonwealth’s transportation infrastructure.

The plan now under consideration in the Senate seeks to invest $2.5 billion over five years.

This revenue would be generated in four ways: Over three years, the artificial wholesale price cap on fuel under the Oil Company Franchise Tax would be phased out. At the same time, the flat tax paid by consumers at the pump would be reduced by 17 percent over two years. Licensing, registration and permitting fees would be updated for inflation and indexed to inflation moving forward. A $100 surcharge dedicated to transportation would be added to traffic violations, with fines increasing for certain violations of the Motor Vehicle Code.

Yes, there is a price tag for properly investing in transportation infrastructure.

But as true “user fees” that will support an essential and vital function of state government, that price tag will guarantee that all of the state’s transportation systems meet 21st century needs.

The cost of doing nothing is even greater, including more structurally deficient and weight limited bridges that disrupt commercial and personal travel; more traffic backups costing drivers more money due to fuel and time wasted in traffic delays; and an increased number of vehicle repairs and car accidents in which roadway deficiencies are contributing factors.

Failure to adopt a funding plan would mean a near doubling of roadways in poor condition (9,200 miles to 16,000 miles) by 2017; the loss of 12,000 jobs, and according to another recent study, 50,000 potential new jobs that will never be created.

The Corbett administration and legislative leaders have rightfully made this issue a priority. Now lawmakers must get a responsible funding plan over the finish line. Doing so would be a welcome victory for job creation, new business investment, motorist safety, and the well-being of everyone traveling this great state for business or recreational purposes. CW Lesley Smith is director of Communications for the Pennsylvania Chamber of Business and Industry.

OPINION 23

JUNE 2013 CAPITAL WATCH

Veterinarians – As fundamental to Pennsylvania as county fairs

BY JOAN C. HENDRICKS, VMD, PHD

This summer and fall, more than 5.5 million people will attend a county fair in Pennsylvania. These gatherings represent the best of our rich Commonwealth from horse racing and livestock contests to samplings of Pennsylvania’s delicious agriculture and animal agriculture products. In many ways, county fairs highlight the Commonwealth and its leading industry – agriculture.

At fairs from Washington to Bloomsburg, Pennsylvanians of all walks of life enjoy pork chops on a stick, races, and even 4-H milk chugging contests. The farmers, agribusinesses, employees, and visitors at our county fairs are part of the core of the $61 billion agriculture industry in our state.

While most attendees will not think of veterinarians as they take part in the traditions of the fair, they can all take solace in the fact that the products they serve, eat, and send to market from the fairs and the counties that host them are safe because of the important role veterinarians play in agriculture. And in Pennsylvania, the overwhelming majority of those vets are trained by the University of Pennsylvania School of Veterinary Medicine. Penn Vet and the vets we train are at the front lines of public health and safety, research, and service in the Commonwealth, in part, because of the support we receive from Governor Corbett and the Pennsylvania General Assembly.

Penn Vet has graduated more than 6,000 veterinarians since its first graduating class of 1887. Their most vital tasks include ensuring food safety and public health and providing critical research and care to our animal agriculture industry. Whether eating at the county fair or at the dinner table, Penn Vet plays an integral role in ensuring a safe and healthy food supply. We’re proud that, year after year, many of our students stay in Pennsylvania to practice here after completing their degrees.

Penn Vet and the veterinarians we train protect the health and well-being of livestock at fairs and far beyond, diagnosing and curbing many infectious diseases that are transmissible between animals and humans, such as avian influenza, swine influenza, West Nile Virus, Lyme disease, Salmonellosis, Listeriosis, and E Coli.

Our researchers developed a detection kit to test for Salmonella in poultry eggs that provides an important reduction in waiting time for accurate results. This faster turnaround time helps egg producers comply with stringent federal requirements and safeguards an area of our agricultural economy worth in excess of $644 million annually. By the end of this year, all egg producers in the country will be required to adopt this testing kit to ensure consistent safety measures are met throughout the nation.

In addition, our veterinarians have devel-

oped surveillance technology that provides the ability to stem an outbreak of avian influenza.

Within one month, a potentially devastating outbreak was stopped at a cost of $400,000, while a similar outbreak in Virginia at the same time cost the state over $100 million.

Penn Vet’s research portfolio transcends the animal world, advancing basic understanding in the areas of cancer, infectious diseases, regenerative medicine, and neuroscience. We apply that emerging knowledge to design better treatments for diseases of animals and people alike. In collaboration with the Mayo Clinic, we are predicting and controlling seizures in dogs and humans, and our vets have discovered a protein that can help both human and animal patients heal from bone fractures faster.

Many veterinarians remain devoted to the care our beloved pets. The contributions of Penn Vet and our alumni to the citizens of the Commonwealth are numerous, positively impacting animals and humans alike. The school is a global leader in research that links animal science to human welfare, advances food safety, and provides vital defense from bioterrorism and global pandemics. These contributions to the public health and safety of Pennsylvania are possible because of the support of the Commonwealth. So, as you enjoy the livestock shows, specialty foods, and entertain-

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Joan C. Hendricks, VMD, PhD

ment at Pennsylvania’s renowned county fairs, be sure to remember the veterinarians who quietly help make it all possible. CW Joan Hendricks has been Dean of the University of Pennsylvania School of Veterinary Medicine since 2006 and a member of its faculty for more than 20 years. She also holds a dual appointment as a professor in the School of Medicine at Penn and holds VMD and PhD degrees from the institution.

Her research has included extensive studies of bulldogs and sleep and sleep disorders.

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26 OPINION

JUNE 2013 CAPITAL WATCH

Will legislators pass liquor privatization, pension reform and transportation funding before the June 30 budget deadline?

N0

BY TONY MAY

YES

BY CHARLIE GEROW

Even people too young to have been alive in Tackling some of the state’s most pressLongtime TV partners, Tony May and Charlie Gerow provide commentary and analysis on political matters every Sunday on ing challenges and continuing to build his Rube Goldberg’s day (he died 43 years ago) know that a “Rube Goldberg device” is a platform for economic prosperity, Gov. Tom WHPTV-CBS 21’s program, “Face the State,” in addition to being regularly featured on the Pennsylvania Cable Network chain reaction of a loose assemblage of levers, Corbett has given the Legislature three major (PCN). In their other lives, May is a partner at Triad Strategies, and Gerow is CEO of Quantum Communications. troughs, balls and buckets aimed at creating issues to address: Transportation Funding, an unlikely outcome. Gov. Tom Corbett is Liquor Privatization and Pension Reform. almost 64, so perhaps he can remember the wily old cartoonist from his childhood.

In addition to this package of important legislation, the General Assembly must pass Thus, we should not be surprised to see that the Governor has built a “legislative a Budget by June 30. It’s reasonable to expect that will happen. Unlike his predecessor device” in which a school funding crisis will create the energy to reach a tipping point who couldn’t seem to find a calendar that didn’t have a start date of July 5, Governor of support for privatizing the state liquor store system, tickling House conservatives Corbett’s budgets have passed on time. They have been fiscally responsible and, as he into voting for increasing state funding for roads, bridges and public transportation promised, have not increased the tax burden on hardworking Pennsylvanians. strongly desired by Senate Republicans who, in turn, will gleefully add their votes to Transportation funding should be a no-brainer. Roughly 5,000 of our bridges are liquor privatization thereby tripping an unforeseen outpouring of support for changstructurally deficient. Thousands of miles of roads are substandard. God forbid that ing the payout formulas for future state pensions thereby activating a clause inserted a catastrophic bridge collapse like the one in Minnesota occurs before the Legislature in Corbett’s pension legislation allowing the state and school districts to reduce their provides the funding necessary to fix, maintain and build out our transportation system. contributions to the Commonwealth’s existing and faltering pension systems, closing Transportation funding is not only an issue of public safety. It’s also an impediment the funding gap in the state budget now under consideration and thereby – deep breath to economic growth and the vibrant economy the Corbett Administration is creating.

– allowing it to be passed and signed into law before midnight on June 30.

Businesses aren’t going to expand or relocate where they don’t know that their products Now, I know I’ve made it sound easy: passage of three landmark pieces of legislation and services will get to market safely, reliably and on time.

AND a state budget all before the end of the current fiscal year.

The Governor wants to do what several Governor’s task forces have recommended: generLots of reasons why it can’t happen. Too many things that can go wrong without ate revenue from those who use the roads and deregulate oil company motor fuel sales taxes. enough time to repair any one of them. Like conservatives who are clamoring for the The Senate will almost certainly pass Senate Bill 1, Sen. Rafferty’s proposal that will repeal of prevailing wage legislation for highway projects as their price for voting for an generate about 2.5 billion over the next three years. As that legislation moves to the increase in the oil company franchise tax. Or Senate Republicans who would be very House, the dynamic shifts. No longer is it a theoretical discussion. There would then comfortable with a modernized state liquor store system as opposed to a liquor aisle in be legislation enacted by one body of the General Assembly waiting for action by the every Walmart and Costco. Or the legislators of both parties who worry about the lawsuits other. There would be little tolerance on the part of the electorate for delay at that point. challenging any bill that would propose to change pension payout formulas for any workThe same can be said for liquor privatization. Earlier this year the House passed a ers already paying into the system. privatization bill that now awaits action in the Senate. Public hearings have been held.

But the biggest barrier, simply, is time. Not enough time to roll out four major pieces The time for the Senate to act is upon us. of legislation, each of them controversial in their own way, and beg, cajole and browbeat The taxpayers and citizens of the Commonwealth agree. Poll after poll shows strong suplegislators not once, not twice, not three times – but four times -- to make unpleasant deciport for the convenience, selection and better pricing that a competitive system would bring, sions. Why unpleasant? Because major legislation – like a budget – is all about winners Despite years of discussion and bi-partisan and public support, the General and losers. Do you really think for a minute that this reform stuff is all win-win?

Assembly never got the ball over the goal line. This time should be different. Never It would be far better for the Governor to say to the General Assembly, “We have before has one body of the legislature passed a liquor privatization bill. The House now two goals: an on time budget and a well-crafted transportation funding plan. People has. The Senate can and should act immediately. want to see their government working according to plan – and that means putting a Underfunded and unfunded by previous Administrations, the pension debt grows spending bill in place in balance and on time. And the transportation bill means 50,000 exponentially to the point where it will amount to more than $13,000 per family. The good jobs, if we do it right.”

Corbett Reform Plan will gradually move the state away from the current defined benHe’ll be batting 100 percent – which is pretty good in any league. On the other hand, efits plan to a defined contribution plan for future hires. This common sense reform if he stays the course and only gets two of four, he would still be batting .500 – which mirrors the system already in place in the private sector. is excellent in baseball. On the third hand (yeah, in politics, you can have more than It is an ambitious agenda. The sand is going quickly through the hourglass. A two hands), maybe people will just remember him as the fourth governor who tried and budget will get passed on time. The rest of the agenda can and should be. A better failed to privatize the state store system. CW Pennsylvania would result. CW

OPINION 27

JUNE 2013 CAPITAL WATCH

What you Need to Know about Social Security and Your Retirement

BY SCOTT C. WEAVER, CFP, CFS, CAS

Social Security planning is crucial. Understanding how the system works is even more critical. Choosing when to start Social Security payments may be one of the most important decisions you make in the retirement process.

To begin with, Social Security benefits are based on the average of your 35 highest years of earning. You have an option to take early payments (62-65), start benefits at full retirement age (age 65-67 depending on the year of birth), delay and get more (from full retirement to age 70) or capitalize on spousal benefits or enhance survivor income. The later you claim, the more you can receive.

Year of Birth 1943 – 54 1955 1956 1957 1958 1959 1960 and later

Full Retirement Age 66 66 + 2 months 66 + 4 months 66 + 6 months 66 + 8 months 66 + 10 months 67

Source: Social Security Administration

UNDERSTANDING YOUR CHOICES

OPTION 1: TAKE IT EARLY. Social Security can begin as early at age 62, but benefits will be reduced by as much as 30%.

If You Begin Benefits at Age 62 and Your Full Retirement Age Is: 66 66 + 2 months 66 + 4 months 66 + 6 months 66 + 8 months 66 + 10 months 67 Source: Social Security Administration

Your $1,000 Benefits Will be Reduced To: $750 $741 $733 $725 $716 $708 $700

That’s a Percentage Decline of: -25% -26% -27% -27% -28% -29% -30%

Option 2: START AT FULL RETIREMENT AGE. You will receive 100% of your Social Security. Working longer may potentially increase your average earning.

Option 3: DELAY AND GET EVEN MORE. Waiting until after your full retirement age to begin payments can increase your benefits by up to 8% a year. The yearly rate of increase depends on your year of birth. Increases end after reaching age 70, even if you continue to delay. If you decide to retire later, you may need to bridge the potential income gap with retirement sources other than Social Security. Possible solutions include fixed annuities, variable annuities with optional income benefits, retirement accounts such as IRA’s, 401K’s or earnings from working.

Year of Birth 1935 – 36 1937 – 38 1939 – 40 1941 – 42 1943 or Later Source: Social Security Administration

Yearly Rate of Increase +6.0% +6.5% +7.0% +7.5% +8.0%

Option 4: CAPITALIZE ON SPOUSAL BENEFITS. Married individuals can claim the greater of their own benefit or 50% of their spouse’s benefit at full retirement age.

Spousal benefit is reduced up to 35% if claimed prior to the recipient’s full retirement age.

Divorced spouses can receive spousal benefits if marriage lasted at least 10 years and the recipient is currently unmarried.

Coordinate benefits between both spouses to help increase overall income. Each spouse has the opportunity to receive both spousal benefits and their own benefits and their own benefits at different times. Don’t overlook survivor benefits, surviving spouse should consider which option is best and would provide the highest income – their earnings or the survivor benefit.

Option 5: ENHANCED SURVIVOR INCOME. Widows(er) can keep their own benefit or switch to the deceased spouse’s benefit if it is higher. Survivor benefits are available as early as age 60 (age 60 if disabled) but they will be reduced by up to 28.5% if claimed before the recipient’s full retirement age.

Several factors should be considered when deciding on when to start receiving benefits.

For beginners, contact Social Security at www.ssa.gov/estimator to see how much you’ll receive from Social Security. Consider how long you estimate your retirement will last. Also consider if you want to keep working, tax consequences and evaluate spousal opportunities.

Longevity plays a key role in determining which option is best for you. Investors who expect a shorter retirement may want to claim early, even with reduced benefits.

Age

Begin at Age 62

Begin at FRA 66

Begin at Age 70

62 67 70 75 78 80 82

$21,600 $129,600 $194,400 $302,400 $367,200 $410,400 $453,600

$0 $57,600 $144,000 $288,000 $374,400 $432,000 $489,600

$0 $0 $38,016 $228,096 $342,144 $380,160 $494,208

Source: Social Security Administration Note: This illustration assumes a monthly benefit of $2,400 at Full Retirement Age If you work and take benefits prior to your retirement age, some of your benefits may be withheld. Benefits are reduced $1.00 for income up to $14,640; $2.00 for income over $14,640 in calendars years before full retirement is reached and $3.00 for income earned over $38,880 in the calendar year in which full retirement age is reached. The amounts withheld are added back to your benefits after you reach full retirement so there is no penalty for working longer.

Depending on how much you earn, you could pay tax on up to 85% of your Society Security benefits! To minimize taxes, make sure your total income does not exceed the threshold amounts.

Benefits are reduced Earned $1 for every Over $2 $14,640 $3 $38,800

In calendar years before FRA is reached In the calendar year in which FRA is reached (until the month of FRA)

Source: Social Security Administration In closing, carefully think through your Social Security strategy before submitting your benefit claims. Be sure to ask yourself: When do I want to retire, how do I want to spend my retirement and do I have the right investments to achieve my goals. Make the most of your Social Security benefits.

Happy Investing!

Scott C. Weaver

The information contained herein is obtained from sources believed to be reliable but its accuracy and completeness is not guaranteed. Any tax or legal information in this piece is merely a summary of our understanding and interpretation of current laws and regulations and is not exhaustive. Neither NEXT Financial Group, Inc., nor its representatives are qualified to give tax or legal advice.

Securities and investment advisory services offered through NEXT Financial Group, Inc. Member FINRA/SIPC. None of the entities named herein are affiliated with NEXT Financial Group, Inc. 1250 N MOUNTAIN RD STE 4 HARRISBURG, PA 17112 (717) 652-4965. Toll free (877) 837-3024.