Capital Watch March 2013

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

CAPITALWATCH VOL. 6 NO. 3

INSIDE Congresswoman Allyson Schwartz wins Progressive Summit straw poll PAGE 3 Not much talk in support of liquor sales privatization during hearing PAGE 4 PA one of only three states without education funding formula PAGE 6 Judge declares ending adultBasic health insurance ‘unconstitutional’ PAGE 7 EDITORIAL PENSION POLITICS: Making things worse does not make things better PAGE 12 Should Pennsylvania get out of the liquor business?

PAGE 14

Got a tip? Got a lead?

Got a news story?

Send it to us at goodwinpin@comcast.net.

If you would like to post something to Capitalwatchpa.com go to www.capitalwatchpa.com and click on “New Releases.”

Capitalwatchpa.com gives readers access to all press releases, memos, speeches, position papers, legislative committee testimony and correspondence to and from executive agencies, lawmakers, lobbyists and interest groups that it receives.

Post yours today!

MARCH 2013

Report says Gov. Corbett accepted

thousands in gifts from business, lobbyists The Philadelphia Daily News is reporting that an examination of state disclosure forms has found that Gov. Tom Corbett and his wife, Susan, accepted gifts from business executives, lobbyists or lobbying firms in 2010 - when the former attorney general mounted his successful campaign for governor - and in 2011, his first year in office.

According to the Daily News, besides hockey tickets, Gov. Corbett or his wife were feted by business interests with Steelers playoffs tickets, private jet travel, seats at a swank gala for the Philadelphia Orchestra, a Rhode Island summer vacation aboard a businessman’s yacht - even money to help pay for the first lady’s inauguration gown.

Unlike some states’ statutes, Pennsylvania law doesn’t explicitly bar elected officials from accepting gifts or free travel - although they are required to report any gifts of substance on a statement

solicit or accept for the personal use of himself or another, a gift, gratuity, favor, entertainment,

The complaint asks the state Ethics Commission to conduct an investigation to determine whether the gifts led to the “possible improper influence” of government policy. of financial interests, filed annually with the Pennsylvania State Ethics Commission.

“Critics argue that Corbett may have violated a 1980 Code of Conduct for the executive branch that states that no official ‘may

loan or other thing of monetary value’ from anyone seeking business from, or regulated by, the commonwealth. The code says violators can be punished up to termination - arguably a moot

point when the allegation involves the governor himself,” the Daily News reported.

The Daily News also reported that a Corbett spokesman insisted there is nothing improper in the governor’s acceptance of freebies from businessmen or lobbyists.

“Governor Corbett has been clear that he makes all decisions based on what is in the best interests of Pennsylvanians,” Kelli Roberts, the governor’s deputy press secretary told the paper.

However, as Capital Watch goes to press, The State Democratic Party has filed an ethics complaint against the Governor, citing the Daily News story.

The complaint asks the state

Ethics Commission to conduct an investigation to determine whether the gifts led to the “possible improper influence” of government policy.

The complaint cites the story as the basis for the request for an ethics investigation. Using Corbett’s public ethics disclosure statements, the Daily News reported “a pattern” in which Corbett made five policy decisions or got involved in issues after he or his wife received free travel, tickets to sporting events or shows and other extras totaling $11,343.

Barry Kauffman, executive director of the good government continued on page 3

Capitolwire com a service of GovNetPA, Inc.

Pennsylvania’s #1 Online Source for Political, Legislative and Public Policy News For a free trial subscription, please visit our web site at www.capitolwire.com.

PRSRT STD U.S.POSTAGE PAID PERMIT 280 LANC., PA 17604

Energy Independence Is On Its Way Back.

For decades, our nation has depended on foreign oil from countries like Iran, Kuwait and Saudi Arabia. But now America is realizing it can rely on natural gas that’s being drilled for right here by Pennsylvanians like Greg, Laura and Josh.

Drilling is just the beginning.

NEWS 3

MARCH 2013 CAPITAL WATCH

CAPITALWATCH

www.capitalwatchpa.com PUBLISHER/AD DIRECTOR Jim Laverty (717) 233-0109, ext. 122

EDITORIAL Editor-in-chief Jacqueline G. Goodwin, Ed.D. goodwinpin@comcast.net (717) 418-3366 Contributing Writers Chris Comisac Peter L. DeCoursey Kevin Zwick News Service Capitolwire Graphic Design Lisette Magaro Production Shawn Skvarna Cartoonist Billy Twist Capital Watch is published every month.

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

(717) 233-0109, ext. 114

Congresswoman Allyson Schwartz wins Progressive Summit straw poll

BY KEVIN ZWICK, CAPITOLWIRE

As five-term Congresswoman Allyson Schwartz makes moves toward launching her gubernatorial run, she finished first in a survey of some of the state’s liberal activists.

The poll, taken March 2 at the Pennsylvania Progressive Summit in Harrisburg, shows about 37 percent (67 votes) of those who participated think Schwartz was best position to take on Corbett. State Treasurer Rob McCord (29 votes), 17 percent, former U.S. Rep. Joe Sestak, D-Delaware, 12 percent (20 votes), state Sen. Daylin Leach 6 percent (10 votes) and Attorney General Kathleen Kane got 5 percent (9 votes).

Sestak and Schwartz did not appear at the event, organizers said. Several potential candidates who were there, including Montgomery County Commissioner Josh Shapiro, and former DEP Secretary John Hanger, got no votes.

“This poll is not scientific,” Michael Morrill, executive director of Keystone Progress, said in an email. “It’s just a snapshot of how the most active progressives in the state feel right now.”

Of the 600 participants registered at the conference, 172 submitted a ballot.

Voters were representative of 42 counties and 17 states.

Schwartz, D-Montgomery, has made moves this week that point to her eventual run in 2014. She resigned her leadership role as national finance chair for the Democratic Congressional Campaign Committee, and told Capitolwire she plans to soon register a political action committee for a gubernatorial campaign and transfer much of her $3 million congressional campaign warchest to a gubernatorial account next month.

One participant at the conference from Philadelphia said she would support “anyone who could beat Corbett.”

But that didn’t mean Schwartz, who she thought has a record that is too liberal for central and western Pennsylvania voters.

“I do think that’s something she can’t overcome,” the woman said, who did not want to be named.

John Chernesky, a UFCW member from Luzerne County, said he thinks Schwartz, if she gets the nomination, would rely on the urban areas that support Democrats.

“I think out of the urban areas should could pull the upset,” he said.

Allyson Schwartz

Susan Rzucidlo of Chester County, who noted Schwartz materials were on all the tables in the room where the straw poll was taken, said she’s waiting for more candidates to officially announce and take positions on issues.

“I hate to formulate an opinion without seeing where the candidates stand,” she said. CW

Report says Gov. Corbett accepted thousands in gifts from business, lobbyists continued from page 1

group Common Cause, said he does not think Corbett violated the Ethics Act. But Kauffman said it appears Corbett violated the Governor’s Code of Conduct, which is more strict than the Ethics Act. “It simply says executive branch employees shall not accept gifts,” Kauffman said.

Billy Pittman, spokesman for the state Republican Party, said: “We support Governor Corbett’s strong record of transparency.”

John Hanger, a Democratic candidate for governor and former secretary of environmental protection under Gov. Ed Rendell, called on Corbett to affirm that his administration follows the Governor’s Code of Conduct by paying back the gifts.”

“Gov. Corbett has made a major mistake that threatens to corrupt the operations of the executive branch unless corrected immediately,” Hanger said.

The complaint will go through a review process that can last up to six months if the allegations are found to have merit. CW

4

NEWS

MARCH 2013 CAPITAL WATCH

Not much talk in support of liquor sales privatization during hearing

BY CHRIS COMISAC, CAPITOLWIRE

Maryanne Knaub, H.I.S. • Donald Shriner, H.I.S.

Want to boost your income?

Get hearing aids According to conventional wisdom, to get ahead in today’s economy it’s wise to work long hours, do a lot of networking and find ways to make your boss look good. But new research reveals that there is a much less obvious way to boost earnings: get your hearing checked, and get hearing aids if it’s necessary.

A new survey by the Better Hearing Institute shows that working Americans who ignore their hearing problems lose on average from $1000(mild loss) to $12,000(profound loss) a year. Getting hearing aids at a younger age reduces the chance of losing income. You might think of hearing loss as something that happens mainly to older people. But most people with this problem are in the prime of life, including 1 out of 6 baby boomers (ages 41-59) and 1 out of 12 “Gen-exers” (ages 29-40). Yet, right now, only 1 out of 4 Americans with hearing problems are getting treatment.

Some people are embarrassed to admit they need help because they feel it makes them look old. But if you seem out of touch or just plain stupid because you can’t hear well, that will be much more noticeable than a modern hearing aid. Once you try a hearing aid, you’ll like them. More than nine out of ten users feel their lives have improved. Wearers cited a number of improvements including: better communication (71%), better social life (56%), home relationships (55%), work environment (48%), emotional health (40%), mental/cognitive ability (35%), and physical health (24%).

We need to stop ignoring hearing loss. When left untreated, it disrupts family life, hampers emotional and sexual intimacy and increases the likelihood of depression and other psychological problems. If that doesn’t convince you to take hearing loss seriously, I hope the prospect of making less money will. Call today to schedule your FREE hearing test.

New Camp Hill office at 3507 Market Street, Suite 301 972-0243 1 Briarcrest Square. Hershey 298-6170 Office hours are Monday – Friday 9 – 5 Evening and Saturday Appointments Available ReNewedHearingSolutions.com

If the Feb. 25 Senate Appropriations Committee hearing for the Liquor Control Board is any barometer of whether liquor store privatization has a chance of passage this year, proponents should be worried.

The LCB’s own chairman, Joseph “Skip” Brion – a former chairman of the Chester County Republican Party – was the strongest voice for privatization, and even he was pragmatic in his support when asked directly by Sen. Tim Solobay, D-Washington.

“I am not against privatization, senator.

I do not believe we should be in the liquor business – I don’t think the state should be in the liquor business – but, by the same token, we are in the liquor business, so my attitude is if we’re going to have a liquor business, make it the most profitable and best that you possibly can,” said Brion.

Brion said the issue of privatization is up to the Legislature and the governor, and the LCB has to “implement what you do,” and then expressed his frustration with the Legislature’s failure to approve LCB modernization issues because of the ongoing privatization debate.

“It frustrates me, as a chairman for fifteen months, that you can’t get direct shipping through, you can’t get Sunday sales, because as you discuss privati-

“[We’re] hearing a lot of criticism that the LCB is still stuck in 1930 … I don’t think we’re in the 1930s, I think it’s everevolving, and I think , with your support, and the Legislature as well, we’ll be able to make some further changes to that system, but it is evolving and it is a successful system,” said Sen. Chuck McIlhinney, R-Bucks, chairman of the Senate Law and Justice Committee, which has oversight of liquor control matters.

Sen. John Blake, D-Lackawanna, saying he hasn’t heard any complaints about the state store system in his district, observed that “a lot of what’s gone on is some explanation of what’s wrong with the system and not enough about what’s right with the system.”

With one of the primary arguments for store privatization being consumer convenience and greater access to alcohol products, McIlhinney pointed out that many grocery stores are now selling beer, improving convenience for consumers.

“It seems that the private sector is finding a way, with the help of the LCB, to expand the outlets under the current licensing system, and I think that is something to be noted here,” he said.

And Brion explained that the LCB is actively seeking to locate liquor stores near

“We Senate Democrats, and I even believe some of my colleagues on the aisle opposite, would like to see needed improvements in the system,” said Ferlo. zation, we can make more money by having them implemented immediately,” explained Brion.

Gov. Tom Corbett has proposed closing the more than 600 state-owned liquor stores and auctioning off up to 1,200 wine and liquor licenses to a variety of retail businesses, phasing in private sales of wine and liquor over four years. The governor anticipates those new licenses will generate a total of $1 billion which he intends to use to fund a new education block grant program. Corbett also expects no drop in revenues from liquor sales. An effort at privatization last session failed in the state House of Representatives.

But Brion and the other LCB board members were told by several lawmakers they could expect another attempt by those in the Legislature at getting several modernization initiatives, not privatization, approved.

grocery stores as well as beer distributors to improve convenience and reduce the amount of travel by consumers wishing to buy food, beer, wine and spirits.

Sen. Jim Ferlo, D-Allegheny, the minority chairman of the Senate Law and Justice Committee, said he and others were “going to fight like hell” for modernization initiatives they’ve been pushing “to make this system more sustainable now and into the future.”

“We Senate Democrats, and I even believe some of my colleagues on the aisle opposite, would like to see needed improvements in the system,” said Ferlo.

Highlighting his modernization package, Ferlo said he wants “to provide a lot more flexibility to the state store system in pricing, in hiring and in certain procurement opportunities.

“I believe in extended store hours in continued on page 5

MARCH 2013 CAPITAL WATCH

5

Not much talk in support of liquor sales privatization during hearing continued from page 4

approved store locations, I think customer relations programs can be adopted and enacted for direct shipment of wine … I believe lottery sales should be operational in all of the state stores around the commonwealth, and I believe we need package reform so that beer distributors and taverns and restaurants can have more flexibility and more diversity in what they’re providing as a way of convenience and price to the public.”

Those modernization efforts are not unlike ones sought during the last legislative session and which were approved by the state Senate. The measures did not win approval in the state House of Representatives, where GOP leaders were focused on privatization.

“Three years ago we were here talking about most of those initiatives, and the Senate has been very supportive of most of those initiatives, we just can’t get them through House,” said LCB Board member Robert Marcus, who said the board supports this latest attempt at modernization.

Marcus said those modernization efforts would help the state’s stores improve on what has been a 25 percent increase in profits during the last five or six years.

“As much as we make now, we could double that,” said Marcus.

The LCB this year turned a $103 million profit after it paid for itself. But with all liquor taxes included, it transferred more than $530 million to the General Fund, said Marcus.

“This is what we’ve done, not what we can do,” added Marcus. “These modernization issues would substantially increase the transfer amount that we could do on a yearly basis.”

The agency did take a little heat for one of its decisions intended to make more money for the commonwealth: selling its own private label products - wines marketed under the name TableLeaf - alongside those produced by private wineries.

“I walked into my state store last week and was distressed to see that your TableLeaf wine was displayed right in the front, very prominently, and you all know that placement is everything when it’s right there in front of your face – I do have a problem with your competing with the private sector,” said Sen. Pat Vance, R-Cumberland.

And after Marcus read a statement about the “huge success” of the private label products – he said a TableLeaf wine was at one point the 17th best-selling wine in the nation, and it’s only sold in Pennsylvania – Vance responded: “Government tax dollars competing with private dollars – there’s no excuse for doing that, I’m sorry, I do not agree with that.” CW

Welcome To Hershey Road Restaurant!

Cuisine With A Flair!

Her shey Road Family Res taurant is renowned for its culinar y excellence & inter na tionally inspired dishes . *Taste the difference of Real Food prepared by 3 Certified Executive Chefs!

Breakfast ~ Lunch Dinner Specials * Past President ACF CHEFS ASSOC. of Harrisburg - Chef Scott Levy C.E.C. * Member of Certified Chefs Dining Guide

257 North Hershey Road, Harrisburg (N. of Hershey) visit us at www.hersheyrdfamilyrestaurant.com

717-545-2529

6 NEWS

MARCH 2013 CAPITAL WATCH

PA one of only three states without education funding formula Pennsylvania is a national outlier when it comes to following basic budgeting principles — accuracy, fairness, and transparency — that most states use when it comes to public school funding, according to a new report from the Education Law Center.

The statewide, non-profit organization examined how each of the 50 states calculates and distributes education dollars. The report shows that Pennsylvania is in the minority when it comes to basic budgeting practices used by most states.

• 47 states use an accurate student count when calculating and distributing education dollars. Pennsylvania does not.

• 37 states recognize different student costs when calculating and distributing education dollars. Pennsylvania does not.

• 47 states recognize different district costs when calculating and distributing education dollars. Pennsylvania does not.

“Without an accurate, fair, and transparent system for calculating and distributing

education dollars, we’re going to have a very difficult time — as public school parents, as taxpayers, as business leaders — knowing if our state is providing an adequate amount of resources to match student and district needs,” said Education Law Center Executive Director Rhonda Brownstein. “In other words, is the right amount of money going to the right place — and can legislators and the public see it?

In Pennsylvania, the current answer is no.”

Most other states use funding formulas to calculate and distribute education dollars. The formulas share common components, such as an accurate per student base cost, different funding variables that recognize student and district differences, and a funding goal that the state works towards in order to ensure adequate funding for all students.

The report also notes that Pennsylvania did have — until recently — an education funding formula similar to what many states are now using. The formula measured the number of students in each dis-

trict, community poverty levels, and local tax effort, allocating relatively more funding to districts that are larger, are poorer, and have higher property taxes.

The formula also recognized the additional costs associated with educating students in poverty and English language learners, distributing relatively more funding to districts with higher numbers of these students.

That formula was mostly abandoned in 2011 and amended completely out of use last year by the state legislature.

The new report calls for Pennsylvania to

adopt an education funding formula that reflects the common principles of accuracy, fairness, and transparency.

“States throughout the country have implemented sound funding formulas designed to accurately, fairly, and transparently identify costs and distribute critical education funding to their school districts.

Pennsylvania has gone in the opposite direction,” said Brownstein.

“It’s time for that to change. It’s time for Pennsylvania to become a national leader in the development and implementation of a sound education funding formula that addresses real classroom costs, meets real student needs, and builds successful schools and successful communities. Anything less puts the future of the Commonwealth’s students and communities at risk.”

The Education Law Center is a nonprofit legal advocacy organization, dedicated to ensuring that all of Pennsylvania’s children have access to a quality public education.CW

Democrats grill Secretary over lack of voter education money House Appropriations Democrats say it was irresponsible for the Corbett administration to not budget to further educate voters on the Voter ID law, regardless of the outcome court’s decision this summer.

“There’s a lot of confusion,” said Rep. Matt Bradford, D-Montgomery. “…This bill has created tremendous confusion, people have no idea what the status of their ability to vote is, and we’re gonna have to educate people.”

Secretary of the Commonwealth Carol Aichele believes the court possibly could order the state to run an education campaign, but Gov. Tom Corbett’s proposed budget does not budget for voter education money.

“We have not budgeted for it. We’re waiting for the outcome of the trial in

July,” she responded. “Are we going ahead with this or are we not going ahead with this? If I knew the answer, I would tell you, Aichele told House Appropriation Committee members.

Rep. Steve Santarsiero, D-Bucks, asked if the law were found constitutional whether the administration would support implementing the law during the next federal election year, when HAVA funding would again be available.

Aichele said she couldn’t say, adding: “I hope as you do that this decision comes down in July, and if it continues on and … there has been no decision by the November election, then I think your scenario comes into play.”

Santarsiero said the administration and Legislature should consider all outcomes

to be prepared.

House Appropriations Chairman Bill Adolph, R-Delaware, said it is likely a final budget will include a fiscal code provision allowing the state to make an additional appropriation depending on the court decision.

The state used $5 million in federal Help America Vote Act funding last year to educate voters about the new Voter ID law, which was temporarily suspended by the court. However, by the time the court ruled, the money was already spent on mailers and contracts with media relations and advertising firms for Internet, TV, radio and billboard ads.

The law also won’t be in effect for the upcoming May primary.

Other fiscal issues for which the depart-

ment could need additional funding include legal defense for Voter ID and reapportionment map publications – two issues which costs could vary depending on the courts.

The department has spent $204,000 on legal defense through the Office of General Counsel in defending the Voter ID law, which is slated for July 15 court date.

And additional funding may be needed depending on how the state Supreme Court rules on state reapportionment maps.

Aichele said the department has spent $800,000 on two rounds of advertising in newspapers of record, with each round costing about $400,000. The first set of maps the Legislative Reapportionment Commission submitted were rejected by the court last year. A second set of plans awaits a decision. CW

Electric vehicle charging station tax credit proposed by Rep. Cohen State Rep. Mark Cohen, D-Phila., has reintroduced legislation that would create a tax credit for establishment of electric vehicle charging stations.

Cohen’s legislation (H.B. 842) would provide a tax credit of up to 50 percent of the total cost of building a charging station.

Existing stations which sell gasoline would be eligible for the tax credit if they are compliant with all Pennsylvania tax obligations.

“This initiative would provide consumers with an additional incentive to go ‘green’ and to purchase energy-efficient and emission-free electric vehicles,” Cohen said. “The ability to access a charging station would eliminate the fear drivers of electric vehicles currently have of getting stuck in traffic or having to drive long distances to obtain electric refueling options.”

Ohio provides a credit of up to 80 per-

cent of the cost of the purchase and installation of electric vehicle charging stations, and West Virginia provides infrastructure tax credits of up to 50 percent of the installation cost for residential, commercial and publicly accessible charging stations.

Cohen said the 30 percent federal tax credit for installation of an electric-car charging station for both 2012 and 2013, capped at $30,000, was restored as part of

January’s fiscal cliff deal.

He said the state-level initiative would complement the current federal tax credit available for the purchase of qualified electric vehicles, ranging between $2,500 and $7,500, depending on battery size.

Cohen introduced similar legislation during the 2011-12 session, but it received no action by the House Finance Committee. CW

7

MARCH 2013 CAPITAL WATCH

Walker wants simple-majority rule for new biz loan authority board The governance of the proposed Pennsylvania Business Development Authority is still in the works, but a Corbett official’s testimony indicates it could shape up to be similar to past rejected proposals.

The PBDA consolidates loan programs under one roof, as was proposed in previous budget years, first with the Liberty Loan Fund and then last year as the Liberty Financing Authority.

“The governing structure is still being worked. I don’t know that there’s assurances right now that anyone would have veto power over anything,” Department of Community and Economic Development Secretary C. Alan Walker said during a House Appropriations budget hearing, referring to the Commonwealth Financing Authority, which is controlled by the four legislative caucuses.

“But if you look at the structure of the CFA … one of the problems with the CFA [is] because every caucus has veto power. It’s difficult to get anything done. It’s my personal hope that we’ll go with majority rule. I think it’s a much more democratic process,” he said.

The caucus leaders have power over the millions of dollars in infrastructure grants distributed by the CFA. Corbett’s first loan fund proposal would have consolidated the entire CFA grant and loan programs under the one umbrella, while giving himself majority control over the fund.

This peeved legislative leaders, who pushed back against the proposal. The second proposal, the Liberty Financing Authority, left the CFA grant programs untouched, while taking two of its loan programs and consolidating four other authorities under one umbrella. The measure wasn’t accepted in the Legislature.

The PBDA would consolidate the same programs and authorities as the Liberty Financing Authority, which Walker says would mean $1.1 billion in resources for low-interest business loans to develop business sites to drum up industry.

Both previous business loan fund proposals would have given the governor control of the board. For instance, last year’s proposal would have created a 15-member board of four cabinet heads, 11 private sector appointees, seven picked by Corbett and four from the caucus leaders.

With that makeup and the simple majority Walker desires, the governor would control how the funds are distributed, assuming his cabinet members and seven appointees side with him.

DCED spokesman Steve Kratz said the administration is still discussing what cabinet officials would be appointed to the board.

Here a rundown of the eight programs and authorities that would be consolidated: • Pennsylvania Industrial Development Authority • The Small Business First Program • The Community Economic Development Program • PA Industrial Development Authority Program • PA Minority Business Development Authority • Machinery and Equipment Loan Program • First Industries Program (currently under CFA) • The Second Stage Loan Guarantee Program (currently under CFA). CW

Judge declares ending adultBasic health insurance ‘unconstitutional’ A Commonwealth Court has ruled in favor of plaintiffs in a March 2011 case challenging the state’s use of tobacco settlement funds.

Commonwealth Court President Judge Dan Pellegrini declared unconstitutional decisions by Gov. Tom Corbett’s administration and the General Assembly to end adultBasic health insurance for 41,000 lower-income adults and divert funds from the Medical Assistance for Workers with Disabilities program.

The adultBasic class action suit was filed by the law firm of Caroselli, Beachler, McTiernan & Conboy.

Defendants included Corbett, Budget Secretary Charles Zogby, Treasurer Rob McCord, House Speaker Sam Smith, R-Punxsutawney, and Senate President Pro Tem Joseph Scarnati, R-Jefferson.

AdultBasic was established in 2001 and received money from a fund set up by the four largest U.S. tobacco companies in 1998 to resolve a lawsuit by 46 states.

Pellegrini denied a request to reinstateadultBasic under court supervision and reimburse $200 million diverted away over the past two years.

Still, he directed the defendants to appropriate 30 percent of the tobacco settlement fund to health investment insurance pursuant to Chapter 13 (adultBasic) and for the purchase of Medicaid benefits for workers with disabilities pursuant to Chapter 15, the Medicare assistance program.

We are reviewing the legal and budgetary issues related to the court’s ruling, said Nils Hagen-Frederiksen, press secretary in the Governor’s Office of General Counsel.

The court reaffirmed our position that these valuable programs should never have been terminated, said state Senate Minority Leader Jay Costa Jr., D-Allegheny, whose caucus filed a brief supporting the plaintiffs.

Costa called on the Governor to commit himself to funding these important programs and reverse his opposition to an expansion of Medicaid as offered to the states under the federal Affordable Care Act. McCord agreed about Medicaid expansion, but Americans for Prosperity Pennsylvania Director Jennifer Stefano said it would cost Pennsylvania more than $4 billion in new spending through 2021, with no promise of continued help from the federal government. CW

“The grandest, fullest and finest achievement of classical ballet.”

The New Yorker

Be there when the Sleeping Beauty awakens from a 100 years sleep!

A 16th birthday celebration. A wicked fairy’s fury. A pricked finger. Enter the enchanted world of The Sleeping Beauty with all its charm and elegance, drama and romance in this most illustrious of fairytales. All set to the enchanting music of Tchaikovsky.

Don’t miss this rare opportunity to experience the magical moments of the acclaimed ballet, The Sleeping Beauty, right here in central PA. Make it a special date night or memorable family outing and prepare to be transported to a far-away land where spells are cast and good triumphs over evil!

MUSIC: PETER ILYITCH TCHAIKOVSKY CHOREOGRAPHY: ALAN HINELINE AFTER MARIUS PETIPA

WHITAKER SAT. APRIL 20, 1 & 7 PM CENTER SUN. APRIL 21, 2 PM

TICKETS

717.214.ARTS (2787) or whitakercenter.org

8 NEWS

MARCH 2013 CAPITAL WATCH

$50 million bid security returned to Camelot

BY KEVIN ZWICK, CAPITOLWIRE

Days after a contract to outsource management of the Pennsylvania Lottery was rejected by the state’s Democratic attorney general, the $50 million deposit paid

by Camelot Global Services to secure its bid with the commonwealth was returned to the company Tuesday, said Revenue Secretary Dan Meuser.

The money was returned as part of a negotiated bid extension reached by both Corbett administration officials and executives for the British-based Camelot.

Camelot paid the $50 million security, which would have been used to pay consultants contracted by the state during the procurement process, when it issued a bid to generate $34 billion for the lottery over a 20- to 30-year contract in November.

“Due to the fact that no execution is near term, the $50 million, I just learned, was returned and a promissory note will be secured if we continue to pursue a PMA (private management agreement),” Meuser said after testifying before the House Appropriations Committee.

Sources close to Camelot said the company still wanted to pursue the contract.

Attorney General Kathleen Kane’s decision rejected the proposed contract based on violations to the state constitutional and state lottery law, sending Camelot and Corbett officials into a scramble to save the deal.

Meuser said Camelot has not given a definitive answer about whether the company will move on after several delays.

“Camelot’s hopeful that a plan can be pieced together in the shorter term, perhaps in the longer term, but certainly they’re not going to invest their resources without a light at the end of the tunnel. So a lot has to be decided over the next few days and the risk-versus-benefit needs to be carefully considered,” Meuser said.

He said the Corbett administration will weigh its options, including tweaks to the contract that may setoff a new procurement process or appealing Kane’s decicontinued on page 10

NEWS 9

MARCH 2013 CAPITAL WATCH

PA insurance officials say some could be in for real ‘shock’ due to Obamacare

BY CHRIS COMISAC, CAPITOLWIRE

If you’re young and healthy, state insurance officials told lawmakers you could get quite a shock during the next year or two or three regarding the cost of your health insurance: it’s going to go up, maybe even double.

During the Insurance Department’s House budget hearing, both state Insurance Commissioner Michael Consedine and Executive Deputy Insurance Commissioner Randy Rohrbaugh, responding to questioning

by Rep. Madeleine Dean, D-Montgomery, said it will take some time for the insurance mandates of the Affordable Care Act - also known as Obamacare - to work themselves out in the new insurance marketplace.

“We do expect this next year to be a very potentially disruptive year on the rating side because I think there is this continued expectation by consumers that with the full implementation of the Affordable Care Act, they are going to see their rates go down or remain unchanged,” said Consedine.

“That may be the case with some folks … but ironically, we expect there will be segments of the population that will experience what we’re referring to as ‘rate shock.’”

Consedine explained the shock will likely be felt most by “young, healthy individuals who right now are getting the benefit of being young and healthy” because the current insurance underwriting process allows their health and other demographics to be considered and reflected in their premiums.

“That rating methodology goes away with the Affordable Care Act, and as a result we’re hearing from companies that based on this mandated rating formulas, that rates are going to go up, at least in the short term, for significant segments of the population.”

Rohrbaugh said with the ACA putting an end to the use of pre-existing conditions, lifetime limits, health and other demographic factors when determining insurance premiums and rates, “people will see shocks as great as 60 percent; we met with a company yesterday that said in their book of business, because they write [insurance] for a lot of healthy young people in their region of the state, they think it could be as high as a hundred percent.”

He said those shocks could be felt for the first year, but things could be made worse if young people opt to pay the penalty for not purchasing insurance.

“Unfortunately, there’s a couple situations where people can actually opt out of the system, and the people I expect to take advantage of that are the young, healthy people that may see insurance costs much greater than they can afford, or are willing to pay – if the penalty is less than that and they’re healthy and they don’t think they need to go to the doctor or the hospital, they may opt out,” said Rohrbaugh.

That would leave less healthy, and more costly, people in the system without the young, less expensive, people to help spread the cost, he said.

“So the first year is the disruption, the second year may be another re-leveling of what’s left, and it may not be very level even the second year.

“So the theory is if everybody participates, it’s one year of disruption. But it may take two or three years before that all will level through.”

As for the exchange where some Pennsylvanians will soon be searching for insurance, the federal government will be running it, but that might not be how things stay.

“The governor did leave the door open that we will continue to evaluate whether or not it makes sense for Pennsylvania at some point to operate a state exchange,” said Consedine in response to questioning

by Rep. Mike Carroll, D-Luzerne.

“One of the primary reasons we did not pull the trigger on a state exchange was we simply didn’t have enough information to commit Pennsylvania and Pennsylvania tax dollars, at this point, to building something, especially in the time that we had to build it.”

The exchanges, which the federal government is now referring to as “marketplaces,”

would serve as a one-stop shop for individuals and businesses to compare and purchase health insurance products and tax rebates or credits that might apply. States had to make a decision by Dec. 14, 2012, and the governor made his announcement on Dec. 12. A total of 33 states decided against doing a state exchange, but seven of those states will participate in a hybrid-style State Partnership Exchange in which they can assume responsibility for certain functions of the federally-operated exchange.

But states can still change their minds, however any decision to switch would require the state giving the federal government some notice before any conversion could be done.

“HHS has left the door open to states coming back and either entering into a partnership, potentially, as sort of a middle step, or eventually converting entirely to a state exchange down the road,” explained Consedine. “… They need at least a year’s notice and head’s up” and then the state would go through the same process currently underway for those states that are moving forward with their own exchanges.

He said the conversion, at least for the

insurance consumer, wouldn’t be difficult.

“People talk about exchanges and there’s a lot of confusion; essentially it’s just an online marketplace or portal that people would go to,” Consedine said. “Many of us have experience on the Internet, it’s easy enough to redirect people from one portal to another.

“So the consumer issue, while important, is probably less significant than the process we would go through as a state in just making sure it would be the right decision for us to do.”

Carroll, who said he would have preferred the state done its own exchange right away, expressed concern that despite how easy Consedine made a switch sound, such a change at a later date could cause “consumer confusion.”

“That easy transition from one portal to another might not be quite a simple as you might think,” said Carroll. CW

Heidi Edwards, Lifestyle Management Specialist

gh time

yone has enou

because not ever

providing personal assistance & errand service for all sorts of tasks

*Proud MEMbEr of

Call: 717-202-9103 email HeidiEdwards@MakingMoreTime.biz / www.HeidiEdwardsMakingMoreTime.com

10 NEWS

MARCH 2013 CAPITAL WATCH

Pension obligation bonds could be piece of pension solution puzzle

BY CHRIS COMISAC, CAPITOLWIRE

The state’s contribution to its public employee pension plan is currently scheduled to eclipse 20 percent of state employee payroll in the 2014-15 fiscal year.

That equates to a payment of $1.28 billion from the commonwealth, compared to the 11.5 percent, or $564 million, the state paid this year. The commonwealth’s contribution to the State Employees’ Retirement System (SERS) is set to increase to 16 percent, or $971 million, in the coming fiscal year.

That contribution rate will max out in fiscal year 2017-18 at 30.53 percent, but actual contribution amounts, due to anticipated continued growth in employee payroll, will continue to climb until they hit nearly $2.57 billion in 2039-40, after being above the $2 billion mark for 22 years. Fiscal year 2039-40 also marks the first year the state’s contribution rate dips below 20 percent.

But what if the commonwealth could prevent the rate from ever going above 20 percent? There’s still an awful lot of money to repay – SERS says it currently has an unfunded liability of nearly $18 billion, and the state’s total unfunded pension liability currently stands at nearly $47.5 billion – but the state, even in the next five or six years, could save itself a significant amount of money.

How could Pennsylvania do it?

“Just some back-of-the-envelope calculations we’ve done: if we were to get $7.4 billion, it could keep the employer rate under 20 percent, amortizing that over a 30 year period,” said SERS Executive Director David E. Durbin during a recent Senate Appropriations Committee budget hearing for the state pension systems.

“But $7.4 billion is a lot of money,” Durbin added.

And doing a bit more back-of-the-envelope calculations, if the rate were held at 20 percent starting in fiscal year 2014-15,

during the next five years – through fiscal year 2018-19 – that would save the state over $2.4 billion in contributions.

It would likely take about 15 years to break even on the investment, but from that point on, the savings would be the commonwealth’s.

But as Durbin said, $7.4 billion is a lot of money and the state doesn’t exactly have that type of dough right now.

That is if it doesn’t borrow it.

Act 120 of 2010, along with its many changes to smooth out a prior pension contribution rate spike, includes a prohibition against pension obligation bonds (POBs).

However, the Legislature could change that to allow the bonds.

And when asked by Senate Finance Committee Chairman Mike Brubaker, R-Lancaster, if such bonds would be helpful to the state’s current pension system concerns, Durbin responded: “Would they be of help? Absolutely.

And while the Pennsylvania School Employees’ Retirement System (PSERS),

given its far larger unfunded liability of about $29.5 billion, would require a far larger amount of initial borrowing, PSERS Executive Director Jeffery Clay added: “I do think its a policy issue for the General Assembly and the governor’s office to consider.”

Later in the day, during his agency’s House Appropriations Committee budget hearing, Clay elaborated further: “If you did a $9 billion POB, you’d save over $8 billion, net of contributions, so to speak.

“Because what happens when you have a POB cost, you have to pay the bond, so when you net it all out, a $9 billion dollar POB would generate $8 billion in savings.”

Clay said because of that, POBs could be part of a plan to address Pennsylvania’s unfunded pension liability – but they couldn’t be the only solution.

“Pension obligation bonds have been talked about in the past as a part of solving the problem … the concept of the pension obligation bond is if you think of the unfunded liability as a debt, and it is – it’s probably the

state’s most expensive debt, in both cases [SERS & PSERS], it’s earning interest at a rate of 7.5 percent – so if you can borrow the money at a cheaper rate and pay off a portion of that unfunded liability – I don’t think you can pay off all of the unfunded liability because you have borrowing capacity issues – but if you did a portion of it, you’re going to have an arbitrage take place.”

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets, and capitalizing on the imbalance between the markets – in this case the pension bond market interest rate and the current interest rate on the pension system’s unfunded liability – with the profit being the difference.

“We would not recommend POBs to be the solution to the total problem; it could be a piece of the puzzle, but in and of itself, it’s not going to solve the problem. But, again, you do have the ability to refinance at a lower level,” said Clay.

Clay noted during the Senate hearing that there’s currently a low-interest environment in which such bonds could potentially get favorable interest rates – rates below the current unfunded liability’s interest rate - but “it would have to be carefully studied, the costs of the offering versus the risks that are there.”

The risks? To put it simply, if a pension system fails to get an investment rate of return above the interest rate of the bond, things can get bad very quickly – and they have for many states and local municipalities, some of who got caught up in the market collapse of 2008 and the recession that followed.

Plus the state has to keep living up to its obligations to the pension system, paying the new reduced contribution rate, not further cutting their contribution which would just add to the unfunded liability. CW

$50 million bid security returned to Camelot continued from page 8

sion in what would likely be a plodding Commonwealth Court battle.

If the private management agreement were not pursued, the commonwealth would be responsible for paying hourly rates – but not success fees – to consultants DLA Piper, a Washington D.C.based law firm, and New York-based investment bank Greenhill & Co., the two firms contracted with the state for the Lottery procurement.

Meuser told lawmakers the payments to the consultants would be “far less” than $50 million, but would not elaborate. He noted after the meeting, the payments would come out of the Lottery Fund. “…How much they would be paid would

vary and out of what fund they would be paid would vary, so until we know what the next steps are, it’s really premature to start talking about costs. Nothing has been paid to either advisor to date and we don’t imagine anything will be paid until we sort of determine which was this is gonna go,” said Revenue Department spokeswoman Elizabeth Brassell.

Camelot says it would raise $3 billion to $4.5 billion more than current operations at the Lottery, which funds programs for senior citizens, including low-cost prescription drugs, property tax relief and rent rebates, free or reduced-fare transit, and long-term care.

Meuser said 52 percent of Camelot’s

projected revenue relies on an expansion of gaming, which Kane said last week would require legislative authority. The Corbett administration believes Meuser has the authority to allow games like Keno.

During a Feb. 19 hearing, Meuser attributed the contract’s current status in legal limbo to confusion over video poker games and Keno.

In response to concerns raised by Senate Republicans in January, Meuser said the administration wouldn’t oppose clarifying language to state law that would draw a clearer line between video poker and Keno games.

“But if the Senate and the House in the General Assembly wanted to think about

introduce legislation that clarifies existing law as we understand it and are following, why would we have an issue with that?

I don’t see why we’d have an issue with that,” Meuser said.

After the hearing, he said any changes to the contract with Camelot would likely require another bid process.

“I believe that any change, to be clear, any change would be not allowed, disallowed, would be in violation of an RFP (request for proposals) and this IFQ (invitation for qualifications) agreement,” he said after the hearing.

Brassell noted administration attorneys are reviewing all options, including changes to the contract. CW

Y

NEWS 11

MARCH 2013 CAPITAL WATCH

Aichele says AG Kane should defend Voter ID law

BY KEVIN ZWICK, CAPITOLWIRE

Secretary of the Commonwealth Carol Aichele said Attorney General Kathleen Kane should present a “vigorous defense” of the controversial Voter ID law in court this summer.

Aichele referred to earlier news reports that said Kane is weighing defending the law because of constitutional objections to the law.

also protecting the constitution,” Kane told the Pittsburgh Post-Gazette last week.

“Sometimes, as you know, there is a parallel proceeding. In my view, the constitution always wins.”

Kane does have options. The Commonwealth Attorneys Act allows the attorney general to pass up defending a law to the governor’s Office of General

“The representation of the commonwealth of Pennsylvania, the laws passed by this General Assembly and signed into law, need to be vigorously defended and there needs to be a vigorous legal argument presented by the opposition,” Aichele said.

“It is a core responsibility of the Office of Attorney General to defend the constitutionality of statutes passed by the General Assembly and signed into law by the governor,” Aichele said during a budget hearing Thursday.

“We’re ad-cap-watch-9.75x6.pdf talking a lot about the1 role of 1/29/13 the attorney general versus the role of

Counsel. A call to her office was not returned, but they told the Post-Gazette no decision has been made.

“The representation of the commonwealth of Pennsylvania, the laws passed by this General Assembly and signed into law, to be vigorously defended and 10:47need AM there needs to be a vigorous legal argument

presented by the opposition,” Aichele said.

“I think the people of Pennsylvania would be well-served if this were a fair trial with both sides presenting strong and vigorous defenses.”

Kane opposed the law during her campaign in 2012, saying she believed the law would disenfranchise elderly and minority voters.

Democratic leaders in the Legislature won’t be pushing Kane to drop defense of the bill as they had lobbied her to reject the Pennsylvania Lottery private management contract.

“Had it been at an earlier stage in this process, it might have made sense to make the switch or consider doing that, but I think we’re too far down this path to go and do that at this point in time,” Senate Minority Leader Jay Costa, D-Allegheny, said.

“Attorney General Kane knows that every Democrat in the House and Senate voted against this unnecessary law. Our position is clear. As for whether staff in the Office of the Attorney General will continue to defend this bad law, that is an internal decision to be made by the Attorney General,” said Bill Patton, spokesman for House Democratic Leader

Carol Aichele

Frank Dermody, D-Allegheny.

The Voter ID law passed last March with no Democratic support. Aichele said the Department of State spent $204,000 on outside counsel, so far, defending the Voter ID law. A trial is scheduled to begin July 15. CW

Save 25% on America's First Superhighway

Since 1940, the Pennsylvania Turnpike has been the gateway to the most exciting vacation spots in the state. From the Gettysburg Battlefield to the covered bridges of Bedford County to Philadelphia’s Independence Hall, the Turnpike takes you there safely, quickly and conveniently. And with E-ZPass, you skip lines at tollbooths and save about 25% on the cash price of tolls. You don’t have to be a commuter to take advantage of the savings – visitors like E-ZPass, too. Get yours at

P A T U R N P I K E . C O M / E Z P A S S

12 OPINION

MARCH 2013 CAPITAL WATCH

Editorial

PENSION POLITICS: Making things worse does not make things better Give Gov. Tom Corbett an “A” for making an economic case for the need to address runaway costs of funding the state’s two major pension systems – the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS). According to third party estimates, the two systems have a total unfunded liability of $41 billion.

Give the Governor an “F” for coming up with a plan that addresses that problem. In fact, his self-declared “pension reform” will make things worse for much of the next three to four decades.

How can this be? Because the Governor’s pension reform changes the very nature of

the pension system from one where the good faith and credit of the Commonwealth stands behind a defined benefit for each and every retiree with one where each and every retiree’s monthly benefits are subject to the whim and winds of the economy and the stock market.

It’s reform in the sense that it changes the nature of the pension systems but it does nothing to address the current $41 billion state liability. In fact, it would reduce state and school district contributions to the pension systems from current levels and promises no state or school district match for participants in the proposed new 401(k) style. In other words, the Governor is asking the legislature to pass a law reducing the value of the fringe benefit package for all future state and school district employees.

Will this be good for future government employees? Certainly not. They won’t think it’s reform. They will see it as a reduction in the remuneration package.

Will this be seen as reform by the average voter or the average taxpayer? That’s certainly what the Governor is counting on. He’s banking on the average

In fact, his self-declared “pension reform” will make things worse for much of the next three to four decades.

Pennsylvanian saying, “Hey, I don’t have a defined benefit retirement program so why should state and school district employees – who work for me – have them?”

It may play out somewhat differently than the Governor hopes. Why? Because – according to the state Public Employee Retirement Commission – there are nearly 700,000 active and retired members currently served by the PSERS and SERS. That’s a huge slice of Pennsylvania when you consider that number is equal to about 10 percent of the state work force. It means that it’s quite likely that the average voter or taxpayer has a close relative or friend or neighbor who is served by one of the systems. The issue is not a good pension for a stranger by, rather, a pension for someone you know well.

And, finally, there is the question of whether a switch from a “defined benefit” to “defined contribution” would be good for Pennsylvania in general. If you look at the issue from a strictly business and economic impact viewpoint, the Commonwealth might best be served by properly underwriting its existing pension systems in order to maintain the huge buying power afforded by the hundreds of thousands of current and future annuitants funded by the pension systems. CW

OPINION 13

MARCH 2013 CAPITAL WATCH

As state faces real problems, GOP focuses on rigging future elections

BY STATE REPRESENTATIVES FRANK DERMODY AND MIKE HANNA

Here we go again.

Just as we begin deliberations on some of Pennsylvania’s most pressing issues, Republican leaders in the General Assembly have chosen to place their political party above the interests of Pennsylvanians.

Last year, it was the sham voter ID law.

This year, we have a brand-new effort to rig presidential elections.

Senate Bill 538, sponsored by a gang of 13 Republican state senators, would distribute 18 of Pennsylvania’s 20 electoral votes proportionally based on how presidential candidates performed statewide.

The remaining two electoral votes would be awarded to the overall winner.

Pennsylvania, like most states, has always used a “winner take all” system for presidential electoral votes, where the winner of the most votes receives all 20 electoral votes. Moving to a proportional system would dilute the electoral tally of the winning candidate, eliminate Pennsylvania’s prized status as a swing state, and help Republican candidates gain electoral votes they did not earn.

It’s worth noting that similar schemes in other states – including Virginia, Ohio,

Wisconsin and Florida – failed to gain the support of their Republican governors. It’s clear that Republican leaders in Pennsylvania are out of step with their colleagues nationally.

In fact, the Senate Republican bill stands in stark contrast to the National Popular Vote movement, which would effectively end the Electoral College without the need for a Constitutional amendment.

Under the National Popular Vote plan, Pennsylvania would join a compact of states pledging all of their electoral votes to the winner of the national popular vote.

When enough states join the compact, bringing with them enough electoral votes to be a majority of the Electoral College, all compact states would cast their electoral votes for the winner of the national popular vote.

The National Popular Vote plan is the only true way of ensuring the winner of the popular vote is guaranteed to win the presidency.

The Senate Republican scheme is more than just sour grapes after President Barack Obama won Pennsylvania by some 300,000 votes. It is a Republican power

grab of the highest order.

This gang of 13 senators – the dirty baker’s dozen – is attempting to do nothing less than steal the Office of President of the United States.

Talk about twisted priorities.

While Republican leaders scheme new ways to rig elections, there are real issues facing Pennsylvania that demand immediate attention.

We have a massive funding crisis – to the tune of more than $4 billion – for repairing, maintaining and modernizing our crumbling roads, bridges and transit systems.

We have a stubbornly high unemployment rate – among the highest in the nation – with at least a half-million Pennsylvanians unable to find work.

We have a public school system that is underfunded by nearly $1 billion, thanks to the devastating budget cuts imposed by Gov. Corbett and his Republican allies.

We have an opportunity to take advantage of billions of dollars in federal money to insure more than a half-million Pennsylvanians by expanding Medicaid as part of the Affordable Care Act.

We have a thriving state lottery that Corbett is attempting to outsource to the United Kingdom at the expense of older Pennsylvanians who rely on the lottery to fund critical senior programs.

It’s clear that Pennsylvania is not lacking in the crisis department. Yet the Republican Party, which controls the governor’s office and both chambers of the state legislature, is instead obsessed with stealing the presidential election at any cost.

The people of Pennsylvania deserve better than self-serving partisan scheming from their elected officials.

It’s time for Pennsylvania’s Republican leaders to get their priorities straight.

People should be our priority, not our political party. CW State Rep. Frank Dermody serves as Democratic leader of the Pennsylvania House of Representatives. He represents the 33th Legislative District in Allegheny County.

State Rep. Mike Hanna serves as Democratic whip of the Pennsylvania House of Representatives. He represents the 76th Legislative District in Clinton and Centre counties.

Measure would limit outside income for legislators State Rep. Tony DeLuca, D-Allegheny, announced he has introduced legislation limiting the amount of income members of the Pennsylvania General Assembly could earn from employment outside of their legislative duties.

“I’m a strong supporter of Speaker Smith’s efforts to shrink the size of the legislature,” DeLuca said. “However, a smaller legislature will require a more full-time commitment from members. Distractions from outside employment may impede upon their ability to serve their constituents.”

House Bill 368 would limit outside earned income to a maximum of 35 percent of the legislative salary for state representatives and senators.

“We are, without question, a full-time legislature who must be accountable to our constituents,” DeLuca said. “Our duties as elected officials should be conducted without distraction or conflict.”

DeLuca said outside jobs may create a conflict of interest with legislative priorities.

“We need to make sure we are acting in the best interest of our constituents, not special interest groups or private businesses,” DeLuca said.

DeLuca called on House Republican leaders to take quick action on H.B. 368 when the House returns to voting session March 11.

The measure would bring the Pennsylvania General Assembly in line with federal limitations on outside income and honoraria for members of U.S. Congress. CW

C U S TO M J E W E L RY H A N D C R A F T E D O N - S I T E 4812

Jonestown Road

w w w

.

•

H a rr i s b u r g , PA 1 7 1 0 9

r l c o l l e c t i o n

.

•

717-545-4511

c o m

14 OPINION

MARCH 2013 CAPITAL WATCH

Question: Should Pennsylvania get out of the liquor business?

YES

NO

Great Idea— except that it won’t work

Ending the state’s liquor monopoly

BY TONY MAY

BY CHARLIE GEROW

Getting rid of the state liquor store system sounds great to most people except that none of the proposals presented thus far really work.

At the heart of current proposals are two fatal flaws:

is long overdue

The debate over privatization of Pennsylvania’s antiquated liquor control system is a classic matchup between special interests and the best interests of the people of the commonwealth.

Defending an outdated and unworkable liquor system is an unusual triumvirate of union bosses, anti-drinking groups and beer sellers. They face enormous public support for getting Pennsylvania out of the booze business and creating a modern, convenient and consumer-friendly system.

Pennsylvania is one of only two states in the nation that run both the wholesale and retail sale of alcohol (Mormon dominated Utah is the other.) Often described as an odd coupling of prohibitionism and socialism, its roots are in the days following Prohibition.

Then Governor Gifford Pinchot, a “dry” leader who didn’t want Pennsylvanians to drink at all, devised a convoluted and complicated system designed to make alcohol purchases as “inconvenient and expensive as possible” (His words--no kidding). He certainly succeeded!

Forty years later, Governor Milton Shapp, a Democrat, promoted the idea that the state should get out of the liquor business. Several Republican governors have done the same.

At every stage public support for privatization has been staggering. They have reasoned that not only does it make no sense for Pennsylvania to be selling booze (see Ronald Reagan’s famous “Yellow Pages” theory: if it’s in the Yellow Pages government probably shouldn’t be doing it), the outdated system is inconvenient, expensive and not designed to meet the needs and desires of customers.

Public support for privatization has remained consistently high. The political will of the General Assembly has lagged behind. The odd alliance of tea totalers, beer distributors and union bosses has he bottled up the idea for years employing every conceivable scare tactic and half (or outright non) truths.

They claim that getting the state out of the liquor business will result in rampant alcohol abuse. If state run alcohol sales meant less alcohol abuse Pennsylvania would have the fewest alcohol related problems in the nation. But we don’t. On the contrary, numerous studies have found no correlation between state control of alcohol sale and alcohol related societal problems.

“Prices will go up if we end the state monopoly” claim the defenders of our archaic system. They cite Washington as an example. Interestingly, it was the voters of Washington, through a referendum, that brought privatization. The price increase resulted from tax hikes not privatization.

Defenders of the state monopoly have yet to explain why states have gone from “state control” systems to “private” system for years but none have gone the other direction.

“The state will lose money” is another always heard argument. It ignores the fact that privatization will produce an upfront payout in excess of a billion dollars. And, of course, the tax revenue the commonwealth currently gets from liquor sales will continue uninterrupted.

There are even a few who, with a straight face, claim the LCB is a model of efficiency and best management practices that should not be meddled with. The list of embarrassing revelations about the ethics, management and competence of the LCB quickly dispels that notion. Adding to that is the fact that both past and the current Chairman of the LCB have openly said that they believe the state should not be in the liquor selling beusiness.

The last gasp argument is that we can merely “modernize” the LCB and therefore avoid privatization. That sounds a lot like a deathbed conversion. They’ve had 80 years to “modernize.”

Ending the state’s liquor monopoly is long overdue. It’s time for a convenient, efficient, modern and consumer friendly system. CW

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

1. Whether or not liquor stores are privatized doesn’t really matter to most people; and, 2. Prices won’t go down, on the average; in fact, if Washington State privatization over the past two years is any example, prices will go up.

Advocates of state liquor store privatization say, “Give the people what they want.

They don’t want to have to buy their booze from a government monopoly.” But do people really, really care?

In that question lies the whole story why Pennsylvania has been more or less comfortable with a state-owned monopoly on liquor and wine sales for 80 years; it isn’t really that important to them.

How can we be certain this is true? Because pollsters love to ask a generic question at the start of each survey to put interview subjects at ease, to get them involved. The question runs something like this: “What is the single most important problem facing Pennsylvania today. The problem you would like to see resolved by your state elected officials?” This is always a “free response” question, meaning that it’s not a multiple choice question. It’s the job of the interviewer to write down a response in a word or two and then the tabulators code the responses into a number of generic categories like taxes or crime and drugs, jobs and the economy, or transportation or state spending or corruption or even “global warming.”

I have been reading, analyzing and evaluating Pennsylvania polls for some 30 years and never once has “selling the state stores” made the list. It’s just not that important to people.

So, if someone steps forward with such a plan, it better be a crackerjack one with no weak points of question marks. And that’s where any one of the current proposals being floated to sell off the state stores fails. Every one has its downsides. Let me list a few: • Jobs will be lost; good, largely unionized, family-sustaining jobs with pensions and benefits will go away because the private sector bidders for liquor and wine licenses will have existing employees equipped to handle he increased workload – and most of the big box vendors strive to maintain part-time, low-pay workforces as a matter of policy. How much will be lost? A good benchmark is the estimate that most of the PLCB’s workers will be let go, meaning the state treasury will not be able to collect the estimated $200 million in state personal income taxes they would be paying over the next 20 to 25 years.

• Liquor and wine prices will go up, on the average. Taxes will remain the same and privatized stores will have to amortize the hefty cost of sales permits at the check out counter. The Department of Revenue in Washington State estimates that the average cost of a liter of booze there has increased $2.64 in the last year under the new privatized sales system.

• Wine and liquor will still be cheaper in super stores in New Jersey, Delaware and Maryland where taxes are lower, meaning that “border bleed” will continue.

• With an 18 percent Johnstown Flood Tax still in place along with a 6 percent sales tax, more than $1 of every $5 spent on booze will continue to be taxes.

• Beer distributors – restrained by current law to virtual “mom and pop” operations – will be edged out by beer in grocery stores, convenience stores and drug stores, leading to the loss of thousands more jobs.

Who was it that said, “Be careful what you wish for?” CW

OPINION 15

MARCH 2013 CAPITAL WATCH

529 Plans. Help a Child and Save a Nation SCOTT C. WEAVER, CFP, CFS, CAS

In the last issue of Capital Watch, I wrote about the changes in the tax law and how the new tax changes will affect everyone.

I also discussed, in general, some tax strategies that investors can explore. In this article, I would like to focus on one of those strategies. The 529 College Savings Plan. We usually think about school and college in the fall. I believe, however, we should be thinking about it all the time.

Funding a higher education takes serious planning.

It is no secret that as a nation, we are falling further and further behind other developed countries in education. Education must be a priority if we are to compete in the 21st Century. The 529 Plan kills two birds with one stone. 529 Plans are not only a creative way to save for college, but they also offer some very attractive tax advantages.

There is a good chance that either yourself as a parent or grandparent are saving for college. Birthday gifts can be directed to 529 Plans. As most people know, the cost of higher education just keeps going up. Any contribution into the plan can help over time.

Looking for somewhere to put your tax refund? How about a gift to a 529 Plan.

Most people that have an eye on college have some sort of strategy or plan; however, given this environment of a tax hungry government, it is more important than ever to make sure your strategy is tax efficient.

Providing higher education, after all, is one of the best things we can do for our children, grandchildren and for our country.

Tax Incentives for the 529 Plans: 1. Earnings Grow Tax Free – any gains or earnings in your account grow tax deferred and can be pulled out tax free if used for qualified educational expenses.

The power of tax deferred growth can be substantial over time.

Investors should consider, before investing, whether their home state or the home state of the beneficiary offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.

2. Estate and Gift Tax Benefits – couples can donate up to $28,000 per

year into the plan and any single donor can contribute up to $14,000 per year per beneficiaries. If a single donor would prefer to make a lump sum gift, they may contribute $70,000 every five years and a couple may contribute $140,000 every five years. All of this gifting can be done without gift tax consequences.

3. High Limits – up to $330,000 per beneficiary may be contributed.

4. Joint Ownership – both parents can own the plan.

5. Investment Flexibility – your financial advisor can help you choose from either risk-based, age-based or individual funds. You can be conservative, aggressive or somewhere in between.

6. Beneficiary Changes – Beneficiaries may be changed.

Help your country. Help a child fulfill their God given talent. After all, investing in the future is one of the best investments we can make.

Happy Investing!

Scott C. Weaver, CFP, CFS, CAS 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.