Capital Watch October 2013

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VOL. 6 NO. 10

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OCTOBER 2013

Marriage equality stirs debate

PA House sends school property tax option bill to Senate PAGE 3 Rep. Grell unveils ‘shared sacrifice’ pension plan PAGE 6 Keystone Research Center voices concerns about Grell’s pension reform plan PAGE 7 Lawmakers want to revive ‘window’ legislation for child sex abuse civil claims PAGE 12 Caltagirone bill addressing mental health issues within state’s criminal justice system passes House PAGE 13

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Against the backdrop of Love Park, state Reps. Brian Sims, D-Phila., and Steve McCarter, D-Montgomery/Phila., were joined by supporters in announcing the introduction of H.B. 1686, the Pennsylvania Marriage Equality Act.

“My words were not intended to offend anyone. If they did, I apologize.”

Rep. Brian Sims, D-Philadelphia, and state Rep. Steve McCarter, D- Philadelphia, have introduced a bill which would legalize same-sex marriage in Pennsylvania.

“With the Supreme Court ruling on the Defense of Marriage Act, it became apparent that Pennsylvania cannot continue to be stuck in the past,” said Sims, the first openly gay man elected to the state Legislature.

“This is a civil rights issue facing our (lesbian, gay, bisexual and transgender) community,” Sims said at a news conference in Love Park in Philadelphia Oct. 3.

Sims also said he believes this issue is holding back Pennsylvania’s economy because people and businesses view states that have true marriage equality “as more attractive to them, and they’re spending their money in those states.”

House Bill 1686, also known

as the Pennsylvania Marriage Equality Act is a companion bill to a Senate bill introduced by state Sen. Daylin Leach, D-Upper Merion.

Leach’s proposal, Senate Bill 719, currently has five Democratic co-sponsors and awaits action to the Senate Judiciary Committee “For much of my tenure here in the General Assembly, I’ve worked tirelessly to grant same sex couples the same rights and privileges that, currently, only a segment of the population enjoys,” Leach said in a statement. “I am thrilled to see the growing support for this movement, and I am confident that we will succeed in our mission and we will end up on the right side of history on this issue.”

Same-sex marriage has been a hot issue in Pennsylvania in recent months. Democratic officials in Montgomery County said Oct. 1 they are going to appeal a recent Commonwealth Court ruling that

put a halt to Montgomery County Register of Wills D. Bruce Hanes issuing marriage licenses to samesex couples.

Most recently, reaction to Gov. Tom Corbett’s comments comparing same-sex marriage to marriage between a brother and sister on Harrisburg TV station CBS 21 has been heated.

Hours after the interview aired, Corbett issued a written statement: “My words were not intended to offend anyone. If they did, I apologize.”

He said he was just trying to explain the law.

“I explained that current Pennsylvania statute delineates categories of individuals unable to obtain a marriage license,” his statement said.

“As an example, I cited siblings as one such category, which is clearly defined in state law. My intent was to provide an example of these categories.”

“I condemn Gov. Corbett’s comments for their hatefulness and ignorance,” McCarter said.

“The issue of marriage equality is not a joke, and the governor’s words only further demonstrate that he is out of touch with the majority of Pennsylvanians.”

Pennsylvania is the only state in the Northeast that does not allow either same-sex marriage or civil unions.

“A majority of Pennsylvanians support the idea of marriage equality, yet the governor chooses to disparage those opinions. It’s past time for the governor to see that such hateful language is inappropriate, and that the idea of marriage equality is about ensuring all Pennsylvanians have equal benefits and protections before the law,” said McCarter.

A January 2013 Quinnipiac University poll found that 47 percent supported same sex marriage, while 43 percent were opposed to the idea.

A January 29 – February 3, 2013 Franklin & Marshall College poll found that 52 percent supported same sex marriage, while 41percent were opposed.

A March 2013 PPP survey found that 45percent of Pennsylvanians supported same-sex marriages and 47 percent opposed them; asked on the question of marriage or civil unions for same-sex couples in the state, over 74 percent of respondents indicated support for either (with 38 percent supporting marriage rights and 36 percent supporting civil unions but not marriage), with only 24 percent of respondents opposed to any civil recognition of same-sex couples and 2 percent not sure.

A May 2013 Franklin & Marshall College poll found that 54 percent supported same sex marriage, while 41percent were opposed. CW

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OCTOBER 2013 CAPITAL WATCH

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Grove’s property tax bill faces uncertain Senate future “We are still going to proceed full-speed ahead with full elimination,” said Sen. David Argall, R-Schuylkill. “My colleagues have told me in no uncertain terms that they want complete elimination not partial elimination-maybe.”

Argall is the prime sponsor of Senate Bill 76, a measure identical to House Bill 76.

The House bill failed to get support among House GOP leaders and was eventually turned down by a majority of the House when it was offered as an amendment.

Instead, the state House of Representatives, in a rare bi-partisan fashion, sent House Bill 1189 to the Senate.

The bill would allow school districts to choose – with voter approval – whether to replace the school property tax with an assortment of additional earned income and business taxes.

“I don’t know of any champion for House Bill 1189 in the Senate,” said Sen. Judy Schwank, a Democrat from Berks County, “ground zero” for the property tax debate. She noted that other members of the property tax caucus did not view the bill as “a viable option.”

PA House sends school property tax option bill to Senate

By Kevin Zwick, Capitolwire

The state House of Representatives approved a property tax measure to give local school districts the option of replacing school property taxes with additional earned income or assorted business taxes.

House Bill 1189 passed the chamber 14946 on Oct. 3, a day after an amendment debate that stirred emotions on the House floor. The bill, sponsored by Rep. Seth Grove, R-York, would allow districts to use a combination of an additional earned income tax, a business privilege tax, or a mercantile tax, to drive down school property tax millage rates.

The bill now heads to the state Senate for consideration.

“We will review it and consider it as part of the overall effort to reduce the burden of property taxes on Pennsylvanians. Many members of our caucus strongly support the idea of freezing property taxes on senior citizens,” said Senate GOP spokesman Erik Arneson about the measure. Senate Republicans have not caucused on the bill and no similar legislation has been introduced in that chamber.

Grove said his legislation gives districts the ability to use “tax-shifting” methods to substitute other taxes for property taxes, which are criticized as unfair and overly burdensome. Districts can currently swap school property taxes for

a local earned income tax if approved by public referendum, but cannot exchange any other taxes.

“They haven’t had direct options that allow them just to do it themselves, most of it has been referendum and it’s very, very difficult to go to referendum with taxshifting mechanisms,” Grove told reporters at after the bill passed. “I think that’s why it failed in the past, where this gives direct tax authority to the school districts.”

To use Grove’s so-called “Elimination Tax” method, a school district would have the authority to decide to replace the school property tax with an additional earned income tax, a tax paid by businesses within the district (privilege tax), or a tax on the gross income of anyone providing goods or merchandise (mercantile tax).

All revenues generated from the elimination tax need to go toward reducing the property tax millage rates. Once adopted, the amount of increase of the elimination tax is restricted to the Act 1 index, which is a measurement based on wage inflation in each district.

The board would adopt a resolution to eliminate the property tax and then need public approval through a referendum. If approved, a district would no longer be able to levy the school property tax.

House Majority Leader Mike Turzai,

R-Allegheny, said people want local control of education and Grove’s legislation gives it to them.

“It puts options in place and it keeps local control of education in place, and I think that is so important,” Turzai said.

“On the flip side, I think a lot of our members are very concerned with the alternative and that was generating $12 billion just sitting in Harrisburg,” said House Finance Committee chairman Kerry Benninghoff, R-Centre, referring to the proposed amendment defeated on the House floor Tuesday.

That amendment was essentially House Bill 76, sponsored by Rep. Jim Cox, R-Berks. The proposal would have eliminated school property tax and replaced it with increased personal income tax and broadened sales tax, which would be collected by the commonwealth.

House GOP leaders opposed Cox’s amendment because it contained drafting errors and would, as an Independent Fiscal Office review claimed, result in a funding shortfall of over $1 billion.

Rep. Mark Gillen, R-Berks, said the burden of the school property tax is “killing the American Dream…you can have freedom or the property tax, but you can’t have both.”

4

NEWS

OCTOBER 2013 CAPITAL WATCH

Gubernatorial candidates talk Democratic State Committee’s fracking moratorium; attack Gov. Corbett

By Peter L. DeCoursey, Capitolwire

For months now, Mike Barley, the campaign manager for Gov. Tom Corbett has been demanding that Democratic candidates for governor declare their position on the Democratic State Committee’s fracking moratorium.

And Barley has insisted that if they oppose it as an unnecessary anti-jobs measure, as all of the major Democratic candidates say they do, that they call on the party committee to rescind that resolution.

Well, no such action occurred at the party’s fall meeting here Sept. 27 at the Radisson Valley Forge Casino.

And in fact, while all six of the mostknown candidates said they oppose a fracking ban, only one, York businessman Tom Wolf, says the party “should undo that resolution.”

He said that a time where Americans are dying in the Middle East because of American economic and energy dependence on oil, natural gas is a necessary and important fuel for America and Pennsylvania.

Democratic State Committee chairman Jim Burn said there was no plan currently to revisit that resolution, which has also been criticized by former Gov. Ed Rendell. He also said his party would unite on that issue and its nominee for governor would protect the environment better than Corbett had.

And, Burn said, it would do more potential harm than good to vote on the issue again, in his opinion.

Five of the other six candidates say

they would prefer the party change the position, but unlike Wolf, none called for the committee to reverse itself.

U.S. Rep. Allyson Schwartz, D-Montgomery, said: “There are some areas where I will disagree with the party, and this is one of them.”

Allentown Mayor Ed Pawlowski made a similar comment, as has former DEP Secretary John Hanger.

Treasurer Rob McCord said his job is to beat Tom Corbett, and said this is not the point in time where Democratic candidates for governor dictate to the party.

McCord and Wolf said they understand the frustration with fracking. They, Hanger, Schwartz and Pawlowski said they would increase regulation of fracking and other parts of natural gas extraction, to deal with the frustrations that led to the state committee moratorium vote.

Due to scheduling, former DEP Secretary Katie McGinty could not be reached for comment on the fracking resolution issue.

But while each candidate willingly answered Barley’s question, they also unceasingly attacked Corbett for cutting $1 billion from education – including not replacing $500 million in federal stimulus education funding – and on many other fronts.

In her speech, McGinty referred to Corbett’s comment that women could close their eyes and ignore an ultrasound of a child if he mandated they get that procedure

before having abortion: “He’s demeaned us women and Tom our eyes are wide-open.”

Hanger said of Corbett: “He has done one thing: He has sold the state of Pennsylvania to the gas companies. It has meant our water and our land and our air has not been protected as it should.”

Wolf said the election “is not just about Tom Corbett but the pernicious philosophy he represents” of cutting education and investments in other needed programs.

Pawlowski said he had practical experience as a mayor bringing development downtown and leasing his authorities to pay down the city’s pension debt, and that therefore people should assume he would be better at delivering on his promises.

He told the story of being asked by his daughter: “Daddy, do all fairy tales begin with once upon a time? I said, no dear, some begin with, if elected, I promise …”

McCord and Schwartz both slammed Corbett for under-funding education, and McCord touted himself “for standing up to this bad governor every day!” in a rousing speech that drew the most positive reaction from the crowd about 200 at the party dinner, despite the fact that he was the last of a dozen speakers.

But while McCord got the most reaction of the speakers, he also heard from a few friends in a very understated way, wishing the Democratic candidates to not attack each other. So far, while a lot of that has gone on in private, McCord became the first

Democratic candidate to publicly attack a Democratic gubernatorial rival Wednesday.

He told ten Capitol reporters that gubernatorial primary voters weren’t fond of Congress or career politicians, and that they might consider Schwartz “a bit hypocritical” for not endorsing Kathleen Kane in the Democratic primary last year, but now wanting women to vote for her as they did for Kane this year.

No party officials would criticize McCord on the record, but several said if he is saying that now, they feared for the tone of the primary is four to six months, when emotions intensify.

And during the Friday party dinner, Montgomery County Democratic Committee Chairman Marcel Groen, one of the most powerful party chairs in the state, said all candidates had a right to tout themselves.

“What you don’t have a right to do is to tear anybody else down,” Groen told the party dinner, to loud cheers and applause. … “The most important time in these elections is the first six weeks after the primary. I cannot emphasize enough this is not fratricide, this is about beating the other side.”

Groen later said he was not aware of the McCord remarks, published in Capitolwire two days earlier. CW

Rep. Daley: Fates of FirstEnergy power plants deserve more scrutiny State Rep. Peter J. Daley II, D-Fayette/ Washington, says the Oct. 3 House Consumer Affairs hearing revealed that too many questions need answers before almost 400 jobs are lost with the planned shutdown of two local, coal-fired power plants.

“Thursday’s hearing revealed what many have suspected – the shutdowns would pose risks to the regional economy, the electricity grid and the future of coal in Pennsylvania,” said Daley, Democratic chairman of the committee. “The case has been made that FirstEnergy should reconsider its decision to shutter the plants.”

Daley also said he will be organizing a trip from Harrisburg to Washington, D.C., to discuss the shutdowns and federal regulations affecting coal.

“No one should concede an inch or an ounce of coal on these issues,” Daley said.

“We will reinforce our steadfast belief in the region, its workers and the long-term viability of coal as a foundation of any sensible energy policy.”

FirstEnergy Corp. announced its intentions in July to close its Mitchell and Hatfield’s Ferry power stations in Washington and Greene counties, saying it would cost $275 million to bring the local plants in line with federal air-quality rules. Officials for the Ohio-based utility reaffirmed its plans to shut down the plants,

and extract 2,000 megawatts of power from the grid, at the committee hearing.

“Valid concerns have been raised that FirstEnergy is searching for excuses to justify the shutdowns rather than presenting sound economic reasons,” Daley said.

“Until those concerns are addressed, the shutdowns should be delayed indefinitely.”

Daley said he welcomed the testimony of state Public Utility Commissioner Pamela A. Witmer, who expressed concerns that “there will not be enough power for reliability of the grid for consumers.”

“Commissioner Witmer got down to the heart of the matter when she questioned why the utility seems unwilling to explore options such as converting the operations to natural gas or selling the facilities to other interested parties who would be willing to make the necessary environmental upgrades,” Daley said. “It’s a question demanding an answer.”

Officials from PJM Interconnection and the United Mine Workers of Pa. also testified at the hearing at the Monongahela Fire Company hall before roughly 100 residents and eight committee members.

“The onus is on FirstEnergy now to justify these shutdowns and respond to the questions and concerns,” Daley said. “This battle is far from over.” CW

Officials from PJM Interconnection and the United Mine Workers of Pa. also testified at the House Consumer Affairs hearing at the Monongahela Fire Company hall before roughly 100 residents and eight committee members.

6 NEWS

OCTOBER 2013 CAPITAL WATCH

Rep. Grell unveils ‘shared sacrifice’ pension plan

By Peter L. DeCoursey, Capitolwire

Rep. Glenn Grell, R-Cumberland, rolled out his pension reform plan Sept. 30, one that he says would solve about 80 percent of the state’s estimated $45 billion unfunded pension liability, and share that load among future employees, current employees and taxpayers.

While the heads of the three major unions it would affect –the two big teachers unions and the largest state employee union – are not jumping on board, and have expressed doubts, all praised Grell, saying his effort is serious and commendable.

A better reception for the Grell plan is predicted in the Legislature by GOP House and Senate leaders. They say this could be a much more sweeping set of reforms than simply putting all new employees into a 401-k plan, which is the other major alternative lawmakers are pondering this fall.

A key portion of the plan, a “cash balance” plan for new employees, has been extensively vetted and praised by key figures in Gov. Tom Corbett’s administration.

And despite the wariness from unions, some House Republican key figures believe the unions will prefer this to a 401-k plan, when they find out that a 401-k-type plan could pass both chambers, with Corbett signing it.

Grell proposes to change new employees from the current plan that guarantees an annual benefit based on highest average salary multiplied by years of service to what is called a “cash balance” plan.

Under Grell’s proposal, new employees would deposit 7 percent of their salary into 401-k style accounts, employers would match it with 4 percent for the first 15 years of employment and 5 percent after 15 years of employment. If investment returns provide more than the required employer match, those funds would be shared equally by employees and employers, Grell said.

Then, upon retirement, the funds built up by the contributions would pay the retiree an annuity, and if that person died, some level of death benefit. Employees would own that account from the moment it started to accrue funds, and it would be portable, following employees to other jobs, Grell said.

Grell said: “In a defined benefit plan, the risk is on the employer, in a defined contribution plan the risk is all on the employee, and in this plan, they share

the risk, and share the benefits, if that is what happens.”

However, while Grell differentiates his plan from a defined benefit plan, according to the U.S. Department of Labor, a typical cash balance plan is considered a defined benefit plan, and if investment returns don’t cover the required employer match, taxpayers are still on the hook for what’s promised.

The department’s website indicates: “A cash balance plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance.”

Regardless of its classification, Grell says the annuity portion of the plan will save $7 billion over 30 years, reducing the unfunded liability to $38 billion from $45 billion. And it will not incur transition costs, unlike a 401-k, Grell said.

Parts two and three of the Grell plan are interlocked and dependent on each other.

Part two would have the state borrow billions to “help pay down the unfunded liability. I propose a general fund borrowing of up to $9 billion.” The state would pay the annual interest of $500 million to $600 million, and the $9 billion would be divided proportionally between the state employee funds and the teacher’s unions.

“The interest payment is roughly what the commonwealth would pay under the current system,” Grell said.

How much borrowing would occur would depend on how many current employees opted into two benefit reductions Grell proposed.

The concessions would reduce the lump sum employees receive to a sum actuaries believe is appropriate in conjunction with their retirement annuity, not the higher lump sum state law currently mandates.

They would also get an annuity based on the average of five years highest salary, not three as at present. A number of other states have already adopted these changes.

Grell said if employees did this, their contribution would drop by one half of one percentage point from their current employee contribution.

And if 95 percent of state employees and teachers retirement plan participants did so,

“it would save about $15 billion over 30 years,” Grell said.

The employee opt-in percentage would trigger “how much the state would borrow and how much of the problem we would solve,” said Grell.

If 90 percent of current employees opted into the benefit cuts, then the state would borrow $9 billion, which over 30 years would lower the $45 billion unfunded liability by $15 billion by borrowing, and another $15 billion from employer contributions.

If 50 percent of current state employees opted in, “the state will only borrow $4.5 billion and we will solve a lot less of the problem. We need a lot of employees to opt in to share the sacrifice and save the plan and pay down the unfunded liability.”

Current employees who retire within two years of the law taking effect would not be affected, Grell said. Grell acknowledged current employees will get less if they opt in, but notes that in 2001, they benefited from the increase in pensions by far more than the increase they were required to pay then.

“If we do all of those things, we can take the collars from 4.5 percent increase every year to 1.5 percent increase every year, that gives the general fund the relief they need and gives our school districts the relief they need.”

Mike Crossey, president of the Pennsylvania State Education Association, the state’s largest teachers union, said: “At this point, I wouldn’t entertain any new ideas other than ‘Let’s let Act 120 work.’ I have talked to Glenn Grell several times, he is an excellent legislator, but I haven’t seen anything from him I would sign onto. But I will continue to look at his ideas because he is sincerely trying to solve the problem.”

David Fillman, who represents more than 55,000 state workers also praised Grell for a serious effort and hard, sincere work. But he said unless there were significant incentives for workers to opt in, “I don’t see people opting in.”

Crossey and Fillman reacted similarly to a framework for pension reform which broadly echoes the concepts of requiring an employee voluntary giveback and a state pension bond issue from Treasurer Rob McCord.

One House GOP leader said their tunes may change when they discover, as House

GOP leaders have over the summer, that a 401-k could pass both chambers and be on Corbett’s desk this fall.

The two union leaders said they feel that is less likely than the GOP legislative leaders are saying.

McCord is not the not the only Democratic gubernatorial candidate looking at a Grell-style plan.

Democratic gubernatorial candidate Tom Wolf called a cash-balance plan “a defined contribution plan with some new feathers on it,” but said Grell’s work on this issue deserved respect and said he looked forward to reviewing his plan in depth and that parts of it showed promise, including some kind of trade-off with state employees.

Grell remained optimistic about working with the union leaders cooperatively.

“I am very appreciative of both Mike Crossey and David Fillman talking with me over the last couple of months as we got to this proposal,” he said. “We have made some changes to the plan based on those discussions. There are still probably hundreds of details to be worked out, so I wouldn’t expect them to endorse the bill until it’s actually drafted.”

“When this proposal gets a vote, I believe they will be receptive. We have addressed their biggest concerns by ensuring any changes to current members are voluntary but also that we address the unfunded liability.”

And while some in the administration and the House GOP leadership believe that 401-k discussions will pressurize unions to adopt a Grell-style plan, Grell said: “If it’s just just a 401-K, it can’t pass the House until that issue of transition costs is resolved, I don’t know if it is a $45 billion cost like one actuary said, or a $3 billion savings, like another actuary said. My sense is it is in between and the cost will be too high.”

Grell’s proposal makes voluntary the benefit cuts for existing members that the governor wanted to mandate, so the unions won’t sue and neuter the plan. He said of his proposal: “I didn’t support the governor’s proposal, so I felt it was important for me to say what I would do. This is a comprehensive plan and I think it address the problem.” CW

Senate confirms Brown’s appointment to PUC The Pennsylvania Public Utility Commission (PUC) welcomed Gladys M. Brown of Dauphin County to the Commission and thanked the Senate for its unanimous confirmation vote in support of her nomination.

“Gladys is a tireless advocate for consumers, both personally and professionally,” said PUC Chairman Robert F. Powelson. “She is a highly qualified addition to the Commission who brings a

wealth of knowledge about utility issues, as well as the creation of the laws that shape our policy. My colleagues and I look forward to working with Gladys.”

Commissioner Brown was unanimously approved by the Senate on Oct. 1, and was sworn in by Commonwealth Court Judge P. Kevin Brobson the following day.

In her confirmation hearing remarks, Brown pledged to apply to utility issues the same fair and balanced approached in

dealing with issues that she used in her more than 22 years as an aide in the Pennsylvania Senate. She highlighted that one of her goals on the Commission is to would be to increase efforts to educate consumers.

Since 1991, Brown has been working as counsel to the Senate Democratic Leader where she worked on many of the major utility issues that have been considered by the General Assembly in the last two decades including Chapter 14 of 2004,

which changed the handling of consumer terminations and reconnections; Act 129 of 2008, which addressed energy efficiency and procurement; and Act 11 of 2012, which expanded of the distribution system improvement charge.

She earned her bachelor’s and juris doctorate degrees from the University of Pittsburgh.

Brown succeeds Commissioner Wayne E. Gardner. CW

news

OCTOBER 2013 CAPITAL WATCH

7

Keystone Research Center voices concerns about Grell’s pension reform plan

By Chris Comisac, Capitolwire

While labor unions representing state employees and public school employees were diplomatic on Sept. 30 when Rep. Glen Grell, R-Cumberland, unveiled his new pension reform proposal, the gloves started to come off the following day.

The Keystone Research Center, a Harrisburg-based labor union-affiliated research group, released a report today expressing concerns about one of the components of the three-pronged pension reform approach proposed by Grell.

Economist Stephen Herzenberg, the center’s executive director, said during a Tuesday conference call that his organization wholeheartedly supports one prong of Grell’s proposal - borrowing up to $9 billion to help reduce the state’s current unfunded pension liability – feels more review is needed about a second prong – the voluntary decision by current employees to reduce their own pensions – and has “deep reservations” about the last prong – the replacement of the current version of defined benefit pensions with a cash-balance defined benefit system.

Responding to the KRC’s report, Grell said: “I appreciate the prompt analysis of the Center and both the favorable and critical observations in Dr. Herzenberg’s initial comments. We will review them carefully.”

“We are willing to look at other ideas on the new plan design, as long as they include shared investment market risk,” said Grell. “I look forward to having a further discussion with the KRC to consider these concerns.”

The report, entitled Cash Balance Pension Plan Could Hurt Public Employees and Taxpayers, identifies the KRC’s three core areas of concern regarding Grell’s cash balance idea, which Grell said would save approximately $7 billion - towards what is expected to be a more than $65 billion pension unfunded liability - during the next 30 years: expected benefit reductions, employees overpaying for their pension benefits and the potential for an increase of the current pension unfunded liability.

Under Grell’s proposal, new employees would deposit 7 percent of their salary

into 401(k)-style accounts, employers would match it with 4 percent for the first 15 years of employment and 5 percent after 15 years of employment. If investment returns provide more than the guaranteed return – which Grell said would be 4 percent those funds would be shared equally by employees and employers.

Then, upon retirement, the funds built up by the contributions would pay the retiree an annuity, and if that person died, some level of death benefit. Employees would own that account from the moment it started to accrue funds, and it would be portable, following employees to other jobs, according to Grell.

Top of the list of KRC’s concerns is that the new formula to be used to calculate an employee’s cash balance will, according to Herzenberg, result in a 20-percent loss, on average, in employee pension benefits.

Herzenberg said that current pension calculations place far more emphasis on the later years of an employee’s service, when their salaries are normally at their highest levels, which is not the case under Grell’s proposal.

Current retirement benefits are calculated using a formula based on an employees’ class of service, years of credited service, final average salary and age. That final average salary is simply an average of the three highest years of salary for an employee.

“In a cash balance plan, your final three years have the least impact because those contributions have had the smallest amount of time to benefit from compounding [interest], so it’s your salary in your earliest years that has a bigger impact,” said Herzenberg.

According to the KRC analysis, the length of employment and whether or not an individual immediately retires from all employment when leaving state employment appear to also impact on benefit totals.

“Long-term career employees who retire from their government job would experience a higher level of benefit cuts, between about 35 percent and 60 percent,” said Herzenberg. “Employees who work

in public jobs for 20 years and then take private jobs for 20 years would enjoy large increases in benefits.”

“If you retire and then work ten years, twenty years in the private sector, and then draw your public sector benefit, the cash balance plan ... your cash balance keeps growing all that time [you were working in the private sector],” explained Herzenberg.

Grell responded to that criticism, saying: “We were concerned about the longevity issue and that is why the proposal already includes the employer contribution ‘bumpup’ from 4 percent to 5 percent after 15 years of service. Keep in mind the cash balance plan would only apply to future employees, so the concern about losing mid-career employees is 15 years down the road.”

Herzenberg also expressed concern that this new plan would, in essence, place nearly all of the burden upon employees for their own retirement funding, with the promised employer contribution directed, primarily, to paying down the current pension unfunded liability.

Said the KRC report: “In effect, this is a not very well disguised attempt to get new employees to pay for the state’s unfunded pension liability. It is not clear why new public employees have any responsibility for paying an unfunded pension liability they did nothing to create. Nor is it clear why they should forego (or virtually forego) any employer contribution to their pension so that employer contributions can all go to the unfunded liability.”

Given that Grell anticipates $7 billion in savings from a cash balance plan, and acknowledged the costs to the employer would be lower than the current system enacted by Act 120 of 2010, it does appear employees could be “overpaying for their own benefit,” said Herzenberg.

He cautioned that those shortcomings could very well lead to “more turnover in experienced employees” which could prompt public employers to provide offsetting wage increases to retain those experienced workers, which would represent a potential cost for taxpayers.

The last of the report’s primary concerns with the cash balance plan is the assumed investment return included in the employee benefit calculation and its potential to ultimately add to the current pension unfunded liability.

Grell’s plan guarantees a 4-percent investment return as part of the employee benefit calculation, with any performance beyond that rate split between the employer and the employee, which would seem to offer an incentive for the plans to continue to maximize their investment returns.

Currently, the state’s two public pension funds assume a 7.5-percent rate of return on their investments.

However, Herzenberg said that if the cash balance plan were implemented, that low rate of return expectation could cause the Commonwealth’s public pension fund managers to eventually become more conservative with their investment decisions, as the cash balance plan’s participating population grows.

But the cash balance plan’s population isn’t the only population in the state’s pension system: there are employees who are part of the Act 120 or pre-Act 120 defined benefit plans, and their benefits were built upon an assumption of a higher rate of investment return, currently 7.5 percent. If the overall rate of return, as a result of the cash balance plan, doesn’t ensure enough funds are available for the non-cash balance beneficiaries, that will add to the unfunded liability. As an example, Act 120 of 2010 was initially built around an investment return assumption of 8 percent. When that assumption was reduced to 7.5 percent, that half-a-percentage point difference in investment return added $6.7 billion to the unfunded liability.

“We encourage members of the media, policymakers and the public not to rush to conclusions about cash balance plans because they have pension fatigue,” said Herzenberg. “We should all take a page out of Rep. Grell’s book and be deliberate in examining this part of his plan.” CW

McCord announces run for governor State Treasurer Rob McCord has announced that he will challenge an expected re-election bid by Republican Gov. Tom Corbett.

“I’m running because I believe we need to start investing in Pennsylvania families again. Somewhere along the line, the current governor stopped doing that and it’s been a terrible mistake,” McCord said in an email sent to supporters.

McCord joins seven other declared

candidates for the May 20 primary including U.S. Rep. Allyson Schwartz, former state Revenue Secretary Tom Wolf, former state environmental protection secretaries John Hanger and Katie McGinty, Allentown Mayor Ed Pawlowski, Lebanon County Commissioner Jo Ellen Litz and Pentecostal minister Max Myers.

Before being elected state treasurer, McCord served as CEO of the nonprofit Congressional Institute for the Future in

Washington and later worked for Safeguard Scientifics Inc. before helping start several private enterprises that fed capital to technology and biotech firms.

He has a bachelor’s degree in economics and history from Harvard University and an MBA from the University of Pennsylvania’s Wharton School. CW

Rob McCord is no stranger to Pennsylvania politics. Twice elected state treasurer, he says he’s seen up close the damage Governor Corbett has done.

8 Feature

OCTOBER 2013 CAPITAL WATCH

Meet Tom Wolf,

candidate for the office of Governor of Pennsylvania

By Jacqueline G. Goodwin, Ed.D.

A

Capital Watch Editor Jackie Goodwin interviews York County businessman Tom Wolf on why he is running for governor.

sk any candidate for governor why he is running and chances are he will quickly tick off a list of perceived ills under the state’s current leadership. That’s wasn’t the case with Tom Wolf, who I recently interviewed at his family’s business in York County. Instead of dishing Gov. Tom Corbett and his Republican cronies, Wolf, focused on his qualifications and accomplishments and how his candidacy and win would be his way of contributing to the future of Pennsylvania.

Wolf, a York County businessman and former state revenue secretary, is no “phonous balonous” (a fancy way of saying a person is full of baloney). He comes across as a really good guy, albeit, a very intelligent good guy, who has a wealth of experience in the business world. He also has the state’s best interest at heart.

“I have a long history of doing things,” says Wolf who dropped out of Dartmouth College when he was nineteen to serve a

two-year stint as a Peace Corps member in India.

He eventually returned to Dartmouth where he earned a bachelor’s degree.

He also has a master’s degree from the University of London and a doctorate in political science from the Massachusetts Institute of Technology.

Wolf is proud that he worked at a hardware store and then drove a truck for the family business.

“As time went on, I worked my way up and eventually took over the company,” he says.

The company is the Wolf Organization and Wolf is chairman, CEO and sixthgeneration leader of the York-based organization started in by his great, greatgrandfather Adam Wolf in 1843 as a lumber, hardware and building materials business.

Wolf says after he assumed control of the 170-year-old family firm—formerly a traditional wholesale distributor of building products—the company re-invented itself

Feature 9

OCTOBER 2013 CAPITAL WATCH

as a brand, becoming the largest wholesale distributor of kitchen cabinets in the United States.

But it wasn’t always that way.

Wolf says that he and two of his cousins purchased the company in a leveraged buyout in 1986.

In 2006, they sold the majority of the company’s shares to key employees and a private equity firm in a publicized sale.

In 2009, as he was preparing to run for Pennsylvania governor, Wolf learned that the company was in danger of failing because of the recession and a steep slide in residential construction. He immediately assumed control of the company as chairman and CEO. He also abandoned his run for governor. He then used his own money to shift his company’s focus away from being a supplier to other firms and transformed it into a company that competes with Chinese products.

“When I came back to the company in 2009 I saw that we had to change the business model,” Wolf says. “The old model just wasn’t working.”

The new model eventually saw the company contracting with Kountry Wood, an Indiana-based Amish manufacturer, to produce three styles of private label, WOLF-branded cabinets.

“Every week our product got better and better, “says Wolf. “By putting the Wolf name on products made all the difference in our profits.”

Wolf is very proud of this accomplishment.

“WOLF Classic Cabinets— priced below brand name competitors— are distributed throughout the company’s

“After he assumed control of the 170-yearold family firm— formerly a traditional wholesale distributor of building products—the company re-invented itself as a brand, becoming the largest wholesale distributor of kitchen cabinets in the United States.” existing network of independent dealers,” he says.

“No one else can really do this,” Wolf says. “We’re big.”

In fact, WOLF is now the largest wholesale distributor of kitchen cabinets in the United States.

Wolf credits his work ethic to the values instilled by his father and his mother who was a public high school teacher, and a bevy of Wolf ancestors who paved the way—values that include frugality, expansion of horizons, education and living the American Dream.

“These core values guided me to do the right thing,” he says. “My employees depended on me, and I couldn’t let them down.”

Tom Wolf and wife Frances have been married for 38 years and live in York County.

The couple have two grown daughters.

“At the time, we had 218 employees, and during that critical time, we only lost one. Now, we are up to 260 profit-sharing employees,” Wolf proudly proclaims.

Wolf says his ability to see, recognize and set the right priorities, helped the company through the tough times, a concept that he believes that sets a great leader apart from a poor one.

“Knowing what is important is key,” Wolf says, a concept that he believes converts to politics.

“Are you happy with the way things are going in Pennsylvania?” I ask him.

“No,” he replies.

“There is

not enough energy out there.

Unfortunately, Pennsylvania is in a welltested rut.”

He supports changes in education, infrastructure, social services and tax reform.

“We need to change the school-funding formulas and adequately fund all of our public school districts,” he says. “We need to refocus our energies on economic development, and statewide infrastructure.”

He supports the idea of a high-speed rail.

Past Chair of the York County Chamber of Commerce, Wolf supports cutting the Corporate Net Income Tax by 60 percent and making sure everyone pays.

He also supports abortion rights, gay rights and some gun control.

As a philanthropist, he has served as board chairman of York County’s United Way and has been involved in various other charities and boards including serving as chair of WITF, Inc., York County Community Foundation, Lancaster York Heritage Region and president of Better York, Inc. He has also served as a member of the Crispus Attucks Association, York Jewish Community Center, Keystone Research Center, Pennsylvania Business Roundtable and the Pennsylvania Chamber of Commerce.

As Secretary of Revenue during Gov. Ed Rendell’s administration Wolf expanded the state lottery and focused on providing benefits to senior citizens. He also paid his own way, using his own car to commute back and forth from York County to Harrisburg and paying for everything.

He says if folks are looking for a candidate who has an unconventional background, and “my accomplishments and business experiences do make me different” then they should support me.

“I can turn Pennsylvania around,” he says.

As a reporter and editor who has interviewed many gubernatorial candidates in three states during my more than 30 year career, I believe Tom Wolf has what it takes to do so. CW To learn more about Tom Wolf and his candidacy for governor go to www.wolfforpa.com.

TRAVEL & TOURISM

KEY TO PA STATE ECONOMY

PA State visitors ramp up spending to + $ 37.2 billion with increases in both lodging ( + 5.7%) and entertainment.

The Commonwealth hosted nearly 185 million domestic and international travelers These visitors generated $ 3.8 billion in state and local taxes plus $ 3.9 billion in federal taxes One out of every 16 Pennsylvania workers is supported by travel - representing 461,249 jobs and 6.4% of state’s total employment. *Tourism Economics - Pennsylvania State Tourism Office Economic Impact of Travel and Tourism in Pennsylvania - 2011

10 news

OCTOBER 2013 CAPITAL WATCH

Justice Baer endorses GOP retention judges as well as his fellow Democrats

Pennsylvania Supreme Court Justice Max Baer endorsed five of the six statewide judges running for election or retention this year, including himself.

Pennsylvania Supreme Court Justice Max Baer endorsed five of the six statewide judges running for election or retention this year, including himself, two Democrats and two Republicans, including Chief Justice Ron Castille.

Speaking to the Democratic State Committee Sept. 28, Baer said of Castille: “Ron Castille’s a fearless judge, Ron Castille’s a fair judge and Ron Castille’s a great judge!”

Castille, like Baer, and Superior Court Judge Jack Panella, faces an up-or-down retention vote this fall. And Baer, who has worked closely with Castille on decisions including Voter ID and reapportionment, is not the only Democrat touting Castille’s retention. Senate Minority Leader Jay Costa, D-Allegheny, has also said Castille deserves retention.

Baer also collected endorsements from Panella and the Democratic candidate for Superior Court this year, Allegheny County Judge Jack McVay, both of whom spoke of him as a mentor.

Noting that this is the judicial cycle that is “tough for Democrats,” Baer called for the Democratic committee members to work hard for McVay, who faces Cumberland County GOP lawyer Vic Stabile in November.

But apart from Stabile, every other statewide judge is worthy of retention, said Baer.

During a Friday night interview, Baer said the retention judges deserved re-election, despite the low popularity of the court system.

“When our forefathers designed the court system, they designed it to reach fair decisions. They didn’t design it to be popular,” he said.

He said of voters: “They should ask themselves whenever they disagree with a decision, is the conclusion reasonable? Not did they agree with it, but is it reasonable?

And I think they will find it is if they look at the broad body of work.”

Historically, many retention judges have quietly supported each other, but Baer’s broader message, said publicly before a state party committee, is unprecedented.

And it came with some risk in front of this group, several county party committee chairs said. Baer’s endorsement of Castille could hurt him, those chairmen said, because Castille is blamed by allies of Democratic sitting Justice Seamus McCaffery for a feud between them over issues and personalities that has grown nasty. But Baer did not seem concerned about that, saying of Castille: “He is a great justice and a wonderful colleague. And I have to say that. It’s true.”

Castille was endorsed by Republican State Committee earlier this month. CW

PA’s September tax revenue collections outperform expectations a tad Pennsylvania’s tax revenue collections for August were just a bit below expectation, however for September, revenues came in slightly ahead of what had been anticipated.

And that performance last month was enough to make up for any overall shortfalls during the first three months of the fiscal year.

According to the state Department of Revenue, September revenue collections came in 0.6 percent – or $15.2 million – more than expected.

All totaled, revenues for last month were $2.4 billion, which pushed the year-to-date total (representing the first quarter of the current fiscal year) to $6.1 billion, which is 0.2 percent – or $12.8 million – ahead of estimates.

And that’s with two of the state’s three major sources of revenue – the sales tax and the corporate income tax– producing less-than-anticipated results in September.

But like the sales tax receipts from August - which nearly helped to balance

out underperforming personal income and corporate income tax revenues – September’s personal income tax (PIT) revenues came in $8.3 million above expectations, basically cancelling out the $8.29 million in below-estimate revenues from the two other taxes. PIT revenues were $986 million last month, pushing the year-to-date PIT revenue total to $2.5 billion, which is $2.9 million, or 0.1 percent, above estimate.

Sales tax revenue last month was only slightly - $900,000 - below the anticipated amount. Overall, last month’s take was $730.4 million, which still has the state ahead of sales tax revenue estimates for the year: $2.3 billion, which is $20.6 million, or 0.9 percent, more than anticipated.

But Pennsylvania’s corporate income tax revenue collections remained sluggish, building upon the tax’s overall sub-par performance for the year thus far: revenues last month were $457.4 million, which was $8.2 million below estimate, and which put year-to-date collections at $588.9 million, $10 million - or 1.7 percent - below estimate. Last fiscal year, the strong performance – 5.6 percent ahead of estimates for the fiscal year - of the corporate income tax helped to keep Pennsylvania’s overall revenue collections ahead of expectations for FY2012-13.

The state’s “sin taxes” – on cigarettes, malt beverages, liquor and table games taxes – in September were off the expected pace, produced $2.6 million less than expected – which pushed their year-to-date total into the lower-thanestimated column ($2.4 million lower, to be exact).

However, the reported revenues from the inheritance tax and realty transfer tax combined to help keep overall state revenues above estimate for the year: inheritance tax revenue for September was $70.8 million, or $3 million above estimate, while realty transfer tax revenue was $35.2 million, or $6.3 million above estimate.

If the realty transfer tax – which is imposed upon the sale of real property, i.e. real estate - is any indication, maybe Pennsylvania’s housing market, which didn’t get hit nearly as hard as other states’ markets, could be showing slight signs of improvement: that tax’s year-to-date total is $112 million, which is $6.2 million, or 5.9 percent, more than anticipated. CW

news 11

OCTOBER 2013 CAPITAL WATCH

Lawmakers hit the field to battle hunger

By Kevin Zwick, Capitolwire

The West took over in the 2nd inning and never looked back.

In an East vs. West bi-partisan showdown on Sept. 30, lawmakers took to the diamond at Metro Bank Park on City Island to fight hunger and play softball. Rank-and-file members outshined legislative leaders in the seven-inning contest, where the West dominated 8-1 on Monday evening.

“Even more important than raising money is raising awareness,” said Sen. Mike Brubaker, R-Lancaster, co-chairman of the General Assembly’s Hunger Caucus.

He said 1.6 million Pennsylvanians are “food insecure.” The U.S. Food and Drug Administration says that occurs when “consistent access to adequate food is limited by a lack of money and other resources at times during the year.”

“So many working hungry are embarrassed to tell friends and family that they use a food bank,” he said. September is recognized as Hunger Action Month.

The inaugural event, sponsored by the Pennsylvania Cable News network and Pennsylvania Legislative Services, raised upwards of $60,000 prior to the ballgame. Gate and concessions was expected to bring in another $10,000

PA officials seek release from gaymarriage suit As Capital Watch goes to press, the Associated Press (AP) is reporting that Pennsylvania’s governor, its chief legal officer and its health secretary are asking to be released as defendants in a federal lawsuit seeking to overturn the state’s gaymarriage ban.

AP reports that in papers filed Oct. 7 in U.S. District Court in Harrisburg, Gov. Tom Corbett’s legal team argued that the U.S. Constitution provides state officials immunity from being sued in federal court without their consent. The governor’s lawyers also contend that Corbett and Health Secretary Michael Wolf should be dismissed as defendants because of a 1972 Supreme Court ruling that says the federal courts lack jurisdiction over state marriage laws.

In a separate filing, lawyers for state Attorney General Kathleen Kane argued that she should not be a defendant because she is not enforcing the law. CW

In an East vs. West bi-partisan showdown on Sept. 30, lawmakers took to the diamond in Harrisburg to fight hunger and play softball.

to $13,000, said Corinna Vescey-Wilson of PCN. The Firefighters Association, Food Merchants Association, Yuengling, and Wilsbach Distributors donated the food, refreshments and beer. Harrisburg Senators foodservice cooked all the food.

Lawmakers contributed to raising awareness during the ballgame that saw

a few hundred attendees. The West, which assumed hometown status, dominated the East.

And go figure, the teams couldn’t go one inning without arguing a play.

Not far from his usual duties as House parliamentarian, Clancy Myer called the balls and strikes as home plate umpire.

Surprisingly, only Democratic Sen. Jim Brewster took the opportunity to kick dirt on his shoes, although many House Democrats have likely been dreaming of doing so during the past two sessions.

Lagging behind in the 5th inning, the East’s Rep. Greg “short-shorts” Vitali tried to turn it around for his team with a double, but he eventually was tagged out at home.

Members on the West informally said their most-valuable player was East team first baseman Sen. Daylin Leach, D-Montgomery, who swatted a number of descending Mayflies along with a few throws from his own fielders. Rep. Duane Milne, R-Chester, eventually replaced him.

Rep. Jim Christiana, R-Beaver, had the play of the game, as he ran and dove, catching a flyball in the right-center gap hit by Senate Majority Dominic Pileggi, R-Delaware.

According to in-house announcer Carmen Finestra, the winners go on to play a team consisting of the Democratic candidates for governor. That team is currently holding try-outs to winnow down the roster. CW

12 News

OCTOBER 2013 CAPITAL WATCH

Lawmakers want to revive ‘window’ legislation for child sex abuse civil claims

By Kevin Zwick, Capitolwire

Efforts are underway to revive legislation to allow alleged victims of decades-old child sex abuse to sue for civil damages, but one lawmaker says the bills are being “stonewalled” by the Pennsylvania Catholic Conference, the insurance lobby and their legislative allies.

“You’re talking big money here,” said Rep. Mike O’Brien, D-Philadelphia, who chided leaders of the Roman Catholic Church during a recent press conference.

The legislation has the potential to open up the embattled church and other institutions to child sex abuse civil claims by loosening the statute of limitations allowing alleged victims to file civil suits until age 50. The bills also would create a two-year “window” where the statute of limitations would be suspended.

Proponents say the measure will encourage those who claim to have been abused to come forward while helping to identify their alleged abusers.

During the press conference, Rep. Mark Rozzi, D-Berks, a leading proponent of the legislation in the House, spoke of the abuse he suffered at the hands of a Catholic priest when he was 13 years old. He said after prepping for the press conference he had terrible nightmares and became physically ill.

“This is a sad day, because victims of

Rep. Rob Teplitz says the bills would give victims of sexual abuse an opportunity to speak up and seek justice.

sexual abuse have still not had their voices heard in the court of law. This legislation should have been passed years ago, and still we wait, and that is unacceptable,” he said.

The Roman Catholic Church has opposed the legislation here and in other states because they say it is difficult to get reliable evidence and say the “window” legislation is open-ended and unfair.

Some also consider the measure a boon

for trial lawyers, a portrayal that dooms the legislation’s future in a Republican-controlled Legislature and with a governor who considers tort reform a high priority.

Individuals alleging abuse in Pennsylvania currently have until the age of 30 to file civil claims. The legislation would allow those individuals to file claims up until age 50, and establish a two-year window when the statute of limitations would be suspended completely.

“There’s not a guarantee as to what would happen in the court, when they file that civil suit. But we’re giving them an opportunity to have that day in court, and if they are able to meet the high standards of proving their case, be able to achieve some level of justice for what happened,” said Sen. Rob Teplitz, D-Dauphin, who is introducing a bill in the Senate.

House Bill 238 and Senate Bill 1103 would also make child sex abuse an exception to the sovereign immunity defense for public officials and institutions, according to a co-sponsorship memo.

Amy Hill, spokeswoman for the Pennsylvania Catholic Conference, did not have a dollar figure for how much the church spent on legal fees and settlements in Pennsylvania. She said the church has put resources toward assisting victims with healing and recovery from abuse, but did not have a dollar amount for that either. She noted all 10 dioceses in Pennsylvania have “zero tolerance” policies for clergy and employees accused of misconduct with children.

The church has spent roughly $2.5 billion nationally on legal fees, settlements and prevention programs stemming from child sex abuse scandals, according to the New York Times.

The insurance lobby says the statute of limitations provides certainty for when a claim or exposure to a claim ends and taking away that certainty would be costly.

“While we understand the concerns expressed at today’s press event, we think a two year reviver window is a flawed approach.

Insurers, policyholders and claimants need a predictable and stable liability system that provides the ability to cover, price and properly reserve for liability exposure in that system. The ability to do this rests in part on a statute of limitations that is known and firm,” wrote Jonathan Greer, vice president of the Insurance Federation of Pennsylvania, in an email.

“Further, insurers generally do not and cannot reserve for claims that haven’t been filed within the statute of limitations, meaning a ‘reviver’ of a limitations period that has passed creates liability exposure for which reserves have not been made and premiums have not been charged,” he wrote.

The Pennsylvania Task Force on Child Protection, which was set up in response to the Jerry Sandusky child sex abuse scandal at Penn State University, did not recommend loosening the statute of limitations due to “the potential for staleness of evidence and possible constitutional concerns.” “…the Task Force believes that the current statute of limitations is adequate, given that Pennsylvania is one of the most ‘generous’ states in terms of the length of time within which an action may be commenced,” according to a report issued by the task force in November. CW

News 13

OCTOBER 2013 CAPITAL WATCH

Caltagirone bill addressing mental health issues within state’s criminal justice system passes House State Rep. Thomas Caltagirone, D-Berks, said the House of Representatives unanimously passed his legislation that would require law enforcement training relating to people suffering from mental health conditions within the criminal justice system.

The training would be mandatory for police officers and the minor judiciary, such as magisterial district judges.

“This bill is one step closer to becoming law,” Caltagirone said. “Protecting those who protect us is an integral component of our criminal justice system and this

bill would help ensure they receive the tools they need to keep all of us safe. I am grateful to my House colleagues for sharing this sentiment.”

Caltagirone’s proposal, H.B. 1504, would include instructions on how to recognize people with mental health conditions and intellectual disabilities, identify diversionary options for those suffering from mental health disorders, and perform search and seizure, arrest and bail practices and procedures in such cases.

“When you step into the sun you protect your skin. Law enforcement personnel are

the first line of defense in public safety so when they step out into our communities, they need protections too,” Caltagirone said.

“The goal of this bill is to better equip our police and minor judiciary with the resources needed to identify individuals suffering from mental health conditions at the earliest point in time and get these individuals the medical treatment they need.”

According to recent estimates by the state Department of Corrections, an estimated 40 percent of female inmates and 20 percent of male inmates suffer from a form of serious mental illness.

“The larger issue here is addressing the ballooning costs of our corrections system,” Caltagirone said. “Addressing this issue will have a ripple effect within the criminal justice system, starting with establishing alternatives to using incarceration as the only options for inmates.”

The bill moves to the Senate for consideration.

“Identification and recognition methods are of utmost importance to the success of this measure and it is my hope it will soon be passed by the state Senate,” he said. CW

Youngblood bill to further protect unwanted newborns Members of the state House of Representatives unanimously passed a bill Oct. 1 sponsored by Rep. Rosita C. Youngblood, D-Phila., that would strengthen the state’s Safe Haven law and help protect unwanted newborns.

Youngblood said the legislation, House Bill 1090, would allow police stations to serve as safe havens in Pennsylvania, adding an additional outlet for parents to place their newly born babies into protected custody. Currently, only hospitals are approved under state law to serve as safe havens.

“This is a common sense proposal that

protects our most vulnerable children – those whose parents are unable, or unwilling, to care for them,” Youngblood said. “Most law enforcement agencies are already providing safe haven for infants, but it is important to ensure that parents who are trying to do the moral thing under very difficult circumstances are protected by state law.”

Youngblood said she was contacted by the Philadelphia Department of Human Services last year when a new mother, unable to care for her newborn child, left her infant with Philadelphia police officers, thinking she was doing the right thing and abiding by the state’s Safe Haven Law. Although

the Police Commissioner’s Office did not press any charges against the mother, city officials concluded that the law only allows a newborn, up to 28 days old, to be dropped off at a hospital.

“This bill is vitally important because we want to encourage parents to seek assistance from law enforcement when they are unable to care for their infant child, as opposed to leaving them out with the trash,” Youngblood added. “Twenty-six states across the country allow for police stations to act as safe havens, and Pennsylvania just took one step closer to becoming the twenty-seventh.”

Youngblood said she is grateful for her

colleagues’ support on this proposal, and is pleased that House leadership, on both sides of the aisle, made it a priority upon the House’s return to session this fall.

“Sometimes common sense proposals that have little controversy can fall through the cracks, especially with higher ticket issues on the agenda like funding for transportation, Medicaid expansion and finding additional revenue for Philadelphia’s schools,” she said.

“So I am extremely proud that we were able to pass this important bill and recognize the need to further protect unwanted newborns.”

Youngblood said the bill will now go before the state Senate for approval. CW

Mixed union support for minor prevailing wage change not yet sealing transportation deal

By Peter L. DeCoursey, Capitolwire

Despite support for a minor prevailing wage from several key unions, unions opposing any change to their “Holy Grail” of state laws are still making any transportation deal uncertain, said Philip Ameris, head of Laborers International Union Local 1058 in Pittsburgh.

Ameris is one of about eight major Pennsylvania labor leaders trying to broker a deal to get a $2.3 billion a year transportation funding bill passed that funds mass transit with $480 million a year. In exchange for getting House Republicans to those uncomfortably high spending levels, those union leaders are asking House and Senate Democratic allies to agree to not apply prevailing wage laws to heavily-state-funded transportation projects of $100,000 or less.

A much longer list of labor leaders oppose the deal because they fear any concession on prevailing wage will lead to further attacks on the statute, and as Frank Sirianni, head of the state Building Trades Unions has said, “This is the Holy Grail. You just don’t touch it. We oppose any change to prevailing wage, and most our building trades regionals in the state oppose it, except for Philadelphia.”

AFL-CIO President Rick Bloomingdale is also opposing it on identical grounds, as are many of the Pittsburgh Building Trades Council, and electrical workers local unions from the north-center and northeast of the state.

Ameris says of his allies in this effort: “The Building Trades in the West don’t want to change the threshold on prevailing wage except for us, and in the west the Cement Masons, the bricklayers and the operating engineers are for it.

“But that is most of the heavy construction trades who are for it, except for the carpenters, who are a strong no, and the IBEW in Pittsburgh is a no. They even offered to put in language exempting the transit piece of the contracts for the IBEW, but Mike Dunleavy,” that union’s head, “said no.

“In the east, you have the laborers for it,” including both the city and several suburban laborers unions, Amaris said, and “the IBEW [in Philadelphia], and the Building Trades in Philly.”

“People keep saying we can’t concede on this, it’s the Holy Grail, you can’t touch it or

reduce it. Well, … my job is to get members working, and that’s what this bill does.”

Ameris said: “We don’t want to end or hurt prevailing wage either, but this is just limited to state-heavy-funded jobs under $100,000 and only for transportation. The constructors association tells me that was under $2 million last year. You can’t even paint a bridge or do guard rails for that amount of money. Our contractors don’t bid anything under $100,000.

“I don’t think moving the threshold is going to set precedents, and if we need to move this threshold to get this deal done and then we can get back to work and get jobs for our members so they are making money and our pension and welfare funds can grow, then we should do it.”

Sirianni responded Tuesday that the bill contained language that would make the exception apply more broadly than Ameris and his union allies believe. He also said the unions should make no concessions whatever on this issue. And Bloomingdale said Tuesday: “I don’t know why every time the House Republican Caucus proposes a solution, part of it is taking

money out of workers’ pockets, out of their constituents’ pockets.

“We have resolutions opposing any change to prevailing wage and we’ll oppose any change to prevailing wage law.”

Ameris responded: “Right now for our biggest heavy contractors, the constructors association, they say there is no work for them, so no work for us, so we need this bill. It’s that simple. So we are asking our members and our contractors to ask their legislators to pass this bill, because it is that important to all of us.”

Without more union support than is now behind the prevailing wage concession, Ameris said it might be tough to get the 40 to 50-plus House Democratic votes the $2.3 billion package is said to need.

“We’re engaged in it right now to get votes with the Speaker’s staff and the governor’s staff, we want to move forward,” said Ameris. “And this is not something we want to do, but this is something the Speaker said he needs to get a bill done, so we are seeing what we can do.” CW

14 Opinion

OCTOBER 2013 CAPITAL WATCH

Should the Commonwealth be leasing state-owned lands for Marcellus Shale drilling?

By Tony May

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.

Hundreds of gas wells have been drilled into the Marcellus Shale formation underlying state-owned lands in Pennsylvania.

But should more lands be leased for natural gas drilling?

That’s a question that has one easy answer that can be reached from two broadly divergent paths – one espoused by environmentalists worried about the impact of fracking and the other championed by fiscal conservatives who care about maximizing fiscal return.

Let’s start with the latter argument because it would apply equally to pristine state forest and game lands as well as to relatively developed lands like non-runway areas at the Greater Pittsburgh International Airport. It’s the question of maximum return on a public asset.

We can afford to “sit” on our state-owned natural gas reserves for a long, long time – until such time as we are sure it can be harvested in an environmentally sound manner and until such time as we can get top dollar for it. Right now, we can’t be certain of either. Environmental concerns involve much more than fracking. It’s about danger from runoff from drill pads, the unforeseen impacts of the spider web of “gathering lines” needed to link well heads to trunk gas lines, the damage to secondary and logging roads from truck traffic necessary to service drilling sites and the impact on deep aquifers.

Fiscal common sense says we should wait for more favorable market forces. The thousands of Marcellus wells already producing have helped depress the wholesale price of natural gas from $11.50 per thousand cubic feet as recently as 2008 to under $4 per thousand cubic feet this summer. Let’s remember, the natural gas isn’t going anywhere. It’s locked up tight in the Marcellus Shale formation some 10,000 feet underground unless a licensed driller blasts it loose. As a state, we can afford to sit on it while allowing private landowners the opportunity to monetize the rights to the natural gas under their land. We don’t have to compete with them directly and, if we taxed Marcellus Shale activities at a rate more in keeping with the rates in other shale gas states, we would still be reaping hundreds of millions more in shale gas revenues.

From the conservationists’ view point, there is even more reason to “go slow” – or to not go at all – with new shale land leases. First, we’ve already leased out the drilling rights to some 700,000 acres of our state forests (about half of all state forest lands). According to the Nature Conservancy, we’ve already leased all that we can after you remove land that needs to be protected because of stream beds, roadways and areas so pristine that any concentrated human development would damage them permanently. In addition, the state doesn’t even own the mineral rights under about 15 percent of state forest lands.

In theory, most wounds created by Marcellus Shale drilling can be healed over time. Well pads for active drilling run about five acres in size and can be replanted and reseeded after four or five wells are drilled and producing. But the term “over time” is the Catch 22. After loggers clear cut Northern Pennsylvania’s forests, it took nearly a century for the land to recover – and much of these second and third-growth forests are not the target of Marcellus Shale exploration. The impacts of Anthracite and bituminous mining are even more pronounced with the scars of culm banks and acid mine drainage still visible over much of Pennsylvania’s coal fields.

The bottom line is that we can afford to wait to drill more on public land – if ever.

How long? Certainly 20 years. Maybe 50 years. Maybe never. And we would all be the better for it.

By Charlie Gerow

This issue doesn’t require much debate. The answer is simple: of course we should. It’s a no-brainer.

The Marcellus shale is a goldmine under our feet.

Marcellus shale gas supports more than 200,000 Pennsylvania jobs, has already generated more than $400 million for local communities and more than $1.7 billion in corporate taxes for the commonwealth.

Pennsylvania has become a leading energy supplier for the nation and the world. We are now the second largest gas producing state in the country. And there’s much more good to come. Pennsylvania should continue to do all that it possibly can to bring prosperity and opportunity to it citizens through the safe and responsible development of this vital natural resource.

The real question is when and how drilling should be allowed on state lands. That’s not quite as simple.

The complication coms largely due to the difference between surface and subsurface rights. The State Supreme Court ruled in 2009 that the holder of subsurface rights has a paramount interest over the holder of surface rights. The narrow focus of this question then is where the state holds subsurface rights. Because the state owns land they don’t necessarily have the mineral rights. Where it does not hold subsurface rights, our robust regulations carry the day for the environment and the economy.

These regulations were recently strengthened by Governor Corbett in a process that brought glowing reviews from the independent State Review of Oil and Natural Gas Environmental Regulations (STRONGER).

Drilling on lands where the state has subsurface rights was halted largely due to a moratorium placed on such drilling by Ed Rendell in the final weeks of his administration.

Although Governor Corbett has promised to revoke the moratorium it remains in place, largely because there would be a pause in drilling in any event due to the current price of natural gas.

At the time then-Governor Rendell imposed the moratorium there was nearly threequarters of a million acres already opened up for drilling or where the state did not hold subsurface rights. It came on the heels of gas prices reaching all time highs but then declining as new technologies generated supplies that outpaced demand.

The ultimate question is whether leasing our mineral rights makes economic sense.

Thsnks to the Pennsylvania Guaranteed Minimum Royalty Act, owners are guaranteed at least 12.5% of the royalty and generally get significant upfront “signing bonuses” in addition. For example, the Allegheny County Airport Authority recently obtained a half billion dollars from a lease with Consol. Previous leases with the state’s Game Commission were great deals for taxpayers, generating lucrative royalty payments and generous upfront bonuses.

The Commonwealth should enter into leasing deals when it makes the most sense for its citizens and taxpayers. Right now that means waiting until the price of gas increases (effectively continuing the moratorium). But when the time is right, for the sake of Pennsylvania’s jobs, economy, tax base and future prosperity, drill, baby, drill.

Opinion 15

OCTOBER 2013 CAPITAL WATCH

The time is right for a Pennsylvania false claims law

By Rep. Brandon Neuman

Pennsylvania is missing out on a golden opportunity to recover millions of dollars in taxpayer money from people who cheat state programs.

We need a Pennsylvania False Claims Act. A false claims act would allow the state to recover taxpayer money from those who cheat government programs. It would also provide protection for citizen whistleblowers who risk their careers, and many times the well-being of their families, by exposing this fraud.

My bill, H.B. 1493, would enact a Pennsylvania False Claims Act and provide the necessary tools for the state to recover the maximum amount possible from those who cheat or attempt to cheat the state government.

This legislation would also provide an incentive for whistleblowers to come forward with vital information about government fraud by allowing them to share in the proceeds from the recovery and provide protection for them from employer retaliation.

If enacted, this law would help Pennsylvania recover millions of dollars in taxpayer money, while simultaneously deterring future fraudulent activity.

It’s not a new concept.

In all, 29 states and the federal government have enacted false claims acts. Even local governments – including Philadelphia and Allegheny County – have enacted this common-sense law.

Pennsylvania remains the largest state in the nation without a false claims law. With bipartisan support already growing for my bill, it is my hope that we can finally pass this common-sense legislation.

We all have a stake in this, because when government funds are the target of fraud, every taxpayer is a victim.

Since 2005, the federal government has provided an extra financial incentive for states to prosecute their own cases of fraud when those cases involve joint state and federal programs, such as Medicaid.

Without a state false claims law in place, Pennsylvania can’t prosecute government fraud under its own law and must instead rely on the federal government to prosecute under the federal law. As a result, Pennsylvania is potentially missing out on recovering millions of dollars.

Other states, such as Texas, are realizing the benefits of having a state false claims law.

From 2006 through 2012, cases brought under the federal and Texas false claims laws resulted in the recovery of more than $820 million for state and federal taxpayers. Nearly half of those recoveries – $394 million – resulted from fraud cases in which Texas led the investigation and prosecution of the case under Texas law.

The federal False Claims Act was first signed into law by President Abraham Lincoln during the Civil War to combat fraud that was being perpetrated by unscrupulous companies supplying the Union Army. The

federal law was strengthened in the 1980s and the results have been remarkable. Between 1986 and 2011, federal false claims settlements and judgments totaled $31 billion.

There is no shortage of potential targets for fraud. Any business or program that benefits from state funding could be the subject of a whistleblower lawsuit if there are suspicions of cheating or misuse of taxpayer money.

Critics of enacting a state false claims law say the federal laws are adequate, but that’s just not true.

The federal False Claims Act does not protect Pennsylvania tax dollars; it is limited only to federal government spending. Without our own false claims law in place, Pennsylvania has no way to adequately protect the billions of hard-earned Pennsylvania taxpayer dollars that are spent every year on education, public safety, job creation, road construction, and many other critical programs.

Detractors also say frivolous claims by unhappy employees looking for a payday will clog the courts, but that’s not been the experience of states that have enacted their own laws.

Under my bill, any person who brings a case that is found to be frivolous must pay the other side’s attorneys’ fees and legal costs.

Additionally, the bill would give the state Attorney General the authority to review claims of wrongdoing and decide, based on the merits of the accusations, whether to proceed with charges. Most cases will

Rep. Brandon Neuman

not proceed without the involvement of government prosecutors.

Pennsylvania Attorney General Kathleen Kane supports my bill and agrees it could help to encourage whistleblowers to expose fraudulent activity.

Taxpayers are the victims of false claims.

My bill gives the power back to the taxpayers and protects those who want to do the right thing by exposing fraud.

Now is the time to enact a Pennsylvania False Claims Act. Let’s pass H.B. 1493. CW Rep. Brandon P. Neuman represents the 48th Legislative District.

Corbett, GOP take a cue from Obama’s 2012 ad strategy

By Kevin Zwick, Capitolwire

Gov. Tom Corbett and the Pennsylvania GOP are deploying a strategy from President Barack Obama’s campaign playbook.

More than a year before voters will conduct Corbett’s performance review, his campaign and the Pennsylvania Republicans on Oct. 8 took shots at U.S. Rep. Allyson Schwartz, who has been granted front-runner status among Democratic challengers by polls.

Unlike Obama’s campaign, the Pennsylvania GOP and Corbett aren’t waiting to see the outcome of the primary election. Corbett’s camp wants Schwartz and even by labeling her as a “radical liberal” who wants to kill energy-related jobs, they’re essentially elevating her above the rest of the Democratic field, observers say.

Mark Bergman, Schwartz’s spokesman, said: ““Governor Corbett took his foot out of his mouth just in time to resort to more false, negative attacks.”

But Democratic media consultant Larry Ceisler said of Corbett’s team: “They want Schwartz. It’s very obvious that they want Schwartz.

“To them she’s the easiest target and easiest talking point because she has a record and a target they could shoot at,” Ceisler

added. “If you were trying to solidify your GOP base, it’s much easier to talk about Allyson Schwartz than [State Treasurer] Rob McCord, [former DEP secretary] Katie McGinty or [York businessman] Tom Wolf. But that being said, it doesn’t mean Allyson is not going to be a strong general election candidate against Corbett.”

Defining the opponent early on was part of President Barack Obama’s re-election victory over Republican candidate Mitt Romney, who they painted shortly after the primary “as a heartless executive, a man who willingly fires people and is disconnected from how average Americans live their lives,” according to a Washington Post analysis.

“The advantage Corbett has is the same advantage Obama had: It’s going to be a very competitive primary. Whether as nasty or contentious, I don’t know. ...Whoever comes out of that primary is gonna come out dead broke,” Ceisler said.

“There’s no clear path to victory” in 2014, one Republican activist said frantically at a recent Republican State Committee meeting, before catching his breath and adding: “Unless it’s Allyson.”

Republican strategist Jeff Jubelirer said

it’s a good strategy that deflects the harsh spotlight Corbett continues to face in the fallout of his recent gay marriage quote controversy, the Philadelphia schools crisis and low poll numbers.

“Don’t make it a choice between re-elect or don’t re-elect Tom but about who would be better for the future – Tom ‘I told you what I would and wouldn’t do and stuck to it’ Corbett or Allyson ‘too socially liberal, career politician and taxer’ Schwartz,” Jubelirer said via email.

The ad paints a stark contrast. It places Corbett squarely on the side of the industry, against Schwartz - although she has received the endorsement of the United Mine Workers union - the Pennsylvania Democratic Party, whose state committee recently approved a resolution banning hydraulic fracturing, and Obama, whose Environmental Protection Agency is blamed even by Democrats in coal country for shuttered coal plants.

“Join Tom Corbett in his fight to stop Obama, Schwartz and the radicals who are out to destroy Pennsylvania’s energy industry,” the PA GOP’s web ad released Tuesday says.

Shortly after the GOP announced the

new ad, Corbett campaign manager Mike Barley sent out a statement calling on Schwartz to “come clean and disclose what other taxes and fees she plans to raise.”

Bergman, Schwartz’s campaign manager, via email, said Corbett: “...knows he can’t run on his failed record and job killing policies so he and his allies have already resorted to attacking the strongest Democrat in the field.

The truth is: Allyson’s commonsense plan, which is supported by an overwhelming majority of Pennsylvanians, would allow the Commonwealth to profit off its vast natural resources to make unprecedented investments in public education and transportation.”

A cornerstone of Schwartz’s “One Pennsylvania” policy platform is a 5 percent Marcellus Shale severance tax, which Schwartz claims would generate $13.2 billion in revenue during the next decade on top of the roughly $3.4 billion generated by the current impact fees, she said. She also says a severance tax would avoid tax hikes on Pennsylvanians to pay more for education, transportation, clean energy, the environment and economic development. CW

16 opinion

OCTOBER 2013 CAPITAL WATCH

Inside the threats, bluffs, strategies in transportation funding debate

By Peter L. DeCoursey, Capitolwire

Pennsylvania’s state Senate leaders and House Democratic leaders want to drag House Republicans up to something close to Senate Bill 1’s $2.5 billion a year in new transportation funding.

The House GOP leaders say that bill can’t pass their chamber, and so they could, as soon as this Wednesday, put Senate Bill 1 up for a vote, and essentially dare House Democrats to vote for it. If, as they predict, the bill then fails, then they believe that will show that something like their bill, which would spend about 30 percent less of state dollars, ought to be the framework for what can get passed this fall.

While the state’s biggest labor unions and business groups are working hard to try to pass Senate Bill 1 if it does reach the floor this week or next week, House Republicans are probably right that it will not pass.

Why? There are several reasons.

First, the House Democrats probably are at the 50-ish level – maybe 55, at best, if their leaders and the unions do everything possible - for the number of votes their caucus can put up for Senate Bill 1.

Which means it would need 47-55 House Republican votes, and there were only 65 House GOP votes at best for a bill that taxed $700 million less than Senate Bill 1. So 50 House GOP votes for Senate Bill 1 sounds very, very optimistic. In fact, anything above

35 House GOP votes for that plan is rosy thinking.

And there are several problems House Democrats would have to surmount to get to the point where they would cast 50 or more votes for Senate Bill 1, if House Majority Leader Mike Turzai, R-Allegheny, puts it on the floor for a vote on in the original, Senatewritten text.

The first is that for the House Democrats to put up the majority of the votes for a bill they had no input into would make history.

No legislative leader of my lifetime – 52 years – would have done that. Not House Speakers LeRoy Irvis or Jim Manderino or Matt Ryan or John Perzel or Bob O’Donnell or Bill DeWeese or Keith McCall or Denny O’Brien. Not Senate Presidents Pro Tem Bob Jubelirer or Bob Mellow or Joe Scarnati or their predecessors.

Now to the public and to some of us, it sounds juvenile to say if Senate Bill 1, as it appears so far, is the best and most likely bill that could pass this fall, that House Democrats should let the chance pass so they can be seen to be important folks negotiating it in secret.

But the simple fact is that in the middle of a House session, there is no leader of any chamber in this state who would do what Senate Bill 1’s backers are asking House Majority Leader Frank Dermody,

D-Allegheny, to do. And if Dermody were to do that, he would be confirming that it was OK to leave his caucus out of future negotiations, even if they were providing half the votes. And that is a signal no legislative leader can afford to send.

Plus, there is the problem that while Senate Bill 1 might get up to 55 House Democratic votes on the floor, in the House Democratic caucus, there are likely 30 members who want to vote for it and want it to be on the floor for that vote. That leaves about 60 House Democrats, give or take, who don’t want to have to vote on it, even if 20 to 25 of them do.

So expecting Dermody to defy two-thirds of his caucus in order to demonstrate it’s OK to leave House Democrats out of major negotiations on issues about which they care deeply … well, how likely does that sound to you?

Plus, there is an actual substantive issue that House Democrats, especially those from Philadelphia, its suburbs and Pittsburgh, have with Senate Bill 1. That bill ends the turnpike’s $450 million a year subsidy of mass transit in seven years, and Philadelphia lawmakers don’t think Senate Bill 1 offer a sure enough replacement for that money.

And those lawmakers know that seven years from now, the state won’t need new funding for roads and bridges, but will needs

lots of new money for mass transit. And they wonder if they can get that funding, without leveraging the roads and bridges for mass transit.

But despite that reality, SEPTA, the largest transportation agency in the state, is pushing for Senate Bill 1, on the grounds that it is the best they think they can get.

“Sometimes you have to do what you can do now, and come back later and fix the rest when you can,” said AFL-CIO President Rick Bloomingdale, one of those working hard on Senate Bill 1 if it reaches the House floor.

Noting that Reps. Dan Frankel, D-Allegheny, and Minority Transportation Committee Chairman Mike McGeehan, D – Philadelphia, both say Democrats should not resolve road-and-bridge funding needs for 15 years but mass transit for only half that span, Bloomingdale said: “I get what they’re saying. Mass transit funding is extremely hard and it is natural to want to solve mass transit and roads and bridges at the same time. But this idea that you can’t solve a problem five or six or seven years from now, I don’t agree with that. “ And, union leaders hope, Dermody and those House Democrats who might vote for Senate Bill 1 may be movable by SEPTA and their union supporters.

Asked if unions have yet persuaded Dermody to lead his caucus into voting for Senate Bill 1 if it gets to the floor, Bloomindale said, “Not yet. But SEPTA is backing this all-out, the unions are, the business groups are. We think we have a shot.”

Nor should the pressure be so predominantly on the Democrats, Bloomingdale added.

“There should be more House Republican votes for this and I know Dave Patti and Gene Barr and their groups are working hard on that, and are very serious about that.

“But this isn’t just about Frank. Where is the governor on this? Why is Mike Turzai doing this when it could lead to a huge loss for the governor on a big issue? We need the governor to show some leadership on this, so the House Republican and Democratic votes for this are there when it gets on the floor.”

So far the governor has said he is fine with signing Turzai’s bill, the $1.8 billion in state funding, or Senate Bill 1. But when Turzai tried to bluff the governor weeks ago by threatening to do just this, he was told, “go ahead,” and the governor may be working on this more than Bloomingdale thinks.

The administration is also involved in at least-nascent negotiations with Senate Republicans and House Democrats and some House GOP leaders on a compromise bill that it is hoped all can support. That option would deal with the House Democrats’ need for inclusion and perhaps the mass transit issue.

If those talks progress, if, as one Turzai ally said, “there are actual legitimate productive negotiations, I don’t think he puts Senate Bill 1 up.

“But those negotiations have to reflect that our caucus wants to legitimately support a good transportation bill, and if we need to show on the floor that Senate Bill 1 isn’t it, I think Mike will do that. So this will be a very interesting week.” CW

Opinion 17

OCTOBER 2013 CAPITAL WATCH

Dem Gov hopefuls must find billions for education and pensions

By Peter L. DeCoursey, Capitolwire

All of the leading Democratic candidates for governor say they will make big new investments in public education funding while continuing to fund mandated programs.

But one of them, U.S. Rep. Allyson Schwartz, D-Montgomery, says voters have to wait for her first budget to see how she will balance half-billion-dollar mandated annual increases in pension funding with her spending promises. Already she has pledged to spend nearly $1 billion more in the K-12 education budget over four years, and fund 4-year-old pre-Kindergarten and full-day Kindergarten over the next 10 years. That is way more than $1.5 billion for her to find in new funding, although she has four years for the $1 billion and 10 years for the rest.

She says a key funding measure for those goals will be her plan to tax natural gas extraction in the Marcellus Shale, a plan that will raise $1 billion annually fairly soon, and $2 billion ultimately. But anyone who reads Act 120, the state’s current law governing public pension contributions, can see that statute mandates increases to the state pension contributions that will wipe out most of those revenues, assuming she could get them.

Which means that if Schwartz or Treasurer Rob McCord or former DEP Secretary Katie McGinty or York businessman Tom Wolf follows the law, even if they pass a shale tax, all that money will be spoken for as soon as it comes in.

Schwartz and McCord say they will deal with that, partly by priorities: “Education funding will be my top priority” Schwartz told reporters last week, and that while she is aware that other expenditures are mandated, she will put education funding first, she emphasized.

And education and economic development will get those shale tax dollars first, she has said.

Which, of course, was the problem during the terms of Gov. Ed Rendell, where under-

funding the pensions so he could afford big education increases, and other big increases, was the norm.

So much so, that the pensions underfunding has gotten to a $45 billion liability, or more now. Even then, the problem became so obvious so that in Rendell’s final year, Act 120 passed, making new employees pay more and get a little less in benefits, and mandating big increases in state annual pension contributions.

So now, whomever wins the governorship, they may be able, like Gov. Tom Corbett, to shave the mandated increases down a little, but still will have to increase pension contributions by more than $1 billion dollars in their four-year term.

But right now, several of the Democratic candidates are ignoring that, including Schwartz and former DEP Secretary John Hanger, who have announced shale tax plans to fund education increases. They are earmarking that hoped-for money for education, and apparently pretending the mandated pension increases will not occur, or can be lowered annually in the budget, as Rendell did.

One exception is Allentown Mayor Ed Pawlowski. He notes he leased his authority for more than $200 million and that made his municipal retirement plan fully funded. He said he believes there are assets he could lease or “monetize” at the state level, including modernizing the state liquor system and potentially leasing it for billions of dollars to help with the pension problem. But this ain’t Allentown. Even if he came up with $9 billion today from smooth asset leases, that deals with only one-third of the 30-year liability, $15 billion of the $45 billion problem. But at least he is giving some indication of what he would do, especially when Wendell Young and the United Food and Commercial Workers International Union (UFCW) are against what he would do.

McCord, whose education spending

promises will likely follow Schwartz’s framework, won’t say how much money it will cost, unlike Schwartz. He says it is vital to reverse what he calls the Corbett education cuts, which included the loss of federal stimulus education funding.

So he also needs to find a lot of money, especially since as treasurer, he has blasted the governor for not fully funding the pension system now.

McCord said that as governor his priorities will change, and education will come first.

But unlike Schwartz, he is willing to say how he believes he can cut pension costs and have enough money to fund education.

Asked that question, McCord, after discussing the issue for minutes, said explained his pension reform framework: “The whole thing has to be built on real numbers that show that you really are going to pay the bill. … I would continue and extend Act 120. And I would use, instead of doing a fake embrace of what’s not working in business,” referring to a plan of Corbett’s to put all new employees into a 401(k)-style plan, “I would use a business innovation, … working with the unions to get an optin approach, to get a larger share of … employees, meaning existing employees, to opt into the Act 120 formula,” which could give them less of lump sum upon retirement or increase their contributions.

He also backs, as do an increasing number of lawmakers, floating a pension bond because the cost of interest is less than the amount the state can get by investing the borrowed funds.

“I would combine business innovation with patient application of Act 120 and constructive use of debt.”

That sounds similar in overall approach, although not in particulars, to a package

by Rep. Glen Grell, R-Cumberland, that House Republicans and perhaps the whole Legislature will debate this fall.

To McCord and Grell’s credit, that is a framework that asks current state employees

to voluntarily opt into lower benefits or higher payments in exchange for perhaps lower contributions and the state making the system more viable for the future, not just asking the taxpayers for more.

But since Gov. Tom Corbett apparently can’t get the votes to mandate those current employee contributions and the relevant unions have threatened to sue if he does – and perhaps such cuts to existing employees would be tossed out by the courts – it is very ambitious for McCord to say he can get those employees to voluntarily do things they are fighting the governor not to do by law.

York businessman Tom Wolf, a former state secretary of revenue, joked at the Saturday dinner of the Democratic State Committee, that David Fillman, head of the state workers AFSCME unions, which has nearly 55,000 members, used to be “his boss.” But he also is following the Grell/McCord-style proposals carefully and thinks they have potential to solve the pension problems.

Fillman is not sure yet where those plans are going: “Even if they could afford it, I think there would be few takers” for a McCord-style plan of voluntary benefit reductions. “I have to see exactly what he is proposing, but I don’t see it as something our members would want to join.”

McCord says if the state gets everyone else –taxpayers, state government – to make sacrifices, the union workers will also do so, as part of a deal to fix the problem.

But it’s not clear that any of the involved unions will welcome it, and it is clear that McCord and Wolf and Schwartz and McGinty and Pawlowski and Hanger over the next month will be working hard to get the endorsement of Fillman’s union and other state and local employee workers unions.

And this will be something several of the leaders of those unions told me they will want to discuss with all of the candidates before they endorse for governor. CW

Pennsylvania Game Commission: Hunters crucial to deer-forest study You can take a deer out of the forest, but you can’t take the forest out of deer management – the two are too closely linked.

Forests provide food and cover for deer and other wildlife. And deer, as primary consumers of forest plants, can impact forest health and, thus, their own habitat and habitat for other wildlife.

The deer-forest connection couldn’t be much stronger. And that’s why the Pennsylvania Game Commission for decades has studied the relationship between deer and the forests in which they live, and has used those and other findings in its deer-management decisions.

As the years progressed, the methods used to measure forest health became more sophisticated. A higher level of detail on factors affecting tree regeneration became available as a result. Today, the data the Game Commission uses in determining forest health represents the best that has ever been available.

However, no monitoring system is perfect.

And, as a result, the Game Commission and its research partners have begun a study to answer a simple question: Can we do better?

The Game Commission, in partnership with the state Department of Conservation and Natural Resources, the Pennsylvania State University, and the U.S. Geological

Survey’s Pennsylvania Cooperative Fish and Wildlife Research Unit, recently launched a new study into the impacts deer have on forest regeneration, and the current methods used to evaluate those impacts.

The Deer-Forest Study also will assess hunter activities and experiences.

In the field, forest regeneration data, deer impacts, deer populations and forestmanagement practices will be monitored. In addition, hunters will be surveyed to gather information on their activities while hunting the study areas.

“A primary concern and consideration for the Game Commission is that the data we use accurately reflect the effects of deer on forests,” said Christopher Rosenberry, who supervises the Game Commission’s deer and elk section.

“Deer are not the only factor affecting forest regeneration, but our assessment of deer impacts on forests is the most important habitat measure used in deer-management recommendations.”

Rosenberry said evaluating the role of deer in forest regeneration, as measured by the deerimpact assessment, and making responsible adjustments, will benefit hunters in a number of ways.

The study will provide new insight into the

effect of deer on forest regeneration. Given their browsing in the forest understory, deer often are an easy target when it comes to lagging forest regeneration. But they’re not the only factor. And Rosenberry said the study will help to ensure that misplaced blame doesn’t fall on deer in cases where deer aren’t the cause of slowed regeneration.

A better understanding of deer impacts in real-world conditions in Pennsylvania also will help ensure that any recommendations to reduce deer populations due to forest impacts are truly necessary.

“Recommendations to reduce deer populations are not taken lightly,” Rosenberry said. “And this study is designed to strengthen the data upon which future recommendations are based.”

In the last decade, the Game Commission has evaluated key components of its deer research program. Harvest estimates, fawn-todoe ratios, population monitoring and methods of gathering citizen input have been evaluated and published in scientific journals.

The findings from the commission’s research also are incorporated into the deer program, and have improved the commission’s management and understanding of whitetails and deer conflicts.

The Deer-Forest Study represents the next step in improving the deer program, Rosenberry said.

But the study can’t be completed without hunters’ help. Those hunting in the areas being studied will provide critical input.

Study areas are located within Bald Eagle, Rothrock and Susquehannock state forests on properties enrolled in the state’s Deer Management Assistance Program (DMAP).

Study areas are marked with signs in parking lots and along roads.

Hunters must register when hunting these study areas. Hunters can register by visiting the white-tailed deer page at the Game Commission’s website, then clicking on the “Deer-Forest Study” link in the “Research and Surveys” category.

After deer season concludes, hunters will be mailed a survey to record their hunting success and experiences. Individual surveys will remain confidential. Only summary information will be provided as public information.

“Understanding hunter effort, hunter success rates, deer harvests and hunter opinions and observations is a critical part of the study,” Rosenberry said. “We are relying on hunters to provide these important data by registering.” CW

18 Opinion

OCTOBER 2013 CAPITAL WATCH

Proposed Endangered Species Coordination Act balances threatened and endangered species management with responsible economic development

By Gene Barr

Any Pennsylvania business seeking permits for development or redevelopment projects –i.e., bridge work, highway construction, hospital or housing development design – must account for the impacts on threatened and endangered species and their critical habitats. This requirement applies to any industry that is required to get clearance to disturb land, such as building, aggregates and concrete, forest products and resource extraction.

As these industries, as well as the state’s numerous smaller to mid-size engineering, planning, surveying and environmental remediation firms that work with the regulated community, can attest, the current process can often lead to unnecessary delays that ultimately increase the overall costs of these projects.

Therefore, striking an appropriate balance between effective threatened and endangered species management and economic development is the impetus behind the bipartisan proposed Endangered Species Coordination Act (S.B. 1047 and H.B. 1576).

The legislation proposes four improvements to the current process: • Standardize the list and management of threatened and endangered species by establishing a consistent and transparent rulemaking process similar to that required of most other state agencies

• Consolidate information into a centralized database managed by the Department of Conservation and Natural Resources • Grant access to information to those individuals required to consider the impacts or to those involved in conservation efforts • Protect sensitive data by prohibiting the disclosure of the information to anyone not involved in a development or conservation project Supporters, which include the PA Chamber, believe S.B. 1047 and H.B. 1576 would bring efficiency, predictability, understanding and transparency to the T&E species process, fostering responsible development while maintaining appropriate species protection.

Unfortunately, the issue has gotten considerable negative attention recently as a result of misinformation and lack of understanding about the intent, scope and purpose of the proposed Endangered Species Coordination Act. The legislation would not diminish the authority of the Fish and Boat Commission or the Game Commission to list endangered species. It simply proposes to make these agencies’ rulemakings subject to the very same regulatory review process followed by other state agencies, including the Department of Environmental Protection and the Department of Conservation and

Natural Resources for its threatened and endangered species designations. This is an open, transparent and consensus-building process that allows all stakeholders involved in a rulemaking the opportunity to provide input to the Independent Regulatory Review Commission, which is responsible for determining whether a proposed regulation meets certain criteria, including the protection of public health, safety, welfare and the effect on natural resources.

Stakeholders do not just include businesses; they include environmental advocacy groups and the regulatory agencies themselves, not to mention the general public.

The IRRC has been reviewing DEP and DCNR regulations for decades and no one questions its expertise to do so. The regulatory review process would ensure that there is consensus-based science and data to support an action to designate species as threatened or endangered.

Alleviating a major concern for some sportsmen groups, the legislation does not impact game species management, which includes regulations related to hunting and fishing seasons or bag and creel limits, etc. The measure would only apply to threatened and endangered species and trout stream designations.

Finally, to suggest, as some have, that the regulatory review process is designed to favor the business community is far from accurate.

Gene Barr

Because the regulatory review process is truly based on stakeholder engagement, and does consider an array of factors and opinions in the rulemaking process, final regulations are not always in the best interest of the business community or any specific stakeholder for that matter. Most environmental regulations contain provisions that prove costly for certain industries even as other provisions might be acceptable to business. Business and industry only ask to have the same input in the PGC and PFBC regulatory process as it is afforded with other agencies.

There are some who believe, shortsightedly, that economic considerations should have no bearing on species protection or habitat preservation. To the contrary, the regulated community and other supporters of the proposed Endangered Species Coordination Act believe that endangered species management and economic development can and should coexist—that there should be a balance between the two.

Lawmakers can make sure that occurs by advancing this responsible legislation. CW Gene Barr is president and CEO of the Pennsylvania Chamber of Business and Industry.

Gov. Corbett should accept real Medicaid expansion

By Rep. Frank Dermody

It’s easy to get caught up in – and turned off by – the political mudslinging that has dominated the federal Affordable Care Act, commonly known as ObamaCare.

What often gets lost in all the political noise is the fact the law will help millions of Americans – including hundreds of thousands of Pennsylvanians – get access to affordable health care for themselves and their families.

Two issues related to ObamaCare are in the news lately, and they’re both important.

First, the new Health Insurance Marketplace, www.healthcare.gov, was launched this month, allowing people, for the first time, to shop online for a health insurance plan that works best for them.

The second issue is Medicaid expansion – the option under the new law for states to expand insurance to a larger group of working people with less income who currently don’t qualify for Medicaid but also can’t afford private insurance on the Marketplace.

Under the Affordable Care Act, the federal government will pay for 100 percent of the cost of Medicaid expansion for the first three years. Starting in 2017, the federal share will gradually drop to 90 percent of the cost, meaning states will pay no more than 10 percent of the costs annually after the first three years.

Twenty-five states have accepted Medicaid expansion, including neighboring New York, New Jersey, Delaware, Maryland and West Virginia.

Here in Pennsylvania, Gov. Tom Corbett has refused to expand Medicaid, despite the fact that it would provide health care coverage for more than a half-million uninsured, working Pennsylvanians, and despite the fact that it would bring an infusion of tens of billions of federal dollars into our state and local economies.

Instead, Corbett has chosen a needlessly complicated – and potentially more expensive – approach that would send federal Medicaid dollars to private insurance

carriers, while also adding unnecessary, and likely illegal, hurdles for Pennsylvanians to get coverage.

Even if Corbett receives federal approval, which is by no means guaranteed, it will likely take months of negotiations. That means that those 500,000-plus Pennsylvanians, who need health care coverage, will have to wait while their neighbors in other states start getting covered as of Jan. 1, 2014, using Pennsylvanians’ federal tax dollars.

With zero cost to the state for the first three years, there’s no reason to delay Medicaid expansion. Corbett can still negotiate with the federal government over his Medicaid privatization plan, while hundreds of thousands of Pennsylvanians get the health care coverage they need.

It’s important to understand who those uninsured Pennsylvanians are.

The vast majority of people who would receive coverage through Medicaid expansion are working men and women who either do not have health insurance

provided by their employer, or they can’t afford it. We’re talking about restaurant workers, child care workers, cashiers, home health aides and many other hardworking Pennsylvanians.

They need Rep. Frank Dermody health care coverage for themselves and their families.

They cannot afford to wait.

Gov. Corbett should do the right thing for Pennsylvanians and say “yes” to true Medicaid expansion. CW Rep. Frank Dermody (D-Allegheny) currently serves as House Democratic leader.

Opinion 19

OCTOBER 2013 CAPITAL WATCH

BENCHMARKING YOUR INVESTMENT RETURNS

By SCOTT C. WEAVER, CFP, CFS, CAS

The dictionary defines benchmarking as: “evaluating or checking by comparison with a standard”. So much information is piped into your visual space on a daily basis it comes as no surprise to me how investors can get so confused with benchmarking.

So much attention is put on the Dow Jones Industrial Average that most investors use it as their standard to compare their individual returns to. However, the Dow Jones Industrial Average would require an investor to be 100% in stocks to mirror those returns; or in other words, the investor would have to be a very aggressive investor to achieve similar results. To be quite honest, in my 30 year career, very few investors truly are that aggressive.

I have written articles in the past that reference behavior science and how human emotions dilute intellectual thought processes. Investors have co-workers, friends and relationships

that tempt the conservative or moderate investor to take on more risk. It is also a human nature to “brag” about portfolio returns. Every market has the devil in it. This market has rewarded the aggressive investor with double digit returns, while the more moderate investor has single digits and in some cases even year to date or 12 months losses. Most of these losses have occurred because of the bond holdings. As interest rates and inflation rises, traditionally bond prices will drop. This summer witnessed very large bond redemptions from mutual funds. Most conservative and moderate portfolio allocations offered by investment companies hold as much as 30% to 80% in bonds. The indexes below (unmanaged) illustrate the performance difference:

Indexes (unmanaged)* An index is a composite of securities that provides a performance benchmark. Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.

Year-To-Date

One Year

Standard & Poor 500 Composite Index (a basket of 500 stocks that are considered to be widely held)

13.82

20.58

Dow Jones Industrial (an index of certain stock prices on the New York Stock Exchange, computed by the Dow Jones publishing company)

15.20

18.86

NASDAQ Composite Index (stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market)

12.71

15.95

MSCI All Country World Index (ACWI) A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world

6.05

16.57

MSCI All Country World Index (ACWI) ex USA A market-capitalization-weighted index designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies

-0.04

13.63

MSCI EAFE (Europe, Autralasia, Far East) Index A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada

4.10

18.62

MSCI World Index A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets

8.43

18.58

MSCI Al Country World Small Cap Index A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets

8.77

20.65

Barclays U.S. Aggregate Index A broad base index, maintained by Barclays Capital, and is often used to represent investment grade bonds being traded in United States

-2.44

-0.69

Barclays Global Aggregate Index A broad-based measure of the global investment grade fixed-rate debt markets. It is comprised of the U.S. Aggregate, PanEuropean Aggregate, and the Asian-Pacific Aggregate Indexes. It also includes a wide range of standard and customized subindices by liquidity constraint, sector, quality and maturity.

-2.79

-2.18

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 entitles named herein are affiliated with NEXT Financial Group, Inc. 1250 North Mountain Road, Suite 4 Harrisburg, PA 17112 717-652-4965 Toll Free at (877) 837-3024

*Source: www.Americanfunds.com

As you can see by the chart above, bonds (highlighted in green, stocks are in red) in general have lost money. Greed is a great aphrodisiac. But before you become the next Evil Knievel of the investment world, you need to understand the current bliss for the aggressive investor does not come by way of a robust economy and great economic news, but has been driven by liquidity momentum and the lack of assets alternatives. The Feds will have to one day come to grips with slowing QE3 purchases, once the economy shows some signs of life.

When that day happens, all bets are off. This QE3 experiment by the Feds is driving the investment management world crazy because traditional measures of the economy and robust economic news usually drives stock markets higher simply is not in place. Darned if you do and darned if you don’t characterizes the position most professional money managers are in.

The old saying of can’t live with it and can’t live without it comes to mind.

We set our clients up in separate buckets of money. Short-term, mid-term and long-term.

For investors who want to take on more risk these days, we usually suggest taking additional

risk in their long-term bucket. We also revisit investment behavior during the 2008 bear market so clients can see the nasty side of being aggressive. Understanding how portfolio configurations perform over several market cycles is a good gauge of portfolio risk.

In closing, conservative and moderate investors have not participated in the great market run-up during the past year. That reward goes to the aggressive investor. But before you chase market trends, be sure to look at market losses of past. Understand the additional risk you are taking.

Happy Investing!

Scott C. Weaver