Region's Business 11 October

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REGION’S BUSINESS

PHILADELPHIA EDITION

A JOURNAL OF BUSINESS AND POLITICS

THE STATE’S LOOMING PENSION CRISIS: EVEN BIGGER THAN YOU THINK Not so long ago, both state pension funds were flush with cash. Now they are dangerously underfunded - to the tune of $40 billion - but state lawmakers finally appear ready to try to tackle the problem.

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11 OCTOBER 2012

11 OCTOBER 2012

REGIONSBUSINESS.COM

CONTENTS

17

3

Man The Lifeboats It took a $40 billion unfunded liability, but the state pension funds finally have lawmakers’ attention.

!

City Hall Cracks Down on Tax Delinquents

20

The construction industry is high on the priority list as the city tries to tighten loopholes and fill coffers. !

1900 Arch Street 1900 Arch Street is a premier mixed use development project in the Logan Square section of Philadelphia.

Scheduled for completion in Fall of 2013, the project will feature 280 luxury apartments, private parking, and 16,333 SF of ground floor retail.

33

City’s First Data Chief Digs In ! As the city’s first Chief Data Officer, Mark Headd has a busy, digital agenda.

15

Casey’s Lead Shrinking

Polls show Tom Smith making ground in the U.S. Senate. !

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19

Execute Like a CEO

Want to become more valuable? Become more productive. Here’s how. !

PRESIDENT AND PUBLISHER James D. McDonald EDITORIAL DIRECTOR Karl M. Smith

Two Penn Center-Suburban Station Located just steps from City Hall, Suburban Station features some of the premier retail locations in the city.

Availabilities exist from 900-2,700 SF with neighboring tenants including McDonald’s, Dunkin Donuts, Au Bon Pain, and TD Bank.

ASSOCIATE EDITOR Terrence Casey CONTENT TEAM Brandon Baker, Emily DiCicco, Victoria

Marchiony CONTRIBUTORS John Scanlon, Carisa Chappell, Timothy

Holwick, Rebecca Savedow, Don Lee ADVERTISING DIRECTOR Larry Smallacombe ACCOUNT MANAGER Charles Coltan, Rachel Sollberger

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Region’s Business is published weekly on Thursdays and online at www.RegionsBusiness.com.

The publisher makes no representations or warranties regarding the advertising appearing in its pages or its websites.

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11 OCTOBER 2012

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EDITOR’S DESK

Turning the Tables on the Nanny State

Karl Smith is the Editorial Director for Region’s Business.

You can contact him at ksmith@regionsbusiness.com

Pennslyvania’s pension crisis is almost too big to comprehend, which is why it’s been so easy for lawmakers to kick the can down the road for so long.

Residents are unlikely to grasp the enormity of the problem, nor the depths to which it goes, and, frankly, who wants to deal with such a hideous problem?

So lawmakers told us just what we wanted to hear, “it’s a problem, but we’ll deal with it later.”

Phew! Thank goodness that’s over, on to the next crisis, like what’s happening on Here Comes Honey Boo Boo. But the time has come to address the issue and it appears that the legislature is prepared to do just that with some committee hearings in the works.

All well and good, I suppose.

The odds seem long that state

lawmakers will come up with a plan that really – really – solves the problem and doesn’t simply put things off or stick it to the taxpayers, but at least they are talking about the issue.

The causes of this mess are many and complex, but the underpinnings revolve around poor planning, plain and simple.

That’s a trademark of government, it seems, and Pennsylvania is no exception.

In response to cries about a “nanny state,” perhaps it’s time we flip the equation and begin treating the state government like a child. As an entity, you would think it should be mature by now, but its behavior shows otherwise.

It’s time for the state to take a more mature approach to its fiscal responsibilities. That includes eating its vegetables at every

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meal – dealing with issues whose resolution may prove unpopular to a significant number of voters instead of merely trying to placate voters at every turn. Being elected means voters expect leadership and they expect you to know what’s best for the state long term, not just what makes them happy.

And leadership by example is sorely missing these days in government. Why should we be expected to engage in civil discourse with those who oppose us when political candidates seem to know no limit of chicanery when it comes time to secure a vote?

And why should we be expected to manage our finances reasonably when the government spends our money like a drunken sailor on weekend leave and corporations that throw ethics to the wind are bailed out when their high-stakes

bets go sour?

Total austerity isn’t the answer, but there is a middle ground between stark, no-frills government and the “buy now, pay later” mode the government enjoys. The idea of a balanced budget is just that, an idea. Maybe an ideal.

In today’s society, manageable debt isn’t just accepted, it’s practically a necessity. Most Americans simply cannot afford to pay cash for houses, cars and a host of other items. Likewise, the government needs the ability to borrow and that’s fine. But that means when times are flush, it’s time to pay down the bills, not find somewhere else to spend.

Far-fetched? Maybe. But if there’s a silver lining out of the pension mess, it’s that we begin to hold our state government more accountable.

11 OCTOBER 2012

REGIONSBUSINESS.COM

WEEKLY BRIEFING

JOBS

FOOD

GAMING

Hostess Pay Cuts Upheld

Campbell CEO Pay: $7.4M

SugarHouse Battles Proposed Additional Casino Within City

A federal bankruptcy judge upheld a plan by Hostess Brands Inc. to place an 8 percent pay cut on 376 workers at the company’s Northeast Philadelphia plant.

The members are among thousands of

Hostess employees across the country represented by the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union.

Pay cuts will apply to a total of 125 nonunion employees of Hostess.

Local Layoffs for First Niagara Buffalo-based First Niagara Financial Group laid off 180 employees last week across its four-state operation, with 20 of those positions being in the Greater Philadelphia region, according to the Philadelphia Business Journal.

Thirty more of those

positions are building maintenance-related jobs that a company spokesman said will be outsourced to third-party providers.

Despite the cuts, the company intends to push forward with the hiring process for 250 open positions.

Campbell Soup CEO Denise Morrison will receive a $7.4 million pay package for her first year with the company, according to an October 5 filing with the Securities and Exchange Commission.

The package is com-

prised of $5.1 million in stock awards, $1.2 million of non-equity incentive pay for fiscal 2012 and a $950,000 salary.

Remaining funds stem from a benefits package that includes a retirement plan.

BUSINESS

Survey: Small PA Businesses ‘Optimistic,’ Planning Hires

Technology and Services Operations, are being executed in anticipation of additional costs from the 2014 implementation of the Affordable Care Act. The company has expressed its intention to continue layoffs until early 2013.

DEVELOPMENT

Rental Projects on the Rise in Center City, South Jersey Rental projects have seen a marked uptick, with 3,200 new rental units targeted for the Center City area by 2015, according to a recent report by the Philadelphia Inquirer.

The 20 percent increase in Center City is in addition to 1,067 units approved for development in the South Jersey region, with another

2,500 being added to highly-populated suburban areas of Philadelphia.

Still, rental expansion happens as renting becomes increasingly difficult, as demonstrated through data provided by the Census Bureau.

That data indicates that about 53 percent of renter households faced a housing-cost burden in 2011.

expansion and a 10-story parking garage by now — the reality is an expansion that has resulted in a less impressive plan for 2,000 slots and a six-story parking garage today.

“There is no reason to have a facility [large as the one planned],” said Steven Rittvo, president of casino advisory group Innovation Firm.

GOTTA-HAVE-IT GADGET

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Aetna Lays Off 11 in Blue Bell Aetna Inc. has announced that it will be laying off 11 people at its 1,600-employee, Blue Bell, Pa.-located office in an effort to decrease expenditures.

Layoffs, which include 160 layoffs in the company’s Innovation,

SugarHouse Casino could see a 24-percent drop in its revenue if a second casino is built within the city of Philadelphia, testified a gaming consultant in a Chancery Court last week.

The statistic represents the vulnerable position that SugarHouse, located on Delaware Avenue in Fishtown, has been put in since it first began construction in 2009 with an ambitious vision in mind.

At the time, the casino had called for a 3,000-slot

5

(C. GABELLO FOR GPTMC)

Following promising national news on the jobs front for September 2012, a recent PNC Economic Outlook fall survey indicates an upward trend in optimistic outlook amongst small and mid-sized business owners in Pennsylvania.

The survey found that one out of every eight small business owners — 13 percent of those surveyed — intends to hire employees in the coming six months, lower than the 18 percent found in a similar survey conducted in the spring, but an improvement over the same time period in 2011.

Other data: 41 percent — The number of Pennsylvania business owners who plan to increase their selling prices 54 percent — The amount business owners plan to spend on capital investments in the next six months, a decrease from the reported 64 percent last spring 47 percent — The number of surveyed Pennsylvania business owners who believe they are “worse off ” compared to where they were in 2007, in the thick of the recession 41 percent — The number of business owners who claim the Affordable Care Act will negatively impact their hiring decisions for the coming year 51 percent — The number of Pennsylvania business owners who feel intervention from the federal government post-election will influence their hiring decisions, with a majority of those surveyed indicating interest in reduced regulations

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TRANSPORTATION

Amtrak Threatened by Federal Cuts Major cutbacks in federal subsidies are threatening Amtrak’s fourth-busiest route, the Keystone line that runs between Philadelphia and Harrisburg.

In compliance with a 2008 law that shifts operating costs to the state level, Amtrak and the state are currently in negotiations to avoid endangering levels of service cuts.

Currently, Pennsylvania already spends $9 million annually to fund operations of the line.

With a more than $10 million gap between ticket revenue and operating costs, Amtrak is faced with the responsibility of cost-cutting without impacting the 1.3 million passengers the line services per year, especially as Amtrak plans to implement new 125-mph trains next year.

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11 OCTOBER 2012

REGIONSBUSINESS.COM

WEEKLY BRIEFING

REAL ESTATE

TRANSPORTATION

MANAGEMENT

Merger Requires Sale of Parking Garages

SEPTA Begins Undergoing Transition to ‘Smart Cards’

Pennrose CEO Named ‘Executive of the Year’

As a result of a Justice Department antitrustapproved merger between Chicago-based Standard Parking Corp. and Nashville-based Central Parking Corp., the companies will sell select parking garages in 25 cities — including Philadelphia.

The four parking sites, located in Center City, are located at 1717 Arch Street, 1815 John F. Kennedy Boulevard, 1900 John F. Kennedy Boulevard and 1616 Sansom Street.

Standard Parking purchased Central Parking for $345 million, with the deal having closed on Oct. 2.

The companies currently employ a combined total of 25,000 employees.

MEDIA

Journal Register Approved for $25M During Bankruptcy Journal Register Co., a Yardley, Pa.-based newspaper company that filed for bankruptcy for its second time in September, received approval by U.S. Bankruptcy Judge Stuart Bernstein last week to borrow up to $25 million to fund operations while selling off assets.

The company reported $235 million worth of assets and $286.6 million worth of debt in a filing submitted on September 5.

The company operates and publishes newspapers including the Trentonian, Lansdale Reporter, The Times Herald of Norristown and West Chester’s Daily Local News.

Multi-Housing News has awarded Pennrose CEO Richard K. Barnhart the title of Executive of the Year for 2012 for his “extraordinary leadership within the industry.”

The MHN Excellence Awards recognize the multifamily industry’s most noteworthy people, companies and properties and select Executive of the Year based on criteria including financial performance, customer service, resident satisfaction and design.

Though it will not debut until late next year on buses, trolleys and subways, SEPTA’s “smart card” system is already in the process of being implemented.

Columbia, Md.-based ACS Transport Solutions Group, which was awarded a $129.5 million contract in November of last year to design the as-yet-unnamed system, has been under the radar laying out designs, with SEPTA opening a Center City headquarters to host much of its laborious planning and designing process.

By spring, turnstile installations will begin across the city’s subway stations, and SEPTA’s buses will see new fare boxes catered toward the smart card system, which boasts an “open” design that accepts contactless debit and credit cards instead of a standard-issued card by the transportation system.

Riders will also see signs of development related to the $84 million allocated to side projects, including the construction of elevators and control centers.

Regional Rail changes, meanwhile, are not expected to be completed until 2014.

EXECUTIVE BOOKSHELF

PennDOT Awards I-95 Contract

Aiming for the Corner

A portion of Interstate 95 located just south of the Girard Avenue interchange will be reconstructed courtesy of a $39.3 million contract awarded by the Pennsylvania Department of Transportation.

The contract was awarded to James J. Anderson Construction Co. as one of six contracts crafted to enhance a three-mile stretch between Race Street and Allegheny Avenue.

Construction is expected to begin before the year’s end and be completed during the spring of 2015, being financed using 10 percent of state funds with the remaining allocation coming from the federal government.

Adam Bryant of the New York Times has compiled a guide for business people of all ranks and stature in his book “The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed,” out this week.

Mr. Bryant uses his journalistic background to blend together the greatest lessons to be learned in the business world according to top executives across the country, including Steve Ballmer of Microsoft, Carol Bartz of Yahoo and Alan Mulally of Ford.

With a cohesive and accessible message centered around moving from “the corner office” to the penthouse suite of a New York City skyscraper, “The Corner Room” is a must-have for those looking to pull ahead in the horse race to the top of the business ladder.

FOOD

Melitta USA Hits Accident-Free Milestone Coffee retailer Melitta USA celebrated a landmark achievement for the company last week as it touted five years and 250,000 hours without a lost-time accident.

The 90,000-square-foot, Cherry Hill, N.J.-based facility roasts all coffee for the company’s North American distribution efforts.

Avenue of the Arts Inc. Names New CEO, COO Avenue of the Arts, Inc., a non-profit organization devoted to the development of Avenue of the Arts, has named Paul S. Beideman as the company’s new CEO, with Karen Lewis assuming the role of COO. Mr. Beideman is the former chairman of the Mid-Atlantic Region for Mellon Financial Corporation as well as CEO of Associated Bank, a position held between 2003 and 2010.

Ms. Lewis has been with Avenue of the Arts, Inc. for the past 11 years, previously serving as the organization’s executive director.

C&D Technologies Hires New President, CEO Blue Bell, Pa.-based energy storage and backup power company C&D Technologies Inc. has hired Christian Rheault as its new president and CEO. Rheault was previously senior vice president of global business operations for Kulicke & Soffa Industries Inc., which recently moved its Fort Washington headquarters to Singapore.

Interim CEO David L. Treadwell had been in charge of the company’s operations in the process of finding new leadership following the departure of seven-year CEO and president Jeffrey A. Graves.

HIGHER EDUCATION

Drexel Receives $10M Gift Drexel has received a $10 million gift from Dana and David Dornsife for the establishment of a neighborhood partnerships center to be located at 35th and Spring Garden streets.

The Dana and David Dornsife Center for Neighborhood Partnerships will open in a 1.4 acre site in 2014 as a resource for “sharing experience and knowledge with the members of the local community,” according to a statement from the university.

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REGIONSBUSINESS.COM

WEEKLY BRIEFING

BUSINESS PROFILE

BUSINESS PROFILE

Twin-Run Group Finds Flexibility in Management

Investors Mingle at Club Pitch

The FlexPro Group, a chain consultant supplier to the pharmaceutical industry specializing in project management, procurement logistics and package engineering, marks the No. 27 spot on this year’s Inc. 500 list, demonstrating the fourth-largest amount of growth among privately-owned companies in the Philadelphia region.

Founded in 2008 by identical twins Rose Cook and Lynn Faughey, the company’s name stems from the concept of “flexible” work opportunities that are blended with experienced “professionals.”

The twins started the company following personal struggles

Rose Cook (left) and Lynn Faughey

with balancing work and family life, ultimately coming to terms with their lifestyles and wishing to extend their opportunities to others.

“Through our own experiences, we realized what an ideal option it was for professionals such as ourselves to work in a flexible work arrangement, yet continue to engage in challenging and rewarding work,” wrote the twins on their website.

Since establishing their busi-

(INC.COM)

ness model 10 years ago and creating the Plymouth Meeting, Pa.-based company three years ago, FlexPro has witnessed sharp growth of 2,958 percent, increasing from 2008 revenues of $122,000 to revenues of $3.7 million last year.

The consultant company has added 27 jobs in that same time frame, and continues to grow at a tremendous rate as the No. 9-ranked company in its industry.

A total of 120 investors from venture capital firms gathered at the Downtown Club in Washington Square West last week to observe pitches from 25 companies, many of which were regional.

Club Pitch, an event put together by the Wilmington-based Early Stage East to unite investors and ambitious startups, celebrated its 15th year of being held and was keynoted by Blackboard CEO Michael Chasen, representing a company first discovered in one of the early Club Pitch events.

The growing event, which has resulted in institutional funding amounting to more than $1 billion since 1998, was co-hosted by “Shark Tank” television star and

(SUBMITTED)

entrepreneur Daymond John.

“Early Stage East was conceived to be a one-time event.

It’s just unbelievable how this event has grown in the past 15 years providing entrepreneurs and their companies a platform to launch and acquire venture capital financing,” said David J. Freschman, Early Stage East founder and chairman.

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REGIONSBUSINESS.COM

DEALBOOK

RETAIL

CONSTRUCTION

ENERGY

JCPenny Opens in Willow Grove

Shareholders OK Sunoco Deal

JCPenny opened its new 125,000-square-foot location at the Willow Grove Park Mall.

The store occupies two floors of what was formerly Strawbridge’s, which closed in 2006.

The grand opening event included a $10,000 donation for the Philadelphia chapter of Susan G. Komen for the Cure.

Barnes & Noble to Close in January

Officials break ground at the site Tuesday.

Barnes & Noble will close its store in Jenkintown’s Noble Square shopping center after 20 years of occupancy when the lease expires in January.

The company decided not to extend the lease as part of an effort to consolidate brick-and-mortar locations and will instead bundle operations with a larger store at the nearby Willow Grove Park mall.

Ground Broken at Future Senior Housing Campus NewCourtland is converting the former Stanley Blacker suit plant site in North Philadelphia into the anchor for a 5-acre, senior housing and health-care services campus.

The $5.6 million Living Independently for Elders (LIFE) center is expected to help spur additional revitalization in the neighborhood.

Maternity Store Opens in Abu Dhabi

Environmental Standards Expanding

Philadelphia-based maternity wear company Destination Maternity Corp. opened its first store in Abu Dhabi. The company now has 2,008 retail locations, including 14 stores in the Middle East.

Valley Forge-based consulting company Environmental Standards is expanding its 21,000 square foot headquarters by 9,000 square feet in a renovation project. The expansion will allow for 35 more employees at the office.

(SUBMITTED PHOTO)

Energy Transfer Partners L.P., of Dallas, acquired Sunoco Inc. in a $4.9 billion deal after receiving approval from Sunoco shareholders last week.

Shareholders chose between cash or ETP units in exchange for their Sunoco stock. Only 4 percent of Sunoco shares elected to take only ETP units. Since the deal allowed for $2.6 billion to be paid in cash, most shareholders will receive a combination of dollars and ETP units.

Sunoco operations will still be based in Philadelphia, and the brand’s 4,900 gas stations and stores will retain Sunoco’s logo.

The deal was valued at $50 a share, or $5.3 billion

(ALYSON HURT)

in April, but the deal closed for $4.9 billion due to the recent decline in the value of ETP units.

ETP took on about $965 million of outstanding Sunoco debt as part of the deal, and now controls Sunoco Logistics, which operates a network of pipelines and storage terminals, including the new Mariner East pipeline that will transport liquid by-products of Marcellus Shale natural gas to Marcus Hook.

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REGIONSBUSINESS.COM

POLITICS 2012 ELECTION ENDORSEMENTS

Tom Smith (R), U.S. Senate “As a native of Pennsylvania, I believe Tom Smith is the right candidate at the right time for our state. He has put forth a detailed economic plan that simplifies the tax code, cuts spending and encourages energy production to create jobs in Pennsylvania.”

— Former Senator Rick Santorum “Bob Casey has voted consistently in favor of the big special interests and against the interests of Pennsylvania small businesses. Small business owners in Pennsylvania need a senator who will be more independent and committed to getting the federal government off their backs.”

— Kevin Shivers, National Federation of Independent Businesses Pennsylvania State Director

PENNSYLVANIA TURNPIKE COMMISSION

Turnpike CEO Resigns Suddenly

WE NEED EVERY HOUR TO GET EVERYONE REGISTERED TO VOTE...

AND WE’VE GOT TO GET THE NEWS OUT TO PEOPLE THAT THEY DO NOT NEED A PHOTO ID.’ — JILL BIDEN, WIFE OF VICE PRESIDENT JOE BIDEN, TO 150 VOLUNTEERS AT THE OBAMA CAMPAIGN OFFICE IN PHILADELPHIA

ELECTION 2012

Polls: Casey’s Lead Diminishing

U.S. Rep. Pat Meehan (R), 7th District “As a former United States Attorney and Delaware County District Attorney, Pat Meehan has proven his commitment to the citizens of his state and his community. Pat brought his experience working with law enforcement personnel to Congress, where he’s been a tireless voice in support of police officers and their families. We support him with great pride.”

— Les Neri, President of the Pennsylvania State Lodge of the Fraternal Order of Police

Kathy Boockvar (D), 8th District “Our members are clear in their belief that Kathy Boockvar best represents the fighter Pennsylvania working families, retirees, seniors — and most especially members of this Local — need going forward.”

— Bill O’Brien, Communications Workers of America Local 1039 Public Affairs Director (POLITICSPA.COM)

HARRISBURG — Roger Nutt, CEO of the Pennsylvania Turnpike Commission, abruptly resigned Tuesday.

Mr. Nutt was appointed by Gov. Tom Corbett in 2011 to head the government agency that directs the 450mile toll road system. He came out of retirement to accept the position and said in a brief statement he was returning to retirement.

Mr. Nutt, 72, told fellow members of the commission he felt fatigued, stressed and was unable to perform at the level expected.

The commission has seen its level of debt climb 180 percent since 2007 as the result of a state law that used turnpike toll revenue to cover debt service on borrowing for other transportation projects.

— PaIndependent.com PENNSYLVANIA LIQUOR CONTROL BOARD

Eugene DePasquale (D), Auditor General “Pennsylvania NOW endorses Eugene DePasquale because of his dedication to fighting for equal rights for all women. We are very enthusiastic about helping Eugene become Pennsylvania’s next auditor general.”

— Julia Ramsey, president of Pennsylvania National Organization for Women

15

Former PLCB Chairman Resigns

U.S. Senator Bob Casey listens in a Penn State classroom.

U.S. Senator Bob Casey enjoyed a 21-point lead over Republican opponent Tom Smith in May, according to polling center Franklin & Marshall.

But in the most recent Morning Call poll, Sen. Casey’s lead had dropped to just 8 percent.

Sen. Casey’s reelection was originally thought to be an easy victory, but his lead continues to diminish with less than a month left before the election, despite the significant absence of presidential candidate Mitt Romney’s campaign in Pennsylvania.

The Cook Political Report has changed the status of the Senate race from likely Democrat to lean Democrat.

The Casey camp has close ties

(PENN STATE)

to the Democratic Party of Pennsylvania, as they’re in close quarters — literally, as they share an office in Philadelphia. The Smith camp benefits from the PA GOP, which has seven staffers assisting with Mr. Smith’s campaign.

Mr. Smith has generated about $10 million, mostly through his own funding, while Sen. Casey has raised more than $6.2 million. The difference is explained in part by their incomes. Mr. Smith, a former coal mine owner, made about $265,000 last year; Sen. Casey took in $171,000.

About 44 percent of likely voters are still undecided in the U.S. Senate, according to the latest survey from Mercyhurst University).

Amidst an investigation by the state Ethics Commission regarding allegations about inappropriate gifts and favors, a former chairman of the state Liquor Control Board, abruptly resigned Friday.

According to a report from the state Inspector General’s Office, Patrick J. Stapleton III, LCB Chief Executive Officer Joe Conti and Marketing Director James Short allegedly accepted gifts and favors from vendors and other businesses involved in liquor regulation.

Governor Tom Corbett nominated Philadelphia lawyer Ken Trujillo for the position; the state Senate will need to confirm his position.

DEPARTMENT OF HEALTH

State Secretary of Health Resigns Department of Health secretary Eli Avila, whose term was sprinkled with controversial events, has resigned.

A release said he plans to “pursue other interests.”

Deputy secretary Michael Wolf will serve as acting secretary.

DEPT. OF CONSERVATION AND NATURAL RESOURCES

ELECTION 2012

Businesses Launch ‘Retail Means Votes’ The National Retail Federation launched a non-partisan voter initiative, Retail Means Votes this week.

The website, www.retailmeansjobs.com/election, will serve to educate retail industry voters and prepare them to cast their ballot.

Pennsylvania Parks Director Resigns The head of the state’s parks, John Norbeck, said his recent resignation was forced by the Corbett administration because of “philosophical differences,” the York Daily Record reported. Mr. Norbeck is opposed to Marcellus Shale gas drilling in Pennsylvania’s parks.

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11 OCTOBER 2012

POLITICAL COMMENTARY

REGIONSBUSINESS.COM

Romney’s Debate Performance Shifts Presidential Race

Charlie Gerow is CEO of Quantum Communications, a Harrisburg-based public relations and issue advocacy firm.

CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness.com.

Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.

The first debate of this presidential campaign is in the books. To say Barack Obama had a bad night is to understate it. A nation witnessed a meltdown of epic proportion that could not have come at a worse time for the president.

The Romney campaign had been on the ropes. It had gotten little if any “bounce” out of the Republican convention; it was mired down and unable to get on track.

The Obama campaign controlled the message war. With a barrage of 30-second ads, the president maintained he was the champion of the middle class, despite staggering evidence to the contrary. The other thrust of his message was that Mitt Romney was unconcerned about the plight of the middle class.

Romney entered the debate with a fundamental challenge. He had to show he was not the caricature Obama had painted and that he is capable of leading the nation and

putting our economy back on track.

By any measure he succeeded. With a confident stance and a pleasing demeanor, Romney showed he was anything but the ogre portrayed in tens of millions of dollars of Obama advertising.

Romney’s body language was in stark contrast to Obama’s. The split-screen, side-by-side views of the candidates told the story.

Romney systematically challenged the president, clearly rattling him, on the economy. He brushed aside every charge Obama lobbed at him with clear and convincing messages.

While Romney met and exceeded his challenge, his debate provided an ancillary benefit; it caused many voters to question whether the incumbent is capable.

The images fixed in people’s minds following the first debate will be difficult to erase. That’s one reason why the first debate has

historically been disproportionately significant. (Who remembers the second Nixon-Kennedy debate?)

What’s interesting about the overwhelming consensus that Romney ate Obama’s lunch is that there was no defining “gotcha” moment in the debate. Nowhere was there a Lloyd Bentsen scolding Dan Quayle that he was “no John F. Kennedy.” Not a hint of Ronald Reagan telling Walter Mondale that he would not use his youth and inexperience against him. Nothing reminiscent of Gerald Ford claiming there was no Soviet domination of Eastern Europe (unless you analogize Obama saying that the economy is really not in bad shape).

It was much more Richard Nixon appearing tired and disheveled, in contrast to an energetic and handsome John Kennedy. If it is true that 55 percent of communication is visual, the imagery spoke much louder than the phraseology.

Among undecided voters, there had been a perception Obama had failed. But many were not yet sure Romney was an acceptable alternative. Romney cleared the hurdle of acceptability with room to spare.

While first debates are usually the most significant, one exception was Reagan. The Great Communicator stumbled in the first debate, but came roaring back. Voters saw him as still capable, his line about his age serving as the catalyst for the biggest landslide in history. That could still happen. But it’s less likely in 2012 than in 1984.

There is also the growing phenomenon of “early voting.” A sizeable chunk of the electorate will have already voted by the second debate.

Whether the first debate was a game changer remains to be seen, but it certainly was a momentum shifter. It’s a new ballgame. Romney could not have asked for more.

11 OCTOBER 2012

PHILADELPHIA POLITICS

REGIONSBUSINESS.COM

Council to Crack Down on Delinquent Taxes CITY COUNCIL MATTERS

Timothy Holwick is a freelance writer covering Philadelphia government. Find more coverage at citycouncilmatters. com and follow him on Twitter @ CityCouncilBlog.

Philadelphia City Council introduced two new bills last week to help enforce wage and business taxes.

One bill creates a civil action for purposes of enforcing the wage and other business taxes, while the second bill specifically targets contractors in the city. That bill requires construction contractors to prominently display certain information and adds a graduated scale for the required license renewal fee.

The purpose of these bills is to aid the Philadelphia Department of Revenue in enforcing taxes, specifically within the construction industry. The main sponsors are Councilmen Bobby Henon and James Kenney, along with Council President Darrell Clarke.

The first bill creates a civil action to be pursued by the city solicitor, even though the action may be initiated by the city or a private entity. That action, under the bill, will allow the solicitor to seek triple damages for certain prohibited conduct.

That conduct includes any of the following: failing to pay the Philadelphia Wage Tax, failing to pay the Philadelphia Net Profit Tax, conspiring to defraud the city of tax revenue under the Wage or Net Profit Tax, or producing false records designed to dodge those taxes.

If the city seeks an action against an employer or party under the bill, that party can potentially reduce the damages to double, instead of triple, if they cooperate with the proceeding. It is important to recognize that this bill will provide a civil action the Department of Revenue can pursue through the city solicitor.

Tax evaders may still be prosecuted via criminal

Controller Uncovers Use of Unregistered Subcontractors

CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness. com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.

A review of construction sites by from the Office of the Controller found illegal business practices and dangerous working conditions.

The report, “Review of City Tax Evasion at Construction Sites,” reviewed 23 different sites and found 96 conditions that violated tax laws or public safety ordinances.

“We found instances where it’s very likely that general contractors are circumventing the collection of taxes by not properly identifying all of the workers on active job sites,” City Controller Alan Butkovitz said in a press release.

“Our prior Study on the Underground Economy in Philadelphia estimated a direct cost to the city from lost wage taxes amounts to $2.1 million to $7.4 million.”

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UNIVERSITY CITY

Neighborhood Adds $3B of RE Value

(UNIVERSITY CITY DISTRICT)

BEN GREY

investigation, and in those cases the civil action will be delayed until that criminal process can be completed.

While the civil action creates another weapon for the city in its fight to enforce its taxes evenly, the second bill helps make contractor information more visible to tax enforcers. While it is noteworthy that the bill provides for a graduated scale to renew contractor’s licenses based on the contractor’s annual gross sales, the bill also requires contractors to clearly display their licenses. The contractor’s license number and commercial activity license would have to be displayed on all advertisements, stationery, place of business, job sites, proposals, contracts and vehicles used in the course of business.

By making contractors’ licenses more visible, the city feels it can better differentiate who is a contractor versus who is a subcontractor. That distinction determines what employees and work sites should be producing Wage and Net Profit tax revenue.

Furthermore, the visibility of the licenses may make it harder for contractors to permit other parties to perform construction when those parties may not be properly licensed or properly withholding taxes.

These two bills are certainly not the first time City Council has targeted construction contractors in recent months. Last Spring, Councilman Wilson Goode, Jr. brought to life the Economic Opportunity Review Committee, whose goal is to encourage and enforce diversity in union workers employed on construction projects. In that case, City Council saw that many workers were coming from outside the city while union halls within the city had more workers than jobs.

These bills track with two City Council goals: policing the major money industry that is construction in Philadelphia, and getting serious about enforcing taxes as the city’s new property tax assessment initiative becomes effective in the near future.

If the city seeks to raise property taxes for many residents, it must get serious about collecting taxes under existing requirements in order to maintain its credibility in managing city revenue.

University City was home to more than 5 million square feet of new construction in the last year, according to a recent report from University City District (UCD).

“State of University City 2012” also reported 27 acres of green space, $3 billion of total new real estate value and $3 billion of research and development spending.

About half of the state’s funding from the National Institutes of Health will go into research projects in about a single square mile found in the area, said Matt Bergheiser, executive director of UCD. However, Matthew Wolfe, Republican leader of the 27th Ward, told the Philadelphia Inquirer that residents and community leaders of the area didn’t appreciate the UCD’s plan to “jam their master plan for [changing] Clark Park down our throats.”

UCD is a 15-year-old organization dedicated to the improvement and economic development of the UC area. More information is available at universitycity.org.

DEVELOPMENT

Waterfront Plans Disputed Environmental advocates are bracing for a possible fight with City Council after reports that some council members are no longer in favor of a 50-foot buffer for waterfront development.

An original proposal sought a 100foot buffer, but council agreed on the 50-foot requirement. Now, there is no longer a consensus on that distance, according to PlanPhilly.com.

Councilman Bill Green, who was on the commission that rewrote the zoning code, said there’s no reason to worry.

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11 OCTOBER 2012

CAPITOL REPORT

REGIONSBUSINESS.COM

ALCOHOL

EDUCATION

BUSINESS

Beer Sales Could Be Allowed at Markets

Bill Would Limit Financial Aid for Charter Schools

Proposal Funnels Tax Straight to Employer

Craft breweries may soon be able to sell their beer at farmers’ markets and food festivals .

House Bill 2429, introduced by state Rep. Dante Santoni Jr., Democratic chairman of the House Liquor Control Committee, passed in the House, 175 to 20.

Under the bill, the breweries, with appropriate permits, would be permitted to offer tasting and sales of their products for offpremises consumption.

The permits would only be available for companies that produce an annual total of less than 25,000 barrels of beer.

“The craft brewing industry has grown at an astonishing rate in the past several years. House Bill 2429 would allow these small businesses to participate more fully in the niche markets that exist for their products,” Rep. Santoni said.

GAMING

Small Game Bill Undergoes Changes Changes to House Bill 169, enacted last spring, were approved in the Senate last week.

The original small games bill increased prize limits for games conducted by civic, service and fraternal organizations and fire companies. It also called for annual financial reports to the Revenue Department and background checks for club officers.

However, since it took effect last February, critics have slammed the bill as detrimental to small clubs, requiring them to hire financial professionals. To eliminate this issue, the updated bill removes the reporting and background requirements for licensed clubs with annual proceeds from small games of chance of $2,500 or less.

Because the third week of October is the final voting week for the two chambers, the decision on the bill will be made then.

Representative James Roebuck speaks before the House Appropriations Committee.

(PAHOUSE.COM)

A new bill limits public school district financial assistance to charter and cyber schools.

Introduced by State Rep. James Roebuck, House Bill 2661 serves to prevent charter and cyber schools using the districts to cover their own costs.

It limits the amount of special education funding districts are required to provide to charter and cyber schools. Additionally, it reduces the amount

of money charter schools may keep in reserve accounts.

To determine the actual cost of providing these services, the bill would require state Department of Education audits annually.

According to Rep. Roebuck’s office, during 2009-10, districts paid charter schools almost $800 million, with about $227 million reimbursed to them by the state.

Charter Requirements Eased Compared to Public Schools Pennsylvania Education Secretary Ron Tomalis has simplified the testing process for charter schools, enabling them to make Adequate Yearly Progress (AYP) more easily than state public schools.

While public schools are evaluated by whether they meet certain test score targets in each grade tested, Pennsylvania charter schools will now have to meet those

goals in only one of three groupings of grades: 3-5, 6-8 and 9-12.

A new law last month required that test scores be included in public school teacher evaluations, but not charter.

An additional proposal, part of a 53-page amendment inserted into a special education funding bill, requires charter schools to adhere to Pennsylvania Right-to-Know Law.

HARRISBURG — Pennsylvania could have a new pitch for companies looking to relocate: Settle in the Keystone State, and keep the heaping pile of money your employees pay as state income tax.

It’s the concept of a new jobs-boosting proposal from state Rep. Kerry Benninghoff, Benninghoff chairman of the House Finance Committee.

Promote Employment Across Pennsylvania would let qualifying businesses keep 95 percent of personal income tax their employees would otherwise pay to the state. Five percent would go to the state.

Typically, those personal income tax dollars go right to the state’s general fund, with all wage-earners chipping in to fund the state services.

“If the goal is to try to make the tax system more transparent and comprehensive to not only businesses but individuals, a program like this could take the system in the opposite direction,” said Pete Sepp, executive vice president at the tax reform advocacy group National Taxpayers Union in Alexandria, Va. — PaIndependent.com PENN STATE SEX ABUSE SCANDAL

Sandusky Prosecution Leads to Sparring in Harrisburg House Democrats last week sought to bring up debate to ask the U.S. Attorneys’ Office to review the Sandusky investigation, specifically to determine whether it was delayed for political reasons.

Then-Attorney General Tom Corbett was running for governor at the time his office took the reins of the case.

About 17 percent of respondents to a Franklin and Marshall poll thought Gov. Corbett did a good or excellent job handling the case. Almost 50 percent said they’d like to see the investigation reviewed.

Gov. Corbett has said that a case against a public figure takes time. It also took time to encourage victims to come forward.

That won’t keep it from being a political topic this year and during Gov. Corbett’s re-election bid in 2014.

— PoliticsPA.com

LEGISLATIVE UPDATE

HB 907 Amends Judiciary and Judicial Procedure of the PA Consolidate Statues to dismiss any limitations in the prosecution of certain crimes including murder, voluntary manslaughter and conspiracy to commit murder.

— Sponsored by Representative Matt Baker

HR 906 Designates October 27, 2012, “Make a Difference Day” in Pennsylvania.

— Sponsored by Representative Tina Pickett

HR 908 Designates the month of November 2012 as “Pulmonary Hypertension Awareness Month” in Pennsylvania and commends the work of the Pulmonary Hypertension Association.

— Sponsored by Representative Dick Stevenson

HR 909 Designates the week of October 14 through 20, 2012, as “Credit Union Week” in Pennsylvania.

— Sponsored by Representative Dick Hess

HR 907 Commemorates the Congress of the United States to review and reform the Federal assisted housing programs administered by the United States Department of Housing and Urban Development.

— Sponsored by Representative Anthony DeLuca

11 OCTOBER 2012

REGIONSBUSINESS.COM

IDEAS

19

To Succeed, You Must Execute Like a CEO

Neen James, MBA, is an International Productivity Expert. Learn more about her at NeenJames.com.

HOW TO SHARE Send contributions to feedback@regionsbusiness. com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.

Be the Chief EXECUTION Officer (CEO) host a standing meeting (yes make everyone stand up), limit calls to just 15 minutes. No for your business, practice, firm or organione has an hour anymore; the key is to take zation. action in 15-minute increments.

If you want to be more strategic and Cancel meetings: Yes contribute to your personal and you read this right! If professional success you need to you are having meetings have the mindset of execution. because you have the same Productivity is about implePRODUCTIVITY meeting week after week mentation and execution.

IS ABOUT – stop! Unless you have a The word execute means to ‘carry out or to perform’ and it IMPLEMENTATION strong agenda and a reason to invest everyone’s time, derives from Latin exsequi, “carry AND EXECUTION.’ cancel your meeting. If you out, follow up; punish.” As leaders can’t cancel, reduce the within our organization we don’t meeting time by half. want to punish however we need to have Pay attention: You frustrate your team the reputation as someone who performs. when you are constantly distracted by Here are 5 strategies to accelerate your your email and don’t show others respect. productivity and build your reputation as a Distraction is disrespectful. The biggest leader who executes: investment you can make in someone is 15-minute rule: What can you do in your undivided (NOT multi-tasked) atten15 minutes that will get you closer to the achievement of your goals? Consider focustion. Look people in the eyes, put down your iPhone/Blackberry and require your ing on actions for 15 minutes i.e. answer email, host a 1:1 with one of your managers, team to do the same.

Special Delivery.

To subscribe, call 877.700.6245 or 215.627.6397

REGION’S BUSINESS A JOURNAL OF BUSINESS & POLITICS

Choose three strategies: Focus your attention on your top three deliverables.

Make sure your strategies are repeatable (others can share them throughout the business), relatable (others understand how it affects them) and recognizable (others can see the impact of those strategies). As a leader your role is to focus on strategies you can execute!

Disconnect: Take breaks from technology, remove yourself from your email and the minutia that is draining your focus and energy. As the leader invest in the contextual deliverables, the big picture, the strategy – that’s it! Leave the details to those around you to execute.

Want to increase the productivity of your team? Lead by example, stop interfering and allow others to step into their brilliance by empowering them to execute the details of the strategies you create.

Now that’s productive!

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11 OCTOBER 2012

REGIONSBUSINESS.COM

O

ver the years, the warnings had gained the momentum of a rolling wave: Pennsylvania’s financially ailing public-employee pension system would soon plunge the state in a sea of red ink.

By most accounts that time is at hand, and amid all the alarmed rhetoric, the debate now is whether Gov. Tom Corbett and state lawmakers have sufficient time to lower the lifeboats.

Pennsylvania’s two pension systems — one for educators, the other for government employees and state lawmakers themselves — have combined unfunded liabilities of $40 billion. The implications are unsettling, in particular for education and state taxpayers. Legislative discourse on how to reconcile this state debt while achieving true pension reform has been pushed back again, to 2013, but events of the past decade have made it apparent that legislative missteps and economic misfortune have done much to create the money pit.

The pension crisis is the story of legislative action — and at times inaction — that was good-intentioned but flawed. It’s the story, too, of high expectations that an unpredictable stock market could still deliver robust investment earnings for the pension funds, resulting in periods of delayed state contributions, and the realization that lawmakers — as underscored by the testimony of experts at their own reform hearings — tended to be overwhelmed by the complexity of pension economics amid rocky times.

As even those experts note, the two Pennsylvania pension funds — the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS) — are by no means broke and in jeopardy of fulfilling their obligations to retirees. But as the state House and Senate resume their slow-footed approach to meaningful reform, and, in particular, to enacting solid policy to fully fund the two systems, the ticking clock is bringing them closer to midnight of a crisis with broad ramifications.

“Most people assume that publicsector pension failure (in the nation) is inevitable but will only manifest

itself in the long run — that is, 20 or 30 years in the future,” said Gregory R. Mallison, a financial adviser in tune with the troubles of Pennsylvania’s funds. “After all, most pension funds have a large reserve of funds to pay present claims, and the hope is that spending for the future can be taken care of by either a stock-market rally or a reduction in future benefits, preferably for newly hired employees.

“However, the situation for the Pennsylvania public-sector pension funds is much more acute,” said Mr. Mallison, an adviser with Doylestown Wealth Management. “Both PSERS and SERS have reached their Minsky moments, relying heavily on assetprice appreciation to meet near-term disbursements. The state government has responded by raising its contributions to the pension funds, but at this point it is simply throwing good money after bad to delay the inevitable.”

In this case, the inevitable — or “Minsky moment,” an economic theory of entwined market speculation and crisis attributed to late economist Hyman Minsky — is the financial gloom that will overcome the state unless the massive shortfalls of both systems are eliminated to ensure future mandated pension benefits.

The pension blues in Pennsylvania are symbolic of a national epidemic, with states suffering the same symptoms of underfunded plans.

According to the National Conference of State Legislatures, from 2009 through last year, 43 states were undertaking reforms to their publicsector pension plans.

PSERS and SERS, which have existed for some 90 years, are subsidized by three sources: employee payroll contributions, employer contributions (state government and local school boards), and earnings of

SEEING RE It wasn’t so long ago that Pennsylvania’s two public pension funds were flush with cash, boasting of being “super-funded.”

A deep recession and the plummeting stock market that accompanied it have turned the tide to the point that the state is facing an unfunded liability in excess of $40 billion. Getting so deep in the hole was no easy trip; the path out won’t be, either.

Story by John Scanlon

11 OCTOBER 2012

REGIONSBUSINESS.COM

ED

21 plans, contending that workers and the funds’ investment portfolios. their legally protected pension systems Both are defined-benefit plans. In are the scapegoats of a legislature that essence the employee can’t lose, primarhas had a big hand in the funding mess. ily because the benefit is guaranteed With pension reform supposedly — regardless of how the investment moving to the front burner at some portfolio performs — and is calculated point next year, lawmakers are trying with a formula that includes service to court taxpayer support by playyears and the average of an employee’s three highest salary earnings. ing to the stereotype of public-sector But that may change. A movement employees as an unyielding force with is afoot, pushed especially by lawmakhefty pension benefits, unwilling to acknowledge the fiscal realities of these ers and taxpayer-advocacy groups, to changing times. introduce 401(k)-style defined-contriOthers have been jumping on the bution plans for new state government bandwagon. From pension experts to and public school hires. representatives of taxpayer groups, The Commonwealth Foundation, a supporters of defined-contribution public-policy research institute in Harplans, calling them the norm in the risburg, undertook a statewide poll in private-sector workforce, hail their April 2010 that, among other issues, capability to control pension costs and gauged residents’ feelings on pension lessen the need to reach into taxpayers’ reform. By 54 percent to 34 percent, pockets when assets fall short. respondents with an opinion said Five months ago, when the Pennsylthey’d support legislation establishing defined-contribution plans for new vania House State Government Affairs employees.

Committee hosted a public hearing for Among the advantages, backers input on pension reform, an executive insist, is that the plans would be less with the National Taxpayers Union costly for school boards and the state, criticized the state for being too chariwhich pays about 50 percent of the table with its support of PSERS and PSERS tab and all of the contribuSERS benefits.

“While the recent economic downtions to SERS. Just as appealing is that, unlike with existing turn exacerbated the defined-benefit plans, the strained finances of state and school boards Pennsylvania’s pension wouldn’t shoulder the systems, it is not the cost of a financial hit to cause of the crisis,” said investment portfolios by state government affairs a crumbling economy or manager Brent Mead in stock market. a transcript of his NTU That burden would testimony. “Economic be shifted to new fund difficulties simply exposed participants in PSERS fundamental, structural and SERS. The employer flaws in the system. For That Minsky simply would make the too long Pennsylvania has Moment account contribution, promised overly generDrawing on articles leaving it to the worker ous benefit packages to from The Guardian to make investment decigovernment workers that and The Wall Street are not sustainable in the sions for his own retireJournal, Wikipedia long run.” ment fund — decisions defines “Minsky That viewpoint was that ultimately will build Moment” like this: reinforced two months a secure nest egg or cause A Minsky moment ago by Andrew G. Biggs, an irritating crack. is the economic a government-pensions That’s one significant phenomenon that expert for the American reason why two potent occurs when overEnterprise Institute in state unions, the teachers’ indebted investors Washington, D.C., during Pennsylvania State Eduare forced to sell a follow-up reform hearcation Association and the good assets to pay government employees’ ing. back their loans, American Federation of “Public pension bencausing sharp State, County and Municiefits are more generous declines in financial than private plans,” Mr. pal Workers, have gone markets and jumps in Biggs testified during the on record in opposition demand for cash.

August 14 hearing. “In to defined-contribution

22 2011, a Pennsylvania state employee who retired after at least 30 years of service received a benefit equal to 70 percent of his final salary. Adding in Social Security, he would receive as much in retirement as when he was working. Very few private-sector workers with 401(k) plans will receive benefits anywhere near that level of generosity.”

The beauty of defined-contribution plans, he says, is that they’re always fully funded and pose no huge risk to taxpayers. The Pennsylvania legislature and local school boards would have no concern for stock-market performance or guaranteeing fixed benefits for years. Employees would have to chart their own retirement destiny.

Gov. Corbett already has noted his preference of such a plan for new teachers and state workers. So has PSERS Executive Director Jeffrey Clay, who believes that some finetuning to reduce existing liabilities, rather than undertaking a massive reform overhaul, would solidify the pension system for its 475,000 active and retired members.

During testimony on behalf of his conservative, nonpartisan policyresearch institute, Mr. Biggs also had a warning for lawmakers, one that already has been emphasized by other pension experts, state budget secretary Charles Zogby, even the leadership of the state’s two pension systems.

Switching to a defined-contribution plan for new hires would not reduce the state’s existing unfunded liability to PSERS and SERS. That liability — the difference between the benefits a fund owes and the assets it has to pay them — is at $40 billion and counting. It is a legally mandated debt that requires a financing plan.

“Shifting a pension plan to a definedcontribution structure won’t reduce the benefits owed under the existing defined-benefit plan,” Mr. Biggs told the House committee. “Regardless of how policymakers choose to reform pensions, they must plan for ways to pay benefits that are currently owed.”

The tepid attempt of lawmakers thus far to do that can be attributed to the distasteful options before them.

The general consensus — from the studies of state budget officials, taxpayer groups and pension experts — is that reducing the unfunded liabilities of PSERS and SERS comes down to two choices: Increase the contributions by state

11 OCTOBER 2012

REGIONSBUSINESS.COM

REGARDLESS OF HOW POLICYMAKERS CHOOSE TO REFORM PENSIONS, THEY MUST PLAN FOR WAYS TO PAY BENEFITS THAT ARE CURRENTLY OWED.’ —ANDREW G. BIGGS

government and school boards.

Raise taxes.

Current pension-fund members enjoy court protections, plus their contribution rates are established by statute, so little room exists to tinker with their benefits. Big returns on the funds’ investment portfolios could help pay down the debt, but the recession and market meltdown have been significant contributors to the deficit.

Borrowing money isn’t on the table — Gov. Corbett’s two state budgets to date have relied on big cuts to reduce debt, and past legislation has barred the use of pension obligation bonds to amass more money — and thus more debt — to pay off the PSERS/SERS liabilities.

So that leaves bigger employer contributions to the funds or a bigger tax bill for residents.

The Pennsylvania School Boards Association, though it supports 401(k)type plans for future school employ-

ees, has been coordinating a petition campaign among the state’s 501 public school districts to demand that the legislature get serious about pension reform and also mitigate upcoming contribution increases, insisting that they will harm educational programs already smarting from $1.2 billion in cuts to school aid by the 2011-12 state budget.

Mr. Mallison, the adviser with Doylestown Wealth Management, offered his perspective in a recent analysis of the difficult choices for pension reform. Even with increased contributions from the state and school districts, he said, the pension structure of PSERS would remain unsustainable.

“It would be much fairer to acknowledge this fact and devise a system that will provide for the retirement needs of employees in a way that is sound and realistic,” he said. “However, given the unpleasant realities, facing the prob-

lem squarely will be unpopular and therefore unlikely.”

The reform mission facing lawmakers is clear. They must devise a swift and sensible game plan for a complex pension crisis that has been more than a decade in the making.

According to PSERS figures, the fund has $48.8 billion in assets but is paying out roughly $6 billion in annual retiree benefits, about double the $3 billion it is receiving in government and school-board contributions.

The state also must address PSERS’ unfunded liability — at this point, about $27 billion.

The 228,000-member SERS, with $25 billion in assets, receives about $77 million in monthly income from both government and state employee contributions, but it is paying $235 million in monthly retiree benefits.

Over the last decade, the fund estimates it has amassed $10 billion in investment earnings while also receiv-

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11 OCTOBER 2012

REGIONSBUSINESS.COM

TTHE COMMONWEALTH FOR THE LAST SIX YEARS HAS NOT MADE PROGRESS IN PAYING DOWN THE SYSTEMS’ UNFUNDED LIABILITIES.’ —2008 REPORT OF GOVERNOR’S BUDGET OFFICE

ing $4.6 billion in total contributions.

Benefit payouts, however, have amounted to more than $18 billion.

SERS, too, has an unfunded liability that awaits state payment. It stands at about $13 billion.

They are numbers that recently encouraged state Rep. Warren Kampf (R-157th Dist.), whose district encompasses parts of Chester and Montgomery counties, to craft a pair of bills with pension reform in mind.

“The current defined-benefit system is unsustainable,” he said during the unveiling. “It is critical that we stop expanding a program that is crippling the finances of school districts across the state.” * * * The late 1990s were giddy times for investors, their stocks riding on the wings of a soaring market. That’s how it was for the state’s pension plans, too.

According to a June 2008 report of the Governor’s Budget Office, commissioned by then-Gov. Edward G. Rendell to examine challenges facing both funds, PSERS had a significant surplus in 2000 — it was “super-funded” at 123.8 percent — and SERS was even stronger, with a funding ratio of 132.4 percent, as both plans bulged from the investment earnings of a five-year

bull market.

Combined, the funds enjoyed a surplus of roughly $13.5 billion in 2000, amassing more cash than they were paying in retiree benefits.

Those heady days now are just a memory. At the time of that 2008 report, PSERS boasted 85.8 percent of full funding, still a solid ratio, with $67.4 billion in assets — about $20 billion more than it has today — and a $9.4 billion unfunded liability.

The nation’s economic crash of 2008-09 ultimately destroyed about $11 billion in the PSERS investment portfolio. Today, it has about 69.1 percent funding to meet pension obligations.

SERS was even stronger before the ’08 meltdown, with 97.1 percent funding, $35.5 billion in assets and just a $914 million unfunded liability. Today it’s down to 65.3 percent.

Actually, the air started to seep from the balloon after the strong economy of the late ’90s disintegrated to a recessionary era in 2001. The state report highlights how the period and a resulting market swoon, intensified by the tech-stocks bust, drained the funds of assets, but the legislature also undertook a series of moves that proved financially unwise and pushed the rum-

bling boulder that, 10 years later, is about to smash into Harrisburg.

Buoyed by those fund surpluses, lawmakers opted to pretty much cease state government and school-board contributions to both funds during the 2001-02 fiscal year, although teachers and state workers continued their paycheck deductions.

A softening U.S. economy in 2001, soon to be weakened significantly by the 9/11 terror attacks, made it apparent that those happy days of market earnings were losing momentum for the pension funds.

Just the same, state lawmakers voted to award themselves a 50-percent increase in pension benefits, while also throwing 25 percent to teachers and state workers to quiet any political fallout, and then passed legislation in 2002, known as Act 38, to award a cost-of-living increase to retirees receiving PSERS and SERS benefits.

Those $13.5 billion surpluses enjoyed by both funds just two years earlier had faded away. The PSERS surplus, whittled to $2.5 billion by 2002, became a $1.5 billion deficit the next year. The remaining SERS surplus of about $1.8 billion tanked the same way, becoming a deficit of just over $1 billion.

There was one other thorny matter.

Those benefit enhancements of 2002 would fatten the long-term costs of both pension funds and, more immediately pressing, saddle state government and school boards with increased contributions to the system.

Lawmakers decided to worry about that another day. In 2003, then-Gov. Mark Schweiker signed Act 40, a legislative measure that allowed the state and school districts to delay those contributions for the next decade, hopeful that a rebounding stock market would help boost the funds, while workers kept pace with their own contributions each year. The legislation also expanded amortization of some of the funds’ liabilities over a 30-year period.

“This mismatch provided much-needed ‘breathing room’ by postponing large increases in employer contribution rates until fiscal year 2012-13,” the 2008 report says, “but as a result the Commonwealth for the last six years has not made progress in paying down the systems’ unfunded liabilities.”

This swirling vortex — delayed contributions, benefit perks, amortized debts, emergency legislation, a bad stock market — also delivered somber actuarial projections to lawmakers. Once the decade of stopgap measures allowed by Act 40 came to a close, most likely with the 2012-13 fis-

THE NUMBERS GAME

Getting into the Acts A few stops along the pension funds’ bumpy road paved with red ink.

2001-02

During that fiscal year, state lawmakers opted to all but cease state government and school board contributions to both pension funds.

50%

The increase in pension benefits state lawmakers awarded themslevs in 2001 despite a softening economy.

25%

The increase in pension benefits state lawmakers awarded teachers and state workers in 2001 despite a softening economy.

Act 38

Passed in 2002, this legislation awareded a costof-living increase to retirees receiving benefits from either pension fund.

Act 40

Signed by Governor Mark Schweiker (above) in 2003, this allowed the state and school districts to delay pension contributions for the next decade.

24 cal year, the state and school boards would face a monumental spike in contribution rates and a financial Armageddon for the two pension funds.

That crystal ball four years ago fell quite short on the state’s actual numbers. The costs are deeper. According to the state budget office, the government’s share of PSERS contributions for the current fiscal year is $856.1 million, a 43-percent increase from last year’s $600 million. The projection for 2013-14: $1.2 billion.

The state’s SERS contribution this year is $677.4 million, up 45 percent from last year’s $468.1 million. Next year’s projection: $971.3 million.

Even if those past dollar projections were off, predictions of stormy times for the pension funds came to pass. Not that those predictions were a surprise. The need for true reform gained clarity as long ago as September 2006, when the state auditor general’s office undertook a performance audit of PSERS and SERS and suggested that underfunding would be a perennial headache unless “the school boards, the governor and the General Assembly work together to address the critical issue that will soon impact the retirement plans.”

Mr. Biggs, the pensions expert with the American Enterprise Institute, told House committee members during their reform hearing two months ago that lawmakers have made imprudent financial decisions while delaying payments to the state’s pension funds.

“When a sponsoring government fails to make its full pension contributions, it is not released from its obligation to pay full benefits,” Mr. Biggs said. “Instead, contributions must be made up in future years, plus interest at whatever rate of return the plan assumes for its own investments. In Pennsylvania’s case, this is mathematically equivalent to the government borrowing at a 7.5-percent interest rate at a time when explicit government debt carries much lower yields.”

In contrast to today’s legislative calls for 401(k)-type plans that shift the risk burden to pension members, the Rendell Administration saw little merit in defined-contribution plans.

The administration instead took a cue from its predecessors. Those actuary predictions of a contributions ratespike bomb that would go off this fiscal year were defused to a degree by

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IT IS CRITICAL THAT WE STOP EXPANDING A PROGRAM THAT IS CRIPPLING THE FINANCES OF SCHOOL DISTRICTS ACROSS THE STATE.’ —WARREN KAMPF

Act 120, legislation that was enacted in November 2010 and, like measures in preceding years, primarily sought to buy time until a fix could be crafted.

The legislation capped yearly increases of employer contribution rates and revised amortization schedules to pay down the PSERS/SERS unfunded liabilities. It also established a new tier for employees hired in 2011 or later, with lower benefits, longer vesting periods and increased retirement ages.

The general legislative strategy has been to cap annual contribution rates or artificially suppress them while playing the roller-coaster stock market, all as the payable benefits of new retirees have entered the system.

PSERS has roughly 194,500 school retirees. According to the fund, its average yearly benefit payout is $23,897. The current fiscal budget projects that retirees will increase by 10 percent this year, perhaps by as much as 24 percent by 2016-17. The outlook for SERS, with about 115,000 retired state workers and an average pension annuity of $24,448, is that their numbers will grow by 1.8 per-

cent this year and nearly 8.8 percent by 2016. * * * With talk of reform heating up again, summer arrived with a wave of legislative bills designed to repair the state’s broken pension system. At last count there were nine of them, most of them the work of Republican lawmakers, and the proposals take a broadly scattershot approach to fixes rather than offer one focused and strategic response to the pension challenge.

For example, Rep. Kampf has introduced two bills to establish 401(k)style defined-contribution plans for new government and school employees, starting in 2015, along with contribution incentives to lure existing employees to the new plan.

Senate Majority Leader Dominic Pileggi (R-9th Dist.), who represents parts of Chester and D e l aw a r e counties, has emerged with a Senate version of Rep. Kampf ’s

push for a defined-contribution plan.

State Rep. Scott Boyd (R-43rd Dist.), however, favors a “cash balance” plan for new workers, providing retirees an annuity composed of contributions and accrued interest. But then there’s state Rep. Scott Petri (R-178th Dist.), who has crafted two bills that give state workers and school employees the option of joining a defined-benefit plan or a 401(k)-style contribution plan.

Rep. Kampf has touted his bills as prescriptions for taxpayer relief.

Among their virtues, he insists, is that “future legislatures are prevented from tapping pension money” to pay for other government spending, a tactic he says has contributed to underfunding of the PSERS and SERS plans.

“Elected officials — Democrats and Republicans alike — have made it clear that the elaborate pension plans granted to public employees, specifically defined pension plans that guarantee a set retirement benefit regardless of economic fluctuations, are placing a crushing burden on our cities, counties, municipalities and school districts,” Rep. Kampf said

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SUDDENLY, EVERYONE HAS A PLAN

Rep. Warren Kampf Introduced two bills to establish 401(k)-style defined-contribution plans for new government and school employees, starting in 2015, along with contribution incentives to lure existing employees to the new plan.

Sen. Domenic Pileggi Introduced a Senate version of Rep. Kampf’s push for a defined-contribution plan.

Rep. Scott Boyd Favors a “cash balance” plan for new workers, providing retirees an annuity composed of contributions and accrued interest.

Rep. Scott Petri Crafted two bills that give state workers and school employees the option of joining a defined-benefit plan or a 401(k)-style contribution plan.

while debuting his proposals.

Mr. Mead, the National Taxpayer Union executive who testified at a House committee hearing on reform in May, doubts that some of the legislative proposals will remedy the pension crisis. “Cash balance” plans, he told the panel, are comparable to the defined-benefit plans already in place and do little for the long-term issue of plan solvency.

The Petri plan that offers options, Mr. Mead added, should require mandatory membership that would build the enrollment necessary to deliver true savings to the pension system.

“No level of reform targeted solely at new hires can avoid this situation,” he said in a transcript of his testimony, referring to escalating government and taxpayer costs to support the current system. “This committee must undertake the difficult task of modifying current benefits, especially those regarding early-retirement subsidies, redefining eligible income for pension calculations and curtailing the abuse of cost-of-living adjustments.”

His taxpayer group recommends moving from the unwieldy and overly complex structure of the current plans by creating just one defined-contribution plan for all new hires.

As this pension train picks up steam going into 2013, there is likely to be some resistance ahead on the tracks. The Pennsylvania State Education System, backed by its 190,000 members, has been publicizing its opposition to the

defined-contribution movement and what it regards as lawmakers’ attempts to abandon the state’s pension obligations.

The union has been firing some stinging bullets. The pension paradox wouldn’t be at this stage of crisis if the legislature, like PSEA members, had delivered their required contributions over the years, according to the union’s leadership.

Noting that most of its educators have been observing a 7.5-percent contribution rate since 2001, the union says it has paid more than $7.3 billion to the PSERS fund over the past decade, nearly twice the $3.7 billion paid by state government and school districts.

In a PSEA position paper, President Michael J. Crossey criticized the legislature for a decade of “shortsighted decisions” that, along with the 2008-09 economic meltdown, contributed to the current pension-funding crisis.

With cuts to education and a push for school vouchers during the Corbett Administration, he added, the pension issue is the latest assault on educators. The union once again has decided to get political by drafting a slate of pro-education lawmakers who have PSEA’s backing in next month’s elections.

“The pension proposals are just another part of the overall attack on public education and public employees,” Mr. Crossey said. “Like the others, it all comes down to the governor having enough votes in the legislature. Or, as we need to ensure, a lack of votes.”

Bill: Any Felony Should Forfeit State Pension HARRISBURG — Former Penn State University assistant football coach Jerry Sandusky won’t lose his public pension, despite being convicted of multiple sexual abuse charges.

Neither would a teacher convicted of assaulting his spouse or a police officer of a drug offense.

Doesn’t seem fair, does it?

Well, Pennsylvania’s Public Employee Pension Forfeiture Act only strips public officials and state employees of their pensions, if they are convicted of crimes related to their public office.

But, state Rep. Fred Keller, R-Union, doesn’t believe the law is strong enough.

He wants to take away their pensions from the State Employees’ Retirement System and Public School Employees’ Retirement System, if they are found guilty of any felony or violent crime.

“It’s a matter of good judgment. It’s a shame we have to legislate that,” he told PA Independent.

“If the taxpayers are going to pay your salary, and they’re going to contribute money to your pension, you shouldn’t be violating their trust.”

One legislator, however, says the current law is fair and plans to oppose House Bill 2469 should it reach the House floor next week. This proposal is one of the more expansive probes on pension forfeiture to come through this legislative session.

State Rep. Greg Vitali, D-Delaware, who voted against the bill when it passed out of the House State Government Committee, said those who commit crimes are subject to the court system and its tools and could be dismissed from their job for particularly bad behavior.

“I don’t think that it’s just to simply, after many years of service, take away a pension for something not related to the office,” he said.

He said requiring forfeiture for crimes unrelated to public office wouldn’t dispense justice equally, as those who are

more vested in the system could stand to lose more than a newer employee.

“Two people who did the same misdeeds and one loses 30 years worth of pensions, and another loses virtually no pension because he doesn’t have one,” he said.

Employees can appeal the forfeiture through the state, as is the case with former state Sen. Robert Mellow, who pleaded guilty to federal conspiracy charges in May. Keller’s bill is one of a handful of pending bills that would amend the state’s forfeiture laws. His bill has not been scheduled for a House vote and only four voting days remain until the session ends Oct. 18.

Senate Bill 1290, sponsored by from state Sen. Larry Farnese, D-Allegheny, would add any crime requiring sex offender registration to the list of punishable offenses. Senate Bill 1114, introduced by state Sen. Kim Ward, R-Westmoreland, would add crimes of child pornography.

Both bills have yet to move from the Senate Finance Committee.

But on Wednesday, that committee did vote out a Senate bill retooling the definition of “student” in the state’s forfeiture act. Senate Bill 1595 would apply pension forfeitures to crimes against students who are being instructed, mentored, supervised or counseled, clarifying the existing language.

Public servants are held to higher standards in some other states when it comes to keeping their pensions. In Oklahoma, public pensions can be revoked for felony convictions. In Maryland, pensions of state legislators can be lost if they are convicted of any felony while in office.

In West Virginia, forfeiture applies to those whose service is deemed “less than honorable.” But overall, many states revoke pensions for crimes related to public office, similar to Pennsylvania’s law.

- PAIndependent.com

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Lofty Earnings Expectations Dog Funds

BY JOHN SCANLON You could understand if executives of Pennsylvania’s two major public-employee pension funds felt the need to sit with ice bags on their heads upon receiving the disappointing news in mid-September.

Their funds must pay billions in guaranteed benefits each year to retired educators and state workers. Earnings on the funds’ investment portfolios help pay the bulk of those benefits.

So it’s unpleasant to hear that your fund’s portfolio isn’t hitting actuarial projections.

That’s what investment executives of those two state pension funds, the Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS), learned of their latest earnings performance.

The PSERS fund returned just 3.4 percent for the 2012 fiscal year, which ended June 30. SERS fared much better, with the second quarter of its current calendar year maintaining a return of 6 percent on investments from Jan. 1 through June 30, but it still was short of the fund’s projected 7.5-percent rate of return.

“The portfolio weathered a difficult second quarter pretty well,” said Anthony Clark, SERS’ chief investment officer, in a statement on the fund’s performance.

“While second-quarter returns were flat, the portfolio didn’t give up any first-quarter gains despite uncertainty that plagued the global markets in April and May.” Just the same, both funds’ financial inertia has come at a cost for Pennsylvania.

Moody’s Investors Service downgraded the state’s general-obligation debt rating in July, concerned that growing pension liabilities will continue to burden the state’s slow economic recovery.

For PSERS, its failure to meet its 7.5-percent earnings rate was disappointing, yet fund managers still found a silver lining.

The PSERS board has been trimming the fund’s exposure to equities in recent years, taking more of a “risk-parity” strategy -basically diversifying the portfolio – and lowering it previous expectation of 8-percent returns to 7.5 percent.

There is, however, one logical question that could be posed by your everyday investor who would do cartwheels to earn 7.5 percent in this climate of lousy returns.

Is such a portfolio return overly optimistic? Even highly unrealistic?

That’s on the minds of some finance

Anthony Clark, chief investment officer for the State Employees Retirement System.

experts who have been observing the state legislature’s attempts to restore financial health to the PSERS and PERS funds.

Consider, for example, Brent Mead, state government affairs manager for the National Taxpayers Union, who recently testified before the House State Government Affairs Committee during a pensionreform hearing. Mead said the two plans assume unrealistic rates of return.

“If any member of the committee received similar rates of return over the past five years,” he quipped, “I would be interested in meeting your investment adviser.”

So would others. In fact the National Association of State Retirement Administrators recently felt compelled to address the issue, noting that “media members, academics and policymakers” have conveyed doubts about such investment-return assumptions in these times of low interest rates and volatile stock returns.

NASRA, an advocacy group for directors of state pension systems across the nation, insists that actuarial procedures are standard and acceptable. “If this were true,” NASRA said of unrealistic rate projections, “it could encourage these funds to take too much risk in investing pension-fund assets, or it could understate the cost of pension liabilities, reducing their current cost at the expense of future taxpayers.”

For public-sector funds like PSERS and SERS, assets are invested to support the cost of retiree benefits. But the earnings also help state plans to pay down unfunded liabilities. These shortfalls – the difference between a fund’s assets and what it needs to pay long-term benefits – are plaguing state

pension plans across the nation, typically the result of delayed government contributions, increased retirement benefits and poor investment returns.

PSERS, with a $27-billion unfunded liability, and SERS, which tacks on $13 billion more, are the focal points of a pensionfunding crisis in Pennsylvania.

Investment earnings provide the bulk of a pension fund’s revenue -- typically as much as 60 percent, with the balance supplied by employer contributions (state government and school boards) and paycheck deductions from employees.

But there’s also nothing like a market collapse to turn an investment manager’s smile to a frown. The country’s 2008 economic meltdown inflicted a 28.7-percent loss on SERS’ investment portfolio; for PSERS, the hit was 26.5 percent. Both funds lost billions of dollars.

The latest doldrums follow a 2011 that was similarly lackluster for the funds.

State pension plans across the country are mired in the same malaise. Wilshire Associates, the global investments advisory firm, recently reported that state and local government pensions saw a median gain of only 1.15 percent during the just-ended fiscal year. Corporate pension funds fared better – about 3.7 percent.

In prosperous times, portfolio earnings that exceed the projected return rate can lead to reductions in contribution rates, permitting more dollars to be redirected to education or state programs. If earnings are short of the projected rate, the deficit increases the unfunded liability and typically requires higher contributions, which, inevitably, come from taxpayers’ pockets.

These actuarial assumptions have a certain crystal-ball element. The portfolio rate is established every year by weighing a number of current and future factors, including a plan’s assets and liabilities, economic data, projected cash flows and risk tolerance, according to NASRA. During an August hearing on pension reform, Andrew G. Biggs, a governmentpensions expert with the American Enterprise Institute in Washington, D.C., told a Pennsylvania House panel that SERS, the fund for state employees, would have an unfunded liability of about $42 billion – more than three times its current $13 billion – if the state’s two pension plans were required by federal regulators to use private-sector standards.

“The discrepancy stems from the fact that public pensions may ‘discount’ their liabilities using the high interest rates they project to earn on their investment; for Pennsylvania, this rate is 7.5 percent,” he said. “The problem is that pension benefits are guaranteed while pension investments – in stocks, hedge funds, private equity and the like – can be highly risky.

“Private-sector pensions must discount their liabilities using lower interest rates to reflect the low risk of the benefits, regardless of how much risk pensions take on the investment side,” Biggs said.

NASRA says that until the 1980s, public pension assets were heavily invested in bonds and other assets with returns lower than a diversified portfolio of stocks, bonds and real estate. With high interest rates in the early ‘80s, and as more pension funds moved to diversified portfolios that offered higher expected returns, rate assumptions went higher to reflect rising real rates of return.

Biggs told lawmakers that accounting standards used by public-sector funds encourage pensions to take excessive investment risk. That extra risk won’t reduce pension liabilities, he said, but simply places a bigger burden on state governments and taxpayers if a plan’s portfolio falls short.

“Investing in riskier assets raises the plan’s expected investment returns and lowers current required contributions,” he explained. “But it also increases the contingent liability placed on future taxpayers, which rises along with the risk of the investments.”

Freelance writer John Scanlon lives in Philadelphia’s New Jersey suburbs.

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FINE ESTATES PREVIEW

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CHAMBER REPORT

GREATER PHILADELPHIA CHAMBER OF COMMERCE

UNITED NATIONS ASSOC. OF GREATER PHILADELPHIA

Di Bruno Bros. Owners Discuss Success of Family The Young Professionals Network of the Greater Philadelphia Chamber of Commerce will host Billy and Emilio Mignucci, owners of Di Bruno Bros., on October 17 for the next installment of the Know the CEO program series.

The event will feature a roundtable discussion with the Mignuccis as they discuss the challenges of turning their family business into a Greater Philadelphia household name.

Registration is open until October 16 and costs $20 for non-members.

NATIONAL ASSOCIATION OF LATINO ARTS AND CULTURE

Philadelphia to Host Conference Philadelphia will host the National Association of Latino Arts and Culture’s annual conference, the only national conference in the U.S. that specifically convenes Latino arts professionals, from October 17 through October 21.

More than 500 participants are expected to attend from across the nation for networking and panel events at the Loews Philadelphia Hotel on Market Street.

Registration is currently open.

INST. FOR TRANSLATIONAL MEDICINE & THERAPEUTICS

Author Roam Addresses Chamber

World Food Day 2012 Panel to Discuss International Crises

The Greater Philadelphia Chamber of Commerce will host an interactive workshop with best-selling author and public speaker Dan Roam October 15 at the Comcast Auditorium in the Barnes Foundation.

The workshop will focus on Vivid Thinking, Roam’s unique problem solving process featured in his latest book, “Blah, Blah, Blah.” Registration is open, and individual tickets are available for $25 each.

The United Nations Association of Greater Philadelphia will host a panel discussion for “World Food Day 2012” October 14 at the Hopkinson House Solarium.

Speakers will discuss food markets and crises around the world with specific focus on feeding the world through agricultural cooperatives, population pressure and global food needs and local solutions for global problems.

Panelists include Dr. Alan Kelly and Dr. Alison Buttenheim, both from the University of Pennsylvania, as well as Bob Pierson of the Philadelphia Common Market.

The Perelman School of Medicine of the University of Pennsylvania will host the 7th annual Institute for Translational Medicine and Therapeutics International Symposium at the Translational Research Center Auditorium and Lobby October 16 and 17.

Penn Holding Medical Symposium

The symposium will focus on global approaches to translational medicine, translational therapeutics; individualization of therapy, and systems pharmacology.

Q&A

11 OCTOBER 2012

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MARK HEADD’S

DIGITAL MAP

Philadelphia’s inaugural Chief Data Officer sees himself as a matchmaker between a transparent government and its citizens. He has no predecessor to follow, but that doesn’t mean he’s lost. Far from it.

What is it that a Chief Data Officer does?

My primary responsibility as Chief Data Officer is to be accountable for and oversee the implementation of the Open Data Policy with the goal of making Philadelphia city government more transparent and accessible.

Cities, particularly big ones, are huge repositories of data, and more and more of them are starting to realize the vast potential that the data they collect has when released to outside developers, entrepreneurs and others. The Chief Data Officer is a “matchmaker” between producers and stewards of data within government and consumers of data outside of government.

The Open Data Policy lists several goals it hopes to achieve. Are there any goals that you hope to focus on more so than others?

Executing the mayor’s vision for open and transparent government is my top priority. Mayor Nutter is committed to finding ways to leverage the talents of Philadelphians in the technology and entrepreneurial community and drive innovation.

Philadelphia is becoming a center for technology innovation, and one of my goals is to create partnerships with the local technology community to foster new ideas and help develop innovative solutions for the city.

You’ve worked extensively Photo by Rebecca Savedow

with Code for America, as well as OpenDataPhilly.org, both of which are organizations dedicated to transparent government. What is the significance of an open and accessible government?

Open government data is a catalyst for innovation between government, the private sector, nonprofit sector, academia, the journalism community, etc. It’s the common ground on which all parties can come together to work collaboratively on solutions.

Open government data is one of the cornerstones of open government, and available data can create change that can transform cities.

How will you set the tone for the future Chief Data Officers?

Innovation and change doesn’t happen in a vacuum, so a Chief Data Officer needs to be able to bring people together and foster creative thinking. There’s no reason for governments not to leverage the creative ideas and smart solutions being developed by the private sector, and open data is an ideal platform for doing that.

If one of the jobs of a Chief Data Officer is to act as a change agent within government, part of that job is recognizing that some of the best ideas for change come from the people on the front lines providing services to citizens every day.

Text by Emily DiCicco

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Real Estate Among Catholic Church’s Challenges

BY CARISA CHAPPELL Churches and their related buildings, including schools, are closing at a record pace in the Philadelphia region and more are expected to shut their doors. Experts say dwindling membership coupled with a changing demographic has left churches unable to maintain their facilities.

In fact the problem has become so rampant that there’s been a big push within the Catholic churches to ask parishioners for more money to keep their doors open amid a looming threat that by spring, any church that can’t pay its bills may be shut down. Some sources say that this can mean as many as 60 churches.

“Quite simply, Catholics are not living where many of our churches are located,” according to Father Christopher Walsh, pastor of St. Raymond of Penafort parish in Northwest Philadelphia. “In addition, for a great number of reasons, the number of people attending weekly services at

Catholic churches has decreased which has led to financial problems. Less income plus same expenses equal problems.”

Walsh knows first hand the challenges it takes to sell a church property as he is in the final stages of selling an old convent on the edge of the church property. Catholic Social Services vacated his parish’s former convent in December 2008 and he is still trying to finalize a purchase. The building has been used for a variety of parish needs during the time but his desire is to sell the building to create an endowment for the parish’s school.

“We spent more than 18 months working with one buyer but they failed to get zoning approval. We have a letter of intent to purchase, but the buyer is still lining up funding sources,” he said.

In other recent transactions, in September the Archdiocese of Philadelphia auctioned off and sold a vacation house once used by elderly priests and owned by the archdiocese for close to 50 years. The

Not all church properties will be sold outright. This Levittown, Bucks County property is among those being leased and a number of other options are on the table. REGION’S BUSINESS STAFF

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Jersey shore, 9800 square foot property was sold for a little more than $4 million.

Also in September it was announced that the 16-room cardinal’s residence on City Avenue will be sold to St. Joseph’s University for $10 million.

However, while the Archdiocese of Philadelphia has been in the media a lot lately, experts say it’s not just the catholic churches that are having building upkeep and closure issues.

Among the dozens of church listings for sale on LoopNet.com, a commercial real estate sales website, are a church and residence for sale by the former All Saints Church at 6301 Crescentville Road for $780,000 and the former Christ Independence Baptist Church at 114 W. Ontario for $207,000.

Bob Jaeger is president of Partners for Sacred Places, a national, non-profit organization headquartered in Philadelphia that helps all congregations to find partners for utilizing vacant spaces. He said demographic shifts have caused many of the major denominations to all have declines in their congregation and parishes, including a lot of African-American churches.

“It’s a trend that tends not to get better,” he said.

There are a host of challenges associated with selling a church property. One of them being that the commercial real estate market is already flooded with properties in general, according to Fr. Walsh.

Additionally he said there are zoning considerations as well as what is called “appropriate uses” for a former church or Catholic property.

“In many areas where churches are closing, these areas as a whole are experiencing an economic downturn, so there is not a great deal of interest in the property. Also, many of these buildings are in a less than desirable condition and come with large maintenance and utility costs,” he said.

Bethany Welch, head of the Aquinas Center in South Philadelphia, agrees and has done a lot of research for her dissertation on the topic of church closures.

She added that the fact that the churches are huge properties also makes them difficult to sell. She said many come with large convents, a school, gym and properties that can be a block long.

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sore with vacant buildings, some religious institutions are finding new ways to utilize their facilities. While the facade may be the same, the role of the church is changing as demographics dictate the need to alter the traditional role of the neighborhood church.

A huge trend is to repurpose parochial schools as charter schools as the real estate has many of the features that those schools desire, according to Ms. Welch. Other options include selling them off or renting space to low-income residents to further their mission. Ms. Welch added that in several instances the church schools have been turned into low-income senior housing where possibly former parishioners may be residing.

“Churches are in a different place than they were 100 years ago. They need to be creative and find out how do we care for our community in a new way,” she explained, adding that some churches are considering utilizing their vacant spaces for job training.

Mr. Jaeger said it’s important to work with community leaders to discuss what would be a good fit for the neighborhood and encourage re-use of the church prop-

erty. Often this can lead to new non-profit organizations.

“If we can do that successfully and find users of a shared space then that will help provide a stream of central income to help the church for some time,” he said, adding that some churches have successfully turned their spaces into event centers with catering halls and performance spaces.

Mr. Jaeger said Sacred Places has done a lot of research looking at how churches are used during the week and 81 percent of the people that come through the doors are not members of that particular sacred place.

“That’s four out of five people, it’s a de facto community center,” he said.

Fr. Walsh said as the interest in religion continues to decrease among younger people there will continue to be the need to close exiting structures and make use of buildings that are more appropriate for the needs of the community.

“The church will always be present to the community, just in different ways,” he said.

Carisa Chappell is an associate editor with National Association of Real Estate Investment Trust.

36

11 OCTOBER 2012

REGIONSBUSINESS.COM

OPINION

Archdiocese Using Business Perspective

Terrence Casey is the Associate Editor of Region’s Business.

Email him at tcasey@regionsbusiness.com.

CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness.com.

Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.

The announced closure of Conshohocken Catholic School created an uproar earlier this year in this quiet Montgomery County borough. Students, parents and concerned citizens took to Fayette Street raising their voices and signs reading “Save Our School.”

It was an impressive display for a small community, and their complaints were heard. But CCS went the way of dozens of other schools within the Archdiocese of Philadelphia when it headed to the chopping block last winter.

There is no Class of 2013.

Charles Chaput, the new leader of the Archdiocese of Philadelphia, had made no secret about it: the Archdiocese could not afford to keep all of its schools open.

No family, he said, could run “on nostalgia and red ink.”

Yes, jobs would be lost.

Yes, parents would have to drive another town over to drop their children off at school.

Yes, students would have to deal with the pressure of starting a new school.

Tough, officials said (though slightly more politely).

The alternative was clear: Delay the inevitable while bills continued to pile up, and then future cuts would need to be far more severe.

Yet protesters came out in droves, accusing the Philadelphia Catholic leadership of being cutthroat and unfeeling and demanding alternatives.

An already strained relationship between Catholics and regional leadership had taken a critical hit.

In the next few months, Philadelphia Catholics will hit another bumpy road sure to test their resolve. More schools will close, but now individual churches are in the Archdiocese’s crosshairs.

Any church that cannot afford to pay its own bills will be targeted for closure, Archbishop Chaput recently told parish leaders. No official number has been made public, but it is likely that more than 50 churches (especially those

whose connected elementary schools have locked their doors) are on the list.

Parish leaders tell their members they can help save their church (for a least a little while) by increasing their donations and encouraging their neighbors to attend weekly Mass. But perhaps it’s time that Catholics start taking an honest look at their community.

In Conshohocken, which is about a square mile, there are three Catholic churches: St. Matthew, St. Mary and Ss. Cosmas and Damian. Take a walk into any of these churches on a Sunday, and you’ll see a church less than half full. Most likely, each pew will be occupied by a family of four or a elderly couple. Assuming about 20 percent of attendees donate to the church’s bills (a generous assumption), it’s clear that barely enough money is collected to keep the lights on during that mass alone.

Any business executive assessing the situation would have

pushed for consolidation of schools and churches years ago. A business doesn’t place three halffilled offices within four blocks of one another.

Opponents take a strictly emotional stance against the Archdiocese’s cuts, reminiscing of the days when the church was the center of the community. But even these arguments have no place in the modern church. It’s well known in Conshohocken that the churches are “the Polish church,” “the Irish church” and “the Italian church.” The Archdiocese hasn’t cited the current cultural segregation as a reason for consolidation, but diversifying the community is an added bonus.

Archbishop Chaput has not given a specific date for the release of the list of proposed closures, but expect to see it in the next four or five months.

When it is made public, put aside the history of your church and stifle your emotions before reacting. And think: What would Google do?

CATHOLIC COSTS

$1M

Money embezzled by the former CFO of the Archdiocese

$10M

Costs related to responding to the grand jury report against some area Priests

$76M Operating revenue for the fiscal year ending in 2011

$88M

Operating expenses for the fiscal year ending in 2011

11 OCTOBER 2012

REGIONSBUSINESS.COM

OPINION

37

Time to Pay Tab, Learn Lessons from Pension Crisis

M

aybe the numbers just got too big to ignore. But for whatever reason, the state legislature appears ready to at least begin addressing the looming pension crisis.

The numbers are staggering, no doubt.

Combine the unfunded liabilities of both the pension fund for educators and the fund for government employees and legislators and the total exceeds $40 billion.

That’s 40 BILLION dollars.

For perspective, in order to get that number to zero, each Pennsylvania resident — every man, woman and child — would have to pony up more than $3,000.

Let’s hope that such an option for “right-sizing” the books doesn’t enter the discussion.

After all, it’s not the residents who created this mess. And while we’ll eventually be the ones who pay the bill — the government has no money of its own, only money it takes from taxpayers — there must be numerous ways to bridge this chasm without directly tapping state residents’ wallets.

During this process, there will be endless committee and sub-committee meetings, grave pronouncements and endless stream of partisan bickering. In the end, though, there are three

things Pennsylvania residents must demand.

First, balance the books without breaking the backs of the already overburdened Pennsylvania taxpayer. The message is clear — taxpayers did not create this mess, they should not have to reach into their pockets to clean it up.

Second, end pensions. It’s that simple. They are a painfully archaic relic that need to be ended. As quickly and efficiently as possible, both funds need to be converted to more manageable and sustainable formats such as 401(k) funds.

Finally, begin practicing fiscal responsibility. This mess did not happen suddenly and without warning. Red flags have been raised, warning sirens have been sounded, yet the funds were allowed to slip into a bottomless pool of red ink.

Looking back may provide some lessons, but the most important one is this — do not sacrifice short-term gains for long-term stability. It is time for state leaders to beginning thinking strategically for the longterm in regards to fiscal decisions and directions.

There are not any good times to pay a $40 billion bill, but Pennsylvania cannot put this off any longer.

The time has come for action, swift and painful though it may be, with hopes that lessons have been learned for the long term.

EDITORIAL BOARD CEO AND PUBLISHER | JAMES D. MCDONALD EDITORIAL DIRECTOR | KARL M. SMITH ASSOCIATE EDITOR | TERRENCE CASEY © COPYRIGHT 2012 INDEPENDENCE MEDIA 600 GERMANTOWN PIKE, SUITE 400 PLYMOUTH MEETING, PA 19462 610.940.1656 | WWW.REGIONSBUSINESS.COM

COMMENTARY FROM ACROSS THE WEB Region’s Business combed the blogosphere, the Twittersphere and other corners of the Web for interesting commentary over the past week or so. Here’s what we found.

Sentence About More Than Life Behind Bars The Catholic Church scandals and now the Jerry Sandusky ordeal that enveloped Penn State University has opened many people’s eyes to how widespread child sex abuse is. Perhaps the one silver lining in this horror is that more people are aware of abuse and what to do if they suspect it...

There are many updates and protections the Pennsylvania Legislature should be making stronger in light of the Sandusky case, but it doesn’t get any more basic than ensuring a clear line of reporting of child abuse and making sure that there is adequate funding for the program.

EDITORIAL , 9 OCTOBER THE PATRIOT-NEWS

Kids Can Teach Adults About Tolerance The T-shirt flap and the resulting hostility that had a high-school student afraid

to return to school because of obscenities hurled at her parents and rumors that students were going to attack her is a sickening indictment of an uncivilized society that has become increasingly intolerant of differences of opinions, political outlooks, religious beliefs and beyond.

EDITORIAL, 10 OCTOBER PHILADELPHIA DAILY NEWS

Political Ads Amuse, Disappoint Obama released a new ad yesterday capitalizing on Mitt Romney’s debate comment on defunding PBS. It’s pretty ridiculous — Mitt Romney is not a supporter of Kenneth Lay, who has been dead since 2006, and what does this have to do with Romney

wanting to defund PBS again? — but it at least ends with a kind of funny “taking on our enemies, no matter where they nest” line.

DAN MCQUADE, 10 OCTOBER THEPHILLYPOST.COM

Nation Not Yet Color Blind In 2003...then-Justice Sandra Day O’Connor, who voted with the 5-4 majority in approving the Michigan law school’s approach to admitting minority students, predicted that within 25 years the use of “racial preferences” should no longer be needed. Nine years later, that day clearly has not come.

EDITORIAL, 10 OCTOBER THE PHILADELPHIA INQUIRER

Share Your Comments Here Region’s Business welcomes comments, letters and essays. Send them to feedback@regionsbusiness. com. You can also reach Editorial Director Karl Smith at 610.940.1656.

38

11 OCTOBER 2012

REGIONSBUSINESS.COM

BY THE NUMBERS

R. KENNEDY FOR GPTMC

Number of ShopRite stores in the Philadephia area. The Keasby, N.J.based grocer is tops in the area in terms of sales for supermarkets.

S FUCH NNES JOHA

81%

Percentage of Facebook users from outside the United States and Canada.

22

Median age of Facebook users today.

26

Median age of Facebook users in 2008.

28

Age of Facebook founder and CEO Mark Zuckerberg..

-43%

Change in Facebook’s stock price since its IPO on May 18, 2012.

7.4%

Change in the Dow Jones Industrical average from May 18, 2012 to October 9, 2012

-3.02%

Change in Philadephia Phillies home attendance between 2011 and 2012.

They led Major League Baseball in home attendance both years.

45 6

69,144

Number of Wegmans stores in the Philadephia area. The Rochester, N.Y.-based grocer is ranked sixth in the area in terms of sales for supermarkets.The number seven grocer in terms of sales, Sav-ALot, has 35 stores in the market.

Attendance at Sunday night’s Philadelphia Eagles-New York Giants game. The Eagles honored Brian Dawkins at halftime.

64,000

Number of Pennsylvanians who have received unemployment benefits since Governor Tom Corbett took office in Percentage of the city’s workforce January 2011. made up of University City residents.

3.14%

12%

Market share for Whole Foods Markets in the Philadephia area.

The Austin, Texas-based chain has nine stores in the region and is eighth in the region in terms of sales.

2.4

Size of University City in square miles.

1.7%

MICHAEL OCAMPO

Size of University City as a precentage of Philadelphia’s 142.6 square miles.

2.4/142.6

2.6%

Population growth of University City since 2000. Since 1990, the neighborhood population has grown 4.9%.

3.4%

Increase in Pennsylvania’s population from 2000 to 2010 according to the Federation for American Immigration Reform.

54%

30.4%

Percentage of University City residents with at least a bachelor’s degree.

Percentage of Americans with at least a bachelor’s degree.

27%

47%

Percentage of Pennsylvanians with at least a bachelor’s degree.

Percentage of Canadians with at least a bachelor’s degree.

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