PENNDOT’s Act 89 Estimates Hold True in PAT Budget

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The board of the Port Authority approved operating and capital budgets for the 2015-16 fiscal year and, based on a 2014 Policy Brief that examined the estimated amounts the Authority could expect to receive under Act 89 transportation funding, the estimates are holding fairly true.  The Authority expects to receive $221.5 million from the state for operating support, and $108.1 million for capital needs.  That is close to the $223 million and $110 million that was projected for those spending categories.

On the operating side, the $221.5 million in state money will combine with $30 million from the County (drink and car rental taxes) and $3 million from RAD to provide $254 million in operating grants for the Authority.  That’s $10 million more than the Authority received in the fiscal year that ended yesterday.

On the expenditure side the total expense is expected to increase $12 million over FY2015 with wages rising $5 million and pension and benefits rising $7 million.  This is the final year of a four year contract and there is a 2% wage increase effective today and another 2.25% effective February of 2016.

What Will Next Pgh Teacher Contract Contain?

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Just like that, a five year contract between the Pittsburgh Public School District and its teachers’ union has expired (other pacts also are up).  When we wrote about the announcement of the contract in 2010, the district had a different superintendent, the union had a different president, and the district had an offer from a foundation to introduce pay for performance for teachers.

How does the district look now, five years later?  Based on budget documents, general fund expenditures have risen 6% (from $525.4 to $556.7 million), enrollment has fallen 9% (official membership down from 27,922 to 25,504). That boosted per-pupil spending from $18,816 to $21,827 based on the district’s numbers.

Test scores (described in the 2015 budget under “student performance in reading, math, science, and writing 2008-2014) test scores for these subjects remained fairly flat.  On science test proficiency (students scoring proficient or higher), the percentage was 46% in 2010, 45% in 2014.  Reading and math proficiency also fell, while writing improved (52.7% to 56.9%).

Even if the next teachers’ contract does not incorporate pay for performance, the concept will likely still be a part of the district’s pay structure as bonuses were just handed out to principals at the beginning of May.  Principals are not involved in collective bargaining and their pay for performance agreement came about by extending a limited program in 2007 to all principals.

911 Surcharge Change Nears Finish Line

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The General Assembly has approved legislation to alter the surcharge on landlines, cell phones, and pre-paid devices to fund 911 emergency communications and the proposal awaits the Governor’s signature to become law.  What was a collection of $1 to $1.50 per landline per month (varying by class of county) and $1 on cell phones per month will now become a $1.65 “uniform surcharge…on each 911 communication service or prepaid wireless devices providing 911 communications as required under Federal law“.  As we pointed out in a 2013 Brief unless there was a big increase in the number of communication devices or a shift to another type of funding mechanism it would be hard to see how a surcharge hike could be ruled out.

 

Penn Hills Schools: A Case Study in Failed State Policies

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A Moody’s report on the Penn Hills School District has raised major concerns about the financial health of the District. A Moody’s analyst was quoted in the June 17th newspaper saying, “They’re going to be in another lack-of-cash situation in September when they pay the 90-day loan. As we start to look out past October it’s more unclear about how that state aid is going to be used and how much of it is available as the year goes on.”

 

Penn Hills has borrowed against future state aid to meet current funding needs. The District almost defaulted on a loan payment in April and was able to avoid the default through an emergency state advance. And what is worse, the District is trying to borrow an additional $18 million to fund the $90 million dollar budget for 2015-16—spending roughly $17,000 per student. And even with that level of funding, the educational achievement in the middle and high school are woefully bad. The most recent data shows that only about 50 percent of students scored at the proficient level in math and reading. And the score has been declining over the last couple of years.

 

But back to the financial issues, clearly borrowing to fund current expenses is fraught with problems.  One wonders how a budget could get approved containing an $18 million dollar hole. Be that as it may, two key points must be made. Teachers have been asked to take a pay freeze but have refused. Layoffs are not possible for financial reasons under state law so the only way to cut staff (absent substantial declines in enrollment) is to eliminate programs. And that is very hard to do, although some schools are doing it.

 

Teacher unions and their massive political clout have combined to produce extraordinarily favorable employee rights and privileges for teachers in Pennsylvania. These include the right to strike, something only a handful of states allow and very few ever have. The right to strike has created a horrible imbalance in bargaining power vis-à-vis school boards enabling them to acquire very generous compensation packages, work rules, grievance procedure etc. that for many districts will be ruinous because commitments are made that cannot be met in the future.

 

But don’t look for any meaningful relief from Harrisburg.  The education lobby will not allow it, especially with the current governor in place.  Penn Hills taxpayers and education will suffer.  But that matters not to the teachers’ union or the educational establishment. They will call for more spending as predictably as the sun will rise in the east tomorrow.

Projects Adrift Without an Anchor?

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As City leaders celebrate the flurry of construction activity within their borders, a news report indicates that a lack of anchor tenants may hinder some developments.  The report notes that at some projects, an office complex on the North Shore, another at the SouthSide Works, along with a couple in the Golden Triangle, are being paused as their developers look for that one tenant that would make their projects viable.

 

This search may take a while.  Even as the national economy gains momentum the local economy seems to be sputtering.  The latest Pittsburgh metro labor statistics show the year-over-year growth to total non-farm jobs was just 1.2 percent in April.  However, as we have pointed out, most of this growth has happened in the leisure and hospitality sector.  There are not a lot of firms from this industry that lend themselves to being anchor tenants demanding large swaths of office space.  Furthermore the industries that appear to qualify for such status seem to be few and far between.  Even the one industry that comes to mind, energy companies drilling in the Marcellus Shale formation, has been reducing activity in the face of falling natural gas prices.  And don’t look for new firms to step forward.  The recently released Kauffman Index of start-up activity, places the Pittsburgh area last in its ranking of the forty largest metro areas for new firm start-ups.  In sum, absent a flurry of movement of companies needing headquarter space in the City, the universe of firms that could be anchor tenants would appear to be very limited.

 

As we have been saying for many years, the business climate in Pittsburgh, the region, and even statewide, is not conducive to growth.  With heavy taxation and regulations, and a fealty to unions, many such firms are hesitant to call Pittsburgh home.  Gone are the days when the City was home to many Fortune 500 companies.  Those that remain often demand public subsidies or abatements before moving from one side of town to another.  Until the current business climate changes there will almost certainly be a dearth of anchor tenants for these developments to chase after.

Impact Fee Money Rolls In

The Pennsylvania Public Utility Commission (PUC) has announced in a press release that the impact fee for 2014 has raised $223.5 million.  This is down slightly from 2013’s total of $225.8 million.  Through the first four years of collections, the impact fee has totaled more than $855 million that has been distributed to state agencies, counties and municipalities across the Commonwealth as well as into a Marcellus Shale Legacy Fund (see Policy Brief Volume 14, Number 13).

 

Since the end of the recession, Pennsylvania’s economy has made a slow recovery.   Drilling for natural gas in the Marcellus Shale formation has buoyed the state’s economy during this time adding many direct and indirect jobs.  Yet, a debate still rages in Harrisburg, asking whether or not new tax policies should be implemented on the growing industry.

 

The impact fee is being challenged by the Governor’s severance tax plan.  This plan will tax the value of natural gas at five percent rate with a 4.7 cent per thousand cubic feet (Mcf) flat fee.  With the recent slide in the price of natural gas around the country, the plan will also include a price floor of $2.97 per Mcf.  According to testimony from the head of the Pennsylvania Independent Fiscal Office this severance tax plan, as proposed, would amount to a 17.3% tax on the industry in 2016.  However, he notes that as pipeline infrastructure improves, that effective rate could drop to 7.3 percent over time.  But how much damage will have been done to the industry until, and if, that happens.  He further estimates that the current impact fee will amount to a tax rate of 4.7 percent in 2015, while in years past the effective rate has ranged from two to four percent.

 

Even though the new policy would increase revenue, many are looking beyond what is seen and question what effect the tax would have on the industry in the long run.  Legislative leaders have resisted the call for a severance tax emphasizing that the current impact fee balances taxing the natural gas industry, while reimbursing the counties that are affected by drilling the most.  Too much taxation could lead to a quick economic decline in the natural gas industry, one of the few industries within the Commonwealth that is growing and thriving.

Another Municipal Pension Reform Plan

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We wrote back in March that the state Legislature had reintroduced legislation to move new municipal hires into cash balance pension plans, staking out a middle ground between a defined benefit and a defined contribution system for uniformed and non-uniformed workers at the municipal level in Pennsylvania.

Now this week a new measure has been put forth that would affect public safety municipal workers only by putting new hires into a defined contribution system.  There is no link to the legislative proposal currently on the General Assembly’s website, but a co-sponsorship memorandum provides a summary of the proposal.  Among its other features would be to end spiking, take pensions out of collective bargaining, and, as with most pension reforms, would not touch current employees.  Based on 2013 data in Allegheny County there were 2,097 active members in 108 police pension plans and 629 firefighters in 9 pension plans.  All of these plans were defined benefit type plans with the exception of one plan covering one employee.

It is interesting to note that in a news article on the topic that the Mayor of Pittsburgh, who is a proponent of the reforms and has a long history with the topic, analyzed the problem in the context of election cycles over the next three years an noted “…if we blow this opportunity, it may not come back again”.  Interesting to ponder what the Mayor’s opinion of the Governor’s task force that was appointed in May to come up with recommendations is.

Was the March to April Increase in Jobs the Best in 25 Years?

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That is true according to headlines in the paper as a local analyst proclaimed the increase to total non-farm jobs from March to April of 24,600, the best March to April jump in the last 25 years.  Is this a sign of a rebounding economy for the Pittsburgh MSA?  Well, perhaps not.  There are a few problems with this proclamation.

 

First, the data being referenced is coming from preliminary reports.  The April 2015 total non-farm jobs number of 1,175,600 will be adjusted next month, up or down, when the numbers are finalized.  In fact the finalized March 2015 number of 1,151,000, to which the April number is being compared, was revised upward from its preliminary value of 1,149,200.  Comparing preliminary values, the March to April jump would have been even greater (26,400).

 

Secondly there will be a benchmarking revision that will take place early in 2016 that may wipe out much of this increase.  It happens every spring.  When the analyst looked at previous monthly changes, most likely online through the Bureau of Labor Statistics website, he was looking at data that had already been benchmarked.  For example looking at the last few March to April changes, the last three had been revised downward, the last two significantly.  In 2014, the press releases showed a March to April gain of 22,700 jobs.  This spring, after the rebenchmarking, it was revised to 16,200—a loss of 6,500.  The drop in 2013 was even more pronounced going from a gain of 21,800 to 10,200—a loss of 11,600 jobs.  The 2012 increase was reduced slightly from 10,800 to 9,700.  The exceptions were from 2011 (up 400) and 2010 (up 1,700), but the MSA was rebounding from the recession and the jumps were slight.

 

Finally, the source of the job increases is suspect.  Seventy percent of the 24,600 increase is centered about three industries:  construction (6,300), professional and business services (3,800), and leisure and hospitality (7,200).  The first, construction, represents a thirteen percent increase.  These numbers are of course non-seasonally adjusted and so with the weather improving in April, and Act 89 money (see Policy Brief, Volume 13, Number 60) pumping up road and bridge construction, this gain is plausible although only barely.

 

While the increase to the professional and business sector would be a positive, the gains actually accrue to the administrative and waste services subsector (2,900 or a jump of 5.65 percent) from March to April.  This is an unusual gain considering that the year-over-year totals (from last April removing the seasonality) had fallen by 3,000.  It lends suspicion to the number.  Finally, the boost of 7,200 to the leisure and hospitality sector is comprised of a 3,300 bump to the art, entertainment, and recreation subsector.  As we had written about before (Policy Brief, Volume 14, Number 33), this subsector is quite small, and the sample size too low to permit a separate estimate of jobs at the Pittsburgh MSA level, but can be deduced using simple math.  For the past year or so it accounted for large job gains each month, yet those were mostly wiped out by benchmark downward revisions (Policy Brief, Volume 15, Number 23).

 

Thus it is difficult to get too excited over this month-to-month increase to total non-farm jobs as a sign the economy is improving dramatically.  Recent history shows that revisions can take, and very often do, a large bite out of the data, long after the headlines have faded from memory.

Moving Company Feels Violated by PUC

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According to a recent news article, there is a lawsuit pending against the Public Utility Commission (PUC), alleging that regulations allow for existing providers to block prospective new entrants into business.  The PUC, of course, denies that existing companies to hold “veto” power and a spokesperson even pointed out that, if that were true, how could Lyft and Uber be providing ridesharing service now?  To answer the rhetorical question it is due to the fact that both were granted experimental licenses by the PUC and faced significant opposition to their entrance from established companies.

As we have pointed out, there is nothing wrong with the PUC placing a certain level of requirements on common carriers.  But their authority should not include what extends to determining what effect new entrants can have on existing ones by virtue of their own policy statement on the topic.

Could PA Approve Charters a Different Way?

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In the school district of Sto-Rox in western Allegheny County there is a disagreement between the district and a prospective K-12 brick and mortar charter school that wants to locate in the district’s boundaries.  The school board rejected the charter’s petition, but the charter school appealed to the state’s appeal board.  That’s the status quo under the state’s charter law.

Sto-Rox is fearful of the effects that a charter school could have on its district, and thus has a vested interest in not allowing for competition.  That’s what was made evident when the district first rejected the charter’s application.

So this begs the question: should Pennsylvania devise a different system of approving charter schools?  A recent state report looked at the topic and examined whether an independent board or giving institutions of higher education charter approval powers would be preferable.  To date, 48 school districts have approved 159 charter schools in PA (the Dept of Education authorizes cyber charters).  In nearly all of the 42 states that allow charters the local school district has a role in approval, though it may be shared with the state.  Ultimately the report recommends a pilot program for PA that would involve institutions of higher education on a limited basis.