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The Rivers Casino after 10 Years

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Summary: In August 2009 the Rivers Casino had a long-over-due grand opening.  After a tumultuous start, it gained its footing and recently celebrated its 10th anniversary.  We have documented the casino’s performance over the years and, in this Policy Brief, offer a summary of its 10-year performance versus expectations.

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Gaming in Pennsylvania was legalized in 2004 when the state passed legislation allowing slot machines at horse racing tracks along with a few stand-alone casinos.  The first casino, Mohegan Sun at Pocono Downs, began taking wagers in November 2006. 

The fight for Pittsburgh’s stand-alone casino was documented in a series of Policy Briefs (Vol. 6, No. 11, Vol. 8, Nos. 27 and 48 and Vol. 9, Nos. 42 and 59).  There were questions about where the new casino would be located as three potential owners pitched their ideas for locations at Station Square, Uptown and the North Side.  The North Side was selected but the initial license recipient didn’t have the capital to complete the project (known then as the Majestic Star) and had to sell a majority stake to another investor.  The renamed and long delayed Rivers Casino had its grand opening in early August 2009.  

Even before it opened, there were grounds for being skeptical of revenue projections for the new casino.  Before the first slot machine wager was placed, ownership projected gross terminal revenues (GTR)—the amount of money wagered—would be $427.8 million annually.  The state Gaming Board’s estimate came in at $362 million for the casino’s first year.  Neither estimate was close to being correct.

And 10 years later, those estimates remain well above actual revenues. In its first 12 months, August 2009-August 2010, the Rivers took in just $222.3 million—an average of $4.3 million per week.  To reach management’s projections, the casino would have had to generate $8.2 million per week—almost twice as much as the GTR realized that first year.  

To put it in perspective, the only casino in the state that came close to realizing $8 million per week is Philadelphia Parx with a weekly average of $7.3 million over the last decade. The Rivers’ weekly revenue has improved and over the last 10 years averaged about $5.2 million. 

On a calendar-year basis, in its first full year (2010) the casino earned $242 million in GTR.  Of the nine casinos operating during the entirety of 2010, the Rivers’ GTR was sixth best—topping only the casinos at Mohegan Sun, Mt. Airy and Presque Isle.  The Rivers also finished behind neighboring Meadows Casino ($249 million) that first year. 

Annual revenues from slot machines gradually improved, reaching their highest yearly level to date at $284.3 million in 2013 before sliding back to $265 million in 2016, the lowest amount since 2010, and then rebounding to $281.4 million in 2018.  Keep in mind, of course, that the casino has failed to live up to the projections of either the Gaming Board or its own, even 10 years after opening.  However, of the 11full-sized casinos across the state, the Rivers typically finishes third in annual GTR behind only Philadelphia Parx and the Sands Bethlehem.

But these revenues are only from slot machines.  In 2010 Pennsylvania casinos were able to offer table games for the first time and the Rivers added them to the gaming floor.  Would this addition help push total revenues over the initial projections from just slot machines?

The first full calendar year of table games was 2011.  That year the Rivers realized $67.5 million in gross revenue from the table games. From 2011 to 2018 the annual table game revenues ranged from a low of $65.8 million (2017) to a high of $76 million (2018) with a yearly average of $69.6 million over the period 2011 to 2018. The Rivers casino had the fourth best table game revenue of any of the full-sized casinos.

Still, even when combined with slots revenues, the highest revenue year was in 2018 when gamblers played $357.4 million—slightly less than the Gaming Board’s prediction of $362 million but well short of casino management’s estimate (both were based on slots only and for the first year).  The lowest revenue total was collected in 2016 ($334.2 million) while the 2011-2018 average was $346.1 million. 

However, it is important to keep in mind these are not profits but only gross revenues.  Payouts and expenses must be accounted for before profits can be realized.  As Policy Brief, Vol. 10, No. 53 noted,table games require greater expenditures per dollar of revenue than slot machines.  Each table game requires several employees to operate and their salaries and benefits consume a significant portion of gross revenues, whereas only a handful of people could be responsible for maintaining dozens of slot machines each day. 

So, has the Rivers Casino been a “success” during this first decade?

It depends on how it is viewed.  The casino has met its civic obligations, which at the onset was in doubt.  This includes providing the annual $7.5 million payment to retire the debt on the new hockey arena and paying millions to government in both state and local share taxes. 

But it has not done much to aid the Pittsburgh region’s economy, at least in terms of jobs.  It has employed people in the leisure and hospitality sector, but it is not clear these are net new jobs added to the economy.  Total non-farm employment growth in the Pittsburgh metro area from July 2009 to July 2019 was just 6.2 percent. The growth of non-farm job levels at the state (8.3 percent) and nation (16 percent) outpaced the local level. 

Bear in mind, however, that much of that growth was a rebound from the low level reached in the recession year of 2009.  Indeed, private-sector jobs from the pre-recession level in July 2008 are up only 44,700 or 4.4 percent and 25,000 of those have occurred in the last three years after averaging a mere 2,500 per year from 2008 to 2016. Meanwhile, leisure and hospitality jobs in the Pittsburgh area have risen by 16,000 since July 2009 but 10,600 of those were in accommodations and food services, all fairly low-paying jobs. Arts, recreation and entertainment account for the other 5,400 jobs gained but that category includes museums, sports teams, concert halls and movie theaters in addition to casinos.

If the Rivers Casino was going to boost area job growth, it would certainly have occurred in the first seven years of operation.

In sum, there is little evidence to indicate the casinos (Rivers, along with the Meadows and the resort-based Lady Luck at Nemacolin) had a significant impact on job growth in the metro area. 

Also, it helps to remember that for every dollar spent by area residents on gambling at a casino, is a dollar that was not spent on other goods or services, be they necessities or luxuries, at area businesses.  And casinos have not been much of a draw for gamblers from out of state as our closest neighbors, Ohio and Maryland, legalized gaming not long after Pennsylvania.  West Virginia, where gaming was already legal, added table games to keep pace.  In fact, the gaming arms race has been in full force as the next level of gaming, legalized sports betting, has been available in Pennsylvania since late 2018.  The other states are likely to follow suit. 

One thing is certain: gaming is now part of the fabric of Pennsylvania’s economy and the Rivers Casino is part of the Pittsburgh landscape.  The economic impact of gaming on the Pittsburgh area, and the state, will be debated and we will continue to monitor it.

What’s in store for police regionalization?

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Summary: Cheswick Borough and Springdale Township in Allegheny County have opted to dissolve their individual police departments in favor of consolidating their resources into a regional police force—the Allegheny Valley Regional Police Department (department). In April 2019, municipal leaders approved the proposed collaboration with July 1 as the start date.

A study of the department was conducted by the Governor’s Center for Local Government Services (LGS) and delivered to the municipalities in October 2018. It noted Article IX, Section 5 of the Pennsylvania Constitution provides the basis for police cooperation and consolidation. Regional policing is an option for municipalities that have difficulties providing a full range of service to meet increasing demand. Other alternatives include contracting to another municipality or relying on state police.

Based on data from the state Department of Community and Economic Development (DCED), most municipalities in Allegheny County have their own police force.  Three are covered by state police and 16 contract out to another municipality and one to the county. Cheswick and Springdale Township’s formation of the department is the second regional police force consolidation in Allegheny County since Northern Regional was established in the late 1960s by three municipalities (a fourth joined in 2006). Statewide, 122 municipalities are part of a regional police force.

Municipal Police Service, 2019

The study outlined data on the municipal departments involved in the then-prospective consolidation, which it affirmatively recommended. 

The study noted advantages of regional policing including improvement in uniformity and consistency of enforcement; coordination of law-enforcement services; recruitment, distribution and deployment of police personnel; training and personnel efficiency; management and supervision; career enhancement opportunities and in reducing costs. Disadvantages of consolidating services include loss of local services; loss of local control; loss of citizen contact and loss of personnel rank. In a 2014 report by the Pennsylvania Legislative Budget and Finance Committee (LBFC) on police consolidation, loss of municipal control was the main obstacle identified in forming regional police departments with labor issues close behind.

The study indicated that Cheswick’s and Springdale Township’s populations (1,746 and 1,615, respectively) were similar. Collectively, the municipalities cover a 2.95 square-mile area with a population density of 1,139.3 occupants per square mile. Full-time police totaled three with a police chief in Cheswick, two officers in Springdale Township and between seven and 13 part-timers providing coverage as well in both municipalities.  No civilians performed clerical functions. Police costs stood at $324,945 in Cheswick and $373,364 in Springdale Township, totaling $698,309. Not included in the study was that both police pensions were well-funded and that the neighboring communities were moving toward cooperative fire protection. 

Regarding crime, the study documented Part I Offenses (serious crimes such as homicide, robbery, aggravated assault, auto theft and arson) and Part II Offenses (less severe crimes that do not include wrongdoings, such as moving traffic or parking violations). In 2016, the two municipalities’ crime rate per 100,000 residents averaged to 684.32 and 2,969.81 for Part I and Part II offenses, respectively, which were lower than state averages.

Based on a police force with a chief, two full-time officers, and four part-time officers, a proposed full-year operating budget was estimated at $499,998. In a letter sent to residents of Cheswick in March 2019, it was stated that the municipalities would fund the department on a 50-50 basis.  The letter estimated the borough would be required to pay $233,258, which would be approximately $90,000 less than 2018 budgeted police expenditures.  A news article noted the savings in Springdale Township would be $130,000 per year—representing 28 percent and 37 percent of municipal police budgets, respectively.

The official budget for 2019, adopted in June 2019 with staffing of a chief, a patrol officer and six part-time officers, was $449,839, or $224,919 per municipality. In order to cover the remainder of 2019 (July to December), total expenses of $238,583—$119,291 per municipality—were approved.  This includes payroll of $134,709 (56 percent), taxes and insurance totaling $57,914 (24 percent) and vehicle costs of $17,250 (7 percent).

The Allegheny Institute has advocated for service consolidation (along with mergers and privatization) to be explored and encouraged in order to save taxpayer dollars. Not all consolidations go forward—a proposed regional force involving Sharpsburg, Aspinwall, O’Hara and Blawnox was not recommended because it would have meant higher costs.  Another in the Mon Valley is currently being studied.

The LBFC report found that a sample of regional police departments cost approximately 25 percent less than stand-alone departments but some had increased costs in initial years after formation. As such, residents of Cheswick and Springdale Township ought to keep a vigilant eye to see if the savings occur and ultimately translate into lower taxes.

Although intergovernmental cooperation can be complicated, the study indicated that, in this case, the benefits outweighed the challenges. As the department continues in operation, the Institute will monitor the consolidation to see if it works as planned and the savings materialize as projected. 

Pittsburgh’s costly and counterproductive sick leave law

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Summary: The Pennsylvania Supreme Court has upheld a City of Pittsburgh’s ordinance requiring private employers to offer paid sick leave to full- and part-time employees. But the mandate likely will impose significant costs on businesses, many of which already operate on thin margins.  There also are serious questions about the efficacy of the measure’s stated goal of improving the public health.

Effective Jan. 11, 2016, the City of Pittsburgh’s “Paid Sick Days Act” (Title VI, Article VII, Section 626, of the Code of Ordinances) required private employers to provide paid sick time to full- and part-time workers.

“The ordinance is intended to improve the public health by ensuring that employees can use accrued time when they (or their family members) are sick,” a city overview of the policy states.

All employees who work within the geographical boundaries of the city are covered. Those not covered are federal and state employees; independent contractors; construction workers in a collective bargaining unit and seasonal workers employed for 16 weeks or fewer who have been notified in writing at the time of hire of their start and end dates.

Per the ordinance overview, one hour of sick time is accrued for every 35 hours worked, up to 40 hours per year (five days) if their place of work employs 15 or more people, and up to 24 hours per year (three days) if their place of work employs fewer than 15 people and only accrue unpaid sick time in the first year after the effective date.

Challenged by the business community, both Allegheny County Common Pleas and the state Commonwealth courts struck down the ordinance as being barred by the state’s home rule charter law. But the state Supreme Court, in a 4-3 ruling on July 17, upheld the law in what one dissenting justice called a “circuitous” spate of legal rationalizing.

That said, the validity of the ordinance now is a case of settled law.

Sans any legislative action to amend the home rule charter law to disallow any municipalities from enacting regulations not expressly permitted by the state—that is, minus any legal wriggle room that invites judicial contortions—the practical challenges and effects of the sick leave ordinance now must be dealt with.

And those are as myriad as they are problematic.

As now-Allegheny Institute President-emeritus Jake Haulk detailed when the ordinance first was proposed in 2015 (Policy Brief Vol. 15, No. 35), mandatory paid sick leave represents “added regulatory costs (that) will hasten the demise of (small, start-up businesses) that might have otherwise made it and grown into a business that could offer, on its own volition, paid sick leave.”

Furthermore, asked Haulk:

“How does the city know if a certain business with 18 employees can better afford the greater paid leave requirements than other businesses with 14 employees?

“This is government hubris at its absolute worst. Businesses with plans to boost hiring beyond the 15-employee level might well ditch the plans because of the escalation in paid leave benefits for all its employees.”

Additionally, prices could be forced up or affected businesses could be forced to move outside city limits.

Enforcement and fairness are other tricky issues. Some employers might find it cheaper to pay the $100-per-offense fine than offer paid sick leave. Sanctions against employees who abuse the sick leave law are left to the employer.

Thus, the sick leave bill “is not fair, is anti-business and amounts to paternalism at its worst,” Haulk said.

Aside from what Haulk later noted (Policy Brief Vol. 17, No. 6) was government taking “upon itself the power to impose political or social desiderata on businesses,” there’s an even more troubling question regarding mandatory paid sick leave:

Does it improve the public health? A 2014 study suggests not.

The Freedom Foundation, a Washington state think tank, evaluated what it said were 10 of the most important and widely cited studies from both supporters and opponents of mandatory paid sick leave.

Not only did it conclude there were consistent “moderate negative consequences for affected businesses … such laws do not produce the benefits promised by supporters.”

“Government sick leave mandates even fail to prevent employees from coming to work sick, ostensibly the most basic goal of such requirements,” concluded study author Max Nelsen.

“Critically, no evidence indicates that paid sick leave regulations noticeably reduce presenteeism,” he continued. “If the policy fails to achieve a reduction in the frequency of employees coming to work while sick, then all of the public health justifications offered by labor activists, however persuasive, are invalid.”

As Haulk noted four years ago, Pittsburgh’s sick leave bill offers a “profound insight into an ideological wasteland in which the state and its big cities are immersed.”

If not its highest court, it must be added.

Train drain & a PNC payback?

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There’s talk of attempting to improve passenger train service between Pittsburgh and Altoona. But it’s difficult to imagine the effort would fare any better than it did over a two-year span 35 years ago.

That’s when the Pennsylvania Department of Transportation (PennDOT) subsidized Amtrak with $547,000 in public money. But the service attracted only 30 or so daily passengers. The plug was pulled in 1983.

As the Post-Gazette’s Brian O’Neill recently reminded, that $547,000 would be $1.4 million in today’s dollars.

PennDOT now will spend $200,000 on a private consultant to gauge demand along the 117-mile route. Amtrak’s Pennsylvanian takes just under 3 hours to make the trek. One can drive to Altoona from Pittsburgh in just under 2 hours.

And lest one forget, it takes a painfully long 5 ½ hours to Amtrak it between Pittsburgh and Harrisburg. It’s a 3-hour drive.

The train consultant claims there surely must be greater demand these days along the Pittsburgh-Altoona corridor because of what she described to the P-G as a “passenger rail renaissance” in eastern Pennsylvania.

Never mind that rail always works best in the most densely populated areas, not in the largely rural western half of the Keystone State.

It’s never been good public policy to throw good money after bad. But, sadly, government officials keep doing their darnedest to do so.

PNC Financial Services has sold its 185-room Fairmont Pittsburgh hotel in downtown Pittsburgh for $30 million. The buyer is Xenia Hotels and Resorts, based in Florida.

The hotel was incorporated into the heavily taxpayer-funded 23-story Three PNC Plaza, of which the hotel took the top 10 floors.

You might recall that the project cost $178 million to build. But taxpayers subsidized construction with $48 million. There was $30 million from the commonwealth and $18 million in tax-increment financing.

Of course, taxpayers never should have been turned into venture capitalists for this or any other such project. And it was a particularly galling situation, considering it was a giant and most profitable banking corporation constructing the complex.

All that said, it should strike reasonable people as apropos to expect at least a modest return on their 10-year-old “investment.” After all, one can assume PNC is turning a profit on this deal. (Conversely, if it’s not, tax dollars were conscripted to help underwrite a very suspect deal.)

Interestingly, back in 2006, Bill Peduto, now the mayor of Pittsburgh, was the only member of City Council to oppose the such corporate wealthfare for the banking behemoth. PNC didn’t need the help, he said then. No kidding.

We should all trust that Mayor Peduto now will spearhead the effort to return some of the profit that PNC made on the backs of taxpayers to those taxpayers.

Yeah, right.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org). 

Weekend essay: ‘Spring’ cleaning

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Spring arrived just the other day; it came into the world in the usual way – with great ambiguity.

Indeed, we are in both meteorological and calendar spring now. And the bulbed flowers — most not merely peeking above the soil line but shouting “We’re baaaack!” – are the most manifest affirmance.

But as more often than not can be the case, winter can be the loath-to-leave dinner guest we grow to loathe. Just ask the gardener itching to work some soil in a March that came in like a lion with few lamb-like proclivities to be found.

Thus, Project Raised Bed Reconfigurance is on temporary hold. After all, it’s darn difficult to move snow-covered frozen dirt. And it’s just as difficult to move bed frames that are frozen solid to the ground, no matter the persuasion of sledge hammers, handles short or handles long.

So, a good ol’ fashioned spring cleaning has commenced inside. Oh, the “finds” and, oh, the exclamations of “Why this was saved is beyond all rational thought.”

To the former, elder daughter Taylor’s little-girl rocking chair was rediscovered, covered in dark plastic and tucked underneath the basement steps for at least 27 years.

And then, there was the dust-covered old garbage bag. Inside, the wooden baby carriage in which many a doll baby (if not a few pet cats) enjoyed many a ride. She’s been reunited with both treasures.

To the latter, that garbage bag of old clothes inducted into the Rags Hall of Fame, closed tight with its red plastic tie, appeared to have last been opened the day it was first closed.

A review of the contents affirmed as much. Think of, among other things, a pair of pants with a waist size that mocked “Of course, they still fit me” credulity now, let alone two decades ago.

Assorted odds and ends rounded out the basement spring cleaning spree. Seven large garbage bags all told were lugged through the basement door, out to the garage and out back to await “garbage night.”

And how sobering it was to have to clear away a heavy layer of snow just to get those bags to the curb on the second day of spring.

Poet Samuel Taylor Coleridge once wrote of the Lake District in Northwest England that “the spring comes slowly up this way.”

Over this way, too, Sam. Over this way, too.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

Shortcomings in the State University System Report

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Summary: On July 27, the National Center for Higher Education Management Systems (NCHEMS) released its report on the Pennsylvania State System of Higher Education (PASSHE).  The group had been asked by the 14 state owned university system to analyze its problems that for some schools have reached very serious levels. The group was also asked to offer recommendations to alleviate or solve the problems. This review of the report finds it was adequate or good in some respects but severely lacking in others.

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The NCHEMS report lays out the underlying causes of PASSHE’s serious issues including demographics and financial imbalances, but then blames it all on what the report calls a “root cause,” to wit:  “inadequacies of the governance structure for coping with converging pressures.”

To be sure, there are a lot of useful data and statistics in the report. The report points to several underlying issues that are posing enormous problems for the system and several schools in particular. These are well known but bear repeating. Enrollment (FTE) is down systemwide falling 6.8 percent from the 2009-10 school year to the 2014-15 school year.  In an earlier Policy Brief (Vol. 17, No. 13) we noted that:

Over the five academic years between 2010-2011 and 2015-2016 combined enrollment in the 14 universities fell 12,452 or 11.1 percent. All schools except West Chester experienced declines in percentage terms ranging from less than one percent at Slippery Rock to a 43 percent drop at Cheyney.  Eight schools had decreases of 15 percent or more while four saw enrollment down over 20 percent.  Mansfield and Clarion recorded huge losses with enrollment down just shy of 30 percent.

 In terms of numbers of students, the 13 schools with declining enrollment had an average loss of 1,100 FTE students over the five year period. The largest losses occurred at Clarion (1,936), Indiana (1,830), California (1,559), Kutztown (1,515) and Edinboro (1,481). Enrollment at four other universities was down around a thousand students.

The later data indicate an even steeper drop than the NCHEMS report shows. The report points out that declining—and future projected decline—of Pennsylvania high school graduates are a big drain on these universities that rely extremely heavily on in-state students for their enrollment. And as we noted in the Brief, there are a large number of state-related schools (Penn State and its satellite campuses, Lincoln, Pitt and Temple with their satellite campuses) as well as many private colleges in Pennsylvania competing for these graduates as well.

Two additional important and relevant measures are included in the report.  First, spending per student (FTE) has risen dramatically in the schools with the largest enrollment decreases, including five that are up more than 20 percent—Shippensburg, Mansfield, Millersville, Clarion (almost 30 percent) and Cheyney (over 30 percent).   Slippery Rock, Bloomsburg, Lock Haven, Indiana, West Chester and East Stroudsburg held spending growth to five percent or less.  What is more interesting and not mentioned in the NCHEMS report but cited in our March Brief is that “for upper division students the PASSHE schools have substantially greater faculty costs per FTE student than the state related schools ($5,055 vs $4,167).”

Second, the report comments on the pervasiveness of very small class sizes. Fourteen percent of lower division course have fewer than 10 students and many classes have four or fewer. Meanwhile 41.5 percent of upper division courses have fewer than 10 students and 30 percent had fewer than five. And when compared to the state–related schools, the March Brief noted that “there is a large gap in (average) class size for upper division students; PASSHE 19, state-related 27.”

Obviously, the spending and class size findings are connected. The NCHEMS report speculates that there are far more faculty positions at PASSHE schools than current enrollment can justify. It is especially noteworthy that it costs these schools more to teach upper division students than it costs the state related schools, two of which are far more prestigious universities (Penn State and Pitt).

Another key finding of the report is that the latest collective bargaining agreement (arrived at under strike duress) was far too generous. It calls for $52 million dollars more compensation than under the old contract, a figure that the cash-strapped schools can clearly not afford.

NCHEMS also noted there is a lot of distrust among the various stakeholder groups, students, faculty and administration and among the institutions themselves.

The report states in the introduction, “the State System’s institutions individually and collectively face a fiscal future made bleak by converging challenges.” Chiefly, the demographic changes and financial problems.

NCHEMS’ explanations for some of the system’s problems are primarily focused on governance issues and make several recommendations that contain very few clear cut action steps. A lot of governmentese-sounding items such as “adopt a strategic financing model that is better fit for varied circumstances,” or “reorient the Board and Office of Chancellor toward greater responsibility for policy leadership.”  “Retain and ensure sustainability.”  And on and on like that.  Some specificity as “steps to take” would be good.

One of the report’s biggest problems is the list in a section called “what not to do.” These include:  “No institution should be closed; no mergers of any institutions; no attempt to undermine collective bargaining agreements or processes.”

In other words, some of the dramatic actions needed to create a more robust and viable system are off the table, including taking a harder stance toward the faculty union. The union went on strike in 2016, the first time in the 34 year history of the system.  University faculty strikes are extremely rare in the U.S.  A Google search reveals that most have occurred in California with two in New York, Springfield, Ill., and Green River College in Washington State, basically over the period form the late 1960s. Several have happened in Canada.  Once a strike works to get better wages and benefits along with more favorable work rules and intrusion into management prerogatives, it is reasonable to expect more at the state system and other schools as well.

Public employees should not have the right to strike, period. It leads to all sorts of fiscal problems as we see in heavily unionized states all across the country. Faculty strikes at a college or university, like public school strikes, will happen during the school year.  It makes no sense for the faculty to go out when there are no classes to disrupt.   As insidious as public school strikes are, university faculty strikes are even worse because of the hardships and anxiety imposed on students.  Public university faculty should never be allowed to strike during the academic year. It is a moral failing of the state to permit state employees to create financial and undue academic stress on students. If faculty members are unhappy enough to walk off the job, they should find a new job. There are plenty of people who would take the positions vacated.

Unfortunately, in Pennsylvania that Rubicon has been crossed and the chances of returning to a non-unionized faculty are nil. It is now, and will be, one of the largest obstacles to solving financial and other problems.

Finally, there are two glaring omissions in the report.  First, the study team completely neglected to report on the declining or non-existent entrance requirements at some of the 14 schools.  Accepting graduates who performed poorly in high school and on college entrance exams in hopes they can do college level work is the height of folly. It requires many students to attend remedial classes. It leads to downgrading the rigor of college courses and leads to lower standards. It lengthens the time to graduate and is accompanied by high dropout rates.  It wastes a lot of time, it causes students to incur debt they cannot repay, and it wastes tax dollars spent subsidizing students who have no business being in college.

Nor was there any follow through to see what kind of jobs graduates from the 14 PASSHE schools were able to get and how much starting salary they received. Those data are available.

The situation at Cheyney, which is a calamity, is not dealt with except indirectly in the recommendation not to close or merge any of the 14 institutions. Enrollment at the school has fallen by half since 2007 to stand at just over 700 students.  It ranked last of 106 institutions in PA for graduation in four years (about 10 percent). It receives $18,000 per student in state support, far more than the other 14 schools and three times the amount the commonwealth spends per student for K-12 students. By any standard, academic or financial, Cheyney is a failed institution.  But there is no recommendation in NCHEMS report on how to deal with that school.

Other schools such as Clarion and Mansfield have seen enrollments drop precipitously over the last five years, falling around 30 percent. Not surprisingly, the costs per student have jumped sharply.

In the face of further declines in high school graduates in Pennsylvania and the intensification of competition for these students, there ought to be some specificity in the study as to how the growing difficulties at several schools should be dealt with.   It will take far more than recommendations such as “recommitting to a robust shared governance process.”  Indeed, downsizing, mergers, reorganizations of degree offerings and tighter entrance requirements should clearly be on the table.

The solutions for these problems will almost certainly have to be dealt with legislatively. There is no way the PASSHE governance can or will take the dramatic steps necessary to right size the system or insure that taxpayer dollars are spent wisely unless ordered to so.  Of course, this will be comparable to military base closing at the federal level. It will be very hard. But until they are remedied, the PASSHE problems will fester and grow worse with more inter institutional rancor and more calls for tax dollars.

Sadly, like the pension problem, this problem will in all likelihood get “kicked down the road.”

The Pa. Senate’s budget farce

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More than half a billion dollars in new taxes, including a double nose-thumbing to one of the commonwealth’s leading economic growth engines and, not to forget, a most dubious borrowing plan.

That’s the gist of the Pennsylvania Senate’s odoriferous plan to balance the state budget. It is a plan that brings to mind a most apropos quote from one Publius Cornelius Tacitus, the great Roman orator: “Reason and judgment are the qualities of a leader.”

Given this budget plan by the Republican-controlled upper chamber is so bereft of reason and so lacking in judgment – anathema to sound public policy – the word “leadership” cannot be applied.

The Senate’s plan to close a $2.2 billion hole in a $32 billion spending plan not only includes a severance tax on top of the already existing impact fee but consumer consumption taxes (technically a gross-receipts tax) on natural gas, electric and telecommunications bills.

Talk about economic perversion. The additional layer of taxation on the shale gas industry – a $100 million or so annual drain — likely will result in less drilling, less production and fewer jobs, resulting in lower tax collections.

Additionally, the higher impost on utility bills – a $405 million shakedown — likely will result in reduced consumer consumption. That not only stands to reduce projected tax receipts but also to spark a glut of gas that will lead to lower prices for producers that will – what, class? – lead to lower tax receipts.

Brilliant!

And how does one count the intellectual perversion? In myriad ways.

As The Associated Press reported it, Senate Majority Leader Jake Corman defended the indefensible by noting the commonwealth simply needed more revenue to avoid freezing some government spending.

“We came here to make tough choices,” he told colleagues on the Senate floor Thursday last. “Tough choices,” yes, not uninformed choices.

But this choice would not have been “tough” for true fiscal conservatives: state government spending remains out of control; freezing spending would have sent a strong message to taxpayers that at least a modicum of fiscal responsibility had returned to Harrisburg.

Cutting spending would have been better.

Corman amazingly conceded to reporters that the shale gas industry already pays enough in taxes. But the Senate bit on a big carrot dangled on a long stick by Democrat Gov. Tom Wolf – “significant permitting and regulatory reform,” the lack of which has handicapped industry development.

The wags with whom this scrivener regularly converses are convinced that carrot will be gobbled up by political expediency and all that remains will be the same old and onerous regulatory s(ch)tick.

But, wait, there’s another sleight of budgetary hand: The Senate plan would borrow $1.3 billion from expected future revenues from the 1998 multistate tobacco settlement. Of course, taxpayers will cough up a premium – borrowing costs, by one estimate, to be $700 million over 20 years.

That’s most of the bad news. The good news, at least for now, is that the Senate measure has no legs in the House. At least that’s what House leaders are insisting.

But, it appears that leadership has given itself, and its members, more than a bit of wiggle room.

“(W)e certainly have no intentions to rubberstamp these bills,” it said.

If that means merely a wee tweak here or a little nip and/or tuck there, taxpayers and the commonwealth will be in deep trouble. If, however, it means the Pennsylvania House is ready to take a stand and begin to instill true economy into the budget, the proverbial “new day” should be embraced.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

 

 

Impact Fee Money Rolls In

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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 a 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.