A Look Back at the Allegheny Institute’s Work in 2017
As 2017 draws to a close we extend best wishes for a healthy and prosperous New Year to our Policy Brief readers. On a public policy front, this year was very interesting and provided plenty of important issues for us to analyze and write about. Some of the issues will continue to have an impact for years to come. The following describes briefly several highlights of our work in 2017.
PWSA—Perhaps no issue attracted more interest in the city than the plight of the Pittsburgh Water and Sewer Authority. In February, a large water main break lost 10,000 gallons per minute, the first of several serious outages. In November, the state auditor general released a scathing report on the authority revealing the enormous magnitude of PWSA’s problems. As we noted much earlier, the antiquated infrastructure is in bad need of repair that will cost billions of dollars.
The Legislature passed a law placing the PWSA under the oversight of the state Public Utility Commission to help hold the authority accountable for improvements and for developing a long-term plan to replace the system. The Institute recommends strongly that as customers see steady increases in their rates, the city should do its part to help the PWSA solve the mess it had a hand in creating.
City government—It adopted new regulations, many of which are anti-business. In November the mayor introduced a plan to require any professional services contractor with a contract over $100,000 with the city to pay all employees working on the contract a minimum wage of $15 per hour. We challenged the proposal as dismissive of market forces and not in keeping with good government.
Pittsburgh Pirates—The team threatened legal action over the Sports & Exhibition Authority’s reluctance to grant the team’s request for ballpark repairs and upgrades. The dispute centered on a video scoreboard which the authority claims is an improvement and falls outside the stipulation of the lease. Because the stadium was largely paid for by taxpayer dollars, from which the team earns millions and has benefited greatly, we argued the team should fund desired “improvements.”
Natural gas severance tax—Proposals to levy a severance tax on natural gas extracted from unconventional gas wells reappeared in 2017. While proponents keep saying that Pennsylvania is the only state without a severance tax, they conveniently forget to mention that it is also the only state with an impact fee on unconventional wells. Our analysis pointed out the economic damage the severance tax would cause to the Commonwealth’s gas industry. Once again, the proposal did not advance in the Legislature.
Mon-Fayette Expressway—The plan to connect the Mon-Fayette Expressway from Jefferson Hills to Monroeville was advanced with a report from a transportation organization extolling its benefits. As we wrote in a Brief, “Unfortunately the TRIP study falls well short of being a credible evaluation of the extension’s benefits. It is long on claims but short on useful data and analysis.” We laid out the case why the $2 billion extension shouldn’t be pursued including pointing out the decline in traffic on two other local toll highways (Routes 60 and 66).
Pennsylvania’s economy—We continue to monitor the economic performance of the state and region. Coming out of the recession of 2009-10, Pennsylvania enjoyed relatively strong growth compared to the nation, largely due to the fact that the Keystone State was not hit by the massive depression in housing that struck many states and having the good fortune of a rapidly growing Marcellus shale natural gas industry. However, comparing Pennsylvania’s private employment and earnings growth with that of the rest of the nation in the 2013-2017 period shows the state’s nonfarm jobs gain was 3.13 percent while the U.S. growth was 7.3 percent as the nation recovered from the recessionary lows. Both the U.S. and Pennsylvania’s growth was far slower than in the period prior to the 2008 downturn. Pennsylvania’s growth lag compared to the nation since 2013 is also seen in the real weekly earnings of all employees. Pennsylvania’s weaker earnings gains are reflected in the modest growth in state tax revenue.
Education—We took on two statewide education topics: The equitable funding issue and the gap in teacher pay among districts. In the former we noted the implausibility of equal shares of local and state funding (50/50) that many people are advocating as a fair way to fund education. Data show that in the aggregate local funding comprises 61 percent of school funding while the state provides 39 percent. This share imbalance is due to the fact that a quarter of the state’s 500 districts raise 70 to 85 percent from local sources. Then too, the top-40 districts (ranked by local revenue per student) receive an average of only 19 percent of their funding from the state while the bottom-40 local revenue districts receive an average of about 75 percent of funding from the state. Achieving a 50/50 overall ratio could be done either by forcing those at the top to freeze or reduce the amount raised locally and/or have the state raise an additional $6 billion to match the revenue raised locally and distribute it to reduce disparities in total revenue by district. Freezing local revenues will be very difficult politically and would require years to get funding to 50/50. And raising an additional $6 billion of state funding will face enormous obstacles.
On the topic of teacher pay, the huge disparity across districts exists primarily as the result of the wealth and income differences that determine tax bases across the state’s 500 districts but also differ to some degrees due to cost-of-living differences and years of experience. Pennsylvania’s top-10 teacher pay districts average $92,382 while the bottom-10 average $43,649. Clearly the disparity in teacher pay is astounding. And yet the state’s teacher union officials and legislators are virtually silent on the enormous pay disparity.
State pension plan reform—This year legislative changes were made to pension benefits for new hires of the two statewide pension systems beginning in 2019. The legislation will include three options for new employees: a defined contribution plan as well as two hybrid plans that combine features of defined contribution and defined benefit plans. However, the legislative reforms will not eliminate the fiscal or budgetary pressures caused by huge unfunded liabilities in the current pension plans. In the next decade the state and school districts will continue to face budget problems as they deal with unfunded pension liabilities.
Other topics of note
Other topics we analyzed in depth include property assessments, the problems with the state university system, a long-term look at the economic performance of the Pittsburgh metropolitan area, police residency requirements in Pittsburgh, the local share assessment mandated in the state gaming law, taxpayer subsidies to airlines and the economic impact of opioid abuse locally.
For each topic we offer insights and challenges to conventional thinking. Our work is driven by facts and careful analysis with an eye toward finding new ways to think about approaches to problem-solving that are consistent with free markets and good-governance principles. We will continue to do so in 2018.