Governor Holds Firm on Port Authority Assistance

Once again Governor Corbett has nixed the pleas for his help in getting more money for the Port Authority. In response to a question on funding, the Governor said he is "not prepared to do anything" until he "sees movement" in contract negotiations. In holding firm he continues to keep the pressure on the unions and retirees of the Authority to make significant concessions, the only way the Port Authority can ever hope to deal with its massive legacy cost and compensation problems.

The game of chicken the unions have always played leading up to the end of contract deadline is underway again. In the past few negotiations, the threat of a strike has been explicit or implied as a way of getting the management to give up its demands or to get a Governor to find extra money taken from highway funds as a temporary fixes to the Authority’s finances. Having always won these contests of will in the past, the unions and retirees are inclined to believe the current Governor will give in at the last minute rather than watch the implementation of the massive service cuts Port Authority management say are coming in September.

If history holds, the real test of the Governor’s position will occur at the end of the contract if the unions go on strike or in August just before the service cuts get implemented. But this is a contest the Governor must win if sanity is to return to Port Authority financial management.

The Allegheny Institute continues to recommend a one- time boost in state assistance of $30 million in exchange for a substantial permanent reduction on retiree health care benefit concessions, current compensation concessions and a no strike pledge for ten years.

Governor Holds Firm on PAT Funding

Governor Corbett has shown real grit in refusing to acquiesce to the entreaties by some and scurrilous name calling by others demanding that he come up with more funding for the Port Authority. In fact, his adamant unwillingness to capitulate to those demands is the only reason the transit unions have any motivation to even consider making any concessions on wages or benefits.

Enter the Post-Gazette editorial writers with specious arguments and adding their voice to the clamoring cries that the Governor act soon. First, they point out -again-that the Governor’s task force on transportation made recommendations several months ago and he has declined to say what, if anything he will support from the those recommendations. The ed writers might want to remember that Governor Rendell’s 2006 task force on transportation made many recommendations for PAT including a call to begin explore competitive contracting. Not a single route has been privatized.

Secondly, the P-G mentions that the unions made concessions totaling $93 million. What they don’t say is that those savings are spread over many years. That’s a start but not nearly enough in the face of the billion dollars in unfunded benefit liabilities facing the Port Authority. What PAT needs are savings in current outlays and those have been reduced only through laying off employees. And that requires serious cuts in wages as well as concessions by retirees. Until those are forthcoming PAT will continue to strangle on excessive pay and retiree benefits.

So, until PAT’s unions and retirees are willing to make some serious concessions the Governor is right to hold firm. Any indication from him that he might yield to the mounting pressure to come up with additional funding will only encourage the unions to back away from concessions. This is the game of chicken they have played for years and have won. They must not be allowed to win again.

Solving PAT’s Financial Woes: State Problem or Local Issue?

The ongoing saga of the financial morass at the Port Authority (PAT) has developed an interesting twist.  Governor Corbett, through a spokesperson, has responded to PAT’s entreaties for a hefty boost in money from the Commonwealth to cover an impending $64 million deficit by telling PAT that, “they should look to their own resources to come up with a solution.” 


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County Exec Asking Legislature for Increased PAT Funding

The newly installed County Exec, after declaring he would be leading the charge in PAT labor negotiations, has made his way to Harrisburg to lobby for more funds for all but bankrupt Port Authority. He will argue that the looming $64 million deficit and the cuts in service it will require could have serious negative effects on the region’s economy.

What he will not tell the legislators about is the lack of progress by PAT in getting any meaningful concessions from the transit unions or retirees. Therein lies the principal root of PAT’s financial problems but nothing significant ever gets done to lower immediate cost other than lay off employees and cut bus service. The Exec has not once indicated he will press for major concessions by the retirees or union members. Hence the legislators should politely indicate the way out of their offices to the Exec.

More money for PAT now will only beget the cries for more money next year.

Really hard to enact bills need to be passed by the state government to address PAT’s fiscal situation. We have outlined those on many occasions. Eliminate transit workers’ right to strike, eliminate PAT’s monopoly in Allegheny County, and amend state law to allow PAT to declare bankruptcy. There is no other way to reduce the enormous burden of legacy costs that are driving the Authority into the ground.

The question is, do the Governor and the General Assembly have the intestinal fortitude to face down the Exec and the unions and do what needs to be done?

Taxpayers Take Their First Shift for the Penguins Arena

When the new hockey arena’s financing deal was announced, politicians were pleased to declare that no direct taxpayer money would be used to fund the facility. They noted the financing would come from the new casino, a state fund supplied by casino taxes, and the team. However, through a lease and sub-lease arrangement, the bonds issued to fund the arena were Commonwealth Lease Revenue Bonds. However, bond underwriters were not confident in the Pittsburgh casino’s ability to pay, so to secure lower interest rates, the Commonwealth-i.e. the taxpayers -would be called upon to backstop the lease. This detail was not very well known until months later. Even when it came to light officials claimed that taxpayers having to ante up was a remote possibility. Well, remote possibility just became reality.

Taxpayers were sent a bill for $5 million to satisfy an unexpected increase in bond interest payments as a result of a rise in the variable interest rate secured on the debt for the new arena. The interest increase happened last fall and was made known to the Governor in December whereupon he inserted the payment into his 2009-10 budget proposal. Unfortunately, it went unnoticed until discovered by the Tribune Review even though the state is scrambling to fill a budget shortfall and still hasn’t agreed to a budget three months after it was due.

The money still has to be appropriated by the Legislature, but a Budget Office spokesman noted that failure to do so "could have long-term negative repercussions…" He also rationalized the lease-sub-lease deal as "a sound financial arrangement in 2007 that was caught up in the crash that affected businesses worldwide."

And that is exactly what is wrong with Pennsylvania policy and one reason it is such a slow growth state. Using taxpayer funds to support a largely private venture should not be considered sound finance. This is the first shift taxpayers will take in paying for the arena. And unless the Rivers Casino comes up with $7.5 million soon, taxpayers may take another big hit quite soon.

The question is; "will the General Assembly appropriate funds to cover bond payments made necessary by the Governor’s ill-advised agreement to put the state on the hook without consulting the legislature and will they demand spending reductions to offset the millions needed to fund the bond payments?"

Pennsylvania Education: Home Run or Strike Out?

As the Governor stumps to increase spending on public education, his efforts were boosted by a report from the Center on Education Policy, a public school advocacy group, who claim that Pennsylvania is the only state in which student performance on its own tests had improved at all school grade levels. They proclaim that Pennsylvania hit a home run in this regard. But is it really a home run, or a strike out?

Looking at the Pennsylvania System of School Assessment (PSSA) scores from 2002-2008 each grade tested saw improvements in the number of students in each achievement level-basic, proficient, and advanced-in both reading and math. What’s conveniently omitted are the magnitude of the gains and how much it cost taxpayers along the way. After all the crux of the Governor’s position is that we need to throw more money at public education.

A recent Allegheny Institute Policy Brief (Vol. 9, No.44) pointed out the per-pupil expenditure has risen from $8,400 to over 12,000 from 2002 to 2008. State provided funding for K-12 rose from $6.96 billion to $9.68 billion over the same period. Both measures show an increase of 40 percent-2.3 times faster than the rate of inflation.

And what about that performance level on the PSSA? As further explained in the Policy Brief, only for the 8th grade scores and 5th grade math did test results improve by 20 percent. Most of the gains for 5th grade math occurred before 2005 and have been relatively small since. For 11th graders, those closest to graduation and entering the workforce, improvement in the fraction scoring proficient has fallen well short of 20 percent. Moreover, eighth grade reading scores are highly suspect and overstate improvement as we demonstrated in Policy Brief No. 46.

The rate of return to taxpayers is clearly a strike out, not a home run.

As we have demonstrated time and again, academic achievement is not causally related to expenditures. But of course never letting reality get in the way, the Governor proclaims "we can’t stop now". More appropriately, taxpayers can’t afford to keep going at this rate of return. True educational improvement will not happen until real reforms such as vouchers and school choice are implemented.

Governor’s Veto Creates Fiscal Drag on the State’s Economy

The Governor has signed the Senate’s budget and immediately started to veto most of its line item spending. He only kept those items that would allow the State’s 77,000 member workforce to get paid-such as public welfare, state parks, and inmate education and training. He even allowed his office to receive it’s funding of $6.5 million. While he has authorized $11 billion of the $27.3 billion budget sent by the Senate, Commonwealth citizens are still paying taxes which are being collected and not spent. This is creating a fiscal drag on the State’s economy.

Considering that the Commonwealth collects more than $2 billion per month in tax revenues, this skeleton budget is only accounting for less than half, which leaves more than $1 billion per month languishing in the State Treasury. As this money goes unspent, it is not generating economic activity across the state. Even with a simple multiplier effect, this lack of spending is having a dramatic financial drag on the economy. Thus this budget battle is doing more harm than originally estimated.

Here’s an idea. While the Governor and Legislature battle it out, they could do the state a favor and provide a tax holiday at least until the budget stalemate is over. Cutting the state’s tax rates in half, which would still provide enough revenue to cover the skeleton budget, would put more money into the pockets of the citizens and remove the fiscal drag on the economy.

Giving people more money in their pockets to spend as they wish may create more economic activity and result in more tax revenues than anticipated. Who knows, maybe the people will realize just how much better off they are without all this government spending and demand real cuts to the state’s budget and tax rates.