Next up: Pension reform and infrastructure
Pa. lawmakers expect to take aim at big-ticket items in 2013-14Jason Scott
Legislative sessions rarely are short on big policy issues and priority lists for those items.
The 2011-12 voting session, which has been in the books since mid-October, was no exception coming off a change in administration.
And while Republican Gov. Tom Corbett and the GOP-controlled General Assembly were able to clear the decks on several legislative fronts, there were missed opportunities and issues labeled as priorities that barely moved past political grandstanding (see "Cashed in, missed out," page 9).
Both topics, which are heavy on cost, drew plenty of debate and a variety of proposals before falling to the wayside as the current session focused heavily on delivering on-time budgets and reining in state spending.
"The pension crisis is going to have to be dealt with right away," said Matt Brouillette, president and CEO of the right-leaning Commonwealth Foundation. "The increases that are projected to go up will be miniscule compared to the reality of the increases."
The unfunded liabilities are upward of $41 billion for the Public School Employees' Retirement System and the State Employees' Retirement System. Lawmakers have been looking at private-sector ideas — a move to a 401(k)-style system — to address incoming employees.
Meanwhile, pension obligations are growing, and they will eat up a larger chunk of the state budget.
On transportation, several measures were introduced in the 2011-12 session that mirrored many of the recommendations in the 2011 report issued by Corbett's Transportation Funding Advisory Commission.
The commission outlined several proposals that would add about $2.5 billion for infrastructure over a five-year period. That plan included uncapping the gas and oil company franchise tax, increasing fees, moving the state police budget over to the general fund and modernizing programs at the state Department of Transportation.
A 2010 study by the Pennsylvania State Transportation Advisory Committee said the commonwealth's unmet need for transportation funding is about $3.5 billion annually.
"My No. 1 priority is funding for transportation infrastructure," said Senate Majority Leader Dominic Pileggi. "We have studied the issue to death. It's time for us to take some action."
A legislative package was sidelined until there was an agreement with the governor and the House, Pileggi said. That didn't materialize before the end of the session.
Moving forward, the Senate will take the lead and advance a package that it hopes everyone can support, the senator said.
"It will come from user fees and taxes on fuel. There is no escaping that reality," he said. "That should not surprise anyone. The most recent study is similar to past studies. We have the same funding options and the same level of need."
There is broad support, including support from the business community, on many of the commission's recommendations, said Sharon Ward, director of the Pennsylvania Budget and Policy Center, a project of the liberal-leaning Keystone Research Center.
"The business community has to make the case that not making the improvements is hurting our economy," Ward said.
Given the tighter majority in the Senate — the election led to three new Democratic seats and a 27-23 Republican margin — Pileggi said it will take more effort to find a consensus on issues such as pension reform.
"We must do something," he said. "The more difficult challenge is do we attempt to maintain the existing system or do what the private sector has done with defined contributions."
On the flip side, the Keystone Research Center argues that the unfunded liability can be dealt with over a long period of time under the current system and that energy can be better spent on other issues.
"It gives you an excuse to say you can't do any investments," said Stephen Herzenberg, the center's executive director, who argued that time should be spent more on tax reforms that increase the fairness of the system.
Pileggi said he is aiming to tackle transportation and pension reform right out of the gate next session.
"If we're able to accomplish our goals on transportation and pension reform, that alone will be a wildly successful first half of 2013," he said.
Solving the infrastructure issue is going to take the same kind of leadership the administration showed on its spending approach over the last two years, Herzenberg said.
Budget and other items
Of course, there also will be another budget cycle to tackle, along with topics that pick up steam and then fade away, such as charter school reform and liquor store privatization.
"Looming as huge issues are infrastructure and pensions," said G. Terry Madonna, a political pollster and pundit with Franklin & Marshall College in Lancaster. "The others … charters, school choice and selling the liquor stores … we've survived without them. They are not urgent."
Not tackling the big-ticket items creates enormous problems for the state, Madonna said. However, Corbett has taken a no-tax pledge.
"The bottom line is that if you're creative about it, you can find the revenue to invest in the future," Herzenberg said. "That actually begins to solve pensions. It's a revenue issue."
If the state's economy were growing more rapidly, revenue recovering more quickly and adequate contributions being made to the pension system, that wouldn't prevent the state from restoring education funding and making other investments, he said.
"I think some things can be leveraged against one another," Brouillette said. "Liquor is an opportunity for the state to realize significant revenue upfront."
Those funds could then be utilized to help offset pension costs and could begin to help address transportation needs, he said.
"I don't think the general public fully understands the magnitude of these problems," he said. "And they probably won't until we see tax increases going up for schools or a major (infrastructure) tragedy."
Cashed in, missed out
Two years is a long time to get things done in the General Assembly. And lawmakers did get a lot accomplished during the 2011-12 legislative session.
Here is a brief summary:
On-time budgets: The 2011 and 2012 budgets were passed with no new taxes or increases. They also continued the phase-out of the capital stock and franchise tax; the latter expanded the state's Education Improvement Tax Credit program to $100 million. As part of the 2011 budget, the governor signed a bill requiring voter approval if school districts intend to seek property tax increases above the rate of inflation.
Unemployment compensation reforms in 2011 and 2012: The former extended benefits and permitted an additional 90,000 to qualify. The reform also required people receiving unemployment benefits to show they were looking for jobs and maintained a $573 freeze on the maximum weekly unemployment compensation benefit. The 2012 reform authorized a bond sale to pay back the state's federal debt. It also curtailed benefit eligibility.
Fair Share Act: Curbed lawsuit abuse. The act made it so defendants with less than 60 percent of liability in a case would not be required to pay for the whole award if other parties could not afford to pay.
Workers' compensation: Act 20 of 2011 allowed workers' compensation insurers to provide sole proprietors, partners in partnerships and members of limited liability companies with coverage.
Marcellus Shale impact fee and regulatory changes: A law signed in February gave municipalities in the shale gas region the ability to impose fees on drillers and increased environmental standards on the industry, including an increased well-setback distance.
P3s: Act 88 of 2012 provided for public-private partnerships, or P3s, to help fund transportation infrastructure projects. The legislation gives Pennsylvania the ability to lease large-scale transportation assets to the private sector in order to expedite improvement projects that cannot be funded solely through public dollars. The private entity would generate a return through user fees or tolling.
B-Corps: At the end of the session, the governor signed a bill that would allow companies to charter themselves as benefit corporations. B-Corps are for-profit companies that have chosen to make a set of values equal in importance to the overall profitability of the company.
For a more complete list, visit the website of the state House Republican Caucus.
The biggest missed opportunity during the past two years was a focused effort to grow the state's economy, said Stephen Herzenberg, executive director of the Keystone Research Center.
He characterized the 2011-12 legislative session as one where ideology trumped pragmatism.
"We got a fairly single-minded focus on cutting state spending," Herzenberg said. "I can applaud the governor's consistency to a particular political philosophy, but it actually took the state's economy in the wrong direction."
Reforming the state's tax system, including tax loopholes, should be a major focus, he said.
The Commonwealth Foundation's Matt Brouillette listed liquor store privatization, charter school reform and prevailing wage reform as major missed opportunities.
"I hope they will be addressed in this next legislative session," said Brouillette, the foundation's president and CEO.
Policymakers also have not been able to address the reduction of the state's corporate net income tax, which is 9.9 percent.