HARRISBURG — There is little disagreement that Pennsylvania’s $47 billion-and-growing public pension debt represents a serious threat to the financial future of the state, its school districts and taxpayers.

But there is little in the way of agreement when it comes to how that debt can, or should, be addressed.

SPARKING REFORM: State Sen. Mike Brubaker, R-Lancaster, discusses the need for pension reform as Gov. Tom Corbett (left of the podium) and other supporters of the measure look on.

Gov. Tom Corbett and some allied lawmakers seized the bully pulpit Tuesday morning in what appeared to be an effort to spark some movement on the public pension issue that mostly has been dead in the water since Corbett pitched a package of reforms in February.

Corbett has pegged his proposed budget for fiscal year 2013-14 on supposed savings from overhauling the state’s public pension system to save $175 million next year.

On Tuesday, he pointed out that it was not only the state budget at stake, but household budgets as well.

The pension’s $47-billion unfunded liability amounts to a $9,000 bill for each household in Pennsylvania, the governor said. On its current course, the liability will top $65 billion by 2018, bringing the per household total to more than $13,000.

“That’s the cost of doing nothing,” Corbett said. “Are you ready to write your checks?”

To save money in the long run, Corbett has proposed reducing state contributions to the pension system for the next few years in exchange for benefit changes for current and future employees that would begin in 2015.

The changes for current employees would not affect benefits already accrued.  Retirees and those who retire before 2015 would not see any changes in benefits.

Without changes, the future will bring double-digit tax increases at the school district level, said state Rep. Chris Ross, R-Chester, a supporter of Corbett’s plan. School district property taxes cover part of the state pension costs.

“Also, we’re going to be faced with substantial cuts in critical government services,” Ross said.

While the governor’s aim is clear, there are plenty of diverging opinions — mostly among fellow Republicans.

Senate Majority Leader Dominic Pileggi, R-Chester, said Monday there is division in the ranks over the idea of changing benefits to new hires and scaling back benefits for current employees, even if those changes only would affect benefits earned in the future.

Senate Majority Leader Dominic Pileggi, R-Chester

He said there is “very little support” for changes to current workers’ pensions because for a variety of reasons, including constitutional ones and a “basic fairness principle.”

But there is support in the state Senate for changing the benefit structure for future employees, he said, noting that 26 members of the chamber have signed on to a bill that would do exactly that.

“We have to move forward to see if the House has some interest in doing that,” Pileggi said.

The state last adjusted the pension system in 2010 with the passage of Act 120, which changed the benefit structure for employees hired after it was signed into law.  It earned support from lawmakers on both sides of the aisle, along with unions and former Gov. Ed Rendell, a Democrat, who signed it into law.

Corbett’s reach is undeniably bolder, but in that boldness it may lack the necessary support to be approved.

The state’s powerful public-sector unions, which represent many of the state and school district employees that would be affected by the pension changes, are adamantly opposed to any changes in benefits for current workers. Dave Fillman, executive director of American Federation of State County and Municipal Employees Council 13, which represents 65,000 workers, including many state employees, said even pension changes for new hires — as Pileggi has suggested — would be met with skepticism.

“It does not reduce the unfunded liability one iota,” Fillman said.

He’s right about that. Only increasing state contributors or cutting back on current employees’ benefits will reduce the pension debt.

State Sen. Mike Brubaker, R-Lancaster

And going after benefits for public employees already on the job will trigger an immediate lawsuit from the unions, Fillman and other labor leaders promised again on Tuesday.

For the most part, the unions and Democrats in the General Assembly say there is no need for further pension changes – instead, they say, give the reforms passed in 2010 more time to work.

But those lining up behind Corbett say the current system is “economically unsustainable,” as state Sen. Mike Brubaker, R-Lancaster, put it on Tuesday.

Facing such a serious problem calls for bold steps, he said.

“Should we be successful, this will be the most comprehensive pension reform package in the United States of America,” said Brubaker, chairman of the Senate Finance Committee and a key player in any potential pension overhaul.  He promised a hearing on the governor’s plan “in the very near future.”

One hearing already took place in the state House, but there has been no other movement on the issue.

State Rep. Glen Grell, R-Cumberland, one of the prime architects of Act 120 of 2010, says that measure always was intended as a stop-gap solution that would need to be revised.

State Rep. Glen Grell, R-Cumberland

Now is the time for a long-term solution, Grell said.  But he questions whether the governor’s plan accomplishes that.

On Tuesday, Grell suggested adding pension obligation bonds to the mix.  The bonds allow the state to borrow privately to cover some — Grell suggested about $9 billion — of that $47-billion unfunded liability.

By borrowing, the state can show a good faith effort to reducing the unfunded liability and meeting the future obligations to its employees, which might make the unions more willing to bend on other issues, he said.

But the union leaders said they wanted to know exactly how a bond would be used before signing on to that idea.

Budget Secretary Charles Zogby said all ideas remain on the table, but cautioned against using pension bonds because they would come with hundreds of millions of dollars in additional debt-service payments.

There are other issues to work through on the bond front.

For one, they are illegal.  Act 120 banned the state from using pension obligation bonds, though that easily could be reversed with the passage of another pension-overhaul package.

Second, and more concerning, is the fact that credit-ratings agencies have said such maneuvers by states and municipalities would risk a credit-rating downgrade.

But with so many opinions, one thing is certain.  If nothing is accomplished by June 30 when the state budget deadline hits, the pension issue will be larger and more difficult to grapple with next year.

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

HARRISBURG – Pennsylvania has an extra $67 million in the bank with two months to go in the fiscal year.

But that won’t make the budget process any easier.

That’s because the budget proposal put forward by Gov. Tom Corbett in February assumed the state would have about $230 million in extra cash at the end of the fiscal year June 30. The governor planned to use that extra money to plug some of the gaping holes in next year’s budget, mostly the result of $500 million in additional pension costs expected during the 2013-14 budget year.

COMING UP SHORT: The Corbett administration is backing away from a February projection that expected more tax revenue this year.

So even though the state is ahead, it is also behind. Make sense?

After the official figures for April were released Tuesday, administration officials backed off the higher revenue estimate.

“It’s pretty clear that we won’t end the fiscal year with that extra $232 million,” said Elizabeth Brassell, spokeswoman for the Department of Revenue. “It’s unlikely that we will experience any significant gains in the next two months.”

March and April are the key months for tax revenue from corporate and personal income taxes, respectively, Brassell said.

But unexpected weakness in sales tax revenues have dragged down total collections for the year, she added.

In raw dollars, the governor’s budget anticipates about $28.8 billion in revenue this year, which includes that extra $232 million.

The Independent Fiscal Office, the state equivalent of the federal Congressional Budget Office, issued its own projections Wednesday afternoon.

The IFO expects the state to collect $28.58 billion this year, which is almost exactly in line with the administration’s original projection, before it was revised upward in February.

If the IFO projection is correct, it leaves Pennsylvania about $222 million short of what is necessary to balance next year’s budget as the governor pitched it.

So lawmakers and the administration have some work to do to bridge that gap in the next two months before the June 30 budget deadline, unless there is an unexpected surge in tax collections.

And coming in below the revised expectations could mean more budget belt-tightening.

“In order for us to achieve the structural balance in the budget, we’re going to have to continue the fiscal discipline we have employed in the past,” said Jay Pagni, spokesman for the governor’s budget office.

That seems unlikely to fly with Democrats.

House Appropriations Committee chairman Joe Markosek, D-Allegheny, said Wednesday a “responsible state budget” would “have to prioritize people.”

“We cannot afford to cut vital programs and services,” he said.

But so far, there has been little in the way of direct negotiations on a budget.

Senate President Joe Scarnati, R-Jefferson, on Monday said he was eager to start working through the specifics of the state budget and seemed dismayed that no meetings had taken place.

He blamed an intense focus on liquor privatization from distracting attention from budgetary issues.

Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

GOV. TOM CORBETT’s SCHEDULE: Press conferences are announced by media advisories sent through the governor’s communications office.

HARRISBURG — When Gov. Tom Corbett is on an international trade mission, you’ll know exactly where to find him.

It might even be easier than when he’s in Harrisburg.

Corbett is on a trade mission to Brazil and Chile, a privately funded, 10-day enterprise meant to raise Pennsylvania’s profile abroad and to focus on creating jobs.

The governor’s press office has released to the media detailed itineraries for the first two days of Corbett’s day-to-day activities.

Those have included a meeting with San Paolo Vice Governor Guilherme Afif Domingos, a Pennsylvania tourism promotion luncheon and private meetings with Brazilian companies, all listed by time.

According to the itinerary, Corbett had about eight hours worth of engagements on Tuesday.

But no daily schedule gets distributed when Corbett is out and about in Pennsylvania, or even in Harrisburg.

BEING IN BRAZIL: So far, Governor Corbett’s schedule has not mentioned the beautiful Brazilian natural landscape.

Corbett’s public appearances throughout the state are preceded by media advisories, much in the way the trade mission itineraries were sent out. But they are not available to the public.

The governor’s office does not add these to the list of news releases it otherwise makes public. Other engagements, like meetings with business owners, are not made public.

Speaking from Sao Paolo, Corbett took about 40 minutes out of his schedule Tuesday to host a conference call with reporters in Pennsylvania. When asked if he would continue to release this daily schedule upon return to the state, Corbett said, “I’ll consider it.”

When it comes to notifying the public of a governor’s whereabouts, states differ.

In North Carolina, Gov. Pat McCory’s public schedule is listed on his website, indicating whether the event is open to the media.

Florida, which is sometimes commended for state government transparency, also goes public with Gov. Rick Scott’s schedule. A week-by-week or month-by-month calendar is available that displays Scott’s daily itinerary. The governor’s press office also sends out the governor’s public schedule every day, via an email blast to subscribers.

In Nebraska, Gov. Dave Heineman puts out a list of his daily public appearances, listing events and speaking engagements.

Similar agendas for public events are kept for Gov. Deval Patrick in Massachusetts, Gov. Bill Haslam in Tennessee, Gov. Jack Markell in Delaware and Gov. Jan Brewer in Arizona.

But Corbett’s administration considers at least some of Pennsylvania governor’s whereabouts outside the realm of public view.

A pending case in Commonwealth Court on an appeal filed by the administration against Associated Press Capitol reporter Mark Scolforo centers on calendar dates and emails that were not released in response to a Right-to-Know request.

While some information was turned over, some was redacted, citing exemptions in the state’s Right-to-Know law. The response was appealed and the matter wound up in court.

Last year the Commonwealth Court ruled the unreleased records would be reviewed by the Office of Open Records behind closed doors before determining if they could be made public. Corbett’s office appealed that decision, and the Commonwealth Court heard a second round of arguments in February.

The lawsuit spawned several editorials from Pennsylvania newspapers, including The Philadelphia Inquirer, The Patriot-News, the Philadelphia Daily News and Chambersburg Public Opinion. The pieces are critical of Corbett’s decision to hold back his schedule and cite the potential chilling effect this could have on state transparency.

“We understand that transparency cramps the exciting, whirlwind dealmaking over the finer points of corporate tax exemptions, not to mention lobbying — often driven by dark money — for dubious public policy,” read the Chambersburg Public Opinion piece. “But we don’t think it’s too much to ask to know where our governor goes, and who has his ear. Indeed, the schedules of elected executives have historically been subject to such reporting for just that very reason.”

Contact Melissa Daniels at melissa@paindependent.com

Correction: This article was updated to reflect  the status of Gov. Deval Patrick of Massachusetts. UPDATE: This story was updated at 11:00 a.m. on Wednesday, April 16 to clarify the status of the Right-to-Know case of Office of the Governor v. Mark Scolforo.

HARRISBURG — Gov. Tom Corbett is continuing to seek a special deal with the federal government to increase flexibility in how Pennsylvania will administer Medicaid under the new federal health care law.

LETS MAKE A DEAL: Gov. Tom Corbett told reporters on Wednesday that he’s still seeking a deal with the federal government for Medicaid expansion.

Corbett met Tuesday with federal Secretary of Health and Human Services Kathleen Sebelius, who is in charge of Medicaid, the health insurance program for the poor that is funded jointly by the states and the federal government.  On Wednesday, the governor described the meeting as productive but said it lacked any sort of definitive agreement between the two sides, though he acknowledged he wasn’t expecting one.

“There are ongoing discussions that will continue to flow back and forth,” Corbett said.

Corbett declined to go into the details of the negotiations, but earlier in the day on Wednesday his office put out a statement that implied Corbett was seeking a deal similar to what the federal government previously granted to Arkansas.

Under the provisions of that arrangement — struck by Democratic Gov. Mike Beebe — Arkansas would be able to use the private health insurance exchanges that are a part of the federal health care overhaul to cover Medicaid patients.

Under the provisions of the Affordable Care Act, states have the option to expand Medicaid with the federal government picking up the full cost for the first few years and a lower amount in subsequent years. Though most Republican governors initially opposed the expansion of Medicaid in their states many have since agreed to do so, Corbett remains one of the few holdouts.

Conservatives have encouraged Corbett to reject the Medicaid expansion, which would cost state taxpayers $2 billion over the next decade.

Even taking an Arkansas-style deal would be bad for the state because it would entrench the health exchanges and would rely on a cash-strapped federal government to keep its promises of funding most of the new costs from expanded Medicaid coverage, said Elizabeth Stelle, a policy analyst for the Commonwealth Foundation, a free market think tank in Harrisburg.

“The only acceptable reason to expand Medicaid would be full flexibility to customize Medicaid for all Pennsylvania residents,” Stelle said.

According to a recent report from the Congressional Budget Office, each patient enrolled in the health exchanges instead of Medicaid would add $3,000 in new costs.

But Democrats have said that Corbett would be foolish not to take the additional funding from the federal government to expand Medicaid.  They also point to the fact that about 800,000 residents will have new health coverage under Medicaid if Pennsylvania opts to expand the program.

Corbett on Wednesday reiterated that he would not be able to accept the Medicaid expansion until he had answers to all the questions he was asking of the federal government. As for a timetable for the decision, the governor acknowledged that he would like to have the issue settled before the budget deal in June.

Regardless of the outcome, Corbett said it was a shame the issue has become so politicized on both sides since he believes it should be more about the affordability and sustainability of Medicaid.

“That’s not political, it’s practical,” Corbett said. “And the dialogue on the political side distracts from that.”

Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

PENSION PROBLEMS: This chart from the Office of Budget shows what contributions the state faces in coming years, including how the proposed changes for current employees change the outcome.

By Melissa Daniels | PA Independent

HARRISBURG — No laws have been changed, and no legislation is even introduced, but Gov. Tom Corbett’s administration is already defending its pension plan.

Public sector unions promise to challenge the proposal. The plan, they say, is unconstitutional.

The administration made pension reform a top legislative priority this year, with the goal of getting a slew of funding and benefit changes passed by the next fiscal year, which starts July 1.

The plan, in part, reduces future benefits for current employees, and that upsets the unions. But those reductions make up most of the nearly $12 million in projected savings over 30 years, according to the plan.

SCHULTZ: The commonwealth’s chief counsel said he is confident the state’s proposed pension changes will hold up in court.

Chief Counsel Jim Schultz heads the state’s Office of General Counsel, which would defend the law in court, should it come to that. Schultz is confident the state’s proposed changes will withstand judicial scrutiny, he told reporters Wednesday.

Schultz said the courts would employ a “contract impairment analysis” to determine whether the changes are constitutional. That comes down to whether the state had a good enough public policy reason to change its agreement with employees.

“I think it’s undisputable we have this important public purpose,” Schultz said, noting the $41 billion in unfunded liabilities the two state pension systems now carry.

The court’s analysis would involve deciding whether amending future pension benefits violate the agreement the state has with its employees. If that agreement has been impaired, the court would then look at whether the state had a pressing enough reason to make the change.

Schultz said even if the courts find the administration impaired its contract with employees, the pension problem is a compelling enough reason to allow the changes. He dismissed the claim that courts have already determined future benefit reductions unconstitutional, calling this proposal a brand new case.

“The Pennsylvania Supreme Court has not had a plan similar to the governor’s plan before it when it’s evaluated or gone through contract impairment analysis,” Schultz said.

Past cases, he said, involved changes to already-earned benefits. The plan on the table exclusively changes prospective ones, and it does not touch what’s already earned.

Others offer different interpretations.

Stephen Herzenberg, executive director of the Keystone Research Center, said Corbett’s pension proposal makes unconstitutional changes — and would wind up costing taxpayers more down the line by putting new employees on defined contribution plans.

He said the administration is out on “a legal limb” by defending its proposal.

“You can talk about pension contributions going forward and benefits going forward, but the courts have been clear,” Herzenberg said. “The pension contract is a career-long contract. It’s a package deal, so you don’t change the package unilaterally part of the way through.”

The Pennsylvania State Education Association fired off a news release to say the Corbett proposal fails to solve the debt crisis, will add costs for taxpayers and is unconstitutional to boot.

“Here are the facts. Gov. Corbett’s pension proposal would change benefits for current employees,” President Mike Crossey wrote. “Pennsylvania’s Constitution doesn’t allow this, and Pennsylvania’s Supreme Court has issued clear opinions rejecting unconstitutional approaches nearly identical to what the governor is proposing today.”

The argument is likely to heat up even more before June 30, as next year’s budget relies on passing the Corbett proposal. The plan limits the state payments into the plan from 4.5 percent annual growth to 2.25 percent annual growth. This would generate $175 million in savings for this year’s budget, and more over the next five years, which means failing to pass reform of any kind before June 30 would prove problematic, said Budget Secretary Charles Zogby.

Legislation outlining Corbett’s pension proposal is expected to be introduced as soon as next week, Zogby said.

“I think it’s imperative we leave here in June with something on pension reform that’s going to deal with the immediate effects of this coming budget, as well as the coming budget years,” Zogby said.

Contact Melissa Daniels at melissa@paindependent.com

This story was updated to correct the title of the Pennsylvania State Education Association.

HARRISBURG – Three former governors elected by Pennsylvania voters a total of six times over the past 34 years argued Monday that those same voters should not be trusted to choose the state’s highest-ranking judges.

Former Republican Govs. Dick Thornburgh and Tom Ridge were joined by former Democratic Gov. Ed Rendell on a conference call organized by Pennsylvanians for Modern Courts, a judicial reform group, to urge the state to pursue a so-called “merit selection” process for judges on the state’s appellate courts. Under current law, all judges in Pennsylvania are elected and must face the voters every 10 years to be retained on the bench.

GREAT TASTE? LESS FILLING? The state’s residents may eventually get to decide between having Supreme Court Justices elected or appointed.

The governors’ concerns with the current process were two-fold.

First, the judicial races are usually so low-profile that most voters do not know enough about the candidates involved, aside from their names and counties of residence, which are listed on the ballot.

“Right now, voters have no idea who they are voting for anyway,” Rendell said. “It is a system that makes no sense; the voters don’t really have the necessary information to decide who they are electing.”

Second, certain groups who do know the judges – in particular, lawyers and attorneys who may later appear before those some judges in court – have undue influence on the outcomes of the races by funding the judges’ campaigns.

Thornburgh said it was important for judges to be free of those influences, which, he said, place a premium on how much is raised and what is owed to those donors.

“That kind of quid pro quo is completely out of place,” he said.

The state Senate has introduced legislation to implement the changes supported by the three governors; the House has announced identical legislation.

Pennsylvanians for Modern Courts wants judges to be selected by a panel composed of appointees of the governor and legislative leaders, along with members of the public. Four years after being appointed, judges would have to stand for retention in a statewide election.

After a scandal involving Supreme Court Justice Joan Orie Melvin — found guilty last month on six counts of corruption for using public funds on her 2009 Supreme Court campaign — advocates for changing the process may finally have a political foothold.

The Supreme Court has suspended Orie Melvin, but she has not removed herself from the bench. Lawmakers in the state House are preparing to impeach her, if necessary.

Senate Majority Leader Jay Costa, D-Allegheny, said Monday that he would prefer campaign finance reforms for all elected officials rather than a “closed-door” process to pick the state’s top judges.

“I believe that the merit selection process is a very political process,” Costa said. “It’s different, but it’s not different.”

Chris Bonneau, a professor of political science at the University of Pittsburgh, cautioned against making any immediate changes to how the state picks judges because of “well-reported anecdotes.”

“In short, it is far from clear that there is a problem with the status quo and even more unclear that the proposed solutions will yield more good than harm,” he said in an emailed statement.

Any changes to how judges are elected would have to be made with a constitutional convention. That process requires the state Legislature to pass the same bill in two consecutive sessions before the matter is put the voters in a statewide referendum.

A referendum on merit selection of judges in the 1960s failed by a narrow margin.

Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

ACTION: Film production in Pennsylvania can get tax credits if they spend 60 percent of their budget in the state.

HARRISBURG — Managers, sound crews, religious deities, moms and husbands often get thanked during awards speeches. But the state taxpayers who helped foot the bill? Not so much.

Forty states offer some kind of tax credit for film or television production, according to a recent study from the Government Accountability Institute, contributing to $1.5 billion in production tax credits annually.

In Pennsylvania, productions that want to film in the rolling Northern Tier hills, sprawling Susquehanna River basin or narrow Center City streets can take advantage of new funding structures.

Yet funding for Pennsylvania’s six-year-old film tax credit program will, for the foreseeable future, stay flat, with an annual operating budget of about $60 million.

Last year, however, lawmakers adopted laws to allow the program to give out multi-year credits by appropriating money from future fiscal years.

The program can take up to 30 percent of its funding from the next year, 20 percent from two years out and 10 percent from the third successive fiscal year.

Awarding credits in advance, though, counts against what the department gets later.

This year, Pennsylvania’s Department of Community and Economic Development approved $92 million in film tax credits, with $32 million coming from future years.

Steve Kratz, spokesman for DCED, said officials can’t predict how the new structure would affect funding requests for the program.

“After this year we have to take a serious look at how it’s working and make a determination at that point, if it’s something that’s feasible to do moving forward or if we want to take another look at it and re-evaluate it,” Kratz said.

The multi-year funding is given out conditionally, meaning if the state does not get the funding it anticipated for that year, the deal would be off. So far, the conditional commitments have been offered to a handful of projects, according to DCED data:

• In 2013-14, $18 million is conditionally committed to four projects.
• In 2014-15, almost $10.7 million is conditionally committed to six projects.
• In 2015-16, about $3.6 million is conditionally committed to one project.

FONTANA: The Pittsburgh-area senator said he thought the state could invest more into the film tax credit program.

Other changes to the program include a scoring system for project approval. Previously, tax credits were awarded on a first-come, first-served basis, Kratz said.

To get approved for a tax credit, projects must spend 60 percent of their budget in Pennsylvania.

For now, it sounds as if these changes are the most the film tax credit program might see for some time. In a Monday DCED budget hearing, state Sen. Wayne Fontana, D-Allegheny, said he would like to see a higher funding cap for the program.

“It seems we’ve sort of stagnated at that $60 million,” Fontana said. “In fact, we’ve already cut into it going forward.”

But the administration doesn’t seem keen on increasing that figure. DCED Secretary C. Alan Walker said he does not envision the program becoming more open-ended, because people could take advantage. He compared the temporary nature of film industry jobs to major manufacturing, which might create jobs that stick around for 30 years.

Walker said the program was doing well.

“We had about $12 million roll back … we’re going to be able to recycle, so it’s not as dire as you think,” Walker said.

FARNESE: The Philadelphia senator says he’s heard less about the film tax credit program than he used to, and wants to know more about the economic impact.

State Sen. Jim Ferlo, D-Allegheny, and Sen. Larry Farnese, D-Philadelphia, said they want more information about what the tax credit funds, as well as the economic impact.

“Before I go blindly supporting this program in the future I want to know a little more about it,” Farnese said.

There’s potential downsides, Farnese said, noting street closures in Center City Philadelphia a few days during December’s bustling holiday season.

In an annual report delivered to the General Assembly, DCED said the program has awarded a total of more than $298 million to about 292 projects in its first five years. The state estimates the direct economic impact at almost $1.4 billion.

Some of the program’s beneficiaries are more high-profile than others. “Silver Linings Playbook,” shot in Philadelphia, claimed $5.6 million in tax credits from the 2011-12 funding year. Actress Jennifer Lawrence won an Academy Award for Best Actress for her portrayal of “Tiffany.”

Once projects are completed, the recipients submit economic impact reports. Of the six projects that completed production in fiscal 2011-12, 252 full-time equivalent jobs were created, according to the report. Most of those, 224 jobs, were created by the production of “Safe” from Safe Productions, LLC., in Philadelphia.

Collectively, these six projects received almost $4.8 million in tax credits. DCED estimates they generated $37.5 million in total sales in the region, contributing almost $1.2 million in state and local sales taxes.

But government watchdogs across the political spectrum often question the validity of the production tax credits as an economic development tool.

Robert Tannenwald of the Center on Budget and Policy Priorities wrote in 2010 that film tax credits provide temporary jobs, and he criticized them as a source of cronyism.

“Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services — such as education, healthcare, and police and fire protection — or higher taxes elsewhere,” Tannenwald wrote. “The benefits to the few are highly visible; the costs to the majority are hidden because they are spread so widely and detached from the subsidies.”

Contact Melissa Daniels at melissa@paindependent.com

NUMBER CRUNCHING: Pennsylvania’s General Assembly began its budget hearings this week, with Matthew Knittel of the Independent Fiscal Office speaking to the House Appropriations Committee Tuesday morning.

HARRISBURG — Pennsylvania government kicked off budget hearings this week, setting up a three-week process of number crunching and policy showdowns meant to help lawmakers shape the spending plan for the coming year.

The talks commence against the economic backdrop of federal decisions that are putting a pinch on state revenues.

In January, the federal payroll tax paid by wage earners went from 4.2 percent to 6.2 percent. A 2-percent exemption previously in place was allowed to expire as part of the so-called “fiscal cliff” negotiations.

Analysts in Pennsylvania say the hike has already affected the state’s overall economy, including tax revenues.

Secretary of Revenue Dan Meuser said the expiration of the payroll tax exemption has hurt consumer spending, overall projections and consumer confidence.

“We certainly think it had a fair amount to do with our January collections, as did just the whole issue of approaching the fiscal cliff,” Meuser said.

The latest Department of Revenue figures put year-to-date sales tax collections at $5.3 billion, which is 3.4 percent less than anticipated.

Matthew Knittel, executive director of the Independent Fiscal Office, said the payroll tax hike will reduce Pennsylvanians’ disposable income by about $5 billion this year.

Combined with other federal tax increases, Pennsylvanians’ disposable income will take about a $7.7 billion hit.

So they’re shopping and eating out less.

“It does appear discretionary items, such as restaurant sales, are the hardest hit,” Knittel said.

The last round of debt ceiling talks a year-and-a-half ago caused consumer confidence to fall, Knittel said. The ongoing debt and budget wrangling could trigger another slow-down.

“It’s unclear what form that will take, but it will definitely filter down to Pennsylvania,” Knittel said.

Last fall, projected “fiscal cliff” cuts in Pennsylvania were estimated at about $300 million, Office of the Budget spokesman Jay Pagni said, spanning areas from public welfare to education to economic development.

But Washington lawmakers put off those cuts until March. Pagni estimates the effect, right now, could be about $241 million if the automatic cuts known as sequestration go into effect.

One example: An $8.5 million reduction to workforce development initiatives in Pennsylvania could affect as many as 1,300 people who benefit from those programs.

State agencies were told any loss of federal dollars wouldn’t be replaced by the state, and that’s still the case, Pagni said.

“The General Assembly, as well as the administration, are keenly aware of the impact that federal cuts, changes in law and really the federal economic outlook as a whole plays in the development of the budget,” Pagni said.

Gov. Tom Corbett’s proposed spending plan for 2013-2014 is $28.4 billion.

Despite the reality of what the Washington impasse can do to the state’s economy, there are encouraging signs of recovery. Pennsylvania residents are paying down debt, and the housing market continues to recover, Knittel said.

“Combined, these factors could bolster consumer spending and mitigate the impact of the federal tax increases later this year,” he said.

Knittel also said Pennsylvania’s job market should improve at “a moderate rate” over the next two years. The unemployment rate could reach pre-recession levels, or about 7.2 percent, sometime in 2014.

However, that’s still “considerably higher than historical levels,” Knittel said, which might be closer to 5.5 percent.

Contact Melissa Daniels at melissa@paindependent.com.

HARRISBURG — Pennsylvania’s Attorney General Kathleen Kane rejected the governor’s contract with Camelot Global Services to manage the Pennsylvania Lottery.

Kane, during a five-minute news conference Thursday, said the contract “contravenes the Pennsylvania Constitution and is not statutorily authorized.”

Gov. Tom Corbett’s administration entered the contract — a professional management agreement — with Camelot in January. The Office of the Attorney General is required by state law to review contracts for “form and legality.”

In this case, the Camelot PMA failed to meet that test, according to a letter from Kane’s office to the administration sent early Thursday.

KANE Pennsylvania’s newest attorney general said the administration’s contract to privatize management of the Pennsylvania Lottery is unconstitutional and not statutorily authorized.

State officials in the Department of Revenue said, upon entering the Camelot agreement, it would bring in more money than the lottery makes as a state-run entity. Profits fund programs for senior citizens, like prescription drug and at-home assistance costs.

But throughout the procurement process, lawmakers from both parties, unionized workers at the PA Lottery and State Treasurer Rob McCord publicly wondered if the contract was legal, if the procurement process was fair, or if it overstepped the rights of lawmakers to authorize an expansion of gaming.

The rejection means that the state won’t see additional revenue from the state lottery that was projected.

Corbett’s budget officials have said the Camelot contract would bring an additional $50 million to senior citizen programs’ in the 2013-2014 budget, which was proposed on Feb. 5.

Corbett said in a statement that he was “deeply disappointed.”

“I don’t agree with the attorney general’s analysis and decision, and we will review our legal options,” he said. “My job is to protect Pennsylvania’s seniors, and we will continue to do that.”

Kane, who won the office by a landslide in November, is the first Democrat and first woman elected to the Attorney General seat. This announcement marks her first major decision in the office.

In her announcement, Kane said that the PMA failed the form and legality test on three main points. First and foremost, Kane said the executive branch, namely the secretary of revenue, overstepped legal boundaries.

“The PMA is an unlawful extension of executive authority that infringes on the General Assembly’s powers to make basic policy choices regarding the management and operation of the lottery,” as described in the state constitution, Kane said.

Kane said parts of the proposal adding electronic and monitor-based games like Keno to the state lottery system are not authorized by the State Lottery Act. That’s because the expansion “usurps the authority” of the Pennsylvania Gaming Control Board, Kane said.

CORBETT: Pennsylvania’s Gov. Tom Corbett has maintained that entering the lottery contract would bring in more money for programs that benefit Pennsylvania’s senior citizens.

Lastly, the contract allows Camelot to be compensated for “indirect expenses.” This “open and undefined indemnification” is unconstitutional, she said.

Kane did not take questions from reporters after she made the announcement.

Democrats have denounced the Corbett administration’s move to privatize the state lottery, but Kane said her decision was based solely on the legality of the contract.

And she said she wanted to warn the public against politician’s who may point the finger at her office from taking money from seniors.

“It is disingenuous to put the cart before the horse by promising money to people in need based upon a contract before making sure that that contract is legal and then blaming the messenger when it is deemed illegal,” Kane said.

Kane said the office reviews as many as 5,000 contracts a year.

“While most are approved, we do not rubber stamp any one of them,” Kane said.

Contact Melissa Daniels melissa@paindependent.com

BUILDING BRIDGES: Pennsylvania Gov. Tom Corbett is proposing a multi-year transportation funding plan that would raise the oil company franchise tax and lower the flat gasoline tax.

HARRISBURG — Pennsylvania could finally see some serious improvements in roads and bridges, but only if lawmakers are willing to follow the governor’s plan to raise funds through a plan that might also boost gas prices.

On the same day Gov. Tom Corbett introduced his 2013-2014 budget proposal, he announced a plan to generate more than $5 billion in transportation funding over five years, mostly from a change in the way gas taxes are levied.

Under Corbett’s plan, funds would come from lowering the flat tax paid by consumers while increasing the tax gas stations pay on fuel.

Corbett and other administration officials maintain this wouldn’t necessarily produce raise gas prices, as pump prices are determined by a variety of factors, including the price of crude and location.

Next year, Corbett predicts, the state spend about half a billion dollars on roads, bridges, public transportation, locally owned roads and other system-wide improvements. By the fifth year of the plan, the state’s transportation system would see about $1.8 billion worth of improvements.

The Corbett plan may go nowhere in a state with dozens of lawmakers who have taken the no-new-taxes pledge.

House Majority Leader Mike Turzai, R-Allegheny, said lawmakers on both sides of the aisle want to discuss solving the state’s transportation funding issues.

Turzai said he did not think “the governor’s proposal is necessarily the definitive proposal” or that it will get passed by the June 30 budget deadline.

But he promised to give the proposal a “very, very serious look,” he said.

“I think there’s going to be a significant discussion about what the size and shape of funding, any additional funding, for transportation would be,” Turzai said.

House Appropriations Chairman Bill Adolph, R-Delaware, said that if lawmakers can pass a transportation bill, it would have to have bipartisan support.

During his budget address, Corbett said transportation is the “bloodstream” of the state’s economy. About a half-trillion dollars worth of goods and services move across the sprawling Keystone State annually, along with 1.5 million school children riding on buses, he said.

“If it fails, our economy fails,” he said.

Corbett maintained that he does not think this proposal is a tax increase.

The oil company franchise tax applies to gasoline sold at the wholesale level. The cap is applied to the first $1.25 of a gallon. Corbett’s proposal would phase that down and remove it completely within five years.

Corbett, who heralded the state’s energy industry in the same speech, said it was “time for oil and gas companies to pay their fair share.” Many lawmakers, gathered in the House chambers for the address, applauded.

“This is not a new tax, nor am I proposing to increase the rate of the existing tax,” Corbett said during his address. “I am simply saying the time has come to apply it to the full value of what the company is selling.”

At the same time, the flat tax on gas paid by consumers would be lowered by two cents over the next two years to 10 cents. Each cent brings in about $50 to $60 million a year.

Secretary of Transportation Barry Schoch made the case for the plan in an afternoon press conference.

“If we don’t do anything, we’re going to reduce our spending on roads and bridges,” he said. “We know we have an old system and it will simply exacerbate the problem.

Not only is this unsafe, Schoch said, but it’s bad for the state’s economy.

Still, total funding in Corbett’s plan falls short of what past projections have recommended, leaving some pushing for more. Corbett’s Transportation Funding Advisory Committee recommended about $2.5 billion worth of annual investments.

Under Corbett’s announced plan, there would still be more than 3,500 structurally deficient bridges in the state, and about 7,000 miles of “rough” roads by 2020. Right now, there are about 4,500 structurally deficient bridges and about 10,000 miles of “rough” roads.

Schoch said the plan was made keeping in mind what can be delivered to lawmakers as a bipartisan solution – and finding a “sweet spot.” Schoch said additional fees and services to expand the plan to include more isn’t off the table, even though the governor isn’t in favor of it.

“We want to be sure we get legislative action on this,” Schoch said.

This new proposal isn’t enough for some lawmakers who’ve been pushing for more. State Sen. Daylin Leach, D-Montgomery described the transportation plan as a “timid, tiny move” and encouraged Corbett to raise more revenues in taxes and fees.

“I don’t care whether he calls it an ostrich. The point is that it needs to happen,” Leach said.

However ambitious Corbett’s plan seems to some lawmakers, it still leaves work on the table.

State Sen. John Wozniak, D-Cambria, said the final plan was a long way from the recommendations of the transportation commission. And, he said he was not confident about the passage of a tax increase plan through a Republican-controlled General Assembly.

“There is a direct correlation between what you pay at the pump and the quality of the roads,” Wozniak said.

Contact Melissa Daniels at melissa@paindependent.com

HERE’S THE DEAL: Gov. Tom Corbett delivers his budget proposal for fiscal year 2013-14 Tuesday to a join session of the Pennsylvania House and Senate. (AP photo)

By Eric Boehm | PA Independent

HARRISBURG – Proposed pension reforms in Pennsylvania save about $175 million next year at a cost of billions in the long run.

During his budget address on Tuesday, Gov. Tom Corbett called on lawmakers to pass his multi-level pension reform proposal with this year’s state budget. The plan would move new employees to a 401(k)-style pension system, would reduce future benefits for current employees and would reduce the state’s payments into the state’s two pension systems for the foreseeable future.

The first two parts of his plan are intended to save costs in the long run by cutting a small part of the state’s unfunded liability, while the third part would free up about $175 million for the state in next year’s budget.

“Resolving our pension crisis will be the single most important thing we do for decades to come,” Corbett said in his address.

It’s also going to take decades for the reforms to have an effect, and lawmakers seem hesitant to take the bold steps needed to implement Corbett’s proposal.

Under current law, the state’s pension contributions will climb from $1.1 billion this year to about $3 billion in fiscal year 2016-17. But those contributions are already less than recommended by actuaries, resulting in the state’s unfunded liability being projected to climb from $40 billion now to $65 billion by 2018, before declining.

JOINT SESSION: Members of the Pennsylvania House and Senate on Tuesday listen to Gov. Tom Corbett deliver his budget proposal. (AP photo)

With the proposed reforms, the unfunded liability will continue to grow, but will peak at about $62 billion in 2018 – and then only if changes to both new and current employees are enacted, according to Corbett administration projections.

The worst-case scenario would be passage of lower contribution rates without the long-term reforms, a scenario that would push the unfunded liability to as much as $70 billion.

Short-term savings for this year’s budget would not be approved by the governor without long-term savings achieved by reducing benefits and moving new employees to the 401(k)-style plan, said Charles Zogby, Corbett’s Budget Secretary.

State Treasurer Rob McCord blasted Corbett’s pension proposal as “kicking the can down the road” and “fantasy island finance.”

McCord, a Democrat who is widely believed to be preparing for a gubernatorial bid against Corbett in 2014, said he would favor bringing the pension debt on the state’s balance sheet to make policymakers more aware of the $40 billion debt and using pension bonds to pay off some of the liability.

Lawmakers on both sides of the aisle and from both chambers of the General Assembly voiced either outright opposition to the pension reform plan or at least expressed doubts about the likelihood of the General Assembly putting up enough votes for cuts to future benefits for current employees.

“There are more significant hurdles” when it comes to changing benefits for current employees, said House Majority Leader Mike Turzai, R-Allegheny, though he was supportive of other changes.

State Sen. Vincent Hughes, D-Philadelphia, minority chairman of the Senate Appropriations Committee said the budget should not be balanced with savings from pension reforms.

But if those changes do make it to the governor’s desk, lawsuits from public sector unions would be sure to follow.

“If it does somehow pass and they change current employees, we will be going to court, no doubt about it,” said Dave Fillman, executive director of AFSCME Council 13, which represents the largest chunk of state employees.

Some lawmakers are uneasy about planning to use $175 million in savings from a pension reform that could be thrown out in court.

“To change benefits for current employees has some serious constitutional issues,” said Senate Majority Leader Dominic Pileggi, R-Chester. “Do we want to build a number into our budget that depends on a court challenge?”

But the state’s Public Employee Retirement Commission, which serves an advisory role on pension issues, warned in a report last week that “no future benefit modifications are likely to significantly impact these liabilities unless the courts allow changes to the benefits of existing employees.”

That’s because the $40 billion unfunded liability is entirely owed to current employees and retirees. Moving new employees into a different plan will keep from adding to that debt, but will not reduce it.

And Zogby made it clear that any changes to the collars should be made only as part of a deal to cut into that massive long-term debt.

Without those long term cost savings, it would be kicking the can down the road, Zogby said.

In the new plan, state employees will contribute 6.25 percent of their salary and public school employees will contribute 7.5 percent. The state will put in 4 percent.

All sides were clear on their intention to leave intact retirees’ benefits and benefits already earned by existing employees.

Rick Dreyfuss, a senior fellow and pension expert for the Manhattan Institution, a national economic policy think tank, said applauded the attempt to move new employees into a more sustainable pension system, but said the reduction in state contributions to the current plans should be a concern.

“We’re putting less money into already underfunded plans and calling it reform,” he said. “Those debts have to be paid off eventually.”

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

HARRISBURG – Gov. Tom Corbett on Tuesday began pitching his budget to the members of the General Assembly and the people of Pennsylvania.  He will call it a balanced budget that does not raise taxes, but neither of those statements is entirely accurate.

The budget proposes to spend $28.4 billion, a 2.4 percent increase from the current year.

According to Budget Secretary Charles Zogby, who briefed the media on the budget  basics  Tuesday morning, Corbett’s proposal will increase levies on gas stations and drivers in the state by beginning a five-year process of incrementally uncapping the Oil Franchise Tax as part of a plan to spend $5.4 billion over five years on highways, bridges and mass transit.

THE BUDGET MAN: Budget Secretary Charles Zogby briefs members of the media on Gov. Tom Corbett’s budget announcement.

To partially offset that increase, the governor is proposing a reduction in the flat gasoline tax from 12 cents per gallon to 10 cents per gallon.

The budget also tackles a $500-million increase in pension contributions, but does so by reducing the amount the state will contribute to the pension costs and increasing the debt of the state’s two public pension funds.

Those funds already face more than $40 billion in debt.

By artificially cutting the state’s contribution to the pension systems, the budget proposal hopes to achieve $175 million in savings at the state level and $140 million in savings for school districts.

Those savings also are predicated on reforms to current and future employees’ pensions — all future employees will enter a new 401(k)-style retirement plan and current workers will have their future benefits reduced by about 20 percent.

Corbett is proposing adding $90 million to basic education, part of an overall $350 million increase on the education line item that includes some of the costs of the pension increase.

The budget will also propose an $11.4 million increase for early education.

A previously-announced plan to privatize the state liquor stores will fund a $1 billion block grant program during the next four years for school districts.

Corbett also will call for an incremental reduction in the state’s corporate net income tax, beginning in 2015 and continuing for 10 years.  By 2025, the proposal would lower Pennsylvania’s corporate income tax rate from 9.99 percent to 6.99 percent.

Zogby said that tax, applied in Pennsylvania at a higher rate than any other state in the nation, was a key barrier to economic growth.

Corbett also will ask managerial-level state employees to work 40 hour weeks instead of the current 37.5 hours.  They will be paid for the increase, Zogby said.

Lastly, the budget will not include a final decision from Corbett on whether to expand Medicaid eligibility in accordance with the federal health care reform law, though Zogby said the governor “is not intending to expand” eligibility.

Contact Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

HARRISBURG — Gov. Tom Corbett on Wednesday unveiled a plan to privatize Pennsylvania’s monopoly liquor store system, simultaneously executing a deft political move intended to accomplish a goal of his administration while undercutting some of his loudest critics.

In Pittsburgh, Corbett said the proceeds from selling off the state liquor stores – estimated at more than $1 billion – would be used to increase funding for basic education over the next four years. The revenue could be used to enhance school safety and security and create a grant program for school districts to use for early education, individualized learning and math, science and technology courses.

PRIVATIZE THIS: Gov. Tom Corbett says it is time for Pennsylvania to be done with it’s liquor-selling state monopoly.

“Our plan gives consumers what they want by increasing choice and convenience, and helps to secure our future by adding $1 billion in funding toward the education of our children, without raising any taxes,” Corbett said.

By linking the issues, Corbett is doing more than just moving dollars from the revenue to the spending side of the ledger. He is likely hoping to short-circuit the opposition for liquor privatization by promising a boost to schools.

That element was missing in previous efforts by Gov. Dick Thornburgh in the 1980s, Gov. Tom Ridge in the 1990s and Corbett last year to privatize the liquor stores, said Terry Madonna, professor of political science at Franklin and Marshall College.

Ridge’s 1997 liquor plan, for example, was tied to funding for new sports stadiums, arenas and civic centers.

“This is the first time privatization has been linked to major funding for something like education,” Madonna said. “(Corbett) can leverage the political support for funding education.”

Labor unions have been the loudest opponent of the liquor store privatization plan, lead by the UFCW Local 1776, which represents about 3,000 state workers in the liquor store system.

But the labor unions are also among the loudest voices calling for more funding for education. On that front, they are led by the Pennsylvania State Education Association, or PSEA, with more than 180,000 members.

Michael Crossey, president of the PSEA, said in a statement linking privatization to $1 billion in new revenues for schools was “holding students hostage to the governor’s political agenda.”

Pennsylvania has about 620 state-owned and operated liquor stores. The privatization proposal would allow 1,200 licenses for the sale of wine and spirits.

Corbett’s plan would also allow wine and beer to be sold in supermarkets and would give beer distributors the right to sell six packs and the chance to buy a license to add wine and spirits.

However, it would keep the taxing structure in place, Corbett said, including the much-maligned 18 percent “Johnstown Flood Tax.”

Corbett said the PLCB would remain in place as an administrative and regulatory body.

“It all comes down to competition,” Corbett said. “What have we been running now for 75 years? A monopoly. We have laws against monopolies in this country, but we’re saying the state can still remain in a monopoly when it comes to selling wine and liquor.”

Linking the new education block grant to revenue from the liquor stores is a strong play by a governor criticized for his inability to make deals on major issues during his first two years in office. It may signal the turning of a corner for Corbett.

“This is a departure from the last two years. It shows his willingness to use carrots to negotiate with the Legislature on his agenda,” Madonna said.

But he still has a fight to deal with lawmakers.

Tuesday, Senate President Joe Scarnati, R-Jefferson, said he wanted to explore a series of bills authored by state Sen. Chuck McIllhinney, R-Bucks, aiming to “modernize” the existing liquor monopoly by allowing them to change pricing structures and operating hours, among other things.

Scarnati said he wanted to “put both trains on the tracks,” and also criticized the potential linking of key issues, calling it “Washington-style politics” and “hostage-taking.”

And after Corbett’s announcement Wednesday, state Sen. John Yudichak, D-Luzerne, said Corbett’s interwoven plan was a “bizarre and unhealthy attempt to tie education achievement to what can only be described as a one-time alcohol funded stimulus package.”

In a statement, the PLCB said  it would “continue to look for ways to improve convenience and ensure that we run the agency as efficiently as possible.”

Corbett made it clear Wednesday that he was not aiming for half-measures, and he’s dangled an incentive that will surely give more lawmakers a reason to support privatization.

Melissa Daniels contributed to this story.

Contact Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.

— Edited by John Trump at jtrump@watchdog.org

HARRISBURG — Facing nearly $1 billion in new pension costs in the next two years, Pennsylvania appears to be inching toward reforming retirement benefits for state employees and public school teachers.

Monday, Budget Secretary Charles Zogby offered a preview of how the Corbett administration plans to deal with Pennsylvania’s $40 billion unfunded pension debt and rising annual costs. Part of the plan would target future benefits of current employees while keeping previously earned benefits and benefits for retirees in place, Zogby said during an appearance at the Pennsylvania Press Club luncheon.

PENSIONS: Budget Secretary Charles Zogby said Monday failing to fix the state’s $40 billion pension debt would result in “deep, immediate and painful cuts” to the state budget.

“We’re not looking to take back what anyone has already earned,” Zogby said. “But for teachers and school employees, there may well be proposed changes to your pension benefits going forward.”

It will be another week before we know how the numbers add up, and the possible savings. Gov. Tom Corbett is scheduled to give his annual budget address Feb. 5.

Zogby said Corbett “very likely” will lay out a plan to achieve savings by reducing how future benefits are calculated.

Failing to reform the state’s pensions is essential to avoiding “deep, immediate and painful cuts” in the state budget both this year and in the future, Zogby said.

Pension costs will skyrocket from $1.1 billion this year to $2.9 billion by the fiscal year beginning July 2016, according to projections from the state’s Independent Fiscal Office

Unions are opposed to any reduction in benefits for current employees, even those benefits that are yet to be earned.

William Dando, director of the political and legislative department for AFSCME Council 13, which represents more than 65,000 state employees, said pension benefits should be locked in from the time an employee is hired until they stop receiving benefits at death.

If the state does go after future benefits for current employees, the union would see grounds for a lawsuit, he said.

“It’s going to all depend on what the governor lays out on Tuesday,” Dando said.

But Dave Patti, president and CEO of the Pennsylvania Business Council, said arrangements between employees and employers is always subject to change — at least they should be.

In the early 2000s the state increased benefits for public sector workers – part of the cause of the current pension crisis – so it should also be able to ratchet back future benefits for new hires and existing employees, Patti said.

“I don’t think it only goes in one direction,” he said.

Since the bulk of pension cost increases this year – about 70 percent of the $511 million increase due in the new fiscal year that begins July 1 – are in the public school teacher’s pension system, Zogby said it makes sense to tie savings in those pension costs to higher funding for school districts.

Boehm can be reached at Eric@PAIndependent.com.  Follow @PAIndependent on Twitter for more.

— Edited by John Trump at jtrump@watchdog.org

FOR SALE: Pennsylvania remains one of only two states where the government operates a monopoly on liquor sales. (AP photo)

By Eric Boehm | PA Independent

HARRISBURG – While all eyes in the state Capitol were trained on the glittering rotunda for the swearing-in of a new attorney general, Corbett administration officials were hard at work Tuesday afternoon crafting a proposal that might finally lift Pennsylvania out of last vestiges of the Prohibition Era.

After years of failure, there is a chance 2013 will be the year Pennsylvania ditches the state monopoly for liquor sales.

Sources who have attended a series of meeting with the administration in recent weeks to help craft a still-unfinished proposal are hopeful that an announcement will be made in the next two weeks – before Gov. Tom Corbett gives his annual budget address, scheduled for Feb. 5.

THE BUCK STARTS HERE: Signs point to Gov. Tom Corbett taking a more active role in liquor privatization during 2013.

Several people with knowledge of the discussions say the administration is taking the lead on the issue this time, a notable shift from how Corbett has handled privatization during his first two years in office, when he would make public statements of support but often follow that up by telling lawmakers to put a bill on his desk before he would discuss specifics.

Signs now point to the governor taking the lead.

“We are seeing signs the administration will be a big part of the fight, leading from the front with a plan and a purpose that answers a broad-based bipartisan call from his constituents to give them choice and convenience,” said Jay Ostrich, communications director for the Commonwealth Foundation, a free market think tank pushing for privatization.

Ostrich was one of several individuals summoned to the Capitol on Tuesday for a closed-doors meeting with administration staffers while Corbett attended the swearing-in of Attorney General Kathleen Kane, a Democrat, five floors down in the rotunda.

Those who attended Tuesday’s meeting and others who have worked with the administration on crafting the proposal have described it as a painstaking process that is attempting to fit multiple puzzle pieces together in order to revamp Pennsylvania’s complex and often arcane laws governing the sale of alcohol.

Licensed beer distributors in Pennsylvania are allowed to sell only cases and kegs of beer.  Restaurants, bars and taverns can sell only six-packs. Some grocery stores have obtained restaurant licenses to sell six-packs.

For those with stronger tastes, liquor is available for purchase only at the roughly 620 stores owned and operated by the Pennsylvania Liquor Control Board, a state agency that determines pricing and availability for all items in all stores.

The administration has been tight-lipped about the privatization plan, but Eric Shirk, a spokesman for Corbett, said there are several goals including “consumer choice, increased convenience and getting the state out of the liquor business.”

During the past two years, Corbett has repeatedly pointed out the contradiction between the state’s role in selling alcohol — and advertising its sale to boost the bottom line of the state liquor stores — and its law enforcement role when it comes to the purchase and consumption of alcohol.

Shirk declined to comment on the timing for an announcement saying the proposal is not yet finalized.

But talks are ongoing with key members in the Legislature as well.

“Ultimately, everyone wants to see better and greater consumer choice, the question is how do we get there,” said Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Allegheny, the most vocal legislative leader on  liquor privatization during the previous session.

Miskin said Turzai would not be introducing legislation until after Corbett made his plans public, another sign the governor intends to be out in front on this issue in 2013.

Gene Barr, president of the Pennsylvania Chamber of Commerce, was one of several people invited to the governor’s office this week to weigh in on the liquor plan.  He said Pennsylvania needs rethink how alcohol is sold.

The final plan should include more retail locations, including grocery stores and convenience stores, he said.

“Our view is that simply changing the person behind the counter isn’t good enough,” Barr said Tuesday.

Echoing the views of others who attended Tuesday’s meeting and spoke off-the-record, Barr said there was no proposal “on the table” and he had not seen anything in writing.  The administration is looking at a variety of ideas, he said.

But everyone interviewed expect a lengthy fight with the entrenched interests of the existing liquor system.

The United Food and Commercial Workers Local 1776, the union representing the approximately 3,000 employees in the state-run liquor stores, has been the most vocal opponent of privatization.

They and other opponents have argued that privatization actually will result in fewer options for consumers because grocery stores and convenience stores do not have the space to stock the wide array of choices that some of the largest state-owned liquor stores do.

The Malt Beverage Distribution Association of Pennsylvania, which represents beer distributors in the state, opposed a Turzai-sponsored plan last year to allow beer distributors to sell wine and liquor, citing concerns about competition with other retailers.

Ostrich said the governor should give the people of Pennsylvania what they want — unlimited choice and greater convenience.

“We believe that happens when bread, beer and Bordeaux are bought all on privately-run shelves, and we certainly hope any plan coming from the governor has these elements as a strong part of it,” he said.

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter.

THE BRITISH ARE COMING: Sen. John Blake (center left) and Sen. Mike Brubaker (center right) questioned top officials of Camelot Global Services about their plans to take over service operation of the Pennsylvania Lottery.

HARRISBURG — A British company poised to manage the Pennsylvania Lottery plans to boost the bottom line by getting more people to play lottery games.

But some lawmakers are skeptical.

Senate Finance Committee Minority Chairman Sen. John Blake, D-Lackawanna, said he still has reservations about the Corbett administration’s pursuit of a private management agreement with Camelot Global Services, even after a four-hour hearing Monday.

The process was done without legislative oversight, and that worries Blake.

“This is a scale of a decision that probably should’ve been, I would’ve preferred and I think the leadership in my caucus and many members in my caucus would’ve preferred, was something that was put to the vote by people who represent 12.5 million Pennsylvanians and that’s the General Assembly,” Blake said.

Yet the deal is going ahead under the umbrella of the administration. The contract with Camelot hasn’t been signed and finalized, but that’s expected within the week. Friday, the administration submitted a “notice of award,” publicizing the intent to finalize the deal.

Senate Finance Committee Chair Sen. Mike Brubaker, R-Lancaster, was impressed with Camelot’s testimony. The hearing, he said, achieved its mission of getting on-the-record statements and giving the procurement process “the light of day.”

Camelot sent two of its top officials to the Harrisburg hearing. They gave a brief history of the company, touting its worldwide status as an industry leader. Camelot does not operate any lotteries in the U.S., but it has served as a consultant in California and Massachusetts.

Alex Kovach, managing director at Camelot who is handling the Pennsylvania operation, said about 30 percent of Pennsylvanians play the lottery weekly, according to Camelot’s research. In the United Kingdom, where Camelot runs the National Lottery, that figure is about 50 percent.

Cultural differences aside, Camelot thinks it can get more Pennsylvanians to play.

“There is a market currently not being focused on,” Kovach said.

Camelot plans to reach out to infrequent or lapsed players with expanded retail locations, and to “reduce barriers” to playing. The business plan includes introducing monitor-based games, such as Keno, to help grow profits.

The goal is to get “a lot of people playing a little, rather than a few people playing a lot,” Kovach said.

THOMPSON: Camelot CEO said that company would bring sales, marketing expertise to Pennsylvania Lottery.

Dianne Thompson, Camelot’s chief executive officer, pointed to a promotion in the United Kingdom that created “100 millionaires in one night.”

Pennsylvania Lottery profits fund programs for senior citizens, such as property tax rebates, at-home meal services and prescription drug benefits. It’s the only lottery in the nation with such a setup.

Pennsylvania’s elderly population is growing, and the state is looking to grow the lottery. The state’s executive branch points to Camelot’s “annual profit commitments” as a means to more consistency.

Secretary of Revenue Dan Meuser said commitments from Camelot are guaranteed and exceed any profit estimations made by the state. In the next five years, the state-run lottery would generate $30 million, Meuser said. Under Camelot, the commonwealth could see $1.2 billion.

Camelot will put up $200 million in collateral in case it doesn’t meet it its estimates. No such guarantee exists for any other state lottery, according to Camelot.

Total profits of about $34 billion are guaranteed over the life of the 20-year contract. The state says that figure is about $3 billion to $4.5 billion more than the state would generate, if it expanded games in a similar fashion.

State Sen. Rob Teplitz, D-Dauphin said after the hearing he is still unsure about the process in approving Camelot, which “seemed very sincere” when assuring lawmakers it would retain as many as employees as possible.

Teplitz isn’t sold.

His district includes about half of the lottery’s current employees, and there’s nothing in the Camelot contract to assure their continued employment, he said.

“I was happy to start getting answers, but I’m still skeptical,” Teplitz said.

Contact Melissa Daniels at melissa@paindependent.com

— Edited by John Trump at jtrump@watchdog.org

BY THE NUMBERS: This chart from AFSCME Council 13 shows projections for PA Lottery profits of Camelot Global Services compared to what the public employees’ union says it could generate if the lottery were to expand to include new games.

By Melissa Daniels | PA Independent

HARRISBURG — Pennsylvania’s administration is looking to win big off of a pursuit to privatize the Pennsylvania Lottery, estimating as much as $34 billion in 20 years of profits from lone bidder Camelot Global Services.

But public-sector union officials representing 174 state lottery employees said Tuesday that the state doesn’t need to look to a private manager to fulfill its goals of larger profits.

In a proposal to retain control of the Pennsylvania Lottery, the American Federation for State, County and Municipal Employees Council 13 said that keeping the Pennsylvania Lottery state-run can generate at least $1.5 billion more in profits than Camelot’s proposal.

AFSCME also criticizes the private management agreement the administration is considering with Camelot, saying that it could end up costing taxpayers hundreds of millions of dollars if Camelot fails to meet its revenue estimates.

AFSCME’s report asserts that Camelot’s expansion proposals, like introducing Keno and online gaming, would be more profitable under a public-management agreement because they could be operated without the costs of paying a private manager.

“If those expansions are found to be legal, there’s no reason why our folks who have the knowledge and have the working experience can’t expand those games going forward,” said Kristie Wolds-Maloney, the labor union’s director of grievance and arbitration, who helped author the proposal.

The lottery has implemented new games before, like Powerball and Mega Millions, with the assistance of some outside contractors.

The state has 10 days to respond to AFSCME’s proposal.

The state already extended a deadline with Camelot to make a decision on its bid by Thursday. That allowed time for the union to make its proposal, which was contractually required. But that deadline may be extended again.

Elizabeth Brassell, press secretary for the Department of Revenue, said that extension on the Camelot bid decision “was negotiated with both parties (with) the understanding another bid extension may be necessary.”

Gov. Tom Corbett and members of his administration have maintained that Pennsylvania has to find new ways to earn more money from the lottery. The operation supports social service programs for senior citizens, a quickly growing state’s sector of the population.

By 2030, the population of Pennsylvanians 65 and older is projected to increase by 51 percent, representing 22.5 percent of the total population with more than 2.9 million residents, according to the Legislative Budget and Finance Committee.

But AFSCME’s subcontracting compliance manager, Michael Fedor, said that the agreement with Camelot would result in fewer dollars for senior programs. The agreement, he said, would lock in a 27-percent rate of return. Without the agreement, and with the state keeping control of the lottery, state law is set to increase the rate of return at 30 percent in 2015, meaning a loss of $1.2 billion in the 20-year life of the private agreement, he said.

In its proposal to Pennsylvania, Camelot outlined annual profits under current statute, and a 20-year 27 percent rate.

AFSCME also said that if Camelot came up short on its estimates, the guarantees outlined in the agreement don’t go far enough to fill in the gap. The concern is that general fund revenue would be needed to make up the difference, union officials said.

This proposal isn’t the first swing AFSCME has taken against the privatization plans. The union represents 174 lottery employees, out of approximately 250 lottery employees overall.

In December, AFSCME Council 13, along with several Democrat lawmakers, filed a lawsuit against the state, alleging that existing state law does not allow the administration to privatize the lottery or make certain expansions without legislative approval. No hearing date is set for that case yet.

Contact Melissa Daniels at melissa@paindependent.com

LOOKING IT UP: Gov. Tom Corbett and Secretary of Administration Kelly Powell Logan demonstrate the use of PennWATCH, a new finance-based database, at a press conference on Dec. 20, 2012.

By Melissa Daniels | PA Independent

HARRISBURG — Efforts to bring transparency to Pennsylvania state government have turned up a tangible product: a website full of numbers and figures for the public’s perusal.

The state unveiled its new database, PennWATCH, at a Thursday afternoon press conference. PennWATCH operates like an interactive spreadsheet separated into four categories – budget, spending, revenue and employees.

Information includes state allocations, revenue breakdowns and what payments state agencies are making, and to whom. Users can navigate through dropdown menus and search functions, and download the reports in PDF form.

Gov. Tom Corbett said PennWATCH displays “everything from how we spend our money to who we employ.” The data is the kind citizens request most often under the Right-to-Know law, such as salaries, he added.

More than 14,000 Right-to-Know requests have been filed since Corbett took office, he said. The hope is that PennWATCH will help cut down on those requests, and the time employees spend processing them, by making commonly requested information accessible online.

“This is a good starting point for people to start looking, then make a decision whether they need to have a Right-to-Know request,” Corbett said.

The state did not enter into any outside contracts to create PennWATCH, and its construction was done in-house.

Information, which will be updated monthly, is funneled to the Department of Administration from each state agency. The judiciary has set up its own version of the site.

Secretary of Administration Kelly Powell Logan said the site will be updated with new categories, should interest expand to other areas.

For example, total compensation packages will be available in the coming weeks. Now, only salaries and wages are posted, Logan said.

Some employee information, however, is excluded from the site. Employees can receive an exemption if they demonstrate that publicizing information about their name, work address, or agency could potentially put them at risk.

Logan said those exemptions cover employees who may have safety-related protection orders in place. Corbett added that those who do investigative work on behalf of the Pennsylvania State Police or attorney general’s office may also be exempt.

State Sen. Pat Brown, R-Lehigh, was a sponsor of the original PennWATCH legislation. He said technology has helped the public access the work of government.

“When I first came to Harrisburg, you had to come to Harrisburg to see a session,” said Browne, who has been an elected official since 1994.

Contact Melissa Daniels at melissa@paindependent.com

SILENT PROTEST: Protesters taped their mouths shut Wednesday in Lansing, Mich., in response to the new right-to-work law. (AP photo)

By Eric Boehm | PA Independent

HARRISBURG — On the surface, Pennsylvania looks like it could be the next front in the ongoing battle between Republicans and big labor that flared up in Michigan this week as lawmakers there approved so-called “right-to-work” legislation.

The Keystone State, like Michigan – and Indiana and Ohio, where similar battles have gone down — has a Republican governor and a Republican-controlled Legislature.  Like those other states, it has a long history of powerful labor unions.

But all is quiet on the labor front in Pennsylvania, at least for right now.  And Gov. Tom Corbett indicated this week that he does not plan on changing that.

NO ‘WILL’: Gov. Tom Corbett said the Pennsylvania legislature lacks the will to pass right-to-work laws.

During an appearance on the Dom Giordano radio show on WPHT-AM in Philadelphia on Monday, Corbett said Pennsylvania lacks “the will” to pass right-to-work legislation and indicated it was not a top priority for him as the Legislature gears up for a new session in January.

Kevin Harley, the governor’s spokesman, told PA Independent that Corbett supports right-to-work in theory and would sign the bill into law if it made it to his desk.

However, Harley said, the governor is taking a practical approach because the right-to-work legislation is unlikely to make it through the Legislature.

“What makes it different is that the Michigan Legislature actually passed it,” Harley said. “(Corbett) doesn’t think it would pass here.”

He may have a point.  Right-to-work legislation has been introduced in both chambers of the General Assembly for the past several years, but went nowhere.

During the recently completed 2011-12 session, for example, fewer than 50 of the 253 members of the General Assembly signed on to various right-to-work bills introduced in the state House and state Senate.

In short, right-to-work laws free workers from the requirement to join unions in certain professions.  They also prevent unions from requiring members to pay dues to the union.  Since those dues form the backbone of unions’ financing for legal and political activities, the result is a weakened labor movement in state with right-to-work laws on the books.

In Pennsylvania, about 15 percent of all workers are unionized, according to the U.S. Department of Labor, but the unions are widely regarded as the most powerful political force in state politics.

Rick Bloomingdale, president of the Pennsylvania AFL-CIO, said Friday the union would fight right-to-work legislation “with every breath we have,” if it ever was brought up for a vote.

Bloomingdale went on to explain the key to union power in Pennsylvania.  Rather than aligning itself with one political party, he said, the unions in the Keystone State have a broader reach.

“We’ve never considered ourselves a party,” he said. “We consider ourselves a union, and we work with people on both sides of the aisle.”

Working with people on both sides of the aisle means helping out when it comes time to campaign.

According to research from the Citizens Alliance of Pennsylvania, a nonprofit that works to elect conservative Republicans at the state level, unions in Pennsylvania made more than $1.5 million in political contributions during 2012.

As expected, most of the union money flows to Democrats, but Republicans – particularly the ones in key leadership positions – got more than $80,000 from Pennsylvania unions during the past year.

Leo Knepper, executive director of CAP, said all that money buys considerable influence — and politicians are unlikely to change until that does.

“For a long time, the first thought the members of the General Assembly had about legislation was ‘what will the unions do if I vote for this?’” Knepper said. “Until they reflexively start to ask ‘what will taxpayers and job creators do if I vote against this?’ things won’t change.”

Perhaps worth noting, Michigan Gov. Rick Snyder was lukewarm on right-to-work for most of his first two years in office.

In an interview this week with MSNBC, Snyder said he was motivated to pursue right-to-work after the unions in Michigan tried to get collective-bargaining rights enshrined in the state constitution via a ballot initiative in November.

That measure failed, but the labor unrest stirred up by the proposal was enough to spur Snyder to action.

Back in Pennsylvania, some on the right say Corbett is looking at the picture the wrong way.

Instead of saying he would sign a bill when it comes to his desk, they believe Corbett should be actively pushing for his agenda – an agenda that should include right-to-work legislation.

“If he thinks it’s a good idea, he should be out there supporting it. When you’re the governor, you’re the boss,” said Bruce Castor, a Montgomery County Commissioner who is considering a primary challenge to Corbett in 2014.

Contact ERic Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter.

LETTER OF THE LAW: Gov. Tom Corbett told the federal government Wednesday, Dec. 12 that the commonwealth of Pennnsylvania would not run its own health insurance exchange.

HARRISBURG – Gov. Tom Corbett has changed his mind.

Pennsylvania, Corbett had said, wasn’t ready to decide about running a health-insurance exchange because information from the federal government proved insufficient.

Wednesday, two days before the deadline to decide, Pennsylvania became the 28^th state to allow the federal government take over the process.

“Pennsylvanians have waited long enough for answers, and continuing this environment of uncertainty harms Pennsylvania businesses and consumers who are attempting to prepare for the changes created by the ACA,” Corbett wrote in a letter to U.S. Department of Health and Human Services Secretary Kathleen Sebelius.

It’s the latest turn in Pennsylvania’s road to expanded health care under the Patient Protection Affordable Care Act. And it could give clues to how the state will comply with the law’s Medicaid expansion, where the discussion is also full of questions about cost and process.

Health-insurance exchanges will be online marketplaces that allow uninsured people to compare and buy plans, starting in 2014. Their purpose is to make buying health insurance more transparent, efficient and affordable. Under the law, states could choose to run the exchange, or let the federal government take on the responsibility.

Corbett has maintained that the federal government has not been clear about rules for setting up the exchange. More were released Monday, but that may have been too little, too late.

Corbett said in late November that setting up the exchange would cost Pennsylvania anywhere from $30 million to $100 million. The state got a $33 million federal grant to help defray costs, which officials said has not been touched. But they are still analyzing what has to happen to that money.

Corbett is worried about future costs of the program.

CORBETT: Told Secretary Sebelius there was not enough information from the federal government to make a plan for creating a health insurance exchange.

“I continue to have strong concerns that ‘state authority’ to run a health insurance exchange is illusory — when in reality, Pennsylvania would end up shouldering all of the costs by 2015, but have no authority to govern the program,” Corbett wrote.

For supporters of the health-care law, which is often cited as the pinnacle legislation of President Obama’s first term, Corbett’s decision is a disappointment colored in political undertones.

FRANKEL: Hopes that state will decide to expand Medicaid to new eligibility standards come 2014.

State Rep. Dan Frankel, D-Allegheny, Democratic Caucus chairman, said a year ago, workers in the state’s Insurance Department were preparing to design an exchange modeled after travel websites like Orbitz.com. But then they “put the brakes on it,” Frankel said, and now it would be too late for the state to try to comply with implementation deadlines, even if it wanted to.

“I think it’s unfortunate that we haven’t been more proactive about this,” Frankel said.

But this decision was less worrisome than what could happen with Medicaid expansion, Frankel said. One way or another, the state would have a health-care exchange. But the Medicaid expansion could provide insurance to a significant number of Pennsylvanians, Frankel said.

Starting in 2014, the national eligibility limits for Medicaid will expand to 133 percent of the poverty level, or an annual income of $14,404 for a single person, or $33,657 for a family of four. If states choose to expand their Medicaid programs to these eligibility levels, the federal government will pick up 100 percent of the cost through 2017, eventually decreasing to 90 percent thereafter.

Frankel called the expansion “an essential element to be successful in increasing access to health insurance to Pennsylvanians.”

Frankel said the costs of not expanding Medicaid outweigh the costs of doing so, including the effects on public health, federal tax dollars and the state hospital system.

“You need to have a thoughtful decision about this and take the politics out of it,” Frankel said.

Corbett referenced the Medicaid expansion in his letter to Sebelius, saying the state was still considering its cost and impact. But he was still concerned about “$4 billion in state-only costs during the next eight years,” according to the letter.

For those worried about ACA-related costs, Corbett’s exchange decision may come as relief.

METCALFE: Said he thought Corbett made the right decision by letting the federal government set up the state’s health insurance exchange.

State Rep. Daryl Metcalfe, R-Butler, chairman of the House State Government Committee, said Corbett made the right decision to protect Pennsylvania taxpayers.

Metcalfe was one of about 40 state lawmakers — all Republicans — who sent a letter to Corbett in July urging him to decide against a state-based exchange.

Following Corbett’s decision, Metcalfe said the move meant Pennsylvania would “stand with the other states that are standing in opposition to all these federal mandates and, ultimately, these unconstitutional mandates that are coming through Obamacare.”

In the short-term, Corbett’s announcement means that Pennsylvania-based insurance companies will be answering to the feds as the exchange is set up.

That will be a new experience for these companies, said Doug Furness, director of government affairs with the Insurance Federation of Pennsylvania. Insurance companies now deal only with the state.

Companies will want to know what essential benefits plans on the exchange must contain, and how they will determine eligibility standards, Furness said, but they’re still waiting to hear more .

There is a strict timeline between now and the Jan. 1, 2014, rollout in terms of what information companies need to have the exchanges ready.

This creates some nervousness for an industry that is “risk-sensitive,” Furness said.

“The fact is that the feds are releasing guidance documents and regulations pretty much daily,” he said, “so there’s still a lot of unknowns that companies are still struggling with.”

Contact Melissa Daniels at melissa@paindependent.com

— Edited by John Trump at jtrump@watchdog.org