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Posts Tagged → pension

A Severance Tax, now?

Talk about an addiction to spending other people’s money.

Yesterday in southeast PA, far away from the communities where this issue is most important and the citizens might not be so welcoming, Governor Tom Wolf staked out his position on creating a new 5% “severance tax” on natural gas from the Marcellus shale feature.

Right now, natural gas is selling at historic low prices, especially here in Pennsylvania.  The financial incentive to drill more or spend more money to get more gas is very low, and drill rigs have been disappearing from across the region for a year.

The Saudis began dumping oil months ago, in an effort to punish competing oil producers Iran and Russia, with the secondary effect of dropping gasoline prices so low that the natural gas industry got hit from that side, too.

So now is not only a bad time for the gas industry, it is also a time of greatly diminished returns on investment and on royalties received.  Scalping 5% off the top of that is punishing to everyone, including gas consumers, who will see their rates increase proportionally.

Here’s the biggest problem with a severance tax: Pennsylvania already has a 3% impact fee on Marcellus gas, and a Corporate Net Income Tax of 9.99% (let’s call it ten percent, OK?).  Most of the other gas and oil producing states have no such additional taxes; their severance taxes are the one and only tax their oil and gas producers pay, not the multiple high taxes and fees drillers in PA pay.

Pennsylvania government is therefore already reaping much higher revenue from the gas industry than other gas producing states.  That means that the companies doing business here are already burdened much more than elsewhere.

So adding a severance tax now, at this economically bad time, without commensurately lowering other taxes, or the existing Impact Fee, makes no sense.  Unless the people promoting this have an infantile view of how America and business work.

And that right there is the problem.  Way too many advocates for tax-and-spend policies like an additional severance tax have a Marxist view of business; essentially, to them, business exists to pour money into liberal schemes.

And speaking of spending, who believes that spending more and more and more taxpayer dollars on public schools, public teachers unions, and public teachers’ pensions, actually equates with better education?

So many studies disprove that (see the Mercatus Center), but it is a liberal mantra that taxpayers must spend ever more of their money to support public unions that support political liberals.  And both parents of students and taxpayers alike now correctly see that system for what it is – simple, legalized political graft to fund one political party.

Public schools are mostly a disaster, yet teacher’s unions and their political buddies continue to pound on the table for more and more money.  Homeowners are essentially now renting their houses from the teacher’s unions, and proposed laws like Act 76 seek to fix that unfair situation by removing the vampire fangs from homeowners and letting the larger society pay for its expenditure.

Going door-to-door for political races year after year, property tax has been the number one issue I have encountered among elderly homeowners.  So many of them can no longer afford to pay the taxes on their houses, that they must sell them and move, despite a lifetime of investing in them.  This is patently un-American and unfair.

So Tom Wolf is moving in exactly the opposite direction we need on this subject, and instead of trying to fix the tax situation, he seeks to make it worse.  To be fair, Wolf campaigned on raising taxes.  He just needs to remember that he did not get elected by voters who want higher taxes, they wanted to fire former governor Tom Corbett.


Two private property rights bills before PA legislature

Pennsylvania private property rights are under the gun right now.

HB1565 would provide a small fix to a patently unconstitutional regulation issued by PA DEP four years ago. That regulation takes 150 feet of buffer land from property owners adjoining Exceptional Value and High Quality streams.  Pretty much nothing can be done inside that buffer.  No compensation is paid, no tax write-offs are allowed, no charitable contributions are allowed or facilitated under this horrendous rule.

Smart Growth tools have long called for rewarding land owners who give up usage of private land for environmental purposes. Increased building density on the non-buffer land is a big reward and an incentive for landowners to contribute protected land to the greater good.

But the current regulation is not focused on working with landowners. Rather, it treats landowners like a piggy bank, which can be robbed whenever needed.

Protecting the environment is easy to do. Old fashioned top-down, command and control, big government, one size fits all regulations like the 150-foot buffer rule don’t protect the environment any better than carefully tailored rules. It’s not like this is a choice between environmental protection or none at all.

So encourage your state senator to vote for HB1565.

The other issue is SB76, which will provide relief to property owners who are being taxed out of their homes by teachers unions. Government school taxes account for about 80% of the annual property taxes paid, so dealing with government pensions and government unions bargaining positions should help alleviate the pressure on home owners and farmers.

Encourage your state representative to support SB76, which will lower private property taxes and reshape the way taxes are allocated.

Private property is supposed to be sacrosanct. I’d suggest anyone supporting the 150-foot buffer rule simply give up their front lawn to the neighborhood as a public play area. Put your money where your mouth is, or quit demanding that other people’s money get spent in ways you think are superior than the owner would spend it.

PA Senator Mike Folmer on our pension crisis

Pennsylvania’s Pension Crises

by Mike Folmer, PA State Senator

August 21, 2014

President Kennedy said: “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.”

Pennsylvania’s failure to address its public pension problems recently resulted in another downgrade of its bond rating: from Aa2 to Aa3. According to the rating agency Moody’s, “. . . the expectation that large and growing pension liabilities coupled with modest economic growth will limit Pennsylvania’s ability to regain structural balance in the near term.”

Consider where Pennsylvania’s Public School Employees’ Retirement System (PSERS) was prior to 2001 changes enhancing benefits: $9.5 Billion surplus and a 123.8% funded ratio (100% is an appropriate ratio). Using the most recent actuarial valuations, the funded ratio for the State Employees’ Retirement System (SERS) and PSERS (using an optimistic 7.5% annual asset return assumption) was 59.2% and 63.8% respectively. Further declines are expected.

Pennsylvania’s private sector has predictable and affordable pension costs while providing employees with competitive retirement benefit packages. Over 70% of these firms have defined contribution plans for new hires with average employer costs ranging from 4% to 7% of payroll. (All private sector defined benefit plans must eliminate any deficits over time – often as short as seven years).

Ignoring such facts has resulted in unsustainable plans in states from New Jersey to California. Cities like Chicago and Detroit face bankruptcy because of public pension costs.

Courts have said public pension benefits once earned are protected by Pennsylvania’s Constitution: Article I, Section 17, “Impairment of Contracts.”

I’m not part of the legislative pension system as I believe Article II, Section 8 of Pennsylvania’s Constitution doesn’t provide for elected officials’ pensions: “The members of the General Assembly shall receive such salary and mileage for regular and special sessions as shall be fixed by law, and no other compensation whatever, whether for service upon committee or otherwise.”

This same provision is why I also return my legislative cost of living adjustment: “No member of either House shall during the term for which he may have been elected, receive any increase of salary, or mileage, under any law passed during such term.”

Nonetheless, I’m regularly asked why Pennsylvania underfunds its public pension plans. Taxpayers fear proper funding policies will result in districts increasing property taxes to pay pension contributions. Schools say the alternative is cutting programs or increasing class sizes.

Failure to contribute at least the actuarially recommended contribution transfers ever-mounting debt to future generations. The combined liabilities of SERS and the PSERS are over $50 Billion – and growing. These costs are the fastest growing state budget line item.

Separate from proper plan funding are new GASB (Government Accounting Standards Board) accounting and reporting standards to assess current and future pension obligations. Unfunded liabilities will now be reflected on school districts’ balance sheets and the underfunding issue will be further highlighted. Increasing numbers of municipal and school audits will be flagged due to GASB 67 (“Financial Reporting for Pension Plans”) and GASB 68 (“Accounting and Financial Reporting for Pensions”) standards.

In 2009, legislation (which I opposed) was enacted attempting to address Philadelphia’s public pension problems: a temporary 1% Sales and Use Tax increase. This “temporary” tax was subsequently extended. Purchases in Philadelphia include an 8% Sales Tax. However, Philadelphia’s pension liabilities have continued to grow. Like Pennsylvania’s infamous “temporary” 1936 Johnstown Flood Tax, this tax continues to exist and continues to grow. Ironically, Philadelphia is being flooded with pension liabilities.

In 2010, another law was passed to address Pennsylvania’s pension issues. Act 120 made some benefit changes for new employees, including: raising the vesting period to 10 years from five, reducing the multiplier to calculate retirement benefits (to 2.0% from 2.5%), increasing the retirement age for new employees to age 65, eliminating lump sum payouts of employees’ contributions and interest upon retirement, and limiting maximum retirement benefits to 100% of final actual salary.

But, Act 120 also continued the practice of underfunding, which further deferred state and local pension contributions to future years through “collars:” below recommended actuarial levels, which reduce public pension funding by about $1 Billion to $2 Billion annually. Such sustained underfunding has resulted in numerous credit downgrades. This is why I also opposed this measure.

Supporters of the status quo urge the General Assembly to allow Act 120 “time to work.” However, since passage of Act 120, pension liabilities have grown to $50 Billion from $41 Billion; the original assumptions of Act 120 have shown Act 120 has failed to attain its goals.

This $50 Billion deficit is growing by over $10 Million a day – over $3 Billion a year. Meanwhile, the Commonwealth, municipalities, and schools are allowed by law to underfund these plans by about $1 Billion to $2 Billion a year. Every 0.5% reduction in SERS and PSERS assumed investment returns adds approximately $7 Billion to their combined unfunded liabilities. If PSERS would compute its unfunded liability using market value of assets, this change alone would immediately add about $8 Billion to the deficit.

Failure to both properly fund these plans or move new hires to a defined contribution plan will only make matters worse (the claims of unaffordable transition costs are vastly overstated). Taxpayers should fear higher taxes to continue to fund public pensions. Public employees should fear their continued solvency.

There is a cost for inaction.

Good move by Gov. Corbett

If I hear one more false accusation that Tom Corbett is short changing government schools, I am gonna buttonhole that next person who says it.  It is not true that government school funding was or has been cut by the Corbett administration.  Like so many things that former governor Ed Rendell had done, those previous annual education budgets were temporarily bolstered by one-time FEDERAL money.  That funding was never intended to be continuous, and if it is not continuous, then it is in Barack Obama’s hands, not some governor who has zero control over federal spending.

Whatever your beef with Tom Corbett may be, and Lord knows, people have legitimate beefs with him, he is not responsible for “cutting education funding.” That is a lie.

Today, Corbett did the right thing by signing the legislature’s proposed budget, but using his line-item veto power to exclude the state legislature’s hoggish claim to some $72 million taxpayer dollars.  I have seen the state legislature hog over $100 million, and even higher, for their pet projects that the careerist leaders and their “pets” use to spend on projects to buy votes and get re-elected.

Corbett is angling for the legislature to return and fix the state pension crisis.

Good move, Tom Corbett.