DV Journal

This year has ushered in a lot of expensive talk in Harrisburg.

In just two months, we have seen Gov. Josh Shapiro and legislative Democrats push separate plans to increase taxpayer-funded spending by billions of dollars.

First, a partisan report from the Basic Education Funding Commission (BEFC) called for a $5 billion increase in education funding. Not to be outdone, Gov. Shapiro followed up with a whopping state budget proposal that spends nearly $50 billion, an 8 percent increase over the current year. In response, we have already seen warnings from media organizations that expensive proposals like this will lead to massive tax increases on all Pennsylvanians.

So, here we are again. The age-old argument that the best medicine for Pennsylvania’s problems is to throw more tax dollars into the void. Problem: The courts decided the system by which we fund public education is unfair. Solution: Spend more money! Problem: Pennsylvania is economically uncompetitive. Solution: Spend more money

This thinking is akin to topping off the gas tank of a car with a broken engine. No amount of money is going to mysteriously raise the test scores by which we judge whether or not our kids are learning. And no amount of money is going to magically make Pennsylvania’s archaic business policies more attractive to job creators.

Gov. Shapiro continues to traverse the state, saying he wants to “get stuff done,” and in his budget address, he called on the legislature to do more to help Pennsylvania compete with our neighbors. But his actions say the opposite.

Whether it’s fighting to protect an unconstitutional tax in court that will stifle energy production and cause utility costs to skyrocket or caving to special interests by vetoing hundreds of millions of dollars for poor kids in low-achieving schools, the governor has shown he’s willing to talk the talk but then walk in the opposite direction.

With that said, lawmakers cannot just be “no” on everything. We need to start thinking big to address the issues facing our Commonwealth. Pennsylvania is not going to tax and spend its way to economic prosperity, but we are also not going to make people’s lives better by doing nothing.

Instead of enacting the governor’s plan and forcing tax increases on Pennsylvanians, why don’t we let folks keep more of their hard-earned money? Recently, I circulated a legislative memo to reduce the Personal Income Tax that has received bipartisan support. As costs continue to rise, people deserve to keep more of what they earn and not have to worry about increases in their tax bills.

Now is the time to make monumental changes to our education system because what we have is clearly not working for everyone. According to the U.S. Census Bureau, in 2021, Pennsylvania ranked in the top 12 in state spending per pupil. Furthermore, the Commonwealth Foundation points out that Pennsylvania’s per-pupil funding increased to $21,263 in the 2021-22 school year, up from 37.6 percent since 2013.

And while we have consistently increased state funding for education by record amounts over the years, we have continued to see students’ test scores lag. What if we gave students in underperforming schools that $21,000 and just see if they can’t find a better place to learn?

While we’re looking at how we fund public education, we should finally tackle property tax reform. For years, families and seniors on fixed incomes have had to deal with this ever-increasing burden. Now, as mortgage rates and home prices rise, young people can’t even begin to think about getting that first home at all. Property taxes are just another massive barrier preventing many from achieving what was once the pinnacle of the American Dream.

Finally, if we want Pennsylvania to compete economically with our neighbors, let’s put forth policy that actually puts us in their league. According to the Tax Foundation, Pennsylvania ranks 31st in tax competitiveness for job creators.

Let’s accelerate the reduction of the Corporate Net Income Tax, something Gov. Shapiro has said he supports, and let’s do it without anti-business poison pills like combined reporting. Let’s finally tackle real permitting reform with reasonable timelines for approval so that businesses can actually responsibly plan ahead in Pennsylvania.

If the governor wants to “get stuff done,” House Republicans are ready and willing. But he should come up with better ideas than emptying the state’s reserves and increasing taxes on Pennsylvanians. Now is the time for big change, so let’s “get it done.”

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The Pennsylvania state Supreme Court on Tuesday voted 7-2 to overturn a lower court ruling that found  Pennsylvania’s Act 77 violates the state’s constitution. In a recent Delaware Valley Journal podcast, veteran GOP operative Michael Caputo, an outspoken opponent of Act 77, explained why he believes the Supreme Court is putting partisan politics ahead of Pennsylvania law.

Caputo spoke before the Supreme Court’s ruling.

“The Supreme Court had hearings and then stayed the decision of the lower court, which basically overturned Act 77, (The Commonwealth Court) ruled it unconstitutional,” Caputo said. The Commonwealth Court “spelled it out very clearly,” he said.

Michael Caputo

“I worked with Doug McLinko, a county commissioner and an election official from Bradford County, on his challenge of the act,” said Caputo. “He was the primary…plaintiff on the lawsuit that overturned Act 77, which is the legislature-driven, no excuse mail-in ballots law that led to massive, massive use of mail-in ballots in Pennsylvania in 2020.”

While the Commonwealth Court found it unconstitutional because the constitution calls for “in-person voting,” with a few excuses for absentee voting, the state Supreme Court disagreed.

“The Commonwealth Court decision on Act 77 and McLinko v. Pennsylvania spelled it out and said, ‘Look, this is unconstitutional. But the voters in Pennsylvania appear to like no excuse, mail-in ballots, so they need to amend the constitution. Until the constitution is amended, this is going to remain unconstitutional,'” he said.

“I believe the state Supreme Court knows that and still wants the public to have no excuse mail-in balloting at their disposal for the general election,” said Caputo. “I, for the life of me, can’t see the technical reason why they would demand that and allow it. I do have my suspicions, of course.

“Many of the Republican state legislators took a long time to understand just how much they had tilted the entire election of the nation by writing this unconstitutional law in their own state. For many, many months, over a year, they could not take the blame for what they had done…The problem is we’re going to go through the midterm, I think, with no-excuse mail-in ballots because it took so long for any effective legislative fix.

“Act 77 needs to be repealed entirely,” Caputo said.  “And if the Democrats and even some Republicans want no excuse, mail-in ballots, they need to amend the constitution.  The problem is…there’s no way to pass a constitutional amendment to get mail-in ballots for the 2024 presidential election. It’s a conundrum for Democrats, including Democrats on the Supreme Court because they really want that ability to have no excuse mail-in ballots in the presidential (election) just two years from now.”

Asked if mail-in ballots were one reason former President Donald Trump lost Pennsylvania in 2020, Caputo said, “I do believe that. I’ve seen some reports done by Pennsylvania investigators, Pennsylvania lawyers, Wally Zimolong, the attorney on our case, makes a great case that this led to widespread fraud.”

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Pennsylvania’s General Fund has a balance of $16 billion. That’s a lot of money, and there are two ways to look at it.

The first, which is tempting, is to find ways to spend it. There’s no shortage of programs to choose from, and many interest groups are working overtime to convince the General Assembly that there’s money to burn.

The second, which is far more prudent, is to view that balance through a long-term lens and acknowledge that it is, in many ways, a mirage. A number of one-time factors, including billions of dollars sent to Pennsylvania by the federal government, have created the current large balance.

To be sure, although one-time revenues should not be used to cover ongoing expenses, there are some legitimate uses that deserve consideration. School safety and public infrastructure are at the top of that list.

But we know that a fiscal cliff is coming soon – a fact confirmed by a recent report from The Volcker Alliance, a nonprofit founded by former Federal Reserve Board chairman Paul Volcker. And if we spend the entire General Fund balance now, as some are advocating, that cliff will be unmanageable. The same people trying to spend everything today will be calling for new taxes tomorrow.

The Independent Fiscal Office, widely respected for its nonpartisan reports, projects a huge drop in revenue to the General Fund in the coming fiscal year – nearly $5.8 billion, or 11.5 percent. Such a dramatic decrease can’t be ignored. If you knew that your pay was being cut nearly 12 percent, you wouldn’t add expenses – you’d look for things to eliminate from your family budget, and you would save as much as possible.

The state should do the same. We have surplus funds now, and we know that less money will be coming in future years. The logical conclusion is that we should make a big deposit to the Rainy Day Fund while we have the chance.

Formally known as the Budget Stabilization Reserve Fund, the Rainy Day Fund exists to help Pennsylvania weather economic downturns. Think of it as our state’s emergency savings account. We don’t want to use it, but it’s good – and responsible – to have it on hand just in case.

For most of the past decade, the balance in Pennsylvania’s Rainy Day Fund was $0. It didn’t have a penny in it. Modest deposits were made in 2019 and 2020 before a small withdrawal in 2021. A significant deposit, $2.6 billion, was made last year. I applaud the General Assembly and the governor for making that decision. Today, the Rainy Day Fund balance is $2.87 billion.

But when considering the Rainy Day Fund, it’s far more useful to look at it in terms of the calendar: How many days can the Rainy Day Fund cover state expenses?

Using that analysis has two key benefits. First, because it’s difficult for most of us to truly comprehend amounts of money in the billions, the calendar analysis allows us to understand and discuss the size of the Rainy Day Fund in a meaningful way.

The second benefit is that it makes it simple to compare Pennsylvania’s savings level to other states.

Right now, Pennsylvania’s Rainy Day Fund can cover about 25 days’ worth of expenses. That’s far better than zero days, of course, but it’s barely three and a half weeks. And Pennsylvania lags far behind other states: Across the nation, the median Rainy Day Fund balance includes enough savings to cover more than 43 days’ worth of expenses.

Being responsible isn’t flashy, and it rarely grabs headlines. But we know exactly what lies ahead. Inflation and an increasingly likely recession will bring serious budget challenges to Pennsylvania for years to come.

The good news is that we can make the approaching fiscal cliff a lot smaller – and the future stress on the state’s finances far less – simply by making another significant contribution to our Rainy Day Fund this year. It’s the right thing to do.

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The state Senate Transportation Committee recently met at the SEPTA headquarters in Philadelphia to study its challenges up close and personal.

“It doesn’t take much for you to see firsthand when you come to visit Southeast Pennsylvania, how important SEPTA is,” said Jenny Louwerse, Deputy Secretary for Multimodal Transportation at PennDOT. It’s also not difficult to see first-hand the problems that are putting so much stress on the system.

“Violent crime, COVID-19 impacts, homelessness, illegal drug use, mental illness, and just an overall indecency for humankind are destabilizing the sustainability and future of the nation’s sixth largest mass transit system. We must not allow this to continue to plague our commonwealth,” said state Sen. Wayne Langerholc (R-Bedford/Cambria/Clearfield).

Serving both downtown Philadelphia and the surrounding suburbs, fixing SEPTA is a bipartisan concern.

“[Our region produces] 42 percent of the economic activity with 32 percent of our population in the commonwealth and only 5 percent of the land. This dense region cannot function without high capacity mass transit,” Louwerse said.

Safety and cleanliness top the riding public’s concerns. Since the COVID-19 outbreak, ridership has plunged. Now over two years into this pandemic, the number of riders using transit is only 53 percent of what it was prior to the outbreak. The regional rail lines have only reached 44 percent of their pre-pandemic levels.

Declining riders means lost revenue, and that is particularly problematic for a system that already relies heavily on taxpayer subsidies.

Currently, 49 percent of SEPTA’s operating budget comes from state taxpayers—almost double the average among transit systems nationally. In addition, 60 percent of SEPTA’s capital budget (i.e., funding for infrastructure improvement and new trains and buses) comes from the state.

Most of that funding does not come directly from taxes—though both the sales tax and lottery revenue subsidize transit systems. Rather, more than $925 million in driver charges, including turnpike tolls and vehicle fees, are diverted to transit agencies, primarily SEPTA, according to the Commonwealth Foundation, a free market think tank.

 Compounding the ridership issue is the fear of crime that many residents have. With Philadelphia now leading the nation in crime, the issue has likely had a “trickle-down” effect on SEPTA, one resident pointed out.

Several recent incidents that drew national attention have not helped, including rapes and attacks by groups of teenagers on Asian students riding home from school on the subway.

To make matters worse, the number of officers policing SEPTA has been reduced dramatically in recent years.

“SEPTA’s police department is budgeted for 260 sworn officers, but as I see here right now our police department outreach was fewer than 160 patrol officers,” explained Omari Bervine, president and CEO of the Fraternal Order of Transit Police Lodge 109. 

 SEPTA has struggled to employ enough transit officers in recent years, in large part because of lack of benefits and protections offered. Transit workers have been among the demographics most heavily impacted by the pandemic.

“As long as SEPTA is permitted to treat its transit police officers in this manner, it will continue to lose talented officers to the departments that treat them fairly and with the dignity they deserve,” continued Bervine. Many residents fear that opens the door for crime. Even with the strained relations between police and citizens recently, many riders feel the availability of transit police is critical to their safety.

SEPTA is trying to address those concerns.

“We have a commitment to safety that is unwavering and we have increased spending in this year’s budget by 50 percent…. That is a total of $53 million dollars that will be spent on safety and security this year,” Louwerse said.

“If we can not convince the public that their system is safe then the entire system is doomed to fail,” Bervine said.

In his final budget address to the state legislature, Gov. Tom Wolf proposed a $45.7 billion plan to increase general fund spending by $4.5 billion—a nearly 11 percent hike.

Wolf made the argument that the state should increase spending on education.

“Refusing to fund education equitably does not save us money,” he said. “It just means we wind up spending more on social services, remedial programs, even prisons. And that calculation doesn’t even take into account the opportunity costs of failing to invest in our kids: The skills our workforce doesn’t develop, the products and services that never become a reality, the business growth and tax revenues that vanish.”

Wolf said the state’s finances were in dire straits when he took office. But working with the legislature, Pennsylvania now enjoys a $2 to $$3 billion structural surplus.

“We’ve built our rainy day fund to more than $2.8 billion,” he said.

Wolf also proposed raising the state’s minimum wage from $7.25 to $15 an hour.

Delaware Valley Republicans accused Wolf of pushing a budget that creates future deficits.

“The spending includes billions of dollars from the federal government, so he wants to spend one-time monies for recurring situations, and when you do that, you create yourself a real problem in the out years,” said Sen. Bob Mensch (R-Bucks/Berks/Montgomery). He noted Wolf’s proposed new spending comes from $2 billion in federal American Rescue Plan (ARPA) funds. If enacted, it would produce a $1.3 deficit for the 2023-24 fiscal year, when Wolf will be out of office, Mensch said.

According to the Senate Appropriations Committee budget projections, the governor’s plan would produce a $1.3 billion deficit for the 2023-24 fiscal year and create an even bigger bill for Pennsylvania taxpayers to pay long after the governor leaves office: A $13 billion deficit by 2026-27.

“While he wants to leave a legacy of no taxes, he’s leaving a terrible legacy for the future because it will only increase costs to our taxpayers,” said Mensch.

“Bigger government, higher taxes, and increased spending are what the governor has proposed today,” said Rep. Tracy Pennycuick (R-Harleysville). “That is not the type of decision-making my constituents are asking of me. I am being asked to shrink government, hold the line on taxes and invest prudently in programs and services that have proven track records.”

Rep. Craig Williams (R-Chadds Ford), however, struck a more conciliatory tone.

“I was very glad to hear the governor spend several minutes from the outset of his speech reviewing our hard work to bring the commonwealth from a budget deficit to a budget surplus,” said Williams. “He also said some very favorable things about our Rainy Day Fund, created last year by the House. We have worked very hard to get our state’s financial condition in shape. As the governor noted, running a budget surplus now gives us an opportunity to invest in programs of great concern to all of us: education, health care, including mental health and addiction, and public safety.”

“Of course, the budget he offered runs out all of the state’s surplus and puts us back into a budget deficit,” Williams said. “So, I choose to see his budget as notional or a ‘wish list.’ I am confident that we will find middle ground during the budget process to bring relief to so many who continue to suffer, especially in light of the pandemic.”

Not surprisingly, Democrats praised Wolf’s budget.

“The governor’s proposed budget is exactly what Pennsylvania needs right now,” said Sen. John Kane (Chester/Delaware). “This budget uses our strong economic position to address the issues facing our communities: a $1.55 billion increase in funding for basic education, nearly $4 million to improve our public health infrastructure, and $14 million to expand SNAP benefits for individuals in need. It finally allocates the remaining American Rescue Plan funding into programs to serve the public. And, just like he has every year, the Governor has proposed a raise to our abysmal minimum wage.”

Kane added, “We can’t work for the people without investing in the people. That means supporting access to quality healthcare, a good education no matter the ZIP code, and common-sense policies that strengthen our economy from the bottom up. I look forward to working with the governor over the next few months to pass a budget that invests in Pennsylvanians.”

The House Democratic leadership released this statement: “Governor Wolf’s sound fiscal stewardship has resulted in a historic budget surplus while making thoughtful and targeted investments in education, infrastructure, and our workforce. A budget is a statement of priorities, and once again, the governor has shown that our first priority must be investing in both our pandemic recovery and our long-time growth.

“The governor’s vision for this budget mirrors many of the ideals we’ve been fighting for that will lead to better schools, better jobs, and a better Pennsylvania. Last year we took a historic step through the Level Up initiative to provide more resources to our most underfunded schools. This year, we look forward to continuing to work toward equity for all students as we invest in their futures from pre-K through postsecondary education.”

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