Our Brief this week covered the efforts of consultants working with the Pittsburgh Public Schools who laid out per-pupil spending comparisons for Pittsburgh and a peer group of similar districts in Pennsylvania.  We noted Allentown, Reading, Scranton, Erie, Hazelton, and Lancaster as being in that comparison group but failed to note that the state's largest district, Philadelphia, was also in that group. 

 

Based on the consultants' data, Philadelphia spent about $6,000 less per-pupil than Pittsburgh before ($20,477 to $14,132) and after ($18,371 to $12,988) after they came up with an adjusted amount.

 

Imagine that: if Pittsburgh was to spend at the per-pupil level of Philadelphia, its budget would be more than $100 million less than at present.  If Philadelphia-which is facing a $300 million shortfall and has plans for new taxes, higher taxes, and requests for state money-its budget would be more than $4 billion rather than the $2 billion it is today.

 

When someone's ox is about to be gored, that person can be expected to protest loudly. Certainly spokespersons for Pennsylvania's beer distributors, who have a virtual monopoly on retail sales, were in full throated condemnation of legislation that would strip them of that monopoly.  Claims that thousands of people would lose their jobs were front in center of the argument-the typical, predictable assertion of almost everyone opposed to any action that promises to eliminate a government created monopoly.

 

Bottom line: jobs supported by monopoly power granted by the government that are over and above what the free market provision of a good or service would create must be the result of transferring income from consumers to the monopoly providers that is above what a market provided good or service would be.  In other words, if the number of full time equivalent employees involved in retailing beer in the current "distributor" regime is higher than will be needed in a free market regime, their income represents an unnecessary transfer of income from consumers. Income that could be used to purchases other goods and services and create other jobs. And it is a virtual certainty that the non-money value of convenience for retail consumers who will be able to buy beer while shopping for groceries or for convenience store items will be enormous. Not to mention the time and gasoline saved not having to make a special trip to a "distributor" store.

 

Finally, the claim that consumers will have fewer choices of product is laughable. A visit to a major super market chain store in states where beer is sold in grocery stores will reveal a mind numbing array of beers, ales, and other low alcohol beverages available in six packs, quart bottles, in single bottle sales and so on.  The variety and choice argument is another indication of just how deeply ingrained the anti-free market mentality has become in Pennsylvania, even among people who are engaged in business activities.

 

Pennsylvania Senate Democrats want the Governor to eliminate the use of Keystone Exams as a graduation requirement-according to a report in the Tribune Review on May 14. Why the request? Folks who follow education issues will not be surprised to learn the request is based on the claim that schools do not have the resources to administer the test.  The Education Secretary says other requirements are being waived or eliminated so resources will be freed up so there should be no net increase in costs.

 

But there is a deeper issue here.  School districts in Pennsylvania spend $150,000 to $250,000 to teach kids for 13 years. A large share of that money comes from the Commonwealth coffers. Moreover, the state, for good or ill, is the creator of school districts, empowers them to levy taxes and maintains a substantial degree of regulatory control over the schools and has a commensurate responsibility to insure that graduates from Pennsylvania achieve a minimum level of educational proficiency.

 

When SAT scores and PSSA scores are so weak in many districts, the state has an obligation to take steps to address the problem. Requiring tests in order to get a diploma that purports to tell colleges or employers that the student has achieved a 12^th grade level of proficiency seems entirely reasonable. Furthermore, there is no reason for administrators and teachers to be unable to arrange the time and place to administer the Keystone Exams. The argument that resources are not available implies teachers and administrators are incompetent.  Is that really the argument public education hardline defenders want to use?

 

Are union work rules or prerogatives really the source of objections? Or is it the bigger problem of the failure of so much money to produce educated children and the politicians' need to deny the culpability of the unions and education establishments for the failures?      

 

 

The debate over privatization of Pennsylvania's liquor stores has uncovered a very sad and costly lack of understanding of economics and a very strong attachment to union doctrine.

 

No statement has been more revealing than the comment by a Turtle Creek resident who said she was opposed to privatization because it would eliminate jobs.  First of all, private liquor stores will need employees. How will shelves get stocked or sales rung up or bookkeeping and accounting done without employees?  Thus, the resident's comments show either a complete lack of understanding of how business works or belief that if a job is not held by a union employee it does not count.  Either way, the opinion of this person reflects the thinking of a large portion of Pennsylvanians. And that thinking remains one of the biggest obstacles to strong job growth in the Commonwealth.

 

Ironically, the comment came in a report on polling results that found Pennsylvanians view the economy and jobs as very important while the privatization of liquor stores by comparison was only moderately important.  Ironic because of the difficulty in creating a pro-growth environment in a state where a huge fraction of voters are still in thrall to the idea that unions create good jobs and where the government has been a hand maiden to union entrenchment in the economy and delivery of public services.

 

Sometimes a short response to a reporter's question encapsulates a boat load of information about an issue. The Turtle Creek commenter has done just that. 

 

In early 2013, the Pittsburgh Public Schools announced it was going to use a $1.2 million foundation grant to hire consultants who would help steer the District through a "large scale visioning process" leading to a strategic plan to be delivered to the Commonwealth by 2014.  Some of the work completed by the consultants was reported in a newspaper article and, lo and behold, the consultants found that the District spends more per-pupil than comparable districts in the state (the article did not identify the other districts, and the findings are not on the District website) by a margin of $6,800. 

 

We have written much over the years about per-pupil spending in the Pittsburgh Public Schools so the findings should not be much of a surprise. Based on the statement of the District's Superintendent ("the board has to have the facts on the table") does this mark a turning point in how blunt consultants working with the District will be?

 

Consider that in 2005 an audit found that, when examined against various school districts in the northeast and Midwest U.S. consultant data revealed the Pittsburgh Public Schools spent 20-45% more per pupil and spent less than half of their budget on administration and instruction (meaning they spent money on other expenditures) and yet could only recommend closing schools (something that was being planned on at the time) and obtaining savings that would have amounted to less than 5% of the budget. Much was left unanswered.

 

A year later the Council of Great City Schools came to the Steel City and presented its own set of overly general recommendations and they too left out the critical measurement of per-pupil spending when looking at districts from Chicago to Boston to Orlando.  The resulting 59% gap between Pittsburgh and the other cities would have led a consultant to recommend steep expenditure reductions until the gap was closed. 

 

But here we are in 2013 with a new set of consultants still finding a gap in per-pupil spending and there is still a gap in time before recommendations will be delivered and then, possibly, implemented.  The District has said it would like to "...cut that [$6,800] gap by $2,000 a student" (the consultants' adjusted per-pupil amount for Pittsburgh was $18,400 for 2011-12) but based on the 2013 budget ($521.8 million) and the enrollment posted on the District's fact page (26.4k) the resulting per-pupil amount is closer to $19,718.  A decrease of $2,000 per pupil means the budget target would have to be $448 million (if enrollment holds steady) or enrollment needs to grow to 30,000 if the budget stays flat to arrive at per-pupil spending closer to $17,000.  And then what?  Does the District want to drive spending down past that or make it a one year goal to serve as a baseline for future increases?

 

The County Controller released the 2012 Comprehensive Annual Financial Report last week and foremost among the Controller's concerns is the debt, which, when examined by the "net bonded debt" marker was $825 million, up from $747 million in 2011.  The County administration stated that 2012 was a bit of an outlier, "the result of the county squeezing two years' worth of new loans into one".  If that is the case, it is worth looking at data prior to then to see if there is a trend.

 

From 2003 to 2011, net bonded debt grew 14.7% (from $651 million to $747 million) while population fell 2.9% and, as a result, the per capita debt level increased nearly $100 from $517 to $611.  Compared to the City of Pittsburgh's per capita debt, the County is in great standing. The ratio of debt to assessed valuation has remained around 1% or fractions above 1% for most of those years and, if we treat things in terms of legal debt limit, the County was in 2011 and has been since 2003 using 80% or more of that limit.  Debt service as a percentage of non-capital expenditures is a tad over 4% and has been about that percentage over the time frame. 

 

The previous Controller in 2010 called for a long-term debt policy that would act as "...a strategic tool for determining affordability and setting priority for financing capital projects".

 

The Community College of Allegheny County trustees announce another tuition increase along with hikes in some fees. Out of state student's tuition per credit was boosted by a third.

 

Justifying the third price rise in a row, the trustees pointed to the need to cover higher costs including employee compensation, utilities and other items purchased by the school. One of which of course is the huge jump in the cost of health insurance that will be coming soon.  The school has already resorted to using more and more adjunct faculty who will not eligible for health insurance and are paid peanuts to begin with.  But because of the expected increase in wages and benefits for those who are full time the use of adjuncts is not a complete offset.

 

How can colleges keep raising tuition and fees? Very simple. It's is the fact that demand is so strong and so inelastic. First of all, government aid for students help sustain strong demand; second, society's pressure on students regardless of aptitude and ability to get college degrees and regardless of whether the time and money expended to get a degree will ever any positive return on the investment, and the lack of skills acquired in 13 years of K-12 education that necessitates further schooling to qualify for even basic jobs beyond the completely menial.

 

The growing amount of remedial education offered to incoming students is testimony to the inadequate preparation a huge fraction of high school grads have received. Encouraging them to go to college despite their preparedness and aptitude and finding government aid for them contributes to the flow of incoming students who are sustaining college enrollment beyond economically justifiable levels and allowing colleges to continue increasing tuition and fees.

 

Death and school tax increases?  About a quarter of the school districts in Allegheny County have applied for an exception to possibly exceed their Act 1 index that determines the degree to which school taxes can rise in a given year (both the Education Department's spokesman and a business manager of a western PA school district made the point that even though a district is granted an exception it may choose not to use it) but this year is when new assessments have gone into effect, so homeowners who live in those districts where revenue neutral rollbacks by the County and the municipality may have minimized the tax bill bite may see that disappear.  Know too that tax increases could be coming in districts that did not apply for an exception because Act 1 allows for increases up to the cap without a separate action.

 

The Department of Education has data on school tax rates going back to the 2002-03 school year (all districts in Allegheny County run on a July-June fiscal year except Pittsburgh) and, after tossing out a few districts that straddle the County line and Clairton, which has separate rates for land and buildings, the median tax rate that year was 18.45.  Wilkinsburg had the highest millage rate at 32, South Allegheny had the lowest at 13.83.  By the 2011-12 school year, the median rate had risen to 23.27 (a 26% increase, the Pittsburgh area CPI increased 33% from 2002 to 2012, so the growth was slower than inflation) and Wilkinsburg still topped the list (at a higher 35 mills) and Pittsburgh was the lowest at 13.92.

 

If we look at the years prior to when the Act 1 index took effect (2002-03 through 2006-07) the median millage rate for the County's school districts rose 16%; since then, under the Act 1 provisions (2007-08 to 2011-12), school taxes have climbed 8%.  Note that the pre Act 1 years from 02-02 to 03-04 and 03-04 to 04-05 saw some very big jumps (4.8% and 5.5% respectively) and that, outside of those years, the percentage change in the median school tax rate in the County does not look much different before or after Act 1.  The median rate did fall in 2011-12 by 0.7% from where it stood in 2010-11, however. 

 

That's little consolation to taxpayers whose district may have increased taxes year after year or intends to use an exception this year, but overall the degree of increase overall has slowed over the past few years.

 

Despite the apparent good news in the Pittsburgh MSA's unemployment rate drop to 7.3 percent in March, mirroring the state and national monthly declines, the region's labor market picture is not a rosy one.

 

Seasonally adjusted household survey data show the labor force fell by 5,400 in March while the number of people employed declined by 2,300 resulting in a drop in unemployment of over 3,100 (3,200 rounded to nearest 100).  Thus, the unemployment rate slid by 0.2 percentage points because labor force fell faster than employment, not because the number of people working rose.

 

At the same time, the establishment survey of payroll employment, which is not seasonally adjusted, showed the 12 month growth in nonfarm jobs to be a very slow 2,400 while private sector employment managed only an anemic 4,900 rise. The February increase from a year earlier was 5,300. In late 2011 and the first half of 2012 job gains on a year over year basis were in the 20,000 to 30,000 range. The recent six month performance represents a major departure from those heady gains.

 

By important sector, mining and logging continues to post modest gains, construction enjoyed a slight pickup and manufacturing lost jobs compared to 12 months ago.  Trade, transportation and utilities lost 3,600 jobs, led by combined drop of 3,100 in wholesale and retail. On the positive side, financial activities and professional and business services are continuing their recent pattern of exceptional job growth with finance up 2,100 jobs over the last 12 months and business services rising 4,200, propelled by 5,300 more jobs in the professional and technical area. Health services continues to do well but has slowed somewhat posting an increase of 2,400 since March of 2012.

 

Interestingly, private education, which had been a mainstay of job growth during the lean recession years, saw a decline of 1,000 in employment compared to March a year ago. Similarly, leisure and hospitality, a fast growing sector just a few months ago, experienced a drop of 1,300 jobs compared to last March.

 

Government employment tumbled by 2,500.

 

In sum, the overall labor market has slowed dramatically in the first few months of 2013.  Still, it is encouraging to see the professional and business sector and financial services sector providing growth while other formerly faster growing sectors have weakened considerably. From here much will depend on the national economy and polices over which the local community has little control. But, an effort to reduce the power and influence of public sector unions would certainly be helpful, as would lowering the State's corporate profit tax rate.

 

Harrisburg is reportedly close to executing a deal on its finances, its incinerator, and some publicly owned assets that might allow an avoidance of Chapter 9 municipal bankruptcy.  We wrote about Harrisburg's predicament as an entrant into Act 47 and the mention of bankruptcy at several points (here, here, here, and here for example) but it looks like the City has a willing buyer for its incinerator and a private manager for its parking garages and some convincing to do for parties it is in debt to.   Plenty of additional cuts and a tax increase (which would require approval of the court to continue) are part of the mix.

 

The state obviously prefers to avoid a bankruptcy filing, particularly in the state capital, and that is why there were changes to the Act 47 statute that were made to prevent such an occurrence in Harrisburg.