Nine community organizations joined together yesterday to rally for factors other than seniority to be considered when the Pittsburgh Public Schools takes action to reduce the employee headcount this fall, with at least 350 classroom teachers the initial estimate.  Several advocacy groups said that the data is there to make a determination on effectiveness; the teachers' union says seniority is the only fair way; the Board hopes to find a middle ground.

 

That the union is holding steadfast in its position on seniority should have come as no surprise: even as the District and the union worked on a pay for performance model and negotiated a five year contract in 2010 and there was a spirit of cooperation the documents applying for foundation money to support teacher effectiveness stated "...the [Pittsburgh Federation of Teachers] membership will be the final voice on collective bargaining issues" and "...the PFT membership will be the final voice on these initiatives [related to pay for performance]".  The contract states that "system seniority shall be the sole applicable seniority criterion to be applied in the layoff of any teacher(s)". Even much of the contract language that implements the Teacher Effectiveness Plan contains special seniority provisions.

 

In a tour de force of irony, County Exec Fitzgerald, Councilman Peduto and Senator Fontana will take a stand against court ordered reassessments on the grounds they are unfair.  Presumably, they are perfectly willing to continue the unfairness of allowing owners with egregious undervalued assessments to pay far below their fair share of property taxes while at the same time forcing those with correct or too high assessments to pay far more than their fair share of taxes.  How interesting it is what some call unfair.   

 

The gentlemen will be supporting Senator Fontana's bill that would give Allegheny County the opportunity to do away with property taxes and replace school, municipal and county taxes with other taxes. Great idea except for two things. The level of sales taxes (almost double its current level) required to replace all property taxes including schools would drive retail out of the County as non-residents stop coming into the County to shop and residents go to other counties to purchase non-essentials and avoid sales taxes. Higher income taxes? Could non-residents be required to pay? If so, jobs would begin leaving the county. Why would residents of Butler County pay taxes to their schools, county, and municipality and then be saddled with a big tax bill from Allegheny County to pay for schools and municipal services in Allegheny County?  Likewise, Allegheny residents who work in a neighboring county would have a big incentive to move to that county. 

 

Non-residents who own real estate but do not shop or work in the County would benefit enormously from not having to pay property taxes to the county, schools or municipalities. Think of out-of-state pension funds for example that own office buildings. That revenue has to be made up somehow.  Is that fair to residents?  It appears the Senator has not thought through his plan very carefully if he is truly interested in fairness.

 

Finally, how would countywide sales tax revenue be allocated to schools and municipalities?   There would be no way to assign the money by point of collection. Some areas have very little retail sales activity while others are chock full of malls and retailing. 

 

In short, such a dramatic tax shifting cannot be done at just the county level.  Pennsylvania school districts have held referenda to shift property taxes to income taxes under Act1. Not one vote has come close to approving such a shift. Property taxes are unpopular but so are high local income taxes. A major shift in tax structure will have to be done statewide if at all. 

 

The aforementioned gentlemen could spend their time in Harrisburg urging the Legislature to rewrite Pennsylvania's preposterously out-of-date and inadequate assessment laws to require periodic updating of assessments.   Or they could urge the amending of the Constitution to eliminate the "uniformity clause" that is the source of all their angst.  Or they could join others who want to restructure taxes at the state level to reduce the burden of property taxes.

 

Sadly, they would rather attempt to make political points than to work for changes that would actually address the sources of inequity explicitly not permissible under the constitution.  Posturing while elected--a terrible, perhaps fatal disease in a self-governing polity.

 

One Charles McCollester, retired professor of Industrial and Labor Relations at Indiana University of Pennsylvania, writing in the P-G letters column reveals for all to see which side of Industrial and Labor Relations he shows solidarity with.

 

In the letter the retired prof launches a withering attack against Governor Corbett saying he is the most anti-labor governor since the late 1920s. And what does he base this on? First, he berates the Governor's refusal to turn over more state dollars to the Port Authority unless there are substantial union concessions. This is an Authority that is in financial chaos owing to overly generous labor contracts in the past that have created legacy and compensation costs the Authority cannot afford absent the state taxpayers heaping more dollars onto a system that cannot be saved short of bankruptcy.  The professor should do modicum of research before weighing in on a situation he knows precious little about.

 

Second, he caterwauls about trying the Governor's attempt to break the teachers' unions by slashing school spending and recommending vouchers. Apparently, the well- publicized huge budget deficit facing the Governor last year and the need to cut spending did not reach Indiana. Or if it did, the professor chose to ignore or believed it was all a Republican trick.  Perhaps the professor does not believe that school employees should share in the financial hardship so many Pennsylvania taxpayers were going through during the economic downturn.  And, it is also apparent that the refusal of teachers to make voluntary small sacrifices such as deferring pay increases in cash strapped school districts was entirely justified. Stick it to hard pressed taxpayers-that's the ticket according to those who share the world view of the professor.

 

Vouchers for kids in grossly inadequate public schools? No way say opponents. That would undermine the wonderful public school monopoly the teachers and other members of the educational establishment enjoy and benefit so handsomely from.

 

And the professor wraps up his know-nothing screed by attacking the foundation community in Pittsburgh for asking the financially distressed Pittsburgh school district to consider the quality of teachers to be let go as opposed to following strict seniority rules. His argument-stop the cost cutting in the first place. Clearly, the professor has not followed the many reports of the excessive cost structure in Pittsburgh schools where spending tops $21,000 per student and academic performance in many school buildings is below miserable. The legacy of refusal to even nod in the direction of real reforms and the damage done to the cost structure by unions and do-gooder  educrats have essentially ruined what was great school system. Time to pay the piper has arrived and all the professor can do is cry about the attack on seniority rules that are one of the biggest factors creating the long slide to a sub-mediocre school district.

 

How many Indiana University students have had their view of the world hopelessly distorted by the professor and the legions of other faculty members like him?

 

As the reports of Bill Deweese's sentencing were being written, it became obligatory for those penning the stories to mention that the convicted Representative would be forfeiting $2.8 million in pension benefits. Those benefits would have continued to increase if he had not been convicted of the felonies he was charged with. The legislative pension formula provides legislators 3 percent of their highest salary for every year served. If Deweese had kept his seat for several more years his pension would have gone up commensurately. Note that state employees get only 2.5 percent for each year employed. Money contributed to pensions by legislators is not forfeited but can be held for restitution.

 

Nor is Deweese the only high profile forfeiter of pension benefits. John Perzel, Vincent Fumo and Mike Veon among many others have done so earlier. Presumably Jane Orie is about to join the group. And Robert Mellow who left office in 2010 is under investigation and is at risk as well. Mr. Mellow would lose an annual pension of $138,958 after taking a lump sum of $331,025.  

 

Needless to say, for those who stick around, legislative service can be quite lucrative.  Thus the question: does the promise of a lucrative retirement lead members of the Legislature to engage in questionable behavior that attempts to insure their perpetual re-election? The numbers of Pennsylvania legislators that have been convicted of election related crimes and money related malfeasance in office aimed at securing reelection suggest that the lure of power and lucrative pensions are certainly at work.

 

But just as important, does the desire to stay in office lead to a lack of intensity in pushing needed reforms because it is better for reelection not to rock any boats?  How else explain the failure of the Legislature to fix the grotesque assessment problems, reform the state's labor laws that are so inimical to economic growth and cost efficient government, or even to do the simple job of putting liquor sales in the private sector?  Obviously, fear of voter rejection plays a major part.  If there were no lucrative pension or generous health benefits, would legislators be so enamored of keeping their seats?

 

And given the extravagant pension package the Legislature adopted for itself, is there any wonder that it keeps kicking the state employee and teacher pension problem down the road? To deal with that impending financial debacle, they would have to act in a way that might cut their own pension benefits-a very unlikely development.

 

All the talk of reducing the size of the Legislature is a smoke screen to keep the public's view away from the real problems. The Legislature is hamstrung by member desires to remain in office and the need to protect the largesse these offices provide.

 

We will know the legislators are serious about pension reform when they vote to adopt a 401k type plan for themselves. 

 

 In the Lincoln Institute's Spring 2012 Keystone Business Climate Survey, 309 business executives/managers were asked several questions about the current business conditions facing firms in the Commonwealth.  They were asked to compare the current climate to six months ago as well as about their feelings about the next six months.  The results show that these decision makers are not optimistic about the state of the economy or the prospects for the near future. 

 

When asked if business conditions in Pennsylvania had improved over the last six months, or the likelihood of improving in the next six months, a majority of the respondents indicated that they believed nothing had changed (51.4 percent) or is about to change (56.7 percent).   Meanwhile less than 20 percent believed things had improved or will improve.  This represents a marked contrast from last spring when respondents were more optimistic about the immediate future-38.5 percent saw an improving climate while only 30.8 percent expected it to remain the same.

 

Overwhelmingly, respondents blamed the national economy for this malaise giving very negative ratings to the Federal government, the President, and the State Legislature.  Of course pointing fingers in the direction of public officials is one thing, but there are issues such as reducing government spending and curtailing union power these business executives would like to see addressed by these officials in order to better the business climate and ultimately improve the economy. 

 

Until meaningful reforms in these areas, such as reducing taxation and regulation, occur at all levels of government, the economy will remain sluggish and any optimism that remains will quickly dissipate.

 

Labor union devotion to the concept of seniority as the basis of determining pay, promotions, work assignment and order of layoff is little more than a means of building total allegiance of members to the unions. The problems created by the terms demanded in labor contracts that  require seniority to be used in all manner of management decisions guarantees a continuing slide into mediocre performance, inefficiencies, weak productivity and higher than necessary labor compensation costs and benefits.

 

We see how seniority has played out in Pittsburgh schools and the Port Authority--indeed, in virtually every government operation where unions control the supply of labor. It has also worked its deleterious effects on large private corporations as well. The long list of firms that have moved operations overseas or closed up altogether is proof of the damage union demands including seniority rules have done.

 

The unions' insistence on seniority is evidence of their desire to protect mediocre employees, including slackers and trouble makers. It becomes a form of tenure and a guaranteed-for-working life sinecure-as long as the employer stays in business. Union demanded primacy of seniority is proof positive that unions care not a whit for the economic wellbeing of their employers. Their focus is on getting all they can as quickly as they can even though such behavior is not in the long term best interest of more juniors members who will pay the price of union excesses by losing their jobs.

 

That is why private sector unions now represent only seven percent of the private sector workforce. The markets simply cannot sustain the stifled productivity and high costs fostered by unions. The public sector employers cannot go out of business for the most part and will not as long as taxpayers can be forced to pay for the labor cost excesses. But many will file bankruptcy. This is a new trend that has emerged and promises to grow stronger because of the enormous damage done to the finances of state and local governments by overly generous compensation packages. 

 

Seniority deepens and ingrains in union members an elevated sense of entitlement that engenders bad work place behavior and causes a chasm to develop between the interest of the workers and the employers.

 

The City of Altoona, population just over 46,000, has been declared financially distressed by the state under the terms of Act 47 of 1987.  It will be the 27^th municipality placed in Act 47 status since the law was enacted; Altoona will join 20 others currently in.  The City's 2012 budget included a real estate tax increase. 

 

Six municipalities have been released from financial distress, the most recent being Homestead in 2007.  That municipality had been in Act 47 for fourteen years.  The fastest entrance-to-exit time is for Ambridge, which spent three years in the program.

 

No doubt the hopes in Altoona are for a short stay.  One councilman said that Altoona can be out in three to six years if "tough decisions" can be made. Two municipalities in neighboring Cambria County-Johnstown and Franklin-have been in for more than twenty years. 

 

At a joint hearing of several committees of the General Assembly in October of 2011, the Executive Director of the Governor's Center for Local Government Services testified "there is no limit to the amount of time a municipality can be in the Act 47 program, and the Commonwealth's authority to address the factors of distress in a given municipality are the same in year ten of the program as in year one."  A proposal in that testimony was to have a Fiscal Recovery Board appointed for a municipality that had been in Act 47 for five years

 

"It is the County's goal to ensure current year revenues are sufficient to fund current year expenditures without the use of non-recurring revenues.  However, non-recurring and unbudgeted areas of funding used to finance expenditures were as follows".  This boilerplate language appears every year in the County Controller's Comprehensive Annual Financial Report (CAFR) under the section "Relevant Financial Policies" as a way of saying that the County has a goal to live within its budgeted means but cannot.

 

Since the 2007 CAFR-covering the 2007 fiscal year, which for the County runs on a calendar basis-through the newly released report covering 2011, the County has used the following amounts of non-recurring revenues: $41.8 million, $24.7 million, $35.2 million, $48.9 million, and $45.6 million.  The sources of the revenues varied-gaming money, sales of property, state funds, etc.  That adds up to the nearly $200 million referenced by the County Controller in the conference releasing the new CAFR. 

 

Recent uses of non-recurring revenue came about even though the previous County Executive pledged in September of 2009 that "the county's long-standing practice of balancing its finances with one-time revenue sources is a thing of the past."  The $50 million deficit that the former County Controller predicted in April of 2009 that would surface in 2012 was tempered, supposedly, with the 1 mill tax increase passed by County Council at the end of 2011.  Whether the County avoids using non-recurring revenue this year will become clear upon the release of the 2012 CAFR. 

 

A previous blog dealt with the data on 2011 tax collections of the 50 states available from the Census and sales taxes.  When it comes to income taxes, last year close to $300 billion was collected in combined individual and corporate net income taxes.  Seven states do not tax individual income; two tax only interest and dividends.  Three of those states-Nevada, Texas, and Washington-tax neither individual nor corporate net income tax.

 

Pennsylvania runs close to the national average on the share attributed to individual and corporate net income taxes.  Nationally, $259 billion (86%) came from individuals and $40 billion (14%) came from corporate net income.  Pennsylvania collected $11.8 billion with $9.8 billion from individuals and $2 billion from corporate net income, an 83-17 split.

 

In 2011, Pennsylvania was classified with 14 other states as having no severance tax.  Since Act 13 created an unconventional gas drilling fee that will be levied on Marcellus Shale wells, the state will likely be categorized by the Census as still not having a severance tax proper. 

 

Last year $14.6 billion was collected in severance taxes.  Close to $10 billion-70%--came from four states (Alaska, Texas, North Dakota, and Wyoming). 

 

For those interested in seeing the sources from where the fifty states raise revenue-or at least where they did in 2011-the Census Bureau's page on "State Government Tax Collections" has a wealth of information.  It shows that for last year the states combined collected $757.2 billion in revenue from sales, income, licenses, and other levies.

 

Close to half of that amount came from sales taxes: $365.9 billion nationally.  That amount was split between general sales taxes ($234.4 billion, or 64% of the total) and taxes on specific or selective categories ($131.4 billion, or 36%).

 

Pennsylvania reported collections of $16.7 billion from sales taxes: $8.9 billion, or 53% came from general sales and $7.8 billion (47%) came from selective sales.  Of the eight subcategories of selective sales (alcohol, amusements, insurance premiums, and five others) the Commonwealth reported revenue in each.

 

Only five states-Alaska, Delaware, Montana, New Hampshire, and Oregon-identified as not levying a general sales tax. 

 

Subsequent blogs will look at state income taxes and where Pennsylvania will fit with the new well assessment fee.