COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES
APPROPRIATIONS COMMITTEE HEARING
STATE CAPITOL MAJORITY CAUCUS ROOM ROOM 140 HARRISBURG, PENNSYLVANIA
WEDNESDAY, MARCH 4, 2009 1:00 P.M.
VOLUME II OF II
PRESENTATION BY PENNSYLVANIA OFFICE OF THE GOVERNOR/ EXECUTIVE OFFICES
BEFORE: HONORABLE DWIGHT EVANS, MAJORITY CHAIRMAN HONORABLE MATTHEW D. BRADFORD HONORABLE TIM BRIGGS HONORABLE H. SCOTT CONKLIN HONORABLE EUGENE DePASQUALE HONORABLE DAN FRANKEL HONORABLE JOHN T. GALLOWAY HONORABLE WILLIAM F. KELLER HONORABLE WILLIAM C. KORTZ II HONORABLE DEBERAH KULA HONORABLE TIM MAHONEY HONORABLE KATHY MANDERINO HONORABLE CHERELLE L. PARKER HONORABLE JOSH SHAPIRO HONORABLE JOHN J. SIPTROTH HONORABLE MATTHEW SMITH HONORABLE GREG VITALI HONORABLE JAKE WHEATLEY
————————— JEAN DAVIS REPORTING 7786 Hanoverdale Drive • Harrisburg, PA 17112 Phone (717)503-6568 • Fax (717)566-7760 2
1 BEFORE (cont.'d): HONORABLE MARIO J. CIVERA, JR., MINORITY CHAIRMAN 2 HONORABLE GORDON DENLINGER HONORABLE BRIAN L. ELLIS 3 HONORABLE JOHN R. EVANS HONORABLE MAUREE GINGRICH 4 HONORABLE THOMAS H. KILLION HONORABLE DAVID R. MILLARD 5 HONORABLE RON MILLER HONORABLE DAVE REED 6 HONORABLE DOUGLAS G. REICHLEY HONORABLE MARIO M. SCAVELLO 7 HONORABLE RICHARD R. STEVENSON HONORABLE KATIE TRUE 8
9 ALSO PRESENT: MIRIAM A. FOX 10 MAJORITY EXECUTIVE DIRECTOR EDWARD J. NOLAN 11 MINORITY EXECUTIVE DIRECTOR
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13 DEBRA B. MILLER REPORTER 14
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1 I N D E X
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3 NAME PAGE 4 MARY SODERBERG 5 BUDGET SECRETARY, PA OFFICE OF THE GOVERNOR...... 4 6 NAOMI WYATT 7 SECRETARY OF ADMINISTRATION, PA OFFICE OF THE GOVERNOR...... 18 8
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1 P R O C E E D I N G S
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3 MAJORITY CHAIRMAN EVANS: I would like to
4 reconvene the House Appropriations Committee
5 meeting.
6 We have the Secretary of the Budget. And if
7 we have a little smile on our face, Madam Secretary,
8 it's only because it is the last hearing, but you are
9 very first in all our hearts.
10 I say that on a personal note, because
11 Madam Secretary, for those of you who don't know,
12 used to sit in this job that Miriam Fox has. She was
13 the Executive Director. And she knows this House
14 well, and she's worked very hard on a challenging
15 budget.
16 So I want to first start out with stating
17 how hard she has tried to manage this. I know it's
18 not easy; it's beyond your control.
19 So what I would like to do is have you
20 introduce the people around you for the purpose of
21 the record, and then we can kind of go directly into
22 the questions.
23 Madam Secretary, do you want to introduce
24 the people around you?
25 SECRETARY SODERBERG: Okay. Thank you, 5
1 Chairman Evans.
2 I am Mary Soderberg, the Secretary of the
3 Budget.
4 To my left is Secretary Naomi Wyatt, the
5 Secretary of Administration, and to my right is
6 Dave Donley, Director of the Governor's Budget
7 Office.
8 MAJORITY CHAIRMAN EVANS: Okay.
9 What I want to start out with, you know, as
10 the Governor has presented his budget -- first, let
11 me say this to the members.
12 Members, from 1 o'clock to 3 o'clock, we
13 will end at 3 o'clock today this session, so I just
14 want to make that announcement to all of the
15 members.
16 The Governor had proposed his budget back in
17 February, and obviously there have been some changes
18 because of what has happened with the Federal
19 stimulus, and that obviously has changed the
20 dynamics. That is one thing that has changed the
21 dynamics.
22 Secondly, there's a general sense, at least
23 that I'm hearing, you know, on both sides of the
24 aisle, and I would like for you to speak to it, what
25 would a no-tax budget be like? 6
1 So I want to first talk about the Federal
2 stimulus and what that means to the Commonwealth; and
3 then secondly, if there were no taxes or no kind of
4 increase in the budget, a potential, you know,
5 impact, what kind of decision you'll have to make.
6 So let's start out with the Federal stimulus
7 first.
8 SECRETARY SODERBERG: Okay.
9 Well, as everyone knows, this has been a
10 very unusual year for the budget, and I had no idea
11 what I was going to be facing when I agreed to take
12 this job last summer. It has been an interesting
13 ride.
14 MAJORITY CHAIRMAN EVANS: You're saying it's
15 under reconsideration?
16 SECRETARY SODERBERG: It has been a very
17 interesting ride.
18 As you will all remember, in December, the
19 Governor announced that we could likely face a
20 shortfall of $1.6 billion in this year's budget, and
21 at that point in time we assumed a number of actions
22 to fill that gap, and one of those was the Federal
23 stimulus.
24 At that point in time, we were using a very
25 conservative assumption that we might get what we had 7
1 received -- that Pennsylvania would receive something
2 similar to what we had received in 2003-2004, which
3 was about $900 million.
4 As the months went on and we were finalizing
5 the budget, the numbers kept changing, and we
6 actually delayed sending the budget to print so that
7 we could have the most accurate numbers in our book,
8 in our proposed budget.
9 And the numbers that we had are, there are
10 two basic flexible sources of funding in the State in
11 the Federal stimulus package. One is FMAP, which
12 increases the rate of reimbursement for Medical
13 Assistance, and that frees up State funds so that we
14 can use them elsewhere.
15 And we assumed a little over a billion
16 dollars in the current year for FMAP. For '09-10, we
17 assumed that we would get about $1.9 billion in FMAP
18 and approximately $493 million in State fiscal
19 stabilization funds.
20 Interestingly enough, it really looks like
21 our estimates were pretty much on target. We are
22 still anticipating that over a 3-year period,
23 beginning in the current fiscal year and rolling into
24 the beginning of fiscal year '10-11, we will get
25 approximately $4 billion in FMAP, Medical Assistance 8
1 relief, which will be flexible funds.
2 With regard to the State Stabilization Fund,
3 that has changed quite a bit from when we made our
4 assumptions, but the net result is that we will get
5 about $473 million in budgetary relief in '09-10
6 rather than $493 million, so a $20 million
7 difference.
8 But we are also looking at a number of other
9 programs such as early intervention, incentive funds
10 for child support enforcements, and a number of
11 programs like that that may possibly give us some
12 additional budgetary relief next year.
13 So this is still a work in progress. We
14 have all of the agencies involved. Later today, the
15 Governor is going to be speaking with a little bit
16 more detail on the system that we are going to have
17 in place to track this money to make certain that we
18 can get the money out as quickly as possible.
19 Chairman, your other question---
20 MAJORITY CHAIRMAN EVANS: Well, let's go
21 into a little bit more detail.
22 SECRETARY SODERBERG: Sure.
23 MAJORITY CHAIRMAN EVANS: In your proposal
24 and the proposal at least recommended by the
25 Governor, he talked about in the category of 9
1 something in the ballpark of $500 million. He talked
2 about smokeless tobacco, the MCO, kind of the smart
3 policy or the Smart Pharmacy.
4 If those things do not happen -- all right?
5 -- which total somewhere between $500 million to
6 $700 million -- you tell me; maybe my math is off --
7 where specifically would you happen to see reductions
8 that would have to take place?
9 Because I think, you know, one of the
10 things, and I'm not dropping this just all on your
11 lap or the Governor's lap, because we as the General
12 Assembly are equally as responsible, so we have as
13 much responsibility as you do in terms of moving this
14 State forward.
15 But, you know, some people have talked about
16 that as a potential option. Can you talk a little
17 bit about what that would mean to this current budget
18 if those recommendations that you all have made, if
19 the members decide not to vote for those
20 recommendations?
21 SECRETARY SODERBERG: This was a tough
22 budget to put together. We eliminated funding for
23 about 101 line items in the budget, about a billion
24 dollars in cuts throughout the budget. Numerous
25 operating lines have been reduced. 10
1 If you look at the total cost of
2 administering State Government for the '09-10 budget
3 year, it will actually be about equal to what it was
4 at the beginning of this Administration.
5 So we have been tightening our belts.
6 Secretary Wyatt can tell you a little bit about
7 everything we have been doing with management and
8 productivity initiatives throughout the budget.
9 As a result of the Federal fiscal relief, we
10 did not have to make as deep of cuts as we thought we
11 would have had to originally. But if we didn't get
12 such things as the managed-care assessment, which is
13 about $200 million in '09-10, $400 million in '10-11;
14 implementing the Smart Pharmacy program, which was
15 annualized as $146 million; the various initiatives
16 for the severance tax, smokeless tobacco, the
17 cigarette tax, we would have to make cuts across the
18 board. And this would have---
19 MAJORITY CHAIRMAN EVANS: How much would
20 that be about, would you say, the cuts you would have
21 to make?
22 SECRETARY SODERBERG: Oh, my goodness. We
23 have about $330 million in cost-containment
24 initiatives in Medical Assistance that we are
25 depending on for balancing this budget, and those 11
1 annualize to more than $600 million in the following
2 year.
3 In the current, for '09-10, we have about
4 $278 million when you add up the vendor sales tax
5 discount, the cigarette and smokeless tobacco pieces,
6 as well as the severance tax. And then we are also
7 proposing that we use a portion of the Health Care
8 Provider Retention Account balance for about
9 $350 million.
10 So, you know, any of those things that we
11 choose not to do will mean we have to cut someplace
12 else.
13 MAJORITY CHAIRMAN EVANS: Okay. That was
14 first.
15 Secondly, in addition to the aspects of
16 those cuts that you have talked about if we as a
17 General Assembly choose not to accept the
18 recommendations that have been made by the Governor,
19 can you explain in a very deliberate way, because
20 what I estimate is -- and you can tell me if I am
21 wrong -- is that we would have to make cuts in the
22 ballpark of $5 billion plus when we look at the
23 current year and next year.
24 So can you explain, you know, currently
25 based on your revenue situation, we estimate at the 12
1 end of the year it would be about $2.3 billion. Am I
2 correct?
3 SECRETARY SODERBERG: Correct.
4 MAJORITY CHAIRMAN EVANS: So if it is
5 $2.3 billion we have to balance this year -- am I
6 correct?
7 SECRETARY SODERBERG: Correct.
8 MAJORITY CHAIRMAN EVANS: So that means if
9 we don't take any of your recommendations, you know,
10 obviously you all have put in reserve -- you have so
11 far in reserve something like $500 million. Am I
12 correct?
13 SECRETARY SODERBERG: Correct; $500 million
14 in cuts that we have made.
15 MAJORITY CHAIRMAN EVANS: In cuts you have
16 made in the current year, right. That's what you
17 made. And you have suggested certain things like
18 use the Rainy Day Fund in the current year and
19 whatever.
20 SECRETARY SODERBERG: Yes.
21 MAJORITY CHAIRMAN EVANS: Then we have to do
22 for the next year $2 billion? How much do we have to
23 do for the new budget in terms of reductions?
24 SECRETARY SODERBERG: Oh---
25 MAJORITY CHAIRMAN EVANS: That is, again, if 13
1 we do not use any of the revenue suggestions that you
2 all have made or any transfers.
3 I just want to walk through so members can
4 clearly understand what the options are if we choose
5 not to use any of the suggestions that you have
6 proposed.
7 SECRETARY SODERBERG: Well, in the current
8 year, we are assuming that we would use $250 million.
9 MAJORITY CHAIRMAN EVANS: What's that again?
10 SECRETARY SODERBERG: $250 million out of
11 the Rainy Day Fund.
12 MAJORITY CHAIRMAN EVANS: Right.
13 SECRETARY SODERBERG: Next year we are
14 assuming another $375 million out of the Rainy Day
15 Fund.
16 MAJORITY CHAIRMAN EVANS: Right. That's
17 $600 million.
18 SECRETARY SODERBERG: $625 million total.
19 MAJORITY CHAIRMAN EVANS: Correct.
20 SECRETARY SODERBERG: Then we are also
21 assuming a severance tax proposal that would generate
22 about $107 million.
23 MAJORITY CHAIRMAN EVANS: Again, if we
24 choose not to use that.
25 SECRETARY SODERBERG: Right. 14
1 Other tobacco products, $37.9 million.
2 MAJORITY CHAIRMAN EVANS: Right.
3 SECRETARY SODERBERG: Eliminating the vendor
4 sales tax discount, $74.9 million.
5 Utilizing a portion of the Health Care
6 Provider Retention Account balance, $350 million.
7 Redirecting the 25-cent-per-pack cigarette
8 tax that currently goes into the Health Care Provider
9 Retention Account and direct that to the General
10 Fund. That is $198 million.
11 An additional 10-cent-per-pack cigarette
12 tax, about $60 million.
13 And---
14 MAJORITY CHAIRMAN EVANS: The Oil and Gas
15 Lease Fund?
16 SECRETARY SODERBERG: Pardon me?
17 MAJORITY CHAIRMAN EVANS: The Oil and Gas
18 Lease Fund?
19 SECRETARY SODERBERG: Yes.
20 MAJORITY CHAIRMAN EVANS: What do you have
21 that down for?
22 SECRETARY SODERBERG: Yes; a transfer from
23 the Oil and Gas Fund of about---
24 MAJORITY CHAIRMAN EVANS: $174 million?
25 SECRETARY SODERBERG: Yes. 15
1 So I have never added it up in that---
2 MAJORITY CHAIRMAN EVANS: See, I wanted us
3 to add it up together in this room so that we can
4 all understand, so we can be on the same page with
5 our numbers, because we all should be on the same
6 page.
7 If people choose not to take the Governor's
8 recommendation, I want to discuss the alternative of
9 what it will take, because you can tell me in getting
10 to this number -- the number we have is that it would
11 take something like $6,309.8 billion. That's what it
12 would take if we didn't take any of the Governor's
13 recommendations and we just said that we figure we
14 are going to go find ways to resolve this problem.
15 SECRETARY SODERBERG: Yeah; that's about
16 $424 million for the current year, when you look at
17 the Oil and Gas Fund.
18 MAJORITY CHAIRMAN EVANS: Correct.
19 SECRETARY SODERBERG: And then for '09-10,
20 about $1.2 billion -- about $1.6 billion.
21 MAJORITY CHAIRMAN EVANS: All right.
22 Because what we have, and you can tell me---
23 SECRETARY SODERBERG: Plus the cost
24 containment within welfare, which is another
25 $300-plus million. 16
1 MAJORITY CHAIRMAN EVANS: Because we have to
2 address a gap of between $6.3 billion between revenue
3 and expenses. That is kind of what we see. That's
4 the gap we have to address between this current year
5 and the next year. That is kind of what we see in
6 that ballpark.
7 I mean, I know you haven't had a chance, but
8 that's the ballpark, would you think?
9 SECRETARY SODERBERG: Yes, assuming no
10 changes in revenue.
11 MAJORITY CHAIRMAN EVANS: Yeah, assuming no
12 -- assuming based on the assumptions, the assumptions
13 that you all have made and the proposal that you all
14 have put together in recommending this budget.
15 And, you know, if we are starting -- which I
16 have heard; I keep hearing this thing about starting
17 at zero-based. I keep hearing this thing of starting
18 at the bottom, starting all over. I keep hearing
19 that over and over again.
20 SECRETARY SODERBERG: Okay.
21 MAJORITY CHAIRMAN EVANS: And I am saying,
22 you know, okay, if we don't like the Governor's
23 assumptions and we don't like what the Governor has
24 proposed, then we as the General Assembly have an
25 obligation to figure out how we balance this budget 17
1 and we set the priorities.
2 SECRETARY SODERBERG: Right.
3 MAJORITY CHAIRMAN EVANS: So I'm really just
4 trying to get some basic agreement on the numbers,
5 and we think the gap between it is like $6.3 billion,
6 the gap between revenue and expenditures, including
7 the Federal stimulus.
8 SECRETARY SODERBERG: Okay.
9 MAJORITY CHAIRMAN EVANS: That's what we
10 think. I don't know if---
11 SECRETARY SODERBERG: But thankfully we have
12 the Federal stimulus dollars to tide us over---
13 MAJORITY CHAIRMAN EVANS: Correct.
14 SECRETARY SODERBERG: ---in the short term.
15 MAJORITY CHAIRMAN EVANS: Correct.
16 I mean, I understand that. I'm not arguing
17 that. I mean, I understand that. That is sort of
18 like a lifeline for us. I'm not debating that. I'm
19 only just trying to at least have the members fully
20 understand the fiscal implications and the political
21 implications of where we are today as we try, you
22 know, to move and balance this budget.
23 And I understand from your perspective and
24 the Governor's perspective the recommendations that
25 you all have made to us about balancing the budget in 18
1 the current year and then looking forward to next
2 year. I understand.
3 You know, you have made recommendations to
4 us, and if we don't accept your recommendations, then
5 we have to come up with our counter-recommendations.
6 SECRETARY SODERBERG: Yes.
7 MAJORITY CHAIRMAN EVANS: That is kind of
8 what I see at this particular point, and that's kind
9 of what the discussion has been over the last couple
10 of weeks as everyone has asked all kinds of questions
11 of the various departments about where we stand.
12 So let's go to the Office of Administration
13 and have her tell us a little bit about some of the
14 things that you all have tried to do from a
15 cost-containment perspective and ways that you have
16 tried to control the cost of government.
17 SECRETARY WYATT: Sure.
18 We have done a number of things. Since the
19 beginning of the Administration, we have been working
20 very hard to contain the cost of doing government.
21 That is, spending money on what it takes to run the
22 government.
23 From the beginning of the Administration
24 through 2006, we saved approximately $1 billion out
25 of the cost of doing government. 19
1 Since then, the Governor has asked us to
2 find another $500 million in savings in the cost of
3 government, and we did that through 2008.
4 And we project that through 2009, we will
5 have saved $1.75 billion out of the cost of doing
6 government.
7 Now, a lot of people ask, well, where does
8 that come from? What kinds of things have you done
9 to do that? It has come in a lot of different areas
10 and a lot of different ways.
11 For example, we have negotiated much
12 stronger contracts. We have done strategic sourcing.
13 So instead of everybody going out and having their
14 own contract with Staples and buying paper clips for
15 50 cents or $2, we have a single contract. We get
16 the best price because we are buying them all in
17 bulk.
18 We have done things like streamlining
19 operations; avoiding change orders on construction
20 projects -- that saved us $13 million; doing many
21 things in the technology area.
22 Again, instead of having agencies enter into
23 individual contracts for things, we get an
24 enterprise-wide contract that can save us significant
25 dollars. 20
1 We did that just recently with a single
2 sign-on agreement that saved $15.3 million.
3 And we have done other things, like insist
4 upon laptop computers having data encryption software
5 on them, so that should a computer get lost or
6 stolen, the information on it is encrypted. If it's
7 encrypted, then we don't have to incur the cost of
8 notifying folks, because the data doesn't get
9 breached.
10 Those kinds of things can cost significant
11 dollars, so it is those things that we have done
12 proactively to spend less money and also to avoid
13 wasteful spending on things that we can proactively
14 prevent.
15 MAJORITY CHAIRMAN EVANS: Okay.
16 Madam Secretary, I want to run through a few
17 items that you have that we heard.
18 The Judges at the budget hearing, we
19 heard about insufficient funds, as well as the
20 11 additional Common Pleas Court Judges that were
21 approved last year and the Governor proposed that
22 does not include funding.
23 Can you talk a little bit about your motive,
24 yours as well as the Governor's motives, behind
25 handling the Judiciary? 21
1 SECRETARY SODERBERG: A lot of tough choices
2 in this budget.
3 When we were putting the budget together, we
4 basically went through and made some somewhat
5 simplistic assumptions that operating programs,
6 whether it be operating within the Administration,
7 the General Assembly, Auditor General, Treasurer,
8 or the courts, that those would all be reduced by
9 6 percent.
10 So each organization is faced with the
11 challenge of how to manage, how to do things
12 differently next year. And the courts are no
13 different than your own budget or the Office of the
14 Budget budget, you know, facing, how do you manage?
15 Now, whether the courts could do something
16 like reducing or suspending some of the
17 implementation on some of their IT initiatives to
18 free up funds, I don't know.
19 To use my own budget as an example, my
20 budget is actually going to be less than it was in
21 '02-03.
22 Back in '02-03, we had a complement of about
23 a thousand people in the Office of the Budget. Next
24 year, we will have approximately 669 people working
25 in the Office of the Budget. 22
1 You know, this is a dramatic reduction, and
2 a lot of it is the result of the implementation of
3 SAP. We have been working hard to take full
4 advantage of the integrated technology that we have
5 for our financials and our budgeting. And, you know,
6 we have been working to the goal of reducing our
7 staff over the last couple of years, so hopefully we
8 will be positioned for next year.
9 MAJORITY CHAIRMAN EVANS: All right.
10 SECRETARY SODERBERG: But it takes a lot of
11 hard work, as you well know, to look at your
12 operating budget and make some decisions and
13 assumptions of how to manage within it.
14 MAJORITY CHAIRMAN EVANS: One thing we have
15 been talking a lot about, we had a hearing about
16 debt.
17 SECRETARY SODERBERG: About?
18 MAJORITY CHAIRMAN EVANS: Debt.
19 SECRETARY SODERBERG: Okay.
20 MAJORITY CHAIRMAN EVANS: We brought in a
21 couple of people from S&P and we had somebody who
22 formerly used to work in the Budget Office who talked
23 about debt management.
24 How much additional debt can the
25 Commonwealth incur and still maintain our sound 23
1 credit rating, and where are we relating to the issue
2 of debt?
3 SECRETARY SODERBERG: Well, we are well
4 under the standards for being a low-debt State.
5 And if you look at -- you know, the
6 Constitution puts in place or lays out a
7 constitutional debt limit, which is 1.75 times the
8 average tax revenue over 5 years, and we are well
9 under that ceiling.
10 You know, we are at about, oh, I don't know,
11 maybe 14 percent of that debt limit. So we are well
12 under that range.
13 But most significantly, you know, with
14 regard to it is, there is a number of criteria that
15 the rating agencies use to evaluate us on debt. And
16 debt per capita is one that is frequently used, and
17 we are currently at $789 per capita, which is
18 actually less than the national average and
19 significantly less than some of our nearby States.
20 Another measure of debt is as a percent of
21 General Fund revenues, and we are currently at about
22 3.7 percent or so.
23 And what is considered to be a low debt is
24 5 percent of revenue. So we have some capacity for
25 issuing more debt. 24
1 MAJORITY CHAIRMAN EVANS: Okay.
2 SECRETARY SODERBERG: That's not a problem
3 for us. And we have a very strong rating in
4 Wall Street.
5 MAJORITY CHAIRMAN EVANS: Under the
6 Department of Corrections, obviously you are using
7 Federal funds for the DOC budget. Are those dollars
8 as a result of using the Federal funds? Would they
9 be available for other parts of the budget?
10 SECRETARY SODERBERG: When we first put the
11 budget together, we thought we would have about
12 $493 million that could be used to reduce the
13 operations in the Department of Corrections.
14 The Federal piece, the piece of the Federal
15 stimulus, the State stabilization dollars, is
16 primarily for education but can also be used for
17 public safety. So what we can do is to use those
18 funds to offset some of the cost in corrections. As
19 you well know, the Department of Corrections has a
20 projected increase of about 10 percent next year.
21 We won't have, because of the way the final
22 Federal stimulus was constructed, we won't have
23 access to all of that, but we will reduce our
24 corrections budget by about $173 million. And
25 $300 million we will use to offset costs in basic 25
1 education.
2 MAJORITY CHAIRMAN EVANS: All right.
3 PHEAA was before us.
4 SECRETARY SODERBERG: Yes.
5 MAJORITY CHAIRMAN EVANS: And, you know, we
6 obviously appreciated the recommendation you have
7 made in terms of that.
8 Can you explain specifically how that
9 $10 million earmarked for community colleges will be
10 used? What your thinking is on that?
11 SECRETARY SODERBERG: The $10 million is
12 geared toward developing a new program that will be
13 administered by PHEAA to provide funding for
14 10,000 students going to community colleges in
15 Pennsylvania.
16 MAJORITY CHAIRMAN EVANS: Okay.
17 One thing we have been hearing a lot about,
18 at least some of our members have been asked, is
19 about the H2O grant program as a result of Act 63.
20 Can you talk a little bit about an update?
21 Where are we in terms of implementation of that
22 program?
23 SECRETARY SODERBERG: Well, we have about
24 more than 800 applications that have come in, and
25 they are currently being reviewed. 26
1 DEP, DCED, PENNVEST, they are all involved
2 and participating in this. And the projects are
3 expected to be presented to the board sometime later
4 this spring.
5 So, you know, it is all moving forward.
6 MAJORITY CHAIRMAN EVANS: Is there something
7 the General Assembly needs to do in order to make
8 sure of that legislatively?
9 SECRETARY SODERBERG: Yes. We do need to
10 have a small piece of legislation passed, and I
11 believe Secretary Cornelius discussed that when he
12 was with you.
13 We have been advised that in order to make
14 these bonds as marketable as possible, right now it
15 is set up to be securitized only by GEDTF, and given
16 the newness of the fund, we are being advised by
17 experts within the field that we need to have
18 language that would be a more definitive pledge of an
19 appropriation-backed debt if necessary, just to
20 ensure a good marketable rate on these bonds. So it
21 is a very small change in the language that we need
22 to get through as soon as possible.
23 Given the current ups and downs in the
24 market, it is important to have this language.
25 MAJORITY CHAIRMAN EVANS: I thank you. 27
1 Chairman Mario Civera.
2 MINORITY CHAIRMAN CIVERA: Thank you,
3 Mr. Chairman.
4 Good afternoon, Madam Secretary.
5 SECRETARY SODERBERG: Good afternoon.
6 MINORITY CHAIRMAN CIVERA: Just to go over
7 some of the comments that you had answered the
8 Chairman and the direction this is going, you had
9 said -- and I understand these numbers because I have
10 been through this. It's just a matter for the
11 record.
12 SECRETARY SODERBERG: Sure.
13 MINORITY CHAIRMAN CIVERA: $6.3 billion
14 would be the deficit in 2 years, with a 2-year
15 budget, and if we didn't really adopt everything that
16 the Governor said in his proposal that he had
17 presented to the General Assembly, his package and
18 the stimulus plan coming in and using the Rainy Day
19 money, we would balance at $6.3 billion in the
20 2 years. Am I correct?
21 SECRETARY SODERBERG: Essentially so.
22 We are facing a shortfall in the current
23 year of $2.3 billion, which we are assuming that
24 we'll balance with Federal stimulus funds, cuts in
25 the budget, as well as using some Rainy Day funds, 28
1 about $250 million in the Rainy Day Fund.
2 Next year, we are assuming additional funds
3 from the Federal stimulus, about, oh, about
4 $2.4 billion in Federal stimulus funds next year, as
5 well as some one-time sources, and then again some of
6 the cuts that we have made already, a billion dollars
7 in cuts that we have made throughout the budget.
8 So there is a cost containment within the
9 Department of Public Welfare. There are a number of
10 factors that are working together to make this budget
11 balance.
12 MINORITY CHAIRMAN CIVERA: Okay.
13 If we were to look back and we were into
14 last year's budget when the Administration -- and you
15 were at the table and so was Dwight and so was I --
16 wanted to do more of the Rainy Day, and we held the
17 line that we didn't want to do that much with the
18 Rainy Day -- and thank God we didn't; we held those
19 moneys -- that $6.3 billion would probably be more
20 than that.
21 And if you look back to when I came in as
22 Chairman of Appropriations 3 years ago and what we
23 used as a spin number -- at that time, you weren't
24 the Budget Secretary -- and we came in with a certain
25 number that we negotiated, that $6.3 billion probably 29
1 would be worse off than what it is today.
2 My point is this, what I am trying to bring
3 out: Holding the line on the Rainy Day money, what
4 we did, because it is for emergency uses and not to
5 increase taxes, and that's the concept that the
6 General Assembly has, and I believe it's a good one.
7 But I believe that when you look at this number at
8 $6.3 billion and what the stimulus money coming in
9 from the Federal government is, in 2 years from now
10 -- and I know you can't reach out for 2 years in what
11 will be the prediction -- but from 2 years from now,
12 or if the economy doesn't work as good as the
13 President expects it to, that $6.3 billion in 2 years
14 from now and no Federal money coming in, we are
15 looking at a situation where it could be unbelievable
16 to the State of Pennsylvania, and that's my point.
17 We get there for 2 years; you know, the
18 Governor came out with his ideas. My point here is,
19 I believe that we need to review more.
20 And what came out of these hearings in the
21 last 2 weeks was basically, you look at education --
22 we had the Secretary of Education in this morning and
23 what we get as far as stimulus money is concerned --
24 there is some room there, rather than giving the
25 school districts the perspective that, you know, this 30
1 is what we can do with the additional money and
2 you're not going to get hurt, but in the long run
3 they do get hurt, and we have to evaluate that. We
4 have to look at that and say, you know, if we're
5 going to look at everything as a whole circle, what
6 the Governor presented us and what has been presented
7 to us as far as these hearings are concerned, there
8 is room to go back into that budget and to reevaluate
9 different programs and prioritize new programs versus
10 if they are working or not.
11 Because the bottom line here is that in the
12 2 years, in order to pull this thing out -- and I'm
13 not trying to scare anybody, but reality is reality
14 -- there could be a severe, a severe PIT or sales tax
15 increase that this General Assembly and this, whoever
16 the new Governor is, could not handle.
17 So my question is, how sure -- and you are
18 not going to be able to answer this, just like I
19 can't -- how sure are you going to be to say to us if
20 we don't adopt what the Governor did and lay out that
21 program, that we're going to be okay, and then
22 2 years later, where are we going to be?
23 SECRETARY SODERBERG: These are certainly
24 very tough economic times.
25 The whole basis for the Federal stimulus 31
1 package is to provide assistance to the States to
2 help them with their budgets, but most significantly
3 to make some investments to help stimulate the
4 economy.
5 Much of what has been proposed is funding
6 for infrastructure, funding for programs that will
7 create jobs as a result of construction projects.
8 The more that we can -- the faster that we
9 can get those dollars out there working on our
10 behalf, the better chance we have of this being a
11 success and stemming the tide and helping to return
12 our economy to some normalcy.
13 What we do have, fortunately through the
14 Federal stimulus funds, is some budgetary relief to
15 help us through not only this year, next year, but
16 also the beginning of '10-11.
17 So by using those Federal funds to help us
18 through what hopefully will be a relatively
19 short-term issue with our budget, that will give time
20 for some of these economic stimulus programs to take
21 hold and begin to build our economy back up.
22 MINORITY CHAIRMAN CIVERA: Well, in no way
23 am I criticizing the Federal stimulus. I think that
24 we need the money; we are going to use it. I just
25 want to make sure that we put it to the right use and 32
1 the right direction so we don't face other types of
2 hardships.
3 I want to go on to one other topic, and I'm
4 not going to tie you up because I know we have a lot
5 of questions here, but legislative accounts.
6 The Governor came out, I guess it was around
7 December, and asked for a 4.25-percent decrease in
8 legislative accounts.
9 What was the increase in the General
10 Assembly funding spending in the last three fiscal
11 years? The numbers -- I think we both have the same
12 numbers.
13 In 2008, the General Fund spending increase
14 was about 3.98. Do you have the same?
15 SECRETARY SODERBERG: 3.98; that's
16 correct.
17 MINORITY CHAIRMAN CIVERA: Okay.
18 In 2007-08, the General Fund spending
19 increase was 3.7, and in '06-07, the General Fund
20 spending increase was 6.62. Am I correct with that,
21 those numbers that I just gave you?
22 I'm sure that I am.
23 SECRETARY SODERBERG: I don't know if I have
24 those numbers with me.
25 The 3.98, the 3.7, and 6.6 percent? 33
1 MINORITY CHAIRMAN CIVERA: 6.62 percent;
2 yes.
3 SECRETARY SODERBERG: 6.62 percent; okay.
4 Well, the point?
5 MINORITY CHAIRMAN CIVERA: Okay. The
6 increase in funding for the Governor's Office, what I
7 received was 2.34 in '08 and '09; in '07-08, 2.71;
8 and in '06-07, it was 1.35.
9 SECRETARY SODERBERG: For just the
10 Governor's Office?
11 MINORITY CHAIRMAN CIVERA: The Governor's
12 Office.
13 SECRETARY SODERBERG: All right. And can
14 you give me those numbers again?
15 MINORITY CHAIRMAN CIVERA: For '08-09, 2.34;
16 '07-08, 2.71; and '06-07, 1.35.
17 SECRETARY SODERBERG: Right. And in '09-10,
18 it will be a 6-percent reduction.
19 The total appropriation for the Governor's
20 Office will be $7.27 million, which will actually be
21 less than what it was in '02-03.
22 MINORITY CHAIRMAN CIVERA: Okay. So what
23 did you say? Seven point---
24 SECRETARY SODERBERG: 7.274, which is a
25 6-percent cut from '08-09, and would actually be less 34
1 than what was appropriated to the Governor's Office
2 in '02-03. At that point in time, it was a little
3 over $8 million.
4 MINORITY CHAIRMAN CIVERA: Okay; okay.
5 SECRETARY SODERBERG: And to manage, I mean,
6 with that 6-percent cut, they are assuming that they
7 will not fill -- let's see. Yes, they have a
8 complement of 80, and they are planning on reducing
9 that by 10 percent to 72 positions next year.
10 MINORITY CHAIRMAN CIVERA: Okay. Well,
11 where I'm going with this, we are going to be cut,
12 too, so where I'm going with this is to point out
13 very clearly -- and let me continue with this.
14 In '08-09, the appropriation for the entire
15 Legislature, including the legislative service
16 agencies, decreased by 0.56 percent. If you look at
17 only the House and the Senate controlled accounts,
18 the decrease was 1.3 percent.
19 In '07-08, the appropriations for the
20 Legislature decreased by 2.32 percent, and in '06-07,
21 the appropriations for the Legislature decreased by
22 1.92 percent.
23 The appropriations in the House and the
24 Senate are not the same because the Senate has fewer
25 members. 35
1 But the appropriations to the caucuses in
2 the same amount, the number the House Republican
3 Caucus is getting is about 10.0 percent less in
4 appropriations between the House Democrats, and it
5 has been used this way since '06-07.
6 So we have been under what the House
7 Democrats received versus what the House Republicans
8 have received. Is that true?
9 SECRETARY SODERBERG: There had been
10 considerable increases about 5, 6 years ago. So I
11 think you need to go back a little bit further.
12 MINORITY CHAIRMAN CIVERA: Okay. I was
13 going to do that.
14 My point is that we have been constantly to
15 a point, say with these legislative accounts, and the
16 press and the perception is this: In '06-07, the
17 House Republican Caucus cut their appropriation by
18 $7.3 million or 10.8 from '05-06. The reduction in
19 the appropriation for the House Republican Caucus has
20 been continuing the last three fiscal years.
21 The House Republican Caucus was proactive,
22 because if you remember right, we returned -- it was
23 $7 million that went back into the General Fund
24 budget, and we have done that for the last 3 years,
25 which was $21 million. 36
1 SECRETARY SODERBERG: Okay.
2 MINORITY CHAIRMAN CIVERA: So as you look at
3 it overall in the legislative accounts, our caucus
4 compared to what the Democrats have done and compared
5 to what the other caucuses have done has been beyond
6 what the Governor has requested.
7 And so my point, because I wanted to bring
8 this out today, is because as we go into this budget
9 and we look at what we have to do, because the bad
10 word out here anymore is when you say "cuts," but the
11 only way we are going to be able to live as one
12 family -- and I mean this in the crisis situation
13 that we are looking at -- is that we come together
14 with this and that we realize that some of these
15 cuts, and you hate to use the words, but the Federal
16 money is coming in that we could be able to get
17 through this if we all used what we have in our mind
18 what we are supposed to do and the numbers.
19 My situation is this. Like I said to you,
20 the $6.3 billion is a true number, and when you get
21 back into the situation, it is this: After you use
22 the tax increases that are presented into the
23 Governor's budget and you use the Rainy Day money --
24 which I think is a mistake, okay? Because if you use
25 that Rainy Day money unknown to what the economy is 37
1 going to be when we get into the next 2 years, there
2 is where we are going to run into trouble and we are
3 going to have to at some point say, what happens in
4 2012? What happens in 2011?
5 You just can't -- I know everybody is
6 leaving, the Administration is gone, and here we are;
7 the Legislature doesn't go, and that's my point.
8 Thank you, Mr. Chairman.
9 MAJORITY CHAIRMAN EVANS: Representative
10 Siptroth.
11 REPRESENTATIVE SIPTROTH: Thank you,
12 Mr. Chairman.
13 Just a couple of questions, Secretary
14 Soderberg and Secretary Wyatt. Thank you for joining
15 us.
16 One question under our general obligation
17 bonds. It is estimated that $943 million in general
18 obligation bonds will be issued, which is an increase
19 of about $38 million from what we have currently.
20 SECRETARY SODERBERG: Yes.
21 REPRESENTATIVE SIPTROTH: How much of this
22 $943 million is for new initiatives this coming
23 budget cycle?
24 SECRETARY SODERBERG: Actually, not that
25 much of it would be for new initiatives in the coming 38
1 budget cycle. I think you are referring to the debt
2 service number in the budget?
3 REPRESENTATIVE SIPTROTH: Yes.
4 SECRETARY SODERBERG: Yes. Most of that
5 increase is the result of the annualization of
6 programs that are being implemented in the current
7 year or in prior years.
8 REPRESENTATIVE SIPTROTH: Okay. So we are
9 not reinvesting to pay down debt. We are not
10 reinvesting for specific projects. Is that correct?
11 SECRETARY SODERBERG: Well, we have a number
12 of---
13 REPRESENTATIVE SIPTROTH: I'm sorry; other
14 than obligations that we have already committed
15 ourselves to.
16 SECRETARY SODERBERG: Well, we do have some
17 additional obligations going forward, but -- yes,
18 there is about $20 million of new debt service within
19 that overall line item.
20 REPRESENTATIVE SIPTROTH: Okay. But that is
21 to cover past obligations? Or is that to cover what
22 is projected?
23 SECRETARY SODERBERG: Most of that line item
24 is to cover past obligations.
25 REPRESENTATIVE SIPTROTH: Okay. 39
1 SECRETARY SODERBERG: The $20 million would
2 be new -- new obligations.
3 REPRESENTATIVE SIPTROTH: Okay. Thank you.
4 One other question. Could you kind of
5 explain to us a little bit about the proposal
6 regarding general education and the $300 million in
7 the Federal stimulus that is going to be used for
8 basic education this year and $300 million that was
9 proposed to be put in a lockbox? Is that to somewhat
10 address some of the concerns that Chairman Civera may
11 have had?
12 SECRETARY SODERBERG: There have been -- as
13 I mentioned earlier to Chairman Evans, there have
14 been some changes in the Federal stimulus package
15 from what we understood would be in the package when
16 we put the budget together to what ultimately was
17 signed into law by the President.
18 And in our budget proposal, we had assumed a
19 $300 million increase for basic education. We would
20 have liked to have done more to fully fund the
21 costing-out study but did not have the ability to do
22 that, so we did put in $300 million.
23 Now, what has happened as a result of the
24 Federal stimulus package, there was language that was
25 included in that that allowed for some of the State 40
1 fiscal stabilization funds to be used to fund
2 adequacy or equity funding for basic education if it
3 was in law prior to October 2008.
4 We did have language with regard to the
5 adequacy study in the Education Code bill from last
6 summer, so what we can do is use $300 million of
7 those Federal funds to replace the $300 million that
8 we had proposed in State funding.
9 So we will not need a lockbox anymore.
10 REPRESENTATIVE SIPTROTH: Okay. So that was
11 only to secure the funds if we were going to roll
12 basic education into this year's---
13 SECRETARY SODERBERG: Right.
14 But what we knew at that point in time was
15 that there were significant Federal dollars coming in
16 that could be used for basic education, so what the
17 Governor had proposed in his speech was to take that
18 $300 million and put it in a lockbox to assist the
19 school districts once the Federal dollars would no
20 longer be available.
21 REPRESENTATIVE SIPTROTH: Thank you for the
22 clarification, because there was a little discrepancy
23 today with Dr. Zahorchak explaining to us how the
24 Federal stimuluses were going to come in, and I saw
25 this and I said, well, something isn't quite right, 41
1 and I appreciate that.
2 SECRETARY SODERBERG: It is very, very
3 complicated. The bill is -- I don't know -- 400 or
4 500 pages long.
5 OMB sent out a memo to the Federal agencies
6 about 2 weeks ago that is 60 pages long giving them
7 direction on how to implement this. So it is very,
8 very complicated.
9 REPRESENTATIVE SIPTROTH: I understand a lot
10 of that is in the infant stages yet, that we haven't
11 had a really good amount of time to digest it and to
12 apply it, but our budget season is coming up.
13 So I'm glad that the stimulus money is
14 coming---
15 SECRETARY SODERBERG: We'll continue to
16 learn more, and the agencies are working hard to
17 understand the program.
18 REPRESENTATIVE SIPTROTH: Okay.
19 One other cost-cutting measure, since the
20 majority of our services, especially at the
21 legislative portion, is contracted out now, we should
22 really think about a program whereas we would be
23 using a DGS bid for our small legislative supplies
24 back in our district offices.
25 A lot of us order them through mail order, 42
1 which is not probably the most prudent way and less
2 expensive way, and I think that there may be an
3 opportunity when you speak to the Secretary of DGS
4 that maybe we should be looking at something like
5 that.
6 SECRETARY SODERBERG: I am sure that
7 Secretary Creedon would love to sit down with you and
8 talk about that.
9 We've had some great successes with our
10 strategic sources, and that is having a statewide
11 contract so we can really leverage the entire spend
12 of State Government and get good, good prices on our
13 contracts. So it might be of help to the district
14 offices.
15 REPRESENTATIVE SIPTROTH: Okay. Thank you
16 very much.
17 Thank you, Mr. Chairman.
18 MAJORITY CHAIRMAN EVANS: Representative
19 Reed.
20 REPRESENTATIVE REED: Thank you very much,
21 Mr. Chairman.
22 Good afternoon, Secretary.
23 SECRETARY SODERBERG: Good afternoon.
24 REPRESENTATIVE REED: Thank you for
25 appearing before the committee today. 43
1 Chairman Evans mentioned the issue of debt,
2 and I know it has been a favorite topic of the
3 Chairman for a number of months now, and actually it
4 has been a topic for a couple of years now, and I
5 would like to talk a little bit about the issue of
6 debt as well. And I am particularly interested in
7 debt as it relates to the Gaming Economic Development
8 Fund.
9 It is my understanding that Act 53 of 2007
10 authorizes $700 million for the expansion of the
11 Pennsylvania Convention Center located in the city of
12 Philadelphia and $180 million for operating losses
13 over the next 30 years, both of which are to be drawn
14 down from gaming revenues.
15 These payments are capped at a maximum of
16 $64 million a year, with no more than $6 million a
17 year to be used for the operating losses.
18 Am I correct in my understanding of what
19 Act 53 of 2007 lays out as it relates to the
20 Convention Center in Philadelphia?
21 SECRETARY SODERBERG: Yes. The payments are
22 less than or equal to $64 million a year, and that is
23 capped. Correct.
24 REPRESENTATIVE REED: Okay.
25 On February 12 of this year, you sent a 44
1 letter to Thomas Riley---
2 SECRETARY SODERBERG: Yes.
3 REPRESENTATIVE REED: ---Chairman of the
4 Pennsylvania Convention Center Authority, where you
5 state that should the State issue bonds in accordance
6 to Act 53, the annual debt service payments on those
7 bonds would exceed the $64 million cap.
8 So in layman's terms, it appears as though
9 what you are saying is that the Commonwealth cannot
10 afford the Convention Center project today as it was
11 prescribed with the parameters of Act 53. Is that
12 correct?
13 SECRETARY SODERBERG: No.
14 This was -- there are a number of issues
15 associated with the Convention Center in
16 Philadelphia, and it had to do with the fact that the
17 revenues for the hotel tax were not coming in quite
18 as forecasted, that because of increasing interest
19 rates with regard to refinancing some of the PEDFA
20 bonds, there were costs that -- there was a gap in
21 the budget, and so it was trying to get the board of
22 the Convention Center to focus on the fact that they
23 needed to consider some different options, contain
24 some of their expenditures, and be able to manage
25 going forward. 45
1 REPRESENTATIVE REED: Okay. I'm not sure
2 how that differs from what I just said, because in
3 your letter you say much of that, and in the end your
4 point is that the Commonwealth, that the debt service
5 would exceed the $64 million because of the reasons
6 that you just talked about, and thus---
7 SECRETARY SODERBERG: Unless we do
8 something.
9 REPRESENTATIVE REED: Yes, unless something
10 else is done.
11 SECRETARY SODERBERG: Right; yes.
12 REPRESENTATIVE REED: So then you found --
13 you took the opportunity to suggest an alternative
14 way of looking at funding the Convention Center.
15 SECRETARY SODERBERG: Yes.
16 REPRESENTATIVE REED: And I applaud the
17 efforts of both you and the Governor for looking at
18 ways to make sure that this project does happen for
19 the city of Philadelphia. And along those lines, in
20 the letter you lay out a possible opportunity, and
21 you actually request that the Convention Center
22 Authority execute a loan from the Welcome Fund---
23 SECRETARY SODERBERG: Yes.
24 REPRESENTATIVE REED: ---to be administered
25 by the Philadelphia Industrial Development 46
1 Corporation.
2 SECRETARY SODERBERG: Yes.
3 REPRESENTATIVE REED: Now, for folks not
4 familiar with the Welcome Fund, basically the
5 Welcome Fund appears to be a pot of money that is put
6 together by foreign investors -- and the Welcome
7 Fund, from my understanding, is mostly Chinese
8 investors -- that put in over $500,000 each that are
9 to be used as a way of gaining permanent residency
10 status in the United States. It's the first step
11 toward citizenship, and they do so by investing money
12 in these economic development projects located within
13 the States.
14 And apparently this program was actually
15 authorized by the Immigration Act of 1990---
16 SECRETARY SODERBERG: Yes.
17 REPRESENTATIVE REED: ---and it is formerly
18 referred to as the "United States EB-5 Immigrant
19 Investor Visa Program."
20 SECRETARY SODERBERG: Yes.
21 REPRESENTATIVE REED: You are familiar with
22 the program?
23 SECRETARY SODERBERG: Authorized by Federal
24 law; yes.
25 REPRESENTATIVE REED: Yes, and the 47
1 Welcome Fund.
2 So you're familiar with the Welcome Fund,
3 what it does, where the money comes from, and some of
4 the goals of the investors who invest in the fund.
5 Correct?
6 SECRETARY SODERBERG: Yes.
7 REPRESENTATIVE REED: Okay.
8 Now, in your letter you appear to be
9 authorizing the Convention Center Authority to borrow
10 -- and you can correct me if I'm wrong in these terms
11 -- a $122 million, 5-year nonrecourse loan at
12 1.5-percent interest on behalf of the Commonwealth
13 from these foreign investors. Correct?
14 SECRETARY SODERBERG: Well, this would be --
15 this would be done on behalf of the Convention
16 Authority. The Convention Authority would be taking
17 out the loan.
18 REPRESENTATIVE REED: Who would pay the debt
19 service?
20 SECRETARY SODERBERG: This would be -- you
21 have to think of it as a bridge loan.
22 REPRESENTATIVE REED: Okay.
23 SECRETARY SODERBERG: So that the Convention
24 Center is able to take out a short-term loan and only
25 pay 1.5-percent interest on it until other revenue 48
1 sources are available to them.
2 REPRESENTATIVE REED: My understanding from
3 your letter as well as the attached proposal that you
4 lay out for the Convention Center Authority, as well
5 as the memorandum from the legal counsel from the
6 Convention Center Authority to the President and CEO
7 of that authority, it is a nonrecourse loan, meaning
8 that the Convention Center Authority would not be
9 responsible for that debt.
10 Ultimately, that debt and all charges that
11 go along with the execution and the application for
12 that loan would be incurred by the Commonwealth.
13 SECRETARY SODERBERG: Correct.
14 REPRESENTATIVE REED: Okay.
15 And also from the memorandum from the legal
16 counsel from the Convention Center to the President
17 and CEO of the Convention Center, it appears as
18 though you have committed the Commonwealth to
19 providing a side letter that states just those facts
20 to the Convention Center Authority.
21 SECRETARY SODERBERG: Those were laid out;
22 yes.
23 REPRESENTATIVE REED: Yes. A side letter
24 from the Commonwealth regarding the payment of
25 interest and all related expenses for the loan. 49
1 Correct?
2 SECRETARY SODERBERG: I am not sure if the
3 correct term is a "side letter."
4 REPRESENTATIVE REED: Okay. That's actually
5 the term that they use---
6 SECRETARY SODERBERG: Okay.
7 REPRESENTATIVE REED: ---their legal counsel
8 taking from your proposal.
9 SECRETARY SODERBERG: Okay.
10 REPRESENTATIVE REED: And we're more than
11 happy to provide this all to you at the conclusion,
12 if you would like.
13 SECRETARY SODERBERG: Sure.
14 REPRESENTATIVE REED: We have a packet ready
15 for you.
16 SECRETARY SODERBERG: Oh, thank you.
17 REPRESENTATIVE REED: You're welcome.
18 Who says there isn't bipartisanship in
19 today's world?
20 My question to you would be, you are
21 essentially authorizing the Convention Center
22 Authority to act as an agent of the Commonwealth to
23 incur this debt and to apply for this loan. And when
24 I look at Article VIII, Section 7, of the State
25 Constitution, we find -- and this section deals with 50
1 indebtedness of the State -- and I quote, "No debt
2 shall be incurred by or on behalf of the Commonwealth
3 except by law,..." meaning that unless you have
4 explicit statutory authority to allow somebody to act
5 as an agent of the Commonwealth, you are not
6 permitted to do so.
7 And when I looked at Act 53, Act 53 doesn't
8 authorize the Convention Center Authority to act as
9 an agent of the Commonwealth and incur debt on behalf
10 of our taxpayers. It merely authorizes a system for
11 reimbursement for their expenses.
12 So what I would like to know is, what
13 statutory authority are you using to allow the
14 Convention Center Authority to issue this debt that
15 is backed by the taxpayers of the Commonwealth?
16 SECRETARY SODERBERG: This is a loan through
17 the Philadelphia Convention Center. The costs are
18 being picked up as a result of the bond issue that we
19 will be doing, but this is no different than the
20 short-term borrowing that the State System of Higher
21 Education does in anticipation of funding for general
22 obligation.
23 REPRESENTATIVE REED: It's my understanding
24 that the State System of Higher Education is owned by
25 the State, thus the State System of Higher Education 51
1 is owned by the Commonwealth.
2 And again, you, the Commonwealth, are not
3 issuing this debt for the Welcome Fund. You are
4 authorizing -- and again, I take that language from
5 your proposal as well as the memorandum from the
6 legal counsel to the President and CEO of the
7 Convention Center Authority where you are authorizing
8 the Convention Center Authority to act as an agent of
9 the Commonwealth, which is okay if you have statutory
10 authority written into law authorizing them to do
11 so.
12 We cannot find anywhere where you have that
13 statutory authority. Thus, it would appear as though
14 what you would need to do is come back to the
15 Legislature and gain that authority in one form or
16 another.
17 Now, if you and your attorneys have found a
18 place where you get explicit statutory authority in
19 statute to make that action, we would like to be
20 aware of it. Because you sent out the letter
21 February 12. I would have thought that would have
22 been researched ahead of time and you would have that
23 information, and we would just like to know, what is
24 that information? Where is it in statute that
25 authorizes the Convention Center Authority to issue 52
1 this debt as an agent of the Commonwealth and incur
2 that debt on behalf of our taxpayers?
3 SECRETARY SODERBERG: The Convention Center
4 is not issuing debt; they are taking out a loan.
5 REPRESENTATIVE REED: That is backed by the
6 taxpayers because of the nonrecourse component to
7 that loan. Because if that loan is not -- the
8 Convention Center Authority is not to be held
9 responsible for the costs associated with that loan;
10 the Commonwealth is. Thus, the authority is acting
11 as an agent of the Commonwealth.
12 If they were going to be held responsible
13 for that debt, no problem. Or if the Commonwealth
14 was directly taking out that debt, no problem. But
15 because you are authorizing them to act as an agent
16 of the Commonwealth, we have a problem, unless you
17 can show us the statutory authority that allows you
18 to do so, and that's what I'm asking for.
19 And again, all this information comes from
20 your letter, your proposal, and a memorandum sent
21 from the legal counsel of the Convention Center
22 Authority to their President and CEO.
23 SECRETARY SODERBERG: Okay. Well, I would
24 very much like to see the documents that you have,
25 and we'll get that information for you. 53
1 REPRESENTATIVE REED: Well, we would
2 absolutely love to provide that to you. I mean,
3 again, it is your letter, so I would assume that you
4 would have that on file as well with your signature
5 at the end of it. But we will provide that to you at
6 the end of the hearing---
7 SECRETARY SODERBERG: Thank you.
8 REPRESENTATIVE REED: ---and we will look
9 forward to your response.
10 SECRETARY SODERBERG: Thank you.
11 REPRESENTATIVE REED: Thank you.
12 Thank you, Mr. Chairman.
13 MAJORITY CHAIRMAN EVANS: Thank you.
14 Representative Parker.
15 REPRESENTATIVE PARKER: Thank you,
16 Mr. Chairman.
17 And good afternoon, Secretaries Soderberg
18 and Wyatt.
19 While I don't have a question, I do have a
20 comment and wish to hear your response, if possible.
21 I am actually looking at a copy of the
22 annual report from the Pennsylvania Commission on
23 Crime and Delinquency. And within the report, the
24 commission talks about over the past 11 years, since
25 1998, it has invested about $60 million in the over 54
1 170 programs aimed at preventing youth violence.
2 And what I wanted to actually commend on the
3 record -- because if the commission had done
4 something that we were terribly upset about, you
5 would hear about it today. I wanted to commend them
6 for commissioning the Prevention Research Center at
7 Penn State University to actually come in and
8 basically audit seven of its core programs that are
9 used to reduce juvenile violence and delinquency in
10 Pennsylvania. And they did something very important
11 that I hope other departments within State Government
12 would do, and that was, Penn State University
13 developed a rubric to determine, based on all of the
14 dollars that the commission invested in these core
15 seven programs, they actually gave us a dollar amount
16 in our return on investment; i.e., PCCD invests, you
17 know, $25,000 into life skills and training, and it
18 tells us how much we receive in the Commonwealth as a
19 return on our investment.
20 And I think that when you have that kind of
21 research supporting what are often considered to be
22 just basic, you know, human service programs, it
23 really justifies that we shouldn't just support these
24 programs because they are morally right but because
25 they are fiscally responsible, and they help the 55
1 Commonwealth on the back end by preventing these
2 young people from actually making it into the
3 system.
4 And I wanted to leave you with something
5 that I really wanted on the record. It's a quote
6 from Cumberland County D.A. David Freed, and he says,
7 "Those of us on the front lines in the fight against
8 crime understand that we'll never be able to just
9 arrest and imprison our way out of the crime
10 problem." I thought about that because of your
11 comments about the Department of Corrections and its
12 increased budget. "Pennsylvania's commitment to
13 putting criminals in jail must be matched by our
14 commitment to keeping kids from becoming criminals in
15 the first place by investing in programs shown by
16 research to be effective."
17 So I thank PCCD on the record for just
18 finding a way to make smart investments and a great
19 fiscal policy for the Commonwealth.
20 SECRETARY SODERBERG: Thank you.
21 MAJORITY CHAIRMAN EVANS: Denlinger.
22 REPRESENTATIVE DENLINGER: Thank you,
23 Mr. Chairman.
24 Good afternoon, Secretary.
25 I would like to tackle a subject that has 56
1 been a point of some discussion in prior hearings
2 this year, and that is a discussion that we had with
3 the Auditor General regarding the holding of retained
4 balances by your office.
5 And I know that there has been some
6 discussion that you have been aware of, because in
7 fact after viewing that hearing, you issued a letter
8 to Sam Smith, the leader of my own caucus, and
9 Chairman Civera and Chairman Evans and various
10 others.
11 SECRETARY SODERBERG: Yes.
12 REPRESENTATIVE DENLINGER: For your benefit,
13 we have put the chart up again, and if you would want
14 to take a look at the chart, we will start with that.
15 And, of course, to go back over this, the question
16 here is, are the retaining of balances beyond what is
17 the statutory limit?
18 In statute, the requirement is that these
19 balances lapse on October 31 following the end of the
20 fiscal year.
21 SECRETARY SODERBERG: Yes.
22 REPRESENTATIVE DENLINGER: Our concern here
23 is that the Office of the Budget has been retaining
24 balances well in excess of that; in fact, has begun
25 to use these funds for purposes perhaps different 57
1 than what they were originally intended under law.
2 So we would like to go after this, if we can, with
3 you just a little bit.
4 You see the chart as originally presented,
5 and I believe you were aware of it, again, because of
6 your letter, which I have possession of, dated
7 February 26.
8 Do you have a copy of that letter as well?
9 SECRETARY SODERBERG: Yes; I do.
10 REPRESENTATIVE DENLINGER: You do. Thank
11 you.
12 To remind the members and for the benefit of
13 all, I would like to switch to that chart and show
14 what is in fact the legal requirement. That is found
15 in Administrative Code Section 621, and just to
16 review the highlighted items.
17 Under Section (f): "Outstanding prior year
18 encumbrances shall be canceled as of October 31."
19 And then under Section (m): "When the
20 Secretary of the Budget decides to approve an agency
21 request for a waiver of these provisions,..." --
22 "she," in this case -- "shall submit the agency
23 requests along with [her] own written analysis and
24 justification for the waiver of these provisions to
25 the respective Chairmen of the majority and minority 58
1 Appropriations Committees in the House of
2 Representatives and the Senate, allowing a reasonable
3 time for their review and comment." There is the law
4 as it relates to this situation.
5 Your letter which you sent indicates a point
6 -- a change in accounting systems I think was kind of
7 at the heart of it.
8 SECRETARY SODERBERG: Correct.
9 REPRESENTATIVE DENLINGER: That in fact we
10 migrated to the SAP system. And the point, if I
11 could paraphrase it for you, is that if we had had
12 the current accounting system in place, the earlier
13 years on that original chart -- and Todd, if you want
14 to switch to the new chart there, that would be fine
15 -- the earlier years would show some differences.
16 You did an analysis of that original chart,
17 and I believe the number that you came to was
18 $135.8 million in unlapsed balances.
19 The chart that you now see was moved forward
20 by our staff to February 20 of '09 -- in fact, a very
21 recent date -- and it does show fiscal year end
22 '07-08. And unfortunately what we see is a
23 continuing pattern, and you'll see the yellow bar at
24 the very end being the unwaived lapsed balance of
25 $234.5 million. 59
1 That is the point of concern, that those
2 moneys should have either been lapsed on October 31
3 or waived, and to the extent that under law, as
4 previously read, you were supposed to submit in
5 writing those waivers to both the Majority and
6 Minority Chairman of this committee, and to the
7 extent the Minority Chairman does not indicate he has
8 this, we have a problem.
9 Can you please share with this committee why
10 the Rendell Administration continues to hold these
11 funds and violate legal requirements to return them
12 to the General Fund?
13 SECRETARY SODERBERG: Well, as you know,
14 the Administrative Code gives the power to the
15 Budget Secretary to waive any of the provisions in
16 Section 621 of that Administrative Code.
17 What this chart and the prior chart shows is
18 a very -- is a change in accounting practices, in
19 part the result of the implementation of SAP, which
20 as I mentioned to you earlier is our integrated
21 financial accounting system that we currently use.
22 What had been past practice under the old
23 system was that in order to prevent funds from being
24 automatically lapsed at the end of a fiscal year, the
25 agencies would go in and make certain that all the 60
1 funds were encumbered. I guess this would happen in
2 May of every year. They would go in and make certain
3 that the funds were encumbered. And as a result, it
4 gave the picture, a not totally accurate picture,
5 that all of the funds were either spent or
6 encumbered.
7 When we implemented SAP and made the
8 transition in early 2003 to this new accounting
9 system, it provides more visibility, not only to us
10 but to your staff as well, to understand the real
11 picture of what funds are actually out there, have
12 not been spent, have not been encumbered, and are
13 still showing up there "on the books."
14 We have a number of funds that are still
15 showing on the books for those prior-year balances
16 that we are waiting for additional information on to
17 understand whether or not we can lapse those funds,
18 or do they need to be encumbered for the purposes on
19 which you appropriated them for?
20 Those funds cannot be used for anything but
21 what they were appropriated for. And in some cases
22 we have got situations like the mental retardation
23 funds, where the funds are being held on because CMS,
24 the Federal Government, is taking a look at how we
25 were trying to draw down Medical Assistance funds for 61
1 that program, and we are waiting for a final
2 agreement with them on whether or not they will agree
3 to how we implemented that program, or we may have to
4 turn some funds back. So that is why we are holding
5 onto those funds.
6 Another area are programs that get added in
7 at the end of the enactment process, legislative
8 additions to the final budget. And in a lot of cases
9 such as that, we are waiting for final information on
10 what the legislative intent was for some of those
11 line items that are added in at enactment.
12 So rather than just going through and just
13 lapsing them automatically, because we don't have all
14 the information, we have held onto those funds.
15 REPRESENTATIVE DENLINGER: Well,
16 Madam Secretary, with all due respect, I think that
17 decision is outside of statutory authority of your
18 office.
19 The case that you make for the accounting
20 system change I can understand, and that is previous
21 Administrations, and certainly that may have gone on.
22 But to the extent that even sitting here at this
23 point in time we have $234.5 million, as you say,
24 waiting for explanations, waiting for more
25 information, what have you, that those balances sit 62
1 there is a violation of the statute, and I am
2 interested in knowing what your office is going to do
3 to bring the Administration into compliance.
4 SECRETARY SODERBERG: I do not believe we
5 are in violation.
6 As I said, the Admin Code gives the
7 authority to the Budget Secretary to waive the
8 different provisions of that section of the Admin
9 Code.
10 REPRESENTATIVE DENLINGER: These balances---
11 SECRETARY SODERBERG: What we are doing,
12 though -- what we are doing, though, with SAP, the
13 system that had been in place prior to SAP had an
14 automatic lapse function on it. We no longer have
15 that, so we have to go through and identify those
16 line items that need to be lapsed and then force that
17 lapse to happen.
18 As you probably know, we lapsed about, oh,
19 $86 million or so just a few weeks ago of prior-year
20 funds, and we are looking at these funds right now to
21 identify which of these can we go ahead and lapse or
22 which of these we may need to have a waiver on or
23 there might be some outstanding issues on that we
24 need to be aware of.
25 But I can assure you that these funds will 63
1 be used as they were appropriated for.
2 REPRESENTATIVE DENLINGER: I appreciate
3 that, and I appreciate your answers.
4 I will share with you that Secretary Masch
5 and I got into a rather direct exchange over the
6 practice when he was in office, your predecessor, and
7 it is my hope that you will be the Secretary that
8 cleans up this, what I think is an inappropriate
9 action under statute.
10 SECRETARY SODERBERG: Just one point.
11 Waivers are not something new. They have
12 been happening for a number of years. And in fact I
13 went back and I looked over a 10-year period, and on
14 average, about 34 waivers are issued on an annual
15 basis. In 2008, I signed 30 of those waivers.
16 So it is something that is not a new
17 phenomena. It is part of managing government,
18 knowing that some programs take more than 1 year to
19 implement.
20 Or there might be, as I said, situations
21 like in community mental retardation where we are
22 uncertain how CMS is going to rule, and it is
23 possible that they could have a disallowance that
24 could cost us millions of dollars for that given
25 year. And so we are holding onto those funds until 64
1 we have better insight as to what those costs will
2 be.
3 REPRESENTATIVE DENLINGER: And I and we take
4 no issue with the system of waivers as it exists.
5 Our contention here is that the $234.5 million in
6 unwaived funds is inappropriate, and that's the heart
7 of the issue.
8 MAJORITY CHAIRMAN EVANS: Okay.
9 I just want to announce, we got 45 minutes
10 and eight members.
11 Representative Kortz.
12 REPRESENTATIVE KORTZ: Thank you,
13 Mr. Chairman.
14 Welcome, Secretaries Soderberg and Wyatt.
15 The first question I have is, how will the
16 stimulus dollars be dispensed to the local
17 governments? Is the protocol going to be Federal to
18 State to county to local, or is there a different
19 flow?
20 SECRETARY SODERBERG: There will be a number
21 of different flows.
22 REPRESENTATIVE KORTZ: Well, you can send us
23 that in writing, if you'd like.
24 SECRETARY SODERBERG: And a lot of this is
25 still to be determined. 65
1 There is close to about $10 billion that
2 will be flowing through State Government, primarily
3 through formula, and that the local communities, some
4 of those funds will be available for local
5 communities, and I will use the infrastructure funds,
6 for example.
7 Secretary Al Biehler has been working very
8 hard to reach out to local communities to identify
9 what projects there might be, which ones would
10 qualify for those infrastructure funds. But there
11 are some programs where local governments will be
12 able to apply directly.
13 And as we get more information, we are
14 setting up a Web site that should be going live later
15 today that will give up-to-date information that we
16 have as to how to apply for these funds, what are the
17 different funding streams, how much of the funds are
18 going to individual counties, so that you will
19 actually -- you will look on the Web site and see,
20 for example, Dauphin County, what are the different
21 programs, the funding streams, that are having an
22 impact on Dauphin County.
23 REPRESENTATIVE KORTZ: Sure. If you can get
24 that information to us.
25 SECRETARY SODERBERG: Sure. 66
1 REPRESENTATIVE KORTZ: I mean, it's critical
2 that we take that information back to the
3 localities---
4 SECRETARY SODERBERG: Absolutely.
5 REPRESENTATIVE KORTZ: ---so that they can
6 apply for this, so they do not apply because they
7 just don't know about it. So the information is
8 critical there.
9 Another question: How is Pennsylvania's
10 cash-flow situation?
11 SECRETARY SODERBERG: The next 2 months are
12 very critical for the State revenue situation.
13 Most of our revenues, about 28 percent of
14 our revenues, come in in March and April. We've got
15 significant corporate tax payments that happen in
16 March, and as we all pay our personal income tax in
17 April, those will have a significant impact on our
18 overall budget situation.
19 With regard to cash, we have been working,
20 as far as managing our cash expenditures, we have
21 been working very carefully with the Treasury
22 Department to make certain that we have sufficient
23 funds to make our payments.
24 REPRESENTATIVE KORTZ: Do you feel there
25 will be a need for a tax anticipation loan? Have we 67
1 ever had to do that, and do you think we'll need one
2 now?
3 SECRETARY SODERBERG: It has been, I think
4 1997 was the last time we did a tax anticipation
5 note.
6 We are not anticipating doing one this year.
7 Next year, I don't know yet.
8 REPRESENTATIVE KORTZ: Maybe.
9 The last question. Looking over the line
10 items for the Executive offices, there's a
11 $30 million cut to their budget, and one line item
12 takes one-third of that, or $10 million, and that is
13 the Police on Patrol. Can you comment on that?
14 How many policemen would be impacted? And I
15 assume it is all over the State, but what locations,
16 if you could. But I'm curious as to the number of
17 policemen that are impacted from that.
18 SECRETARY SODERBERG: Well, this is a great
19 program, but it was established as a 3-year program,
20 and so we had not anticipated funding it next year.
21 REPRESENTATIVE KORTZ: Can you tell me how
22 many policemen will be impacted, or can the
23 localities pick these policemen up?
24 SECRETARY SODERBERG: I don't have that
25 information with me, but I can get it for you. 68
1 REPRESENTATIVE KORTZ: Okay. I would
2 appreciate it.
3 SECRETARY SODERBERG: Okay.
4 REPRESENTATIVE KORTZ: Thank you.
5 Thank you, Mr. Chairman.
6 MAJORITY CHAIRMAN EVANS: Representative
7 Ellis.
8 REPRESENTATIVE ELLIS: Thank you,
9 Mr. Chairman.
10 Madam Secretary, thanks for coming in
11 today.
12 I just want to touch on a couple of things
13 that Representative Civera started out with, and I
14 was listening the best I could and I was trying to
15 decipher your answer.
16 Did you acknowledge that the House
17 Republicans have voluntarily cut their appropriation
18 by 10 percent each of the last 3 years? Did you
19 publicly acknowledge that, and if not, will you?
20 SECRETARY SODERBERG: I am not sure if it is
21 correct to say 10 percent a year. I do know that
22 several years ago, there were several line items that
23 were cut for a total of $10 million, yes.
24 REPRESENTATIVE ELLIS: Okay. Well, I'll
25 move on, but that is closer than we've ever gotten, 69
1 so I appreciate that.
2 Two things, real quickly.
3 SECRETARY SODERBERG: But there are a number
4 of programs and line items that have been cut through
5 the years, so it's not an unusual situation.
6 REPRESENTATIVE ELLIS: I'm not arguing that,
7 so thank you for that.
8 In the budget, you identify $424 million
9 in one-time State revenues to balance the '08-09
10 budget.
11 SECRETARY SODERBERG: Yes.
12 REPRESENTATIVE ELLIS: $1.2 billion in State
13 tax increases or revenue enhancements to balance
14 '09-10.
15 SECRETARY SODERBERG: Yes.
16 REPRESENTATIVE ELLIS: This is in addition
17 to the $3 1/2 billion in the fiscal relief funds to
18 balance the Governor's lofty $29 billion budget
19 increases, which actually increase the spending about
20 $700 million this year.
21 Do you anticipate that we will need
22 additional revenue enhancements/taxes to balance
23 2010 and '11?
24 SECRETARY SODERBERG: It is way too early to
25 say--- 70
1 REPRESENTATIVE ELLIS: Okay. Well, then let
2 me ask you this---
3 SECRETARY SODERBERG: ---because there are
4 some features within the State Fiscal Stabilization
5 Fund that we are looking at a little bit more closely
6 to see how it might have an impact on the '10-11
7 budget.
8 And then, of course, it is way too early to
9 know exactly what the -- how the economy is going to
10 turn around at that point.
11 REPRESENTATIVE ELLIS: Okay. Well, I guess
12 I'll put it this way.
13 We are anticipating about $2.4 billion of
14 Federal funds for next year's budget. What are you
15 anticipating for the following year from the Federal
16 Government?
17 SECRETARY SODERBERG: We are anticipating
18 that over 3 years, we will get about $4 billion in
19 FMAP. So if we get about $1 billion this year,
20 $2 billion next year, there will be approximately
21 a billion in the final year, and that's a rough
22 number.
23 REPRESENTATIVE ELLIS: Okay. And the way I
24 do my math, that's about $1.4 billion less than we
25 are getting next year. 71
1 SECRETARY SODERBERG: Then there is
2 $473 million in State stabilization funds that we
3 have for next year, and we may be able to draw down
4 more of that in the following year.
5 REPRESENTATIVE ELLIS: Okay. I'm just a
6 little concerned because, you know, we're -- and you
7 said yourself the ideal reason to use the Federal
8 bailout funds is to help the States manage what they
9 have got as opposed to creating new programs.
10 SECRETARY SODERBERG: Absolutely; it's a
11 short term. Yes.
12 REPRESENTATIVE ELLIS: We've increased
13 spending in this budget over $700 million, and
14 specifically one of the things that is extremely
15 disappointing to me was that 2 hours ago -- well,
16 2 hours and 25 minutes ago -- I had Secretary
17 Zahorchak sitting here, and I asked him, why are we
18 spending $25 million in new money for the GCAs
19 whenever the Legislature has pretty much come out and
20 said that we're very, very, very skeptical of moving
21 in this direction, and then he goes downstairs and
22 has a press conference to announce that he has
23 entered into an agreement with the Pennsylvania
24 School Boards Association.
25 Now, this is $25 million worth of new 72
1 spending. That goes counter to what you said we
2 should be using the bailout money for.
3 Can you comment on that?
4 SECRETARY SODERBERG: We have made cuts
5 throughout this budget totaling about a billion
6 dollars.
7 There are areas where we have to make some
8 increased investments. Unfortunately, one of those
9 is the Department of Corrections. That's a
10 10-percent increase in the Department of Corrections.
11 Aging and Long-Term Living is a 21-percent increase.
12 Education, we have got a total increase of over
13 $200 million, but in total, it's only a 1.8-percent
14 increase.
15 And when you look at the results of the
16 investments that we are making in education, when you
17 are seeing our math and reading achievement scores
18 going up year after year, I think we -- and I am
19 saying collectively "we," the Administration and the
20 General Assembly -- we have got some good success
21 stories in our investments in basic education.
22 REPRESENTATIVE ELLIS: And I'm not
23 discounting that, but what I am discounting is the
24 fact that you guys continue to suggest that you are
25 cutting $900 million, but you are increasing spending 73
1 $1.6 billion for a net increase in spending of
2 $700 million. And I think it is disingenuous for
3 your office and for the Administration to say that
4 this is a budget that is balanced with no new
5 spending.
6 And as we move forward in this process, I
7 hope that the communication between the Cabinet and
8 the Legislature is a little better.
9 Thank you very much, Mr. Chairman.
10 MAJORITY CHAIRMAN EVANS: Thank you.
11 We all have differences of opinion. I mean,
12 obviously the Secretary sees it in one way and the
13 Legislature sees it in another way, and I hope we
14 just keep it that way and not personal in any way in
15 terms of comments. I hope we stay on the substance
16 of the issue rather than characterizing somebody's
17 motives. I think that is something we should not
18 attempt to do.
19 Representative Reichley.
20 REPRESENTATIVE REICHLEY: Thank you,
21 Mr. Chairman.
22 You caught me off guard. I thought we were
23 going to have another one of our Democratic
24 colleagues come in first.
25 Thank you, Madam Secretary. 74
1 MAJORITY CHAIRMAN EVANS: I said forget
2 those Democrats.
3 REPRESENTATIVE REICHLEY: Forget those
4 Democrats? See, I say the same thing often. I don't
5 know how that -- we're thinking alike again.
6 MAJORITY CHAIRMAN EVANS: We're hoping
7 you're helping us with the budget.
8 REPRESENTATIVE REICHLEY: Maybe; maybe.
9 I just also would want to recognize that in
10 the extraordinary circumstance of perhaps the most
11 important budget presentation we have in the
12 entire 3 weeks, you limit us to 2 hours, and
13 25 minutes of that was your initial questioning,
14 Mr. Chairman.
15 So we really would impress upon Secretary
16 Soderberg if she can find the time to stay another
17 half hour, we really would appreciate it on our side
18 as well.
19 Madam Secretary, I wanted to begin, first
20 off, Chairman Evans and you sort of tiptoed around
21 the issue, and I think I would like to just get both
22 feet in the water here and be frank about it: If
23 presented the opportunity, will Governor Rendell
24 agree to not increase taxes in the personal income
25 tax and the sales tax for this budget year? 75
1 SECRETARY SODERBERG: This budget does not
2 include any broad-based tax increase.
3 REPRESENTATIVE REICHLEY: And I recognize
4 that, Madam Secretary, but Chairman Evans went in
5 great detail to explain that if the Governor's budget
6 proposal is not accepted as you have presented it to
7 us, there would be the significant need for a revenue
8 increase -- a tax increase. Let's just put it in
9 simple terms for folks out there in Pennsylvania.
10 Is the Governor going to approve or
11 disapprove a personal income tax or sales tax
12 increase?
13 SECRETARY SODERBERG: I think we'll have to
14 see what you present to him.
15 REPRESENTATIVE REICHLEY: Okay.
16 So if the House Democrats present that tax
17 increase, he will be approving it, I gather?
18 SECRETARY SODERBERG: Sir, there are many
19 open issues in this budget.
20 As I have said again and again, thankfully
21 we have the Federal stimulus dollars this year that
22 are going to help us out this year, next year, and
23 the following year.
24 We are very fortunate, and we understand
25 that that is short term and that we need to manage 76
1 and keep the costs down going forward in order to
2 manage.
3 We have a number of relatively small tax
4 proposals in this budget. You know, we will have to
5 see what you, what the General Assembly, presents to
6 the Governor for signature.
7 REPRESENTATIVE REICHLEY: Okay. And in the
8 meantime while we're going through these budget
9 negotiations, just this past week you made an
10 interfund transfer from the Treasury Department's
11 Pool 99 to the General Fund in the amount of
12 $500 million. The largest participant in that
13 Pool 99 is the Budget Stabilization Reserve Fund,
14 better known as the Rainy Day Fund, which had a
15 balance of $753 million.
16 Now, the law states that you need a
17 two-thirds approval by the General Assembly to be
18 removing funds from the Rainy Day Fund. And sort of
19 getting back to Representative Reed's question, how
20 did you find the ability to do that without any
21 statutory approval?
22 SECRETARY SODERBERG: I did not do that.
23 The State Treasurer made an investment
24 within the General Fund of approximately
25 $500 million. 77
1 REPRESENTATIVE REICHLEY: Well, the
2 information is that the source of the money in the
3 two pools are the Commonwealth's funds and the major
4 participant in it, and that is the Rainy Day Fund.
5 I think the big concern we have is that---
6 SECRETARY SODERBERG: Pool 99 has a number
7 of different funds in it, but in this case, Pool 99
8 as a total group of funds -- and think of it as, I
9 don't know, maybe a mutual fund. Anyway, they have
10 made an investment into the General Fund, and
11 Treasury initiated the interfund transfer to the
12 Commonwealth's General Fund on February 27. It was
13 $500 million.
14 REPRESENTATIVE REICHLEY: All right.
15 Well, again, that gets back to the concern
16 that members on this side of the room have, that
17 there are actions being taken by the Administration
18 and more or less shrugging off what are the statutory
19 requirements and setting up your own rules for how
20 you are handling taxpayer money.
21 Representative Reed asked you about the
22 issue of this loan to the Philadelphia Convention
23 Center, again, without apparent statutory authority.
24 And we questioned Representative, or excuse
25 me, Secretary Richman yesterday about a $7.2 million 78
1 Medicaid advance that the Administration made to the
2 Women's Medical Health Center in the East Falls
3 section of Philadelphia where the Governor and
4 Senator Specter both have homes, really raising the
5 questions of, respectfully, what are you people doing
6 with this money?
7 You flushed down $7 million in Medicaid
8 advance money into a project which, from the very
9 beginning, had no hope of success.
10 MAJORITY CHAIRMAN EVANS: A question.
11 REPRESENTATIVE REICHLEY: You have advanced
12 $122 million---
13 MAJORITY CHAIRMAN EVANS: Excuse me.
14 Representative Reichley, slow down. A
15 question; a question.
16 REPRESENTATIVE REICHLEY: And I'm placing
17 the question.
18 MAJORITY CHAIRMAN EVANS: Ask the question;
19 ask the question.
20 REPRESENTATIVE REICHLEY: I am placing the
21 question, Mr. Chairman.
22 MAJORITY CHAIRMAN EVANS: Ask the question.
23 REPRESENTATIVE REICHLEY: You have now
24 authorized $122 million of a loan which the
25 Commonwealth is going to be backing up. These 79
1 unsecured loans are a practice which is becoming
2 disturbing.
3 Now I understand you are saying that the
4 mutual-fund concept, which applies to Pool 99,
5 doesn't specifically relegate the money withdrawn
6 from that for the transfer to the General Fund as a
7 violation of the Rainy Day Act, but it is raising
8 concerns about just what is happening.
9 And there was a phrase that was popularized
10 in a certain office down the hallway---
11 MAJORITY CHAIRMAN EVANS: Representative
12 Reichley? Representative Reichley?
13 REPRESENTATIVE REICHLEY: Mr. Chairman, I am
14 trying to finish the question.
15 MAJORITY CHAIRMAN EVANS: Wait a minute;
16 wait a minute now. Slow down.
17 Ask the question. I have been listening.
18 SECRETARY SODERBERG: May I clarify---
19 MAJORITY CHAIRMAN EVANS: Excuse me; excuse
20 me.
21 Ask the question. Please ask the question.
22 I have listened to you. You haven't asked a
23 question. Ask the question.
24 REPRESENTATIVE REICHLEY: Mr. Chairman, it
25 is remarkable that in the last 3 weeks, this kind of 80
1 encounter has not taken place in that entire time.
2 We are trying to ask questions which, as the
3 minority, we have no other opportunity to do.
4 MAJORITY CHAIRMAN EVANS: Excuse me; excuse
5 me.
6 Do not debate with me. Do not debate with
7 me. Ask your question; ask your question; ask your
8 question.
9 REPRESENTATIVE REICHLEY: My question was,
10 with all due respect, Secretary Soderberg, what is
11 the philosophy that the Administration is employing
12 with this money?
13 We are now entering into a period where
14 Secretary Creedon has been appointed as the stimulus
15 overseer. Are you going to come to the General
16 Assembly for approval to use the Federal stimulus
17 money?
18 MAJORITY CHAIRMAN EVANS: Okay. Answer.
19 SECRETARY SODERBERG: Most of -- I won't say
20 most, but much of the Federal stimulus funds will
21 require appropriations by the General Assembly. No
22 question about that.
23 REPRESENTATIVE REICHLEY: When will you be
24 recalculating the budgetary levels that exist for
25 both the '08-09 fiscal year and also the budget 81
1 presentation as it has been submitted by the
2 Governor, reflecting the Federal stimulus money?
3 SECRETARY SODERBERG: We are in the process
4 of doing that right now, as we are working with the
5 agencies to understand more fully each of the
6 different lines of funding -- understand when they
7 can be spent, when they have to be spent, how they
8 have to be spent, do they require an appropriation --
9 and we are laying that out.
10 My goal is that when we give you the
11 legislation for the budget bill, that it will reflect
12 the Federal stimulus dollars in it.
13 REPRESENTATIVE REICHLEY: So you don't have
14 right now a timetable in mind as to when you are
15 going to have that available for the caucuses?
16 SECRETARY SODERBERG: You know, this has
17 been a real challenge for us. We are working very
18 closely with the Federal agencies to get the best
19 guidance and information we can from them.
20 You know, a week ago I would have said, I
21 think we'll have it this week, quite honestly. But
22 this is such -- it is almost like doing another
23 budget.
24 REPRESENTATIVE REICHLEY: Right.
25 SECRETARY SODERBERG: But the rules are not 82
1 quite concrete yet, because as I mentioned, the
2 Federal Government just got direction on how they
3 need to be proceeding, and so there is a lot of
4 moving pieces on this, so.
5 REPRESENTATIVE REICHLEY: Okay. I
6 understand.
7 I want to wrap up with just a couple of
8 quick questions, because there are other members and
9 I'm trying to be respectful of them.
10 Can you inform us as to the status on
11 negotiations between the Governor's Office and the
12 Philadelphia Inquirer for a $10 million bailout?
13 SECRETARY SODERBERG: I don't have any
14 knowledge on that at all.
15 REPRESENTATIVE REICHLEY: Okay.
16 Will you agree to provide a report back to
17 this committee of any unsecured creditor loans which
18 the Administration has made in the last 7 years, such
19 as the $7.2 million to the Women's Health Center in
20 Philadelphia and any other loans of such a type as
21 that? Is that agreeable?
22 That was a question. Is that okay,
23 Mr. Chairman? You can do that?
24 SECRETARY SODERBERG: Yes.
25 REPRESENTATIVE REICHLEY: Okay. 83
1 And I know you have Secretary Wyatt here.
2 There were a number of questions we tried to pose to
3 Secretary Creedon regarding settlements, emergency
4 procurements, and regarding the Deloitte and Touche
5 audit, which is currently being undertaken and
6 finalized by the Auditor General.
7 This is for either you or Secretary
8 Soderberg.
9 Secretary Creedon was unable to explain to
10 me the SAP procurement model or three-way matching
11 which is done to try to verify invoices.
12 Now, that's a rather probably detailed
13 explanation. Since it is getting close on the time
14 here, are you able to provide that back to us in
15 writing?
16 SECRETARY WYATT: I think that goes to a
17 very specific finding -- or draft finding; I should
18 say that -- draft finding in the audit report that
19 was leaked. And I believe we have all agreed that we
20 were not going to talk about the draft finding, as it
21 was a draft, and rather when all things were
22 finished, we would be willing to talk about all those
23 findings.
24 And again, that goes to a very specific one,
25 and we will talk about that. We put that in our 84
1 response to the Auditor General. And when the report
2 is final, we'll be happy to talk about that.
3 REPRESENTATIVE REICHLEY: Okay.
4 Well, let me ask you this, and this will
5 really be my last area here.
6 Secretary Creedon and I had a bit of an
7 encounter last week. I asked him if he would come
8 back before this committee when that Auditor General
9 report is finalized.
10 Not that I don't take Chairman Evans at his
11 word, but it is unlikely that I believe Secretary
12 Creedon will be asked to come back before this entire
13 committee. So would you, Secretary Wyatt, and you,
14 Secretary Soderberg, agree to come back just before
15 the Republicans on the Appropriations Committee to
16 answer questions about the Auditor General's report
17 with regard to the Deloitte and Touche contracting
18 procedures, which have awarded $600 million to that
19 company over a number of different departments?
20 SECRETARY WYATT: I think it would be
21 helpful to all of us in the Administration if -- we
22 had similar questions in front of the Senate -- if
23 the caucuses could get together and decide on who
24 they wanted to ask questions to when the report is
25 final. 85
1 As we said to the Senate, we would be happy
2 to sit down and talk at that point. I think to the
3 extent it can be done, one place, one time, with
4 whoever needs to be there, that would be much
5 appreciated.
6 MAJORITY CHAIRMAN EVANS: Thank you.
7 REPRESENTATIVE REICHLEY: Well, I'll
8 volunteer for that.
9 MAJORITY CHAIRMAN EVANS: Excuse me. Thank
10 you.
11 Thank you, Representative.
12 REPRESENTATIVE REICHLEY: Well, let me just
13 put this on the record, because last week---
14 MAJORITY CHAIRMAN EVANS: Representative
15 Reichley---
16 REPRESENTATIVE REICHLEY: Mr. Chairman---
17 MAJORITY CHAIRMAN EVANS: Representative
18 Reichley, you must respect the Chair. Now, I given
19 you a lot of leeway. I especially don't like your
20 last statement.
21 Now, I think that I have given you a lot of
22 leeway, so for you---
23 REPRESENTATIVE REICHLEY: Mr. Chairman, I
24 don't like the fact that I was threatened last week
25 from asking these questions to Secretary Creedon--- 86
1 MAJORITY CHAIRMAN EVANS: Representative
2 Reichley---
3 REPRESENTATIVE REICHLEY: ---was told that
4 he was going to release something---
5 MAJORITY CHAIRMAN EVANS: Representative
6 Reichley, I'm asking you to respect---
7 REPRESENTATIVE REICHLEY: What's it going to
8 be next time, the Department of Revenue?
9 MAJORITY CHAIRMAN EVANS: Representative
10 Reichley, I am asking you to respect the Chair.
11 REPRESENTATIVE REICHLEY: I do respect this
12 Chair.
13 MAJORITY CHAIRMAN EVANS: I think I have
14 been respectful to you. I have given you a lot of
15 leeway. Now I'm asking you at this particular point
16 to stop your questioning.
17 REPRESENTATIVE REICHLEY: I will stop the
18 questioning, Mr. Chairman.
19 MAJORITY CHAIRMAN EVANS: Thank you.
20 I want to correct a couple of things for the
21 record, because the Budget Secretary said it and
22 Representative Reichley.
23 It is called the Pennsylvania Convention
24 Center, first. For those who don't know, Governor
25 Thornburgh, a Republican, Jack Stauffer from Chester 87
1 County, Jay Waldman, Richard Glanton, were the
2 individuals who said that it had to be called the
3 Pennsylvania Convention Center. It is not the
4 Philadelphia Convention Center.
5 One hundred eighty-five million dollars went
6 from the Commonwealth of Pennsylvania. Governor
7 Thornburgh was the Governor of the State when the
8 Convention Center went into existence. It was done
9 by a Republican in conjunction with Democrats.
10 Now, when we get past this thing about
11 pitting and using certain codes like "Philadelphia,"
12 "Democrat," "Republican," we realize that all
13 12 million people are in here more interested in
14 Democrats working together and Republicans. So it is
15 not about pointing fingers.
16 So the office for the Administration, in my
17 view, you gave the correct answer. It is up for us
18 to work together and not put the Administration in
19 the middle.
20 There are some questions to be asked. I
21 think those questions are legitimate questions and
22 they should be asked, but I think there's a way to do
23 it. And I think we must be respectful of you like
24 you must be respectful of us.
25 I will not, as long as I am Chairman of this 88
1 committee, expect anybody to be disrespect to any
2 witness that comes before the committee. That is not
3 acceptable behavior, and I'm not for it.
4 Now, if you got a problem, you ask the
5 question. I'm not going to take anybody intimidating
6 anybody who comes before this committee. So I want
7 to make that very clear on both sides of the aisle.
8 Representative Manderino.
9 REPRESENTATIVE MANDERINO: Thank you very
10 much, Mr. Chairman.
11 Welcome, Secretaries.
12 Secretary Soderberg, let me ask you first
13 and read you part of a letter that I have from
14 John Lisko, Treasury, to you, and then you explain to
15 us again, because I got lost in that whole transition
16 about Pool 99:
17 "Dear Secretary Soderberg, consistent with
18 our cash management investment responsibilities,
19 Treasury is initiating an interfund transfer to the
20 Commonwealth's General Fund on February 27. The
21 transfer took the form of an investment by Treasury's
22 liquid assets, an investment pool commonly known as
23 Pool 99 in the General Fund. The investment is
24 scheduled to be retired by the General Fund and
25 repaid to Pool 99 on March 16, 2009. Interest will 89
1 be computed on a daily money market rate and payable
2 to Pool 99."
3 Now, explain to us in our layman's terms and
4 not in budget terms again what this is all about,
5 what that was doing, and whether or not it was a raid
6 on the Rainy Day Fund?
7 SECRETARY SODERBERG: It was an investment
8 by Pool 99 into the General Fund. Interest will be
9 earned by Pool 99 over a very short period of time.
10 A question had come up earlier today about
11 cash flow. Now, as I mentioned, we have been
12 monitoring the situation very carefully to make
13 certain that we have sufficient funds to pay our
14 bills.
15 If you go back to last fall, you will all
16 remember how we had some significant losses, realized
17 losses, as we were drawing down out of the General
18 Fund to make routine payments. I think it was more
19 than $140 million in October alone of realized losses
20 out of the General Fund.
21 At that time, most of the General Fund was
22 in Pool 98, which has investments in equities. And
23 this goes back to the old Rainy Day Fund when it was
24 dissolved at the end of the Ridge Administration.
25 There were investments in equities, and rather than 90
1 selling off those equities at a loss, they ended up
2 being put into Pool 98 where the General Fund is.
3 Anyway, it has been a real concern, as we
4 are drawing down and making payments, that we don't
5 want to incur any more realized losses in the General
6 Fund.
7 We have worked with Treasury. They had set
8 up an account within Pool 99 so that any revenues
9 coming into the General Fund could be put into
10 Pool 99 during this period of time.
11 This is a period of time early March when we
12 are waiting for a significant influx of State
13 revenues through corporate tax payments, through
14 personal income tax payments, and we wanted -- the
15 Treasurer was very concerned that he might not have
16 sufficient funds available for the General Fund to
17 pay the obligations -- pay payroll, pay your debt
18 service, pay health-care costs, whatever the costs
19 are -- and he initiated this investment by Pool 99
20 into the General Fund just to ensure that we had
21 enough cash available to pay the bills so we did not
22 have to draw down out of Pool 98.
23 REPRESENTATIVE MANDERINO: Okay. So at the
24 end of the day on March 16, Pool 99 will be whole
25 plus some, because there is an interest payment. 91
1 SECRETARY SODERBERG: Yes.
2 REPRESENTATIVE MANDERINO: Okay.
3 On November -- if you know -- on
4 November 30, what was the size of the Rainy Day Fund,
5 and today, what is the size of the Rainy Day Fund?
6 SECRETARY SODERBERG: It was possibly a
7 little bit less than $750 million, and maybe it's a
8 little bit more than $750 million right now.
9 REPRESENTATIVE MANDERINO: Okay. So we
10 haven't raided the Rainy Day Fund?
11 SECRETARY SODERBERG: Oh, absolutely not.
12 REPRESENTATIVE MANDERINO: And we haven't
13 raided Pool 99?
14 SECRETARY SODERBERG: Absolutely not; no.
15 REPRESENTATIVE MANDERINO: Okay.
16 SECRETARY SODERBERG: This is an investment
17 that was made by the Treasurer.
18 REPRESENTATIVE MANDERINO: Okay. Thank you.
19 I want to turn to the cost-containment
20 issue, particularly as it relates to the DPW budget
21 -- what kind of cost-containment measures are in the
22 budget; what those dollar amounts mean in this year's
23 budget and in the '10-11 budget; and what are we
24 going to have to do if we don't do those
25 cost-containment measures. 92
1 SECRETARY SODERBERG: There are about
2 $329 million in cost containment in DPW in '09-10
3 alone, and that includes the managed-care assessment,
4 the 2-percent assessment on managed-care
5 organizations; that includes implementing the
6 Smart Pharmacy program, where we carve out
7 pharmaceutical costs that will allow us to draw down
8 or benefit from significant Federal rebates.
9 We have a number of other efficiencies to
10 reduce fraud and abuse; increased efficiencies on how
11 we manage disease in Medical Assistance.
12 So there are a number of different
13 initiatives that Secretary Richman has undertaken,
14 and in the 2010-11 budget, when fully annualized,
15 these will equate to more than $600 million.
16 REPRESENTATIVE MANDERINO: Okay.
17 Now, we have talked a lot to all the
18 different Secretaries, including Secretary Richman,
19 about the impact that the Federal stimulus dollars
20 coming into the Commonwealth have or don't have on
21 various aspects of their budget.
22 You were asked some questions about the
23 Federal stimulus dollars. But what is your
24 perspective of the overall picture of the
25 Commonwealth budget, vis-a-vis Federal fiscal relief 93
1 that might be coming in through the stimulus and what
2 impact this has on whether we need to, don't need to,
3 don't need to immediately, need to immediately deal
4 with some of the cost-containment measures put in
5 effect or proposed by the Governor in the DPW budget?
6 SECRETARY SODERBERG: As I mentioned
7 earlier, we had assumed that we would get
8 approximately a billion dollars in Federal fiscal
9 relief in the current year and about $2.4 billion in
10 '09-10.
11 So as we built our budget, we already
12 assumed the Federal fiscal relief, and we assumed
13 these cost-containment measures. So thankfully we
14 are benefiting from the Federal fiscal relief.
15 Otherwise, we would have had to have made
16 significantly deeper cuts in the budget.
17 But in order for our budget to be balanced,
18 we are assuming not only the cost containment but
19 already the Federal fiscal relief.
20 REPRESENTATIVE MANDERINO: So at least with
21 regard to DPW -- it might be different with
22 Transportation or someone else -- the Federal, from
23 your perspective, from the Governor's Office
24 perspective, the Federal stimulus dollars that are
25 going to come in with Medical Assistance aren't going 94
1 to change the balance of the budget here, because you
2 already counted those.
3 SECRETARY SODERBERG: Yes.
4 REPRESENTATIVE MANDERINO: You are counting
5 those and you are counting the savings, the
6 cost containment savings from the MCO and the
7 Smart Pharmacy, in order to get to the number that
8 you presented in the budget to the General Assembly?
9 SECRETARY SODERBERG: Absolutely correct.
10 But I do want to stress, we are continuing
11 to work through the Federal stimulus legislation to
12 understand where there might be some other pieces
13 that might benefit our budget. But those dollar
14 amounts will be relatively small compared to the FMAP
15 and the fiscal stabilization funds.
16 REPRESENTATIVE MANDERINO: Okay.
17 I was very interested in the charts that
18 were put up earlier when Representative Denlinger was
19 asking you questions, and I listened carefully to
20 your answer.
21 And I also remember a similar question being
22 asked of the Auditor General when he was here, and if
23 I'm remembering correctly, the Auditor General said
24 the same thing that you said, which was that you had
25 acted within the scope of your authority with regard 95
1 to what was done.
2 So I am going to put the scope of the
3 authority, at least for my satisfaction, aside, and
4 I'm not assuming---
5 SECRETARY SODERBERG: I'm glad you reminded
6 me of the Auditor General's letter, because let me
7 just read his last paragraph:
8 "Based on these results for the most recent
9 State fiscal year under review, we have concluded
10 that the Budget Secretary properly adhered to the
11 applicable waiver provisions of Act 146."
12 REPRESENTATIVE MANDERINO: Okay. Thank you.
13 So I am asking this question assuming that
14 you acted within the scope of your authority. I just
15 want to ask a little bit more about what was actually
16 going on to see whether kind of this discussion about
17 lapsed or waived balances, which seemed from your
18 perspective to be an issue of more transparency and
19 perhaps from the questioning point of view seemed to
20 be an issue of trying not to make something
21 transparent, so I want to explore, though, kind of
22 what was happening.
23 One of the things I heard you say was that
24 when there was something outstanding -- you used a
25 Medical Assistance example where something was still 96
1 being negotiated by CMS---
2 SECRETARY SODERBERG: Right.
3 REPRESENTATIVE MANDERINO: Explain to me a
4 little bit further, what would the scenario have been
5 -- what is the scenario that is happening because you
6 are kind of holding those funds in abeyance, and what
7 would be the scenario that we face or would face if
8 you would have lapsed those and then if CMS comes
9 back and says, oops, you weren't entitled to that
10 money; give us it back.
11 SECRETARY SODERBERG: In this particular
12 case, we are talking $48 million. This is an
13 initiative under DPW, the Department of Public
14 Welfare, with community mental retardation
15 situations.
16 And the initiative was called the Room and
17 Board Initiative to draw down Medical Assistance
18 funds to pay for some of the costs of these
19 individuals living in the community.
20 This is something that other States have
21 done, but the Feds have been taking a closer look at
22 this. And we don't know if we may be facing a
23 potential disallowance on this, so we are holding
24 the funds until we have a definitive answer from
25 CMS. 97
1 REPRESENTATIVE MANDERINO: Okay. Let me ask
2 the question---
3 SECRETARY SODERBERG: If we had lapsed those
4 dollars and CMS said we are going to disallow those
5 claims, we would have to have a supplemental
6 appropriation or something to pay for that, yes.
7 REPRESENTATIVE MANDERINO: Okay. That was
8 where I was trying to get to figure out what would
9 have happened.
10 One of the other examples you used was where
11 there might have been a line item put in the budget
12 at the last minute that was a legislative add-in that
13 didn't have any guidance. And let me use, for
14 example, one that I know went in that I was a part of
15 a couple of years ago, when we put $5 million and
16 then the following year $7 million into the budget
17 for an obstretical stabilization fund that would help
18 the urban and rural hospitals that were at risk of
19 losing obstretical services to their constituents,
20 and that wasn't a program that DPW operated before it
21 was a need that the Legislature identified. And so,
22 you know, I'm sure when DPW got that money, we had to
23 sit down at the Legislature and work out together
24 what was the intent of doing this.
25 Had that not been worked out within the 98
1 course of the budget year, would that be another kind
2 of item that went into this category that then looks
3 like it should have been lapsed or waived? Is that
4 what you are referring to?
5 SECRETARY SODERBERG: Oh, absolutely.
6 When we put the budget together, when the
7 Administration puts the budget together, we have a
8 pretty good sense as to what the programs are. But
9 when something gets added in, you know, toward the
10 end of the enactment process -- and it could be for
11 an economic development initiative, a community
12 initiative -- we in the Administration may not
13 understand fully what the intent of how those funds
14 are to be spent. And so, you know, we frequently go
15 back to you, you know, to make certain that we
16 understand, and sometimes there is enabling
17 legislation that is required.
18 So, you know, rather than just making the
19 judgment call of lapsing those funds at the end of
20 the year, we err on the side of caution and wait
21 until we get some further information from the
22 General Assembly.
23 REPRESENTATIVE MANDERINO: Okay. Thank you.
24 I guess the last point that I just want to
25 make, and I will read this explanation that I have 99
1 gotten rather than ask a question. And if, when you
2 get back to your office, you find that this is not
3 accurate, I would appreciate if you would get back to
4 this committee about that.
5 But it goes to the issue that was asked
6 about the Pennsylvania Convention Center, and it is
7 my understanding that the Pennsylvania Convention
8 Center Authority "with consent and approval of the
9 Commonwealth" -- maybe that is what you might want to
10 do a little explanation there -- "is borrowing
11 $122 million from the PIDC Regional Center at a very
12 favorable interest rate for a term of 5 years. The
13 proceeds of the loan will be used to fund
14 construction costs for expansion, thereby delaying
15 the necessity of issuing Commonwealth general
16 obligation bonds to fund those costs at a much higher
17 rate of interest.
18 "The principal of the loan will be repaid
19 when the Commonwealth determines to issue its bonds
20 to fund the remainder of the construction obligation,
21 but in no event later than 5 years. Interest or debt
22 service will be repaid from the Gaming Economic
23 Development Tourism Fund.
24 "In the event that the Commonwealth pays its
25 construction obligation earlier than 5 years, the 100
1 principal will be readvanced to the Pennsylvania
2 Convention Center Authority, where it will be
3 invested to create income to pay debt service or
4 other Convention Center obligations up to the terms
5 of the loan.
6 "All uses and applications of the proceeds
7 of the fund are subject to direction and approval of
8 the Commonwealth. No loans are being guaranteed by
9 the Commonwealth."
10 Is that consistent with your understanding?
11 And I guess there was a question as to whether you
12 have the ability to consent and approve this. Can
13 you shed a little bit more light on what I found to
14 be a kind of confusing discussion about what was
15 going on with the Convention Center?
16 SECRETARY SODERBERG: This action was taken
17 by the board of the Pennsylvania Convention Center,
18 of which there are appointees from all four caucuses.
19 So the House Republicans and the House Democrats had
20 appointees on the board who made the decision and
21 voted for this loan.
22 I sent a letter because I was very concerned
23 that as a result of hotel revenues not coming in as
24 expected, whether or not -- given the current market
25 -- whether or not they would be able to refinance 101
1 some existing debt, and just overall concerns that
2 they might be coming back to the State, that the
3 Pennsylvania Convention Center would be coming back
4 to the State for additional dollars.
5 This loan, at a rate of only 1 1/2 percent,
6 ensures that they have sufficient funds to move
7 forward with the Convention Center until the point in
8 time that we issue the debt for the expansion of the
9 Convention Center.
10 REPRESENTATIVE MANDERINO: So the loan came
11 from where? They went out on the private market for
12 the loan?
13 SECRETARY SODERBERG: PIDC. I mean, this
14 was a loan from the Welcome Fund to the Convention
15 Center.
16 REPRESENTATIVE MANDERINO: Okay, not a loan
17 from the Commonwealth.
18 SECRETARY SODERBERG: Correct. Absolutely
19 correct. Not the Commonwealth, no.
20 REPRESENTATIVE MANDERINO: So the
21 Commonwealth funds at risk here are how much?
22 SECRETARY SODERBERG: I don't think there
23 are any Commonwealth funds at risk here.
24 REPRESENTATIVE MANDERINO: Okay. Thank you.
25 SECRETARY SODERBERG: Thank you. 102
1 REPRESENTATIVE MANDERINO: Thank you,
2 Madam Secretary. Thank you, Mr. Chair.
3 MAJORITY CHAIRMAN EVANS: This will be the
4 last person to ask a question. Representative True.
5 REPRESENTATIVE TRUE: And I promised it
6 wouldn't take long, Madam Secretary.
7 I just have a concern about the Judiciary
8 funding, and we had the Justices in before us several
9 days ago.
10 If I may, I just wanted to go through and
11 make sure that I'm right. I'm sure you'll correct me
12 if I'm not.
13 There is no funding in the budget for
14 68 Common Pleas Judges, including 11 created by the
15 General Assembly to take office in 2010, and
16 90 Magisterial Judges.
17 These are a constitutionally mandated
18 position that must be funded. The remainder of the
19 deficit includes no funding for 10 Superior Court
20 Judges and 35 Court Administrators and provides no
21 operating funds for the Supreme Court.
22 There probably are some folks in
23 Pennsylvania that think that is okay, but when we
24 asked Justice Baer, I think was the one that made the
25 comment, you know, what will happen; can you manage 103
1 -- none of us know, you know, who has what pot of
2 money or how that all works -- and he said absolutely
3 not, that they cannot manage.
4 So my question would be to you, and it is
5 probably one that you can't particularly answer now,
6 but is that going to be looked at closely, I would
7 hope in this upcoming budget? And perhaps take a
8 message back to the Governor that that wasn't really
9 a good idea in this member's opinion.
10 SECRETARY SODERBERG: Okay. Yes, we will
11 take a very close look at this to understand what the
12 implications are.
13 A lot of tough choices were made throughout
14 this budget. As I mentioned, we cut a billion
15 dollars of spending out of this budget. A lot of
16 operating lines were reduced.
17 We have been sitting down in my own shop
18 taking a look at our budget trying to understand how
19 we can best manage going forward, and I'm sure the
20 courts are doing the same thing.
21 So I am sure we will be meeting and talking
22 about their budget with them.
23 REPRESENTATIVE TRUE: And I do appreciate
24 that. It is just that this is mandated, so I would
25 assume that that might not be a good place to cut. 104
1 But anyhow, I thank you for your answer.
2 SECRETARY SODERBERG: Thank you.
3 REPRESENTATIVE TRUE: Thank you,
4 Mr. Chairman.
5 MINORITY CHAIRMAN CIVERA: Mr. Chairman?
6 MAJORITY CHAIRMAN EVANS: Yes?
7 MINORITY CHAIRMAN CIVERA: We have three
8 Republican members that wish to ask the Budget
9 Secretary some questions? Would you grant that
10 request?
11 I think that this has been an orderly
12 meeting. I think it has been a meeting that, you
13 know, both sides of the aisle have been able to
14 express themselves. That is what these meetings are
15 for.
16 Earlier I sent you a letter indicating that
17 when this day came, that we wanted to get to the
18 budget. You continually asked to work on both sides.
19 So I would ask you if you would handle my
20 request in a good nature and have the three
21 Republican members be able to testify?
22 MAJORITY CHAIRMAN EVANS: On a serious note,
23 Mr. Chairman, I take your consideration and I
24 appreciate you and I think the world of you, but I
25 said 3 o'clock. 105
1 What I would suggest is that they should put
2 it in writing. They should send it to the Secretary.
3 The Secretary should respond to the questions of the
4 members of this committee.
5 So with all due respect, it is 3 o'clock,
6 and I'm going to finish this particular hearing.
7 MINORITY CHAIRMAN CIVERA: One further
8 question.
9 Representative Reichley had asked a question
10 as far as when those audit reports came back. The
11 Deputy Secretary had indicated a joint meeting with
12 the Senate.
13 I would request that both the Republicans
14 and Democrats of the House, if you can convene such a
15 meeting so those questions could be answered. I
16 don't think there is nothing wrong with that. It is
17 about putting everything on the table and getting
18 direct answers, and I would hope that you, you know,
19 would give me that request, that when those reports
20 would come back, that you would convene a meeting
21 rather than the four caucuses. That is not going to
22 answer anything.
23 MAJORITY CHAIRMAN EVANS: Mr. Chairman, I
24 hear what you are saying, and I will consider what
25 you just expressed to me. 106
1 Madam Secretary, I want to thank you and
2 your staff. I want to thank all of you for what you
3 do for the people of the Commonwealth of
4 Pennsylvania. We really all appreciate it.
5 I know this is a very difficult budget. Do
6 not measure by our own behavior what just took place
7 here that we are not working together. We have a
8 little difference of opinion; it's like a family,
9 but at the end of the day we have to work
10 together.
11 I want to publicly thank the Chairman,
12 Mario Civera, and I want to thank all of the members
13 on both sides of the aisle for their cooperation
14 throughout this entire process.
15 I know that at times some people obviously
16 will not agree with me, but I guess that is why I was
17 fortunate enough to be elected Chairman of this
18 committee, and I appreciate that opportunity.
19 But at the end of the day, we must work
20 together, even if someone may differ with me because
21 of the position that I take. But at the end of the
22 day, it is about the 12 million people. It is not
23 about any of us. We are just temporary stewards in
24 this particular position, and we need to work
25 together. 107
1 So I want to again thank you,
2 Madam Secretary, and I think the world of you. You
3 have done a great job. I'm a little biased because
4 you used to be with this committee, so I'm a little
5 biased towards you. So I want to say that.
6 Again, I want to thank all the members, and
7 this session of the House Appropriations Committee
8 meeting is adjourned.
9 Thank you very much.
10
11 (The hearing concluded at 3:05 p.m.)
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25 108
1 I hereby certify that the proceedings and
2 evidence are contained fully and accurately in the
3 notes taken by me on the within proceedings and that
4 this is a correct transcript of the same.
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7 ______Debra B. Miller, Reporter 8
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