COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES
APPROPRIATIONS COMMITTEE HEARING
STATE CAPITOL MAIN BUILDING ROOM 140 HARRISBURG, PENNSYLVANIA
THURSDAY, MARCH 7, 2013 10:00 A.M.
PRESENTATION FROM GOVERNOR'S BUDGET OFFICE
BEFORE:
HONORABLE WILLIAM F. ADOLPH, JR., MAJORITY CHAIRMAN HONORABLE KAREN BOBACK HONORABLE JIM CHRISTIANA HONORABLE GARY DAY HONORABLE GORDON DENLINGER HONORABLE BRIAN ELLIS HONORABLE MAUREE GINGRICH HONORABLE GLEN GRELL HONORABLE SETH GROVE HONORABLE TOM KILLION HONORABLE DAVID R. MILLARD HONORABLE MARK T. MUSTIO HONORABLE DONNA OBERLANDER HONORABLE BERNIE T. O'NEILL HONORABLE MICHAEL PEIFER HONORABLE SCOTT A. PETRI HONORABLE CURTIS G. SONNEY
————————— JEAN DAVIS REPORTING 285 EAST MANSION ROAD • HERSHEY, PA 17033 Phone (717)503-6568 1 BEFORE (cont.'d):
2 HONORABLE JOSEPH F. MARKOSEK, MINORITY CHAIRMAN HONORABLE MATTHEW D. BRADFORD 3 HONORABLE MICHELLE F. BROWNLEE HONORABLE MIKE CARROLL 4 HONORABLE H. SCOTT CONKLIN HONORABLE MADELEINE DEAN 5 HONORABLE DEBERAH KULA HONORABLE MICHAEL H. O'BRIEN 6 HONORABLE JOHN P. SABATINA HONORABLE STEVEN SANTARSIERO 7 HONORABLE JAKE WHEATLEY
8 ALSO IN ATTENDANCE: 9 DAVID DONLEY, REPUBLICAN EXECUTIVE DIRECTOR 10 DAN CLARK, REPUBLICAN CHIEF COUNSEL MIRIAM FOX, DEMOCRATIC EXECUTIVE DIRECTOR 11 HONORABLE PAMELA DeLISSIO HONORABLE DAN FRANKEL 12 HONORABLE KEITH GILLESPIE HONORABLE JOE HACKETT 13 HONORABLE NICK KOTIK HONORABLE PHILLIS MUNDY 14 HONORABLE MARIO SCAVELLO
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16 JEAN M. DAVIS, REPORTER NOTARY PUBLIC 17
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2 1 I N D E X
2 TESTIFIER
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5 CHARLES ZOGBY 9
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3 MAJORITY CHAIRMAN ADOLPH: Good morning,
4 everyone. I'd like to call to order the House
5 Appropriations Budget Hearing with the Secretary of the
6 Budget, Charles Zogby.
7 Before we start the hearing, we normally go
8 through some brief introductions of the members and the
9 areas that they represent throughout the Commonwealth. I
10 also remind everyone, including the members, to please turn
11 their iPhones and iPads and cell phones and what other
12 electronic gadgets that you may have with you off or on
13 silent, please.
14 My name is Bill Adolph. I'm the Republican Chair
15 of the Appropriations Committee. My District is 165 in
16 Delaware County.
17 MR. DONLEY: Dave Donley, Republican Staff
18 Executive Director.
19 MR. CLARK: Dan Clark, Chief Counsel, Republican
20 Appropriations Committee.
21 REP. PETRI: Scott Petri, 178th, Bucks County.
22 REP. GRELL: Good morning. Glen Grell,
23 Cumberland County, 87th District.
24 REP. GROVE: Seth Grove, York County, 196th
25 District.
4 1 REP. MUSTIO: Good morning. Mark Mustio,
2 Allegheny County, 44th District.
3 REP. GINGRICH: Good morning. Rep. Mauree
4 Gingrich, Lebanon County. Good to see you.
5 SECRETARY ZOGBY: Nice to see you.
6 REP. OBERLANDER: Donna Oberlander, Clarion and
7 Armstrong Counties.
8 REP. CHRISTIANA: Good morning, Mr. Secretary.
9 Jim Christiana, Beaver County.
10 SECRETARY ZOGBY: Nice to see you.
11 REP. ELLIS: Brian Ellis, Butler County.
12 REP. KILLION: Tom Killion, Chester and Delaware
13 Counties. Good morning.
14 REP. O'NEILL: Good morning. Rep. Bernie
15 O'Neill, Bucks County.
16 REP. PEIFER: Good morning. Mike Peifer, 139th
17 District, Pike, Wayne, and Monroe Counties.
18 REP. MILLARD: Good morning. David Millard,
19 109th District, Columbia County.
20 REP. DENLINGER: Good morning. Gordon Denlinger,
21 99th District, Lancaster County.
22 REP. BOBACK: Good morning. Karen Boback, House
23 District 117, Luzerne, Wyoming, and Columbia Counties.
24 REP. BRADFORD: Matt Bradford, Montgomery County.
25 REP. SANTARSIERO: Good morning, Secretary.
5 1 Steve Santarsiero, Bucks County.
2 MINORITY CHAIRMAN MARKOSEK: Good morning,
3 Secretary. Rep. Joe Markosek, Allegheny and Westmoreland
4 Counties.
5 Also in attendance we have Rep. Dan Frankel, Rep.
6 Pam DeLissio, and Rep. Nick Kotik as guests of the
7 Committee. Thank you.
8 MS. FOX: Hi. Miriam Fox, Executive Director,
9 House Appropriations, and staff, Democrats.
10 REP. SABATINA: Good morning. Rep. John Sabatina
11 from Philadelphia County.
12 REP. BROWNLEE: Good morning. Michelle Brownlee,
13 Philadelphia County, 195th Legislative District.
14 REP. CARROLL: Good morning, Mr. Secretary. Mike
15 Carroll from Luzerne and Monroe Counties.
16 REP. O'BRIEN: Good morning. Mike O'Brien,
17 Philadelphia, 175th District.
18 REP. KULA: Good morning. Deberah Kula, Fayette
19 and Westmoreland Counties, 52nd District.
20 REP. DEAN: Good morning, Mr. Secretary.
21 Madeleine Dean, Montgomery County.
22 REP. CONKLIN: Scott Conklin, Centre County.
23 REP. WHEATLEY: Jake Wheatley, Allegheny County,
24 city of Pittsburgh.
25 MAJORITY CHAIRMAN ADOLPH: Thank you.
6 1 Now that Senator Rand Paul has ended his 13-hour
2 filibuster, I think that makes our budget hearings the most
3 exciting affairs programming on public television today.
4 Before we get started, I wanted to remind the
5 viewers that video of all the House budget hearings and all
6 submitted written testimony and hearing transcripts will be
7 archived at www.pabudget.com. You can also follow along
8 with the budget process by visiting the website for regular
9 updates. And for even more current information, you can
10 monitor the Appropriations Committee's activity on Twitter
11 by following our handle at House GOP. That's a little
12 plug.
13 We have a high-tech communications director now
14 and he wants me to get all that stuff in. I'll put him
15 back in his cubbyhole.
16 Today marks the final day of House budget
17 hearings. And I want to thank all the members of this
18 Committee for your participation. The role of this
19 Committee and the Legislature in the budget process cannot
20 be discounted. When we look back on the past two years,
21 the Legislature played a key role in working with the
22 Administration to overcome tremendous challenges.
23 As we worked to put the last two budgets
24 together, we had to deal with the loss of billions of
25 dollars in Federal stimulus and a $4 billion budget deficit
7 1 in our State budget. We worked with the Administration to
2 implement pro-growth policies that helped improve our
3 economy, reduce unemployment numbers, and rein in on
4 sustainable spending. We passed two on-time budgets with
5 no tax increases and set Pennsylvania on a course for
6 economic growth and a brighter future.
7 I intend to make sure we continue on that same
8 track this year and make sure we again deliver an on-time
9 sustainable budget. The budget proposal presented by the
10 Governor represents a good starting point for negotiations.
11 There are some very positive aspects that will make a
12 significant impact for Pennsylvania residents:
13 $90 million increase for basic education funding;
14 overall pre-K education increases of 338 million, providing
15 for the most State tax dollars for basic education ever;
16 level funding for all higher education institutions;
17 funding for an additional 290 State troopers; $20 million
18 to provide for services for an additional 380 individuals
19 with intellectual disabilities, a waiting list of 700
20 Special Education graduates and 100 individuals currently
21 residing in State centers. I can't forget the 10 percent
22 increase in funding for domestic violence and the rape
23 crisis centers.
24 These are all good proposals. They will be a
25 good foundation for the final budget that we will negotiate
8 1 over the coming months.
2 To answer some of the outstanding questions
3 relative to the Governor's budget proposal, our final
4 hearing will begin with the Governor's Budget Secretary,
5 Charles Zogby. Welcome, Charles.
6 SECRETARY ZOGBY: Thank you, Mr. Chairman.
7 MAJORITY CHAIRMAN ADOLPH: You can start with
8 some opening remarks or we can get right into answers,
9 whatever you would like to do.
10 SECRETARY ZOGBY: Well, Mr. Chairman, the one
11 thing I did want to do is -- and I know this is the close
12 of the process for the Committee. I did try to catch many
13 of the hearings on PCN and know that the members have put
14 in a tremendous amount of time.
15 But I did want to -- and I think I can on behalf
16 of my Cabinet colleagues as well -- extend a thanks to you.
17 And if I might take liberty, since he's not here and I
18 started over in the Senate, Senator Corman, I think both of
19 you have sort of steered the helm here, as it were, with a
20 gentle but tough fist in keeping the trains running on
21 time.
22 I just want to extend a personal thanks to you
23 for your leadership in conducting these hearings. I think
24 they've been a good airing of the issues in the budget.
25 Again, just on behalf of the Administration, I wanted to
9 1 thank you.
2 MAJORITY CHAIRMAN ADOLPH: I appreciate the
3 compliment. But I'm also going to do a little shout out
4 for my Democratic Chair, Joe Markosek.
5 SECRETARY ZOGBY: Absolutely.
6 MAJORITY CHAIRMAN ADOLPH: My fellow Republicans
7 tend to listen to me. And I know the Democrats certainly
8 listen to Joe's wisdom. These are very important budget
9 hearings. You learn a lot. It's a necessary process. And
10 I think the people of Pennsylvania are better off as a
11 result of these budget hearings. Together we're going to
12 work on this budget and, once again, get an on-time budget
13 with no tax increases.
14 SECRETARY ZOGBY: We appreciate the leadership of
15 both of you. And again, recognizing the tremendous amount
16 of time and energy that the members put in as well.
17 Thank you.
18 MAJORITY CHAIRMAN ADOLPH: So now that all the
19 compliments are over, I have a complaint.
20 SECRETARY ZOGBY: Okay.
21 MAJORITY CHAIRMAN ADOLPH: And I'm sure you know
22 where I'm going to go with this. In the budget, there's
23 about $50 million of line items that this Legislature and
24 past Legislatures have put into the budget.
25 And Governor Corbett is not the first Governor.
10 1 There's been all the other Governors, you know, that
2 automatically seem to line out some very important line
3 items that have legislation behind them, such as ALS,
4 Epilepsy Foundation, biotechnology. I can go on and on.
5 And every year before we get started, we're $50
6 million behind. I'm asking you, Mr. Budget Secretary, that
7 even though we're able to negotiate them back in, the pain
8 and the anguish that these line items cause the residents
9 of Pennsylvania when they open up and they get their
10 newsletter from the Epilepsy Foundation, their ALS, that
11 their line item has been eliminated is stressful.
12 So I'm asking professional courtesy from this
13 branch of government to your branch of government that
14 maybe starting next year, these line items are going back
15 in. And we need to have that type of agreement. It means
16 too much to people. These are all good programs.
17 The volunteerism, that goes along with these
18 organizations, you can't put a price to it. So it's $50
19 million in the budget on the $28.44 billion budget that
20 countless hours of volunteerism it'd be another billion
21 dollars if we had to pay for what these people do.
22 If you would like to talk about it, you certainly
23 may. But I just want you to know that I think we need to
24 have that.
25 The next thing I'd like to talk about a little
11 1 bit that I'm concerned about -- and I talked a little bit
2 about it with the DEP Secretary. I talked a little bit
3 about it with the DCNR Secretary. And I know you're the
4 boss. You're the Budget Secretary.
5 And it's the transferring of the money for
6 conservation districts. I think they did an excellent job
7 explaining why you're doing it, both those secretaries.
8 But we're still hearing from the 66 conservation districts
9 and their concerns that this money will not be available to
10 them maybe this year, but maybe they're a little afraid of
11 losing their line item and it's coming from Act 13 money, I
12 believe.
13 Give us your ideas on why this was changed this
14 year.
15 SECRETARY ZOGBY: Well, I think, as you know,
16 Mr. Chairman, when we enacted Act 13, the impact fee, we
17 did, as part of that, a dedicated revenue source to
18 conservation districts, I believe the current year, 2 and
19 a half million, rising to 5 million in the coming year,
20 and then eventually 7 and a half. I don't have numbers
21 beyond that.
22 I think in this environment, actually I've found
23 that most constituencies, if they can find a dedicated
24 revenue stream that is outside of the General Fund,
25 actually given the volatility, given the cuts of the last
12 1 couple of years in the General Fund, one would think that
2 constituencies would be relieved to have a dedicated
3 funding source.
4 I think if you look ahead in the budget,
5 conservation districts, taking out the Act 13 money for the
6 current year, actually come out ahead. At least my
7 analysis, the way that I think about this, this is a good
8 news story for conservation districts. They're going to
9 have more money and they're going to have a dedicated
10 funding stream that I think would take them out of maybe
11 some of the volatility that we've seen in the General Fund
12 and certain line items, as you opened up.
13 We've had some line items that we've not been
14 able to fund. So I think they're going to see more
15 resources in the future, not less.
16 MAJORITY CHAIRMAN ADOLPH: Okay. I understand
17 that. I do understand that. But there is still some
18 concern. Obviously, they like the dedicated funding
19 source. There's no question about that. And I will be
20 having a conversation with those folks as this budget
21 process moves on.
22 Thank you very much.
23 SECRETARY ZOGBY: Thank you.
24 MAJORITY CHAIRMAN ADOLPH: Chairman Markosek.
25 MINORITY CHAIRMAN MARKOSEK: Thank you, Chairman
13 1 Adolph.
2 Good morning, Mr. Secretary.
3 SECRETARY ZOGBY: Good morning, Mr. Chairman.
4 MINORITY CHAIRMAN MARKOSEK: Mr. Secretary, as
5 you know, I and our Committee and Caucus have been critical
6 of the Governor's proposed budget. And you're, of course,
7 his Chief Budget Officer. So you have direct input
8 obviously with him and with the budget.
9 I'll just make some opening comments. I don't
10 have any specific questions for you. I'm sure our members
11 have quite a few.
12 My overall take on the budget that the Governor
13 presented to us is it's full of misguided policies, missed
14 opportunities, and failed promises. And here is why I say
15 that. It only includes a tiny increase in education
16 funding, which doesn't even come close to rectifying the
17 cuts, the huge cuts, made in previous budgets.
18 He wants to flat fund something as important as
19 higher education when support for higher education remains
20 significantly lower than before he took office.
21 His transportation plan is woefully inadequate.
22 We waited 500-plus days for a plan. And the one he
23 presented fails to adequately address our crumbling
24 transportation infrastructure. He wants to unnecessarily
25 tinker with the State Retirement System, which is most
14 1 likely to cost more and to end up in court.
2 He left Medicaid expansion out of the budget,
3 which is a huge opportunity for us to provide health care
4 to 500,000 uninsured Pennsylvanians and infuse billions of
5 Federal money into our economy.
6 He wants to sell off valuable State assets, the
7 liquor store system, when all we really need to do is
8 modernize our liquor laws. He tried to sell the Lottery,
9 arguably one of the most successful lotteries in the
10 country, out from underneath us. Thankfully that appears
11 to have been halted.
12 It's disingenuous for the Governor to say the
13 only way we can meet the needs of our growing senior
14 population is by privatizing the Lottery. That is simply
15 not true. The bottom line is this: This Administration
16 continues to put the interests of corporations above
17 students, people, and children in need, our workforce, and
18 so on by continuing to cut business taxes in a time when we
19 can't afford it.
20 When the economy recovers and we can afford it,
21 then let's talk about tax cuts for everyone: workers,
22 families, retirees, not just corporations.
23 It's all about priorities. And if you look at
24 this budget and where he is proposing to cut and spend
25 money, it's clear. He cuts business taxes while at the
15 1 same time he says we can't afford to restore cuts to public
2 education and higher education to pay our pension
3 obligations, to properly fund our transportation needs, to
4 opt in to Medicaid expansion and provide health care to the
5 uninsured.
6 Again, I say this budget is full of misguided
7 policies, missed opportunities, and failed promises.
8 With that, Mr. Chairman, I will end my formal
9 prepared remarks. Thank you.
10 MAJORITY CHAIRMAN ADOLPH: Thank you, Chairman
11 Markosek.
12 I'm going to give the opportunity to the budget
13 Secretary to respond to Chairman Markosek's comments.
14 SECRETARY ZOGBY: Thank you, Mr. Chairman.
15 And I appreciate the Chairman's comments, but I
16 really can't disagree strongly enough with the
17 characterization of this Governor's budget.
18 I feel a little bit like Groundhog Day again on
19 the education and this continuing narrative of the
20 Governor's cuts in basic education, which is just, I think,
21 patently untrue particularly when you consider the Ponzi
22 scheme that was run in the last Administration, shorting
23 pensions by nearly $6 billion, putting the money in other
24 areas of the budget, particularly basic education and
25 building that up at unsustainable levels. You consider the
16 1 fact, in the last couple of years, taking over $650 million
2 in State funds out of the basic education formula,
3 substituting Federal stimulus funds in, knowing that there
4 was no funding source to replace those.
5 So you had the prior Administration sort of
6 running these fiscal games, leaving this entire mess, a
7 $4.2 billion deficit, to the Governor to clean up and then
8 somehow cast him as the villain for not trying to sustain
9 what was unsustainable.
10 And I think when you look at the current budget,
11 look, we know that pension costs are crowding out the
12 General Fund and forcing cuts in a number of different
13 areas. And absent reform, we're going to either see deep
14 cuts in core programs and services, we're going to see the
15 same dynamic play out at a local school district level with
16 either substantial increases in property taxes or deep cuts
17 in education programs. Again, absent reform. The Governor
18 has, I think, a creditable, realistic plan on the table to
19 manage those liabilities.
20 With the privatization of the State liquor
21 system, the Governor said repeatedly, selling alcohol,
22 distributing alcohol, is not a function of government.
23 Public education is. The Governor wants to get out of the
24 alcohol business, put a billion dollars to invest in our
25 public schools.
17 1 And particularly in a tight fiscal environment, I
2 think that makes very good sense. And I think it's
3 something that Pennsylvanians want. They want the
4 convenience of a private system. And they want to see more
5 funds go into our basic education system. So we're killing
6 two birds with one stone in that proposal.
7 And then I think on transportation, we can argue
8 whether it's -- you know, I keep saying that we're going to
9 look for the Goldilocks proposal, the proposal that's just
10 right.
11 The fact of the matter is, is that the Governor
12 has put an ambitious plan on the table. We have things
13 like the P3 Legislation that the General Assembly passed
14 that we didn't have before this proposal. So it seems to
15 me it's putting fees on the users of the system, being
16 creative with P3 partnerships to address some of our
17 infrastructure needs. I think it's a very balanced
18 proposal.
19 And I'll just end with if you look at the whole
20 of the General Fund, you talk about cuts. But we've been
21 in a very constrained fiscal environment. We've been able
22 to put resources into basic education. We're taking care
23 of the most vulnerable, particularly individuals with
24 intellectual disabilities, taking care of waiting lists.
25 We're addressing a number of areas of high need.
18 1 And we're doing it without going back to the families of
2 Pennsylvania and asking them to take more out of their
3 pockets, more out of their family budgets to send to
4 Harrisburg.
5 I think that's exactly what the people of
6 Pennsylvania sent this Governor here to Harrisburg to do.
7 That's what he's doing. And I think at the end of the day,
8 we're going to see a Governor's budget that addresses these
9 priorities, again, in a make-sense way.
10 MINORITY CHAIRMAN MARKOSEK: Well, I think the
11 one thing that the Governor can't explain -- and you didn't
12 mention it either in your response -- was all these -- and
13 you said we have a very-difficult-economy budget situation.
14 But yet he cut business taxes by about $2 billion in the
15 last two years.
16 Forget about raising any taxes. Even if we just
17 kept the tax rate the same, we would have approximately 2
18 billion more dollars to spend on all of these things that
19 you said that he had to make tough cuts on. The pension is
20 a very good example, education. And we can argue about the
21 education. We can quibble about that.
22 We had Secretary Tomalis here. I questioned him.
23 He made the same argument you did. He didn't seem to have
24 much of a response when I said, well, what about charter
25 school reimbursement, which is State money, and some of
19 1 those other programs that are State money? They weren't
2 necessarily Federal cuts. He really didn't have a good
3 answer for that.
4 So we can quibble about the numbers. Do we have
5 tough times? Yes. Do we want businesses to have lower
6 taxes? Absolutely. Everybody in this room would like to
7 see the businesses thrive in our State. But when everybody
8 else has to endure very tough cuts -- and I'm sorry.
9 Based on what I know about transportation, this
10 was not a bold plan that the Governor came up with. It
11 doesn't even come close to his own Commission that
12 indicated that we needed about two-and-a-half to
13 three-and-a-half billion per year. And what he's came up
14 with is 1.8 over five years, I believe the numbers are.
15 It's very short. And I think he's throwing a
16 bone to the Pennsylvania public about the budget. No
17 matter how you cut, we've made these cuts. People are
18 hurting. The businesses got their cuts. And now all of a
19 sudden the Governor is saying, gee, we can't fund
20 education; we can't fund transportation; we can't fund
21 health care, long-term care, all these things.
22 I think that it's disingenuous. And I know my
23 time is up. I just had to get that off my chest. I think
24 a lot of what has been going on here has been disingenuous
25 to the people of Pennsylvania. And I hope after these
20 1 hearings, they know what the Governor is doing and can see
2 through this.
3 Thank you, Mr. Chairman.
4 MAJORITY CHAIRMAN ADOLPH: Thank you.
5 The Chair always allows the Chairs, as well as
6 the testifiers, an additional amount of time to make their
7 points, pro or con, depending on the issue.
8 We'll start with the members' questions. And the
9 first question will be by Rep. Mauree Gingrich.
10 REP. GINGRICH: Thank you, Mr. Chairman.
11 Welcome, Mr. Secretary.
12 SECRETARY ZOGBY: Representative, nice to see
13 you.
14 REP. GINGRICH: I hope we have an enjoyable
15 morning together and an educational one as well.
16 SECRETARY ZOGBY: That would be nice.
17 REP. GINGRICH: I want to thank you for helping
18 us, partnering with us, in creating a feasible and
19 sustainable budget for the people of Pennsylvania. The
20 taxpayers are the ones that bear the burden of this anyway.
21 I have one specific question. And it's based on
22 a recent court ruling from just a couple days ago. I'm
23 sure you've had a chance to read it in more depth than I
24 have. That was a Commonwealth Court in Sears, et al, v.
25 Corbett.
21 1 SECRETARY ZOGBY: Is this the adultBasic?
2 REP. GINGRICH: Yes. Maybe you don't have all
3 the information I need but you can get it for me if you
4 can't answer it today. So I want to talk about whatever
5 impact it might have on us out of the Tobacco Settlement
6 Fund. And it impacts specifically what we call MAWWD -- in
7 my office we get an awful lot of requests -- and that's the
8 Medical Assistance Workers With Disabilities funding.
9 So 30 percent of the Tobacco Settlement Fund
10 revenues are being allocated to our MAWWD Program, an
11 essential program.
12 Do you know if this ruling will have any impact
13 on that? Will money have to go into adultBasic? Do you
14 have any idea what that court ruling is going to mean
15 there?
16 SECRETARY ZOGBY: Representative, I think, you
17 know, the Governor wants Pennsylvanians to have the ability
18 to have quality, affordable health care at a sustainable
19 price. That certainly wasn't the case with adultBasic. I
20 would say that the opinion is less than 48 hours old. I
21 certainly have not had a chance to read it. And I've not
22 had a chance, quite honestly, to have a briefing from our
23 General Counsel's Office, I think, to your point, what the
24 implications of the case are and what our options are going
25 forward. So that's something that we're going to be doing,
22 1 that the Governor is going to be doing in the next many
2 days.
3 Certainly, we worked with the individuals that
4 were in that adultBasic Program to be able to take
5 advantage of other health care opportunities. I think the
6 Blues had a plan that was available. And a number of
7 individuals availed themselves of that. We tried to get
8 individuals into the PA Fair Care Program, which the
9 Federal Government said no to.
10 So we're really at a point right now trying to
11 understand the ruling and see what our options are going
12 forward. And that's really all I have at this point, I
13 guess, lacking additional input from the General Counsel's
14 Office and looking to the Governor for a decision as to
15 what he would seek to do here.
16 REP. GINGRICH: I understand that. It was an
17 early-on question. And, of course, when I saw it,
18 naturally having great focus on health and welfare, I
19 wanted to know that.
20 When you're able to do that for us and get
21 through this process, let us know if there's going to be
22 any impact on anything else as well, will you, please?
23 SECRETARY ZOGBY: Absolutely. And the MAWWD
24 Program is an important program and we certainly don't want
25 to be in a position where we're jeopardizing the people
23 1 that are taking advantage of that program. And, as you
2 know, dollars are tight all over. We're very concerned
3 about that as well.
4 REP. GINGRICH: We work closely with our folks in
5 our District Offices. So we need to be enlightened on
6 that, too.
7 Thanks an awful lot.
8 SECRETARY ZOGBY: Thank you.
9 REP. GINGRICH: Thank you, Mr. Chairman.
10 MAJORITY CHAIRMAN ADOLPH: Thank you,
11 Representative.
12 Rep. Wheatley.
13 REP. WHEATLEY: Thank you, Mr. Chairman.
14 Good morning, Mr. Secretary.
15 SECRETARY ZOGBY: Good morning.
16 REP. WHEATLEY: Since you and the Governor said
17 you'd think about priorities and try to manage the
18 resources to match your priority, so the first question is
19 just, do you think budgets reflect the priorities of this
20 Administration? Is this budget a reflection of the
21 priorities of this Administration?
22 SECRETARY ZOGBY: Yes, I do.
23 REP. WHEATLEY: Do you think this budget provides
24 for the needs of Pennsylvanians, especially the human needs
25 of Pennsylvania, in a way that gets us to a better day or
24 1 were these decisions -- because I've heard several of your
2 Secretaries of your Department come in and say, because we
3 were faced with budgetary constraints, we made decisions,
4 right? But in that kind of construct, there were decisions
5 that were made to put us in a position, for example, when
6 someone decides there will be no more revenue enhancements,
7 so we only live within these budgetary constraints. That's
8 a decision based off of someone's perspective.
9 So the question -- I'm curious when you sit with
10 the Governor and you're discussing the overall priorities
11 of the Commonwealth, do you think this budget reflects the
12 human needs? Ultimately, we're talking about
13 Pennsylvanians. That's where we're trying to spread our
14 resources around. Do they reflect the actual needs of this
15 Commonwealth and its people or is it a reflection of
16 something else?
17 SECRETARY ZOGBY: Well, Representative, what I
18 would say is I think it does reflect the needs of
19 Pennsylvanians. Again, given the constraints that we're
20 under. You said the perspective of people on revenue. And
21 I think the perspective is the Governor who came here, who
22 ran for office, pledging to the people of Pennsylvania that
23 he wasn't going to raise taxes.
24 So when we say that we're closing revenue
25 options, I think that that perspective, if you will,
25 1 reflects the Governor's commitment, his word to the people
2 of Pennsylvania that he is not going to raise taxes on
3 families. He's not going to raise their taxes to bring
4 more revenues to Harrisburg.
5 REP. WHEATLEY: It's interesting you said that
6 because when your Transportation Secretary was here, he
7 talked about lifting caps. I can be supportive of that
8 because I haven't take a pledge not to raise revenues or
9 taxes. But he talked about lifting caps to attempt to
10 raise some minimum level to help with our transportation
11 problem, infrastructure problem. In that instance, he was
12 willing to do it.
13 In another instance where we see we have options
14 where we have corporations that may not be paying all their
15 fair share or other revenues, that could be helpful.
16 We can all agree we have real serious financial
17 problems in this Commonwealth. We have a pension issue
18 that even the Governor has talked about finding revenues to
19 address that, although we are continuing to kick that ball
20 down the line with this one, too.
21 But we have transportation needs, infrastructure
22 needs, where he's willing to raise additional revenue only
23 to a certain level, not necessarily what we needed, but
24 he's willing to do it. But we have people out here, either
25 from our small children who are still trying to make their
26 1 way and their future from an educational standpoint or we
2 have individuals who you are in need of services for health
3 care or just to provide the day-to-day needs for themselves
4 and their family, but he's not willing to put resources
5 with them.
6 Again, I go back to budgets being sentiments of
7 what people think are their priorities. And it seems to me
8 -- and this is me. I'm just one legislator. But I heard
9 from the various secretaries and departments that we did an
10 artificial construct by saying because an individual took a
11 pledge that was two or three years ago, we're not going to
12 look at realities of Pennsylvanians today but we're going
13 to hinge our realities on my pledge and what I pledged to
14 someone in D.C. so families in Pennsylvania will suffer
15 because I'm unwilling to go off of that pledge except when
16 I can find a way around it to craft it so it's not looked
17 at as a revenue enhancement and I can act like I'm doing
18 something serious for transportation.
19 SECRETARY ZOGBY: Well, the commitment,
20 Representative, that the Governor made was to the people of
21 Pennsylvania -- I think that's important to point out --
22 not somebody in D.C. or somewhere else. It's the people of
23 Pennsylvania.
24 And as we went around this Commonwealth and
25 campaigned for the Governor -- and he was elected to that
27 1 position. And I think, rightfully so, he believes that he
2 ought to keep his word with the people of Pennsylvania.
3 Now, as to priorities, when I look at this
4 budget, I see more money for early childhood education. As
5 the Chairman pointed out in his opening statement, I see
6 more money for basic education, taking the basic education
7 funding line item to its highest level in the State's
8 history.
9 We have more money for individuals with
10 disabilities. We have more money for rape and domestic
11 violence. We have more money that we're putting into a
12 host of other areas that address the human needs of
13 Pennsylvania families and Pennsylvania communities. So I
14 think from that score, I think the Governor's budget does
15 address the kind of concerns that you're pointing to.
16 Again, understanding that our resources are not
17 limitless. We just can't spend money that we don't have.
18 And just like families, we have to make choices with our
19 budgets. And that's just what the Governor has done but I
20 think within that context, addressing some very real needs
21 and concerns that we have.
22 You know, Representative, my door is always open
23 to every group. And when anybody comes in, they always
24 start their pitch with, you know, we know the State is in
25 difficult times but. And then they go on to outline why
28 1 their particular funding need is a priority.
2 And I think the Governor has done a very good job
3 of trying to balance all these competing interests, putting
4 significant resources, again, into very critical areas like
5 early childhood, basic education, juvenile justice, rape,
6 domestic violence, again, services for individuals with
7 disabilities and all on down the line.
8 Again, are we in a position to do everything that
9 everyone might like to do? I don't think we are. And the
10 only way that we would be, again, is to go back to
11 Pennsylvanians and ask them to take more out of their
12 family budgets so they can send it to Harrisburg so that
13 everybody here can distribute it as they see fit.
14 And I think the Governor's perspective is, those
15 resources are better left with families. They've got their
16 own needs, their own priorities that need to be addressed.
17 And we need to live within our means here in Harrisburg.
18 REP. WHEATLEY: I'm just going to leave you with
19 this. That would all make sense if we had explored all of
20 our available options and all of those were on the table,
21 all of our tools were on the table.
22 But we know as we continue to offer phase-down of
23 some corporate taxes, as we continue to turn a blind and
24 deaf ear to various other revenues, like smokeless tobacco,
25 or closing loopholes in our tax structure or looking at a
29 1 more fair system of the Marcellus Shale impacts and
2 figuring out revenues that will make a more fair
3 distribution that can bring support to those same families
4 that are struggling to find their budget -- so it's not
5 like we're asking to enhance revenues from those families.
6 We're asking all of our citizens, including our corporate
7 citizens, to be a part of this sharing of this difficult
8 time and supporting each other.
9 And if we were not so interested in, it seems to
10 me, not creating more pain in a period where employment is
11 struggling, we will kick our public servants out of their
12 departments and, you know, the work that they're providing
13 for the State Government because we have a philosophy that
14 if private industries can grow, we can string the public
15 sector regardless of what that means to Pennsylvanians, who
16 are those people who are losing their jobs, or we can
17 privatize everything that's profitable for Pennsylvanians
18 so companies can take advantage and benefit from it, even
19 if they are from over in England.
20 I think those types of decisions speak to a
21 priority set that aren't necessarily based on
22 Pennsylvanians' needs but based on other needs.
23 So with that, I hope when you go back to have
24 your discussion that you will re-evaluate those artificial
25 constructs and those artificial, you know, perspectives and
30 1 start to broaden it out to think about all of Pennsylvania.
2 Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN ADOLPH: Thank you,
4 Representative. I didn't see you at the gym this morning.
5 I thought maybe you might have been hurt lifting all that
6 weight down at the gym the other night.
7 I'm going to ask the members -- I gave Chairman
8 Markosek, you know, as much time as he wanted as well as
9 Budget Secretary Zogby in opening comments. Rep. Wheatley
10 just went a little over 10 minutes.
11 At that rate, we'd be here until 4 o'clock if
12 each member that is listed went 10, 15 minutes. So we're
13 going to have to make the questions a little shorter and
14 answers a little shorter as well.
15 Rep. Donna Oberlander.
16 REP. OBERLANDER: Thank you, Mr. Chairman.
17 Good morning, Secretary. I was looking at the
18 Federal Block Grants in the budget proposal, the budget
19 book. And I couldn't help but notice that Workforce
20 Development Boards have gone down from $262 million in
21 2012-2013 to $241 million in 2013-2014, which is a $21
22 million decrease in that area, an 8 percent reduction.
23 Can you explain the rationale of where that money
24 went, why we're not getting it? What's the change there?
25 SECRETARY ZOGBY: Representative, honestly, I
31 1 would say that I have not looked at that line. Since it is
2 Federal money, I'm assuming that it's a decision on the
3 Federal Government to provide less support in that
4 particular area.
5 But I can certainly go back and check and will
6 correct myself if I'm wrong there. But we'll give you a
7 more detailed response as to what exactly is happening with
8 those dollars.
9 REP. OBERLANDER: I would appreciate that.
10 My next question would be, how will that impact
11 our 23 Workforce Investment Boards? Maybe this would be an
12 opportunity for us to really take a good hard look at what
13 our Workforce Investment Boards are doing. Are they
14 actually truly investing in workforce investment or their
15 own structure? So I would appreciate that information and
16 look forward to it.
17 Thank you.
18 SECRETARY ZOGBY: Thank you.
19 REP. OBERLANDER: Thank you, Mr. Chairman.
20 MAJORITY CHAIRMAN ADOLPH: Thank you,
21 Representative.
22 I'd like to acknowledge the presence of Rep.
23 Mario Scavello, who has joined us.
24 The next question will be by Rep. Brownlee.
25 REP. BROWNLEE: Thank you, Mr. Chairman.
32 1 Good morning, Mr. Secretary.
2 SECRETARY ZOGBY: Good morning.
3 REP. BROWNLEE: I have some questions regarding
4 the budget as a whole, not so much issues.
5 The budget seems to me to be, if we can do this,
6 we can fund this. The Lottery privatization piece, which
7 seems to have been unconstitutional now, I asked the
8 question earlier in the process that if it had gone
9 through, it would be able to fund senior programs at a
10 higher rate, Meals on Wheels, tax rebates, senior centers,
11 and so forth.
12 In addition to that, the upcoming proposal to
13 privatize the liquor system and infuse one-time funds to
14 fund education, which is an ongoing funding. I know you
15 know that. I shouldn't have to say it. So they have
16 ongoing funding. You know, children have to be educated
17 yearly.
18 If the Lottery privatization does not happen, if
19 somehow or another the liquor system privatization does not
20 happen, what is your Plan B to fund these programs?
21 Seniors still need help. There's a core function of ours
22 to educate our children. So do you have a Plan B?
23 And it would behoove us if you do not have a Plan
24 B, I would suggest that you think about a Plan B and
25 possibly a Plan C. Because if these things don't happen,
33 1 how do you go to the level of funding that you want to go
2 to to properly fund these?
3 SECRETARY ZOGBY: Sure.
4 Representative, first of all, I'd point out that
5 I don't think it is uncommon for Governors to have
6 proposals in their budget that are predicated on action by
7 the General Assembly to implement a change or reform that
8 makes the funding possible. So I don't think we're sort of
9 breaking new ground, if you will, in that respect.
10 As to the proposals, I think on the Lottery, for
11 example, what the Governor has seen is what we are all
12 seeing, that we're an aging State, that our costs for our
13 senior programs are growing. And along with those
14 demographics, it imposes a challenge on us to fund those
15 programs, to meet the needs for seniors, not only today but
16 going forward.
17 The Lottery private management agreement, not the
18 sale of the Lottery, but allowing a private manager to come
19 in and manage the Lottery for us would generate another
20 three-and-a-half to four billion dollars over the term of
21 that PMA. And that's against the current Lottery baseline.
22 So if the PMA ultimately goes away -- now, we
23 will some have some challenges in the near term. We have
24 some annualization of some of the Lottery spending that
25 we'll need to have money for in the coming year. But I
34 1 think the challenge is not so much the coming year as it is
2 over time.
3 Again, we see a growing senior population and
4 growing costs and how we're going to meet that. I think
5 the Governor has put on the table a very creative proposal
6 in order to do that that generates substantial amounts of
7 revenue that pale in comparison to any other alternative
8 out there. So we can sit by and say, well, we don't like
9 that agreement. But what I've not heard is any plausible
10 alternative that's going to generate the kind of money that
11 we're looking at with PMA, again, that's going to address
12 those future needs.
13 On liquor store privatization, the Governor has
14 said the best thing of the retail and the wholesale
15 functions, we have a billion dollars for public education
16 that we can drive out for over a four-year period or so as
17 one-time funding.
18 And when I think of things like technology
19 investments or school safety -- unfortunately, the world
20 that we're living in. But if you're buying, for instance,
21 security cameras or metal detectors or something like that,
22 there may be some ongoing costs. But certainly the big
23 costs are in that up-front investment, the same way with a
24 bio or chem lab or something like that.
25 So if we're not successful in privatizing the
35 1 system, that's a billion dollars less that we're going to
2 have for public education, notwithstanding the other monies
3 that the Governor has in the budget for early childhood.
4 The 90 million in basic education funding, that will
5 remain. But we certainly won't have the billion dollars to
6 make those investments over the coming years.
7 REP. BROWNLEE: Thank you.
8 Just one quick comment. I think that -- and this
9 is just this legislator -- we are not investing in our
10 ingenuity as Pennsylvanians. And I don't think that we
11 have the faith in our public servants that we should have
12 as it relates to growing our economy. Pennsylvanians have
13 the ingenuity to grow our economy and we're looking outside
14 of Pennsylvania and Pennsylvanians to do that.
15 Thank you.
16 SECRETARY ZOGBY: Sure.
17 REP. BROWNLEE: Thank you, Mr. Chairman.
18 MAJORITY CHAIRMAN ADOLPH: Thank you,
19 Representative.
20 I'd like to acknowledge the presence of Rep.
21 Mundy, who has joined us.
22 The next question will be by Rep. David Millard.
23 REP. MILLARD: Good morning, Mr. Secretary.
24 SECRETARY ZOGBY: Good morning, Representative.
25 REP. MILLARD: I have two questions for you
36 1 today, two different topics.
2 SECRETARY ZOGBY: That's fine.
3 REP. MILLARD: The first of which is pension
4 reform. The PSERS Board just recently adopted their
5 employer contribution rate for the next fiscal year at
6 nearly 17 percent, 16.93 percent. And they did that in
7 early December.
8 My question to you is, have all the school
9 districts of Pennsylvania been notified? And as they
10 prepare their budgets, which they don't start necessarily
11 in December to finalize them, should they be anticipating
12 16.93 percent?
13 SECRETARY ZOGBY: Well, I think they are looking
14 at that rate absent reform, Representative. And that will
15 be a subject of discussion over the next many months.
16 I think the Governor understands acutely what's
17 going to happen here if we stay on the present course with
18 our pension payments. We're going to have very high
19 increases, not only in this coming year but for the next
20 several years.
21 That's going to squeeze the State's budget and
22 it's certainly going to squeeze school district budgets
23 absent any change, absent any reform.
24 The Governor would like to avoid what's likely to
25 be painful cuts and steep property tax increases. It will
37 1 ultimately be up to the General Assembly whether we enact
2 those reforms. And that will be part of the debate going
3 forward.
4 REP. MILLARD: Thank you.
5 SECRETARY ZOGBY: Sure.
6 REP. MILLARD: Secondly, the Racehorse
7 Development Fund. I noticed that in the extraction from
8 the Racehorse Development, there's 3 million for the Farm
9 Show, the State Farm Product Show Fund and the agricultural
10 affairs, 2.5 million, which is up from 2 million last year.
11 Would it be an accurate statement to say that the
12 reason for this proposal following up on last year's
13 proposal is to find a dedicated funding source to support
14 related programs that serve to support and complement the
15 equine industry here in Pennsylvania?
16 SECRETARY ZOGBY: Yes, I think that is the case,
17 Representative. The Department of Agriculture is under a
18 great deal of stress. The Farm Show, the fairs, the labs
19 that we're proposing to pay out of the Racehorse
20 Development Fund, I think there is a connection with the
21 equine industry. And it seems that this is, to me at
22 least, a reasonable funding source to cover these important
23 activities.
24 REP. MILLARD: I'm glad to see this. I've been a
25 strong advocate for 4H, FFA, and all those related programs
38 1 that I think complement the future, if you will, of the
2 equine industry. And I think it's working hand in hand. I
3 appreciate that response.
4 Thank you.
5 SECRETARY ZOGBY: I would agree. Yes, sir.
6 REP. MILLARD: Thank you, Mr. Chairman.
7 MAJORITY CHAIRMAN ADOLPH: Thank you,
8 Representative.
9 Rep. Dean.
10 REP. DEAN: Thank you, Mr. Chairman.
11 Good morning, Mr. Secretary.
12 SECRETARY ZOGBY: Good morning, Representative.
13 REP. DEAN: I think it's great that you're one of
14 our last testifiers because it gives us really kind of the
15 global picture after we've heard from all of the
16 departments.
17 SECRETARY ZOGBY: Thank you.
18 REP. DEAN: And I want to echo what my colleague
19 Jake Wheatley talked about, which is the budget reflects
20 priorities. And I know you agreed to that.
21 SECRETARY ZOGBY: Yes.
22 REP. DEAN: I have a couple quick questions on
23 Lottery and the Governor's failed and very in-the-dark
24 private management agreement that he entered into with
25 Camelot. I wanted to know exactly what is owed to the
39 1 consultants and to Camelot as a result of entering into
2 that private management agreement?
3 SECRETARY ZOGBY: I'm not sure what the amount is
4 at this time. And the process is still going on, so I'm
5 not entirely sure where we'll end up there.
6 REP. DEAN: Can you confirm that I think what I
7 read was Piper, the Baltimore legal firm, would receive as
8 much as $375,000?
9 SECRETARY ZOGBY: I've not seen that report,
10 Representative, so I wouldn't want to speak to that.
11 REP. DEAN: And the other thing that I read was
12 that Greenhill & Co. would receive as much as $850,000.
13 SECRETARY ZOGBY: I have not seen that either,
14 Representative.
15 REP. DEAN: And what, if anything, do we owe
16 Camelot?
17 SECRETARY ZOGBY: I'm not aware of anything that
18 we owe them. I'd like to go back and check. I'd have to
19 go back and look at each of those.
20 REP. DEAN: Two weeks ago when the Revenue
21 Secretary was in front of us, he promised the Committee
22 within days the breakout of the consultant's fees. And we
23 still have yet to receive them. So I just thought they
24 would be numbers you would be familiar with.
25 Any other consultants I should be thinking about
40 1 other than DLA, Greenhill, and Camelot?
2 SECRETARY ZOGBY: None that I'm aware of. But
3 I'll certainly compare notes with the Secretary and urge
4 him to get that information to you.
5 REP. DEAN: Okay. Thank you very much. I'd
6 appreciate getting that.
7 SECRETARY ZOGBY: Sure.
8 REP. DEAN: Then to shift to education. I
9 complained before and I'll complain again about the linkage
10 of the sale of the Lottery stores, calling that one-time
11 sale a passport to learning. I respectfully ask you to
12 take my complaint back to the Governor and let him know
13 that I believe that the real passport to learning for our
14 children is the Pennsylvania Constitution. We owe them
15 that. And it is not in the one-time sale.
16 I really resent the use of passport to learning
17 in terms of -- and that linkage -- educating our children.
18 We have that obligation. And it's not going to come from
19 -- I don't think it should come from the one-time unknown
20 dollars that we would get from the sale of the liquor
21 stores.
22 And what it makes me think is, that really, how
23 we gather our revenues and how we spend our revenues, is
24 how we define ourselves in terms of our priorities.
25 And so what I keep seeing on these balance sheets
41 1 is continuing to cut corporate taxes or offer select
2 companies corporate tax breaks. We failed to tax shale.
3 We keep talking about what a difficult time it is, and yet
4 we failed to tax and collect revenues on what is our
5 precious resource.
6 We failed to take the Medicaid expansion that
7 would get 500,000 Pennsylvanians off a waiting list for
8 care, not to mention the economic benefit of bringing
9 billions of dollars in.
10 And then what we do on the spending side is we
11 cement in deep cuts to education and we cement in really a
12 burden on families.
13 You said in your opening that you didn't want --
14 the Governor didn't want to force families to take more
15 money from their pockets. Well, I would suggest that if
16 they're not at the State level, they are at the local
17 level, and it's no less real. You just have to open your
18 eyes. Because we balance a budget here means that we force
19 families to take more money out of their pockets for higher
20 ed, force municipalities to increase our taxes for basic ed
21 and for pre-K.
22 So with those thoughts, I really think that how
23 we collect and spend our money is how we define ourselves.
24 I'm very concerned about how we are failing to collect
25 money and how we are spending our money.
42 1 Would you make some comment about those
2 imbalances that I have pointed out?
3 SECRETARY ZOGBY: I just would respectfully
4 disagree with your characterization, Representative.
5 I think the Governor -- and there's so much there
6 in your commentary that time doesn't allow to address it
7 all. But, you know, another billion dollars for public
8 education, we certainly don't have the resources in the
9 General Fund to provide that sort of funding.
10 Again, I think the Governor wants us to get out
11 of the business of liquor. That is not a core function of
12 government. Public education is. We can get another
13 billion dollars into our public schools. Every public
14 educator I talk to isn't offended in the slightest that
15 they could see another billion dollars to invest in local
16 priorities in public schools, albeit with one-time
17 revenues.
18 I think the same -- you mentioned, I think, the
19 Lottery. Same there. We can generate another
20 three-and-a-half to four billion dollars to cover what are
21 critical needs of older Pennsylvanians. And, again, nobody
22 out there has a plausible plan to generate that same level
23 of revenues.
24 So I think it's easy to sit back and sort of
25 throw rocks at what the Governor is proposing. But, again,
43 1 he's doing it in a very difficult fiscal environment in a
2 way that's very sound financially and otherwise.
3 And again, if not this, where do we get those
4 resources? And again, I haven't heard anything to --
5 REP. DEAN: I have two suggestions.
6 SECRETARY ZOGBY: -- suggest as to how we raise
7 those levels of funds without raising taxes on Pennsylvania
8 people.
9 REP. DEAN: I have two suggestions. One is if
10 we're going to link liquor stores and education, why don't
11 we just link the known profits? It's a very successful
12 business model. We know that it has more than $100 million
13 worth of profits a year, not to mention the State revenues.
14 SECRETARY ZOGBY: Did you say LCB was a
15 successful business model?
16 REP. DEAN: Yes. It's a profitable business
17 model. So why don't we take the known profits that go on
18 year after year after year, just as our obligation to
19 educate children goes on year after year after year, and
20 lock that into education --
21 SECRETARY ZOGBY: The fact --
22 REP. DEAN: Lock in also maybe the revenues that
23 are generated from that, which will now be compromised if
24 we divide up and split the liquor system.
25 SECRETARY ZOGBY: I would suggest,
44 1 Representative, that the LCB is a failed business model.
2 If you take away the wholesale functions, every State store
3 is unprofitable. And how that's regarded as a profitable
4 business model I don't understand. Maybe we could have
5 that discussion.
6 REP. DEAN: A $2 billion business --
7 SECRETARY ZOGBY: Maybe we could have that
8 discussion.
9 REP. DEAN: -- that brings in --
10 SECRETARY ZOGBY: Maybe we could have that
11 discussion.
12 REP. DEAN: -- $100 million worth of profits and
13 $400 million worth of taxes, half a billion dollars a year
14 on a $2 billion industry.
15 SECRETARY ZOGBY: I think if Wal-Mart were
16 running where every Wal-Mart store was a failing
17 enterprise, was losing money, I don't think anybody would
18 call that a profitable business. If Sheetz were running
19 its convenience stores or if every Sheetz were at a loss,
20 I'm not sure how that could be regarded as a profitable
21 business model.
22 REP. DEAN: The final thing I wanted to mention
23 is the deep cuts to education. Basic education was cut two
24 years in a row by a billion dollars. And in 2009, our
25 Department of Education said that the increased money from
45 1 stimulus would be an increased commitment to education.
2 We failed to do that.
3 Thank you very much.
4 Thank you, Mr. Chairman.
5 MAJORITY CHAIRMAN ADOLPH: I'm going to allow you
6 to comment on the billion-dollar decrease that's been
7 talked about over and over. The facts are that when you
8 compare apples to apples, State dollars with State dollars,
9 there is no such decrease.
10 Mr. Secretary.
11 SECRETARY ZOGBY: No. Again, I think it's a nice
12 narrative to keep repeating if it were true. But again,
13 when you have the former Governor taking out $650 million
14 out of the basic education formula in State funds, filling
15 it with Federal stimulus funds, and then, oh, that will be
16 filled somehow, and leaves it to the next Governor, I just
17 think to say that that's on this Governor for cutting
18 education -- in addition, again, as I said before, the
19 Ponzi scheme of taking $6 billion out of pensions to fund
20 elsewhere in the General Fund, particularly basic
21 education, where you build that up at unsustainable levels
22 and then say that it's on this Governor, not to bail out
23 completely that Ponzi scheme, I just think that's an
24 inaccurate reflection of what really happened. Again, I
25 think we can talk about cuts to education until the cows
46 1 come home. It's just not the case.
2 MAJORITY CHAIRMAN ADOLPH: And we had a thorough
3 conversation with Secretary Tomalis. And we're not going
4 to change opinions around here regarding the figures.
5 I do understand the Representative's discussion
6 regarding the Liquor Control Board. It would be nice if we
7 could fund education with the LCB.
8 The problem that I see is the Administration was
9 trying to do -- whether it was selling the liquor stores or
10 selling something else, with trying to bring in additional
11 money. And that money that the LCB brings in now, we are
12 spending that. And I don't want to lose that money, mind
13 you. I know the Representative doesn't either. But they
14 were thinking out of the box.
15 I understand what both sides were talking about.
16 We're going to move on.
17 REP. DEAN: Thank you, Mr. Chairman.
18 Thank you, Mr. Secretary.
19 MAJORITY CHAIRMAN ADOLPH: Thank you, Rep. Dean.
20 SECRETARY ZOGBY: Thank you.
21 MAJORITY CHAIRMAN ADOLPH: Rep. Seth Grove.
22 REP. GROVE: Thank you, Mr. Chairman.
23 Thank you, Mr. Secretary. I appreciate your
24 time.
25 SECRETARY ZOGBY: Representative.
47 1 REP. GROVE: I just want to applaud you on your
2 earlier comments on allowing the private sector to grow
3 jobs, grow the economy, bring in new tax revenues, and move
4 all Pennsylvania citizens and everybody into prosperity. I
5 appreciated that.
6 I want to touch base on educational items,
7 specifically one, the authority rentals and the fund
8 requirements, which funds reimburses to school districts
9 through the process.
10 Last year we did a moratorium on PlanCon. This
11 year once again the Administration is planning another --
12 or proposing a moratorium on the PlanCon projects.
13 Just curious if you can explain the need for the
14 moratorium, if we can get how much is owed to school
15 districts in the PlanCon process from Part A all the way to
16 Part K, and if there's any proposal or plan moving forward
17 to clear out these projects and reform PlanCon moving
18 forward.
19 SECRETARY ZOGBY: Yes. Representative, I
20 appreciate your question. I think the need for the
21 additional year is for the Department, as I understand it,
22 to continue to work through the authority rentals. We did,
23 I think, freeze the program or at least the application
24 project as of October of last year.
25 I think the reality is that we were kind of
48 1 managing, I'll say, by inertia in terms of the funds that
2 are available. And so those that are in queue will not
3 necessarily lose there reimbursement or their place in
4 line. But I think before we reopen the program, I think
5 what the Department is looking at is, you know, is there a
6 better mousetrap? Is there a better way to do this?
7 Some school districts, I think, go through the
8 process and probably spend more in consultants than they
9 get back in reimbursement. Is that really an effective way
10 to run it? Are there school districts that we ought to
11 maybe just allow to go on their own?
12 So they're trying to consider all that. I think
13 it's just taking a little longer than anticipated. And we
14 hope to have something certainly by next year's budget to
15 kind of give us a path forward there.
16 REP. GROVE: I appreciate that. And if you could
17 look into how much the total cost is out there.
18 SECRETARY ZOGBY: I will. I neglected that. I
19 don't have that offhand. But I can certainly get that for
20 you.
21 REP. GROVE: I appreciate that.
22 A plug, maybe, liquor sales, a lot of school
23 districts to move that in there as a way of moving forward.
24 Obviously, the private sector job is getting people back to
25 work. There's a great incentive in clearing out those
49 1 projects, too, moving forward.
2 SECRETARY ZOGBY: Absolutely.
3 REP. GROVE: I think we do need to look at
4 reforming the system as a very lengthy process to go
5 through.
6 SECRETARY ZOGBY: Yes, sir.
7 REP. GROVE: I appreciate everything.
8 Thank you, Mr. Secretary.
9 SECRETARY ZOGBY: Thank you.
10 REP. GROVE: Thank you, Mr. Chairman.
11 MAJORITY CHAIRMAN ADOLPH: Thank you,
12 Representative.
13 Rep. Carroll.
14 REP. CARROLL: Thank you, Mr. Chairman.
15 Mr. Secretary, good morning.
16 SECRETARY ZOGBY: Good morning.
17 REP. CARROLL: I want to try to get to two
18 subjects, if I could, in my allotted time.
19 First, the Racehorse Development Fund,
20 Mr. Secretary.
21 SECRETARY ZOGBY: Okay.
22 REP. CARROLL: The current year's estimates are
23 for a decline of 3.8 percent based on the numbers that we
24 have through January of this year. Next year -- I'm sorry.
25 The Administration expects an increase of 4 percent for the
50 1 current year and another 4 percent for next year, despite
2 the fact that the current year's estimate -- not estimate
3 -- actual numbers are a decline of 6 percent.
4 Mr. Secretary, how is it that we can expect the
5 Racehorse Development Fund to have an increase of roughly 8
6 percent over two years when the current year's numbers show
7 a decline of 6 percent? How do we reconcile that kind of a
8 difference?
9 SECRETARY ZOGBY: Well, I guess we'd probably
10 have to walk through the numbers together, Representative,
11 to really understand.
12 REP. CARROLL: Okay.
13 SECRETARY ZOGBY: I think we had 50 million
14 diverted from the Racehorse Development Fund in the prior
15 Administration for General Fund relief. We're allowing or
16 proposing that $25 million go back in towards the fund.
17 We've got about $25 million that we're looking to either
18 provide some modest budget relief or some funding
19 increases, the fairs we talked about, the Farm Show, a
20 little earlier.
21 As I look at the numbers, we're still going to
22 have close to $200 million for purses. That's in addition
23 to monies increases for the Breeding Fund, as well as
24 continuing to cover health and pension benefits for the
25 horsemen. So there's not many programs like that that are
51 1 seeing that kind of increase.
2 I think overall, it's still a good-news story for
3 the racing/breeding industry.
4 REP. CARROLL: I don't know how we define it as
5 an increase when the current year's six-month numbers are a
6 6 percent decrease. So I guess that we're -- we have, you
7 know, competing opinions on that. I mean, a decrease -- an
8 actual decrease over six months is an actual decrease.
9 I mean, did you dispute the decrease over the
10 first six months of the current year?
11 SECRETARY ZOGBY: I would like to see what
12 numbers exactly you're looking at, Representative. And
13 time doesn't allow here. But I would be happy to go over
14 those and understand exactly what's going on there that
15 you're pointing to.
16 REP. CARROLL: All right. Fair enough.
17 On the Affordable Care Act and on Medicaid
18 expansion. Mr. Secretary, there are certain costs that
19 this Commonwealth will incur as a result of the Affordable
20 Care Act and there are certain benefits that have accrued
21 to the Commonwealth as a result of the Affordable Care Act.
22 When the Administration is making a determination
23 as to whether or not to expand Medicaid to the
24 500,000-or-so folks that would be eligible if we do the
25 expansion, how do you calculate into the equation the
52 1 Affordable Care Act provisions that we will be subjected to
2 or are being subjected to both on the positive and the
3 negative side? Do you contemplate the costs only and not
4 the benefits when we consider the added costs or benefits
5 over the course of the first year?
6 I really want to just focus on the first year
7 because, as you know, Mr. Secretary, states, including
8 Pennsylvania, have the option to opt in or out year to
9 year.
10 So when we contemplate next year, how do you
11 contemplate -- how do you reconcile the costs in the
12 Affordable Care Act versus the costs and the benefits
13 related to the expansion when you consider in Year 1 we get
14 100 percent reimbursement on the expansion?
15 Can you explain to me how the Administration
16 makes that calculation?
17 SECRETARY ZOGBY: Well, Representative, in
18 working with the Department of Public Welfare, we're
19 looking at both the costs and the benefits of the Act.
20 We're looking at not only potential new populations, but
21 what has been referred to as the woodwork effect, which are
22 those people that are currently eligible but not signed up
23 for these programs.
24 And at least based on our analysis and some of
25 the assumptions that we're making, we're looking at a
53 1 first-year cost net of over $200 million to go into full
2 expansion under the Affordable Care Act.
3 Now, some of that, too, is predicated, as I said,
4 on assumptions. And as the Governor has said, we have not
5 had all the information, not all of the questions answered
6 from the Federal Government. So I think you have to go
7 through this and you wrestle with, is it going to be A or
8 is it going to be B?
9 I know the Acting Secretary yesterday was
10 pointing out, for instance, CHIP children. Do they stay in
11 the CHIP Program or do they move over to Medical
12 Assistance? Those have two different costs. There's other
13 dynamics in the Act as well. So we continue to work
14 through that. We continue to wait for clarity in certain
15 ways on certain matters from the Federal Government.
16 And I would just say, too, you say one year.
17 But, you know, for the individual that would get the health
18 care coverage, I think we need to go into this, not on a
19 one-year basis and then, well, maybe decide we don't want
20 it. I mean, for that person that has coverage, they're
21 going to want to know that it's there each and every year.
22 So I think it's a dangerous game that we get into
23 to say for one year and then pull back. Perhaps if the
24 Federal Government, as they have in other areas, reneges on
25 its promise, that might be a different story. But I think
54 1 we've got to look at it not only in the coming year, but
2 we've got to look over the totality of this program.
3 REP. CARROLL: Well, we did renege on the
4 adultBasic, Mr. Secretary, I'll remind you.
5 SECRETARY ZOGBY: It was the former Governor that
6 made that promise, Representative. It wasn't this Governor
7 that made that promise. And like so many of his Ponzi
8 schemes, adultBasic was another one, where he looked to
9 this Governor to solve that problem. So I think we ought
10 to be clear on who is making promises and who is being held
11 to them.
12 REP. CARROLL: Does your $200 million cost for
13 the Commonwealth for Year 1 include costs that we will have
14 to incur as a result of the provisions of the Affordable
15 Care Act regardless of our decision to expand Medicaid?
16 SECRETARY ZOGBY: I think it reflects all of the
17 costs that we would incur, both expansion and the woodwork,
18 as well as the administrative costs to implement provisions
19 of the Act.
20 REP. CARROLL: So then it's fair to say that the
21 expansion to the 500,000-or-so folks on the waiting list
22 without coverage that may be covered as a result of the
23 Medicaid expansion will not cost the Commonwealth $200
24 million but, in fact, it's, based on your answer, some
25 number less than that?
55 1 SECRETARY ZOGBY: I don't know that to be the
2 case. I think in some cases we're not sure whether, you
3 know, those individuals, for instance, will be covered at
4 the 100 percent. They might be covered, but they might
5 only be reimbursed at the regular rate, which is 54 cents
6 on the dollar.
7 So I think it's things like that that we don't
8 know fully that makes it difficult to say what the costs
9 would be. Again, it depends on the assumptions that you
10 make.
11 REP. CARROLL: But you just said it would be
12 something less than $200 million to expand it to include
13 the full 500,000 folks if we did the expansion.
14 SECRETARY ZOGBY: Well, I guess I don't want to
15 disaggregate here. We're talking about $220 million all
16 in. And I don't have a specific number for each in front
17 of me, for each segment of the population.
18 REP. CARROLL: But for those folks, children
19 especially, that are going to come into the cost -- into a
20 program as a result of the provisions of the Affordable
21 Care Act, this Commonwealth will have additional costs,
22 both those -- the folks that get entered into the program
23 because of the Affordable Care Act and costs associated to
24 the DPW budget related to enhancements to its IT. And your
25 budget book highlights at least $15 million in costs
56 1 related to the IT enhancements.
2 We can at least agree that the $15 million is
3 going to be incurred by this Commonwealth regardless,
4 right?
5 SECRETARY ZOGBY: I would agree.
6 REP. CARROLL: And then if you add in the
7 children that are going to be included as a result of the
8 provisions of the Affordable Care Act, there's clearly tens
9 of millions of dollars of costs to this Commonwealth that
10 we will incur regardless.
11 SECRETARY ZOGBY: I think there's definitely
12 costs that we'll be incurring regardless.
13 REP. CARROLL: And so then when we get to the
14 decision related to the Medicaid expansion, I think it's
15 unfair to characterize the expansion as having cost the
16 Commonwealth $200 million because the expansion by itself
17 does not cost $200 million. It costs a number less than
18 that when you back out the numbers that either -- the costs
19 that we will incur regardless.
20 So, Mr. Secretary, I think we have explored this
21 plenty. I will simply leave it by saying that when we make
22 a decision related to the 500,000 folks who may be eligible
23 by virtue of the Medicaid expansion, it is unfair to
24 characterize that decision as a $200 million decision. The
25 fact of the matter is in Year 1, it's a number
57 1 significantly less than $200 million.
2 And as you know, the Governor in Florida has made
3 a decision to take advantage of the program for the three
4 years when there's 100 percent reimbursement on the
5 expansion. I see no reason why this Commonwealth can't
6 make a policy decision at least on that three-year window
7 when the maximum Federal benefit is on the table.
8 Thank you, Mr. Chairman.
9 MAJORITY CHAIRMAN ADOLPH: Thank you,
10 Representative.
11 The next will be by Rep. Jim Christiana.
12 REP. CHRISTIANA: Thank you, Mr. Chairman.
13 Good morning, Secretary.
14 SECRETARY ZOGBY: Good morning, Representative.
15 REP. CHRISTIANA: Mr. Secretary, you're no
16 stranger to this process. Unlike you, I'm fairly new to
17 this process. And I'm still shocked by some of the critics
18 here today. They have really long memories or they have
19 really short memories.
20 Just 24 months ago when we were here doing this
21 process, we were faced with job loss, businesses were
22 leaving Pennsylvania, revenues were down, expenses were
23 recklessly out of control and unsustainable.
24 In just two years, Mr. Secretary, we went from
25 record deficits to a surplus. In two years, we've added
58 1 100,000 new jobs to the private sector.
2 As reported by Rachel Morgan in the Beaver County
3 Times, Pennsylvania ranks first in the Northeast region and
4 third in the nation for new corporate facilities in 2012.
5 For the second consecutive year, Pennsylvania ranked third
6 in the nation, most recently with 430 new or improved
7 corporate facilities in 2012.
8 The taxes that we've heard, the burdensome taxes,
9 that have been reduced or phased out, yes, that's true.
10 We're fixing our business climate. But as the Revenue
11 Secretary presented to us, corporate taxes are up in
12 Pennsylvania. And part of the optimistic view of
13 Pennsylvania going forward is the natural gas industry, the
14 policies we've worked on here in Harrisburg.
15 But also the reckless policy in surrounding
16 states: New York has a moratorium; West Virginia has the
17 highest severance tax in the nation, making Pennsylvania
18 even more attractive to this industry.
19 Can you talk about what it means to
20 Pennsylvania's economy now and the optimistic look going
21 forward for our budgets in respect to the natural gas
22 industry?
23 SECRETARY ZOGBY: I think it's a huge
24 opportunity, Representative. I think about the cracker
25 facility that the Governor is working very hard on. I know
59 1 you're partnering with him in that. I believe that may be
2 in your District if we're able to land that. You think of
3 that, you know, a multi-billion dollar investment in
4 Pennsylvania and then the thousands of jobs that may be
5 spun off from it, new industries, I mean, it really is a
6 potential rebirth here in Pennsylvania of an industrial
7 base that we've unfortunately seen erode over many years.
8 Think about what that's doing to businesses,
9 particularly those that are energy intensive. They've been
10 able to dramatically cut their bills and put that money
11 back in investing in their workers, investing in new jobs,
12 plant, and equipment.
13 I think that this is an incredible opportunity.
14 And I think rather than look at the industry and businesses
15 as some cow that's there to be milked whenever we may need
16 funds in Harrisburg, right, that we're actually doing the
17 right things.
18 This Governor is taking a long-term vision, not
19 only to grow the economy today but that we ensure that this
20 industry is a vital component of our economy, of our job
21 base, for decades, for generations to come. That's the
22 course that this Governor has set us on. And I think we're
23 beginning to see that unfold here in Pennsylvania.
24 REP. CHRISTIANA: Going forward, I would advocate
25 that there's a fourth leg of the chair that we need to
60 1 continue to make investments in, and that's our higher
2 education and our basic education.
3 We've talked about the record investments in
4 K-12. We also made the first increase in the capital line
5 item to community colleges, the first time in three years.
6 I would advocate going forward, I think, that there have to
7 be steps going forward, not just a one-time investment in
8 capital line items for higher education, but I think that
9 has to be the fourth leg of the stool.
10 We've got to get our workforce trained in these
11 new industries. And they're going to need capital to do
12 it. I advocate, going forward, that we look at those line
13 items and continue to make investments.
14 My final question is about revenue projections.
15 SECRETARY ZOGBY: Okay.
16 REP. CHRISTIANA: The Independent Fiscal Office,
17 while I appreciate and respect their independence, their
18 revenue projections are a little bit different than yours
19 going forward. We talked about sales tax coming in a
20 little bit below expectations.
21 Can you talk about the revenue projections in
22 your budget and how committed to those you are going
23 forward? I know it's been a few weeks since the Governor
24 has introduced his budget. Could you talk about maybe the
25 difference between the IFO's revenue projections and yours
61 1 going forward? That obviously is a huge building block for
2 this budget.
3 SECRETARY ZOGBY: If there's one area that has
4 given me angina over the past couple of years, it is in the
5 revenue projections. We're in a very volatile economy. I
6 think that's kind of played out in the revenue projections.
7 This year, as I think you know, the Department of
8 Revenue is projecting that we'll end the year $232 million
9 over estimate. We were about 170 or so, I think, around
10 budget day. We've seen some erosion of that. We're around
11 105 million or so.
12 This month is going to be a very big month with
13 gross receipts tax. And these are numbers that, you know,
14 we watch a great deal. And if there's one point of
15 nervousness that I have going forward, when we think about,
16 you know, the tax increases that the Federal Government
17 imposed at the beginning of the year, the sort of
18 brinksmanship that we have with the sequester and the debt
19 ceiling in D.C., it plays havoc on our economy. People
20 hold back. They don't spend because of the uncertainty.
21 That plays out in our revenue estimates.
22 Right now I think we're sticking to our revenue
23 estimate for the end of the year. But I do think we have
24 some potential exposure there. And we're going to be
25 watching that very clearly. And certainly to the extent
62 1 that we realize fewer revenues than what we're projecting,
2 that's going to make finalizing a budget around enactment a
3 little more difficult than it otherwise would.
4 REP. CHRISTIANA: One final point.
5 This is going to be the first full fiscal year
6 going forward where Pennsylvania's tax dollars are online
7 on a database that your office is monitoring and actively
8 being a part of, and that's PennWATCH. And I think the
9 public is excited to know that they no longer have to drive
10 all the way to Harrisburg to find out where we're spending
11 their tax dollars.
12 I thank you and the Administration for being
13 supportive of that proposal. The previous Administration
14 had an opportunity to support something like that and it
15 didn't get done. And I know it got done within the first
16 six months of you being here. I'm thankful for that. And
17 Pennsylvania is thankful that we're completely transparent
18 with the way they spend their tax dollars. And I look
19 forward to that going forward.
20 Thank you, Mr. Secretary.
21 SECRETARY ZOGBY: Thank you.
22 REP. CHRISTIANA: Thank you, Mr. Chairman.
23 MAJORITY CHAIRMAN ADOLPH: Thank you,
24 Representative.
25 Rep. Santarsiero.
63 1 REP. SANTARSIERO: Thank you, Mr. Chairman.
2 Let me echo my colleague's comments on that last
3 point. I want to thank Rep. Rick Mirabito whose bill that
4 was in the previous session. It was an excellent job
5 coming up with that idea.
6 Mr. Secretary, good morning.
7 SECRETARY ZOGBY: Good morning.
8 REP. SANTARSIERO: We talked before. You
9 mentioned in your exchange with Rep. Carroll the idea of
10 promises and the promise that was made on adultBasic by the
11 previous Administration. But, sir, I'd submit to you that
12 it doesn't really matter who made the promise. What
13 matters is whether the promise ultimately gets broken.
14 The salient point was that 90,000 people were
15 thrown out of health care. And I think that's the point
16 that a number of us have been making about the Medicaid
17 expansion. But I'm not going to dwell on that this morning
18 because we talked at length about that yesterday.
19 What I want to talk about is another promise that
20 was made, an ill-advised promise. And that was the promise
21 that the Ridge Administration and the Republican
22 Legislature in both the House and the Senate made back in
23 2001 in increasing pension benefits. That has been
24 acknowledged, I think, by most people as a major
25 contributing factor to the pension problem that we face
64 1 today.
2 The concern I have with the proposal that the
3 Administration is now making on the budget is that the
4 budgeting is predicated to no small degree on a pension
5 reform proposal that may well be found unconstitutional.
6 And if that happens and we are not adequately
7 saving for dealing with the pension problem if that
8 proposal is found unconstitutional, then we could well be
9 in a place in a year or two when the Supreme Court
10 ultimately rules on a decision -- because I think we all
11 understand that if the pension proposal is passed, it will
12 likely wind up in litigation where we have now, once again,
13 experientially increased our pension problem so we will
14 have taken a mistake that was made under the Ridge
15 Administration in 2001 and increased it now under the
16 Corbett Administration.
17 That, I think, is one of the biggest mistakes.
18 I'm not opining today on the proposal. Frankly, we haven't
19 seen the specifics of the proposal. But what I am
20 concerned about is a budget that makes the assumption that
21 the proposal is going to pass and ultimately is going to be
22 found constitutional.
23 I would, in the first instance, urge you and the
24 Governor to take that into account because I really do
25 believe that we could well be in a situation where this
65 1 problem is going to be much worse than it is now.
2 You have been talking a lot this morning about
3 constraints, constraints that this Administration found
4 itself in when it took office. And I don't think anyone
5 would argue that the economy in the last five years or so
6 has placed constraints on government at every level.
7 But I would argue that many of the constraints
8 that you all have been talking about have been
9 self-imposed. You have decided that we were not going to
10 fairly tax the Marcellus Shale gas drilling. That has
11 resulted in a loss of revenue to the Commonwealth.
12 The Administration has decided that it wasn't
13 going to close the Delaware loophole and essentially put in
14 place a system of tax fairness at the corporate level that
15 we don't currently have here in Pennsylvania. That has had
16 a revenue impact.
17 The Administration has decided to continue to
18 phase out the capital stock and franchise tax, something
19 that there was bipartisan support for. The difference of
20 opinion, however, is that we believe that we should
21 probably not be doing that until we really get out of the
22 woods on some of these issues. And that has had an impact.
23 And it's taken those imposed constraints and it's then
24 visited those upon a number of line items in the budget
25 which are critical. Education is one of them.
66 1 Now, I'm encouraged to hear you say today that
2 you believe that public education is a core function of
3 government. I'll be honest, there are many of us who have
4 wondered at times whether, in fact, the Administration
5 really does have that belief. And the pretty substantial
6 cuts to the education budget in the last couple of years
7 have caused us to wonder about that.
8 And I'm not going to argue with you back and
9 forth on that. We have had a pretty good discussion with
10 Secretary Tomalis. And I think the truth has gotten out to
11 the public.
12 What I am concerned about, though, is if the
13 liquor proposal does not pass and there isn't that $200
14 million that Governor is proposing as a one-time infusion
15 of money into education to fund this passport to education,
16 will the Administration nonetheless seek to put that kind
17 of money into education?
18 SECRETARY ZOGBY: Well, I think the Governor is
19 also interested in providing more support for our public
20 schools. He did it this year again with a $90 million
21 increase in the BEF line item. We have additional
22 investments in early childhood education.
23 I think when you talk about a billion dollars, I
24 think it's really unrealistic to think that there's an
25 avenue out there other than liquor store privatization that
67 1 can provide us an additional billion dollars in support for
2 our public schools. So I think when you think about sums
3 at that magnitude, I think it does become a different
4 question.
5 The reason that the Governor in part is pursuing
6 pension reform is that he understands that this crowding
7 out that's happening is the same dynamic that's happening
8 at the school district level. We hear from our educators,
9 our administrators, school boards, superintendents. They
10 need relief from these pension payments. And we've got a
11 make-sense plan.
12 It will certainly be, I think, litigated. But I
13 think what we're proposing will ultimately withstand the
14 test in the courts. And we're managing our liability there
15 in a responsible way. And the Governor is looking at,
16 again, reforms in the system and keeping the promise that
17 retirees, active employees, they're going to get everything
18 that they've earned. But we are talking about reforms on
19 future service.
20 So I think the Governor believes it's appropriate
21 to be looking at pension reform as opposed to going to
22 schools and saying, well, you know, you've got to cut more
23 or you've got to raise property taxes more so that we can
24 make sure that public employees and public school employees
25 have not only all of the pension benefits that they've
68 1 earned to date but everything going forward as well.
2 And I think it's there, maybe we simply part
3 paths. I would just respectfully disagree.
4 REP. SANTARSIERO: Mr. Secretary, on the
5 pensions, I'm not arguing on the substance of your proposal
6 because, frankly, we haven't seen the details of it. All
7 I'm saying is you are presenting us with a budget that is
8 based on a pretty big assumption that that proposal at the
9 end of the day is going to be found to be constitutional.
10 And I say it's a big assumption partly because we had a
11 Justice of the Supreme Court here a couple of weeks ago who
12 cast some real doubt on whether that would ultimately pass
13 muster under the constitution partly because, as you know,
14 we have two Supreme Court decisions from 1984 on the exact
15 question that say that that, in general terms, from what we
16 understand is being proposed, is not constitutional.
17 My point is --
18 SECRETARY ZOGBY: I'm just saying,
19 Representative, I don't think it's the exact question.
20 REP. SANTARSIERO: Regardless, my point is, there
21 is a substantial question as to whether or not, from what
22 we understand the general terms of, your proposal will
23 ultimately be found constitutional.
24 And given that question, it is, I don't think,
25 responsible budgeting to present a budget that's predicated
69 1 on an outcome that may well not come to pass. And it
2 further has a compounding effect on the mistake that was
3 made under the Ridge Administration in 2001.
4 But I want to come back to another point that you
5 made with respect to education funding. You say that if we
6 don't do the liquor store privatization and you don't have
7 this $1 billion one-time infusion in cash, there's no other
8 source to come up with money to put money back into
9 education. And that's just not right.
10 The fact of the matter is that if this
11 Administration were to get behind a reasonable natural gas
12 severance tax, as they have in most other states in the
13 Union -- and by the way, West Virginia is not the highest.
14 And I'm not calling for the highest. And the one that we
15 passed in the House two years ago or two and a half years
16 ago now was not the highest. It would not have created the
17 highest in the nation.
18 And if we close the Delaware loophole, that would
19 put substantial -- hundreds of millions of dollars into the
20 education budget, not just once, but every year. So, you
21 know, I think it's --
22 MAJORITY CHAIRMAN ADOLPH: You have 10 seconds,
23 Representative.
24 REP. SANTARSIERO: -- a little bit disingenuous.
25 And the last thing I'll say is the constraints --
70 1 and the pledge the Governor makes about not raising taxes
2 is an illusionary pledge. Because as has been noted --
3 MAJORITY CHAIRMAN ADOLPH: Thank you,
4 Representative.
5 REP. SANTARSIERO: -- those costs are being
6 visited upon people --
7 MAJORITY CHAIRMAN ADOLPH: Next question,
8 Representative.
9 REP. SANTARSIERO: -- either at this level --
10 MAJORITY CHAIRMAN ADOLF: Next question will --
11 REP. SANTARSIERO: -- or at the local level. And
12 so when you --
13 MAJORITY CHAIRMAN ADOLPH: Representative.
14 REP. SANTARSIERO: Okay. Well, thank you.
15 MAJORITY CHAIRMAN ADOLPH: The next question will
16 be by Rep. Gordon Denlinger.
17 REP. DENLINGER: Thank you, Mr. Chairman.
18 Secretary, good to have you join us.
19 SECRETARY ZOGBY: Good morning, Representative.
20 REP. DENLINGER: I think we're having a good
21 dialogue here. And I want to extend a word of appreciation
22 to you for the two on-time balanced budgets that we've had.
23 SECRETARY ZOGBY: Thank you.
24 REP. DENLINGER: We compare that in contrast with
25 the record of failure from the previous Administration,
71 1 seven late budgets. I think that speaks well to your
2 efforts and that of the Governor. It stands in stark
3 contrast to the Federal level where the Administration has
4 led to four years of no budget and a total breakdown of the
5 Federal budget process. We appreciate your efforts.
6 SECRETARY ZOGBY: Thank you.
7 REP. DENLINGER: I'd like to take the discussion
8 to a different level and talk about the General Fund and
9 the theory of budgeting to the extent that more and more of
10 our items seem to be moved out of the General Fund. And to
11 some extent, the role of the General Assembly in setting
12 priorities and being accountable for budgets has
13 deteriorated a bit over time.
14 We are in this budget looking to move some number
15 of items from General Fund revenues over to the Racehorse
16 Development Fund. We recognize there is money available
17 there. And yet the more we see this happening, we know
18 that the Assembly has less control, less of a direct role
19 in oversight when this process continues to happen year in
20 and year out.
21 And I'm reminded of the previous Administration.
22 DEP Secretary Hanger significantly increased fees, fines,
23 and penalties under DEP and gradually General Fund revenues
24 flowing to DEP diminished. And he was moving towards
25 self-funding, not completely, we understand, but more and
72 1 more over time. Some of the perception was that was an
2 attempt to move that agency out from under the control of
3 the Assembly.
4 Can you speak to that deterioration that we see
5 over time and the implications of it? And, frankly, this
6 Administration is doing the same thing. I guess I'm asking
7 for a comment there.
8 SECRETARY ZOGBY: You raise an interesting issue,
9 Representative. And I would say that I don't know that
10 I've really ever heard it in the way that you've cast it
11 here. I certainly would not think that what we've done in
12 terms of moving some of the funding -- whether it's the
13 Racehorse Development Fund or some of the other funds that
14 we have, moving General Fund activities or funding them,
15 what have previously been General Fund activities over to
16 special funds, I don't really see that as a degradation of
17 the General Assembly's, this Committee's, responsibilities.
18 I think it's been more of a function that in, you know,
19 very difficult times, we're looking for ways to preserve
20 important activities, funding for important activities, and
21 being able to move these activities and have them supported
22 by other funds, in my view, has been a step to, again,
23 preserve funding for these activities but still be able to
24 fund what are the core functions and programs in the
25 General Fund.
73 1 I guess I'd want to reflect on it a little. But
2 it doesn't seem to me that that in any way takes away the
3 General Assembly's ability to provide oversight, to
4 question how those funds -- as you know, we spend the bulk
5 of our time on the General Fund. But that certainly
6 doesn't prevent us from looking at or examining all of
7 these special funds that we have in State government.
8 REP. DENLINGER: I appreciate those comments.
9 I do hold on to the concern that the Assembly can
10 provide a lot of focus to General Fund streams, that we
11 tend to, I guess you'd say, give less focus or less
12 attention to these other funding streams.
13 Last item. We are having a lot of discussion
14 about the relative tax burden on the business community,
15 individual families, and so forth in our hearing here
16 today. Certainly, there's been a concerted effort to try
17 to make Pennsylvania more business friendly.
18 Relative tax burden. Every state has a portfolio
19 of taxes that they roll out. But I'm wondering in total
20 burden on business, total burden on families and
21 individuals, where does Pennsylvania stand? Are we a
22 high-tax State? medium? low? Where do we stand?
23 SECRETARY ZOGBY: The last time I've looked at
24 these numbers -- and it has been a little. I think we tend
25 to be kind of in the middle of the pack in terms of overall
74 1 tax burden. I don't think we are regarded as a high-tax
2 State.
3 Now, with respect to corporate taxes, I think
4 there's an argument to be made that we probably have the
5 highest corporate tax rate, CNI rate, in the nation. I
6 think it's -- I want to say Iowa, but I'm not entirely
7 certain. There's a state that has a higher rate but it's
8 graduated. Perhaps there's a case there. I mean, the
9 United States has some of the highest, if not the highest,
10 corporate tax rates in the world.
11 So I think you can make an argument that
12 Pennsylvania has the highest corporate tax rates in the
13 world. And that's certainly not, I think, an attractive
14 sign for business. And we talk here that there's been some
15 notion of raising business taxes. And as you point out, a
16 good many of our businesses, small businesses, are job
17 creators, pay at the PIT rate. So if we're going to talk
18 about raising taxes on business, I think we have to
19 understand if we're going to go there, we're also talking
20 about hitting Pennsylvania families as well.
21 REP. DENLINGER: Thank you for those comments.
22 I think it bears watching, again, thinking of the
23 whole range of taxes, fees, and so forth, that we do not
24 penalize and overly burden those job creators that are out
25 there and that we do take a serious look at, particularly
75 1 as you highlighted, the CNI, which is the highest in the
2 industrialized world.
3 Thank you.
4 SECRETARY ZOGBY: Thank you.
5 REP. DENLINGER: Thank you, Mr. Chairman.
6 MAJORITY CHAIRMAN ADOLPH: Thank you,
7 Representative.
8 Rep. Bradford.
9 REP. BRADFORD: Thank you, Mr. Chairman.
10 Secretary Zogby, I wanted to follow up a little
11 bit -- and I know some of the language regarding the
12 pension. I don't know if it was intentionally -- I viewed
13 it as a little overheated regarding some of the decisions
14 that were made, not just over the last eight years, but
15 that had really been made over probably two generations.
16 You're looking at a lot of bad decisions. And
17 I'm going back from Act 9 of '01, Act 38 of '02, Act 40 of
18 '03. I know we've had discussions before about how we wind
19 up in the position we do today with a Pension Fund that is
20 clearly distressed. Clearly hard decisions have to be
21 made. But the language towards Governor Rendell's Ponzi
22 scheme and such like that, Governors don't implement
23 budgets without the full consent of the Legislature. And
24 legislative majorities that were of the party opposite
25 approved every one of those pension changes.
76 1 And some of those pension changes weren't
2 Governor Rendell. They were Governor Ridge. And some of
3 the quotes that I'm looking from are from his policy
4 director, Charles Zogby.
5 Again, I disagree very strongly with many, many
6 of Governor Corbett's views. But I represent him and I
7 respect his office. Governor Rendell similarly served
8 honorably the Commonwealth two terms. He served as Mayor
9 of Philadelphia and did a tremendous job. He was a great
10 district attorney.
11 But needless, what I would say, not just
12 overheated but somewhat disingenuous rhetoric, to ignore
13 the realities of how we find ourselves in this pension
14 situation I think is taking us away from the ability to
15 find a bipartisan solution but making us more like our
16 friends in Washington who have gotten into a position where
17 they cannot govern.
18 And whether it was Speaker Perzel at the time or
19 the Senate Republican Leadership or Governor Rendell or
20 Governor Schweiker or Governor Ridge, there's blame to go
21 around.
22 I'm reading a quote where I think you said at one
23 point by decreasing employer contribution rates for school
24 employees' retirement combined for their estimated cost
25 change will save local education agencies approximately $44
77 1 million in '01-'02. What you were discussing, what you
2 were advocating at that time was underfunding the pension.
3 That's the simple reality of why we're here. Do
4 you have any response to how we're here? And is it a Ponzi
5 scheme cooked up by Governor Rendell or is there more blame
6 to be shared?
7 SECRETARY ZOGBY: Representative, I appreciate
8 your comments. I think if you look back to the Keystone
9 Pension Report that the Budget Office put out late last
10 year, I think while we didn't go back to the beginning of
11 time, I think we did recognize that over the last decade or
12 so, there were a number of, I'll say, bad decisions as well
13 as, I think, a lost decade of market returns in a pension
14 system that largely operates on investment returns.
15 So, yes, you can go back to Governor Ridge in
16 2001, Governor Schweiker in 2002, Governor Rendell in 2003.
17 And I think if we all maybe had those decisions to do over
18 again with the benefit of hindsight, which is, you know,
19 20/20, right, that there may have been different decisions
20 particularly maybe understanding the very difficult
21 economic waters that we have had to swim in the last many
22 years.
23 And again, there's a lot of things that we can
24 look back on. I think what this Governor is trying to do
25 is look forward in terms of the kind of reform that we need
78 1 that isn't going to crowd out funding for core functions in
2 the General Fund, that isn't going to force school
3 districts to make untenable cuts in education programs that
4 affect our kids or be forced to raise property.
5 REP. BRADFORD: All right.
6 SECRETARY ZOGBY: So I think he is looking for a
7 reasonable way out here with, I think, a very reasonable
8 reform plan.
9 REP. BRADFORD: Thank you, Secretary.
10 You've pivoted to where I wanted to go, which was
11 rather than going backward and looking at what Republican
12 legislators and Democratic and Republican Governors
13 together did in creating this mess, now let's look forward.
14 Let's look at what this Governor is proposing.
15 We know we have an actuarially mandated pension
16 contribution that should be due this year that the
17 Legislature has created through something called collars, a
18 lower contribution rate.
19 SECRETARY ZOGBY: Yes.
20 REP. BRADFORD: Does the Governor's budget
21 propose to fully fund the current legal obligation of the
22 Commonwealth to fully fund the pension this year?
23 SECRETARY ZOGBY: What the Governor is proposing
24 is a reform plan that would have those rates not go up to
25 the statutory amount, the payment amount. That would save
79 1 us $175 million between --
2 REP. BRADFORD: Just in PSERS?
3 SECRETARY ZOGBY: No. That's an all-in number
4 between SERS and PSERS. It's, I think, about $135 million
5 on the PSERS side. It's about $40 million on the SERS
6 side.
7 REP. BRADFORD: Okay. So the first step going
8 forward is to underfund this year's pension contribution
9 below the legal minimum?
10 SECRETARY ZOGBY: No. That's not the first step.
11 I think the first step is reform that produces savings in
12 order to give us General Fund relief. And the General Fund
13 relief is a function of the reforms that the Governor is
14 proposing.
15 REP. BRADFORD: Do you have an understanding for
16 accelerated review by the Supreme Court? Because those
17 reforms that you're talking about are constitutionally very
18 questionable. So the first step, the one that's going to
19 actually happen, is, we're going to pass a budget that
20 underfunds the pension obligation this year.
21 Having looked backward -- and, again, not to play
22 the blame-game, but hindsight being 20/20, we're going to
23 go back and do the exact same thing. We're not going to
24 put in the actuarially mandated amount. We're not even
25 going to put in the statutorily mandated amount. We're
80 1 going to but in a lessor amount. We're kicking can. We're
2 kicking the can under the assumption that a pension reform
3 will be upheld by the Pennsylvania Supreme Court at some
4 later date.
5 Again, we're making pension changes this year in
6 the hopes that some later event happens or doesn't happen
7 to make that work out. They are the gambles I would argue.
8 And, again, I respect the Governor. I don't want to go
9 down the same road of demonizing one Governor like we've
10 done about a prior one.
11 I think what we're talking about is compounding
12 the same failed logic that got us here. We're already on
13 somewhat of a pension holiday. We need to start paying our
14 bills. You talk about the crowding-out effect. I think
15 you make a very good point. Let's talk about the
16 crowding-out effect. Let's talk about funding and
17 education.
18 I think you talked about the pension. I would
19 argue the pension proposal is more of the same failed logic
20 just pushed forward. If we're talking about making tough
21 choices, let's make constitutionally tough choices. Let's
22 not do ones that are illusory or questionable and underfund
23 the pension today.
24 But the crowding-out effect, I do want to talk
25 about that because that gets us to some of the budget
81 1 priorities of this Governor. And I disagree with them
2 strongly, as we've talked about before.
3 On the issue of tax policy. This Governor, you
4 said, is proposing additional corporate tax cuts. We can
5 argue about the wisdom of those cuts. Is there any tax
6 cuts for the average Pennsylvanian?
7 What I would argue, you've used the word, job
8 creator, a couple of times. I would argue the greatest job
9 creator in this Commonwealth are those people who go out to
10 work 40 hours a week, pay their bills, and stimulate and
11 keep this economy moving. So those people that pay a
12 property tax bill that's gone up last the last two years
13 because of cuts to public education, that job creator, is
14 there any help for the local property taxpayer? Is there
15 any help for those who pay the personal income tax in
16 Pennsylvania? Is it all corporate tax cuts and nothing for
17 the individual?
18 SECRETARY ZOGBY: Representative, one is that I
19 would go back to your characterization of kicking the can
20 down the road and say that the Governor's proposal does not
21 kick the can down the road. The savings that we make over
22 time more than cover the short-term collar tapering that
23 we're suggesting.
24 And we're suggesting that because we understand
25 that if we're going to go down the road that you're
82 1 proposing, make that statutorily required pension payment,
2 we know that that's going to mean cuts to the General Fund
3 in programs. We know that it's going to force school
4 districts to make cuts in education programs. We're going
5 to force them to raise property taxes.
6 And so I think that what the Governor is
7 proposing is a very responsible reform plan. Everybody
8 seems to go to sort of the automatic that everything that
9 he's proposing is somehow unconstitutional. And I would
10 say that, you know, not all reforms are created equal.
11 For instance, when you think about the Option 4
12 Withdraw, did anybody ever take their job thinking they
13 were going to get a subsidy in their annuity 30, 40 years
14 later down the road?
15 REP. BRADFORD: Secretary, we're getting a little
16 off topic.
17 SECRETARY ZOGBY: I disagree.
18 REP. BRADFORD: I think there are definitely
19 pension reforms that should be looked at. I think that's
20 one of them.
21 MAJORITY CHAIRMAN ADOLPH: I'm going to ask Rep.
22 Bradford to sum up his statement. You're over ten minutes.
23 And I've asked every member to try to keep this first round
24 to five minutes. You're twice the allotted time.
25 REP. BRADFORD: Thank you, Mr. Chairman.
83 1 Secretary, I don't mean to be argumentative,
2 whether it's tax policy or some of the things you raised, I
3 think they get us off of the real topic, which is -- you
4 know, you talk about no one asked -- every reform the
5 Governor comes up with is unconstitutional.
6 Well, at least in one case with the Lottery, the
7 Attorney General found that one unconstitutional and
8 against statute. So I don't think we're grasping at straws
9 here. These are just prudent financial decisions that need
10 to be made in light of current law.
11 And I think in terms of summing up, to make
12 Chairman Adolph happy, I think what I'm worried about here
13 is the whole core view of government should function. You
14 talked about LCB --
15 MAJORITY CHAIRMAN ADOLPH: That's about it.
16 Thank you very much.
17 The next question will be by Rep. Boback.
18 REP. BOBACK: Thank you, Mr. Chairman.
19 Mr. Secretary, the Governor's budget includes the
20 impact of the Justice Reinvestment Initiative that was
21 initiated last year. However, the same budget shows
22 decreased expenses for corrections and youth development
23 centers, while at the same time increasing the workload for
24 Juvenile Probation and Probation and Parole.
25 Could you discuss this initiative in more deal?
84 1 Because my concern is, we're increasing, we're decreasing,
2 we're putting more workloads on different agencies. So how
3 will it come down and impact different departments
4 throughout the Commonwealth?
5 SECRETARY ZOGBY: Sure. I think sort of on the
6 Justice Reinvestment and just focusing on corrections, I
7 was looking for the numbers here. But we have made
8 substantial investments in our Board of Probation and
9 Parole, recognizing that this sort of rebalancing that
10 we're doing in the corrections system is going to put more
11 of the weight, if you will, for public safety on the Board
12 of Probation and Parole and the agents that are out there
13 and we do need to provide more resources.
14 In the juvenile justice area, as you may know, we
15 are proposing a rightsizing of our youth development
16 centers. It's a good-news story in the sense that the
17 strategy that this General Assembly, this Governor, prior
18 Governors, have pursued in juvenile justice has resulted in
19 a reduction of juvenile crime and a reduction in the number
20 of young people we're seeing going into our YDCs.
21 Being able to close a facility there, it saves us
22 about $13 million. I think it's $12.8 million. We're
23 taking $10 million of those saved funds and reinvesting
24 them back into the system in proven programs,
25 evidence-based programs, that work that we hope will result
85 1 in a further reduction of juvenile crime and recidivism.
2 So I think that's the dynamic here that we're
3 hoping to take hold, that we can take some of the savings
4 that we're realizing from the strategies that we're
5 implementing, then put them back into the system in
6 make-sense reforms that hopefully will become sort of a
7 self-perpetuating process, if you will, that makes us
8 invest and be smarter in the way that we're maintaining
9 public safety of the Commonwealth.
10 REP. BOBACK: Thank you.
11 How am I on time, Mr. Chairman?
12 MAJORITY CHAIRMAN ADOLPH: Compared to who? You
13 are in very good shape, Representative.
14 REP. BOBACK: Then if I may, I have a follow-up
15 question on violence prevention. How will the additional
16 funds being requested in your budget for violence
17 prevention be distributed? My concern here is that we are
18 putting a lot of money into this program and yet violence
19 among our youth is still increasing, unfortunately.
20 So what I guess I'm asking, is the money
21 appropriately placed that we could follow the money to make
22 sure that those programs that we are investing in are
23 working for our youth?
24 SECRETARY ZOGBY: We're putting the bulk of the
25 money on -- the juvenile justice side is going to be going,
86 1 I believe, to the Juvenile Court Judges Commission. That's
2 to institutionalize throughout the system many of the
3 reforms that have taken place, so really to kind of embed
4 those, if you will, into the system.
5 I think we also have some additional funds in the
6 next big bucket, the Pennsylvania Commission on Crime and
7 Delinquency. Obviously, all those activities are overseen
8 by the General Assembly. We certainly would welcome the
9 opportunity to work with you so that you can see exactly
10 where those monies are going, the kinds of activities that
11 they're being invested in.
12 And I think if you talk to the Juvenile Judges
13 Commission, particularly, as I have, when they were in
14 during the budget process, these Judges see these programs
15 that work every day.
16 And again, one of the reasons that we're seeing
17 the decrease in our population in the YDC system is because
18 of the effectiveness of the program. And we're going to
19 put more resources behind them. So we would be happy to
20 help you and the rest of the Committee see how we're going
21 about that business of reinvestment to improve the overall
22 public safety in that area.
23 REP. BOBACK: I would like to be a part of that.
24 And I truly would appreciate that invitation. I'll take
25 you up on that, Mr. Secretary.
87 1 SECRETARY ZOGBY: Of course.
2 REP. BOBACK: Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN ADOLPH: Thank you,
4 Representative.
5 The next question will be by Rep. Sabatina.
6 REP. SABATINA: Thank you, Mr. Chairman.
7 Thank you for being here, Mr. Secretary.
8 SECRETARY ZOGBY: Representative.
9 REP. SABATINA: I'd like to speak a little bit
10 about the sale of the liquor stores. In questions past,
11 you had mentioned that none of the stores were profitable.
12 When we had the LCB here, if my memory serves me, they were
13 telling us that only 24 of the stores out of 600 were not
14 profitable and they were mostly in rural areas.
15 Can you explain that?
16 SECRETARY ZOGBY: Sure. My understanding,
17 Representative, is that if you back out the wholesale part
18 of the business and you just focus on the retail business,
19 my understanding is that every store operates at a loss.
20 I can be corrected on that, I guess. That's my
21 understanding of that. I'll go back after this hearing and
22 make sure that I have that correct. But I believe that's
23 the case. And again, disaggregating the wholesale portion.
24 REP. SABATINA: Okay. For a minute, let's go
25 back in -- forget about philosophical ideas about whether
88 1 or not the State should or shouldn't be in the business of
2 selling alcohol. And let's forget about, you know, the
3 personnel and personnel costs of displacing 5,000 or so
4 Pennsylvania people from their jobs. Let's just get into
5 the numbers.
6 SECRETARY ZOGBY: Sure.
7 REP. SABATINA: From my recollection -- and
8 forgive me because I'm not perfectly sure about these
9 numbers because the hearing was last week or the week
10 before and after a while these hearings all bleed into the
11 other in your mind.
12 SECRETARY ZOGBY: Lots of numbers.
13 REP. SABATINA: They told us, the LCB told us,
14 that approximately 120-some stores are allowed to be open
15 on Sundays now. And if they had their way, they would
16 increase it to -- if they had their way and were able to do
17 it through legislation from the General Assembly, they'd
18 like to see 180-some more open on Sundays and that would
19 increase profits and profitability.
20 And I'm just doing this from a financial aspect.
21 The Governor has proposed that selling the liquor stores
22 would generate $1 billion. And I've heard some people
23 saying, well, you haven't gotten that in other states. And
24 it's a high generous number.
25 But just taking that number of $1 billion and
89 1 also taking the fact that the State stores -- I'm sorry --
2 the LCB contributes $80 million a year into the General
3 Fund and with the increased profitability, they said that
4 they could probably get up to $100 million a year.
5 That being said, even if the Governor's revenue
6 projection of $1 billion and the LCB's projection of being
7 able to contribute 100 million a year, wouldn't we be at a
8 loss at Year 11 if we sold the stores?
9 SECRETARY ZOGBY: No. Representative, as I
10 understand the Governor's proposal, what we're doing is,
11 even with the divestiture, we're preserving all of the
12 revenue streams that flow from the LCB business as well as
13 the areas right now where LCB is covering spending, maybe
14 it's State police or other activities that are generated or
15 covered by the LCB revenues.
16 So what we're doing in divestiture, we're not
17 only maintaining all of the current revenue streams and
18 taxes that the Commonwealth is receiving, covering all of
19 the funding, including the annual profit transfer, but in
20 addition to that, we're generating an additional billion
21 dollars in revenue, albeit it one-time monies.
22 So that at the end of the day, what we're doing
23 is, we're not only able to get the Commonwealth out of a
24 business that the Governor doesn't believe we ought to be
25 in, selling, marketing alcohol, but that we're able to
90 1 preserve all those revenues and put an additional billion
2 dollars into our public schools.
3 REP. SABATINA: Secretary, are you saying that
4 the LCB will continue to give $100 million a year into the
5 General Fund after divestiture of the liquor stores? Is
6 that what you're saying?
7 SECRETARY ZOGBY: What I'm saying is that all of
8 the revenues that flow to the State, both in terms of
9 taxes, sales tax, Johnstown flood, the spending that is
10 supported out of the LCB and the profit transfer, all that
11 is preserved divestiture and yielding a billion dollars
12 that we can invest in public schools.
13 REP. SABATINA: Do you have a dollar amount as to
14 what that would be?
15 SECRETARY ZOGBY: I would have to get that for
16 you, sir.
17 REP. SABATINA: Okay. And isn't it true that the
18 actual selling of the liquor stores, there will be a cost
19 associated with that? And there will be costs of
20 collecting the -- right now taxes that are collected are --
21 you know, is a straight line to the government. There will
22 be an additional cost if we do sell the liquor stores and
23 we have 1,200 different entities selling liquor throughout
24 the Commonwealth. There will be a cost associated with
25 collecting that tax. And also there will be a cost of the
91 1 taxes that you won't be able to collect from certain stores
2 why for one reason or another, don't pay their taxes.
3 Is the Governor looking at those costs as well?
4 SECRETARY ZOGBY: Well, I think there are some
5 marginal one-time costs in the divestiture. But again, I
6 think in the main, what we're looking at is a proposal that
7 preserves all revenues and yields an additional billion
8 dollars to put into our public schools.
9 So I think the Governor's proposal considers all
10 of that. Again, I think at the end of the day, it gets us
11 out of a business that he believes we shouldn't be in and
12 is able to invest in our public schools.
13 REP. SABATINA: Okay. I'll buy that.
14 It's been my position that, you know, the LCB has
15 been described as a monopoly. And just growing up,
16 learning anytime one person has a monopoly, that's a good
17 thing for that person, it's been my position that maybe the
18 Commonwealth, instead of focusing on getting out of the
19 liquor-selling business, should embrace this monopoly.
20 There's not a lot of entities, there's not a lot
21 of departments out there that actually bring in money and
22 contribute to the General Fund. A lot of them just take.
23 This is one of them, along with the Lottery, that
24 actually contributes to the General Fund. And instead of
25 focusing on ways to divest from sell ing liquor, I believe
92 1 it would be more beneficial if we found ways to improve on
2 the monopoly and the advantageous financial scenario that
3 the Commonwealth happens to be in.
4 SECRETARY ZOGBY: Well, my understanding, I think
5 back to my Economics 101 course. And I think with
6 monopolies, you know, you get higher prices and less
7 quality. And certainly I think with respect to the LCB,
8 one of the big things that we don't get with it is
9 convenience for Pennsylvanians. We're locked in this very
10 antiquated sort of prohibition-era system that is really
11 inconsistent with the way in which Pennsylvanians are
12 seeking in nearly every other aspect of their lives, which
13 is convenience and competition.
14 That's, you know, the focus at the end of the day
15 for the Governor. We want a system that better meets the
16 needs of individuals in Pennsylvania and is also, again,
17 able to yield substantial funds that we can then invest in
18 our public schools.
19 REP. SABATINA: Well, Secretary, I appreciate
20 that position.
21 As you know, I'm from Philadelphia. And
22 convenience may not be a good thing in Philadelphia. I'm
23 thinking of New Jersey and liquor stores on every corner.
24 And in urban areas, you know, depending on the scenario,
25 convenience may not be a benefit to the general public.
93 1 SECRETARY ZOGBY: Well, I certainly don't think
2 the Governor's plan envisions a liquor store on every
3 corner. And certainly, I think, Representative, you would
4 know being from the Southeast that there's a lot of people
5 right now that are voting with their feet. They're driving
6 to Delaware. They're driving to New Jersey. They're
7 looking for the convenience in other states that they don't
8 get here.
9 And so I think about the amount of revenues that
10 we're losing simply because people are seeking out the
11 convenience in other markets. That's a concern.
12 REP. SABATINA: Well, part of the convenience,
13 Secretary, is because the stores aren't open on Sundays and
14 you have to go to New Jersey and you have to go to
15 Delaware. So if they were open, we might see an increased
16 benefit in Pennsylvania.
17 MAJORITY CHAIRMAN ADOLPH: I think we'll finish
18 on that note, Representative.
19 REP. SABATINA: Thank you.
20 MAJORITY CHAIRMAN ADOLPH: The next question will
21 be from Rep. Glen Grell.
22 REP. GRELL: Thank you, Mr. Chairman.
23 Secretary Zogby, good to see you. Thank you for
24 putting up with all of this.
25 SECRETARY ZOGBY: Representative, good to see
94 1 you.
2 REP. GRELL: I think we're close to the end here.
3 I actually came in here today expecting to ask
4 you a question on justice reinvestment because I think
5 that's truly one of the success stories that Governor
6 Corbett led the General Assembly through with strong
7 bipartisan support.
8 So in your response to Rep. Boback, I think that
9 information would be helpful to any of my colleagues on
10 this Committee to show, you know, what we're going to do
11 with the money that we're going to save by being smarter on
12 incarceration and how we're going to put that into entities
13 and agencies that might make better use of it in terms of
14 keeping people out of our jails.
15 I really wasn't going to ask a question about
16 pension. We've talked an awful lot about that, and I'm
17 sure we will. But when I hear my colleague and friend on
18 the other side of the aisle talk about -- and accuse the
19 Governor of unnecessarily tinkering with the pension, that
20 sort of got my attention.
21 I believe there's a problem that needs to be
22 addressed. Unfortunately, I've heard some others on the
23 other side of the room here who acknowledged that there's a
24 problem that we need to deal with.
25 The Minority Chairman yesterday was talking a lot
95 1 about the cost of doing nothing when it comes to Medicaid
2 expansion. So I'd like you to tell us what the cost of
3 doing nothing is when it comes to pension.
4 I answered a whole bunch of postcards recently
5 about pension reform where the message was, let's let Act
6 120 do its thing. And I respond back, letting Act 120 do
7 its thing with respect to the three school districts I
8 represent means $1.2 million of additional pension
9 contribution from Cumberland Valley School District next
10 year and increasing four and a half percent each of the
11 next succeeding years until it caps out at 30 percent.
12 For the East Pennsboro School District I
13 represent, $345,000 is the cost of doing nothing next year.
14 And even the small Camp Hill School District, it's
15 $200,000. And I'm asking you if you can discuss it
16 briefly.
17 But as a followup, could you provide to every
18 member of the General Assembly projections on school
19 district by school district pension contribution increases
20 over the next, say, five years, ten years, if we do nothing
21 and if we just let Act 120 take its course.
22 SECRETARY ZOGBY: I appreciate the question,
23 Representative.
24 I think there's going to be some very difficult
25 days ahead if we just simply think we can get by and do
96 1 nothing. We're looking at -- I think, as you know, over
2 the next several years, we've got a ramp-up in our pension
3 contributions.
4 It was projected to be $511 million this year,
5 543 the year after that, close to 600 million the year
6 after that. About 60 to 66 percent of all new revenues
7 coming in the Commonwealth are going to be swallowed up by
8 pension costs alone. And that's before we even get to
9 things like Medical Assistance, much less MA expansion.
10 Public safety costs, while we're making progress
11 there, they're still growing at about $60-plus million a
12 year in addition to debt service cost, which together
13 outstrip any revenues that we have. So we'd be forced to
14 make deep cuts in the General Fund. And after a couple of
15 years of cleaning, you know, number of line items, we've
16 eliminated nearly 100 line items.
17 We're talking now about cutting into the bone.
18 So core programs and services would have to face cuts or
19 tax increases. We're going to have about a $2.8 billion
20 increase, net increase, in pension costs for the State in
21 just the next four years. That's roughly a 24 percent
22 increase in the PIT if we're simply to cover it through a
23 tax increase.
24 Now, that's just at the State level. You point
25 out the school districts. They're in the vice that they're
97 1 going to have to make deep cuts in education programs. So
2 we're going to ask young people, our children in school, to
3 bear the brunt of these cuts in programs or we're going to
4 go back to property taxpayers in households and we're going
5 to ask them to pay substantial increases in property taxes.
6 And it's not just going to be this year. It's going to be
7 each and every year as we work our way up this hill absent
8 reform.
9 And I think it's going to be -- you know, we've
10 had two years of very difficult budgets. And people --
11 I've said before, we've reached our maximum threshold for
12 pain around here in terms of budget cuts. But I think, you
13 know, the next couple of years are going to make the past
14 feel like a day at the beach compared to what we're headed
15 to if we don't do something about these increases and get
16 serious about reform.
17 REP. GRELL: I appreciate the answer.
18 And frankly, I've told you this before. I don't
19 agree necessarily with assuming that reforms are going to
20 be taking place in order to justify the lower number in
21 this year's budget. I want to work with you between now
22 and June to try to avoid that.
23 SECRETARY ZOGBY: I appreciate that.
24 REP. GRELL: And if there's anybody on the other
25 side who is interested in working on some of those
98 1 reasonable accommodations that could help us through this,
2 I look forward to working with them as well.
3 But as a followup, if you could provide us with a
4 spreadsheet with school district specific information, I
5 think that would be very helpful.
6 Thank you.
7 SECRETARY ZOGBY: What we can provide,
8 Representative, is not only what they're going to pay under
9 sort of the baseline approach, but what they would be
10 looking at if we were to put into law the Governor's plan
11 and the kind of relief that it will mean for school
12 districts.
13 REP. GRELL: Thank you.
14 SECRETARY ZOGBY: Sure.
15 REP. GRELL: Thank you, Mr. Chairman.
16 MAJORITY CHAIRMAN ADOLPH: Thank you,
17 Representative.
18 I just want to remind everybody that the Dow
19 Jones right now is at 14,337, an all-time high. Since we
20 got blamed for everything, I'm going to take credit for
21 that rising Dow Jones as well as the two balanced budgets
22 with no tax increases.
23 MINORITY CHAIRMAN MARKOSEK: The stimulus is
24 working.
25 MAJORITY CHAIRMAN ADOLPH: Rep. Kula.
99 1 REP. KULA: Thank you, Mr. Chairman.
2 I guess it's good afternoon.
3 SECRETARY ZOGBY: Good afternoon, Representative.
4 REP. KULA: I guess I'm the first that gets to
5 say that. I'm going to keep with education but I'm kind of
6 asking another question. I had asked Secretary Tomalis
7 when he was before us. There was a particular line item in
8 the PDE budget about six new positions to the Office of
9 Chief Counsel.
10 And when asked about that, his indication was
11 this was six new positions to investigate teacher
12 misconduct to the tune of $775,000, with that amount coming
13 from a $25 increase in the teachers' certification fee,
14 meaning a $25 addition to the $100 fee. And I had asked at
15 that time for an example of teacher misconduct that would
16 need investigation by six investigators, counselors.
17 Can you give me an example of where that would be
18 necessary?
19 SECRETARY ZOGBY: Sure. I think, Representative,
20 the issue there, as I understood it from the Secretary, is
21 that there's a backlog of cases in sort of educator
22 discipline, if you will. So it's not just cases that might
23 come before the Department having to do with teacher
24 misconduct.
25 I don't want to speculate in terms of, you know,
100 1 a particular instance that might bring a teacher before the
2 Department or before the Professional Standards Board, but
3 some misconduct under the code that would lead to potential
4 disciplinary action.
5 So I think the increase in the fee is to cover
6 not only the current caseload -- and I believe there is a
7 backlog, but I'll check on that -- but new cases that may
8 come before it as well.
9 These oftentimes or sometimes may be fairly
10 serious issues. And so we want to make sure that we have
11 the appropriate number of personnel to do the
12 investigations to move that process forward and that they
13 not languish simply because of a lack of resources,
14 particularly when, you know, the safety of children is
15 involved.
16 REP. KULA: It just seems that if it is a serious
17 violation that there are many other resources available
18 within a school district. I mean, you have a school board,
19 you have a solicitor, you have the District Attorney within
20 that county. You have many other resources.
21 I guess my question is, in order to investigate
22 thoroughly, would that have subpoena powers? What exactly
23 would be a teacher misconduct that would warrant six
24 positions at $775,000 when we're looking at cuts to
25 education, when we're looking at the extreme need right now
101 1 for school districts to have better security?
2 And you mentioned that, when you spoke earlier,
3 you know, we need cameras, we need scanners, we need metal
4 detectors. I mean, it seems that if we're going to -- and
5 I think it would be much easier, if I were going to certify
6 as a teacher, if somebody said to me, your fee is going to
7 be raised because we want to make sure we have better
8 security within our school system than for me to say, your
9 fee is being raised so that basically you're funding
10 self-prosecution in some instances, I mean, it just doesn't
11 make sense to me. It just seems like an unwise use of
12 funding, that we have many other reasons to fund. I mean,
13 if it's a criminal matter, you're going to have
14 investigators, you're going to have the district attorney,
15 you're going to have the State Police, you're going to have
16 all of those resources available to you that have the power
17 to do what needs to be done to do a thorough investigation.
18 It seems to me that from what I'm hearing, these
19 six positions are kind of going to look through paperwork
20 and see what everybody else has provided them and then
21 refer that information.
22 SECRETARY ZOGBY: I don't think that's the case,
23 Representative. I think about other professions, for
24 instance, where you pay a licensing fee. And part of your
25 licensing fee goes to the oversight of your conduct. And I
102 1 think that's what we are talking about here with teachers.
2 Let's say a lawyer in a fiduciary position would
3 take some action that would put them in violation of the
4 law, some criminal activity, well, that will be
5 investigated and dealt with. But that attorney will also
6 potentially face disciplinary action as a professional. I
7 think that's what we're talking about here.
8 REP. KULA: But you also have a whole different
9 board that investigates it in those situations.
10 SECRETARY ZOGBY: Well, there is. And what we're
11 talking about here is basically a self-funded proposal that
12 essentially we're asking teachers to pay another $25 in
13 terms of their licensing fee. And part of it is to ensure
14 that we are policing this profession in the way that we
15 should. And we are talking here about disciplinary
16 violations. It's not as if there isn't the activity
17 ongoing that needs support.
18 REP. KULA: Well, I would be very interested,
19 since there is such a backlog, if we could be provided --
20 and I know as far as not getting into names or school
21 districts or whatever --
22 SECRETARY ZOGBY: Absolutely.
23 REP. KULA: -- some idea of what type of cases
24 that there is a need to have six full-time people available
25 to look at the backlog of cases and who did them before
103 1 this. Who was responsible for providing what you are
2 asking these six new counselors to do?
3 SECRETARY ZOGBY: I think that's a very
4 reasonable request, Representative.
5 REP. KULA: And if you would provide that to
6 Chairman Adolph and Chairman Markosek so that the entire
7 Committee can share in that information.
8 SECRETARY ZOGBY: Sure.
9 REP. KULA: Thank you so much.
10 SECRETARY ZOGBY: Thank you.
11 REP. KULA: Thank you, Mr. Chairman.
12 MAJORITY CHAIRMAN ADOLPH: Thank you.
13 Rep. Scott Petri.
14 REP. PETRI: Thank you, Mr. Chairman.
15 And I'll try to hold to the five-minute rule that
16 you've imposed on me. But if I don't, I'm sure you'll let
17 me know.
18 Thank you for being here.
19 SECRETARY ZOGBY: Thank you.
20 REP. PETRI: And let me start by saying that I
21 think you're in a very difficult position both as an
22 Administration and particularly as the Budget Secretary.
23 And I want to say that I appreciate the fact that you're
24 here, that you're willing to answer questions, and that you
25 actually proposed a budget in the first place.
104 1 While that is your requirement and duty, it
2 certainly isn't easy. And I know, having been on this
3 Committee now for about eight years, it's a lot easier to
4 be throwing bombs and asking difficult questions about
5 certain areas of the budget.
6 SECRETARY ZOGBY: Thank you.
7 REP. PETRI: But I just want to note for the
8 record that it's a difficult position for you to be in
9 because you've had to make choices with limited resources.
10 And I think you made that clear.
11 SECRETARY ZOGBY: Thank you.
12 REP. PETRI: One of the things I've always been
13 interested in and have introduced from Day 1 when I came
14 into office was the idea of a Defined Contribution Plan for
15 new employees. And when I came here, my background was, in
16 part, as an administrator of a firm. And I was one of the
17 co-trustees of a plan. And I always liked the
18 opportunities the Defined Contribution Plan gave for the
19 employee.
20 Number 1, they were able to budget their
21 contributions. Number 2, it was portable. And, Number 3,
22 from an employer point of view, there was a match up to a
23 level which you could have some discretion and say, well,
24 we did well this year. We can go to the full match or
25 maybe we didn't do so well, we'll go to the lesser amount.
105 1 But, you know, as the employer, we could actually look in
2 advance and hope that we would be at the maximum
3 contribution and had a lot of predictability.
4 Now, having said that, one of the things that I'm
5 curious about is, do you know or have you seen any studies
6 that indicate what the average length of a participant's
7 employment is in either PSERS or in the State System? You
8 know, is it 20 years? Is it 30 years? Or is it something
9 less?
10 SECRETARY ZOGBY: I have not seen that average.
11 I did ask for -- I just asked for information, for
12 instance, on how many employees in each of the systems have
13 20 or more years. I believe in SERS it's about 49, 50
14 percent of employees have 20 or more years. I think on the
15 PSERS side, which, as you know, is a larger system, it's
16 about, I want to say, 12 to 15 percent. So it's not
17 necessarily on point with your question, but I think it's
18 kind of a rough proxy for where you were going.
19 REP. PETRI: No. That was excellent.
20 How much was it for PSERS?
21 SECRETARY ZOGBY: PSERS I thought was about 12 to
22 15 percent.
23 REP. PETRI: And I assume that then means that in
24 the case of PSERS, for instance, the rest, the bulk, would
25 have been 20 or less?
106 1 SECRETARY ZOGBY: Yes, sir. That would be my
2 assumption.
3 REP. PETRI: One of the frustrations I've had,
4 Mr. Secretary, is that, you know, when I introduced this
5 bill originally, it was actuarially true probably all the
6 way through and maybe even today that it would cost us
7 short term a little bit more money because the likely
8 contribution into a DC Plan would be larger than what we
9 were paying into the system.
10 So, of course, all those Governors that I served
11 under had the advantage of spending it in other line items
12 instead of into the place that it should have been put in
13 order to smooth out those highs and lows that we've
14 experienced for the last 30 years.
15 So having said that, you know, the criticism was,
16 well, do you realize that in the short term this system is
17 going to cost more money? But sitting here ten years
18 later, it seems like, well, it may have cost us more money
19 in the short term, we'd be out of most of the mess. We'd
20 be out of 50 percent of the mess in the SERS plan possibly
21 and 80, 90 percent in PSERS.
22 So having said that, I guess the question is,
23 what is your opinion about what we should be doing as far
24 as balancing those short-term costs and savings versus the
25 long-term impact for our taxpayers?
107 1 SECRETARY ZOGBY: Well, a key component of the
2 Governor's plan is this proposal of a DC, a Defined
3 Contribution Plan, for all new employees beginning in 2015.
4 And, Representative, you went down a list of a
5 number of positive features of a DC plan, particularly from
6 the employee perspective. The biggest thing that I see
7 from the employer, from the State's perspective, is that it
8 holds the promise of never having this predicament, this
9 problem, of unfunded liabilities. Particularly we're
10 talking about $41 billion that's an actuarial liability.
11 If we went on a market basis today, it would be over $50
12 billion.
13 That problem would never occur again because we
14 would not be in a situation where the Commonwealth saved
15 for that small percentage of employees post Act 120 who are
16 in that plan where all of the risk for making 7 and a half
17 percent returns every year in the market lies with the
18 taxpayer. I think that's a huge advantage of the DC Plan
19 and, I think, from the Governor's perspective, a very
20 important feature of reform.
21 REP. PETRI: Another follow-up question, if I
22 could. On the Option 4 withdrawal, I know I've had
23 conversations with the trustees before. And I couldn't
24 find it in the record, so maybe it was off record. I at
25 least had the impression that it was always revenue
108 1 neutral; otherwise, I know I would have introduced a bill
2 to deal with that.
3 What would the savings be to the Commonwealth,
4 projected savings, just from the Option 4, making it
5 revenue neutral?
6 SECRETARY ZOGBY: I'd have to find that,
7 Representative. It's a big piece of our savings number.
8 And what we are talking about, just to be clear, is we're
9 not saying that employees can't withdraw their
10 contributions. Indeed, under the Governor's plan, they're
11 able to withdraw all of them, both pre- and post-effective
12 date, with interest.
13 All we're saying is that the annuity that they
14 received going forward would not have the benefit
15 enhancement that's currently in that calculation. We're
16 talking about making it actuarially neutral. And it does
17 produce a substantial amount of savings going forward.
18 REP. PETRI: If you can get that number to the
19 Committee to me. I don't know how, if I'm really for the
20 taxpayer, I can say that that's not appropriate.
21 As you've correctly noted, they're not getting
22 more money, they're not getting less. They're getting the
23 amount that an actuary determines is the equivalent in a
24 reduction. And it comes quite shocking to find out this
25 late in the game to me, at least, that it always hasn't
109 1 been actuarially neutral.
2 And I can't for the life of me fathom why it
3 always hasn't been. It's not fair to the Commonwealth.
4 It's not fair to the participants that are paying in. It's
5 only fair to one person, you know, from their vantage
6 point, and that's the retiree who took their money.
7 And even there, let me add one thing that I
8 thought was interesting. One retiree approached me and
9 said, you know, it was the worst thing I ever did was take
10 my money out because when then market reversed, I lost 50
11 percent of that just like everybody else. I would have
12 been far better off leaving it in.
13 Thank you for being here.
14 SECRETARY ZOGBY: Thank you.
15 REP. PETRI: Thank you, Mr. Chairman.
16 MAJORITY CHAIRMAN ADOLPH: Thank you,
17 Representative. You went over by 2 minutes and 30 seconds.
18 REP. PETRI: My apologies. You can take it out
19 of next year's hearing. Thank you.
20 MAJORITY CHAIRMAN ADOLPH: I hope we're all here.
21 Rep. Scott Conklin.
22 REP. CONKLIN: Thank you, Mr. Chairman.
23 And with the news of the Dow being up now two
24 days in a row, I'm sure all of our talks on the pension are
25 moot because I'm sure our investors have made all the money
110 1 back and we're now sitting at that 80 percent, which we
2 have to be at.
3 Mr. Secretary.
4 SECRETARY ZOGBY: Representative.
5 REP. CONKLIN: Before I begin, just because of
6 observations today, sometimes it's been partisan and
7 sometimes it's been non-partisan and sometimes it's been a
8 little strenuous.
9 I'm just going to go over some things that have
10 been done today. On the Lottery store privatization plan,
11 were any of our Democratic members contacted prior to those
12 plans being put forward?
13 SECRETARY ZOGBY: I honestly don't know,
14 Representative. I'm not the main point person on the
15 Lottery. I think we've tried to work collaboratively with
16 everyone in the process.
17 REP. CONKLIN: Because I don't know of anyone.
18 On the Governor's budget, which does hinge on
19 State store privatization and on pension reform, have you
20 or the Governor reached out to any Democratic House members
21 to discuss the plan that's about to be implemented?
22 SECRETARY ZOGBY: Well, we hope it's about to be
23 implemented. And, yes, actually we're scheduled to meet
24 this afternoon, I think, with -- I don't know if you'll be
25 present, but a number of your colleagues to discuss pension
111 1 reform. I've had a number of discussions with members on
2 both sides of the aisle and both Chambers on pension
3 reform.
4 I think we hope there is an opportunity to work
5 with all members on those initiatives.
6 REP. CONKLIN: The reason I bring this up is that
7 you have to understand the frustration. We're responsible
8 for citizens. We have a budget coming forward. And to
9 date, we have not received any information on probably
10 three of the biggest changes this State will be going
11 through in past recent history or future recent history.
12 And it becomes a little frustrating when there isn't that
13 bipartisan part going out.
14 And another thing before I go to my question is,
15 the only other thing that's been said here today, I've
16 heard you say that former Governor Rendell engaged in Ponzi
17 schemes. Are Ponzi schemes legal?
18 SECRETARY ZOGBY: Not that I'm aware of.
19 REP. CONKLIN: And if he engaged, do you think he
20 should be tried for running a Ponzi scheme in the State of
21 Pennsylvania, Mr. Secretary?
22 SECRETARY ZOGBY: No, I don't, Representative.
23 But what I meant to suggest there -- and perhaps
24 maybe inartful wording on my part, right? It's just the
25 fact that we did have in the prior Administration a number
112 1 of steps -- and this, again, goes to this continuing
2 narrative that folks want to trot out about the Governor
3 cutting education when, in fact, you have to look at the
4 broader context where -- I mean, it's easy to put money in
5 places when you're not funding your pensions and when
6 you're underfunding your pension systems by $6 billion.
7 And then when you're taking $650 million of State
8 funds out of basic education, putting that money elsewhere,
9 so you're taking those funds out of what is the core
10 funding program that our public schools depend on and then
11 to suggest, as some of the commentary does, that somehow
12 that didn't happen or when we comment on Governor Corbett,
13 we have to forget everything that went prior to January
14 18th, 2011, I think that's what I really have trouble with.
15 And I guess, to borrow your phrase, that I get very
16 frustrated by the charge that this Governor is somehow
17 anti-public education, anti-public schools, cutting
18 education. When you look at the broader context, this
19 Governor has done incredible work to save public education
20 funding when it was built on basically this foundation of
21 sand that eroded with the economy and the Federal stimulus
22 funds going away.
23 REP. CONKLIN: Mr. Secretary, please forgive me.
24 I'm in the five-minute penalty box and I'm losing time. I
25 understand your frustration and your wanting to protect
113 1 your boss. Listen, that's a tough sport. One of our
2 former colleagues used to say this is the hardest contact
3 sport out there. And I do appreciate it.
4 SECRETARY ZOGBY: You don't hear me complaining.
5 REP. CONKLIN: Okay. But where I want to go to
6 is in the Governor's budget over the last couple of years,
7 as you know, the State Police forces have been brought
8 down. And I understand that this year he's put forward
9 290. And I realize the maximum class a year is 350.
10 I also understand that it's been said in hearings
11 that when we reach that 650 mark of a shortage of troopers
12 out of the 4,300 approximately, there are going to have to
13 be more closings. Recently we closed Ephrata.
14 In rural Pennsylvania over the last few years,
15 our small municipalities, because of whoever we want to
16 blame, or don't have tax revenues, don't have the police
17 stations, and depend on State Police protection.
18 When you look at the already historic number of
19 retirements this year, when you're looking at this talk of
20 pensions, and we're looking at perhaps an historic number
21 of retirees this year, we could, even with the 290, still
22 be approaching 800 to 1,000 retirees by the end of this
23 year.
24 Is the Governor looking at or willing to put more
25 classes in? Because we're looking at a very, very
114 1 dangerous situation, not just for the public,
2 Mr. Secretary, but for the brothers and the sisters who
3 wear that badge out there. And are we looking at more
4 closings?
5 I realize, you know, this is a political world.
6 And I do realize that an election season is less than two
7 years away. But at the same time, I've got a great deal of
8 concern about rural Pennsylvania, many of the smaller
9 police barracks, State police officers, and the fact that
10 we could be looking at breaking what was said before, that
11 650 shortage.
12 Is the Governor looking at putting extra funds,
13 if needed, into bringing more cadet classes in? because it
14 takes a year to get those folks on the street.
15 SECRETARY ZOGBY: I appreciate the question,
16 Representative.
17 And I think, as you know, this is a
18 public-safety-first Governor. We not only have the three
19 classes this year, we effectively really have a fourth
20 class because we're hiring another 90 civilian
21 communication officers that are going to allow 90 uniformed
22 officers to go back into patrol. So it's effectively a
23 fourth class.
24 And, you know, we monitor this very closely with
25 Commissioner Noonan. We have had, as I suggested -- we
115 1 have had, I'll say, above-average attrition in the last
2 year or so. The pension reform is certainly driving some
3 of the conversation. I think if employees really reflected
4 on and looked at what the Governor is proposing, those that
5 are closest to retirement actually, there's no real penalty
6 under the Governor's plan that would sort of force them to
7 rush to the exits. It's very gradual in its impact, if you
8 will, particularly those nearest retirement.
9 So while we may see, again, above-average
10 attrition this year, I'm not necessarily certain it's going
11 to rise to the types of levels that you indicated.
12 But I think, you know, from the Governor's
13 perspective, if there is sort of a significant deviation
14 from the sort of assumptions that we've made, that the
15 Commissioner has made, I think he would be willing to look
16 at it. And certainly we're going to be looking to
17 Commissioner Noonan to tell us whether we may be in that
18 red zone, so to speak, where we could see a deterioration
19 in public safety. That's from the Governor's standpoint.
20 That's simply not an option.
21 So I think that is something we're going to
22 monitor. But I believe what we have on the table currently
23 and what I hear from the Commissioner at least is a belief
24 that what we're proposing now is adequate to address our
25 needs.
116 1 REP. CONKLIN: Thank you.
2 SECRETARY ZOGBY: Sure.
3 REP. CONKLIN: Thank you, Mr. Chairman.
4 MAJORITY CHAIRMAN ADOLPH: Thank you,
5 Representative.
6 That penalty box was extended three minutes,
7 Representative.
8 Rep. Gary Day.
9 REP. DAY: Thank you, Mr. Chairman.
10 Thank you for your participation today and the
11 answers to questions.
12 I have a quick statement about the Governor's
13 leadership and then a question about school safety and how
14 different initiatives that he has maybe across the budget
15 might lead to better school safety.
16 From my position in my District, the Governor has
17 led the way in many aspects over the last two budgets.
18 He's helped to pass two budgets on time, which to me allows
19 people who depend on that funding the surety of knowing
20 what the funding is and being able to move forward. So to
21 me, that's one stroke of leadership.
22 This year, he has come out fairly strong on three
23 or four major initiatives and a lot of other initiatives as
24 well. And I believe, you know, a high percentage of
25 Pennsylvanians all agree that providing safe schools is a
117 1 priority.
2 So my question to you is, can you share which of
3 these initiatives, either the major ones or the minor ones,
4 if successful, would help Pennsylvania schools be safer?
5 SECRETARY ZOGBY: Well, I think certainly the
6 LCB, the liquor divestiture, the fact that we can provide a
7 billion dollars of additional funding for our public
8 schools, again albeit one time, but over a number of years.
9 And a key piece of that is investments in school safety.
10 And there are -- talking to educators, there are,
11 sort of, you know, one-time needs or ways in which they
12 feel they can invest these one-time monies in school
13 safety. I mentioned earlier things like metal detectors,
14 unfortunately a need, but a need nonetheless.
15 Training for individuals, whether it's security
16 guards or teachers. I think about the heroic efforts of
17 some of those educators in the Newtown example. So giving
18 all teachers or all educators, having that sort of
19 training. So I think it's those things.
20 And again, that's going to be up to local school
21 boards, if that's a local need, if there's a plan there
22 that they want to invest those monies in school safety.
23 Some school districts mindfully have made investments in
24 those areas. So again, that's going to depend on local
25 decision-making.
118 1 REP. DAY: Switch gears a little bit in the
2 interest of time. The budget recommends moving the
3 Insurance Department's general operations from the General
4 Fund to a Regulation in Oversight Fund and shifting that
5 fund to be supported by licensing and fees.
6 Can you just explain about the change and also
7 what the effect on the General Fund would be?
8 SECRETARY ZOGBY: Sure. I think what we're
9 talking about is giving the Insurance Department a portion
10 of the revenues that are generated by that department in a
11 dedicated fund, as I understand it, to support their
12 activities.
13 And I know Commissioner Considine has talked the
14 last couple of years about his concerns. A very important
15 regulatory oversight function, as you well know, insurance
16 is predominantly a State function. It isn't something that
17 the Federal Government is on the front lines and
18 overseeing. He's very concerned particularly in these
19 tight times the last couple of years that there is
20 sufficient funding so that he's able to carry on those
21 important activities.
22 And I think we've been able to do that, provide
23 him with that dedicated fund in a way that doesn't
24 jeopardize the General Fund and the activities that we're
25 maintaining there.
119 1 REP. DAY: Thank you for your answers.
2 Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN ADOLPH: Thank you, Rep. Day.
4 For the members' information, there are some
5 members that would like to have a second round. And I
6 apologize to them.
7 At 1 o'clock we have members coming in from
8 across the Commonwealth to come before the Appropriations
9 Committee. I want to stay on schedule there. That will
10 allow us approximately 20 minutes. And we'll be back here
11 at 1 o'clock.
12 As we conclude these budget hearings, first of
13 all, I want to thank all the members for their
14 participation and their very good questions,
15 thought-provoking questions.
16 I want to thank the Budget Secretary for being
17 here today and for answering the questions. I think he was
18 very honest with us with his answers. We may not agree
19 with everything the Secretary has to say. But as we
20 conclude the hearings, we open up the next stage. And
21 that's negotiating the budget.
22 What makes this budget a little bit more
23 difficult than others -- and there's been other difficult
24 budgets -- is that there's three big policy issues here
25 facing the General Assembly.
120 1 So not only does the Appropriations Committee
2 have to negotiate a budget, we have to watch the activity
3 of the General Assembly as pieces of legislation are
4 debated. Not only that, we have to watch what's going on
5 in Washington, D.C., and how that's going to affect our
6 budget.
7 My good friend, the Budget Secretary, I hope your
8 record continues regarding funding being under estimate for
9 the next couple of months. You did miracles those first
10 two years and we were able to find some more revenue but we
11 don't know that.
12 But we do know that education, we do know that
13 the people that need it the most we're out to help. Those
14 decisions that were made a decade ago, 20 years ago, at the
15 time, the State employees and the public school teachers
16 and the members of the General Assembly did not think it
17 was a bad idea. This General Assembly and the Governor had
18 nothing to do with the collapse of the stock market in
19 2008. Life goes on. If we all had hindsight, maybe those
20 decisions wouldn't have been made. We didn't know that.
21 And I'm glad, Rep. Bradford, we want to move
22 forward. And we don't want to become Washington, D.C. We
23 want to negotiate with each other and do what's best for
24 the residents of Pennsylvania.
25 I'm looking forward to working with your office,
121 1 as always, in coming up with the best balanced budget that
2 we can for the Commonwealth of Pennsylvania.
3 Thank you, members. We will be in touch. We
4 will be back at 1 o'clock to meet other members of the
5 General Assembly and hear their requests for what they
6 would like to see in the budget.
7 Thank you very much.
8 SECRETARY ZOGBY: Thank you, Mr. Chairman.
9 (The hearing concluded at 12:45 p.m.)
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122 1 I hereby certify that the proceedings and
2 evidence are contained fully and accurately in the notes
3 taken by me on the within proceedings and that this is a
4 correct transcript of the same.
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8 Jean M. Davis 9 Notary Public
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