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APPROPRIATIONS COMMITTEE

Pennsylvania Emergency Management Agency Presented by Joseph L. LaFleur, Director

Pennsylvania Lottery Presented by Secretary Rhodes Secretary of Revenue Eileen McNulty

Stenographic transcript of meeting held the Finance Building and Hearing Room 140, the Main Capitol, Harrisburg, Pennsylvania,

Wednesday March 10, 1993 At 10:10 o'clock a.m.

EMBERS OF THE APPROPRIATIONS COMMITTEE:

DWIGHT EVANS, Chairman GORDON LINTON, Vice Chairman RICHARD KASUNIC, Subc. Chairman of Capitol Budget JOSEPH BATTISTO, Subc. Chairman on Education BABETTE JOSEPHS, Subc. Chairman on Health/Welfare LEO TRICH, Secretary JOSEPH PITTS, Minority Chairman ALVIN C. BUSH, Min. Subc. Chairman, Capitol Budget PATRICK FLEAGLE, Min. Subc. Chairman on Education DAVID G. ARGALL, Min. Subc. Chairman, Health/Welfare

HOLBERT ASSOCIATES DEBRA ROSE-KEENAN 2611 Doehne Road Harrisburg, Pennsylvania 17110

HOLBERT ASSOCIATES \ r (717) 540-9669 \ 2 LAJORITY MEMBERS REPRESENTATIVE ANDREW CARN REPRESENTATIVE ANTHONY DELUCA REPRESENTATIVE MICHAEL GRUITZA REPRESENTATIVE EDWARD HALUSKA REPRESENTATIVE STANLEY JAROLIN REPRESENTATIVE FRANK LAGROTTA REPRESENTATIVE KEITH MCCALL REPRESENTATIVE KEITH MCCALL REPRESENTATIVE RICHARD OLASZ REPRESENTATIVE JOSEPH PRESTON REPRESENTATIVE WILLIAM ROBINSON REPRESENTATIVE EDWARD STABACK REPRESENTATIVE STEPHEN STETLER REPRESENTATIVE THOMAS TANGRETTI REPRESENTATIVE JOHN WOZNIAK

MINORITY MEMBERS REPRESENTATIVE WILLIAM ADOLPH, JR. REPRESENTATIVE THERESA E. BROWN REPRESENTATIVE RAYMOND BUNT, JR. REPRESENTATIVE ELAINE FARMER REPRESENTATIVE ROBERT J. FLICK REPRESENTATIVE GEORGE T. KENNEY, JR. REPRESENTATIVE JERE W. SCHULER REPRESENTATIVE PAUL SEMMEL

HOLBERT ASSOCIATES (717) 540-9669 3 CONTENTS iUEST SPEAKER PRESENTATION

Foseph L. LaFleur 4 iecretary Rhodes 52 iecretary McNulty 52

HOLBERT ASSOCIATES (717) 540-9669 4

CHAIRMAN EVANS: What I would like to do is reconvene the House Appropriations Committee meeting from

;he tour that was excellent this morning, in a sense.

And I think, real quick, if I can, start

»ff, Joe, any questions that you want to ask?

CHAIRMAN PITTS: No, no.

CHAIRMAN EVANS: Are there any questions?

'here was one question raised by Representative Steve tetler, you were starting to ask about the complement ssue and the 123 employees.

What were you starting to say?

DIRECTOR LAFLEUR: He had asked in what reas had those cuts from 129 down to where we are now, aken place. He said, were they in planning or training r were they in operations?

And my response to him was that there were a ouple people in all of those areas. Example. You saw hat computer system. That is the largest local area etwork of micro computers in state government ownstairs. There is about 55 computers in that micro etwork.

When the furloughs took place in state overnment in the last 15, 16 months, we lost our only omputer programming analyst to run that system. So all I ave left is operator individuals.

HOLBERT ASSOCIATES (717) 540-9669 5 So you are making me a little nervous, lonestly, when you are asking me about the update [uestions and the softwear maintenance questions. I lost :hat position. That was cut out. This is a small agency. I am not :omplaining, but I am just trying to give you the ixplanation. So I had to cut either in program delivery nd field staff and when the counties call, we don't ever ay no to them. Hey, we need help, there is a flood or omething. So I cut out headquarter staff. I had to ake those decisions. The agency has three field offices, e have storage warehouses at Indiantown Gap and the State ire Academy, besides what we maintain in this building. We have one facility manager. That is nother position that I cut out when we had to do the urloughs. We no longer have a facility manager for any f our facilities statewide. They took care of our state ield mobile command posts and everything else. So those are the kinds of positions that we ut out, in answer to his question. CHAIRMAN EVANS: One thing, the 911 mission, will kind of piggyback on what Leo was just asking. My understanding, the plans are to be

HOLBERT ASSOCIATES (717) 540-9669 6 iubmitted to you under Act 78. How many have been ipproved? How many do you expect? How many more do you ixpect to be submitted and approved over the next three rears?

And has PEMA run into any problems with mplementation of Act 78?

DIRECTOR LAFLEUR: The 911 program has been

real fast effort, because there were quite a number of ounties and first, second and third class cities that had

11, Philadelphia being a good example, who were already n line.

So when the law was passed in 1990, Act 78, s you say, a lot of people were ready to come in with heir regulatory requests.

We have processed about 32 county and first, econd and third class requests. The -- we expect that ost of them are going to come in over the next two ears.

The law required that every three years here had to be a review of the 911 centers and an audit.

I am very concerned that when 1994 comes round and we have to start the audit and review process, e are going to be in some difficulty.

We had requested staff and because of the tate budget situation the last couple of years, the

HOLBERT ASSOCIATES (717) 540-9669 7 igency has been cutting, not getting, additional staff. So I expect that that mission is going to ontinue. The other 35 or so are going to come on line, nd the audits have to begin in 1994. What is the scope of that program? hiladelphia being the largest, probably $5 or $6 million n revenue per year is now going into Philadelphia from 11 line-user charges, that is not any longer a burden, if ou will, on the taxpayer in a direct sense. That program statewide has had $40 million f line-user charges, anywhere from 63 cents per line per onth up to $1.50 per line per month within the parameters f what the law had provided for. So it has been a tremendous boost to the mergency services. I can't tell you how pleased they are tatewide because of better communications equipment and ore professional dispatching. CHAIRMAN EVANS: Do you have any ecommendations for legislative changes to improve Act 8? DIRECTOR LAFLEUR: We are still in the first wo years, and I always hesitate to make changes because ome of the nuances that you folks put into those laws are here for a reason. And they don't become manifested ntil the third or fourth year down the road.

HOLBERT ASSOCIATES (717) 540-9669 8 I think perhaps the only decision that has o be made is, do you want the state to fund the program? 'hat is, out of taxpayers' funds. And the Governor has asked that this agency iave two staff people to run the programs and do the udits. Mr. Keen is the Deputy Director of the gency, the only engineer I had in the agency when the rogram became on-line. He just happened to be a radio roadcast and telephone engineer. So he has been working the program all by imself. That is a heck of a way to lose your deputy and ave nobody working with you. So I would say, either we get some ssistance, or that you amend the law and have one cent ut of every county's rate, or something, come to the tate to fund those staffs if you want to do a user fee. r you can do the couple people that we asked for out of he General Government Appropriations this year. That would be the only comment. The PUC harges their own rates. So they have hired seven ngineers to run this program for the rate-base work that hey have to do.

CHAIRMAN EVANS: The issue that was raised arlier by Dave and Keith McCall, the Volunteer Loan

HOLBERT ASSOCIATES (717) 540-9669 9 ssistance Program, it is my understanding, there appears o be a 13, 16-month backlog on application for loans in he Volunteer Loan Assistance Program.

What has PEMA done or tried to do in order o make the loan approval process more efficient? And hat recommendations do you have for the Legislature elative to the loan program?

DIRECTOR LAFLEUR: This problem really eveloped about two-and-a-half years ago. It developed or a couple of reasons.

First of all, the Legislature changed the aw and increased the rates for the loans that could be eceived.

With me today is John Simon who is the Fire ommissioner. And he can tell you about those limits.

But, for example, the limit went up on a iece of aerial apparatus. You know, we are building aller and taller buildings all over, to $150,000 that hey could get from the state in the 2 percent loan rogram.

We now have to look at these loans very arefully. It is a bank operation. The total Volunteer oan Assistance Program is now a $120 million dollar rogram.

We have four employees; fiscal text, clerk

HOLBERT ASSOCIATES (717) 540-9669 10 .ypists in state government, civil service ilassif ications, who are trying to keep up with that. Secondly, the requirement for loans or the equest for loans really went up. Because as the economy as been going down, contributions to fire departments ave been very low. So they are looking for other additional evenue sources. My concern was that it started to become a olitical football. And we were really subject to, well, s it or isn't it? Or who should fund it? And we went to the budget office and said, e can't get these loans out. Here is the problem. And they said, what options are there for unding it? And we gave them eight options. One was, of ourse, general state tax revenue. Another was to have municipalities fund the - a service fee for them. One was to do it in the way hat the Nursing Home Loan Board and the PHEAA Program, mongst others, take the interest from the bonds and they se that for the administrative costs of the program.

Mr. Hershock sent back and approved that hat was the option that was acceptable and that we could ire more staff if there was an amendment or a change to he law under that circumstance.

HOLBERT ASSOCIATES (717) 540-9669 11 I asked for, in addition to the four people hat we have now, another three-and-a-half work years to peed up that process and get back to where we were two ears ago, from 16 months down to about 90 days or 120 ays to process a loan, to give them good service. When we don't give them that level of ervice, they have to go to a local bank and get a 7 or 8 r 10 percent loan to bridge the time. And we have had places call us, Hempfield ownship in Westmoreland County, told us it cost them 8,000 in interest just to get the bridge loan from the slivery on the apparatus to the time period of when the bate's loan was available to them. So what have I tried to do? I am bound by artain regulations in state union contracts, I can't hift employees around. I can only work out a lassification for short periods of time. Secondly, there was an amendment passed in lie state law in 1988 that said that the Fire Dinmissioner' s budget is a specific line-item budget ithin the agency, therefore, I can't change things in and at of that line-item budget that was passed in 1988. So that took away any flexibility we had in arms of the agency situation.

So those are the constraints and

HOLBERT ASSOCIATES (717) 540-9669 12 ifficulties. And the training time for people on loan irocessing is six to eight months. So if I get an mployee, it is going to take me that long. So even iring somebody for three or four months doesn't work.

CHAIRMAN EVANS: I want to go back to omething, you said you spoke to the Budget Secretary and e had approved of a certain method. I mean, I don't know if Joe -- did you ever ear about this change? CHAIRMAN PITTS: Yes. Yes. And as I nderstand, there was legislation involved and the Fire aucus did not want to use the interest from loans. Is hat correct? DIRECTOR LAFLEUR: Yes, sir. CHAIRMAN PITTS: And that is where you are aught there, right? CHAIRMAN EVANS: Why don't -- CHAIRMAN PITTS: You are not going to beat he Fire Caucus, so you better get through and tell them o cooperate. DIRECTOR LAFLEUR: In local governments here that became an issue, and Chairman Pitts is 100 srcent accurate. As a matter of fact, it was a very anfusing arrangement.

We thought we went into local governments

HOLBERT ASSOCIATES (717) 540-9669 13 rhere everybody was on board with this, keeping in mind hat the main concern was trying to speed up that process, o deal with those moneys being lost on those bridge loan rrangements. At the very last minute, though, the Fire aucus determined that they did not want to open the door, o-to-speak, where moneys could be used for anything other han the loan. They felt that that was a step in the wrong irection. It may have been one of being ver-reactionary, in my estimation. CHAIRMAN EVANS: How do they propose to esolve this problem? DIRECTOR LAFLEUR: That I can't answer, nfortunately. I do know the people that were the prime ponsor of the legislation pulled it off the table. REPRESENTATIVE MCCALL: That is not true. I as the prime sponsor and that is not true. The bill was ntroduced. We even went as far as putting a three-year unset provision into the bill to say, if you are worried bout us depleting funds out of the interest account, we ill put a three-year sunset provision in. Get them aught up. And if it is not working or if there is too uch money coming out of the funds, the bill sunsets and

HOLBERT ASSOCIATES (717) 540-9669 14 foes out of existence.

And, you know, our goal is just to get this irogram caught up. We are going to have two-year delays.

.nd if you as legislators want to sit around and take the eat for those two-year delays, fine.

But I am going to look at every avenue that

can to get this program updated.

DIRECTOR LAFLEUR: I agree with you and I pologize for giving misinformation. But then time worked gainst us and it died, is what I am saying.

REPRESENTATIVE MCCALL: Right. It is in gain this year. And that is the problem.

DIRECTOR LAFLEUR: Jack maybe can speak to omething, he was at Schnecksville last night with the ire service.

And the volunteer firemen have been a roblem in this, because there is a lot of misinformation n what the effects will be on the program. The interest spects are very, very solid.

Every year they take in somewhere around

1.4 million yearly in interest money and we are only oing to take out $300,000, plus I think we tied it into he Consumer Price Index or the Cost of Living increases hat the state employees would get, to escalate or to take are of pay raises over three years.

HOLBERT ASSOCIATES (717) 540-9669 15

So over three years they may, they may only fet a 15 percent increase on that $300,000.

Mario Sevara also put a bill in, and I

:o-sponsored it with him, that would provide for a lat-out $300,000 appropriation. But I don't think it rill get by the Governor's blue line.

CHAIRMAN EVANS: I would rather go with the pproach that Mike suggested, to use the fund rather than ny appropriation. That would be the much preferable way o go.

It seems like we have to do some e-education with some people because obviously, based on eith and Dave, if this is a problem, and it appears it is

problem, we absolutely have to make it bipartisan and ry and work that through.

REPRESENTATIVE MCCALL: They are trying to o that.

CHAIRMAN PITTS: I think it might be good to it down and work out a compromise. If it is a ompromise, then everybody can sign off on.

CHAIRMAN EVANS: No problem.

REPRESENTATIVE ARGALL: The real key has to e the volunteers, I don't think it was the legislators hat shot it down. It was volunteer firemen that went to he Legislature and said, we want this money to go to fire

HOLBERT ASSOCIATES (717) 540-9669 16 trucks and not bureaucracy. REPRESENTATIVE MCCALL: That wasn't true itatewide. I went to my fire service and said, look, and : told, I told them point blank, there are fire companies hat are strictly against this. They think the money is :oming out of the fund that is going to hurt the loan irogram because we are taking money out of the interest ccounts. Here is what I propose to do. I said I will try the $300,000 ppropriation. I don't think it will get by the lovernor's Office. Give us a chance to get this program pdated. It will only be three years. There is a sunset rovision in it and they all signed on it, every single ne of them signed on. REPRESENTATIVE ARGALL: So it was spotty hen? So there were hot spots across the state? CHAIRMAN EVANS: We need to sit with them nd go over it again. I have a question. Keith, you had some questions? REPRESENTATIVE MCCALL: I was just going to ursue it, the 2 percent loan. And maybe if you could xplain what the backlog is right now and what it is rojected to be in a matter of months and what that eans?

HOLBERT ASSOCIATES (717) 540-9669 17 DIRECTOR LAFLEUR: Why don't I have Jack Jimon speak to that. Jack is responsible on a day-to-day >asis for the Fire Academy and the loan program. So let me ask him to tell you about the :urrent situation. MR. SIMON: At the present time we have a >acklog of 155 loan applications on file that could be eady for processing. We have about a total of 400 in the system tself. The backlog continues to dwindle down in numbers ery, very slowly. Our ultimate goal is to be able to turn hose loans around in three to six months. That is the ay it used to be. And that is the way we can it get back f we could do this project that you have introduced hrough legislation. There are 80,000 firefighters out there and ut of the fire service membership there are five state ssociations that are made up of less than 20,000 members tatewide. That is not even 25 percent of the true fire ervice that exist out there.

If you talk to the fire services we did last ight up in Schnecksville, we had a meeting on the loan rogram to introduce the new regulations that came in

HOLBERT ASSOCIATES (717) 540-9669 18 ffect back in December. There was an overwhelming amount of support ndicated by those people that this is a good management rospective and it could work and it will work. It is a good way to solve that problem to educe that backlog. The Cambria County Firemen's Association ust two weeks ago passed a resolution, went on record hat they support the approach of using the interest ncome. That interest income equates to three loans year, if you want to use it that way. That is all it ould be. Now, to process loans and get them turned round in three months makes more sense than to have a ridge loan and cost the fire companies $7,000. Multiply he $7,000 times 155, you are talking a lot of money.

It is just a very small group within the tate associations that are opposed to this, not the fire ervice in general. REPRESENTATIVE MCCALL: How much money does he account make a year on interest? MR. SIMON: Approximately $1 million per onth is interest and principal. To break it out, we ould end up with somewhere around $1 million in

HOLBERT ASSOCIATES (717) 540-9669 19 nterest.

REPRESENTATIVE MCCALL: $1 million. And ioes that figure increase yearly?

MR. SIMON: It fluctuates by the repayment chedule that we get back. There are companies out there, ince the program is now 15 years old, that have been in he system paying their loans off so they can get another oan at a higher rate, so that fluctuates on a onth-to-month basis.

REPRESENTATIVE MCCALL: The change in the

988 law, why did we do that? Why did the Legislature eparate the fire service?

DIRECTOR LAFLEUR: Senator Bell was the one ho introduced the amendment at that time. And his oncern, as he expressed it to me, was that the Agency eeded to keep the fire money separate from the natural isaster, the technological disaster, the federal money.

He had firefighters in his district saying o him that they thought that some of those funds might be oing over to nuclear power plants or to chemicals or omething like that.

That was not the case. It never was. It asn't proved in any audits or anything else, but Senator ell pursued that and he was able to get that ccomplished.

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MR. SIMON: I believe an interesting figure hat should be looked at is the bond repayment, all the onds that have been sold for that loan program.

There is approximately a debt service of bout $3 million a year out of state funds already. I ean, that is what is being paid back on those bonds lone.

So there is a significant contribution from he state into the program. And all we are trying to do s stablize it, so we don't have to be involved annually o come back and ask for one or two or three more people.

We think this would stablize it. It has een done before. It is nothing new. But there again is

certain group of select fire fighters.

REPRESENTATIVE MCCALL: We gave you uthorization to sell an additional $25 million in bonds.

What have you sold to this point?

MR. SIMON: We have received $3 million and e have another two coming in, in the next month.

REPRESENTATIVE MCCALL: Of the additional

5?

DIRECTOR LAFLEUR: Yes. But a key point here, and that is a real important, Wall Street financial ssue, at least as Mike Hershock relates to me on this. ey, you don't have the staff to get the loans out to meet

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.he demand.

And he has to quarterly report to the IRS on he federal arbitrage laws relative to how interest

>ayments are used from bond funds.

And so if the money comes in and sits more han a quarter and accumulates more than the bonds were old to, to all those bond companies, he is in trouble ith the IRS and the bond companies.

So he is saying, you don't have the staff. his is the way PHEAA, this is the way Nursing Home Loan nd everybody else works. It is consistent and you are oing to be consistent with everybody else. And I am not oing to get in trouble with the IRS and arbitrage.

And that has been, I don't know, we have ried to explain, and I know that is intricate with some f the volunteer firefighters, and it doesn't seem seem to ome across that they can understand that management ifficulty that we are having.

REPRESENTATIVE MCCALL: And you are rolling hat interest money right back into the program as loan oney?

MR. SIMON: That's correct.

REPRESENTATIVE MCCALL: You can make up that ifference again with the bond money if more bonds were old and you processed more loans?

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DIRECTOR LAFLEUR: Yes.

MR. SIMON: A chicken-and-egg situation. We

:an't process more loans if we don't have the bond money md we can't get the bond money unless we have more

•eople.

CHAIRMAN EVANS: And it means less nitiative money we have to use for this stuff if you do hat.

Representative Stan Jarolin.

REPRESENTATIVE JAROLIN: What initiative oney?

Mr. Simon, on the Volunteer Fire Department oans Program, how many of the loans are in default now?

MR. SIMON: In the 15-year history we have nly had four. We run an average of delinquents of about

dozen a month. We get a printout. They go 30, 60, 90 ays. And when we receive a copy of a delinquent notice, hat is the list that we compile.

REPRESENTATIVE JAROLIN: I believe you know hich one I am getting to, don't you?

DIRECTOR LAFLEUR: Yep.

REPRESENTATIVE JAROLIN: What is the status ow of that particular loan? It is absolutely a idiculous situation.

So I can fill the rest of the Legislators in

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>n this. Tilsbury Fire Department, up in my particular

:ommunity, they purchased a fire truck and turned around ind says, the hell with the State, I am not paying them

>ack. Let them worry about it. And they have been that ray about it. They are not paying the State back.

I think maybe we have to put a little bit tore teeth into the laws to be able to give you people a letter handle on what to do.

As it stands right now, if you went up there ithout my knowledge and took the fire department truck ff, I might come down and really blow my cork about it.

But I have been constantly on you people rying to get these, I would classify them as ingrates, on

repayment of this particular loan.

And I don't know. I would certainly ppreciate if you could forward over to my office a status f their loan.

MR. SIMON: They were delinquent by pproximately $15,000. And we got a substantial amount of hat in and I believe they are fairly close to schedule gain.

REPRESENTATIVE JAROLIN: But you did get hat back? You got the principal back?

MR. SIMON: We will send you a printout of here we are at.

HOLBERT ASSOCIATES (717) 540-9669 24 REPRESENTATIVE JAROLIN: You are not even nforcing the penalities? DIRECTOR LAFLEUR: Well, your point that you ade earlier is exactly right. As the person who is ltimately responsible and watching them day-to-day, I on't want a parking lot full of fire trucks out there ecause they ought to be out protecting people. So I am caught, where we do find people who re delinquent or slow to pay, and the last thing I want o do is take it back. But we will forward you a printout of where hey are at now. REPRESENTATIVE JAROLIN: I appreciate that. hey got the money to pay it. I don't know why they are ot. CHAIRMAN EVANS: Yes? REPRESENTATIVE WAUGH: I would like to make comment on the loan program, if I may. And, first, I need to tell you that I am not asually involved, but I am intimately involved in the oan department as an assistant fire chief with my local epartment. We just recently received approval of a loan n a new engine.

And my comment, I am not here to do anything

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»ther than comment. My comment is that we have noticed

•ver the years in the department, that some of the problem

think, with the hold-up in time, comes back to the State tself and to the department in that I think that we are omehow adding on to the requirements that the local apartments have to fulfill to fill these forms.

And I am wondering if there has ever been ny thought given to somehow having local banks or local inancial institutions interact between the state and the ocal departments to help them through this process?

I see that as a big part of this, this

3-month problem.

DIRECTOR LAFLEUR: Let me comment back, not n a defensive way, please don't -- it is not meant to be hat way. And I will ask the Commissioner to speak to the anker issue in particular.

The accounts over the years are audited by he Auditor General. And that has been one of our roblems, because she has been giving us bills the last hree years that we never used to get before, up to

18,000 a year to audit the volunteer account and we never ad bills before.

The process that we have, some of it in erms of paperwork and time to do it, responds to her udit requirements.

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And I am not saying those are bad equirements, because she doesn't want any fraud, waste, buse in the program. And, in fact, they caught one or wo people that we weren't aware of who were cheating on he paperwork and telling us some things that weren't appening.

But we don't have the staff to go out and ook at all of these 3,000 loans all the time. But they id some spot-checking and found a couple people cheating n that.

We think that that is really tight. We on't think anybody can cheat anymore, but there are 15 or

6 forms that have to be filled out to do this.

And now in the most recent change it is ased on need, not on first come, first serve. So that he most needy volunteer fire companies, which we believe as the original intent of the law, are not going to get he loans first.

Now that is going to create some heartburn ut there, because it used to be first come, first serve. ut there are some very wealthy companies as well in some laces that don't necessarily need the money and our oncern is fire protection on a statewide basis.

Now as to the banking issue, the Lieutenant overnor also thinks that that is an important pursuit

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Issue and he has asked the Commission to do some things.

If you would like to comment.

MR. SIMON: The Lieutenant Governor made some contact with the Pennsylvania Association of

Zommunity Bankers.

The primary mission was to get us some issistance on a voluntary basis with some loan executives

>r retired executives, to come in and help reduce that

)acklog that we have talked about that is there.

We have had four meetings with them and we tad one of the representatives of the task force, ippointed by the Executive Director, spend an entire day rith us.

At the end of that day -- and he is a banker

:rom Mount Joy -- he said, I don't see how that can really rork to your advantage. It would take you too long to

:rain our people to understand the State's methodology in

>utting the program in place.

And by the time you trained them, the loan jxecutive would have to go back to his own bank.

He did say that we could use some additional ilerical help and there may be some retirees out there,

.ellers or whatever, that they could supply us for a

:ouple months.

But we don't see any significant impact on

HOLBERT ASSOCIATES (717) 540-9669 28 ;he loan program itself. But the second point that they made, and :his is a good one, they have offered to set up through is, a series of banks within their 312-membership itatewide, that will provide the kind of assistance you ire talking to, when it come to the VL-5, which is one of .he forms in the packet, in answering the financial [uestions that are not familiar to the local firefighters, ecause they are not bankers, they are not treasurers, hey are not corporate officers.

In the most case they are common, ordinary •eople like us that go down and volunteer some time. Last night, again, in Schnecksville, we had 0 of those bankers from that area present at the leeting. Tonight there is a meeting in Allegheny ounty, another six scheduled to be there. And the last >ne is up at Dickson City, on Thursday night. And they have already sent people out that re going to volunteer their services no cost, no ibligation. It is a networking situation between us and he community bankers. And if you have a problem in your initial orms or anyplace through the process, anywhere in the >rocess, you will be able to go to one of these specific

HOLBERT ASSOCIATES (717) 540-9669 29

.ocations and say, help me put the VL-5 or VL-7 together.

: don't understand this.

Ninety percent of the forms are turned iround at least once when they come in.

The system that was created when the loan irogram started has been amended several times based on rhat Director LaFleur said, based on audits performed by

.he Auditor General.

We can't just physically go in and convert he program. Even the banker who spent the day here said hat.

It is a very complex system, but you are ealing with public funding not private funding like we et from whatever we do.

So you have to have all the checks and alances in place and that does require the extra aperwork. And to change that at this point is not in the ear future.

REPRESENTATIVE WAUGH: I will make another omment and give you this example from my situation.

Two times we had to forward the UL testing n this particular piece of apparatus. I think that is nnecessary. It was forwarded once, but yet the second ime around I think that the lady who we talked to said, ell, I know maybe you sent it in, but send it to us

HOLBERT ASSOCIATES (717) 540-9669 30 igain.

I don't think that is necessary. And I lon't think that should happen.

Just a comment. I am not here to bash, I am lere to make comments, hopefully for the betterment of all if US .

MR. SIMON: We understand.

CHAIRMAN EVANS: I want to go to Donald

;aston, Republican staff.

MR. EASTON: The EOC that we saw this lorning was very impressive. Thank you, Mr. Chairman.

Obviously it is a state of the art, mpressive operation.

How often have you activated it since it has een like that, in the mode that we saw this morning or imilar?

DIRECTOR LAFLEUR: Okay. Last week with the ad winter storm that went through the southcentral part f the state, Franklin, York, Lancaster and through that rea, staff from PEMA, the PUC, the Red Cross -- I am rying to think quickly of the other agencies in there, ennDOT, were in there working the situation.

You may recall reading the newspapers, ighway 233 in Franklin County, Adams, through there, was losed for almost 100 miles or was hard to traverse over

HOLBERT ASSOCIATES (717) 540-9669 31

,000 miles because of the trees that were down.

And PennDOT was coordinating their crews ioing into that area with the utility company crews with he mutual aid assistance of Cumberland County, who went n and helped Franklin County with some teams.

So that coordination of all those assets was n use just as quickly as last week.

The bad storm in the western part of the tate that covered about seven counties and hit the REAs e were very involved in December.

Five times a year we have to exercise it for he Feds, nuclear power plants. Three years ago under the

MI incident were seven people in the center from the FBI nd NRC down to the state agencies, the Red Cross and thers.

So it is kind of fits and jerks. We will go ix times in six weeks and then nothing for six weeks.

MR. EASTON: The reason I am asking you this uestion, you have had sufficient experience to date to et a feel for what it is all about.

I guess what my question is, have there been ny lessons learned from your operation of the EOC that ould result in any kinds of recommendations that would ave budget impacts for improvements, expansions, system ixes, whatever?

HOLBERT ASSOCIATES (717) 540-9669 32 DIRECTOR LAFLEUR: Yes. MR. EASTON: Can you share those? I am not hrowing you softballs. (Laughter.) DIRECTOR LAFLEUR: Well, obviously — CHAIRMAN EVANS: He looks to the tenographer as he says that. DIRECTOR LAFLEUR: The Governor has proposed budget and this -- CHAIRMAN EVANS: You see how the process orks? DIRECTOR LAFLEUR: Yes, I appreciate that nd I am here to explain the Governor's proposal, within he guidance of the Governor, that we were given to ropose to you. So I would want to be sure that I ppropriately defended and explained the Governor's equest. And I am bound to do that. And so, do we have lessons learned from ther disasters and emergencies? Yes, we do. Do we feel that we are vulnerable under ertain conditions at certain hazards? Yes. I mentioned in the briefing earlier today hat we lost some of our immediate staff in the last urloughs and, therefore, I have to send planners and

HOLBERT ASSOCIATES (717) 540-9669 33 ntrained individuals, if you will, to the utility media enters around the state.

The Representative mentioned the trouble ith the plant in the Susquehanna area. I don't have, I on't have trained people to do that. I lost those eople.

The question was raised earlier today about ongressional relations and legislative relations during n emergency situation. There are both federal equirements and, although unwritten, I believe state equirements to support all of you under any emergency ituation, all the time.

If you want information and you want to call n or you want something brought over to you, I don't have nybody to do that.

CHAIRMAN EVANS: May I interject on that art. You said under federal law? Describe that to us pecifically when you say about relations. What you mean y that?

DIRECTOR LAFLEUR: In the federal egulations, particularly under Nuclear Regulatory ommission Number 0654, it talks about if there is a uclear power plant emergency and if there was radioactive aterial released.

And I just went through a scenario issue on

HOLBERT ASSOCIATES (717) 540-9669 34 hat, on the lessons learned, and to Mr. Easton's question or the Susquehanna plant.

After the situation and the reactor is tablized, if there was a release, we are required to go o that area. And we would go to the Kingston armory, I hink, and set up what is called a disaster field office.

And there we would have to support, whether t is Representative Jarolin or Senator Musto or whoever t might be, as well as the Congressmen and Senators and hite House and everybody, with briefings.

And we need those people because we would ant to go after federal money for economic redevelopment f the area. And I don't have anybody that looks at those egulations and that process on any kind of a full-time asis.

CHAIRMAN EVANS: Even though the feds tell ou to do that, do they provide money to do that?

DIRECTOR LAFLEUR: No, sir. If we want heir money back in grants we have to have staff to go fter it.

CHAIRMAN EVANS: I just wanted to get that.

MR. EASTON: That is, well, kind of the hole ball of wax. I have one small point, sir.

DIRECTOR LAFLEUR: I could go on with others elated, but those are some of the kinds of situations.

HOLBERT ASSOCIATES (717) 540-9669 35

MR. EASTON: I understand. This is a small loint. The kinds of people -- you mentioned earlier that

'ou have people that must have clearances because of ecure communications and the kinds of things that they rould do to interface with the feds.

DIRECTOR LAFLEUR: That is correct.

MR. EASTON: I have to conclude that when ou say clearances that means the kinds of clearances that ould result in people having security clearances at the ecret and/or top secret level as described by regulations nd law that the Department of Defense and other federal gencies abide by.

Is that a fair statement?

DIRECTOR LAFLEUR: Yes.

MR. EASTON: So that these people have to ave background checks, national agency checks, all those inds of things, just like a uniformed person or an FBI uy or gal, whatever? True?

DIRECTOR LAFLEUR: True.

MR. EASTON: The kind of folks that you hire hen are at some kind of a level of skill and expertise, hat is something more than an apprentice kind of ituation, right?

DIRECTOR LAFLEUR: Yes, sir.

MR. EASTON: Again, what kind of an impact

HOLBERT ASSOCIATES (717) 540-9669 36 ioes that have on your ability to hire?

What kind of an impact does that have on the

:inds of people with the skills that you require, not to lention the extra added attraction that nobody is going to let a secret clearance if they've got any kind of a ecord, right?

Impact on hiring, recruiting, whatever.

Or are there sufficient, I hate to say this, etired federal employees or ex-military or ex-whatever hat already have clearances that you can bring on board?

DIRECTOR LAFLEUR: We have been very ortunate in this agency for a number of years, to have ttracted people perhaps of ex-military background, elative to some of our planning and operations ositions.

And it has only been because they have those ilitary pensions and they like this kind of work, or they ike Pennsylvania because there are some tax breaks that eterans get, or something like that, that they are nterested in being here.

So they like this kind of an agency ctivity.

However, there are two areas where we do ave problems though. That being a benefit. The problems re these. Number one, in our technical area for

HOLBERT ASSOCIATES (717) 540-9669 37 ommunications, and our communicators in some cases have o have security clearances and other things. I can't keep technicians in the field. I an't keep the communicators who assist the counties with heir communication systems with the computers, with the obile satellite dishes, I can't keep them. I am getting rated by other agencies that ither pay more or they are going to the feds, they are oing all over the place. The second area I have problem with is in ecruitment. Because we have been cutting back and ecause our funding has been iffy and everything, those eople, even those ex-military, retired individuals who ay be very interested, they are shakey about coming to ork for the State or coming to work for us, because the tate has been cutting back and the funds suddenly get cut r they get impounded. And jobs are very temporary in ome agencies right now. This being one of them. So the quality of my recruitment and my echnical staff have been hurt badly by the environment, conomic environment, budget environment of the last two o three years.

But we have been very fortunate in the ong-term basis on the skill level because of the retirees ut of Carlisle and some of the other military facilities

HOLBERT ASSOCIATES (717) 540-9669 38 n the area.

MR. EASTON: Thank you.

Thank you, Mr. Chairman.

CHAIRMAN EVANS: Representative Waugh?

REPRESENTATIVE WAUGH: Another brief omment.

Another thing that is extremely important to ur fire service, as you know, is the Fire Academy. And an you give us a brief update on the expansion and enovations and also make a look ahead at how funding is, ot just for the Lewisburg site, but also for our local rograms at the county level?

MR. SIMON: On May 22nd, we will be edicating and rededicating the State Fire Academy in ouistown.

The project is a capital improvement project hat's materialized in the last 12 to 15 months. We have pgraded the facility. We have built two new structures. e have taken the old structure, totally renovated it to eet the necessary training needs, the competencies to be et by the people in the field today in the fire service.

We will be conducting our first burn class p there the week of April 12, and continue to run those ork classes.

We have not been able to use the facility

HOLBERT ASSOCIATES (717) 540-9669 39

•ecause of deterioration over a period of time. Capital mprovement came through in this administration. And we ppreciate that need that has been put in place.

We have renovated the heating system within he classroom and the administration building to meet urrent standards.

We replaced the fuel oil system with natural as on site. It was never there when the facility was uilt. And on and on and on and on.

You all will be invited to come up there for

full day's activity on May 22, starting at 8:00 in the orning and running to 4:00 in the afternoon, with ongoing urns, crash, fire rescue and vehicle rescues and on and n.

It is a family affair. We invite you all to e there.

In relationship to the local level training, e provide that through the academy and our local level upervisors in conjunction with the community college etwork system up there.

Those local-level training courses have ncreased dramatically in the last three years with umbers going in excess of 70,000 certificates being ffered to the local fire companies.

We do the training classes in-station, in

HOLBERT ASSOCIATES (717) 540-9669 40 rour fire station, for your personnel, using state

:ertified instructors, or we adjust your county fire chools or your regional fire schools to present those ourses.

We have 103 accredited courses that we ffer, not only at the academy but through the local-level raining programs.

The programs meet the necessary competencies hat today's firefighter has to have.

We are trying to protect the officers and irefighters out there from any litigation that may occur s a result of bad judgment on their part or training on heir part as far as their firefighters are concerned.

CHAIRMAN EVANS: Let me piggyback on some nformation that I have there. My understanding, you say ennsylvania consistently has had the highest number of irefighters' deaths in the nation?

MR. SIMON: That is correct.

CHAIRMAN EVANS: And how are firefighters rained in Pennsylvania? What role does the academy play n the training?

MR. SIMON: Okay. We are consistently, and ave been for the past five years, the highest in the ation.

And 1992 was the — 1991 was the worst

HOLBERT ASSOCIATES (717) 540-9669 41

•ear. We had 14 firefighters die in the line of duty.

'he line-of-duty deaths that have occurred -- you ask for he causes and the relationships.

There are three basic areas that have caused roblems. The number one cause is physical fitness. ifty-one per percent of those have died of a heart ttack.

Physical conditioning is not a requirement n any way. You can become a firefighter today, and if ou do not have the physical capability that doesn't atter. You can still go out and try and perform the ob. It is very stressful. It is one that we have to ddress.

Of the four that have died so --

CHAIRMAN EVANS: We have to address in what ay?

MR. SIMON: Well, we have a committee that as been appointed by the Lieutenant Governor to study his problem.

Tommorrow morning at 10:30 we will be eeting to resolve several issues as to what can we do to mprove upon our death rate.

One is physical fitness. The second is upervision. Poor accountability on the part of the ffleers within the fire service themselves, and the

HOLBERT ASSOCIATES (717) 540-9669 42

;raining is also important.

There is either no training, inadequate training or poor training. We make the training available

»ut not all fire service personnel take advantage of that

:ree service.

There are, in the majority of the cases, 99 percent of the time, no charges for that training. There re occasional charges that may be encumbered by local ire schools or by the local department if there are books r publications needed.

CHAIRMAN EVANS: But there are no nducements, incentives as trade-offs of what we do from a tate standpoint to encourage people to indulge in raining supervision?

MR. SIMON: There is no mandatory required raining for firefighters in Pennsylvania.

We are one of about nine states that do not equire that. The only requirement is a federal equirement that is under OSHA. That is at least four ours of requirements for all personnel. Other than that, ou could be voted in as a firefighter today, issued rotective clothing, and begin immediately on the job ithout any on-the-job training at all.

(Laughter.)

REPRESENTATIVE WAUGH: With all due respect

HOLBERT ASSOCIATES (717) 540-9669 43 o most of our local departments these days, I think most iave at least a minimum standard that they would require iefore they issue gear and allow people to respond.

MR. SIMON: Well, unfortunately, in my ravels across the state I have not found that onsistent. There are 2535 fire companies across the tate. Many do not meet any minimum competencies equired.

REPRESENTATIVE WAUGH: If you had to put a ercentage on that, what do you think it is?

MR. SIMON: Fire service is broke out in hree groups. Twenty percent just are there. They exist, hey are called a fire department. It may be a social lub and they are really not into the mainstream.

Half, 51 percent to be exact, are doing a ood job, a reasonable job, in trying to do a good job. nd 30 percent at the top, adequately funded by the local unicipality. And that is the municipality, not of the tate or the county.

They are trained, they have the appropriate quipment. They meet the current standards. They buy the est of equipment. They have all the NFPA, National Fire rotection Association, met when they buy the gear and eet those training requirements.

I would say that once this report is issued

HOLBERT ASSOCIATES (717) 540-9669 44 nd released, it will give you something to look at that s very concrete. At this point it is still in the ormidable stages.

CHAIRMAN EVANS: Leo Trich?

REPRESENTATIVE TRICH: Yes, a question to ny of the panelists regarding training.

It is my understanding that there is the tate training facility, at least one that I am aware of.

Are there satellite facilities around the tate? That is question number one.

DIRECTOR LAFLEUR: There are no state inanced in the sense of Lewistown Academy and its lassroom buildings and all of the buildings that are here.

There are no other satellite facilities of hat type. But let me speak to that. Classrooms, the ommissioner mentioned the community colleges. There are

4 participating community colleges in terms of classroom raining and education.

There are now 41 counties that have a county raining facility, anywhere from Berks or Montgomery where here are probably three-and-a-half to $4 million acilities of county funds, up to maybe $100,000 in ndiana County for basic burn capability.

So you have that spread. But there are 41

HOLBERT ASSOCIATES (717) 540-9669 45 f those geographically located in levels of ophistication from Allegheny to Montgomery to hiladelphia, which vary dramatically depending on your ire problem. REPRESENTATIVE TRICH: And question two, I uess, you started to answer that already. In my home county of Washington where there s an attempt, they are on an ongoing arrangement trying o build, if you will, facilities that they need for raining in Washington County. Would it be your recommendation that, that hat is a route that the State should go as far as roviding for fully-funded satellite facilities? One of the problems I am hearing back home s it is difficult, training is available at low cost for he volunteer firemen to travel to another part of the tate, stay in hotels or the meal involved, the time away rom home becomes a problem.

Is it something that the State should be ooking at if the funding becomes available to do that? DIRECTOR LAFLEUR: A two-part answer. One, e are doing what we can. In the 1988 capital budget here was approval to build a residence hall or a ormitory at the state facility in Louistown for those xtended courses.

HOLBERT ASSOCIATES (717) 540-9669 46 And because fire technology is becoming so uich more intense, you can't do it on Saturday, we are talking three or four days, so to reduce their cost from staying at the Holiday Inn, so it is just the basic cost -o turn on the lights and heat the building. So we are trying to support that. Secondly, the Commissioner has been -- CHAIRMAN EVANS: Excuse me. You say, trying o support that. You say it was in the 1988 capital »ill. But nothing has happened, has it? DIRECTOR LAFLEUR: No, sir, it hasn't. CHAIRMAN EVANS: So you can't be trying to elp it. Not you per se, but I am trying to say, if it as to be in the capital bill and the administration had o make the decision, to be committed to, they haven't iven permission for it to be followed through? DIRECTOR LAFLEUR: The request to build esides with the director. And I did not put in the equest to build, in fact, I just signed it the other day ince you mention it, the dormitory, because we have taken 11 these cuts in staff at the Fire Academy and the nstructors. And I couldn't staff what I have now to keep he facility going.

Number two, I lost my facility manager and e are finishing a $2 million project there and I couldn't

HOLBERT ASSOCIATES (717) 540-9669 47 iut it on anybody else to build another building.

So that is why things slowed down. But I am rying to go that direction. And this capital budget that e are proposing has a facility for command officer raining as a request, and I hope you would give that onsideration in the capital budget.

The second part of that, as we have seen the ounties develop their facilities out there, it has been onsistently the position of this administration for six r seven years that if you put state money into, you pick he county, you are going to have 66 other ones mmediately saying, I want that much or more.

And because there were quite a number of ounties who had already received, the Montgomerys and erks and Indianas and Alleghenys and all over. That they hould address that based on their own type of fire roblem or form an agreement with the county next door to hem for that facility.

And we now have some counties who are ooking into going into bi-county partnerships.

REPRESENTATIVE WAUGH: Thank you.

CHAIRMAN EVANS: I want to thank you.

VICE CHAIRMAN LINTON: Leo, how was your ounty financing the construction of that facility?

REPRESENTATIVE TRICH: To a very minor

HOLBERT ASSOCIATES (717) 540-9669 48 ixtent, and I emphasize minor, county government has made ome token contributions. Those terrible things referred o as legislative initiative moneys.

(Laughter.)

VICE CHAIRMAN LINTON: The terrible things.

REPRESENTATIVE TRICH: That the media loves o hit. Yes. So really, that is what concerns me, to be ery honest, Chairman Linton.

Now that those legislative initiatives might e drying up, I am not sure where the funding will be oming from because the departments have a difficult nough time to pay for the equipment that they need. They on't have the money to go through that training acility.

VICE CHAIRMAN LINTON: We don't have any of ur loan funds available --

REPRESENTATIVE TRICH: I don't know. I an't answer that.

REPRESENTATIVE LINTON: We have at the state und, for any of the funds that we have that we could make or bond purchases, some loans available to the counties o purchase these facilities?

CHAIRMAN EVANS: I don't know that answer, ut I think what it is going to do, Leo, and I said this hen Stan left the room and, unfortunately, it has been a

HOLBERT ASSOCIATES (717) 540-9669 49 todge-podge approach and not really a coherent policy as rou deal with this particular issue.

And since it has been hodge-podge and whatever people can put together to help individual istricts, with whatever they can help them with, there as not been the kind of coherent approach in terms of eally looking at this.

And, you know, I thank Eric, at least from y standpoint, because there are questions that we as embers have to ask, also from the thing that Keith McCall s trying to do, is one thing.

And we need to do an overall look at the uestion of the policy issue, because that is really -- ecause you can't run what I have observed, these fires epartments on legislative initiatives, they just can't un on that basis. Because it is just hit-and-miss. Some ill be more effectively organized than others.

So it is an overall policy question of, here do we want to go and what kind of relationship do we ant?

Because even to be known as the highest tate of the death of firefighters is not something that eople want to go about bragging about.

And I don't think you used the word, andate. I don't think it would be a word of mandate.

HOLBERT ASSOCIATES (717) 540-9669 50

Jut it is inducements, incentives, other kinds of things

:hat you would have to do connected with the loan fund to ry to encourage people locally to understand that it is n their interest to have trained people.

VICE CHAIRMAN LINTON: One of the questions,

[r. Chairman. You mentioned physicals or lack of ihysicals.

We don't have -- there is no requirement hat the firefighters have a physical?

MR. SIMON: No. Including the career epartments. That is one of the issues that is being ddressed tommorrow, is that all you need to do is go to a octor and get a signed note that says, Jack Simon is apable of providing fire-fighting services in the ommunity.

They may check your heart and listen to it r your lungs, but a regular rigid physical, complete top o bottom, that is not required. It is not mandated, it s not -- there is no incentive to do it.

VICE CHAIRMAN LINTON: It seems to me that nything basic that you do in that kind of stressful ituation to make sure that you put a dent in this death ate is some basic requirement that there are at least hysicals on an annual basis or something to make sure hat the people are healthy and capable of functioning in

HOLBERT ASSOCIATES (717) 540-9669 51

.hat kind of stress.

CHAIRMAN EVANS: I think we figured it out. let them a job at Hershey, Hershey Foods. No -- you mile?

Hershey has a wellness program. And we just lecided as part of their managed care option, get them a ob at Hershey and through their wellness program will be

way of -- we will save state money and let Hershey take are of it completely.

We have to get ready to close because we ave another tour later this afternoon.

I want to thank all of you sincerely. It as been my pleasure and members of the Committee also who ome here. And I know Eric will be in touch with you.

Again, this meeting will, we will conclude. nd my understanding, we have a tour with the lottery this fternoon at 1:00. We go to the lottery this afternoon.

Thank you very much.

(Whereupon, at 11:05 a.m., the hearing

recessed, to reconvene at 3:00 p.m., this

same day.)

HOLBERT ASSOCIATES (717) 540-9669 52

CHAIRMAN EVANS: I would like to reconvene he House Appropriations Committee and the House Aging and outh Committee this afternoon.

One, I would like to thank Secretary McNulty nd her staff for a tour of the lottery operation. I know hat members, as we attended the lottery operation, ertainly we learned a great deal.

And as a result of touring the lottery peration, leads up to why we have both Secretaries. This fternoon we have Secretary McNulty and Secretary Rhodes ho are here to discuss the lottery fund.

We know from common demographics that the lderly population of Pennsylvania is growing and will ontinue to grow. So this afternoon we are going to ttempt to figure out how we can deal with this concern.

I am going to start off with, first, a uestion to Secretary Rhodes. What I would like you to do irst, is introduce your staff.

SECRETARY RHODES: I am Secretary Rhodes and

- I am Secretary of Aging.

CHAIRMAN EVANS: Wait, she will give you a ike.

SECRETARY RHODES: I brought with me some olleagues today. Sharon Alexander, who is to my mmediate right, Deputy Secretary for Operations and

HOLBERT ASSOCIATES (717) 540-9669 53

•evelopment.

Rich Browdie is our Deputy Secretary for ommunity Based Care, and Tom Snedden is our Director of he PACE Program. And oftentimes there are many questions n PACE, so we have Tom available as well.

SECRETARY MCNULTY: I am Eileen McNulty, the ecretary of Revenue.

And I have with me Chuck Kline, who is the irector of the Pennsylvania Lottery, and Tom Shaub, who s the Director of the Department of Revenue's Bureau of iscal Management.

CHAIRMAN EVANS: Before I ask a question to ecretary Rhodes, I wonder if the Minority Chairman of the ging and Youth Committee, Representative Gruppo joins s. Any comments that you have?

CHAIRMAN GRUPPO: No, not right now. I do ave a couple questions, but I would prefer if you go head and make your presentation.

Thank you.

CHAIRMAN EVANS: Thank you. And epresentative Blaum is the Chairman on the Aging and outh Committee. Representative Pitts is the Republican hairman of the Appropriations Committee.

And the question I was going to ask ecretary Rhodes. What direction will the program needs

HOLBERT ASSOCIATES (717) 540-9669 54

>f our older citizens need to be headed as we face the text few years?

And how does the Governor's proposal begin o address these needs?

SECRETARY RHODES: What we have done epresentative Evans, is we have brought a brief resentation to address that. So if you could use that in erms of the handout, it will get you there in terms of he answer to that question.

I thought it was important for us to truly stablish again where our philosophy is with the epartment of Aging. And basically it is a statement, lder people are ourselves, and we age as we live.

So oftentimes we view aging as something hat happens to other people, or it will happen to me at ome point, but it is only going to be when I turn 65. nd then somehow we are all alike.

And it is a very diverse group of people, ust as middle-aged people are and our youth are. And we ust think it is an important philosophical statement to ake.

The mission of the Department is to enhance he quality of life of older Pennsylvanians by empowering he community, the family and individuals. And I think he key word on that mission statement is, empowering.

HOLBERT ASSOCIATES (717) 540-9669 — . . ——^-^^_^_ 55

And you will see that throughout our

•resentation. That is really the approach we have taken t the Department of Aging, is that you want to empower ommunities to be able to deal with the issues of aging in heir own local areas.

And you want to empower families who provide ost of the care for older people and, of course, the ndividual directly.

So that has been our view in terms of the verall mission.

The next chart shows a chart on older eople's needs and government's response. Since the ottery started, it has really positioned Pennsylvania to ddress the needs of the fact that we are a major graying tate with 2.5 million people over the age of 60.

And when you talk with older people and try o get a sense of, well, what are your concerns? What are he basic issues?

One of the first things they are going to ell you about is, they are very concerned about, is basic ealth care.

And that is because a third of them, you now, are taking a third of the medications in this ountry. And chances are if you are older, you are going o be in a hospital.

HOLBERT ASSOCIATES (717) 540-9669 56 About one out of four older individuals will >e in a hospital and about one fourth of them will end up >eing re-admitted during the year. So they are a high consumer of health care, o that is why basic health care is important. What did the state of Pennsylvania do? We rovided the PACE Program, that was a major way of roviding some basic health benefits to older people when hat was instituted. The other slash in that is perspective herapeutic review, which we have just instituted this ast August. And basically what that is doing is to make ure that older people not only have access to edications, but we are also concerned that they are ver-medicated or they might be taking medications that ren't appropriate. And so we have instituted a program right at he pharmacy that shows a profile. And we have made sure hat if they are on H-2 blockers, anti-ulcer drugs, nti-inflammatory drugs, or the specific drug Halcion, hat they are taking the appropriate dosage and not taking duplicate therapy. That is new. We are on the forefront in the country in erms of doing that. But that has been government's

HOLBERT ASSOCIATES (717) 540-9669 57 esponse here in Pennsylvania. We would provide them with ledications. And we are the largest third-party payer of ts kind for the elderly in the country.

So you as a Legislature made a strong tatement and a commitment when we entered into that rogram.

The other thing that we did, and these have een partnerships with the Legislature. We have been very oncerned about the out-of-pocket expenses of older people sing health care.

We are one of the few states in the country hat passed, it was known as the MOM legislation a couple ears ago. It became the Health Care Practitioners's Fee ontrol Act.

And basically that is to make sure that hysicians can't overcharge individuals beyond what edicare is going to reimburse for. And that has saved lder Pennsylvanians about $60 million a year in ut-of-pocket expenses.

Again, it was an initiative of the egislature.

And, finally, in terms of our government's esponse, we have been providing people with insurance dvice.

And if you are trying to assist any family

HOLBERT ASSOCIATES (717) 540-9669 58 lember figuring out what Medigap policy to get them, you mderstand how confusing all of this is. And we have been able to provide and are tbout to get this launched across the state, an insurance idvice program that can help people sort through that. So is that is on the basic front those are he things that we did. The other thing that you will hear people alk about is they really want to have their care provided n the home. They want to stay active in the community. So if an individual does become frail and eeds services, they would like to us do whatever we can nd draw that into their own home. So in response to that, I think government as been a real partner and as a partner we needed to rovide a number of things. One is the Family Care Giving Program, and ou mandated this statewide a couple years ago. We are ne of the few states doing this. It is out of the eneral fund. And basically what you are doing in roviding for families, is the opportunity to care for an lder member in the home and we will pay up to $200 a onth in out-of-pocket expenses.

And what is nice about this program is that

HOLBERT ASSOCIATES (717) 540-9669 59

:he family is in charge. This program really treats the lamily as a consumer. Because most of the care out there s provided by family members. And so we work with them.

Oftentimes they are the ones who will hire a rorker to come into the home. And we have found them, I

.hink, to be more frugal and very wise about spending the toney that is allocated to them than, I think, if we were

.o make those decisions for them at the state level.

So again it is that notion of, let's empower he family and enable them to be able to care for people.

The other is that we have in-home services hat are provided to older people. A whole mix of things ere -- home-delivered meals, personal care, attendant are, again to help people stay at home when they are ick.

We have the Options Program which, again, ou mandated statewide a couple years ago. And this is or individuals who are sick enough to be in a nursing ome. These are very ill and frail people.

And what we do there is offer them and their amily members the opportunity to stay at home, and then e will pay up to about 40 percent of what it would be to lace them in a nursing home.

Again, refining that the families out there on't need or require that much, that amount of money or

HOLBERT ASSOCIATES (717) 540-9669 60 resources. A lot of it is if we are just able to piece hings together they can get through.

Finally, we also have what the state has

:alled Adult Daily Living Centers. You authorized the lepartment of Aging to license them. That used to be with he Department of Public Welfare. We are seeing more of hese available throughout the state.

With Adult Daily Living Centers, these are or individuals who, it wouldn't be safe for them to stay t home alone, and they're usually too frail to be in a enior center. And so they are often known also as adult aycare centers.

The next concern that older people have been aying throughout the years is they want to also remain ery active in their community. So it is not just the ealth care, provide things at home, but help us remain ctive. Be a catalyst, be a facilitator for that.

And the way the Legislature has done that is hrough the Shared Ride Transportation Services. It is ruly the link for people into their community, to the octor's office.

This is something that is very crucial to

11 of them. And you have done that through the Shared ide Program and also mass transit. Senior centers are at he hub of a lot of what we do in the aging network.

HOLBERT ASSOCIATES (717) 540-9669 61

They are undergoing quite a bit of change,

•ecause you have a younger, older population now. And lany of the people who became part of senior centers in he early days, like 20 years ago, they have really aged n place.

And so they have different needs, like nother generation, than a younger population. And so we re trying to address and get them pretty active, too.

Health promotion is something that we are earing quite a bit about from older people. They want to now more. They want to be much more involved in their ealth care.

And I think that is good news. They want to revent things. We have actually seen a decrease in the umber of strokes occurring across the country. And it is ot because of technology, it is because people understand hat what they are eating, and exercise, their lifestyle, as something to do with that.

And we are about to receive a illion-and-a-half dollars from the federal government to aunch a health promotion effort through senior centers

11 across Pennsylvania.

Government has also played a protector ole. I view the other ones we talked about as we play a ole and partner. But we are also a protector quite a few

HOLBERT ASSOCIATES (717) 540-9669 62 .imes. And with that role, we play that in protective lervices.

You mandated that about seven, eight years igo through the Elderly Abuse Legislation. We have fuardianship reform. Again, that was legislated last ear. And we are about to launch an effort with he Department of setting up some guardianship support gencies. So the people won't even have to reach a stage f becoming a ward of another individual. And then we have our Ombudsman Program, here we are a facilitator or broker in nursing homes and ersonal care homes. When there are different disputes ith family members or with management, we often go in. nd we are the group that tries to go in and resolve some f those disputes and to be a real broker. So that is government's protector role. What we have done in Pennsylvania which, gain, I think is unique and very sound, is that we have mpowered our communities through the area agencies on ging.

So rather than take the funds that you are iven and direct it toward these programs and create the epartment of Aging having regional offices all over ennsylvania, instead we awarded those to 52 area agencies

HOLBERT ASSOCIATES (717) 540-9669 63 m Aging, some of them are through county commissioners, )thers are non-profit corporations. Again, it depends upon the fabric of that :ommunity, how we address those funds. And we allow a lot >f flexibility in that area. So that is how government has empowered :ommunities and empowered these different sets of lervices. Your next question was, what does this have o do with this particular budget? How does that take us o address these needs? And that is the next chart that e have given you. We really view this year as a year of tablization. When you take a look at the PACE Program, ou know, over the course of the last seven years you have een very active with us trying to deal with a program hat looked like it was truly out of control and was going o consume all of our dollars in the aging network. And from the early days of you reauthorizing he PACE Program, which had about 5 different cost-saving trategies in there that worked, you passed the one-line rescription law. That helped really increase utilization f generics. We ended having a formulary in the epartment of Health that helped. You passed a law to

HOLBERT ASSOCIATES (717) 540-9669 64 efund preservation plan and in this past year, the PACE :escue Plan. You put all of those efforts together. And e are finding that these are real stablizers for us. And e feel very confident that finally this program is under ontrol. And, in fact, it is rather historic, coming o you this year. And we are asking for $9 million less n terms of our outlay with the PACE Program.

So these are the major stablizers in this udget. By having the rebates, the index, our generic tilization is a -- is really going up. Perspective therapeutic review has a savings iece to it, and we have been instituting income erification on this program. All of these factors really bring this rogram finally in line. And I think it's good news. And t is a truly a partnership with you because none of those ieces of legislation, I think, if any of you recall, were asy. But you really worked with us. And I think e can, it is, we can all be pretty proud of the PACE rogram.

The other pieces on our aging block grants hat we send out to the area agencies on aging, and again,

HOLBERT ASSOCIATES (717) 540-9669 65 t is a stablizing year. We were able to give area agencies on aging, verall, when you look at all of those programs, about a .1 percent increase. Family caregiving, which is out of he general fund, is a $450,000 increase. Our Protective Services has stablized. We re keeping that appropriation the same. We have asked or $4 million more on the Options Program. The demand is ncreasing in that area. And we are receiving this $1.5 million from he federal government and will be doing both a health romotion strategy through senior centers and also we are oing to be able to do insurance counseling to train the rainers all across the state. And I think that will be helpful with your onstituents as well, because I know many of you get calls f people trying to figure out, you know, what is ong-term care insurance, what is Medigap policies and hat am I supposed to chose.

In terms of our overall public policy trategies for this year, I see three major things for s. One is in terms of cost sharing and, again, hat fits into the theme of stablization. We believe very trongly, we have seen it with family caregiving, that

HOLBERT ASSOCIATES (717) 540-9669 66 lder people are, it is a population who will say to us, ou know, we don't want a hand-out. But it certainly ould be helpful to have a helping hand. And that is really then our approach. amily caregiving people have been sharing the cost of his program. They have been contributing themselves to t. And we feel with our other services that we re providing, with the in-home services that we do, the ome-delivered meals, some of the personal care that is ffered, that if people are shown what the value of that s, they're willing to contribute. And so we plan to evelop a fee scale similar to what we did in the family aregiving. We are going to go through a whole onsensus-making process just like we did with the Lottery and Preservation Plan. You bring in all of the takeholders. You show them what the issues are. And we feel it would be important for them D help us decide how we set this whole program up. And e are working with all of the stakeholders developing the aetings and we would have a target for 1994, July of 994, to institute that statewide.

Again, Pennsylvania is on the forefront scause at the federal level, with the Older Americans

HOLBERT ASSOCIATES (717) 540-9669 ^ 67 iCt, they have always been very hesitant and I think they ire in a lag time, believing that older people are not illing to contribute. I think in Pennsylvania we have proven that imply is not the case. And older people certainly showed t to you through the Lottery Fund Preservation Plan when hey gave up $50 million worth of benefits. And they said, these were nice when we had a onderful surplus out of revenue in the lottery. We con't ave it anymore and these things can be given up. And so I think that is a strong statement hat we are moving in that direction and it again, it is oing to stablize, because the demand will only increase. Having read, "Reinventing Government," and e enjoyed having you over there with us and bringing Ted abler. Before that we had a number of discussions n a retreat. And one of the things we noticed about our ystem is that we were always using the word, client. And n our world it usually means that we know what is good or people. We are well-meaning, and a bit matriarchal in hat approach.

But we thought a better approach is to see ur older people as consumers. So we are getting rid of he word, client, throughout our system and referring to

HOLBERT ASSOCIATES (717) 540-9669 68 >eople as consumers. And we feel it is a much more interactive itance. And we want to get more information from :onsumers on the impact of our programs. Are they working? Do things need to hange? Was this something that made sense 20 years ago? ind we should go into a different direction today? To give you an example of consumer input, is hat we are about to launch a study with Penn State with ur PACE cardholders regarding Halcion. It was over a ear ago, in January of 1992, where we came out very trongly. We were concerned about our cardholders on he drug Halcion after all the news had been broken on hat particular drug, to make sure people were at the ppropriate dosing level that the drug company had uggested.

What we are going to do now, is that we kept rack of those individuals and we are going to go back and nterview them. And then find out what has changed for hem. Are they using over-the-counter drugs? Did hey find another drug? Are they sleeping better? Did hey find another approach? You know, how did they react o this whole initiative?

HOLBERT ASSOCIATES (717) 540-9669 69

And again, it is a way for us to measure

[uality. We want to do that and develop outcome measures n all of our programs that are more consumer-based.

And I think it will be a new approach for overnment. One we are rather excited about and it is one e put a lot of effort in this coming year.

Finally, the last chart, you had asked us to ry and think through, what are going to be some of the uture public policy issues that we could look in terms of

partnership with the Legislature of exploring?

How are we going to solve some of these roblems? Because the demands are going to increase in he coming years.

I think the first one that we can share rying to figure out is Shared Ride.

And I know Representative Linton will be ery interested in such a solution.

CHAIRMAN EVANS: You mean you still want to ake it over?

SECRETARY RHODES: No.

CHAIRMAN EVANS: The Secretary of ransportation, who we met with last week, said give it to he Secretary of Aging.

SECRETARY RHODES: I am learning in my years ere to be wary of those who want to give you things. It

HOLBERT ASSOCIATES (717) 540-9669 70 las taken a while to figure that out. (Laughter.) SECRETARY RHODES: Corrections wants to give is older prisoners, too. We don't know where to fit them n our system. So, I am becoming more wary. At first I .hought it was a compliment. I am getting a little more rary of it. But on Shared Ride, we are about to give you report that you asked us to do. And we aren't coming ut with a recommendation of who should run it. We hought we wouldn't appear objective if we even came out nd said something in that direction. So it is a thick report. It is a terrific esource, I think, for all of us to use to try and figure ut where do we go from here. We have come up with a number of, I think, ractical recommendations but over all we believe this is system that needs to move more from a provider-driven rogram, which we think it is very strongly right now, to ne that is more consumer-driven. And that doesn't necessarily mean pull it rom PennDOT, but I think it means a whole host of things hat we are going to have to start addressing in this rogram.

HOLBERT ASSOCIATES (717) 540-9669 71

I think you are going to see an increase in

;he demand for it, especially out of rural areas as people

Lre moving in their 70s and 80s.

I just saw a study the other day out of

(elaware County where they did some research work and liscovered that about 25 percent of the people over the ge of 65 in that county alone do not have vehicles at

.11.

And you know, their thinking that perhaps in elaware County -- they do not have vehicles. And so they ave a real transportation need.

And you are finding more of our older people re in suburban areas and, of course, the problems in the ural areas. And it is really their link to getting to octors offices and to different services.

Or for volunteer work. Our older people do

tremendous amount of volunteer work in our communities hat we absolutely rely on.

So, you know, these demands are only going o increase in Shared Ride. And I think you will find his report filled with information because we interviewed

11 of the stakeholders. I mean, all of the providers, he consumers, the advocates, and came up with, we have a hole list of where people did reach consensus.

They all felt we should cross county lines.

HOLBERT ASSOCIATES (717) 540-9669 72 : think they all felt it was important. We have a list on :he consensus side and we also have a real long list where here is no consensus. And we just don't seem to reach igreement. There are areas that we think we could •ddress. But I would really view that, once we give that eport to the Aging and Youth Committee, that it is omething that we really sit down together and figure out way to explore this program and how to really tackle t. And it's -- Howard and I went around the tate and did focus groups. And it is just so remendously different in different places of the ommonwealth. And it might not be something that you could ust set straight standards across the state and think it s always going to apply. But it is truly one of the tougher problems e have ahead of us. And it is one that is extremely mportant to older people. I mean, it is -- health care is first and hen right after that is transportation. And we are eeing that through our state planning hearings everywhere nd it is very volatile how you fix it, too. A lot of hot reas.

HOLBERT ASSOCIATES (717) 540-9669 73

And then -- I should finish.

CHAIRMAN EVANS: I was going to ask a uestion to that. Go ahead.

SECRETARY RHODES: I was going to move on nto PACE.

The next area that we see as a future issue ould be the PACE Program. And this could go atastrophic, into a catastrophic program.

We think there might be some real nteresting opportunities as the federal health care eform efforts really take place.

We have seen in quite a bit of the Clinton dministration's plans that there would be a Medicare enefit for prescriptions.

Now how that takes -- how that really ecomes formulated, we are not sure. They will certainly ook towards Pennsylvania with regard to what we have one.

But if that becomes part of a health care eform package, then it means we can sit down here at the tate level and look at perhaps another way of doing usiness with PACE.

Maybe it will become the program that fills he gaps. We don't know if there probably would be a igher co-pay we would imagine at the federal level.

HOLBERT ASSOCIATES (717) 540-9669 74 Perhaps we could share in the co-pay. But nee that occurs we would look at this program ifferently. A real problem that we are seeing is that ay, for instance, the single individual at a $13,000 a ear income who qualifies, can't go above that, that they ualify for the PACE Program. We know maybe one individual who is putting ut $1,000 year in prescriptions, and the other person aybe only $200. They get a cost of living increase by ocial Security, they are both out of the program. Maybe hey have gotten $200 to $300 out of the federal level. The person who is now putting out $1,000 out f pocket has a different need than the one perhaps who is nly doing the $100. What we think then is that we could take a ook at maybe, is it more catastrophic? But I think there ill be all kinds of ways to look at PACE once that has appened. And some of you have been interested in liding co-pays, different ways of doing this. But I hink that opportunity will be around the corner. But we hould wait and see what the feds do.

And then finally, we are very concerned, I hink, about the overall issue and again it is tough one

HOLBERT ASSOCIATES (717) 540-9669 75 or all of us to tackle, is with nursing homes and ommunity-based care. Our population is getting more frail. The astest growing group in our state are those people over he age of 80. They are high-risk for nursing home care. Community-based care that they need is sually rather intensive and pretty expensive. I think what we have been doing at the state evel, which is commonplace all across the country, is hat at our level, we look at that whole industry, usually rom a telescope. And different agencies will zoom in on ifferent areas. Health will look at it in terms of elfare, in terms of licensure, and also in terms of ayment. Labor and industry will look at it when eople want to build facilities they will have different eeds that they are taking a look at. People are developing Alzheimer wings, and here you want an environment that has good barriers to t. But usually they are constructing barrier-free nvironments and there are problems there. You have the ursing Home Loan Agency out of the Department of oramerce. Is that in touch with the times? There are

HOLBERT ASSOCIATES (717) 540-9669 76 ome differences there.

You will see aging as the ombudsman. Each ne of us is taking these different pieces.

And what we hope to do with the ntergovernment council on long-term care, which the egislature is a part of, is to put together a nursing ome futures panel and to take a look at, let's bring all f us at the same table.

You have unions and management with ifferent disputes and ways of looking at this. That I hink we are going to have to create that table and start ooking at this in a much more holistic way. Because hese demands are only going to increase.

And you are finding a welfare budget putting ut $1 billion or, I think, $1.8 billion just in nursing are home alone.

So that is something that I think is going o be a major future issue for all of us to face.

Thank you.

CHAIRMAN EVANS: Now, I guess we should ask he question to the person who has to figure out how to ay for all of this.

The question I am going to ask is less than

half of a percent of the 1 percent increase in ticket ales is occurring in 1992/93 over last year.

HOLBERT ASSOCIATES (717) 540-9669 77

Should we projected sales? What is

>ccurring to so drastically increase ticket sales?

SECRETARY MCNULTY: You are talking about in he budget year in 1993/94?

CHAIRMAN EVANS: Correct, exactly.

SECRETARY MCNULTY: Well, there are a number if changes that the lottery is implementing in 1993/94 and

^ginning in the last quarter of this fiscal year that I ill let Chuck comment on.

I will just tell you where we are foreseeing he growth in the 1993/94 revenue estimate. It is about

80 million. And it is split fairly evenly between nstant tickets, where it is due to the improvements that e anticipate from a, both vending machines and the nstant ticket validation, and accounting system that we iscussed at length during our tour.

And the rest of it is on, on-line games. nd I will let Chuck talk about the changes that we are aking there.

MR. KLINE: The lottery over the past three ears has experienced sales declines. And our weekly ales decline last year was 9.2 percent over the previous iscal year. That was the largest decline ever.

This fiscal year we have been able to everse that trend and our sales are currently running at

HOLBERT ASSOCIATES (717) 540-9669 78 .5 percent ahead of last year's pace. However, we expect to finish the fiscal ear, this fiscal year, 1 percent above last fiscal year. nd we are projecting modest growth again next fiscal year f 5.6 percent. As the Secretary pointed out, you have to ook at each one of our games to find out where the growth s coming from. In terms of instant tickets, the instant icket accounting system that we would put in place would llow us to launch multiple games at one time. Would allow us to vary the prize structure. ould allow us to create a better product for our layers. Also, instant ticket vending machines will ake our instant tickets more accessible, and easier for layers to purchase. On the on-line side, the on-line being the atrix games and the Daily Number and the Big 4, we are xpanding our Cash 5 game from once-a-week drawings to wice-a-week drawings effective May of this year. Also, we are moving Super 7 as is, from ednesday to Saturday. We are the only state, with the xception of one, that currently does not have a matrix ackpot game on Saturdays.

HOLBERT ASSOCIATES (717) 540-9669 79

So we are moving it to Saturdays. A heavy etail day. And we expect sales to go up there also.

The Daily Number and the Big 4 still, owever, account for 60 percent of our profit. So that is ur bread and butter.

The Big 4 sales continue to show a modest ncrease of about 2 percent annually, as the game ontinues to catch on. And Daily Number sales show a very light decline. And we look for those trends to ontinue.

Overall, what we have tried do is develop a trategy that does two things. Stablize sales so that we ave a better idea of what the future will bring. And lso, to initiate, initiatives that pursue control of rowth.

Now, assured, we are trying to become better t what we do at the lottery, better markers without going fter the quick-fix solutions which other states are xperimenting with.

CHAIRMAN EVANS: Madam Secretary of Revenue, he question I then asked the Secretary of Aging, was a uestion about direction in the next few years.

And I asked, how does the Governor's roposal begin to address those needs? And I certainly hink you kind of heard what she was expressing,

HOLBERT ASSOCIATES (717) 540-9669 80 articularly with the population getting older, describing elaware County as an example.

What do we do as a legislative body to help nsure that the efforts that are happening on the part of he Department of Aging, that we can at least keep up with he efforts that the Department of Aging is moving?

Particularly when, we certainly don't use eneral funds, we use the lottery funds.

What kind of vision would you have from your tandpoint to keep up with it, expressed by the Department f Aging?

That may be an unfair question to drop in our lap, but any thoughts you have from your erspective?

SECRETARY MCNULTY: Well, Linda covered a ambit of issues that exist in the community of older eople today. And I'm not sure that there is anything we ould do that could keep up with the rate of growth of all f those issues.

I think what our mission to do is, as Chuck xpressed it, to stablize lottery sales and pursue growth y pursuing, really, new audiences for lottery tickets.

There are quick-fix solutions as he entioned, that could drive people who are current urchasers of lottery tickets, to purchase more and more.

HOLBERT ASSOCIATES (717) 540-9669 81

And this is the route that is being pursued n some other states that are going to keno drawings every ive minutes and things like that, that are not actually ethods that target new players, but that try and take ore and more and more from existing players.

So I think that I would have to say our view f where we are going in the future is not to try to take, ot to try to take every cent that is out there, but to ursue the discretionary dollars that people have to pend.

And to get them to purchase lottery tickets ecause it benefits older Pennsylvanians, among other easons, rather than to use those same discretionary ollars to purchase other competitive forms of gambling, ike small games of chance and bingo games and off-track etting and some of the other things that are really ompeting with the lottery for those dollars that are out here.

CHAIRMAN EVANS: Madam Secretary of Aging, earing that description of what the lottery fund looks ike, that they are also trying to lend stability to, you se the word stablization. And they use stability, too, o -- and we in the General Assembly want to do stability lso, we want to do stability.

SECRETARY RHODES: Is that really possible?

HOLBERT ASSOCIATES (717) 540-9669 82

CHAIRMAN EVANS: That is why this discussion s taking place. Because the reality is there is only a ertain amount of money.

And the question is, since there is only a ertain amount of money, the question is, how do we tilize the dollars we have?

You talked about reinventing government. ou also noted yourself what Ted Gabler talked about a reat deal was being more creative and innovative and rying to find new ways to do things.

Understanding what the Secretary of Revenue aid and what the lottery people said, you know, when you, nd your staff was doing this retreat, looking down the ine, experiment, did you take that into consideration of hat is occurring?

What the future looks like in terms of the ottery and in comparison?

SECRETARY RHODES: Well, we were never itting there and saying, gee, in the year 1997 when there s video poker, we can add these kinds of programs.

You know, we never looked at it that way. nd I think it has been important, as we did that whole ottery fund preservation plan, the video that we did, we ad a video letter to all senior centers.

We said we felt we could not sell ourselves

HOLBERT ASSOCIATES (717) 540-9669 83 ut of this problem. And it was interesting that the lder groups never advocated for that. Well, we think here ought to be sports betting or we think there should e these other kinds of betting to do that. They viewed it as there was a good time and, ou know, when the lotto was introduced and there was a urplus and all of these programs were there and that we re going to have to cut back on that. I think, and so in erms of our looking at solutions, it was, there are ifferent ways of perhaps doing our block grants with area gencies on aging. Are there things that we are doing, one of hich is in government, and it is a common practice where e say you have to spend the money every year. And we all do that. None of us want to see hose fund lapse. And yet for some groups, they could ind that perhaps for some certain reason within that ommunity they weren't spending it all during that given ear and would like to bring it over the following year.

But the way we all have things set up in overnment, we want to spend it. I don't want to appear efore you next year having asked for money and having no ne spend it. And so you find people trying to do all of liese things that doesn't make a lot of sense at end of hie year.

HOLBERT ASSOCIATES (717) 540-9669 84

So we look at those sorts of strategies and

think the same thing will happen with regard to Shared

:ide. It was developed as such an open-ended program here anybody could go for a ride anywhere for any eason.

And even older people, when we sat down with hem, the one thing we finally reached a consensus on was, ell, we shouldn't have rides to go to the airport.

We are spending $1.5 million a year to spend eople to the airport for vacation. And yet we still idn't take that out of the legislative language. We hrew it over to Transportation.

CHAIRMAN EVANS: But an issue like that was ot driven by senior citizens, wasn't that driven by the egislature more than the senior citizens?

SECRETARY RHODES: No, I think we were the nes who raised it. We said, we should not spend money on hat.

And when we brought it over here, and what e discovered were there were some state representatives ho had in their districts, companies who made a living ff of transporting people to and from the airport.

And then also, I think the other problem has een that there are some who represent districts that are

Ding better than others and it is -- it was one benefit

HOLBERT ASSOCIATES (717) 540-9669 85 hat everybody could get. And we talked to people early on, to the lderly, 20-some years ago. And said, you are entitled to 11 of this, you should fight for it. You paid taxes, his is yours, this is your right. But today we are moving quite differently ith the new generation. And look at the discussions at he national level. Should everybody, should a illionaire receive Social Security checks? And as our generation moves, we are not oing to be able to afford it. CHAIRMAN EVANS: Well, that's why I asked ou that question in relation to the Revenue Department nd the lottery fund. You are correct, probably, when the lottery oved in, it started 20-some years ago. It was more from n entitlement mentality, and now more of a cost-sharing. And I was curious, is that transition eginning to occur, between people understanding? Because here is only going be so much growth for the lottery nless philosophically this General Assembly changes a reat deal or unless everybody decides, you are going to D every form of gambling that is humanly possible in rder to keep up with just some of the things that you ave talked about.

HOLBERT ASSOCIATES (717) 540-9669 86 I mean, and my sense is, I don't think that s going to occur. SECRETARY RHODES: No. CHAIRMAN EVANS: So clearly the programs lave to be approached in a different way, that is what I iear you saying? SECRETARY RHODES: Yes. And that is what we ased our calculation on. We figure this revenue will robably continue. We hope that triples don't hit very uch. CHAIRMAN EVANS: So I can give back my ickets? I just picked up a few. SECRETARY RHODES: If the triple hits onight that will not be good. CHAIRMAN EVANS: Okay. (Laughter.) CHAIRMAN EVANS: Representative Kevin laum? CHAIRMAN BLAUM: Thank you, Mr. Chairman. The Aging and Youth Committee had an pportunity to meet with Secretary Rhodes about two or hree weeks ago and we covered a whole lot of the issues hich the Secretary has talked about here.

I don't have any questions at this time. I would like to ask Chuck, we just had a

HOLBERT ASSOCIATES (717) 540-9669 87 reat tour of the lottery setup and I found it very nteresting.

But my question would be, like when bingo as legalized and other forms of gambling have been egalized recently, have we seen the bump in the lottery?

Have we seen any -- we talked about the fact hat that has a negative impact on the sale of lottery ickets.

Do you --

MR. KLINE: We don't have any information hat would conclusively prove that those games resulted in he lottery sales declining. Those initiatives.

However, lottery sales began to decline hree years ago. And in that time we have legalized small ames of chance. We have legalized off-track betting.

We are now allowing retailers to sell ut-of-state tickets in Pennsylvania. The only state in he country allowing that activity to take place. We on't have legislation to prevent that. We also legalized ingo.

The federal government has increased federal ithholding tax on lottery winnings, from 20 percent to 28 ercent.

So I think when you group them all together,

think they have had some impact on lottery sales. But

HOLBERT ASSOCIATES (717) 540-9669 88 o put a percentage to each one of them, I wouldn't be ble to do that.

CHAIRMAN BLAUM: But in your opinion, we ould be on firm ground when arguing that any future xpansion of gambling in Pennsylvania would have a egative effect on the sale of lottery tickets?

MR. KLINE: Yes. I think in the past you ave heard arguments that players that bet on horse races re a completely different form of gambler, and it is the rgument that we used during the off-track betting egislation.

But we think that our customers, the layers, only have so much discretionary dollars. Only so uch discretionary income that they are willing to spend n gambling.

And I think that any form of additional xpansion of gambling in the long run will cut into the ottery sell, they won't increase lottery sales.

The small games of chance have always been aking place in Pennsylvania. What we did was legalize t. And we made it really, if you play small games of nance, they are fun, they are everywhere in clubs.

So they have made us do a better job arketing our recent tickets.

CHAIRMAN BLAUM: Thank you very much.

HOLBERT ASSOCIATES (717) 540-9669 89

Mr. Chairman, I am joined here today by the anking Republican member of the Aging and Youth lommittee, Representative Gruppo and perhaps Len has some

[uestions.

CHAIRMAN EVANS: Minority Chairman of the

.ging and Youth Committee. He is formally a member of the

.ppropriations Committee, and now he is a big wig. So I ant to make sure he is announced.

Yes, Chairman Gruppo?

CHAIRMAN GRUPPO: Yes. Thank you, Mr. hairman. I am also a former Chairman of this Committee nd I miss all this.

CHAIRMAN EVANS: We start a training ground ere.

CHAIRMAN GRUPPO: I am glad you invited us ver today. We did meet with the Secretary privately and ith also the Committee, and I appreciate all that you did ell us.

And, by the way, I want to thank you folks or bringing us over to the lottery and I guess I should o the same with my pocket full of tickets then.

(Laughter.)

CHAIRMAN GRUPPO: Give them to you.

But anyway, on a serious matter here, we are alking about the elderly. And I was one of those people

HOLBERT ASSOCIATES (717) 540-9669 90 ho voted for the PACE Program a few years ago. And I would like to ask Secretary of Aging, ou did mention it and it is important. What, you entioned that there possibly could be some changes here ith some of the things that may be happening at the ederal level.

For a while we weren't sure about, you know, he usage of this PACE Program. You know, how much was oing to be, you know, in terms of dollars, and also from ime to time, an occasional person will pop up and not ven know about it. When we look at the current programs that ou are evaluating, and you mentioned Shared Ride and PACE nd a few others, but just kind of generally, do we have ny idea where we stand with the PACE Program in terms of ts, its usage? Are the people who need it using it? Are here people out there who are falling through the racks? How can we help them if they are? And how bout other programs, too? I mean, you are looking at some of the emographic information and current usage, how are you valuating this? And could you share a little bit of that ith us?

HOLBERT ASSOCIATES (717) 540-9669 91 SECRETARY RHODES: Well, right now we have bout 350,000 people who are cardholders. And over the ears the enrollment has been going down and part of that s due to the cost of living increases from the Social ecurity. And a couple years ago as part of that whole ottery Fund Preservation plan, we raised income limits to elp those people who had been dropping off the program or that particular reason.

Yet we are finding that the numbers of edications that they are taking per year is stablizing. The largest problem before was the rising ost of drugs. And so that was really what hurt the rogram. But we also find that, yes, there is quite a few eople out there who are eligible for PACE. They are not n it. Part of it can be due to the fact that erhaps they don't know about the program, although we do hink we talk about it a lot. It is in the newspaper uite a bit. We have done outreach to our senior enters. But I also think that one of the reasons we ave found is that people don't apply for the program if hey don't need it. And not everyone is taking sdications out there.

HOLBERT ASSOCIATES (717) 540-9669 92

Because it is always open enrollment, and it oesn't take very much to get into the program.

What you find is that people tend to wait ntil they need it. And if they now find out that they re going to need to be on an anti-ulcer medication for he rest of their life, then it certainly behooves them to pply for the PACE Program.

So there are thousands of people out there ho are eligible in terms of those income guidelines, but hey don't opt to get into the program it is usually based pon the fact that they don't need it and they can get in henever they want to.

CHAIRMAN GRUPPO: At this point in time hough you feel pretty much it has leveled off? You don't xpect to see any kind of upward --

SECRETARY RHODES: You would have a surge if ou raised the income mix again. And, of course, there ould be more people back into the program.

But in terms of the surge of, all of a udden some people needing a new kind of medication or omething, no.

CHAIRMAN GRUPPO: Okay. I have just another ne or two questions here, Mr. Chairman, regarding ersonal care home licensing.

And you are taking it over from the

HOLBERT ASSOCIATES (717) 540-9669 93 epartment of Welfare. And I was just wondering, as far s regulating these personal care homes, how would this ork with specific problems? For example, people with AIDS or even older risoners like you were mentioning, I believe, at one ther point? Could you just elaborate on how that egulation would take place? SECRETARY RHODES: Well, the regulations ould stay the same. Just because Aging would be icensing them, doesn't mean that would change. And this sn't definite yet. This is a partnership with the egislation. Because what we would do is send over from he Governor's Office a resolution for that kind of ransfer, the agreement was. So there is quite a bit of ebate over a year whether or not it made sense for Aging o license as opposed to the Department of Public elfare. We had voted and agreed and reached some onsensus on that, but there are some who disagreed. The benefits that we saw is that we would be rapping all of community-based care, of which we are, nder one agency and we also thought it would be good rider an advocacy wing such as Aging and be interrelated

HOLBERT ASSOCIATES (717) 540-9669 94 ith all the community-based care that we are offering. It is a smaller agency, we felt, could robably spend more attention to personal care needs. But we all resolve, and there are like a ist of conditions. And we sent this report over to the overnor, and one of those conditions is that there would e no way that we would do this if we had to reopen Act 85 on personal home care regulations.

Because if we did that, I mean a number of he stakeholders have said, then we are going to reopen up verything and we are starting all over again. There is a lot of different opinions in erms of regulating personal care homes. So all of the groups did agree that that is he only way that we would go about moving in a kind of icensure. This is not something that can just be decided y the Governor. It is not done yet. The whole report is before the Governor ow. I think he will be moving on that decision, I would ay, within a month. But, again, it is going to involve a esolution through the Legislature. And I can give you a opy of that full report, so that you know all of the pinions of what people felt about that.

CHAIRMAN GRUPPO: Thank you very much.

HOLBERT ASSOCIATES (717) 540-9669 95

CHAIRMAN EVANS: Representative Gordon inton?

VICE CHAIRMAN LINTON: Thank you, Mr. hairman. I need a mike that works, Mr. Chairman.

(Laughter.)

VICE CHAIRMAN LINTON: It just didn't light p. That is what happens when you have two chairpersons itting next to you, at least they can tell you how to urn the light on.

(Laughter.)

VICE CHAIRMAN LINTON: So much for tablization.

(Laughter.)

CHAIRMAN GRUPPO: Just watch it, Gordon, you ight be a chairperson one day, too.

VICE CHAIRMAN LINTON: Is that a vote?

(Laughter.)

VICE CHAIRMAN LINTON: I want to move back oo, and I guess you kind of identified one of my favorite opics, the Shared Ride.

When can we expect for that report that was orked on by your staff to be given to the Aging and Youth ommittee?

SECRETARY RHODES: That should be over, I ould think, in two weeks. In two weeks it will be here.

HOLBERT ASSOCIATES (717) 540-9669 . 96

VICE CHAIRMAN LINTON: So are you interested n taking over the program then?

SECRETARY RHODES: No. It doesn't recommend ho should run it.

VICE CHAIRMAN LINTON: I know you said it asn't in the report. It was a direct question.

SECRETARY RHODES: And that, that was an nteresting experience. When we first came to you.

We thought this would make sense for Aging o do that, because we see it more as a human service than trictly a transportation system.

But when we brought it over, it was part of he Lottery Fund Preservation plan. And there were such ixed, strong opinions on that. Mostly coming from llegheny County.

And when you go to Allegheny County and do he focus groups there, they really like the program as epresentative Robinson would certainly testify.

It is not broken. What are you doing trying o fix it? And yet you go to Philadelphia where it is roken. Ketron at the time.

But you are going to rural areas and making ayor rationing decisions that I don't think any of us atended to have.

The late Jim Manderon never would have

HOLBERT ASSOCIATES (717) 540-9669 97 magined some of the changes in the rules area with regard o it. So that has been the problem. There is such mixed response to it. And I am hoping with this report o put it all out on the table. And I think what we need to do is represent ur districts and our constituencies, but also try to see his thing as a whole program and how can we actually ddress it. VICE CHAIRMAN LINTON: This is a problem hat -- I chaired a task force in 1985. We did statewide earings. And I would suspect that the results that ou have gotten are probably going to be similar to the nes that we got in 1985. Even at the time there was a vast degree of ifferences as to how the program worked in different ounties. And also, the reason that there was a ketron in hiladelphia was as a result of the success of the access rogram in Allegheny County. And it was felt at that time that if we were D put together something that resembled the access rogram, we had a coordinator that was lacking in liladelphia, that with the large metropolitan areas, as liladelphia is, close to Allegheny County, that we could

HOLBERT ASSOCIATES (717) 540-9669 98 ave a sense of stability by duplicating that. And that is what gave rise to coordination. nd that was the result of a hearings that we had before, here everybody in Allegheny County was happy. We had a number of people who were roviders. Providers are never happy, because providers lways want, the bottom line for them is how much money an I make? But the consumers have always been issatisfied in Philadelphia. And we had some of the same omplaints. And I understand there were hearings ecently that one of the Senate Committees had. And the omplaints are the same as they were before. So I think o some degree that is going to continue. But you are right, if we don't view it as a Dnsumer program versus a provider program, and quite rankly, a lot of policies have come about in this program ictated by providers and it serves their interest for hings to continue the way they are. So I am interested in seeing what your =port has to say. Turning over to the Secretary of Revenue, nd I am sorry I didn't get a chance to go to the lottery Dur. Maybe it means that if I had an opportunity to I

HOLBERT ASSOCIATES (717) 540-9669 99 ould look forward to winning something in the next couple f days to pay some of my bills.

But one of the things that I am concerned bout and this has been an issue that has given rise round the country, has been those people who buy the ottery tickets.

There has been a philosophical bent who hink that very often you have those who are the lower ealm of our economic society purchase lottery tickets.

Those who are looking for a major win to urn their lives around become the people who, to some egree, I will use the term, are victims. Are the ones ho are purchasing lottery tickets. And that is a major ffort.

I know as you go around and look at numbers, nd where tickets are being purchased, I know quite rankly in major urban centers and those with low income, re major purchasers of lottery tickets.

And sometimes I wonder whether or not our fforts to continue to market to that kind of community, f you are going after the deprived community and allowing hem to fund government operations.

And I think, you know, Joe was turning over hen someone said, quite frankly, when we do gambling, any romotion of gamble, you are going after almost the same

HOLBERT ASSOCIATES (717) 540-9669 100 arket in terms of discretionary dollars. My concern is how much marketing can we do o a deprived community and look to them to support rograms in which state government depends upon?

SECRETARY MCNULTY: Well, we are very oncerned about the issue that you just raised. And that is why, when Chairman Evans asked a uestion about the direction that we are going in the long erm, I said that really what we are trying to do is pull n new markets, sell tickets to new people rather than elling more tickets to the same group of people. And that is actually the harder way to go. he more difficult job to do. It is easy to go out there and get people ho are already spending substantial sums on gambling and ncourage them to spend more. But that is not the irection that we are heading.

And the direction that we are heading in is ttempting to get new people involved in purchasing ottery tickets. And some of our initiatives are directed in hat direction. Including the instant ticket vending achine initiative, which will enable us to put more nstant tickets in places like grocery stores and other laces like that where you have some more wide variety of

HOLBERT ASSOCIATES (717) 540-9669 101 •eople in there shopping, than in some of the places that 'ou might have in mind. When you mention that, if you look at pecific retailers you can indicate what type of clientele hey have that may be buying their tickets. We just recently obtained the data from the esults of a new study that segmented the market for the eople who are purchasing lottery tickets.

And it seems that the income group that are urchasing lottery tickets is not really low income. It s middle income people who seem to be purchasing -- have he highest rate of purchase of lottery tickets. And I think part of the reason for that is hat lottery tickets are a form of entertainment and it is form of entertainment that appeals to people in that ncome bracket. Maybe more than the people in some other ncome brackets. We are looking for games that will appeal cross a wide range. But I think that the job we are doing now is t least not targeted at the low-income spectrum. It eems to be in the middle-income spectrum. I will ask Chuck to kind of expand on that. VICE CHAIRMAN LINTON: Can I ask you omething, Chuck?

HOLBERT ASSOCIATES (717) 540-9669 102

The Secretary made mention to instant ottery outcome. Do we utilize airports? I know there as a discussion somewhere of the turnpike.

How successfully have those kind of outlets een in an effort to increase utilization and those kinds f points?

MR. KLINE: We are looking at about 17 ocations now in the Pennsylvania turnpike and we are, our xperience thus far, has not been as successful.

Our terminals average about $5,000 statewide n sales per week and the one on the turnpike going to the

00 initially. But we are still looking at the turnpike, e are also looking at airports. And we have put them in he Pittsburgh airport and also the other airports.

We are looking into that, to answer the irst part of your question.

The second part, and the Secretary already ouched on it, and I think it is an important point, we iscussed stablizing lottery sales. And I think the other mportant point is responsible growth.

And we have set in our advertising budget nd all of our contracts that we have with our vendors, inority goals. And our advertisers have been pecifically, specifically told not to target minority udiences.

HOLBERT ASSOCIATES (717) 540-9669 103 Now, there are problems with that result, we ometimes have a difficult time meeting minority oals. But what we have done is taken our budget, ur promotional budget and placed that into purchasing oods and services from minority businesses. In addition, we do not target first of onth, the first week of the, each calender month when the hecks come in. The lottery does not do that. We spread our advertising over the entire onth and it does not target specific audiences. Specific udiences of lower income levels. And, our segmentation findings showed us hat we do not have a disproportionate amount of lower ncome people playing lottery. VICE CHAIRMAN LINTON: Chuck, could you ubmit those segmentation findings to the Committee? SECRETARY MCNULTY: They are this thick. ou might like a summary. VICE CHAIRMAN LINTON: How about an xecutive summary? We would appreciate that. MR. KLINE: Sure. VICE CHAIRMAN LINTON: Thank you very much, c. Chairman. CHAIRMAN BLAUM: Representative Gruppo?

HOLBERT ASSOCIATES (717) 540-9669 104 CHAIRMAN GRUPPO: Thank you, Mr. Chairman. enjoyed the tour of the lottery and I asked you this uestion while we were there. I am going to ask it again ust for the record. The vending machines. You know, I think it s a good idea, but I have some concerns about minors urchasing tickets from the machines. And you did indicate to me at the meeting hat it would be in full view of the proprietor or the erson in charge of the establishment where the machines ould be.

But somehow or other, I have a funny feeling n my stomach that when you put these in, you know, arnpikes, you know, whatever they call those places, and he airports, and even in grocery stores, that somehow or ther, minors are going to be buying tickets, and maybe in arger quantities than most of us would like to see. And I just want to express to you, again, my srsonal concern about that. And I want to know from you, will the achines be labeled clearly? Will the proprietor or whoever has the achine in their establishment be appropriately warned iat if any minors are apprehended or whatever, in jrchasing these tickets that they are going to suffer

HOLBERT ASSOCIATES (717) 540-9669 105 ome sort of penalty? MR. KLINE: We have done a couple of hings. Yes, we have, we are well aware of the potential roblem that exists and we conducted extensive research ith those states that currently have instant ticket ending machines to ask them, first of all, how extensive as the problem.

And they indicated to us that it was not a ajor problem. However, we in Pennsylvania, decided that he only way a retailer will qualify for a machine was hat if, if it was in full view of the retailer, on the achine is an announcement prohibiting the purchase of ickets, by anyone under the age of 18 years of age. Lottery licenses will be revoked if we find hat retailers violate and allow those sales to take lace.

And I think what is important is that in any businesses in Pennsylvania, the lottery machine is he difference between being in the red or being in the lack. And these machines are important to our etailers. The licenses are important to our retailers. nd we expect them to abide by the rules and regulations ad policy that we established at the lottery and we will

HOLBERT ASSOCIATES (717) 540-9669 106 e monitoring closely the activity that takes place when e place the initial order of machines.

We conducted a test also, which was at the ocations, and we were looking for that exact thing. And t did not occur during the test. CHAIRMAN GRUPPO: Thank you very much for our response. I would hope that you would follow through ery carefully with all of that because I do see it might e a problem. Thank you. CHAIRMAN BLAUM: Representative Battisto? REPRESENTATIVE BATTISTO: Why don't you let 3ith go first? CHAIRMAN BLAUM: Keith McCall. REPRESENTATIVE MCCALL: Thank Mr. Chairman. hank you, Jeff. I am looking at the income statement. And I now you noted that there was a 9.12 percent decline in ales. And then when I dropped down to the interest, here is a substantial decline in interest from 1991 from 991/92, from $8 million down to $3 million. What happened there that there was such a feline?

MR. SHAUB: I hate to blame it on somebody

HOLBERT ASSOCIATES (717) 540-9669 107 lse, but the Treasurer does that. Interest is realized hen securities are sold.

And as the balance in the lottery fund eclines, more is sold, so interest would be realized at hat time.

Since the fund has declined in balance so uch, there is just not as much money there to be invested or the Treasurer to make interest on. And, also, interest rates aren't very good ight now. But the principal reason is just less money vailable. REPRESENTATIVE MCCALL: Well, then with the .2 percent decline in sales, I guess it may be too early D say whether or not there is a trend being set here. But have you looked to other states to see hat is happening in other states as far as that trend or hat decline? Have other states also experienced decline n revenues? MR. KLINE: Yes, nationally lottery sales re projected to decline this fiscal year because states re maturing now with lottery states. However, the south is starting to pick up. 3 have 36 lottery states right now. And in the south, sorgia is coming on line here in a few months, which will

HOLBERT ASSOCIATES (717) 540-9669 108 ause overall sales all over the country to increase. But each state overall is experiencing a ecline in and a leveling off of lottery sales. REPRESENTATIVE MCCALL: Less than one-half f one percent is, less than one half of one percent in icket sales for 1992/93. Over last year. And then 1993/94 shows projected ticket ales increasing by over 5.5 percent. What is happening that is increasing? What s occurring that is, for that dramatic increase to take lace? MR. KLINE: Well, first of all, as I stated arlier, we first set out at the beginning of last alendar year to stablize lottery sales and implement some nitiatives to try to increase the sales. We have coming on board as we have sntioned, the ITVAS system, to take an accounting system, hich would allow us to introduce multiple games and allow 3 to vary the price content and put a better product out here. And instant ticket vending machines will :cur this year and next year. We are moving our Cash 5 ame to a second drawing and also moving our Super 7 game 3 a different day.

We are focusing our resources, focusing our

HOLBERT ASSOCIATES (717) 540-9669 109 ttention also on our bread and butter games like the aily Number and Big 4 that account for 60 percent of our rofits. We think that all of those initiatives ombined will help us pursue some modest growth next ear. REPRESENTATIVE MCCALL: I am sure you are oing this, but as far as innovative games, you know I nderstand that the vending machine is something that you re looking to maybe bolster sales somewhat.

But are you looking to other states also for nnovative games that may be out there to help bolster evenues? MR. KLINE: We have a couple of nitiatives. The Cash 5 game which is our 5 of 39 matrix ame, was a game we introduced last April which has helped o stabilize ourselves. We also have a game that is killing them cross the country, is a bingo game. It takes 10 minutes o play. It is an instant ticket game. We also are taking our games and adding, here is a Ripley's Believe It Or Not game, tying game hemes into the games also.

And those are kind of initiatives that other tates have done and they kind of served as testing

HOLBERT ASSOCIATES (717) 540-9669 110 rounds for us.

And the games that we hope we will be able o do under ITVAS. Most of the games that other states re doing now, the newer initiatives and existing games we re not able to do because we are limited with our current ccounting system.

We hope to have instead of four games on the arket at one time, maybe 16 games next year.

REPRESENTATIVE MCCALL: I see.

MR. KLINE: Open at one time.

REPRESENTATIVE MCCALL: And you say you may e putting an instant game on that takes 10 minutes to lay?

MR. KLINE: Yes.

REPRESENTATIVE MCCALL: Tell us about that ust a little.

MR. SHAUB: It is a long instant.

(Laughter.)

REPRESENTATIVE MCCALL: You don't have to nswer. It just sounds --

MR. KLINE: I never thought of it that way, t is a scratch-off game that requires 10 minutes.

REPRESENTATIVE MCCALL: That is something.

D more questions, thank you.

VICE CHAIRMAN LINTON: It is killing them

HOLBERT ASSOCIATES (717) 540-9669 Ill cross the country? MR. KLINE: Yes, killing them. VICE CHAIRMAN LINTON: Representative attisto? REPRESENTATIVE BATTISTO: Thank you, Mr. hairman. Secretary Rhodes, the first question is irected to you. At first after we passed the Blaum egislation, I had some early complaints from people who aid that doctors requested out-of-pocket charges beyond he Medicare.

I called the doctors up and, of course, in ost cases they just didn't understand or hadn't heard bout the legislation. I have not had any complaints from older eople since then. How about you? With the lobbying being mplemented, are there any complaints at all? SECRETARY RHODES: It seems to be we are not etting that many complaints, but we thought we are going o start looking into that because we are not sure if that eans older people don't understand when to complain. And so that is one of the things that we ant to take a look at. We had heard early on the medical society

HOLBERT ASSOCIATES (717) 540-9669 112 aised a lot of alarms and concerns and felt there would e a flight of physicians leaving Pennsylvania, and no one as really seen that.

There certainly are problems. We need more amily practice doctors especially in rural areas. But we on't think the Medicare overcharge has any impact on hat.

But we should not assume because they are ot complaining that, therefore, we have no problems. REPRESENTATIVE BATTISTO: I got some omplaints very early on. I talked to a couple doctors. at after that, absolutely nothing. And I don't know if any other legislators ave had it, but I thought you would have more central epository complaints. SECRETARY RHODES: Not that many. And most f the complaints, they go directly to complaints. But it 3 something we were discussing the other day, we ought to Dok into it. REPRESENTATIVE BATTISTO: Thank you. nother question, with respect to the income verification trincipal that you have implemented.

Am I to assume, are we to assume that there =re considerable number of people or an appreciable amber who are becoming -- declared eligible for the PACE

HOLBERT ASSOCIATES (717) 540-9669 113 hich actually were above the income-eligibility list?

SECRETARY RHODES: Well, we are finding, we hink, through the enrollment process there, about 5, 5 ercent less people enrolling. We don't think it was exactly attributed to he enactment of the legislation, although we think that s part of it. That there might have been some ndividuals out there, when they didn't have to verify it 11 the time, you know, thought that we will take our hances, because they knew we were auditing. But it asn't that great of a number. We recently have done -- part of the egislation that you just passed, asked us to do a match ith the Department of Revenue on these individuals. And e have found about 2 percent of the population are higher han the threshold. That we need about 7500 people.

So we are going to go back to them and write o them and they are going to have to send us more nformation back. We don't know for some of them. It could be hey had a capital gains, they might have sold their home nd that is -- what shot them up, we are not sure. In erms of those numbers. Because we allow them two years with regard o that kind of a gain. Because some people will sell

HOLBERT ASSOCIATES (717) 540-9669 114 heir home to enter a nursing home. So that wouldn't be air to remove them from PACE. But we found recently with he match at least 2 percent.

So we are going to go back and go to those eople directly and find out what happened. REPRESENTATIVE BATTISTO: One more uestion. Going back to the Shared Ride Program. In Monroe County, I represent Monroe County n the Poconos, the Monroe County Transportation Program an the Shared Ride Program initially, but in the last aar or so the Area Aging took over the program and simply scause it was very difficult to operate. It wasn't operating efficiently, very Dnestly, under the MCGA. It appears as if, it appears as f the Area Aging are operating it quite well. I don't know if you have heard anything Dout that or if there are any other rural transportation ithorities throughout the state operating Shared Ride. But it appears that it is working fairly 311 under a new regime. SECRETARY RHODES: That is good news. REPRESENTATIVE BATTISTO: Just one question : so directed toward Chuck or Eileen or both or idividually.

First of all, I would like to compliment you

HOLBERT ASSOCIATES (717) 540-9669 115 ith regard to your philosophy in the lottery program. he idea of competing for discretionary income. More orizontal audience rather than vertically, trying to ocus on the same population, I think, is very important.

Because government is in the business of and ertainly we are in a business of growing the lottery for he sake of funding $600 million, plus the senior citizens rograms. And we can advertise it based upon that. And I hink that is very, very important.

It appeared to me since I have been here, I atched the lottery go over the threshold of $500 million, 300 million and, all of a sudden, a $1 billion business, sally. It seems to have matured as a $1.5 billion c so business. That is what it seems to have done. And lerefore, you know, unless you seek to compete more jgressively for discretionary income, it appears that lat is what is going to be added. It might fluctuate a 3w thousand here or there, but that is about what it is.

Is that the way you have assessed it over ie past few years? MR. KLINE: I think that we are a $1.5 Lllion business operating within the framework of state svernment, which, which is, poses some management iradoxes for us there.

HOLBERT ASSOCIATES (717) 540-9669 116 I mean, we are asked to pursue and promote rowth, but conserve resources. We are asked to foster an ntrepreneurial spirit, but not take risk. And increase ales, but not be too aggressive in doing that. And we ecognize that.

(Laughter.) So what we have tried to do is establish a trategy that stablizes and pursues modest growth. I hink that we can still pursue modest growth without going o the major initiatives, the 3 to 5 percent range on an nnual basis.

What we have tried to do is become more fficient and more efficient in our operations also, which alps control cost. We are, I think, I know, among the leaders a terms of revenue generated as a percentage of sales, we re amongst the leaders in the advertising expenditures as percentage of sales, the lowest in the country, of the ajor states with the exception of New Jersey, which Desn't have a major media market. We also are the lowest among any states. Of le major states in terms of economies and efficiencies as D the amount we spend as an administration on ^rcentages.

So we try to cut costs and pursue modest

HOLBERT ASSOCIATES (717) 540-9669 117 rowth. And that is where our whole strategy is focused ow.

REPRESENTATIVE BATTISTO: I take it you are oing a good job of that. Chuck, one last question. The House more han once in the past 150 years that any, any talk of egalization of, let's say, video poker machines or nything like that would have a negative effect on the ottery sales, if we are to subscribe to the principle hat we are only trying to target, trying to target iscretionary income.

I mean, wouldn't you actually agree? I'm Dt trying to put words in your mouth. If the state of Pennsylvania were to agalize video poker machines and there are many, put many n 20,000 liquor establishments. I think that would have considerably negative effect on lottery sales. MR. KLINE: It would if, two points there. ne, if the proceeds did not benefit the programs which snefit older Pennsylvanians. Secondly, the video poker machines, the slot achines, are a form of instant gratification. Now the only thing that we offer is our istant tickets. They're instant gratification, where you :ratch, redeem, scratch.

HOLBERT ASSOCIATES (717) 540-9669 118

All other games require you to play and wait whole day. The drawings occur once a day.

And I think you have to distinguish between hat, too. But to answer your question specifically, in y view it would definitely have an impact on lottery ales.

REPRESENTATIVE BATTISTO: Thank you. Thank ou, Mr. Chairman. VICE CHAIRMAN LINTON: Representative dolf? REPRESENTATIVE ADOLPH: Let me walk up here o the mike. Thank you, Mr. Chairman. Good afternoon. I ave a couple of questions I would like to address to the ecretary of Revenue. It is concerning compliance with the roperty tax and direct rebate program. Approximately DO,000 families apply for this rebate. Out of the 400,000 forms that are filed with he Department of Revenue, how many of these are checked or accuracy? Not mathematical accuracy, but as far as the Lgures being what they say they are? Do you have auditors that go out and audit lese forms or check that these figures that appear on

HOLBERT ASSOCIATES (717) 540-9669 119 hese forms are correct? SECRETARY MCNULTY: We have tax examiners hat examine the property tax and rent rebate returns. We don't examine every single return. We ave parameters similar to parameters that we have in our ax areas where we choose those that have the highest ikelihood of producing a discovery of errors upon xamination and examine those.

In addition, on our property tax and rent Bbate forms for this year for the first time you will see box where people are asked to sign an authorization for 3 to compare by machine, the income that they have aported on their property tax and rent rebate form gainst their personal income tax return income. Now that will be helpful in detecting people ho have taxable sources of income that maybe putting them /er the limit. But in and of itself, it is not a sufficient lamination. I don't believe that we would be in a Dsition to quit doing our desk audit because substantial imbers of senior citizens have very substantial incomes aat are not subject to tax. Most especially in Pennsylvania where we do at tax retirement income whatsoever. So there are people who have incomes that

HOLBERT ASSOCIATES (717) 540-9669 120 Diild be over the limit, that we are not going to find hat way.

REPRESENTATIVE ADOLPH: That was the purpose f my question, because I know when the people file these Drms they have to send photostats of their property tax ills as well as rent receipt.

But there is no verification on the form sgarding the income. And I realize that many of the sniors that qualify for these programs probably might not /en file a PA tax return. To get back to my original question. What

HOLBERT ASSOCIATES (717) 540-9669 121 rriting back to people who applied and said, you did not

;end us your property tax receipt. What you sent us was, ou know, you wouldn't believe some of the paperwork that

•eople attach to these things, thinking it is a property ax receipt or something, I don't know.

But we do spend a considerable amount of ime in corresponding with people making sure they have ubmitted the appropriate documentation.

And lots of times we find that they do have he appropriate documentation. They just forgot to put it n there or maybe their daughter-in-law filled out the orm for them and didn't have the thing, so they just hought, oh, well, the heck with it, we will just send it ff without it.

And when we send it back they do produce the ppropriate documentation.

REPRESENTATIVE ADOLPH: So the forms that re being filed, you find are correct? That -- I mean, here is no fraud involved in this program?

SECRETARY MCNULTY: I wouldn't say that here is no fraud. But I would say that when we determine

- the Office of Inspector General had in the past been ery active in determining -- in investigating these kinds f things.

And most of the fraud that we found was

HOLBERT ASSOCIATES (717) 540-9669 122 ctually a case of people who may not have even been eligible for the program at all, submitting multiple laims under fraudulent Social Security numbers and those inds of things. REPRESENTATIVE ADOLPH: Okay. The next uestion is regarding the last increase concerning the aximum income level. I believe it is $15,000. And that igure has not been increased since 1985.

And there has been all types of bills ntroduced in the House and the Senate to increase that mount. Mainly trying to continue to give assistance to hose that have received this assistance in the past. And I noticed that about 20,000 families very year in the state of Pennsylvania seem to be losing his and it could be as a result of the cost of living djustments, and Secretary Rhodes touched on that. This is really maybe more of a statement hat I would like our Committee to consider when we are oing over the budget that if we would, if we would allow or the cost of living adjustments, okay, that we are not eally losing revenue, because this is money that people ave received from year to year.

I noticed that we are going to drop about -- e are going to be decreasing each year for the next five ears it looks like to me in this program mainly because

HOLBERT ASSOCIATES (717) 540-9669 123 )f the cost of living adjustments. And if the chairman would remember this, :ome budget time, that maybe we could increase this amount if money, since it has not been increased since 1985. And also, also, and I was not in the legislature when this program started, and maybe you would »e able to let me know, why in the PACE Program you [ifferentiate between married and single as far as income laximums but not in this program? I get this all the time, that, you know, it s harder for a married, a married couple to live on 15,000 than it is a single person at $15,000. And why the PACE Program differentiates but ot this program? I wasn't here in the Legislature when 'm sure that debate went on. But I have never been able to answer my onstituents why this goes on. Whoever would like to answer that. SECRETARY MCNULTY: I think I would have to ay that it is because the programs were enacted at two afferent points in time, really. They just, they were not enacted with the ame -- the legislation is that way, the law is that way o we have to follow it that way. But back on your point about increasing the

HOLBERT ASSOCIATES (717) 540-9669 124 ncome limits. And what happens to people who, through :ost of living adjustments, their income may be ncreasing. There are other forces at work there also. 'hat have tended to keep more people in the program han in the prior periods of time when cost of living djustments were causing Social Security to move it

P- And that is that senior citizens have a ubstantial amount of interest earnings, some of them. nd interest earnings have been declining over in the ecent period of time largely because interest rates have een going down. So you got kind of two factors that are ffsetting at work there. 13.4 percent of the owners and 4.7 percent f the renters fall into the top income categories. So when you are looking at the cost of ncreasing the program not most of it is concentrated at he top. A lot of the cost of it comes from people ho are lower down in the income scale of the program, oving up into categories where they receive a different ercentage of rebate.

REPRESENTATIVE ADOLPH: Thank you very

HOLBERT ASSOCIATES (717) 540-9669 125 tuch. Thank you, Mr. Chairman. VICE CHAIRMAN LINTON: I know you are not ooking for logic and uniformity in the way legislators ass laws. (Laughter.) VICE CHAIRMAN LINTON: Representative reston? REPRESENTATIVE PRESTON: Thank you, Mr. hairman. Mr. Adolf helped me answer one of the uestions I had and I won't have to ask it now. First, let me start with the Department of ging. One of the situations or problems that I have had rought to my attention in my district is the prescription Ian and prescriptions for 30 days. And a lot of people were complaining that he doctor will not give them the medication for 31 days. And if it -- and what we found is that I ave some, some senior citizens that -- I was hoping when e went through the change late last year and we were oing to change it, I don't know if you did or not. But I found if there were some senior itizens who had a good day would try to make it in that onth of 31 days. Have we done anything about that yet?

HOLBERT ASSOCIATES (717) 540-9669 126

SECRETARY RHODES: No, we haven't. Some ihysicians give them a sample to get them started. But.

REPRESENTATIVE PRESTON: This report -- I ent this report in last year, and I haven't heard nything.

And it concerns me, because if I have omeone who is taking four or five prescriptions, and it asn't just one or two people that brought it up.

When we went into the plan about the rescriptions and we rechanged it and increased the o-pay, this is when it really came to my attention.

And I, it really concerns me, you know, if here are people who are not taking their medication, to ake that 31 days.

And I am hoping now that if you haven't done t then we can straighten that out?

SECRETARY RHODES: Tom, do you have nything?

REPRESENTATIVE PRESTON: We have four months

year that have 31 days. And I have a lot of people have old me that they only get 30 days of medication.

MR. SNEDDEN: I am not understanding why hat is a problem?

SECRETARY RHODES: Because they give them a

0-day supply.

HOLBERT ASSOCIATES (717) 540-9669 127

MR. SNEDDEN: So they go back on the 30th lay and get a new 30-day supply.

REPRESENTATIVE PRESTON: No, senior citizens on't want to do that, to take advantage of the system.

If there are 31 days in the month, they want

1 days. If there are 31 days, they will end up short the ext month.

There are four months that are 31 days. For xample, this month has 31 days. We are just coming off f a month that only has 28 days. They are only going to et 30 days medication.

The following month, I think is it April and ay also have 31 days? And then we go back to 31 days in ay.

(Laughter.)

MR. SNEDDEN: This has not been been a roblem in the program. I think your people may be eading too much into it.

It is not taking advantage of the program to o back on the 31st day and get another 30-day supply.

REPRESENTATIVE PRESTON: I am saying there re 31 days in the month. When a person goes and gets a rescription, they only get a prescription for 30 days.

You are telling me they should go back one ay early?

HOLBERT ASSOCIATES (717) 540-9669 128

MR. SNEDDEN: No, they go back on the 31th ind get another 30, which takes them to the 29th of the lext month.

REPRESENTATIVE PRESTON: So it is still 30 lays and still a pill short.

SECRETARY RHODES: But it is not a monthly

:ycle.

REPRESENTATIVE PRESTON: Let me explain iomething then to you about senior citizens.

Everyday of the same month of every year, he person goes to get their prescription filled. They lon't like to change that day. All right?

And a lot of people have to adjust to that ind a lot of people also require extra instruction and are tot able to get out that often.

And what you are asking for someone to do is hange a schedule for every day, I mean one day a month. or the year.

Now, is it more a problem that they do that

>r could you be able to work it out where people who are eserving medication should be able to get that extra day our times a year?

Which is only two extra days, because you ot 28 days in February? It is a very serious thing when ou have people who take four or five or six medications a

HOLBERT ASSOCIATES (717) 540-9669 129 lay.

SECRETARY RHODES: We will look into it. isn't it in the law a 30-day supply, though?

REPRESENTATIVE PRESTON: That is why I am

•aising this situation. And this law says 30 days. And he doctor doesn't give them 31 days.

VICE CHAIRMAN LINTON: Joe, it sounds like o me that that is a legislative issue and not a

•epartment issue.

If the law says that they can get a 30-day upply, then they can't get a 31-day supply. They can nly get a 30-day supply.

SECRETARY RHODES: We aren't allowed to do hat.

REPRESENTATIVE PRESTON: Well, that is nother thing that the Legislature can be brought into lay then, because I disagree with the issue with the eople going to the airport or the people that go to the ymphony.

I think it was a lot of the -- some of the enior citizens and a lot of the legislators that found ut that we were paying an exorbitant cost, because I tarted seeing senior citizens at the airport.

Dealing with the Department of Revenue, and ooking at the situation when we deal with PennDOT

HOLBERT ASSOCIATES (717) 540-9669 130 iituation just as well, has there -- is it we or is it you rho are supposed to recommend an income gap on giving free »us passes to everyone across the state? I mean, how did that come to play? Where no latter, there is no income on the free bus pass? SECRETARY RHODES: That is because when the legislature passed it they didn't want to put income imits in. And if you talk to people around at that time t was also a way to help out transit companies. REPRESENTATIVE PRESTON: Do you have an pinion on it now? SECRETARY RHODES: On income limits? One hing that came out very clear from this study that we are bout to release from you, is that no one wants to do ncome limits. I think even the older consumers are willing o pay higher on a co-pay, which they agreed to do the ast go around, and at one time the co-pay was up to 25 ercent. Now we are at 15. It was reversed back to 0 and then about a year ago we agreed to 15. But they, they don't want to see that in erms of income limits. And that is where both your onsumer and your providers come together, because the roviders don't want to see it -- they have their own

HOLBERT ASSOCIATES (717) 540-9669 131 .nvested interest.

But they see it as pretty complicated to run hat whole program in terms of income limits.

REPRESENTATIVE PRESTON: Okay.

SECRETARY RHODES: The mass transit is the

'ff-peak hours that they are using.

SECRETARY MCNULTY: Yes, I think they have ttempted to restrict the use of the service rather than y constructing the hours to a time where it is more -- ctually it would help out the transit companies in terms f utilization of their service across the time frames.

REPRESENTATIVE PRESTON: I mean, I am just ooking at it and maybe some people don't like to preach t.

My mother retired. She had a great salary nd she gets a free bus pass. And it seems like I hear eople talking about, well, we limit prescriptions, we imit property tax and rent rebate, but yet in a sense as ar as transportation is concerned, we are paying, the tate is paying, the lottery fund is paying for this.

And I am worried about the actuarial oundness.

SECRETARY MCNULTY: It is only paying that ull fare when she is taking that ride in an off-peak our, when she is not preventing the service to offer that

HOLBERT ASSOCIATES (717) 540-9669 132 ame service to a paying customer.

REPRESENTATIVE PRESTON: That is the only ime she rides it.

SECRETARY MCNULTY: So it is working.

REPRESENTATIVE PRESTON: In relationship to he gaming and the lottery.

Gaming, you made several statements in elationship that, with the onset of off-track betting, mall games of chance and bingo, three years ago, whether hat has an effect on game.

You seem to have an opinion that other games f chance will hurt the lottery. And I am trying to, to ather, is there a, an official study that can prove or an you come up with a positive correlation that that xists and, if so, submit it to the Committee?

MR. KLINE: We conducted a player, a study f our players, a major player segmentation study on hat. We asked a question, do you also play small games f chance? Yes, or no.

Do you play more than you did before? And as it influenced your purchasing of lottery tickets? And here was an indication that it has with small games of nance, our small games of chance again compete against ur instant tickets.

They are an instant form of gratification.

HOLBERT ASSOCIATES (717) 540-9669 133 hey are, by legalizing them, we allow them to introduce ames that are, that are fun to play, and introduce more ames in clubs across the Commonwealth. So small games of chance has expanded it. e also know that our players are playing small games of hance and that in turn takes away from the discretionary unds that they are spending on the lottery. We also have done a study to measure the mpact of what these retailers in Pennsylvania now that re currently selling out-of-state lottery tickets have ad on our sales. And we have seen that they also are mpacting our sales on the retailers that sell lottery ickets and also sell out-of-state lottery receipts. And in the locations we looked at we have een a 23 percent decline in our ticket sales while the ther ticket increased by 9 percent. So we know that the sale of out-of-state ottery tickets has impacted on our sales also. So in those two areas we do have some esearch that indicate that expansion that the state has n those areas has impacted lottery sales. REPRESENTATIVE PRESTON: Let's start with hat and work back again. MR. KLINE: Okay.

HOLBERT ASSOCIATES (717) 540-9669 134

REPRESENTATIVE PRESTON: In those areas,

'ere they the surrounding areas on the edge of the state r were they primarily in the center as far as emographically?

MR. KLINE: In the areas where we see the ecline?

REPRESENTATIVE PRESTON: Yes.

MR. KLINE: It was a statewide survey. And f we were to do that we would have to break it down by ip code around the areas, I guess.

REPRESENTATIVE PRESTON: Did you try to do hat?

MR. KLINE: To look to see if our --

REPRESENTATIVE PRESTON: If your sales had ipped around --

MR. KLINE: Because of the expansion of ambling off into the other states?

REPRESENTATIVE PRESTON: Yes.

MR. KLINE: No, because we were trying to easure our -- we were trying to find out what impact mall games of chance in Pennsylvania has had on our ales.

REPRESENTATIVE PRESTON: In other words, hat you are telling me is that since other states all round us have lotteries, whereas four or five or six

HOLBERT ASSOCIATES (717) 540-9669 135 ears ago they didn't, you have never tried to do a study n whether or not it effects the lottery?

MR. KLINE: Other states have had lottery, e looked at the past three years and they have had their otteries over the past three years.

REPRESENTATIVE PRESTON: When did West irginia get their's?

MR. KLINE: I'm not certain.

REPRESENTATIVE PRESTON: Less than three ears ago?

MR. KLINE: It was recent.

REPRESENTATIVE PRESTON: When did Maryland egin their's?

MR. KLINE: Again, I don't know.

SECRETARY MCNULTY: I think the research hat Chuck was referring to had to do with the sale within ennsylvania of out-of-state lottery tickets by these ompanies like Fortune and Pick A State that are selling ithin Pennsylvania by Pennsylvania Lottery retailers, ickets to other states lotteries.

Rather than the impact of Ohio, for example, unning a lottery, upon our lottery sales. Because we eally can't do anything about that.

REPRESENTATIVE PRESTON: In other words, has he -- did the state lose any business from the other

HOLBERT ASSOCIATES (717) 540-9669 136 tates starting their lottery, starting their lotteries lid we lose? MR. KLINE: Well, when the other states were tarting their lotteries up, Pennsylvania sales were ncreasing. And while they were increasing, I don't hink that the previous directors felt any need to conduct urveys to see what impact the other states have on our tate. It is a fact, however, that when states urrounding a state become active, sales do decline. REPRESENTATIVE PRESTON: So it is possible hat our sales did decline? Since no, since no study was one? MR. KLINE: Yes, sure, they did. REPRESENTATIVE PRESTON: Especially around he fringes of other states? MR. KLINE: Our sales probably didn't ncrease at the same rate they would have increased ecause they increased over that period that the other tates came on line. REPRESENTATIVE PRESTON: I am trying, and I m hoping that you will submit a valid proof study with a ositive correlation of where you can show to this ommittee, that games of chance and/or the electronic

HOLBERT ASSOCIATES (717) 540-9669 137

[ames, will have a negative effect on the lottery fund.

And I would appreciate if you would submit he accurate studies. And I want to see numbers with iositive numbers of correlation where this will happen.

Because I haven't heard you speak and use ny point of reference from any kind of imperical study et.

MR. KLINE: I told you about the egmentation study, number one, and the study to measure he effect of out-of-state sales and those are two studies hat we have quantified a decline.

I will also be willing to submit to you tudies from across the country that have looked at the ame issue that have shown declines in sales, if you would ike to see those.

REPRESENTATIVE PRESTON: Yes, no matter how hick they are.

I was just going by, you have not from your tatements, proven that that is the case nor have you iven me any form of imperical data that it has happened hat way.

And I am concerned because it appears to me hat you are making a statement from an opinion, not from n accurate fact.

MR. KLINE: Again, I could point to previous

HOLBERT ASSOCIATES (717) 540-9669 138 tudies and also to the two studies I pointed to.

VICE CHAIRMAN LINTON: Can I just ask that ou submit those documents for the Committee?

MR. KLINE: Sure.

REPRESENTATIVE PRESTON: The last thing that

wanted to address in dealing with the, with the lottery und, and as you mention about the games of chance with he locations, it appears now that you are going to go nto -- these instant tickets into all of the different, herever you feel the point of sale can be in the market, n the supermarkets, someplace that already has lottery.

If you are trying to do that to increase the ales, is that really good for the health of the public hen from what you are saying about the other games of hance?

MR. KLINE: What we have tried to do is evelop some initiatives that would allow us to pursue ome kind of modest growth.

We are moving our machines into urrently-licensed retail locations in hopes of developing

new market within those locations with an existing roduct.

So we are trying to become more efficient at arketing our current product, not going out into the enos or the twice a day drawing with daily numbers or the

HOLBERT ASSOCIATES (717) 540-9669 139 rideo slot machines.

SECRETARY MCNULTY: I think another area are n areas like grocery stores where the cashiers don't want

.o be tied up while they have a line of people there with froceries, asking you about six or seven different kind of nstant tickets. Do you want this that or the other hing.

So they have a vending machine there. Then he person will be able to get the ticket right out of the ending machine without that hold up.

REPRESENTATIVE PRESTON: Since we are just pening these outlets all over, I would hope that you ould have the same outlook about other potential games of nance and other forms of revenue that may help the ducational system and other relationships to children as he other bills that we have done.

Because all you are doing now is going into he old mom and pop stores and some of the other stores nd opening this up, whereas at least the electronic games hey would be around adults.

VICE CHAIRMAN LINTON: That is why we have egislative differences.

Representative Haluska?

REPRESENTATIVE HALUSKA: I would like to ask

couple things in the lottery. One of them is that --

HOLBERT ASSOCIATES (717) 540-9669 140 specially on the Daily Number.

There are a lot of people who like to play hese numbers, but they don't have the opportunity to go ack into the centers to pick up tickets or numbers veryday.

Isn't there any possible way that we can set p that these people who say they want to play a number of

- five days or 30 days and pay at that particular time?

MR. KLINE: They can currently play the aily Number up to seven days in advance.

REPRESENTATIVE HALUSKA: The second question

mentioned to you over at the center.

That the thing I hear from senior citizens onstantly is, why don't we have a lottery where the aximum is $1,000 and we have a lot of prizes. Most of s, if we can win $100 or $200 would be satisfied.

And I think there would be a great demand tnong the elderly people to play a lottery where they have

good chance at occasionally picking up $100 or $200.

I think this would show a lot of strength.

MR. KLINE: We offer a wide variety of roducts. The Daily Number, for example, a top prize of

500. The Big 4, and which are all cash jackpot games hat has a quarter of a million dollar cash jackpot and lien into the jackpot games also.

HOLBERT ASSOCIATES (717) 540-9669 141 One of the givens in this industry, and :here are many, I think, is that large jackpots drive :ales. And if we were to take our matrix games, our iuper 7 and Wild Card Lotto and cap them at $1 million, we rould realize, we would have to do so, understanding that re would see a drop in sales. Because large jackpots Irive sales. In addition, it brings in the new player and t brings in the light and lapse player also. Which is a larket we are looking at. REPRESENTATIVE HALUSKA: There are a lot of layers who won't play because the odds are against them. hey do the mail-order drug companies. They are also limited to a 30-day supply. s that not so? SECRETARY RHODES: In PACE, that is orrect. REPRESENTATIVE HALUSKA: Thank you very uch. The one question in response to that. We till have a problem out there with senior citizens who ave an over-supply of medications, previous prescription aterial that they have lying around. And this is a very angerous segment, I mean in the whole set up that we

HOLBERT ASSOCIATES (717) 540-9669 __ tave. We have been able to devise a method to :lear the shelves of excess drugs that are laying around. 'hese people oftentimes forget and they are taking ledication sometimes that they shouldn't be taking, they re taking the original. And there is no way that we have to clear he cabinets, I mean, of the former prescriptions, and ave you given any thought to that at all? SECRETARY RHODES: Well, there have been two rograms, one is called a Brown Bag Program run through enior centers. And oftentimes they will work with local harmacists in the community and they will come in and hat they tell everybody is put all of those meds in a rown bag and bring them to the senior center. And the pharmacist goes through it with them nd part of it is to discard those that they are not using nymore, or those that have expired. And in the other programming, working with he Pennsylvania Medical Society, they gave them bags and he whole program with physicians, again, they would ncourage the patients to bring all of that in. And those re two efforts that we have tried.

But, you know, I think there probably could

HOLBERT ASSOCIATES (717) 540-9669 143 e more things that we could step up to.

One thing I have been considering is that erhaps we work more with the volunteers who are providing ome-delivered meals. And that we can drop off things. hat kind of information to people. Or bags that they ould be sure to use to bring in to their physician.

But you are right, it is an important issue ecause sometimes if that person starts to suffer from ementia or they are having a reaction to the drug they ill reach in the medicine cabinet and start using things hat should have been thrown away.

REPRESENTATIVE HALUSKA: This struck me very uch. One day I was down at a senior citizens meeting in ohnstown and one of the retired nurses had died and they rought down a whole garbage bag of prescription drugs hat she had in her cabinets.

And I wondered however hundreds of dollars,

mean, that material cost, that certainly was never used nd how much it may have contributed to, you know, her llness.

And this probably is present, I mean, in so

- I have talked to nurses who go around to homes and hat is very prevalent in almost every senior citizen ituation.

Thank you.

HOLBERT ASSOCIATES (717) 540-9669 144

SECRETARY RHODES: Thank you.

VICE CHAIRMAN LINTON: Doc, finished?

REPRESENTATIVE HALUSKA: Yes.

VICE CHAIRMAN LINTON: Thank you very much. eeing no further questions from the members of the ommittee --

REPRESENTATIVE PRESTON: Mr. Chairman, one uick one that I would like to ask.

(Commotion.)

REPRESENTATIVE PRESTON: Hey, it is my usiness, I didn't ask any questions on Monday or Tuesday hen you did, two days.

During the budget, last year, and the year efore that, the Department of Revenue and the Governor ade formal statements that the legislature was esponsible for the senior citizens -- and I say the enior citizens, because one-third of my district is over he age of 60 -- was responsible for the rent rebate hecks not going out.

I am not going to ask you to answer this now ut I would like to have an official answer, unless you are to, now. About the statements. Because I still have

copy of the letter from the Department of Revenue xplaining that.

But there were public statements in the

HOLBERT ASSOCIATES (717) 540-9669 145 Lewspaper. I had tried to raise the question first before statements were made about people not getting their ihecks. And all it said was that the Legislature was esponsible because of the budget for rent rebate checks ot going out. And I would like to be able to eventually ave that explained for the record to this Committee. SECRETARY MCNULTY: I will be happy to ubmit that to the Committee in writing for you. VICE CHAIRMAN LINTON: Thank you very much. Seeing no further questions from the members f the Committee, I would like to thank both Secretaries or appearing before the House Appropriations Committee. And I declare this Committee meeting is now djourned. (Whereupon, at 5:00 p.m., the hearing was adjourned.)

HOLBERT ASSOCIATES (717) 540-9669 146

I hereby certify that the proceedings and vidence are contained fully and accurately in the notes aken by me during the hearing of the within cause, and hat this is a true and correct transcript of the same.

DEBRA ROSE-KEENAN Professional Reporter

The foregoing certification does not apply o any reproduction of the same by any means unless under he direct control and/or supervision of the certifying eporter.

OLBERT ASSOCIATES EBRA ROSE-KEENAN 611 Doehne Road arrisburg, Pennsylvania 17110

HOLBERT ASSOCIATES (717) 540-9669