1 1 COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES 2 APPROPRIATIONS COMMITTEE HEARING 3 STATE CAPITOL HARRISBURG, PA 4 MAIN BUILDING 5 ROOM 140 6 TUESDAY, FEBRUARY 23, 2016 9:32 A.M. 7 BUDGET HEARING 8 TREASURY DEPARTMENT 9 BEFORE: HONORABLE WILLIAM ADOLPH, 10 MAJORITY CHAIRMAN HONORABLE KAREN BOBACK 11 HONORABLE JIM CHRISTIANA HONORABLE GARY DAY 12 HONORABLE GEORGE DUNBAR HONORABLE KEITH GREINER 13 HONORABLE SETH GROVE HONORABLE SUE HELM 14 HONORABLE WARREN KAMPF HONORABLE FRED KELLER 15 HONORABLE TOM KILLION HONORABLE JIM MARSHALL 16 HONORABLE KURT MASSER HONORABLE DAVE MILLARD 17 HONORABLE MARK MUSTIO HONORABLE MIKE PEIFER 18 HONORABLE JEFFREY PYLE HONORABLE MARGUERITE QUINN 19 HONORABLE CURT SONNEY HONORABLE MIKE VEREB 20 HONORABLE JOSEPH MARKOSEK, MINORITY CHAIRMAN 21 HONORABLE LESLIE ACOSTA HONORABLE MATTHEW BRADFORD 22 HONORABLE TIM BRIGGS HONORABLE DONNA BULLOCK 23 HONORABLE MARY JO DALEY HONORABLE MADELEINE DEAN 24 HONORABLE MARIA DONATUCCI HONORABLE JOHN GALLOWAY 25 2 1 BEFORE: (cont.) HONORABLE STEPHEN KINSEY 2 HONORABLE MICHAEL O'BRIEN HONORABLE MARK ROZZI 3 HONORABLE KEVIN SCHREIBER HONORABLE PETER SCHWEYER 4 ALSO IN ATTENDANCE: 5 HONORABLE KRISTIN PHILLIPS-HILL HONORABLE MATT GABLER 6 HONORABLE KERRY BENNINGHOFF HONORABLE DAVID PARKER 7 HONORABLE MARTINA WHITE HONORABLE MARK KELLER 8 HONORABLE TODD STEPHENS HONORABLE JAKE WHEATLEY 9 HONORABLE JOE PETRARCA 10 COMMITTEE STAFF PRESENT: DAVID DONLEY, MAJORITY EXECUTIVE DIRECTOR 11 RITCHIE LaFAVER, MAJORITY DEPUTY EXECUTIVE DIRECTOR CURT SCHRODER, MAJORITY CHIEF COUNSEL 12 MIRIAM FOX, MINORITY EXECUTIVE DIRECTOR TARA TREES, MINORITY CHIEF COUNSEL 13 14 15 16 17 18 19 20 21 22 23 * * * * * * 24 SUMMER A. MILLER, COURT REPORTER [email protected] 25 3 1 I N D E X 2 TESTIFIERS 3 NAME PAGE 4 TIMOTHY REESE 8 STATE TREASURER 5 KEITH WELKS 8 DEPUTY STATE TREASURER 6 CHRISTOPHER CRAIG 9 CHIEF COUNSEL 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 P R O C E E D I N G S 2 MAJORITY CHAIRMAN ADOLPH: Thank you. 3 Good morning, everyone. I want to 4 welcome you to the second day of our budget hearings for 5 the fiscal year 2016-17. 6 I will just go over a few housekeeping 7 items. I would appreciate if you would check your 8 phones or iPads and make sure you turn them off. These 9 hearings are televised and the background does disrupt 10 the telecast. If you have conversations -- and I know 11 they do exist -- please, if it's going to be any longer 12 than a few seconds, please take your conversations 13 outside the hearing room. 14 This morning we will hear from the State 15 Treasurer followed by the Auditor General. And later in 16 the afternoon, we will hear from members of the 17 judiciary. 18 Before we begin today, I'd like to go 19 through an introduction of the Appropriations staff, 20 both Republican and Democrat. 21 My name is Bill Adolph. I'm the 22 Republican chair for the House Appropriations Committee. 23 I reside in the 165th District in Delaware County. 24 MINORITY CHAIRMAN MARKOSEK: Thank you, 25 Chairman. 5 1 Good morning, everybody. I'm State 2 Representative Joe Markosek, 25th Legislative District, 3 that includes the eastern suburbs of Allegheny County. 4 Miriam. 5 MS. FOX: I'm Miriam Fox, executive 6 director for the House Democrats. 7 REPRESENTATIVE WHEATLEY: State 8 Representative Jake Wheatley from the 19th Legislative 9 District, Allegheny County, city of Pittsburgh. 10 REPRESENTATIVE KINSEY: Good morning, 11 State Representative Stephen Kinsey, Philadelphia 12 County, 201st Legislative District. 13 REPRESENTATIVE BULLOCK: Good morning, 14 Representative Donna Bullock, 195th District, 15 Philadelphia County. 16 REPRESENTATIVE DALEY: Good morning, Mary 17 Jo Daley, Montgomery County, District 148. 18 REPRESENTATIVE DEAN: Good morning and 19 welcome, Madeleine Dean from Montgomery County, the 20 153rd. 21 REPRESENTATIVE SCHWEYER: Good morning, 22 Peter Schweyer, Representative from Lehigh County, city 23 of Allentown, 22nd District. 24 REPRESENTATIVE GALLOWAY: John Galloway, 25 140th District, lower Bucks County. 6 1 REPRESENTATIVE BRIGGS: Good morning, Tim 2 Briggs, Montgomery County, 149th District. 3 REPRESENTATIVE DONATUCCI: Good morning, 4 Maria Donatucci, 185th District, Philadelphia and 5 Delaware Counties. 6 REPRESENTATIVE ACOSTA: Good morning, 7 Representative Leslie Acosta from the 197th District. 8 REPRESENTATIVE O'BRIEN: Good morning, 9 Mike O'Brien, 175th District, Philadelphia. 10 REPRESENTATIVE ROZZI: Good morning, 11 Representative Rozzi, 126th District, Berks County. 12 REPRESENTATIVE SCHREIBER: Morning, Kevin 13 Schreiber, 95th District, York County. 14 MR. DONLEY: Hi, Dave Donley, Republican 15 staff executive director to the committee. 16 MR. SCHRODER: Curt Schroder, chief 17 counsel, House Republican Appropriations Committee. 18 REPRESENTATIVE MUSTIO: Good morning, 19 sir. Representative Mark Mustio, Allegheny County, 44th 20 Legislative District. 21 REPRESENTATIVE HELM: Good morning, 22 Representative Sue Helm, 104th District of Dauphin and 23 Lebanon Counties. 24 REPRESENTATIVE BOBACK: Representative 25 Karen Boback, House District 117, Lackawanna, Luzerne, 7 1 and Wyoming Counties. 2 REPRESENTATIVE MASSER: Representative 3 Kurt Masser, 107th District, Northumberland, Montour, 4 and Columbia Counties. 5 REPRESENTATIVE DAY: Good morning, 6 Representative Gary Day from Lehigh and Berks Counties. 7 REPRESENTATIVE KAMPF: Warren Kampf, 8 157th District, Chester and Montgomery Counties. 9 REPRESENTATIVE QUINN: Good morning, 10 Marguerite Quinn from Bucks County. I represent parts 11 of central and upper Bucks. 12 REPRESENTATIVE MARSHALL: Good morning, 13 Jim Marshall, Beaver and Butler Counties. 14 REPRESENTATIVE MILLARD: Good morning, 15 David Millard, 109th District, Columbia County. 16 REPRESENTATIVE PEIFER: Good morning, 17 Mike Peifer, 139th District, Pike and Wayne Counties. 18 REPRESENTATIVE DUNBAR: Good morning, 19 George Dunbar, Westmoreland County, 56th District. 20 REPRESENTATIVE SONNEY: Good morning, 21 Curt Sonney, 4th Legislative District, Erie County. 22 REPRESENTATIVE GREINER: Good morning, 23 Keith Greiner, 43rd District, Lancaster County. 24 REPRESENTATIVE KELLER: Good morning, 25 Fred Keller, 85th District, Union and Snyder Counties. 8 1 REPRESENTATIVE PYLE: Good morning, Jeff 2 Pyle, 60th Legislative, Armstrong, Butler, and Indiana 3 Counties. 4 MAJORITY CHAIRMAN ADOLPH: Okay. Thank 5 you. 6 As you can see, the House Appropriations 7 Committee. I think we have 37 members, that's about 8 three-quarters of the size of the State Senate, so 9 certainly a diverse committee. We have Representatives 10 from all parts of the Commonwealth and they all have 11 interest, obviously, in these budget hearings and the 12 taxes and the expenses and so forth and so on. 13 Treasurer, it's nice to meet you for the 14 first time the other day. 15 STATE TREASURER REESE: Yes. 16 MAJORITY CHAIRMAN ADOLPH: Okay. And the 17 time is yours. And if you introduce -- no strangers to 18 this committee -- your staff that you have brought at 19 the table with you. Thank you. 20 STATE TREASURER REESE: Sure. Thank you. 21 To my left, I have Keith Welks. 22 Keith, do you want to say anything? 23 DEPUTY STATE TREASURER WELKS: I'm Keith 24 Welks, Deputy Treasurer for Fiscal Operations. 25 MAJORITY CHAIRMAN ADOLPH: Thank you, 9 1 Keith. 2 STATE TREASURER REESE: Christopher? 3 Christopher Craig. 4 MR. CRAIG: My name is Christopher Craig. 5 I'm chief counsel to Treasury. 6 STATE TREASURER REESE: Chairman, thank 7 you. 8 I'd like to make an opening statement, 9 very brief -- 10 MAJORITY CHAIRMAN ADOLPH: Please. 11 STATE TREASURER REESE: -- so we can get 12 to questions and answers. 13 So, Mr. Chairman and members of the 14 committee, I have submitted testimony for the record and 15 would briefly like to highlight a few key points. 16 Please allow me to take a moment to thank the 350 17 talented Treasury employees for welcoming me and for 18 their service to the Commonwealth. 19 While Treasury faces increased costs 20 associated with employee compensation, it recognizes the 21 state's financial constraints. Treasury believes that 22 it will do it's best to work within the Governor's 23 budget request to fulfill it's duties. 24 The budget impasse has been a burden and 25 has created operational challenges; however, I've 10 1 managed Treasury without political bias. Since taking 2 office, I have two priorities. First, to ensure mission 3 continuity and make improvements when necessary. 4 Second, act transparently and act on legal precedent and 5 fiscal prudence to guide our actions. 6 I'm proud of Treasury's accomplishments. 7 The 529 college savings program ended 2015 with a fund 8 balance of $3.6 billion and the plan is 111-percent 9 funded. Unclaimed property collected approximately 10 $670 million due to the reduction and the dormancy 11 period. It also returned 120 million to claimants. The 12 net benefit to the general fund was about $550 million. 13 Last fiscal year, Treasury processed 14 21 million payments worth nearly $87 billion. 15 Importantly, Treasury's preaudit review prevented nearly 16 $29 million of erroneous payments. In total, there was 17 an $80 million gain in Treasury managed funds in 18 calendar year 2015. Those gains were made even while we 19 were able to reduce investment expenses by $2 million. 20 Going forward, Treasury continues to look 21 at ways to constantly lower costs, create efficiencies, 22 and improve the performance of the Commonwealth's 23 financial assets. This includes Treasury University, a 24 training program for our employees, the small business 25 initiative to help drive economic growth, and thirdly, 11 1 to improve our investment performance, reduce costs, and 2 broaden our investment prospects. Lastly, we are in 3 preliminary discussions with the administration and 4 state pension systems about how to reduce investment 5 management, redundancy, and expenses.