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1 HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA 2 * * * * 3 Treasury Department * * * * 4
5 House Appropriations Committee
6 Main Capitol Building 7 Majority Caucus, Room 140 Harrisburg, Pennsylvania 8
9 Thursday, February 23, 2017 - 10:00 a.m.
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11 MAJORITY COMMITTEE MEMBERS PRESENT: 12 Honorable Stanley Saylor, Majority Chairman 13 Honorable Karen Boback Honorable Jim Christiana 14 Honorable Sheryl Delozier Honorable George Dunbar 15 Honorable Garth Everett Honorable Keith Greiner 16 Honorable Seth Grove Honorable Marcia Hahn 17 Honorable Sue Helm Honorable Warren Kampf 18 Honorable Fred Keller Honorable Jerry Knowles 19 Honorable Nick Miccarelli Honorable Jason Ortitay 20 Honorable Michael Peifer Honorable Jeffrey Pyle 21 Honorable Marguerite Quinn Honorable Brad Roae 22 Honorable Jamie Santora Honorable Curt Sonney 23
24 1300 Garrison Drive, York, PA 17404 25 717.764.7801
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1 MINORITY COMMITTEE MEMBERS PRESENT:
2 Honorable Joseph Markosek, Minority Chairman Honorable Kevin Boyle 3 Honorable Tim Briggs Honorable Donna Bullock 4 Honorable Mary Jo Daley Honorable Madeleine Dean 5 Honorable Maria Donatucci Honorable Marty Flynn 6 Honorable Edward Gainey Honorable Patty Kim 7 Honorable Stephen Kinsey Honorable Leanna Krueger-Braneky 8 Honorable Michael O'Brien Honorable Mark Rozzi 9 Honorable Peter Schweyer
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11 NON-COMMITTEE MEMBERS:
12 Honorable Brian Ellis Honorable Frank Ryan 13 Honorable Craig Staats Honorable Matt Baker 14 Honorable Mike Tobash Honorable Ron Marsico 15 Honorable Jesse Topper Honorable Todd Stephens 16 Honorable Mark Longietti Honorable Ed Neilson 17 Honorable Tom Caltagirone
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1 STAFF MEMBERS PRESENT:
2 David Donley 3 Majority Executive Director
4 Ritchie LaFaver 5 Majority Deputy Executive Director
6 Miriam Fox 7 Minority Executive Director
8 Tara Trees, Esquire 9 Minority Chief Counsel
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1 INDEX OF TESTIFIERS
2 TREASURY DEPARTMENT 3
4 Secretary Joseph Torsella State Treasurer 5
6 Christopher Craig, Esquire Chief Counsel 7
8 Keith Welks Deputy State Treasurer for Fiscal Operations/ 9 Senior Advisor for Policy
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17 REQUEST FOR PRODUCTION OF DOCUMENT 18
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1 MAJORITY CHAIRMAN SAYLOR: Mr.
2 Secretary, I want to welcome you to your first
3 appropriations hearing. Anyway, what I'm asking
4 all the Secretaries and row officers to do is not
5 to read their statement; to kind of summarize
6 whatever you'd like to tell us before we start the
7 questioning round. If, whoever is going to give
8 testimony, would rise and raise their right hand.
9 (All speakers were duly sworn by the
10 Majority Chairman).
11 Thank you. And, Mr. Secretary, you may
12 start.
13 SECRETARY TORSELLA: Thank you, Mr.
14 Chairman. I will not begin what I hope is a long
15 and happy relationship with you by reading my
16 testimony. Mr. Chairman, members, just to briefly
17 say a few words about the department, as well as my
18 priorities for it.
19 Let me introduce our Chief Counsel,
20 Christopher Craig, known to many of you, and our
21 Deputy Treasurer for Fiscal Operations and Policy,
22 Mr. Keith Welks.
23 First, unlike many departments that come
24 before you, we are not essentially program-driven.
25 We are, in fact, revenue-driven. The Treasury
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1 accounted for more than $400 million in investment
2 gains last year. Our fiscal review function, our
3 pre-audit function, generated approximately
4 $74 million, and our unclaimed property program,
5 which is primarily a consumer program,
6 nevertheless, returns a significant amount to the
7 General Fund.
8 As to the priorities that I see for the
9 Department, I want to briefly mention three.
10 First, to make us known far and wide for the
11 highest standards of ethics, integrity,
12 accountability and transparency, we've taken steps
13 to do this already, including a ban on placement
14 agents, new ethics policy and real -- some
15 significant steps for budgetary transparency. I'll
16 be happy to talk further about it.
17 Second, we will continue to be a
18 vigorous fiscal watchdog, remembering that every
19 dollar under our supervision comes from the hard
20 work of a taxpayer; whether that's saving
21 $6 million in the consolidated management of three
22 funds, or whether that's through things like having
23 our automobile fleet we intend to manage the
24 taxpayer's dollar wisely.
25 And then, finally, we want to broaden
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1 and continue our historic mission of financially
2 empowering Pennsylvanians, as well as Pennsylvania,
3 through things like Expanded College Savings, the
4 ABLE program we're about to roll out and other
5 things. In particular, if there's an opportunity,
6 I'd love to tell you about the pilot program we
7 have around college savings.
8 But with that, I want to just thank you
9 for the privilege of appearing before you today,
10 and I welcome your questions.
11 MAJORITY CHAIRMAN SAYLOR: Very good.
12 The first questioner today will be Representative
13 Dunbar.
14 REPRESENTATIVE DUNBAR: Thank you, Mr.
15 Chairman, and welcome, Treasurer.
16 I wanted to focus a little bit on the
17 Governor's budget proposal, and specifically the
18 Farm Show lease-leaseback, I guess you would call
19 it, which is $200 million that the Commonwealth
20 would receive and then, in return, lease back the
21 Farm Show, and we've heard different numbers.
22 Anywhere from 11 to $11.9 million a year would be
23 our rental or lease cost.
24 First off, is there any type of
25 agreement already in place? And if there is, what
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1 is the effective interest rate that we're looking
2 at?
3 SECRETARY TORSELLA: Thank you,
4 Representative. It's an important question. It's
5 one that we're asking as well, and the short answer
6 is, we do not have more details than you do. We
7 hope to, obviously. And it's a transaction that if
8 it, in fact, proceeds as a leaseback, the lease
9 would come before us in our capacity on the Board
10 of Public Grounds and Buildings where Treasury has
11 a role.
12 Historically, our view of our role on
13 that board has been, in part, to ask questions,
14 such as you've asked about, any lease that comes
15 before us, especially something of such
16 significance; whether there was a robust process;
17 whether there are appropriate terms; whether the
18 Commonwealth is getting the appropriate value.
19 REPRESENTATIVE DUNBAR: So, as
20 Treasurer, then, is there -- do you have a -- I
21 assume you started to work on this already. Do you
22 have some type of idea of what you would like to
23 see the interest rate to be, or not?
24 SECRETARY TORSELLA: I don't wanna to --
25 I don't wanna dictate lease terms.
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1 REPRESENTATIVE DUNBAR: Okay.
2 SECRETARY TORSELLA: I will tell you, we
3 are awaiting further detail on this, and we have,
4 in fact, those questions.
5 REPRESENTATIVE DUNBAR: And to follow up
6 where you just were, I assume, then, there's been
7 no buyer or lessor type of person identified yet?
8 SECRETARY TORSELLA: Not to us, sir.
9 REPRESENTATIVE DUNBAR: Any type of
10 structure, RFP or anything like that?
11 SECRETARY TORSELLA: Not that we know
12 of.
13 REPRESENTATIVE DUNBAR: Would there be
14 one? Will there be one?
15 SECRETARY TORSELLA: I would assume that
16 there to determine -- and to determine value and
17 terms, that there would be some sort of a process.
18 If there's not some sort of a process around, that
19 raises questions about determining whether the
20 values are appropriate. But I'm -- I do not know
21 of any further details other than what we've read
22 in the proposal and what you've heard.
23 REPRESENTATIVE DUNBAR: And certain, we
24 all would like those details as well. Would you
25 classify this as prudent fiscal management?
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1 SECRETARY TORSELLA: Representative, I'm
2 in a happy position of, unlike you, sort of being
3 able to comment on these without doing the hard
4 work of trying to bridge the gap. The question
5 raises, this is a kind of debt and is the use of
6 this sort of debt a good idea to bridge our gap; as
7 opposed to, are we getting kind of long-term value
8 for the debt?
9 Having said that, I understand and
10 appreciate the position that everyone is in trying
11 to find ways to make a difficult set of numbers
12 work without asking more of the taxpayers. So,
13 really, the prudence of this comes down to those
14 details and whether -- first of all, whether this
15 is a lease-leaseback, or it's something else; and
16 second, what, in fact, those terms are and what the
17 rationale is for the particulars of the
18 arrangement. So, you can mark me down as having
19 questions about this as well.
20 REPRESENTATIVE DUNBAR: The devil's in
21 the details?
22 SECRETARY TORSELLA: Yes.
23 REPRESENTATIVE DUNBAR: Which I think we
24 all shared that opinion as well.
25 SECRETARY TORSELLA: If I may, just in
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1 reviewing our, sort of behavior on the Board of
2 Public Grounds and Buildings when it comes to
3 leases, there's numerous instances where we've --
4 where we've rejected something or pushed something
5 back or asked further questions that have resulted
6 in significant changes and savings.
7 So, we would take -- We take our
8 responsibility on that board quite seriously. We
9 don't view ourselves as a rubber stamp, and that
10 would especially be the case in a transaction this
11 size.
12 The other thing I would say about this
13 as to -- as to prudence is, if this is -- if this
14 proceeds, we want to be sure that, in fact, it's
15 got all the authorizations that it would need from
16 this body, because the last thing that we want to
17 happen is to end up in a position where we are left
18 without the appropriate amount of coverage and the
19 proceeds of this for debt service, and the proceeds
20 of this are slayed (phonetic) or shown as sort of a
21 subline there. So, we want some -- we want some
22 assurance this, in fact, has the approvals it needs
23 before it gets there.
24 REPRESENTATIVE DUNBAR: And my last
25 question: Would you classify this as, like, a
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1 one-time gimmick type of thing, or are you looking
2 at other assets that we could potentially do a
3 similar situation with?
4 SECRETARY TORSELLA: Well, we're not
5 looking at other assets, and I think any fair
6 characterization of this is, it is one time, or at
7 least it's once every 30 years.
8 Again, whether it's prudent goes to what
9 the other alternatives are, what the terms are, and
10 what's sort of fundamentally driving the decision.
11 REPRESENTATIVE DUNBAR: Thank you.
12 MAJORITY CHAIRMAN SAYLOR: Very good.
13 I want to recognize, we've been joined
14 by Representative Ellis today. And at this point,
15 I'd like to turn it over to Chairman Markosek.
16 MINORITY CHAIRMAN MARKOSEK: Thank you,
17 Chairman. Good morning, Mr. Treasurer, Mr. Deputy,
18 Mr. Chief Counsel. Thank you for appearing here
19 today. We've had a very good relationship with
20 your office.
21 Mr. Treasurer, you're the new guy on the
22 block. The other two we've worked with and had,
23 like I said, a very good relationship, so we look
24 forward to working with you.
25 Very briefly, I have an issue that I'm
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1 very interested in. House Bill 465 is a bill prime
2 sponsored by my colleague, Representative Mike
3 Hanna, but I'm also a co-sponsor. This would set
4 up a Keystone retirement savings program which
5 would be designed for folks in the Commonwealth who
6 work for businesses, smaller organizations for the
7 most part, who do not have the savings plan
8 opportunity for them to save money for retirement.
9 The way this is designed is, the
10 Department of Treasury, the Treasury Department,
11 would handle the funds and invest the funds and
12 distribute the funds, similar to your 529 Program.
13 I was curious if you've had a chance to look at
14 that, think about that. And, certainly, I wanted
15 to take this opportunity to let you know that it's
16 very important to us, and we're looking forward to
17 working with you on that particular program. We
18 need to get the bill passed, of course, and we
19 would hope we would have bipartisan support for
20 that.
21 But, nevertheless, I was wondering if
22 you had a chance to look at that.
23 SECRETARY TORSELLA: Thank you,
24 Chairman. I will say, first, that we would -- we
25 applaud the initiative and we would welcome the
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1 responsibility, and we would share your view and
2 others on a bipartisan basis about the nature of
3 the problem.
4 We have a retirement crisis that not
5 many people talk about. There's been some
6 discussion about it here in the General Assembly
7 and, frankly, there's been discussion about it in
8 more than 25 states now over the past few years,
9 and it has to do with the changing nature of the
10 workplace and human nature, which is when folks
11 have no easy way to save.
12 What we're talking about to be clear,
13 what Treasury would be talking about would be their
14 own money; not employer contributions. When they
15 have an easy way to do that at their place of work,
16 they do it; and when they don't, they don't. In
17 Pennsylvania, we have approximately 2 million
18 citizens who don't have that access and,
19 accordingly, don't have any meaningful retirement
20 savings.
21 Combine that with some things that
22 you've all been reading, as we have, in the reports
23 from the Independent Fiscal Office about the
24 changing nature of our demographics and the strains
25 that that could present to state budgets, we think
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1 facilitating people saving their own money is a
2 superb idea.
3 I'll emphasize, to me this is an issue
4 of federalism that the states are doing, what
5 states are supposed to do, which is, they're
6 innovating around this problem in different ways;
7 frankly, given the characteristics of different
8 states and that it's appropriate. I hope we come
9 up with an uniquely Pennsylvania solution. But, it
10 has happened across the country, and it has
11 happened on a bipartisan basis.
12 I think when it comes to Treasury, you
13 know, we -- the Commonwealth is as healthy as its
14 citizens are, financially healthy, ultimately, and
15 we think we have good experience with, for example,
16 the TAP program and soon with the ABLE program in
17 working with these kinds of issues, which is,
18 again, not running --
19 We're not with the TAP program. It's
20 the private sector running the program. We're
21 facilitating people saving through it in a way, I
22 think, is to the credit of everyone who has been
23 involved with that over the years and, similarly,
24 on ABLE, which is a headline we didn't read, about
25 bipartisan common sense cooperation creates new
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1 opportunity for Pennsylvanians.
2 So, I think it's -- I think the
3 retirement savings issue is very important. We
4 would look forward to working with you or with
5 anyone in the General Assembly on it.
6 MINORITY CHAIRMAN MARKOSEK: Thank you
7 very much. I'll just close my remarks and
8 questions by just asking all my colleagues on the
9 Appropriations Committee, both sides of the aisle,
10 to consider House Bill 465. Take a look at it.
11 We're certainly willing to work with
12 folks to make it better, if people think we can do
13 that. But, I think it's something that's very
14 important for retirement security for a great
15 number of Pennsylvanians that currently may not be
16 in a position to have that.
17 Thank you.
18 MAJORITY CHAIRMAN SAYLOR: We'll move to
19 the next questioner. Representative Keller.
20 REPRESENTATIVE KELLER: Thank you, Mr.
21 Chairman. Treasurer, I'm over here on this end of
22 the room.
23 I'd just like to follow up on a previous
24 question, or Representative Dunbar was talking
25 about the leaseback of the Farm Show Complex. I
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1 know over the past few years the rating agencies
2 have mentioned the fiscal management not being the
3 best in the Commonwealth. And I guess I would just
4 have to question a leaseback arrangement. I know
5 many years, and our current Governor has mentioned
6 in previous addresses gimmicks, one-time revenue,
7 all kinds of those things.
8 Isn't this just a one-time revenue
9 gimmick to spend money now and pay it back over
10 29 years?
11 SECRETARY TORSELLA: Representative,
12 thank you.
13 You're correct. The rating agencies,
14 and generally, they don't comment on budgets until
15 they're enacted. But what we know is what they've
16 -- what we know is how they commented on previous
17 budgets and what they've said about, sort of
18 broadly, our fiscal situation. They have, in fact,
19 mentioned a couple of things repeatedly about, sort
20 of our kind of structural deficit issues about our
21 pension liability and progress that we've made or
22 not towards funding that. And they've talked about
23 the one-time nature of many of our fixes.
24 I would say -- I hesitate to speak for
25 them. In fact, I can't speak for them. How they
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1 would characterize this would probably depend, once
2 again, on the details of it and whether it made
3 sense with those details, and there's a way to
4 imagine them that they could or whether it didn't;
5 but further, probably, in the larger context of
6 what else happens with the budget. I'm just
7 limited in how -- in how much I can tell you about
8 it knowing, basically, what you know about it.
9 REPRESENTATIVE KELLER: Okay. I guess
10 as I would explain this to people when I get
11 questioned, they say a lease-leaseback. I mean,
12 it's really a mortgage on the Farm Show building.
13 We get proceeds this year, and over a period of
14 29 years, we make payments to repay that with
15 interest.
16 Is it sort of a laymen's-term
17 explanation? Would that be fair?
18 SECRETARY TORSELLA: I think in laymen's
19 terms it's a -- it's a kind of debt. It is future
20 -- future obligation --
21 REPRESENTATIVE KELLER: We're borrowing
22 and we're securing the loan with the Farm Show
23 building, basically?
24 SECRETARY TORSELLA: We are taking on
25 future obligations in return for the cash.
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1 REPRESENTATIVE KELLER: Yeah. And,
2 again, if I would look to most of the people in the
3 Commonwealth; if they mortgage their house or they
4 mortgage something, they generally do an
5 improvement on it rather than spend it for
6 groceries or to pay one-time expenses, and I just
7 think that we should look more carefully on that.
8 And also, I guess I would say, if we
9 have the structural deficit--I know you mentioned
10 that--would it make sense -- I know everybody goes
11 to revenue right away; we need more revenue; we
12 need more revenue. But if we have a structural
13 deficit, the other side of the equation is to curb
14 our spending. I guess that would probably have an
15 impact, and probably the way we do budgeting in
16 Pennsylvania a bigger impact if we weren't -- if we
17 didn't increase spending and address some of those
18 issues, too.
19 SECRETARY TORSELLA: Well, we're clearly
20 out of my line and into yours and the Governor's.
21 And, obviously, if we identify a structural
22 deficit, there's a -- there's a spectrum of ways in
23 which it can be closed, and it's a judgment about
24 it, you know, what's realistic and what's --
25 REPRESENTATIVE KELLER: Fair enough.
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1 SECRETARY TORSELLA: The point I just
2 want to underscore, though, on the leaseback is, it
3 truly is a question of what the particular details
4 are, because there are terms one could imagine
5 where it looks very good. There are terms one
6 could imagine where it looks like --
7 REPRESENTATIVE KELLER: But I think we
8 need to look at what we're doing with the money. I
9 mean, what are we doing with the proceeds of that?
10 And it's my understanding they go into the General
11 Fund.
12 SECRETARY TORSELLA: I believe -- Our
13 understanding is -- I mean, they are shown as a
14 reduction in debt service payments.
15 REPRESENTATIVE KELLER: Okay.
16 SECRETARY TORSELLA: Money is fungible
17 in the budget that you're looking at.
18 REPRESENTATIVE KELLER: So, in other
19 words, we would use that to reduce debt service
20 payment, so we would be borrowing money to pay
21 interest on debt?
22 SECRETARY TORSELLA: Essentially.
23 REPRESENTATIVE KELLER: Okay. So we'd
24 use our one credit card to pay the interest on the
25 other one?
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1 SECRETARY TORSELLA: Representative, it
2 is -- it is an additional form of debt. I'm not --
3 I'm not -- I wanna underscore again that we're
4 waiting to see details on how this turns out. I
5 cannot either pronounce it good or bad based on
6 what I'm seeing today.
7 REPRESENTATIVE KELLER: Okay. Again,
8 I'm just -- I'm having difficulty, as probably as
9 many Pennsylvanians are, understanding the upside
10 of borrowing money to service debt. But, I --
11 It just scares that we do the Farm Show.
12 And if we need more money next year, there might be
13 a proposal to mortgage the Capitol building. Those
14 kind of -- You start getting into that stuff, you
15 end up in a spiral. And I think we need to look at
16 the expenditure side of our equation.
17 Thank you.
18 MAJORITY CHAIRMAN SAYLOR: Very good.
19 Next questioner is Representative Briggs.
20 REPRESENTATIVE BRIGGS: Thank you,
21 Chairman. Welcome to Harrisburg, Mr. Treasurer.
22 Congratulations, and your career that I
23 followed probably over 20 years has always been
24 reform-minded and innovation (sic), and I welcome
25 that to the Treasurer's office.
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1 Yesterday, I had asked the retirement
2 systems about a policy that you just enacted
3 regarding placement agents. I represent the King
4 of Prussia area, and it's something that I've been
5 paying attention to over the last year or so, the
6 practice in the past.
7 With your commitment to bringing
8 integrity and ethics to the office, can you explain
9 a little bit what your decision was and, then, what
10 your decision is based on, and in the future how
11 you think it will affect your office; and also, if
12 you are familiar with what the retirement system's
13 current policy is, if you think that's an adequate
14 position on this topic?
15 SECRETARY TORSELLA: Thank you,
16 Representative. We did -- We did put a prohibition
17 on the use of placement agents for any funds
18 invested by Treasury. We did that on my first day
19 in office. Placement agent, simply explained, is a
20 person in the middle between the public entity
21 investing funds and the investment manager.
22 What we know about placement agents is a
23 couple things. First of all, we know that they've
24 been at the heart of scandals around investing
25 public money, not just here in Pennsylvania, but
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1 more broadly, nationally on a recurring basis.
2 We know that there is no such thing as a
3 free lunch, so that the fee being paid on a
4 placement agent, which is often a recurring
5 percentage of the investment, is ultimately,
6 ultimately coming out of the pocket of the
7 customer. However, that is accounted for. It's
8 sort of attributable to that transaction.
9 And what we also know is that, on a
10 performance basis, that the studies that have
11 looked at this suggest that placement agents, in
12 fact, result in lower investment performance.
13 Investments associated with them have about a
14 3.5 percent lower return than those that do not.
15 And then finally what we know, most
16 importantly, is that, if you're running an
17 open-door policy where investments and investment
18 managers will be considered on the basis of their
19 fit with your objectives and other due diligence
20 standards, they shouldn't be needed. So, we ban
21 them for those reasons and to avoid any potential
22 improprieties, as well as any appearance of
23 impropriety, and I think it was the right and
24 responsible thing for us to do. I think it will
25 result in more savings to the taxpayer and
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1 confidence in how Treasury's investments are being
2 managed.
3 I would -- The systems, we have -- I've
4 inquired, as a board member, as to the precise
5 extent of the use there, and I'm awaiting some
6 information back on that. But my understanding is
7 that they are used. They're used to a relatively
8 high degree relative to other states. And it would
9 be my -- It is my judgments, but I wanna -- I wanna
10 do this in an informed way, that they should be
11 prohibited there.
12 Consistent with a general view I have,
13 the one sure variable we can control in our
14 investing is controlling the costs, and certainly
15 to broader public purposes that all of us think
16 about controlling -- doing our best to control the
17 level of confidence that citizens have in our
18 system.
19 REPRESENTATIVE BRIGGS: Thank you for
20 that answer. If you can find it in yourself to
21 keep me apprised of what the system's responses
22 regarding your inquiries, I'd like to join you in
23 your efforts to protect the assets of the funds and
24 make sure they're as effective as possible.
25 Thank you, Chairman. Thank you,
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1 Treasurer.
2 SECRETARY TORSELLA: We will. Thank
3 you.
4 MAJORITY CHAIRMAN SAYLOR: State
5 Treasurer, if you would please send that to
6 Chairman Markosek and myself, we'll make sure it is
7 distributed to the entire committee. Thank you.
8 The next questioner is Representative
9 Grove.
10 REPRESENTATIVE GROVE: Thank you, Mr.
11 Chairman. Mr. Treasurer, over here. Good to see
12 you.
13 SECRETARY TORSELLA: Good to see you
14 again.
15 REPRESENTATIVE GROVE: It's going to be
16 like that all day back and forth.
17 First question, and we had a discussion
18 about this when you came to visit, on the impasse,
19 the impasse spending and process, and, obviously,
20 the goal is not to have that happen again, but
21 unfortunately, at some point it may; hopefully,
22 50 years from now when we're all not sitting here.
23 But, within the impasse, there's really
24 two issues at hand. Number 1, how government
25 functions during an impasse and how we specify
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1 health and safety verus anything else. I'll use
2 DCED as an example. Tax credits weren't going out,
3 but yet, DCED still employed those individuals;
4 were still employing those individuals. Was that a
5 health and safety decision?
6 The other aspect was Corrections. The
7 Governor did a partial veto and then requested the
8 Treasurer's office to pay that. To surmise the
9 reasoning behind the Treasurer's office paying it,
10 it was a federal -- based on federal preemption and
11 federal reasons do that.
12 Thinking about those kind of two
13 separate issues and try to find some clarity from
14 the Treasurer's office, which is, I think, a
15 positive step moving forward, have you given more
16 thought, moving forward, about how to clarify kind
17 of the Treasurer's role and kind of set up a
18 standard for government moving forward in those
19 circumstances?
20 SECRETARY TORSELLA: Thank you,
21 Representative. It is a big question, and one we
22 are wrestling with and we are giving thought to it.
23 Our take-away from that unprecedented
24 experience, beyond the obvious one, which is, let
25 us all hope it doesn't happen again, is that, a
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1 couple of things are key going forward. One is
2 that, we should be prepared for it to happen so
3 that it doesn't happen. And what we're doing is
4 sort of grappling with these issues anew with --
5 And I should stipulate that I think
6 everyone at Treasury, especially those who are
7 sitting beside me, did the very best they could
8 under unprecedented circumstances. But, I want --
9 I want to said (sic) that we would do and what
10 we're doing, and what we will do over coming weeks
11 in consultation with you and other legislative
12 leaders, and with the Administration for that
13 matter, is to develop kind of a set of policies of
14 what, if there is a budget impasse, what
15 appropriate Ledger 5 expenses are and what
16 appropriate -- and which expenses are not
17 appropriate.
18 I would say, generally, that, as I look
19 at the spectrum, that there are -- at one end you
20 have kind of crucial expenses around public safety.
21 At another end you might have non-personnel costs;
22 for example, state parks. Those two things look
23 very different to me in the context of budget
24 impasse.
25 But, what I don't want to do is -- I
Key Reporters keyreporters @comcast .net 28
1 want to pledge to you and everyone here that we
2 will be seeking your input. We'll be coming back
3 to all of you with a -- kind of what we think the
4 rules of the road are; that we'll do that in a
5 transparent and independent way. I doubt that it
6 will make everyone happy, but that's probably the
7 test that we're doing it right, and there won't be
8 any surprises on this, and that we won't be coming
9 to you with decisions that we're making on
10 July 2nd.
11 Again, let's assume for the next
12 49 years there's a budget on July 2nd. But we're
13 going to come to you well in advance with what we
14 think the rules of the road during an impasse are.
15 And I don't see what Treasury did in that
16 particular set of circumstances as creating kind of
17 Supreme Court precedent. I think there's some
18 legal guideposts that won't change. But, I think
19 as we think about this going forward, we're doing
20 our best to think about it fresh.
21 REPRESENTATIVE GROVE: And it will be
22 good to front-load that so we can have the
23 conversation ahead of time. And, again, the idea
24 is not to have that.
25 I was on your website this morning. I
Key Reporters keyreporters @comcast .net 29
1 pulled up some news to transparency, General Fund
2 History and Trends -- General Fund History and
3 Trends, annual review. On this specific one, can
4 you clarify what expenditures are in there, because
5 it's about $63 million General Fund? I assume it's
6 probably General Fund, plus, maybe some special
7 accounts and federal. Just so there's some
8 clarification of what is involved in those.
9 One thing I did want to hit on is, kind
10 of the cash-flow issues of the Commonwealth. Is it
11 possible for you to send out kind of a list of the
12 major timing of appropriation payments going out so
13 we can kind of see when those are going to come out
14 to see if we can try to help smooth out the cash-
15 flow issues of the Commonwealth moving forward?
16 I did make a suggestion to PSERS,
17 because we send money to school districts, and then
18 school districts' money send money into PSERS
19 moving forward. Would it help cash flow if we just
20 actually sent money directly to PSERS instead of
21 giving to school districts and back and forth. I
22 think it requires a statute change.
23 If you could kind of review some of
24 those; get some fresh eyes, review some of those
25 cash-flow issues with the Commonwealth to see if we
Key Reporters keyreporters @comcast .net 30
1 can smooth things out because we do have revenue
2 coming in the back end, and so forth, it would be
3 -- it would be helpful.
4 SECRETARY TORSELLA: Thank you. We can
5 certainly provide historical patterns which look
6 very similar year to year under almost any
7 Administration. And I'm not trying not to violate
8 don't use my phone rule here, but what I want to
9 underscore is, what you saw on our website about
10 kind of be more transparent, as a result of the
11 visibility the Treasurer has is a first step. We
12 view that.
13 And, by the way, we think we're the only
14 state who is posting General Fund balance in real
15 time at this moment, but we view that as a first
16 step as to what we intend to do.
17 REPRESENTATIVE GROVE: Yeah. I
18 appreciate it.
19 MAJORITY CHAIRMAN SAYLOR:
20 Representative --
21 REPRESENTATIVE GROVE: Thank you.
22 MAJORITY CHAIRMAN SAYLOR:
23 Representative Kim.
24 REPRESENTATIVE KIM: Thank you, Mr.
25 Chairman.
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1 Mr. Treasurer, thank you for having your
2 swearing-in in my district in a school and allowing
3 my students to witness a part of history. So I
4 appreciate that.
5 In your prepared statement you mentioned
6 that the Treasury has returned about $961 million
7 to their rightful owners over the last eight years.
8 That's good. I hope we can do better during your
9 term. I like when my constituents receive money
10 that is owed to them.
11 Do you have a goal to return more money
12 under your leadership, under the unclaimed
13 property, other than your website and
14 notifications?
15 And if I could offer an idea that hasn't
16 been done, having the Treasury work with PennDOT,
17 so whenever you renew your driver's license, you
18 will receive a notification. I believe that your
19 driver's license change -- number changes less than
20 your home address, so that people will know. I had
21 that frustrating experience where I sent out
22 notifications and more than half came back are
23 letters because of my transient district.
24 How can we let people know about their
25 unclaimed property and get the money that they're
Key Reporters keyreporters @comcast .net 32
1 owed?
2 SECRETARY TORSELLA: Thank you,
3 Representative.
4 Great idea, which -- And we welcome
5 ideas from all of you on unclaimed property. An
6 important point: We are on track this year to
7 return a record amount to owners. We expect that
8 figure this year to be approximately two hundred --
9 in the current fiscal year, approximately
10 215 million in the fiscal year.
11 The aim ultimate -- Unclaimed property
12 is, in fact, a consumer protection program.
13 Pennsylvania has one of the oldest statutes in the
14 nation, and the objective is to reunite people with
15 property that is theirs. The average unclaimed
16 property claim is -- and this obviously changes.
17 But the most recent statistic that I saw, $1,400,
18 which is a considerable amount of money that can
19 make a real difference in many people's lives.
20 Now, we do everything you can imagine--
21 some things you can't--trying to reach and reunite
22 property with its owners. Our job in doing that
23 has been made easier, thanks to your leadership,
24 including by modernizing the requirements of where
25 we advertise and how we advertise in a way that's
Key Reporters keyreporters @comcast .net 33
1 allowed us to save some money.
2 But, I will say one of the most --
3 single most effective ways of returning unclaimed
4 property is through all of you, because it -- We,
5 frankly, encourage, as a matter of good practice,
6 that you -- your offices sort of institute when you
7 have a constituent contact doing -- offering to do
8 an unclaimed property check for that constituent.
9 You should all receive, during the
10 course of the year, a disk from us, and we're open
11 to new and creative ways working with any of you to
12 use that, because we view this as -- We're
13 custodians of this property. We're not the owners
14 of it, and we want to get it back in the hands of
15 Pennsylvanians where it can do some real good.
16 So, thank you for the particular idea.
17 But, more generally, we remain open to working with
18 you.
19 And for our part, we are also looking at
20 other aspects of unclaimed property; for example,
21 federal U.S. Savings Bonds where you've also been
22 helpful to us legislatively. We continue to look
23 for things like that; the life insurance proceeds,
24 where we think Pennsylvanians aren't getting the
25 property that's owed to them.
Key Reporters keyreporters @comcast .net 34
1 MAJORITY CHAIRMAN SAYLOR:
2 Representative Helm.
3 REPRESENTATIVE HELM: Thank you, Mr.
4 Chairman.
5 I have a question about investment
6 managers. Like, how does the Treasury Department
7 currently select investment managers? Up here on
8 top. And, is there any public review of the
9 managers selected? In other words, like, in
10 midterm, do you change managers if you think that
11 investments aren't doing what they should?
12 But I also have a question, like,
13 Representative Briggs talked about placement
14 agents. Are we talking about the same terms? I
15 call them investment managers and -- If you could
16 just clarify that for me also.
17 SECRETARY TORSELLA: No, we're not
18 talking about the same thing, which is -- which is
19 one of the reasons that we prohibited them.
20 What placement agents are, are not
21 investment managers. They're folks who know folks.
22 They're people who introduce investment managers to
23 investing entities, like, public entities, and they
24 essentially make an introduction. It should be --
25 It's our view that that shouldn't be required. You
Key Reporters keyreporters @comcast .net 35
1 don't need to know someone to do business with
2 Treasury, and you shouldn't need to know someone to
3 do business with a public-investing entity.
4 What they are financially is a layer of
5 fee, and we can talk more about this. But probably
6 the biggest driver of investment performance is how
7 carefully we're watching fees, given the
8 unlikelihood of any of us sort of beating the
9 market.
10 When it comes to investment managers,
11 the list of our managers currently is both on our
12 website and in our annual report. The Treasury
13 uses less than 30, and our policy is, in fact, that
14 our door is open and we -- We'll hear any
15 investment proposal, but evaluate it against what
16 our -- kind of what our standards and objectives
17 and due diligence is.
18 I will say, in general, that I'm
19 reviewing with our new acting chief investment
20 officer all of our investments. I think it's
21 appropriate. The same way that all of us --
22 hopefully all of us do with our 401(k)s every once
23 in a while to take a look at how we're -- how we're
24 investing and how we're doing.
25 But I'll also say that Treasury has
Key Reporters keyreporters @comcast .net 36
1 invested for kind of historically low fees, and we
2 believe they can, in fact, be lower. Our current
3 fees on all of our investments are on the order of
4 12 million a year. On a basis point, on our most
5 managed portfolio, it's about 28 basis points.
6 My view is that there is a bigger place
7 for so-called passive management, which is just
8 investing in an asset class rather than active
9 management which thinks and tries to beat the
10 market, usually at higher fees, in Treasury, and
11 frankly, in general, in public investment.
12 REPRESENTATIVE HELM: Also, the Tuition
13 Account Program, the TAP, is a program that has
14 helped many families save and pay for higher
15 education. And to help offset investment losses of
16 2009, and to improve the financial security of the
17 TAP Guaranteed Saving Plan, GSP as it's now called,
18 tuition credit premiums began being charged once
19 again in 2010.
20 What's the current funded status of the
21 GSP program?
22 SECRETARY TORSELLA: There's some very
23 good news about the GSP, which is -- And both of
24 our -- both of our tuition savings accounts are
25 terrific products that more Pennsylvanians should
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1 use, and we have some ideas about how to make that
2 true.
3 The good news about the funded status
4 is, the GSP is now 118 percent funded. It has an
5 actuarial surplus, underscore actuarial, of about
6 $270 million. And over the life of that program,
7 it has helped an extraordinary number of
8 Pennsylvanians go on to higher education, but
9 approaching a hundred thousand. I think the number
10 is 95 or 97,000, with a payout so far of about
11 2.7 billion.
12 So, the GSP from being at 70 percent
13 funded, not that long ago, is now in a position of
14 being, as I said, 118 percent funded in calendar
15 2016, had a very good return of 7.78 percent.
16 By way of contrast, the average pension
17 fund in 2016, I think was 6.4 percent, so we're
18 proud of that. We intend not to rest, though. We
19 intend to keep working both plans to bring better
20 -- better products and lower-cost products to
21 Pennsylvania savers.
22 REPRESENTATIVE HELM: So if it's fully
23 funded, am I correct that premiums are not being
24 charged anymore?
25 SECRETARY TORSELLA: I don't -- I don't
Key Reporters keyreporters @comcast .net 38
1 know -- There is a fee that's charged to
2 participants in both the -- both the GSP and the
3 other fund. Parts of that fee are often waived and
4 have been in the most recent few years. That fee
5 is -- We are -- We are relatively good performers
6 when it comes to fees, but I believe we can do
7 better.
8 REPRESENTATIVE HELM: All right. Thank
9 you. Thank you, Mr. Chairman.
10 MAJORITY CHAIRMAN SAYLOR:
11 Representative O'Brien.
12 REPRESENTATIVE O'BRIEN: Thank you, Mr.
13 Chairman. Welcome, Treasurer.
14 One of the great traditions of the
15 Treasury is helping Pennsylvanians to prepare to
16 educate their kids.
17 Now, as a working class, blue-collar guy
18 who came from the meat house to the state house
19 never understood what a heavy lift it was going to
20 be to put two kids through national universities;
21 big heavy lift, and you can't start saving too
22 early for this; out of the womb, into the
23 university.
24 Now, I understand that you're working on
25 an idea for a program that would start folks saving
Key Reporters keyreporters @comcast .net 39
1 earlier. Could you tell us about this? I'm
2 talking about the Keystone Accounts.
3 SECRETARY TORSELLA: Thank you,
4 Representative.
5 The challenge you identified is one that
6 more and more people have in a time of rising
7 tuition, rising student debt, relatively high
8 levels of student debt in Pennsylvania. I think
9 we're the third highest. What we know --
10 What we're doing is driven by a couple
11 key facts. One, that if the child has a savings
12 account at birth or close to it, that is designated
13 for post-secondary education -- And, by the way,
14 that can include, we call them college savings
15 accounts, but it can be broader than that. If a
16 child has that account, even if there's a modest --
17 very modest opening balance, that the chances of
18 that kid going on to something after high school go
19 up as much as seven times.
20 Second, that for the kid who goes on to
21 get that degree, that the lifetime income is as
22 much as a million dollars more, which is why there
23 has been such an effort to try to look at ways to
24 introduce college savings and the idea of college
25 expectations and financial literacy, and all the
Key Reporters keyreporters @comcast .net 40
1 things that come with that much earlier in life.
2 Several states have now experimented
3 with kind of setting up universal accounts at or
4 closely around birth. And, in Pennsylvania, where
5 our TAP accounts are terrific vehicles that are
6 used by only 7 percent of all eligible families, we
7 want to do the same.
8 So, we're piloting something we call
9 Keystone Accounts. We're developing a pilot now.
10 We're looking and expecting this to be the pilot to
11 be philanthropically funded, and trying to set up
12 an appropriate, sort of tests in different settings
13 around Pennsylvania, that would establish a
14 philanthropically funded opening account with a
15 very modest balance; but, again, getting to this
16 point you can't introduce the idea too early. And
17 if what we can do with that is change expectations
18 for post-secondary education and change thinking
19 about financial literacy, we can do something
20 really exciting and important to create a culture
21 of saving and college achievement in Pennsylvania.
22 So, we hope to be back to you soon with
23 a conversation on this. We're tremendously excited
24 by it. It's happened, by the way, in several
25 states. It's happened, again, on a bipartisan
Key Reporters keyreporters @comcast .net 41
1 basis. It's one of the most exciting innovative
2 things out there, and we're hoping to add
3 Pennsylvania to the list of states that are
4 innovating around this very concept.
5 REPRESENTATIVE O'BRIEN: To shift gears,
6 there's been a lot of conversation so far this
7 morning about the Farm Show Complex. And it seems
8 to me that, I would hope that as we go on, you
9 would use your expertise to help reduce debt
10 service by maximizing revenue, which really is a
11 new way to do things.
12 We've had a recurring system of one-time
13 fixes. You know, my personal favorite is when we
14 took $44 million during the Corbett Administration
15 out of the Tobacco Settlement Fund and put it to
16 teachers' pensions; just, poop, one time, gone. I
17 would hope that you would take this leasing of the
18 Farm Show and make it something that gives that
19 return to the Commonwealth while you're a good
20 steward of the debt service.
21 Finally let me say, on a personal note,
22 I'm very pleased to see perhaps one of the smartest
23 and hard-working people in state government,
24 Christopher Craig, sitting beside you.
25 Thank you, sir.
Key Reporters keyreporters @comcast .net 42
1 MAJORITY CHAIRMAN SAYLOR:
2 Representative Boback.
3 REPRESENTATIVE BOBACK: Thank you, Mr.
4 Chairman.
5 You alluded to the ABLE program, so I
6 will direct my first question to that. Now, I
7 notice that your budget includes a second year of
8 funding, which was 1.13 million for transfer to the
9 Achieving a Better Life Experience, which, of
10 course, is ABLE. Please tell us about the ABLE
11 program, and what is the status of its
12 implementations since we're in the second year, it
13 looks like of funding? When do you think that the
14 program will start accepting accounts?
15 SECRETARY TORSELLA: Thank you,
16 Representative, and thank you to all of you for
17 your leadership on ABLE, which will create a way
18 for families with disabled family members to do
19 something that they should have been able to do all
20 along, which is save their own money for those
21 individuals' futures.
22 We expect to be open for business on
23 ABLE in a matter of weeks. The longer story is
24 that, what we did with ABLE, something that we
25 think was very wise and sensible, we approached it
Key Reporters keyreporters @comcast .net 43
1 as part of a -- sort of consortium of states. I
2 think there were originally 13 states, and we were
3 one of the leaders. Historically, when
4 Pennsylvania's led groups of 13 states, good things
5 have happened.
6 That consortium has been able to kind of
7 learn from each other and sort of drive a better
8 bargain in the marketplace than we could have
9 otherwise done on our own. There were some issues
10 that we wanted to make sure Pennsylvania had its
11 own, sort of, further protections on, so there was
12 some negotiations. They just concluded, so we are
13 -- we are ready to go with ABLE. The launch will
14 happen within the next 45 days. So, we will be --
15 we will be taking account soon, and we're very
16 excited about it.
17 As to the start-up costs, the question
18 about ABLE is that there are questions about ABLE
19 that none of us really know the answer to. It is
20 in some ways like the 529 program. But, in other
21 ways, it's sort of fundamentally different, and we
22 don't yet know how many of the eligible people will
23 be signing up. We don't yet know what the most
24 effective way to reach those families will be.
25 It's our hope and expectation that ABLE
Key Reporters keyreporters @comcast .net 44
1 will become a program that generates sort of its
2 own momentum and support. But, starting well is
3 kind of key to doing that. So, the start-up costs
4 have really been over -- will be over two years,
5 but we'll ramp up quite soon and you should be
6 hearing more about it.
7 We know that there are, ultimately, as
8 many as five to 800,000 people who may benefit from
9 an ABLE account. We opened a website to let people
10 register for their preliminary interest. But I
11 think the weeks and months ahead will show us sort
12 of how this is working in practice, and again, as
13 we learn from other states being in the same
14 position.
15 REPRESENTATIVE BOBACK: Very exciting
16 concept. Thank you.
17 A follow-up question to Representative
18 Kim. You mentioned that $961 million of ownership
19 of property was given to rightful owners. How much
20 money did we actually take in because owners didn't
21 claim it or -- I know they had to wait a three-year
22 period. How much money did we actually gleam from
23 those who didn't claim their property?
24 SECRETARY TORSELLA: Well, to give you a
25 sense, in the current fiscal year, we expect to
Key Reporters keyreporters @comcast .net 45
1 return 215 million to rightful owners, and we
2 expect 185 million to remain with the General Fund.
3 I want to reserve my right to correct
4 the figure, but I believe in the figure
5 Representative Kim quoted, which was since
6 2006--it's over a 10-year period--I believe more
7 than a billion dollars went to the General Fund.
8 So the proportions -- the proportions, you know,
9 change as -- depending on the kind of property and
10 how much better we get at finding -- and finding
11 the rightful owners.
12 REPRESENTATIVE BOBACK: And they have
13 three years to come back, I think, don't they?
14 SECRETARY TORSELLA: Well, the
15 properties -- The new period changes the dormancy
16 period so that holders have -- report property to
17 us at three years after there's, essentially, been
18 no activity. Previously, it used to be five.
19 What's important to understand about
20 unclaimed property, though, is, the right to the
21 property for the consumer never goes away. It is a
22 continuing right that has no statute of
23 limitations, and so, it's both -- As it comes in,
24 there's an asset to the Commonwealth but there's a
25 liability to the Commonwealth.
Key Reporters keyreporters @comcast .net 46
1 As a matter of practice, there's certain
2 kinds of property that are never going to be
3 claimed, but -- but 50 years later someone can
4 claim their unclaimed property.
5 REPRESENTATIVE BOBACK: Thank you very
6 much. Thank you, Mr. Chairman.
7 MAJORITY CHAIRMAN SAYLOR:
8 Representative Krueger-Braneky.
9 REPRESENTATIVE KRUEGER-BRANEKY: Thank
10 you, Mr. Chairman. Thank you, Mr. Treasurer, and
11 thank you for joining us here today.
12 Just a follow-up to Representative
13 Boback's question about ABLE, I have a number of
14 families in my district in Delaware County who's
15 got folks in their family with intellectual
16 disabilities. Those families educated me on the
17 need for this program and are eagerly awaiting it
18 to be started. So thank you for what you're doing
19 now to get it up and running.
20 I have a question. I notice in your
21 testimony that you've got a section around fiscal
22 efficiency. And I've got a number of constituents
23 who ask me on a regular basis, what is government
24 doing to be more efficient? How are we saving
25 taxpayer money? What are we doing to eliminate
Key Reporters keyreporters @comcast .net 47
1 waste, fraud and abuse?
2 So, can you tell me a little bit about
3 the efforts that you've taken in your office around
4 fiscal efficiency?
5 SECRETARY TORSELLA: Sure. There are
6 many various and we're proud of them, and we intend
7 to deepen and expand them. We think --
8 Starting with fiscal review, which, in
9 the current fiscal year, we expect -- and that's
10 sort of Treasury's function of making sure that
11 payments before they happen are lawful and correct
12 and proper, we expect that to save $74 million.
13 We've deployed kind of more advanced
14 algorithms to determine what we look at there, but
15 we've found things ranging from a lease payment
16 that didn't properly credit the space that was used
17 where we saved 321 million to a 1.7 million- dollar
18 duplicate payment that we discovered through
19 auditors being on the ball as to the details of
20 that payment.
21 We think, by the way, fiscal review has,
22 frankly, been under-resourced. We think we can do
23 more. There's -- Without getting into specifics,
24 there's one area where we've done some auditing
25 that we think, if we deploy fiscal review, is about
Key Reporters keyreporters @comcast .net 48
1 a 10-million-a-year annual savings.
2 Secondly, let me say a word about fees.
3 Treasury's leading the effort to consolidate three
4 special insurance funds; consolidate the investment
5 management of that. That effort is expected to
6 save $6 million annually by reducing fees by
7 19 basis points from how those funds are
8 individually managed to how we can manage them in
9 Treasury. To compound that at a 5 percent rate,
10 you're looking at something like 330 million over
11 the 30-year -- you know, 30-year period in those
12 funds.
13 In a more visible way that your
14 constituents might get, they should know that we --
15 On my first week in office, we cut the Treasury car
16 pool by half; that the folks in the Treasury
17 mailroom come up with new ways to save us $0.10 on
18 -- $0.10 per envelope on postage by doing a better
19 job of sorting things. That it is in the DNA of
20 Treasury to remember, and it's certainly in my DNA,
21 to remember that every single dollar we're watching
22 over is not an abstraction. It's someone's hard
23 work, and we're gonna -- we're gonna treat it
24 accordingly.
25 I'll be happy to provide further
Key Reporters keyreporters @comcast .net 49
1 examples, but I just want to give you kind of some
2 sense of our determination to save taxpayer money.
3 REPRESENTATIVE KRUEGER-BRANEKY: Thank
4 you. And just a follow-up question. So you talked
5 about using more complex algorithms. I imagine
6 that they may require more complex software or
7 technology.
8 We've heard from a number of other
9 Secretaries during the course of these hearings
10 that technology has both helped them move forward
11 and become innovative and in some cases been a
12 detriment. So, do you have the appropriate
13 technology that you need right now, or is there an
14 additional need?
15 SECRETARY TORSELLA: Well, there's a
16 modest additional need we're asking for. I want to
17 start by acknowledging the General Assembly's --
18 our gratitude to all of you for a historic
19 investment in our I.T., which has reflected in a
20 savings of -- a reduction of about a million
21 dollars in kind of data-entry personnel, a
22 reduction of a hundred thousand dollars a year, an
23 off-sight and backup we no longer need. Even going
24 from a main frame to a cloud solution, we're saving
25 $38,000 annually on electricity costs.
Key Reporters keyreporters @comcast .net 50
1 But what it means more than that is that
2 your banking operation, which is a -- processes
3 90 billion in transactions a year--that's what we
4 are--is now operating without 21 separate Cobalt
5 systems from 1970.
6 Now, we are asking for some funds to
7 continue this work in a couple of key areas. One
8 is cyber security. Without belaboring the point, I
9 will tell you, as your banker, that this is
10 something that keeps me and everyone at Treasury up
11 at night. We get an unprecedented, approximately
12 10 million attempted assaults on our perimeter a
13 month. And if you've been following this, South
14 Carolina a few years ago had a bad compromise in
15 their revenue departments. You heard J.P. Morgan
16 Chase talk about the threats to their system. This
17 is something that needs continuing work.
18 Number 2, in unclaimed property, there
19 are things we can do by way of scanning in
20 documents that we think will increase our
21 processing time in revenues both to consumers and
22 the General Fund.
23 Number 3, and the Board of Finance and
24 Revenue.
25 And then, finally, back to
Key Reporters keyreporters @comcast .net 51
1 Representative Grove's, we think we can reap some
2 of the benefits in the investment we made with
3 vastly increased budgetary transparency based on
4 the ID transformation with some additional work.
5 REPRESENTATIVE KRUEGER-BRANEKY: Thank
6 you, Mr. Treasurer. Hopefully, one of my
7 colleagues will ask some follow-up questions on
8 that cyber security issue, because 10 million
9 attacks -- attempted assaults a month raises some
10 concerns for me.
11 MAJORITY CHAIRMAN SAYLOR: Very good.
12 Representative Kampf.
13 REPRESENTATIVE KAMPF: Mr. Treasurer,
14 Warren Kampf from Chester County.
15 I have a question about the general
16 obligation debt service submission that you all
17 made to us. The number I have is for '17-18,
18 1,490,000,000. The Governor's budget number for
19 that line item, however, is 960 million. Could you
20 explain the difference to me?
21 SECRETARY TORSELLA: Thank you,
22 Representative. I think there are two potential
23 sources of difference, but let me explain how we
24 get that number.
25 What we do every year is calculate the
Key Reporters keyreporters @comcast .net 52
1 -- what we know, based on current issues, will come
2 due, the principal and interest payments during the
3 fiscal year period. What we don't know in any
4 fiscal year is what the Governor's Office and the
5 Administration has planned by way of refinancings.
6 So, our number that we prepare is based on what
7 exists and not based on what the Administration may
8 have planned for refinancing.
9 So, to some degree, there's always --
10 there's always -- there's often a differential
11 around that.
12 But, second, I believe the other
13 component of this differential is the subject of
14 much conversation, the lease-leaseback, which I
15 believe is shown as a 200-million dollar reduction
16 in debt-service payments premised on the --
17 premised on that being enacted or that being part
18 of an enacted budget.
19 So those would be the two differences.
20 And I say we -- We supply what we know to be due,
21 but what we don't know is what the Administration
22 plans by way of refinancing.
23 REPRESENTATIVE KAMPF: From that,
24 something -- something on the order of $300 million
25 is an unknown figure. So, are you saying that,
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1 from that we can conclude the Governor is planning
2 on getting 300 million in savings from refinancings
3 or refundings?
4 SECRETARY TORSELLA: I think without
5 having -- without having those precise figures in
6 front of me, the -- you can say that 200 million is
7 attributable to the leaseback, and that any further
8 differential based on our number -- between ours
9 and that, is likely refinancings.
10 I don't think there's any further
11 explanation that is possible, but Counsel Craig may
12 have.
13 (Mr. Craig conferred with SECRETARY
14 TORSELLA).
15 SECRETARY TORSELLA: That's -- That is
16 -- The Governor provides that number to us. We
17 don't have a role in the determination of
18 refinancing.
19 REPRESENTATIVE KAMPF: And I just don't
20 -- I guess in the past I don't remember ever
21 hearing that something on the order of $300 million
22 could be saved in refinancing or refunding in one
23 year, and I've been on the committee for a few
24 years. I'll just lay that out there.
25 One last question about that: Does that
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1 refinancing, perhaps, include front-loading all the
2 savings from the refinancing as opposed to layering
3 out over the time of a -- the payment of principal
4 and interest?
5 SECRETARY TORSELLA: We don't -- We
6 don't have any information about that. We would
7 be, with general obligation debt --
8 There's two kinds of debt that the
9 Treasurer's approval is required for. One is tax
10 anticipation notes, which we -- which we've avoided
11 by virtue of the short-term -- the short-term,
12 essentially, line of credit that we've provided.
13 The second is when it comes to --
14 REPRESENTATIVE KAMPF: I know, but I was
15 asking about the notion of front-loading savings or
16 refinancing savings.
17 SECRETARY TORSELLA: But, the second is,
18 with general obligation debt, the approval of
19 either the Auditor General or the Treasurer is
20 required on the issuance of that debt, so we would
21 see the proposal at that time and would evaluate
22 it.
23 REPRESENTATIVE KAMPF: Is that -- Is
24 that something the office would approve; a front-
25 loading of all of the savings from refinancing?
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1 SECRETARY TORSELLA: As to whether
2 that's what it is, whether it's front-loaded, I
3 think that's a question that you should, for now,
4 direct to the Budget Office. As to being a
5 rigorous evaluator of what debt is being issued,
6 that's something that when it comes before us that
7 we would be.
8 REPRESENTATIVE KAMPF: Okay. Thank you.
9 MAJORITY CHAIRMAN SAYLOR:
10 Representative Daley.
11 REPRESENTATIVE DALEY: Thank you, Mr.
12 Chairman. SECRETARY TORSELLA always good to see
13 you.
14 So, in answering an earlier question,
15 you mentioned financial literacy, and this is a
16 topic that has been of some interest to me sitting
17 on the Finance Committee. It's an interest, but
18 just, in general, I think it's just a huge interest
19 because the financial world is so complicated and
20 people are faced with making decisions about their
21 own finances on a regular basis.
22 My understanding is that we don't
23 currently, in our school curriculums, have any
24 requirements for financial literacy. So my
25 question is, clearly there's multiple ways of
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1 getting the word out. You could potentially, as
2 the Treasurer, have a bully pulpit on a topic like
3 this.
4 So my question is, do you -- do you see
5 a role for the Treasury Department in increasing
6 the level of financial literacy for people in
7 Pennsylvania, and including going down to our young
8 people?
9 SECRETARY TORSELLA: I guess I'd answer,
10 if the Treasurer had the support of his home
11 representative in such an effort, he would.
12 REPRESENTATIVE M. DALEY: Well, that's a
13 good answer.
14 SECRETARY TORSELLA: Broadly, financial
15 literacy is crucial and is kind of more and more
16 implicated in all kinds of things. And we know
17 it's an area that we're falling behind in. As a
18 state, by the way, we don't get great grades
19 relative to other states as to what we're doing.
20 It's been an area where treasurers of
21 both parties have found common ground and been
22 leaders, in part by using the bully pulpit and, in
23 part, by using the kind of convening power of the
24 Treasury to speak to these issues and find -- and
25 to find solutions.
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1 It is something that is also close to my
2 heart. It's inherent in what we talked about with
3 the Keystone Accounts; what we talked about with
4 the possible retirement accounts, but also on its
5 own, and something that I think we need to take a
6 serious look at.
7 There was once a -- Treasury had kind of
8 an official financial literacy program once. It
9 does not now. It is something that is subject to
10 finding kind of leverage and partner ways of
11 approaching the subject that I'm very much
12 interested in and very much committed to.
13 REPRESENTATIVE M. DALEY: So maybe we
14 can have a conversation ongoing about what can be
15 done and what -- Since I do know your state
16 representative --
17 SECRETARY TORSELLA: Good.
18 REPRESENTATIVE M. DALEY: -- I'll be
19 happy to --
20 SECRETARY TORSELLA: Introduce me to him
21 when we're done. Thank you.
22 REPRESENTATIVE M. DALEY: Okay.
23 MAJORITY CHAIRMAN SAYLOR: I want to
24 recognize that we've been joined by Representative
25 Frank Ryan.
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1 And the next questioner is
2 Representative Quinn.
3 REPRESENTATIVE M. QUINN: Thank you, Mr.
4 Chairman. And thank you for being here. Here I am
5 (whistled). Hiding over here. Thanks for being
6 here, and I appreciate listening to your answers.
7 I want to follow up on what my colleague
8 across the aisle, Representative Kim, was asking
9 about. Ten million attempted assaults on our
10 Treasury system per month?
11 SECRETARY TORSELLA: That's -- That's
12 not a -- I mean, that's not an unusual number for a
13 large complicated financial system. What you
14 should know about that, is that, you're hearing
15 about attempted perimeter assaults.
16 REPRESENTATIVE M. QUINN: Oh, yeah.
17 SECRETARY TORSELLA: And you're hearing
18 about it from me as opposed to breaches that you're
19 reading about in the newspaper.
20 But, the ongoing -- the challenge of
21 ongoing security issues, especially in and around
22 financial systems, is not one that -- I don't want
23 to minimize it, and I want you to understand the
24 stakes.
25 REPRESENTATIVE M. QUINN: So I look at
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1 the budget that you have here, and I'm looking at
2 the line item for information technology
3 modernization. And I would think that, since that
4 seems to be the only line where beefing-up the
5 cyber security would fall, yet, there's a one-third
6 reduction in that line, am I missing something?
7 Where else in the budget would we be seeing
8 Treasury investments in that line, or do you feel
9 that what we have going is adequate at this point?
10 SECRETARY TORSELLA: And I guess I
11 should say, if there's a sense of it on the
12 committee that the line is too small, I'm all ears.
13 REPRESENTATIVE M. QUINN: Is this the
14 line I should be looking at?
15 SECRETARY TORSELLA: That is the line.
16 To understand that in context, that's
17 offered as kind of the final phases of what's been
18 a -- I believe a 37-million-dollar investment in
19 I.T. to grapple with this.
20 I expect that -- And, by the way -- some
21 of -- some of the appropriate defensive measures
22 for us are about practice as opposed to technology.
23 But I expect that this is something that we are
24 going to, on a regular basis, need to be talking
25 with you about sort of staying one step ahead of
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1 it. It's not like this is -- this is static. But
2 we think -- we think what we're requesting is
3 appropriate for where we are and what we want to
4 do.
5 REPRESENTATIVE M. QUINN: That
6 $37 million investment, when did that initiate?
7 SECRETARY TORSELLA: This has been over
8 many previous years.
9 REPRESENTATIVE M. QUINN: That's what I
10 thought.
11 SECRETARY TORSELLA: I want to say six
12 years, yeah.
13 REPRESENTATIVE M. QUINN: That's what I
14 thought. And, in the meantime, technology has
15 advanced that I just get concerned that whatever
16 was being put in place over that period of time,
17 we've got some bad guys out there who are
18 outthinking it.
19 So, I have some concerns with the
20 reductions in that line item, and I'd like to see,
21 just going forward, what we're doing to make sure
22 we've got the best, the brightest on defense there.
23 Another question. We had some legal
24 expenses in last two years. Were these legal
25 expenses in '15-16 of 550,000; then '16-17 of
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1 290,000, were these related to charges against the
2 prior Treasurer or just --
3 SECRETARY TORSELLA: Sure. And if I can
4 just follow up on your previous question, we do
5 have some bad guys out there. We also have some
6 terrific people at Treasury.
7 REPRESENTATIVE M. QUINN: Oh, I don't
8 discredit that.
9 SECRETARY TORSELLA: Not just our
10 counsel. I wanted you to know that.
11 REPRESENTATIVE M. QUINN: Defense work
12 has been terrific. Thank you.
13 SECRETARY TORSELLA: On the
14 investigations and legal expenses, there have been,
15 as you know, three separate legal investigations;
16 two of them involving two former treasurers, and
17 one, an individual who's one of the, among other
18 things, is a placement agent.
19 A couple points I want to make. To the
20 best of my knowledge, I'm aware of none of -- none
21 of those investigations have involved anyone at
22 Treasury outside of the treasurers, but they have
23 necessitated some compliance with requests from
24 both prosecution and defense attorneys. And it is,
25 obviously, both in our interest as an institution
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1 and civically to do that.
2 The result of that is that the
3 Treasury's spent approximately $278,000 in legal
4 costs related to those investigations. But, by
5 that I mean, document requests and others going
6 back 20 years and making individuals available to
7 -- as requested; not because individuals were
8 themselves being investigated.
9 Nobody likes paying legal bills less
10 than I do, said as someone whose spouse is a
11 lawyer. We expect that those bills, that that's --
12 we've seen the -- roughly the conclusion of those
13 bills as the investigation --
14 REPRESENTATIVE M. QUINN: That's our
15 hope as well. Thank you very much.
16 SECRETARY TORSELLA: Thank you.
17 MAJORITY CHAIRMAN SAYLOR:
18 Representative Rozzi.
19 REPRESENTATIVE ROZZI: Thank you, Mr.
20 Chairman. Welcome Treasurer, Counsel, Deputy.
21 First, I want to commend you on your
22 transparency, accountability, code of ethics. One
23 thing that I know, people in my district, they want
24 transparency and they demand it, really. Visiting
25 your website, it's there. It's there for all
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1 Pennsylvanians to see where we are.
2 One of the -- I'm gonna just piggy-back
3 on Chairman Markosek talking about the private
4 pension accounts. How many Pennsylvanians, do you
5 believe, would be able to get into this program?
6 Because when we were talking about the pensions the
7 other day, and we were talking about disbursements
8 and all the money that really goes back into the
9 economy in Pennsylvania, how many people, do you
10 believe, would be able to get into a benefit
11 program like this?
12 SECRETARY TORSELLA: Thank you,
13 Representative. If I may, on transparency, I'm
14 glad that you like what you see. What I want you
15 to know is, what we are hoping to do is bring much
16 deeper, broader transparency; not just around the
17 General Fund number, but around appropriations,
18 around comparisons, around total debt levels and so
19 forth.
20 On the issue of kind of retirement --
21 retirement crisis we have, our best numbers are
22 that there are about 2 million Pennsylvanians who
23 do not have -- who are working, but do not have a
24 workplace retirement savings option.
25 REPRESENTATIVE ROZZI: So almost one out
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1 of every six Pennsylvanians?
2 SECRETARY TORSELLA: Yeah. And that
3 number is -- Frankly, that's consistent with
4 national estimates. The surveying among that
5 population is that, if they -- that they will
6 likely end their working lives without retirement
7 savings --
8 REPRESENTATIVE ROZZI: Right.
9 SECRETARY TORSELLA: -- as --
10 REPRESENTATIVE ROZZI: That's a huge
11 benefit to Pennsylvania. At the end of their
12 retirement, they would actually have an income to
13 continue spending.
14 SECRETARY TORSELLA: A huge benefit to
15 Pennsylvania, but also something that will have
16 implications for our state finances and burdens
17 that would otherwise be created.
18 REPRESENTATIVE ROZZI: All right. And
19 we heard a lot of talk about the Farm Show. I'm
20 interested in hearing and seeing your analysis of
21 what the Governor is gonna put forward.
22 I also heard you talk about the
23 different types of debt. And, you know, you can
24 look at government; you can look at small business,
25 and it's the same. If -- As a small business, if
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1 I'm going to the bank getting a short-term line of
2 credit to maybe buy a building, buy vehicles,
3 that's good debt, right? I mean, that's positive
4 debt. But if I'm going to get a line of credit to
5 pay routine bills, that's what affects credit
6 ratings. When was our last credit downgrade?
7 SECRETARY TORSELLA: In November -- Our
8 last credit reports were in November, and we are at
9 the sort of lower end of higher-grade investment.
10 We're in AA minus with S&P with a negative outlook,
11 and AA3 Moody's with a stable outlook. But that --
12 Those ratings cost us money. They
13 increase our borrowing costs. And you're right.
14 Debt depends, ultimately, on what it's being used
15 for.
16 If it's in a state or a business or a
17 household, being used to increase our productive
18 capacity -- In an individual case, for example, our
19 earnings capacity, for a capital purchase, debt
20 could be a good thing. What it is financing our,
21 sort of daily operations, it's a sign of something
22 more troubling.
23 Treasury, by the way, is proud of what
24 we've done with the -- the STIP. We think we've
25 saved -- We know we've saved the Commonwealth
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1 money. I believe about 14 million over what the
2 market cost would be.
3 But, what you all should know is that
4 the size, the duration and the start date for that
5 short-term loan has been earlier and bigger and
6 longer than it has in the past. That 2.2 billion
7 for about a six-month period prevented the General
8 Fund from being otherwise --
9 REPRESENTATIVE ROZZI: Do you know when
10 our last credit downgrade was?
11 SECRETARY TORSELLA: I don't know if it
12 was changed in November. I think it might have
13 been previously. I think the November ratings were
14 unchanged.
15 REPRESENTATIVE ROZZI: Okay. And just
16 want to wrap up. I congratulate you on the great
17 work on 529, too. We've got to keep promoting
18 that. As somebody who has a freshman at West
19 Virginia University, those bills don't stop rolling
20 in. I wish I would have been able to save sooner.
21 So, I hope that we can bring that to as
22 many Pennsylvanians as possible to make sure our
23 kids get the education that they desire. Thank
24 you.
25 Thank you, Mr. Chairman.
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1 MAJORITY CHAIRMAN SAYLOR:
2 Representative Knowles.
3 REPRESENTATIVE KNOWLES: Thank you, Mr.
4 Chairman. Over here, sir. Thank you, Mr.
5 Chairman, and thank you. And, Mr. Secretary,
6 congratulations on your appointment. You've got a
7 challenge ahead of you. No doubt about that.
8 I want to talk a little bit about an
9 issue near and dear to my heart, and that would be
10 paycheck protection. Can you tell me, in terms of
11 the Treasurer, how much you collect in campaign
12 contributions from the public sector unions?
13 SECRETARY TORSELLA: The Treasurer --
14 Treasury doesn't collect any campaign
15 contributions. I'm not sure -- If you're asking
16 about the cost of the paycheck deduction?
17 REPRESENTATIVE KNOWLES: I'm asking
18 about the money that is sent to the state that is
19 collected by the state. The paycheck -- You're
20 familiar with the Paycheck Protection Bill?
21 SECRETARY TORSELLA: There's a -- I'll
22 refer you, and we can provide a copy of this, to a
23 letter prepared by Treasurer Reese, that talked
24 about the costs of that deduction as being
25 approximately a hundred dollars a year; that the
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1 cost of setting up a paycheck deduction is -- And
2 I'm sorry. I'm not looking at the letter, but I
3 believe $0.70 and multiplying that by the number of
4 pays times the number of agencies.
5 REPRESENTATIVE KNOWLES: I'm looking at
6 the amount of money that is collected from the
7 unions. The amount of money that --
8 SECRETARY TORSELLA: I don't -- We don't
9 -- We don't collect that. You mean how much is
10 deducted from that --
11 REPRESENTATIVE KNOWLES: Correct.
12 SECRETARY TORSELLA: -- from the pay?
13 Deputy Treasurer Welks.
14 DEPUTY TREASURER WELKS: Yes. I can be
15 helpful by telling you, we don't have that
16 information here today. We can certainly get it
17 for you. But that's a number that's fed to us by
18 human resources departments across all the
19 agencies, and we simply that operate deduction as
20 we do dozens of other deductions for the benefit of
21 the employees or for the benefit of other vendors
22 to whom the employees owe money, or for other
23 reasons like that.
24 And so, the enormous string of these
25 categories of deductions of this sort that we
Key Reporters keyreporters @comcast .net 69
1 automatically prepare, and we can, to the extent
2 it's not privileged private information, we can
3 generate how much is actually being deducted for
4 that purpose, but we don't have that information
5 with us today.
6 REPRESENTATIVE KNOWLES: Okay. The
7 reason I'm asking that is, the government recently
8 negotiated contracts with ASCME, with SEIU, with
9 UFCW requiring that the state continue to collect
10 that money; collect those campaign contributions.
11 The Governor, in 2016, received more
12 than a quarter of a million dollars that was
13 collected by taxpayers. And, with all due respect,
14 you yourself received $40,000 in contributions from
15 government unions.
16 And my question to you would be, don't
17 you see that as a conflict of interest? I mean, do
18 you view that as a conflict of interest?
19 SECRETARY TORSELLA: Are you asking
20 about the contributions I received when I ran for
21 the office?
22 REPRESENTATIVE KNOWLES: I'm asking
23 about the fact that they were collected by the
24 state, and you received them.
25 SECRETARY TORSELLA: I'm proud to say I
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1 received contributions from a huge diversity of
2 people across Pennsylvania of all different views.
3 I don't view any of that --
4 I disclosed all contributions that I
5 made on my website, being the only candidate that I
6 know of to do that. I've talked and pledged to
7 work for further transparency of contributions here
8 in Harrisburg.
9 I don't feel that any contribution that
10 anyone made to me is a -- has compromised me, no.
11 REPRESENTATIVE KNOWLES: You don't
12 believe it's a conflict of interest? Is that what
13 you're saying, Mr. Secretary?
14 SECRETARY TORSELLA: I -- I don't see
15 the conflict of interest that you're asking about.
16 REPRESENTATIVE KNOWLES: Okay. One
17 last question.
18 Are there any other PACs that the
19 Treasury distributes funds for? Are there any
20 other PACs that you may be aware of?
21 SECRETARY TORSELLA: In the letter which
22 we'll provide, that provided a detailed itemized
23 list of deductions made. There are approximately
24 93 paycheck deductions that the Commonwealth
25 provides for. We'll re-supply that list.
Key Reporters keyreporters @comcast .net 71
1 REPRESENTATIVE KNOWLES: Thank you very
2 much, Mr. Secretary. Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN SAYLOR: We are going
4 to end the time. Mr. Secretary, I want to thank
5 you for appearing before us. We've run a little
6 over, and we're waiting for the Auditor General to
7 appear. So I want to thank you for your time and
8 your energies to come here and testify before the
9 committee.
10 With that, we will have a 5-minute break
11 before we start with the Auditor General.
12 (At 11:23 a.m., the hearing concluded).
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1 C E R T I F I C A T E
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3 I, Karen J. Meister, Reporter, Notary
4 Public, duly commissioned and qualified in and for
5 the County of York, Commonwealth of Pennsylvania,
6 hereby certify that the foregoing is a true and
7 accurate transcript, to the best of my ability, of
8 a public hearing taken from a videotape recording
9 and reduced to computer printout under my
10 supervision.
11 This certification does not apply to any
12 reproduction of the same by any means unless under
13 my direct control and/or supervision.
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