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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 11:55 A.M. 7 BUDGET HEARING 8 OFFICE OF AUDITOR GENERAL
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
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24 SUMMER A. MILLER, COURT REPORTER [email protected] 25 3
1 I N D E X
2 TESTIFIERS
3 NAME PAGE
4 EUGENE DePASQUALE 4 AUDITOR GENERAL 5
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1 P R O C E E D I N G S
2 MAJORITY CHAIRMAN ADOLPH: Thank you. I
3 would like to reconvene the House Appropriations budget
4 hearings for the fiscal year '16-'17.
5 Our next testifier we have today is a
6 former member of the Pennsylvania House, Auditor General
7 Eugene DePasquale.
8 Good afternoon.
9 AUDITOR GENERAL DePASQUALE: Thank you,
10 Mr. Chairman. And always good to be back here and look
11 forward to the discussion. Thanks for the invitation.
12 MAJORITY CHAIRMAN ADOLPH: I want to
13 apologize for running late today, but as I mentioned to
14 the Treasurer as he was leaving, we are in unchartered
15 water here and sometimes these questions are longer than
16 usual and sometimes it requires a little bit more detail
17 from those that are answering the questions as well.
18 AUDITOR GENERAL DePASQUALE: Hopefully
19 the two protein bars I had this morning will get me
20 through till lunchtime, so that's the only concern I
21 have.
22 MAJORITY CHAIRMAN ADOLPH: I'm sure.
23 Would you like an opening statement in general?
24 AUDITOR GENERAL DePASQUALE: If I could,
25 yeah. 5
1 We submitted formal testimony. If it's
2 okay, I'll dispense with that and just go through a
3 couple brief highlights and then more than happy, as you
4 know, to take any questions.
5 MAJORITY CHAIRMAN ADOLPH: Thank you.
6 AUDITOR GENERAL DePASQUALE: First of
7 all, I want to thank my team for the tremendous hard
8 work they did in putting together this budget request
9 and all the work they've done on behalf of the people of
10 the state, and certainly commend the work of both
11 chairmen here and the hard work you've had to do over
12 the last year and what is certainly going to be another
13 very challenging year.
14 I'm proud that over the last three years
15 as the Auditor General, we have found over 100 million
16 in wasteful spending across our state, 25 million alone
17 just in school districts and charter schools. Our
18 audits have uncovered problems in DEP, the Department of
19 Environmental Protection; Labor and Industry; Department
20 of -- now, Human Services, was Department of Public
21 Welfare; Pennsylvania Department of Education, where
22 they tragically had identified 561 struggling schools
23 with no plan to do anything about it; recent audits came
24 out about the Pennsylvania Gaming Control Board; and
25 also the cost of the budget stalemate. We've had audits 6
1 that have had, you know, big findings in school
2 districts across our state.
3 For example, our audit of the Pittsburgh
4 Public School District found that they actually didn't
5 know that they had $129 million surplus. That audit
6 release came out on the day they were scheduled to have
7 a tax increase vote. Fortunately for the taxpayers of
8 Pittsburgh, they canceled that vote as a result of our
9 audit finding. We also have had audits that, you know,
10 maybe don't seem as big, but have impact.
11 Laceyville Borough in the northeastern
12 part of the state, in Representative Boback's district,
13 they had pulled over a thousand people for speeding and
14 allowed them to plead down to handicap parking
15 violation. How we discovered that was that there was
16 only one handicap spot in the entire borough, so the
17 idea that you had 1100 handicap parking violations in
18 one year seemed mathematically difficult, so we found
19 out through the magistrate. And that is the message
20 that has gone out over the state, that in a sense,
21 that's stealing from the state and also allowing
22 reckless behavior on our roads.
23 We've even done, through the advice of
24 people on this committee and Representative Pyle
25 specifically -- in my first testimony where -- trying to 7
1 be helpful in our audits as well. So we've put together
2 a video to try to help our volunteer fire relief
3 associations, make sure they are in compliance because
4 that is a volunteer organization and they are doing
5 tremendously important work for the people all over the
6 state. So that video is helping them be in compliance
7 with what they need to do to make sure that they are
8 financially sound.
9 Coming up we are going to have audits
10 coming up of the Philadelphia School District, the
11 Turnpike Commission, Pennsylvania -- our prescription
12 assistance program for our seniors, military and
13 veterans affairs to make sure that our veterans' homes
14 are taking care of our seniors, also nursing home
15 oversight, and what is sure to -- as some of you have
16 read it out in Pittsburgh, the debacle at the Penn Hills
17 School District.
18 Our staff level is at the lowest it has
19 been in over four decades while we are producing more
20 audits than the department has ever produced in
21 33-percent faster time. Per employee, we are now
22 65-percent more efficient per employee than we were the
23 day I took office. That is based on the number of
24 audits we're doing, the timeline they complete them, and
25 the number of personnel that we have. 8
1 We have reduced cost everywhere from
2 travel to paper. And a big part of that is the work of
3 this committee and the legislature including the House
4 and the Senate and both administrations in allowing us
5 to make the important investments in technology so that
6 we could become more efficient. And we are very proud
7 of the idea that we've done that in a way that is,
8 again, still producing quality work. And as of last
9 week, the auto fleet of the department has now been
10 reduced by 92 percent.
11 All of my expenses are online. There
12 seems to be bipartisan concern for me that I am not --
13 that maybe I am sleeping on sides of roads because the
14 hotel costs are so low for me. Please note that when
15 I'm in Pittsburgh, I sleep on my mom's couch and the
16 room service is significantly better than anything that
17 anybody could ever get.
18 And so, the only increase that I'm asking
19 for here today is basically to cover the increased cost
20 of health care and pensions. We are prepared to absorb
21 everything else through the savings that we've been able
22 to produce over the last couple years. Ninety-five
23 percent of our department expenditures are to personnel.
24 We are a very labor intensive operation meaning we do --
25 everything we do has to be done by another person. And 9
1 we have done very little of any contracting out of
2 auditing work. Again, that's all done in-house.
3 Again, I want to thank you for having me
4 here today and the tremendous cooperation from both
5 chambers and both sides of the aisle on the work we've
6 done and look forward to your questions and continuing
7 my work on behalf of the people of this state.
8 MAJORITY CHAIRMAN ADOLPH: Thank you,
9 General.
10 And we certainly appreciate the job that
11 you're doing and obviously, the cost reductions that
12 you've put into place, you know, certainly helps the
13 situation in these tough economic times. Unchartered
14 waters --
15 AUDITOR GENERAL DePASQUALE: Right.
16 MAJORITY CHAIRMAN ADOLPH: -- okay?
17 And you know, at the end of January -- I
18 guess it was actually January 26, myself and Senator
19 Brown sent a letter to you asking you to consider
20 reviewing the Commonwealth payments that were made from
21 July 1, 2015, to December 31, 2015 -- $50 billion, okay.
22 I can't thank you enough for your quick response that
23 you are looking into it.
24 I was wondering -- I think that was dated
25 February 8th, Auditor -- and I was wondering if your 10
1 staff would be able to take on that project?
2 AUDITOR GENERAL DePASQUALE: The short
3 answer is not right now, but we are open to doing it.
4 The bureau that we would have that would do that is our
5 Bureau of State Audits. And what we do is -- right now
6 we are doing two very important audits that are behind
7 schedule because of the budget impasse. One is called
8 the CAFR, one is called the Single Audit, and this is
9 making sure that from a 40,000-foot view that all of our
10 federal money has been spent appropriately. And we do
11 that in cooperation with the administration and they
12 have deadlines to meet to make sure that we don't
13 jeopardize the federal funding. That is the bureau that
14 I would need to do this audit. So they will become
15 available in the early part of April once these audits
16 are done and at that point if there isn't resolution to
17 this issue, we're certainly going to be willing to
18 entertain that.
19 Doing an audit of that magnitude would be
20 very challenging, so we would probably have to work in
21 cooperation with the general assembly and the
22 administration to find which areas we think are the most
23 important to look at because, again, from the sheer
24 dollar amount that would be a heavier lift than we have
25 the staff to handle. But again, come early April when 11
1 that bureau is open, we are more than happy to entertain
2 the possibility.
3 MAJORITY CHAIRMAN ADOLPH: I'm glad to
4 hear that. I think there's an awful lot of members of
5 the general assembly as well as the general public, that
6 would be interested in your findings.
7 AUDITOR GENERAL DePASQUALE: Right.
8 MAJORITY CHAIRMAN ADOLPH: Chairman
9 Markosek.
10 MINORITY CHAIRMAN MARKOSEK: Thank you,
11 Chairman Adolph.
12 And Mr. Auditor General, welcome again.
13 AUDITOR GENERAL DePASQUALE: Thank you.
14 MINORITY CHAIRMAN MARKOSEK: Welcome
15 back --
16 AUDITOR GENERAL DePASQUALE: Thank you,
17 Chairman.
18 MINORITY CHAIRMAN MARKOSEK: -- I should
19 say, a former House member yourself. And you know, we
20 certainly appreciate your hard work that you've --
21 you've made us all proud, quite frankly, those of us
22 that knew you when you were here and you did a great job
23 here and you're continuing that.
24 Very briefly, I have some questions --
25 and again, following up on the fact that the budget is 12
1 not passed. And we're in an area here that we're not
2 familiar with budget-wise.
3 The school districts that for the last
4 number of months now -- there is a partial budget in
5 place, but as we know there's quite a bit blue-lined and
6 a lot of school districts will be running out of money.
7 Many school district have already borrowed money and
8 there's a figure that I have in my mind and maybe it's
9 not correct of about 14 million, I believe, that these
10 school districts have paid out in interest payments for
11 these -- for the borrowing that's gone on.
12 Can you give me an update on that and
13 maybe just give us a little broader view? You mentioned
14 it, I think, but a little broader view of what your
15 department has discovered and some of the numbers
16 involved with all these school districts that have had
17 to go out and borrow money and --
18 AUDITOR GENERAL DePASQUALE: Thank you,
19 Mr. Chairman, for the question.
20 This is going to be hopefully a detailed
21 enough answer because it's an important question.
22 As most people -- you know, obviously
23 everyone in this committee knows, but for people that
24 are listening, every school district gets a different
25 amount of money from the Commonwealth based on a whole 13
1 series of factors. And in around mid-September of 2015,
2 I told my team we have to start to get a grasp on, as we
3 audit school districts all over the state, what the cost
4 of the impasse was. And to be blunt, it was to find if
5 it was leading to any financial deterioration of
6 districts and how long they could survive without the
7 state appropriation. And September, October, November,
8 we came out with updates. It was not 100-percent
9 precise, I want to be clear to everyone here. We were
10 reaching out to districts; many responded, some did not.
11 By the end of the calendar year, 2015,
12 the estimate of what was needed to be borrowed just to
13 keep school districts open was just shy of $1 billion.
14 The interest on that is -- again, an estimate based on a
15 formula we used because, again, some school districts
16 shared it, some did not -- but it would be between, you
17 know, the 35, 45 million in interest costs would be the
18 estimate on that. It could be higher if, you know, from
19 school districts that didn't respond to us. Although,
20 my gut tells me that the school districts that had to do
21 a lot of borrowing were the ones that -- were the ones
22 responding because they wanted to make sure that message
23 got out.
24 We're soon -- because of the, you know,
25 basically the half budget on the basic ed formula being 14
1 released, we're soon going to be entering into that
2 territory again. If you thought that was bad news,
3 here's in my view the really bad news, and I'm just
4 going to lay it out.
5 If you're a bank and you were loaning
6 money to school districts, prior to this year it would
7 be seen as an automatic that there would be a state
8 budget, so you just loan them the money and you do it at
9 a very competitive rate. Banks today cannot guarantee
10 that there's going to be a state budget, so school
11 districts that have depleted their fund balances and
12 already had one loan, I believe now the second go-round,
13 their interest rate will either be significantly higher
14 or they may not get the loan. Now I don't want to
15 be -- I think, again, most will get the loan, but their
16 interest rate will be higher. But it is now for a
17 bank -- the dynamics have shifted. They no longer think
18 it's automatic that there'll be a state budget.
19 So as we're heading into this unchartered
20 territory that we've been talking about, from a school
21 district perspective, they're in actually an even
22 tougher position because many of them depleted their
23 fund balances and their property tax rate is already set
24 and they've already taken out one loan. So when they go
25 back out to market for another loan, they are going to 15
1 be in a significantly compromised position. And if
2 there isn't a settlement to this soon, that will happen
3 and, again, we'll probably look at the time frame of
4 about beginning of April when we're going to have our
5 next update as to what the situation is from a broader
6 perspective of school districts across the state.
7 MINORITY CHAIRMAN MARKOSEK: Well, I hope
8 we can perhaps have a budget solved by that time because
9 what you just indicated was a very sobering situation, a
10 very sobering dynamic here that is being caused by the
11 fact that we simply do not have a full state budget
12 passed at this point in time.
13 And you know, just while you were
14 speaking there, it made me think of how this -- the
15 Commonwealth in general with Wall Street downgrading its
16 bond ratings and the cost of borrowing for the
17 Commonwealth has gotten more expensive the same dynamic
18 applies here --
19 AUDITOR GENERAL DePASQUALE: Absolutely.
20 MINORITY CHAIRMAN MARKOSEK: -- with
21 these school districts. When there's doubt that they
22 can pay back the money that they've borrowed, the banks,
23 the financial community does what they do. They start
24 looking in a different direction or they start refusing
25 or they raise the interest rates even more, so the 16
1 number that I originally threw out of 14 million being
2 paid in interest, from what you just said, it sounds
3 like it could be way higher than that. You talked about
4 40 million to pay for that billion dollars in borrowing
5 and perhaps even more if they have to even borrow more
6 than that.
7 AUDITOR GENERAL DePASQUALE: The number
8 is -- and the concern I would have, if you're a school
9 district, the biggest -- obviously, there is a host of
10 problems with this.
11 One is it makes it very difficult for
12 them to plan for the next school year, that's one. Two
13 is, you know, we as a state mandate when they have to
14 pass a budget and the whole parameters on that. So
15 they're basing this off of, you know, in a sense --
16 think about a jet fighter landing on an aircraft carrier
17 at night. I mean, it's a very difficult task and
18 they're being asked to make assumptions on what they
19 don't know. But also, you know, the interest costs
20 which is just lost money, but the biggest problem is
21 going to be school districts that are in the 60- to
22 75-percent range on state reimbursement. They're the
23 ones that are going to be the most compromised.
24 MINORITY CHAIRMAN MARKOSEK: Yeah. And
25 just one further thought, the Governor in his budget 17
1 proposal had some money available for school districts
2 to repay some of the loan money that they have taken.
3 Of course, now since we don't have a budget, that is not
4 available certainly right now either, so we'll have to
5 see where all this leads us, but it was very sobering.
6 And I appreciate your answer as difficult as it was.
7 AUDITOR GENERAL DePASQUALE: Thank you,
8 Chairman.
9 MAJORITY CHAIRMAN ADOLPH: Thank you,
10 Chairman Markosek. Thank you, Chairman Markosek.
11 I'm going to save my response to some of
12 those statements till final, but so in order to move on.
13 Representative Greiner.
14 REPRESENTATIVE GREINER: Thanks, Mr.
15 Chairman.
16 Good afternoon, General -- almost said
17 good morning.
18 AUDITOR GENERAL DePASQUALE: We are
19 there, yes.
20 REPRESENTATIVE GREINER: We're there.
21 I'm going to switch gears a little bit.
22 I know we talked about education, appreciate your
23 remarks on that. The issue I want to focus on is
24 pensions. And we certainly have a statewide problem,
25 but as you're well aware I spent a lot of my time 18
1 focusing on the municipal side and I know you have some
2 information concerning this.
3 I wanted to talk with you in regard to
4 the municipal pension system aid and whether you can
5 describe the process by which your office determines the
6 amount of funding to be disbursed to municipalities and
7 the source of such funds.
8 That's -- I have a number of questions,
9 that's the first one.
10 AUDITOR GENERAL DePASQUALE: Okay. First
11 of all, every municipality in the state just about has a
12 pension plan, many of them have three, there's a couple
13 that have four. It would be for fire, police, and
14 nonuniform. There is, by our estimation, at least an
15 $8 million unfunded municipal pension liability from
16 across Pennsylvania based on the work we've done in
17 auditing all of the municipal pension plans.
18 Every year, the state of Pennsylvania
19 helps cities, boroughs, and townships make their annual
20 pension payment. That amount is based on what is a
21 relatively complex formula that is done by people that
22 used to work at PERC. Now, obviously there's a
23 discussion about where to go from there. The
24 calculations are done by the employees at PERC. We then
25 get that information and we disperse that aid to the 19
1 cities, boroughs, and towns all over Pennsylvania to
2 make it possible for them to make their annual pension
3 payments. That can range in some cities, boroughs, and
4 towns to close to 100 percent or anywhere from 15 to
5 almost 100 percent of what their annual payment is.
6 If that pension calculation is not done
7 and the payments aren't able to be made, every municipal
8 government budget right now is actually out of balance.
9 That payment is made from what is known as a foreign
10 insurance tax, which is not foreign governments, but any
11 insurance premium sold in Pennsylvania by an
12 out-of-state insurance carrier, and that was established
13 in about 1984.
14 REPRESENTATIVE GREINER: Okay. Let's
15 follow up on PERC a little bit. With the Governor's
16 abolishment of PERC, Public Employment Retirement
17 Commission, are you confident today that the municipal
18 pension system aid payments will be made properly and on
19 time as they have in prior years?
20 AUDITOR GENERAL DePASQUALE: I am
21 hopeful, but there is a lot of work that would need to
22 be done between now and then to figure out who would be
23 doing the calculations, both in the short term and the
24 long term. So I'm hopeful that it can get done, but
25 there's a lot of work to be done and some mechanics to 20
1 figure out who would do it.
2 REPRESENTATIVE GREINER: Well, let me --
3 and then just following up on that line of questioning
4 because I do think it's a very serious situation. I
5 mean, it's something that I know we're going to have to
6 address and is going to continue to be addressed even as
7 we speak now.
8 Is it true that if the municipalities
9 don't make their minimum municipal obligation, which is
10 known as the MMO payments by mid-October, that the
11 interest on that must be paid and the calculation needs
12 to go back to the beginning of this year; is that a true
13 statement?
14 AUDITOR GENERAL DePASQUALE: How it
15 works -- the short answer is, yes. But let me walk
16 everyone through how this works. And I'm sure I'm going
17 to get some piece of paper thrown at me if this is not
18 technically correct, but I believe this is going to be
19 the most accurate way to describe it.
20 Cities, boroughs, and towns have a
21 projected rate of return, anywhere from four to nine.
22 Now for the record, I think allowing cities, boroughs,
23 and towns to anticipate up to nine is crazy, but we'll
24 move aside because they are technically allowed to do
25 that right now. We're trying to move more of them to 21
1 convince them to move at least closer down to the five,
2 six range.
3 Whenever they don't make their
4 appropriate payment, the money that they are owed, that
5 they owe is based on their projected rate of return. So
6 the interest that they have to pay is based on what
7 their own -- so one that is anticipating 1 or 2 percent
8 would have a lower interest rate return payment for the
9 money that they have to borrow the make the payment
10 versus one that is at the higher.
11 So it's all other the map is what I'm
12 getting at.
13 REPRESENTATIVE GREINER: But it would go
14 back to the beginning of the year --
15 AUDITOR GENERAL DePASQUALE: Oh, correct.
16 That's correct. I just wanted to walk everyone
17 through -- it's not simply as to how much they owe.
18 REPRESENTATIVE GREINER: That's fine.
19 One last question and it kind of goes to
20 the municipal pension, the legislation. Your office has
21 issued a number of reports on the status of municipal
22 pension systems and your report, which was a very good
23 one, included eight recommendations to address the
24 underfunding of the municipal pension plans and four
25 recommendations to address the systemic issues related 22
1 to those plans. We talked about this last year.
2 The House Republican Caucus -- and I know
3 I am -- are willing to work with you on these issues and
4 we have been. But that being said and going back to
5 PERC, with the Governor's abolishment of PERC, how can
6 the general assembly, how are we able to get an
7 independent assessment of any proposed statutory
8 changes, you know, so that we understand how to deal
9 with a multitude of Pennsylvania municipal pension laws
10 that we have? I mean, how are we going to move forward?
11 I mean --
12 AUDITOR GENERAL DePASQUALE: Right.
13 REPRESENTATIVE GREINER: -- like I said,
14 we're kind of in an area, just as we are with the
15 budget -- this is somewhat unique and maybe you can
16 provide some incite on that.
17 AUDITOR GENERAL DePASQUALE: What I have
18 said both to the media in interviews about this, what
19 I'll say here, and I would say to anybody that would
20 ever want to talk to me about this anywhere, the work of
21 PERC, regardless of who does it, whether it's PERC
22 recreated, a line-item veto is undone, or there's new
23 legislation -- I'm not making a judgment on any of
24 that -- but the work they do on the calculations and the
25 independent actuary work are critical for Pennsylvania 23
1 and the work must be independent. The last thing any
2 elected official would want in voting on any type of
3 pension legislation would be to be relying on numbers
4 that had your thumb on the scale from one political
5 party or one idealogy.
6 So any legislation that would move
7 forward on municipal pensions, for example, you would
8 want the actuarial work done to be independent of any
9 political party, so that's why I've said the work needs
10 to be done and it needs to be independent.
11 REPRESENTATIVE GREINER: Well, as a CPA
12 who's done some auditing in the past, I couldn't agree
13 with you more and I'm glad that you stress that and
14 emphasize that.
15 I will say that I appreciate your
16 leadership on this issue. I know that -- like I said, I
17 know the focus many times is on the statewide pension
18 crisis. We do have a municipal crisis. And I know
19 you're out front on that and I look forward to working
20 with you in the future on that and appreciate you taking
21 the time to be here today. Thank you.
22 AUDITOR GENERAL DePASQUALE: Thank you,
23 Representative.
24 MAJORITY CHAIRMAN ADOLPH: Thank you.
25 Representative Schreiber. 24
1 REPRESENTATIVE SCHREIBER: Morning --
2 afternoon, General.
3 AUDITOR GENERAL DePASQUALE: Good
4 afternoon.
5 REPRESENTATIVE SCHREIBER: Thank you for
6 being here.
7 Thank you, Mr. Chairman.
8 Thank you to the entire team.
9 You highlighted in your testimony that
10 you have helped identify about $111 million in state
11 savings and I was just wondering if you could elaborate
12 on that a little bit. And is there any reconciliation
13 in that number for what may go back to the state's
14 general fund for obvious reason?
15 You know, we had the IFO in yesterday
16 testifying that we face a $1.9 billion structural
17 deficit. I think there's at least a recognition from
18 most that we're going to have to look at that on expense
19 and revenue. And there's probably -- it would be a
20 significant challenge to find that amount of money in
21 savings and efficiencies alone.
22 AUDITOR GENERAL DePASQUALE: Thank you,
23 Representative.
24 Technically the estimate we have is
25 111.42 million. That is broken into several categories 25
1 we have. Here again, this is, you know, just rough
2 ballpark -- pension money return to the Commonwealth,
3 2.66 million; potential fraud that we have found in
4 volunteer fire relief associations is 1.3 million;
5 unpaid corporate tax returns, 43.85 million; school
6 districts wasted money, 25.93 million; liquid fuel,
7 18.2 million; children and youth services,
8 14.49 million; tobacco settlement funds, 4.99 million.
9 That is, again, just broad categories on where we have
10 found it.
11 Now, in the school districts issue for
12 example, many of that recouping of those funds would
13 fall on the Pennsylvania Department of Education. We
14 have found this issue in both our audit of traditional
15 public schools and public charter schools. On the
16 traditional public schools, a lot of times we have found
17 transportation cost issues that we have found. And on
18 the charter school side we have seen on the lease
19 reimbursement side. So those are two broad categories
20 where we continually see issues. It's up to the
21 Department of Education to recoup that money.
22 On the other ones, sometimes we're able
23 to do it and sometimes it's Department of Revenue.
24 REPRESENTATIVE SCHREIBER: So along the
25 lines of the amount of money that you've been able to 26
1 identify -- you know, and this is obviously -- I think I
2 can predict the answer to this one. But do you have the
3 resources necessary -- in that we have a Department of
4 Revenue that several years ago created an enhanced
5 collections department and has netted a positive
6 increase in tax returns and collection of delinquency.
7 Is there a point at which if you were afforded more
8 resources, you could be identifying more? And you know,
9 parallel to that is also bringing the office into the
10 21st century technologically.
11 AUDITOR GENERAL DePASQUALE: I don't know
12 what this says about my life, but it's hard for me to be
13 anywhere in public where people don't want me to audit
14 something. Now, I will tell you that's not what I
15 dreamed about when I was a little kid. I love the work,
16 but when I was six or seven that's not where, you know,
17 I had thought that that's -- when you go to a Pirate's
18 game, for example, people at the hot dog line wouldn't
19 be telling you, hey, have you ever thought about
20 auditing X? But it is where it is. I say that to be
21 somewhat funny in my own way, but also to point out
22 people want everything audited all the time.
23 Obviously, there is some limits on the
24 budget of what the general assembly can make available
25 to my department, but the more people we have, the more 27
1 stuff we can find. We are one of the few agencies that
2 I believe there's no question -- now, other agencies may
3 produce better services. We can actually find more in
4 savings. But I throw this out as a caveat and so I'm
5 arguing against my own budgetary interests on this.
6 Those savings can only be materialized if
7 we have school districts and agencies that are willing
8 to accept the recommendations. And you know, people
9 have talked about, for example, creating a mandate among
10 school districts to follow our recommendations, whether
11 that's a good or a bad idea, we can debate another time
12 or maybe debate here.
13 But to answer your question, we,
14 absolutely, with more people could find more, but the
15 only way it actually produces real savings are for
16 agencies and school districts to take our
17 recommendations to heart.
18 REPRESENTATIVE SCHREIBER: Got it. Thank
19 you. Thank you, General.
20 Thank you, Mr. Chairman.
21 MAJORITY CHAIRMAN ADOLPH: Thank you.
22 Representative Warren Kampf.
23 REPRESENTATIVE KAMPF: Good afternoon,
24 General.
25 AUDITOR GENERAL DePASQUALE: Good to see 28
1 you, Representative.
2 REPRESENTATIVE KAMPF: So staff had
3 indicated to me that there's an ongoing audit, maybe
4 even a couple of the Philadelphia School District and I
5 just wondered what the status of that was. One of my
6 constituents is very interested in that.
7 AUDITOR GENERAL DePASQUALE: Most people
8 in Pennsylvania will likely be interested in it. It is
9 an audit of the Philadelphia School District. We are
10 close to wrapping that up. It will be released in two
11 parts. It will be the oversight of the charter schools
12 of Philadelphia and then the administration in the
13 school district itself. So there will be two parts to
14 it and the reason why it is in two parts is --
15 Most people do not realize this but there
16 are more students in charter schools in the city of
17 Philadelphia then there are in the entire Pittsburgh
18 public school system. So both, in a sense, both sides
19 of this audit are going to be very large indeed. And my
20 anticipation is that between the middle of March and the
21 middle of April both will be released.
22 REPRESENTATIVE KAMPF: Thank you, Mr.
23 Chairman.
24 MAJORITY CHAIRMAN ADOLPH: Thank you.
25 Representative Mike O'Brien. 29
1 REPRESENTATIVE O'BRIEN: Thank you, Mr.
2 Chairman.
3 And hello again, General.
4 AUDITOR GENERAL DePASQUALE: Good to see
5 you, Representative.
6 REPRESENTATIVE O'BRIEN: Normally when a
7 question is asked in this committee, we move on to
8 another question, but nonetheless I think that part of
9 the questioning that Chairman Markosek posed to you is
10 so important that it requires further comment.
11 In the Republican Herald on February the
12 2nd, you were quoted as saying, through a bank, this
13 used to be automatic, the state's going to pass a budget
14 and we'll get our money back. Now can anybody really
15 say that we are guaranteed that there will be a budget
16 in the next year? It's become a much riskier loan. I'm
17 giving a nightmare scenario, but that scenario is not
18 beyond believe.
19 Could you flash that statement out a
20 little bit, General?
21 AUDITOR GENERAL DePASQUALE: Yes. If
22 you're a bank, you give a loan out to someone that you
23 think is going to repay the loan.
24 When you go in to buy a house, they do a
25 credit check on you and they find out what your income 30
1 is and can you meet the monthly payment. And that's why
2 there's always a question in there, do you anticipate in
3 the next year or five years or ten years -- usually
4 there's a question in that questionnaire -- do you
5 anticipate your income to go up or down? That's why
6 they ask for pay stubs, to make sure that you're telling
7 the truth when you say what you make, so they know that
8 you can repay the loan. If you're a bank, they do the
9 same type of process with a school district.
10 Banks read the newspaper. Maybe they
11 read it online on their iPad or their iPhone or on their
12 Android device or maybe they still get the paper copy,
13 but they're reading it. And it's not a secret that
14 there isn't a state budget.
15 We can go back and forth as to whether
16 there was and the veto, I mean forgetting all of those
17 dynamics, the realities are if you're a bank that is a
18 much more -- especially if it's a school district that
19 is on the higher end of the state reimbursement.
20 There's no way around it, it's a riskier loan today.
21 And if you look at the dynamic that's
22 going on right now -- and look, I say this just -- it's
23 a reality. If you're a bank, can you guarantee that if
24 you loan a school district $5 million and half of that
25 money is relying on a state reimbursement, can you 31
1 guarantee to your board today that that money is going
2 to get repaid?
3 REPRESENTATIVE O'BRIEN: Best guess,
4 General, can you foresee in the near future any district
5 being denied a loan?
6 AUDITOR GENERAL DePASQUALE: I would hope
7 the answer is no, but I do think it's possible.
8 REPRESENTATIVE O'BRIEN: Now, let's move
9 on to a happier topic. From our service together, I
10 knew you share my concern about the environment.
11 You recently issued a special report on
12 the importance of meeting Pennsylvania's Chesapeake Bay
13 nutrition reduction target. Now aside from our concern
14 with the environment, my son is also a marine biologist
15 who's been doing research in the Chesapeake for the last
16 five years. I like to take a little bit of information
17 back to him. Talk about that for a second, would you?
18 AUDITOR GENERAL DePASQUALE: The report
19 or the bay itself?
20 REPRESENTATIVE O'BRIEN: Wherever you
21 want to go, General.
22 AUDITOR GENERAL DePASQUALE: We have --
23 start off for some people that aren't maybe aware, there
24 is a compact between Pennsylvania, New York, Maryland,
25 Virginia, and Washington, D.C., on reducing nutrients 32
1 that go into the bay, in a sense to try to clean the bay
2 up for the betterment of everyone, and Pennsylvania is
3 behind many of its benchmarks on getting there. And we
4 put together that report in a way to try to help foster
5 some commonsense solutions to help Pennsylvania reduce
6 the nutrient flow into the bay, which every state has to
7 do and we are behind in what we need to do to meet it.
8 And if that is not met, the possibility of fines from
9 the federal government would be very likely.
10 REPRESENTATIVE O'BRIEN: Always a
11 pleasure to be with you, sir, always appreciate your
12 comments and insights. Thank for being here today.
13 And thank you, Mr. Chairman.
14 AUDITOR GENERAL DePASQUALE: Thank you,
15 Representative.
16 MAJORITY CHAIRMAN ADOLPH: Thank you,
17 Representative.
18 Representative Marguerite Quinn.
19 REPRESENTATIVE QUINN: Thanks, Mr.
20 Chairman.
21 It's a pleasure to be here with you
22 today, General. Thanks for joining us.
23 Just a follow-up, two points I want to
24 make here or ask about. One I wasn't intending to, but
25 I want to follow up on the questions that were mentioned 33
1 regarding the interest payments that the school
2 districts have.
3 I believe it was the fall, it could have
4 been August, I sent to you -- maybe it fell in your
5 hands, maybe on someone in your staff -- about
6 legislation that I proposed and I brought up recently
7 earlier today to the Treasurer. With the question and
8 the concern of schools being denied a loan to a bank --
9 you know, as you said, they've depleted their funds,
10 they've already had a loan. There's no certainty right
11 now that there's going to be a budget -- even though we
12 have a budget right now, correct?
13 AUDITOR GENERAL DePASQUALE: Right.
14 REPRESENTATIVE QUINN: Thanks. I've
15 heard it back and forth here today.
16 But with that, I do want to bring to your
17 attention again the fact that our Treasury Department,
18 under its investment authority, if legislation were
19 enacted, they could get money out to our political
20 subdivisions, we could control the cost. We don't have
21 to worry about sending these exorbitant fees and
22 interest rates out into the market. We could keep it
23 all here.
24 It reminds me of, like, trying to loan a
25 child some money. So today I will get that information 34
1 to you because I'd like you to endorse that.
2 And now I'll move on to my other
3 question.
4 AUDITOR GENERAL DePASQUALE: And by the
5 way, just on that point, there is no question that the
6 Treasury would at least have the ability to do that.
7 Now, it would not be, certainly, a long-term solution,
8 but at least in the short-term instance, the thing that
9 would most be the best benefit of that would be you
10 wouldn't have to worry about banks charging the high
11 interest rates.
12 REPRESENTATIVE QUINN: Absolutely, and
13 any fees that go with it.
14 And the benefit would be even meeting our
15 moral obligation to the kids and those who are working
16 for, as well as the human service agencies.
17 So switching gears here. I appreciate
18 what you came up with and what you're doing in your
19 agency to save money. With that in mind, I wanted to
20 get your thoughts on something.
21 In 2013, Bucks County followed by
22 Montgomery County had the commissioners conduct or had
23 conducted for them a benefits dependent care audit.
24 Okay, what the findings for both counties turned out was
25 significant savings, savings due to cost avoidance. In 35
1 Bucks County's case, there were approximately 10 percent
2 of those people being covered as dependents were
3 ineligible. So obviously, we'd like our health care --
4 the benefits to go to those eligible to be receiving
5 them. That for just a county the size of Bucks -- I
6 mean it's a large county, large operation -- but that
7 was about $610,000 of savings due to cost avoidance
8 going forward. Montgomery County, I believe it was
9 about $230,000, I'm not exact on that.
10 The last time that the Pennsylvania
11 Employees Benefit Trust Fund -- which was estimated in
12 1988 and they administer health-care benefits to
13 approximately 77,000 eligible Commonwealth Pennsylvania
14 employees and their dependents and an additional 63,000
15 retirees and their dependents. The last time that I'm
16 aware that they were audited was 2011. The audit shows
17 that in 2011, the total deductions for medical and
18 supplemental benefits paid, totaled $869.2 million. I
19 can only imagine with health-care costs going up that
20 we're now in the range of about a billion dollars based
21 on national averages that there's about 8 percent of
22 employee benefit plans that have -- about 8 percent of
23 ineligible dependents listed.
24 Now, in Bucks County, as I said, it was
25 about 10 percent. Would you consider a dependent care 36
1 audit on the Pennsylvania Employees Benefit Trust active
2 plan? Now this isn't a hot-dog-line question.
3 AUDITOR GENERAL DePASQUALE: The short
4 answer is yes.
5 Right now we are auditing the Department
6 of Human Services on their EBT cards and other items as
7 a follow-up to my predecessor, Jack Wagner's audit of
8 that agency that found -- at least a potential for
9 significant fraud there. We issued an internal report
10 last year that identified many people that were deceased
11 still getting what is commonly referred to as cash
12 assistance.
13 That audit will be completed sometime
14 late spring, early summer. So that is attacking that
15 issue from a different area and that would be on the
16 welfare side of it.
17 On that issue, more than happy to
18 entertain that and it's something that if you have
19 information to give to my team, we will certainly
20 discuss it. But seems like an absolutely great idea
21 because there's no question, health-care costs are a big
22 driver of the state budget.
23 REPRESENTATIVE QUINN: Yeah. And a lot
24 of these eligible -- it's just simply, you know, a
25 birth, a death, a divorce, and someone not thinking I've 37
1 got to report it.
2 AUDITOR GENERAL DePASQUALE: Well, that's
3 what happened with the EBT situation, and that is it was
4 the staff at the Department of Human Services not doing
5 a cross-check with the Social Security Administration
6 when someone had deceased. So if someone's number was
7 in the system and they had this thing where a red light
8 goes on and it's supposed to flag someone. Well, you
9 know, they just for whatever reason weren't flagging it
10 when they were getting the red beep or whatever from the
11 Social Security Administration.
12 REPRESENTATIVE QUINN: General, given the
13 confines of staff and you just -- you know, there's only
14 so how many people you have and how many audits could
15 happen at once, would you recommend hiring an outside
16 agency to accelerate the speed of some of these audits?
17 I ask because the states of Maine, Kentucky, Minnesota
18 have seen a return on investments up to 3500 percent for
19 conducting audits such as this.
20 AUDITOR GENERAL DePASQUALE: Well, I
21 believe that as long as it is under the supervision of
22 the department, making sure that as the Auditor General
23 that, you know, we're looking out for all the
24 Pennsylvania taxpayers, that I think it's something that
25 I'm certainly open to. 38
1 We have a tremendous staff, a tremendous
2 team. The thing that probably makes them the most
3 nervous is when I say, yes. I think that's a good idea
4 to audit because you know, again, there's only so many
5 people that can do it. But it is something that I'm
6 open to depending on how budget situations play out.
7 But I do believe it should happen under the supervision
8 of this department, but having said that, I'm certainly
9 open to it.
10 REPRESENTATIVE QUINN: Good point, and
11 just one final note on that.
12 CPERS, California Pension Employee
13 Retirement System, which is the largest public system in
14 the United States, when they conducted this, last I
15 looked, they were only 95-percent complete because they
16 had to segment. The numbers are so big and they had
17 10 percent ineligible dependents.
18 AUDITOR GENERAL DePASQUALE: And here's
19 something too, the reason I say it's important that it
20 be under -- whether it be myself or any future Auditor
21 General, a lot of great accounting firms do a lot of
22 great work, but the thing that allows us to really
23 hammer away at the savings is the bully pulpit of the
24 Auditor General being an elected official. So if you
25 have a great audit of something that can show you how to 39
1 save money, but it's not in a sense banged away at in
2 the public's sphere and the entity that has the audit
3 gets to stick it in a drawer, you may have great
4 information, but you don't drive the change that is
5 necessary.
6 And I think there's one thing that -- you
7 know, I'm sure that just like anyone else in elected
8 office, there's people that are your detractors, your
9 supporters, and anywhere in between, but I think it
10 would be hard to find anyone that thinks I'm shy about
11 talking about issues publicly.
12 REPRESENTATIVE QUINN: Thank you. And I
13 thank you for not being shy about that.
14 Thanks, Mr. Chairman.
15 MAJORITY CHAIRMAN ADOLPH: Thank you,
16 Representative.
17 Representative Galloway.
18 REPRESENTATIVE GALLOWAY: Thank you, Mr.
19 Chairman.
20 And good afternoon, General DePasquale.
21 AUDITOR GENERAL DePASQUALE: Good to see
22 you, Representative.
23 REPRESENTATIVE GALLOWAY: You too.
24 I have two questions.
25 You've done a lot of work on several 40
1 things, but two things in particular, school districts
2 and pensions, and the pension will be a separate
3 question. It's more of a broader opinion than I'm
4 looking for.
5 First of all as it relates to school
6 districts, you know, we've touched on a couple things
7 and drilled done on loans for example, but you've found
8 many things in your audits, I'm interested to hear from
9 you what you think were the most interesting.
10 AUDITOR GENERAL DePASQUALE: Well, from a
11 policy perspective, I'm going to start with something
12 that may not be the most interesting, but I think it's
13 important from a policy perspective. And that is we
14 find transportation reimbursements that are off all the
15 time. The system is clearly too complicated for school
16 districts and I don't mean that there aren't good people
17 that aren't talented that can't do complicated things,
18 but the system is clearly a mess because school
19 districts all over the state end up either submitting
20 too much back to the state or not getting enough from
21 the state. So that system needs to be revamped.
22 The most interesting item I ever found
23 was the Mill Creek Township School District in Erie
24 County. They allowed Canadian minor league hockey
25 players to go to their school district for free in 41
1 exchange for hockey tickets for their administrators.
2 Now, just to let you know -- sort of pierce the
3 corporate veil here -- one of my taglines now when I'm
4 out on the stump is I'm not getting in the middle of the
5 fight between Ted Cruz and Donald Trump or whether Cruz
6 is one of the Canadian hockey players. So people think
7 that -- sometimes they think it's funny, sometimes they
8 don't.
9 The actual player is a guy by the name of
10 McDavid who was the number one pick for Edmonton that
11 was actually -- he would sign autographs and stuff and
12 so my joke internally was I hope he doesn't play for the
13 Flyers or the Penguins because then I'm going to have a
14 problem.
15 But that happened in Mill Creek Township.
16 You know, the school district itself is very well run.
17 It's a good school district, but that's simply
18 outrageous, outrageous behavior.
19 But from a broader policy perspective, in
20 public schools I think the transportation reimbursement
21 system needs to be revamped. And from the charter
22 school side of it, the lease reimbursement process for
23 the buildings they're running, that system needs to be
24 revamped. Those are the two most important from a
25 policy perspective. 42
1 REPRESENTATIVE GALLOWAY: Thank you.
2 And my second question has to do with
3 policy. And you know, we've talked a lot about
4 pensions, we're going to keep on talking a lot about
5 pensions. You've done a lot of work with pensions, but
6 I want to talk about pensions, not so much about the
7 nuts and bolts, but about a discussion you and I had.
8 It's been almost 10 years since you and I
9 were sworn in together. We sat together, right next to
10 each other on the floor for many years and you had a lot
11 of interesting points. You spent a lot of time early in
12 your career talking about pensions, but in a broader
13 context and it took me a little while to understand
14 where you were going with it.
15 You talked consistently about the focus
16 of Harrisburg on the here and now and the problems that
17 that would cause later on. Looking at separating out a
18 fiscal budget from a structural budget, simply looking
19 at what was due today and crafting a budget for that,
20 and then separating out structural and how that would
21 cause serious problems later on down the line. In other
22 words, making a minimum payment on a credit card,
23 getting out of town and that was your budget. I mean
24 that process has been in place, it's being done by
25 Democrats and Republicans, House and Senate, Governors, 43
1 everyone is to blame.
2 And at that time, I remember your speech
3 on the floor because you were arguing for more money for
4 pensions, but there was a budget deal in place with the
5 Senate and the Senate would not go along with it. In
6 other words, they just simply wanted to make the minimum
7 payment on the credit card and use the rest of the money
8 to quote, unquote, balance the budget, which it's hard
9 to believe you could balance a budget when you have
10 structural debt. It's just the way we work around here.
11 And for instance just last year, we spent
12 months, months and months and months not negotiating a
13 budget, not trying to fix the problems of the deficit,
14 but arguing about how much was due at that time -- 1.3
15 billion. It was very, very important because that's all
16 we were going to look at.
17 Now my question to you is who's right? I
18 mean, this comes to the crux of the entire budget
19 impasse, which is we have a Governor on one hand saying
20 we have dire consequences, right, and we have the
21 Republican party on the other side specifically on this
22 committee.
23 All day yesterday we heard a vigorous
24 defense for the status quo, saying things are fine,
25 things are okay. One member even said, you know, 44
1 Armageddon hasn't hit yet. And that's where we're at,
2 you know, we're in a very, very serious situation.
3 You have a lot of experience in this
4 building. You have a tremendous reputation and I'm
5 asking you for your opinion on something that we talked
6 about a long time ago.
7 AUDITOR GENERAL DePASQUALE: I'm going to
8 get there, but I think it's important to start off with
9 a story that I think highlights this issue because I
10 think this is a critical debate and it also is a part
11 about -- we can all say what's right or what's wrong
12 depending on our personal perspective, our districts,
13 our ideology, and it also goes to the art of the
14 possible.
15 When I played college football at the
16 College of Western Ohio, which we would have never been
17 on TV because we were not -- you know, we are division
18 III. Our coach was a former defense coordinator at Ohio
19 State, Bob Tucker, and he would play on Friday night
20 these inspirational tapes. I wish it would have given
21 me more talent. But you know, you listen to these tapes
22 and it's supposed to get you fired up and motivated.
23 And Lou Holtz was this big motivator -- Lou Holtz was
24 half the tapes.
25 And one of the times he was talking about 45
1 this canoe ride that he was taking with his family. And
2 his canoe tipped over and his joke was when the canoe
3 tipped over, the last thing on his mind was who is going
4 to be the quarterback at the University of Notre Dame.
5 The point was you had to get the canoe back up. Like
6 all these other long-term issues of playbook -- you
7 know, if he didn't get the canoe back up, he was going
8 to die.
9 The reason I bring that up is there is a
10 constant tug between what needs to get right now to sort
11 of get the canoe back up and going down the stream
12 versus what needs to happen to make sure other people
13 get to ride a canoe on the stream.
14 On pensions for example, I'm talking on
15 the municipal side, every time -- and believe me, I do
16 it all the time. Municipalities are allowed to
17 anticipate up to 9 percent on a rate of return. Does
18 anybody here believe that any municipality anywhere in
19 Pennsylvania met that number last year -- if they were
20 above 5, let alone 9?
21 The answer is -- it's not a trick
22 question -- the answer is no. Nobody would of met it
23 and many did not. And so I will say, you've got to
24 lower your rate of return and I say this in a
25 nonideological sense. But I'd rather be conservative 46
1 than optimistic on this because I'd rather anticipate 4
2 and get 9, as opposed to anticipate 9 and get 4.
3 And so the point I'm getting to on this
4 is every time I say that everyone looks at me and
5 recoils and thinks, oh, but that means we're going to
6 have to put more money in. And I say yes. But if you
7 don't put it now, you're going to owe significantly more
8 later. And so the question isn't when -- you know, you
9 want call it Armageddon, whatever term you want to use.
10 But the question isn't when a municipality can't make
11 the payment, not if but when.
12 The city of Scranton's fire pension fund
13 right now is 16-percent funded. The city of Chester's
14 nonuniform pension plan is 10-percent funded. That is
15 based on their own rate of return. So when we audit
16 these, we can't just make up what we believe the rate of
17 return is going to be, we have to base that number based
18 on what they put in as the anticipated rate of return.
19 And if we think the credit rating for Pennsylvania is
20 bad now, wait what happens when some municipality can't
21 make their pension payment.
22 So to come back to your original thing,
23 who's right? Do we need to fix the situation now and
24 look forward to the future? The answer is both. You
25 have to do both. You have to get the canoe back up and 47
1 get it going down the stream, but also part of our
2 responsibility is also trying to make the future better
3 for everybody else. And if you do it all with
4 short-term decisions, then yeah, maybe we all survive
5 another couple years politically, but the long-term
6 future of the state is going to be less bright.
7 So part of the challenge in elected
8 office for all of us is to do the best job we can inside
9 the art of the possible to not only fix the current, but
10 make the future better as well.
11 REPRESENTATIVE GALLOWAY: Thank you,
12 General, and good seeing you again, Eugene.
13 Thank you, Mr. Chairman.
14 MAJORITY CHAIRMAN ADOLPH: Thank you,
15 Representative.
16 Representative Karen Boback.
17 REPRESENTATIVE BOBACK: Hello, General.
18 Welcome.
19 AUDITOR GENERAL DePASQUALE: Good to see
20 you.
21 REPRESENTATIVE BOBACK: Same here.
22 The budget request that you put in for
23 this fiscal year includes $3 million to finish the
24 information technology project that you have started, so
25 can you tell us what have you been doing with the IT 48
1 modernization project and where do you intend to go with
2 this?
3 AUDITOR GENERAL DePASQUALE: Yes. Thank
4 you, Representative.
5 My first request to this committee was
6 for during my term would be a $9 million infrastructure
7 IT upgrade. At the suggestion of both chairmen here, we
8 broke that into several years of requests as opposed to
9 a one-time $9 million. And what we've done since
10 then -- and I think Chairman Adolph himself was the most
11 concerned to find out that some of our employees were
12 going to the Wi-Fi in McDonald's to do their work,
13 obviously not very secure.
14 What we've done since then is we've
15 created our own internal network that is now secure.
16 Everybody has mobile devices so that they can do their
17 work, you know, from anywhere. We are now as close to
18 paperless as you can get. Our system itself has been
19 upgraded inside the building. We have upgraded our
20 infrastructure throughout the state as well, so that now
21 we are -- well, we're not Apple, we're not Google, but
22 we are, I believe, a much more progressive --
23 technologically speaking agency than we were three years
24 ago.
25 The next step I want to take with this 49
1 three million is to create, in a sense -- you want to
2 think about it like the stock market. When you see all
3 the numbers of where items are trading at that
4 particular moment.
5 I want to create basically an internal
6 database that we can see where every audit is at every
7 moment of every workday with that last remaining
8 three million, which would be the last segment of the
9 original nine that we requested; although, it's going to
10 turn out to be much less than that because every thing
11 we did, every single item that we did on that original
12 $9 million request came in under budget. So every
13 single bid we did, every single project we did came in
14 under budget.
15 And I would hope that this last
16 remaining, we would again, come in under budget, but it
17 would go to create a consistent monitoring and database
18 for every audit we're doing, so that myself and my team
19 would have the ability to go in and make sure everything
20 is moving. And if anybody had any questions about an
21 audit, we would know exactly where it is, where the
22 update was. And maybe if somebody wasn't -- you know,
23 falling a little bit behind or they needed additional
24 resources, that's what my -- that's what we would do
25 with that last three million. 50
1 And to me, it's the last phase of that
2 original request I had to make sure that our department
3 is as technologically savvy as I believe is necessary.
4 REPRESENTATIVE BOBACK: Money well spent
5 as far as I'm concerned. If I could to segue into
6 something else, General.
7 You've been around this state with a lot
8 of nonprofit organizations where there is stealing of
9 funds that these organizations worked so hard to
10 accumulate. And I'm always asked the question, how did
11 he know? How did he know?
12 So we're talking public funds because
13 that would implicate your office, it would have to be
14 public funds of some short, correct? And then how do
15 you find out? Is it somebody who's suspect that calls
16 and if you feel it's valid to come and do an audit?
17 AUDITOR GENERAL DePASQUALE: Yeah, I mean
18 this would be sort of probably the point where my wife
19 would get ready for the joke about my jedi powers.
20 The reality is it's by having a great
21 team, by me continually pushing us to do the most we
22 can, to look under every stone. We have great auditors
23 in the field.
24 I'm going to take the municipal pensions
25 for example. I don't know if anyone even knew we had a 51
1 Municipal Pension Bureau outside of the department
2 before I became Auditor General. Now my joke is to that
3 team now they're going to be able to write books about
4 it. Now I don't know how exciting those books are going
5 to be, it clearly will not have the same volume as the
6 Harry Potter series when it comes to book sales. But we
7 now have highlighted the issue.
8 And I think a lot of people in our
9 department, I think a big chunk of them take tremendous
10 pride that we're make a big difference with that work
11 and that only motivates them to do more.
12 And so, how do we do it? It's a lot of
13 hard work. I think the technology investments you have
14 helped us make have done that, hiring good competent
15 staff, and I can be a pain in the rump every now and
16 then as well.
17 REPRESENTATIVE BOBACK: But you find out
18 from somebody in that organization that is --
19 AUDITOR GENERAL DePASQUALE: Oh, we get
20 tips all the time, yeah. And this is the -- for those
21 of you that have ever contacted me -- and again, I guess
22 there's always an exception. But this is why, you know,
23 I'm probably the only statewide elected official in the
24 country that has my own personal number, cell number on
25 my Facebook page. People call me all the time, text, 52
1 e-mail. My rule is we respond to, even if it's verbal,
2 we respond to everything we get. Every e-mail, you
3 know, idea we get, every tip. Now, sometimes you meet
4 and you realize the tip is just that, it doesn't have
5 merit, but we follow up on everything.
6 REPRESENTATIVE BOBACK: And the last
7 question, so have you seen a continuum? How do you
8 prevent this from happening?
9 I mean, organizations say that they've
10 gone through -- they've vetted people who are honest and
11 good and they trust them. So is there some kind of
12 common denominator that you've been finding that's the
13 red flag? Don't have this person in place with your
14 money?
15 AUDITOR GENERAL DePASQUALE: Yeah, it's a
16 great question. How do you prevent it? And I do think
17 most organizations -- in fact, here's the part -- part
18 of what gets the most publicity for anything where I do
19 is when we find something bad. We do about 5,000 audits
20 a year. About 4,000 of those 5,000 are clean audits, so
21 the vast majority of people are trying to do the right
22 thing. And even the times where we find something, it's
23 a mistake, but it wasn't, you know, any malice of heart
24 so to speak.
25 What can people do? A lot of the 53
1 safeguards we've put out and our recommendations for our
2 volunteer fire relief associations and how they can
3 prevent it, you know, you probably carry a lot of those
4 same recommendations into any nonprofit. A lot of that
5 goes into making sure that it takes more than one person
6 to access the money, that there's an involved board.
7 You know, sometimes it's just the little things.
8 Because if there's just cash sitting around, that person
9 that never ever took the position of treasurer with any
10 bad intentions, it's kind of not that hard to take the
11 20 bucks. So you have to make it so that more than one
12 person has to be involved to get the money. Some little
13 things like that.
14 But yeah, it happens. It happens in
15 little leagues, it happens in volunteer fire relief
16 associations, it happens in shelters. Again, it's the
17 minority, but it does happen. And some of the steps
18 we've put out there to prevent this in volunteer fire
19 relief associations, I believe those same steps would be
20 helpful in any nonprofit agency.
21 REPRESENTATIVE BOBACK: And I'm sure
22 they're on your website.
23 AUDITOR GENERAL DePASQUALE: Yeah, it's a
24 DVD or video on the website.
25 REPRESENTATIVE BOBACK: Thank you. Thank 54
1 you very much for your time.
2 Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN ADOLPH: Thank you,
4 Representative.
5 Representative Dean.
6 REPRESENTATIVE DEAN: Thank you, Mr.
7 Chairman.
8 Good to see you, General.
9 AUDITOR GENERAL DePASQUALE: Good to see
10 you, Representative.
11 REPRESENTATIVE DEAN: We miss you on the
12 House floor, but we're proud of what you're doing.
13 AUDITOR GENERAL DePASQUALE: I don't miss
14 the late nights. I mean, I love the work I'm doing now,
15 but you know, I miss the comradery. But sometimes when
16 it's 11 o'clock and I miss six straight anniversaries
17 because we got married on June 27th when I didn't know I
18 was going to be a state legislator at the time, you
19 know, that -- it's easier to make the anniversary now,
20 which is obviously a helpful bonus.
21 REPRESENTATIVE DEAN: Something I wanted
22 to say to you is that I appreciate the thoughtfulness
23 with which you bring your answers, but also the clarity.
24 You're willing to say things in very plain terms. You
25 avoid euphuism and so I think you inform us well. 55
1 AUDITOR GENERAL DePASQUALE: Being born
2 and raised in Pittsburgh helps with that.
3 REPRESENTATIVE DEAN: Is that right?
4 AUDITOR GENERAL DePASQUALE: I would
5 think, and anyone from Pitt -- that's just blunt talk.
6 REPRESENTATIVE DEAN: You talked quite a
7 bit and quite the interestingly, sadly, about the
8 interest costs for school districts and your audit and
9 what that shows. And how over time, if we do it again
10 for the next six months, it's going to be more than
11 double because it will be acerbating.
12 Have you had the chance do you have the
13 authority to take a look at the exact same kinds of
14 numbers and interest costs, credit card costs,
15 mortgages, lines of credit for the nonprofit sector, the
16 human service providers?
17 AUDITOR GENERAL DePASQUALE: We do not
18 have the same jurisdiction we have with our school
19 districts, where we have jurisdiction to every aspect of
20 what they do. We have asked, you know, we have reached
21 out just for some random conversations at what's
22 happening at the county level to get a sense of what's
23 going on, but no, we don't have the jurisdiction.
24 We do think that if the situation
25 persists and the counties are running into the same 56
1 thing, not that we would have the authority, but we will
2 likely reach out to the county commissioners
3 associations and various counties across the city to see
4 what their human service departments have to borrow
5 because that's where the line and share -- this would
6 take place at the county level.
7 But we don't have the jurisdiction to
8 just go in and audit it the same way we do at the school
9 district level.
10 REPRESENTATIVE DEAN: I appreciate that.
11 And that's part of the price of our budget impasse.
12 Another part of the price of our budget impasse and
13 utter failure is economic development.
14 In today's Philadelphia Inquirer, there's
15 an article about economic development slow down in
16 Philadelphia, specifically due to the unreliability of
17 state funds. Does your department -- not that I want to
18 give you more work -- does your department have the
19 ability or the authority to look at the economic slow
20 down that is one of the victims of this budget impasse?
21 AUDITOR GENERAL DePASQUALE: We certainly
22 have the ability to audit and we have audited the state
23 economic development programs. In fact, we met with
24 Secretary Davin yesterday to have a discussion about,
25 you know, some follow-up work to that. 57
1 As far as the general economic outlook,
2 you know, we would be entitled to the same opinion as
3 other economists would on that. But there is no
4 question that if -- and look, there's two part of this
5 debate on economic development.
6 One side of this is states shouldn't be
7 giving out grants and loans and that stuff should just
8 flow through the free market. And I think that is --
9 it's an important debate to have and actually one that
10 has a lot of merit if the other 49 states would stop as
11 well.
12 If we're going to be doing it, I think we
13 need to do it right and be smart about it and I think
14 for a big chunk of time we haven't been. I think we've
15 put money in front of the fan and just see where it
16 would blow. So if you're having that mentality along
17 with it not even being reliable funding, you're not
18 going to drive quality job creation.
19 REPRESENTATIVE DEAN: I appreciate that.
20 It would be fun to think that maybe in a
21 year or two we could come back and at this hearing,
22 instead of your office use your precious resources
23 looking at the costs of our failures, we could talk
24 about the robust growth of Pennsylvania, the service to
25 our human service providers, and how they're providing 58
1 to the neediest among us, the robust education system.
2 It'd be fun to think maybe in a year or two we could
3 turn this around and I'm going to be optimistic that we
4 will.
5 AUDITOR GENERAL DePASQUALE: Absolutely.
6 REPRESENTATIVE DEAN: My final question
7 has to do with the really terrific findings that your
8 audits show for funds identified, you know, more than a
9 hundred million dollars over the course of the last
10 couple of years. What of those funds or how much of
11 those funds gets captured? You identify them as waste,
12 fraud, abuse, whatever you find them to be. Do you go
13 back and then, okay, say of the 111 what we've
14 identified here's what's coming back?
15 AUDITOR GENERAL DePASQUALE: The areas
16 where we know work gets done to try to recoup, that
17 would be on liquid fuels, certainly on the pension
18 payments, those are areas and on transportation costs in
19 school districts.
20 I have been incredibly disappointed to
21 date that -- and again, hopefully the changes are coming
22 at the department level in the Department of
23 Education -- but one of my biggest frustrations over my
24 first two-plus years in office was on the charter school
25 lease reimbursement issue that even many charter schools 59
1 know is -- some of the things that go on there are
2 wrong. The lack of the Department of Education
3 aggressively pursuing to recoup those funds has been a
4 major frustration for me.
5 And we do believe that the Department of
6 Revenue is trying to get better at their corporate tax
7 collection rate. It actually has seen improvement over
8 the last 10 years, it needs to get even better.
9 But those are areas where I've seen some
10 progress and some areas where I have not.
11 REPRESENTATIVE DEAN: Okay. Terrific.
12 Thanks for your work.
13 MAJORITY CHAIRMAN ADOLPH: Thank you.
14 I just want to mention because I've seen
15 a lot of folks coming into the room probably expecting
16 the judiciary.
17 AUDITOR GENERAL DePASQUALE: I am not a
18 judge.
19 MAJORITY CHAIRMAN ADOLPH: We understand.
20 It's supposed to start at 1 o'clock, we
21 have moved that back to 2 o'clock, okay? So those that
22 are walking into the room for the judiciary hearing, it
23 will not start till 2 o'clock. Thank you.
24 Representative Mark Mustio.
25 REPRESENTATIVE MUSTIO: Thank you, 60
1 Chairman.
2 General.
3 AUDITOR GENERAL DePASQUALE: Good to see
4 you.
5 REPRESENTATIVE MUSTIO: Good to see you
6 as well.
7 I talked with the Treasurer about public
8 confidence before any additional taxpayer money is spent
9 and I would like to talk with you about the broader
10 budget and your work, but then also get into your
11 specific budget which we really don't ask a lot of
12 questions about because we get on other topics.
13 I'm going to read you one of your quotes
14 recently on a fine. It's a good one, it's a good one.
15 And you can maybe expand upon that and I have some
16 follow-up questions.
17 We announced the audit that they have the
18 largest surplus in the state. A board member comes up
19 to me and says we have a tax increase vote tonight, but
20 we didn't know we had this surplus, DePasquale said. So
21 we saved that district a tax hike.
22 If you could talk a little bit about the
23 Pittsburgh School District audit and how on earth does
24 something like that happen?
25 AUDITOR GENERAL DePASQUALE: I'll walk 61
1 through a little bit of the history of that audit.
2 Soon after Mayor Peduto took office, he
3 called me up. I forget if it was a call or a text, but
4 he said, need to talk to you about the Pittsburgh School
5 District. And when we spoke he said, I'm being told
6 that they may go bankrupt by 2016 or 2017, I need you to
7 get in ASAP and do an audit. Now, they were on the
8 schedule, but we, at his request, we did move it up in
9 the schedule.
10 It was an exhaustive process. And we
11 went into it with knowing that their belief of the
12 administration was that they were looking at 2018 at the
13 latest of there being the financial wrecking ball,
14 meaning potential bankruptcy of the city or not able to
15 make their bills. If you want to say it's
16 nontechnical -- not technically bankruptcy.
17 We do the audit. And I say we, it's not
18 just me, it's the whole team. And we put a lot of work
19 into it, and it's obviously a very big district, and we
20 have our internal meeting about it. And it's like, wow,
21 they're going to be thrilled because not only are they
22 not going bankrupt, but they have the largest reserve
23 fund in the state, about 129 million give or take a
24 couple dollars. And we verified that those were the
25 exact numbers. 62
1 I am sure that when we picked the date
2 for when I was going to go out there for my press
3 conference with the superintendent, we -- first of all,
4 I did not know that they were scheduled to vote for a
5 tax increase. We picked a day when I was able to get
6 there. It happened to be on the day that the tax
7 increase was scheduled for a vote that evening by the
8 board. If we would have been a date later in the press
9 conference, that tax increase would have likely
10 happened.
11 The board members that were there at the
12 press conference literally came up and said, we were
13 told and have been getting told that this is much worse.
14 Are you sure of these numbers? Look, you can obviously
15 be off by a penny or two, but where we were showing the
16 district was -- very strong financial shape, relatively
17 speaking, because you can always do something better --
18 of the big city districts in Pennsylvania, they were in
19 the best financial shape of any audit we had found.
20 That night they tabled the resolution on
21 the tax increase and a month later they voted to not
22 raise them and keep the rate the milage rate as is.
23 How could you think that you're going
24 bankrupt in 2018 and have the largest reserve fund in
25 the state? I wish I had an answer for that, but I 63
1 don't. I'm just pleased that we were able to do the
2 work we did and make sure that the taxpayers didn't get
3 a higher bill and actually know that there's money that
4 the district now has that they can make some investments
5 in early education which is one of -- art, music -- one
6 of the programs that many people in the city of
7 Pittsburgh think they want to see back in the classroom.
8 REPRESENTATIVE MUSTIO: I saw, I think,
9 one of your other quotes, it was like a bookkeeping
10 error. They didn't put quotation marks around it, but
11 it said a lot of times it comes to poor bookkeeping. I
12 mean is that something that really should be audited
13 then also as processes? Because --
14 AUDITOR GENERAL DePASQUALE: Well, we
15 did, in our audit, show them how to make sure that
16 didn't happen again.
17 REPRESENTATIVE MUSTIO: And that's not
18 the only district in Allegheny County. I mean, three
19 years ago, there was another school district, a lot
20 smaller, 3,000 students, that found $28 million.
21 So again, it gets back to what I was
22 talking about earlier is, you know, we've made tax
23 increase votes in this body, but there needs to be
24 confidence that you have something to sell to your
25 constituents that this is the right thing to do. When 64
1 you're doing your job and are meeting, before this you
2 said, wait till some of the others ones come up, right?
3 So there's more to come.
4 AUDITOR GENERAL DePASQUALE: Right.
5 REPRESENTATIVE MUSTIO: And we're sitting
6 here debating about, you know, sending more money to a
7 system, at least administratively, that doesn't seem to
8 be working very well for the local constituents in at
9 least two cases and it sounds like there's more to come.
10 AUDITOR GENERAL DePASQUALE: Yeah, the
11 city of Harrisburg, for example, every student at the
12 high school is on free or assisted lunch. You know,
13 obviously, that's because of the economic challenges in
14 the city and many of the kids that are in the public
15 school system. We found in our audit that they -- you
16 know, the kids were going through the lunch line and
17 there was no tracking of what they had. Now, again,
18 obviously I want those kids to get a good healthy meal,
19 this isn't about that, it's about not tracking it. And
20 they lost millions of dollars in federal reimbursement
21 because they weren't even tracking the food the kids
22 were getting in the lunch line.
23 REPRESENTATIVE MUSTIO: Now if we could
24 get into your budget briefly.
25 Your request for the office this year is 65
1 $43,596,000. Of that number, roughly, do we know what
2 the salary is?
3 AUDITOR GENERAL DePASQUALE: The average
4 salary of the employees to break it out -- you know, our
5 compliment is about 475, 480. The average salary is
6 63,854 per person.
7 REPRESENTATIVE MUSTIO: Do you know what
8 the total salary is?
9 AUDITOR GENERAL DePASQUALE: Ninety-five
10 percent of that is a salary or health-care benefit
11 request -- so I'm sorry, pension, health care, salary,
12 95 percent of that is that.
13 REPRESENTATIVE MUSTIO: What I'm trying
14 to get to is, your staff had let our office know that
15 there was a $600,000 increase in your workers'
16 compensation line item. And this is weeds, this is
17 really weeds right now and it's something that we can
18 follow up on, but I would really like, you know, the
19 help of your office because it's titled the auditor of
20 finding out what the problem is here.
21 I'm assuming that most of your staff time
22 is either office or you have auditors that are out on
23 the road and they ultimately end up in an office
24 somewhere doing paperwork. They're not building
25 buildings or anything like that. So if you look at the 66
1 rates that are being charged for workers' compensation,
2 the $600,000 increase is probably, on my calculations,
3 about $500,000 more -- and that's just the increase --
4 than what somebody that has the same exposure would be
5 paying in the private sector, okay? So there's
6 something wrong here in this calculation.
7 I understand there's self-insurance and
8 you might be paying for other departments' losses, but
9 that's unfair, I think, for your budgeting process.
10 AUDITOR GENERAL DePASQUALE: That is a
11 number that we are told we have to pay, that's not one
12 we came up with. And it certainly, it was -- let's just
13 say, I might have said something along the lines of how
14 in the -- do we have to pay that?
15 REPRESENTATIVE MUSTIO: It's a 70-percent
16 increase, your rate was a 70-percent increase. So
17 either you're having a lot of injuries or there's some
18 issues here that need to be further investigated because
19 this is so outrageous. I mean, it is multiple times
20 what's being paid even by school districts, for example,
21 and they have a similar exposure to what you do.
22 AUDITOR GENERAL DePASQUALE: Our work is
23 very important, but nobody has ever, you know, said the
24 auditing line of work is inherently dangerous.
25 REPRESENTATIVE MUSTIO: Well, and I 67
1 understand somebody can get injured in an auto accident.
2 AUDITOR GENERAL DePASQUALE: And that
3 does happen from time to time.
4 REPRESENTATIVE MUSTIO: And that's fine.
5 But your increase was 70 percent, so something needs to
6 be audited from a risk management standpoint, and that's
7 not your area of expertise, but somebody in the state
8 that is passing these numbers along to you, those
9 figures need to be looked at.
10 AUDITOR GENERAL DePASQUALE: To me,
11 there's no way to get around it, we're covering for some
12 other work because we just don't tap into it that much.
13 REPRESENTATIVE MUSTIO: That's unfair to
14 your line item and it's hiding then the real problem and
15 symptoms of problems that are elsewhere in the state
16 which is ultimately costing taxpayers money, okay.
17 In your case, I think it's probably a
18 million dollars, but I would need the actual salary
19 without benefits. Thank you.
20 AUDITOR GENERAL DePASQUALE: Understood.
21 Thank you. Look forward to -- we can discuss that
22 further, look forward to it. Thank you.
23 MAJORITY CHAIRMAN ADOLPH: Thank you.
24 Representative Schweyer.
25 REPRESENTATIVE SCHWEYER: Thank you, 68
1 Chairman.
2 And, General, good evening. There's my
3 humor for the day. Thank you.
4 I'm going to just sort of skip through
5 some of my quick remarks in the beginning and kind of
6 get into the meat of what I wanted to chat with you
7 about very briefly.
8 I would actually argue that the single
9 most important or best report that you've released was
10 one on January 21st because it talks about Allentown,
11 and as someone who represents only the city, where you
12 talk about the city's pension funds now upwards of 89-
13 and 90-percent funded for the three major pension
14 systems. And that is different than what we hear from
15 the overwhelming majority of municipalities and
16 political subdivisions across the Commonwealth.
17 As you noted in that, we were able to
18 address our unfunded liabilities largely through a
19 lease, almost a sale of an asset, which I do understand
20 not everybody has the ability to do. However, the
21 single most important lesson that we took from all of
22 that is you can't have pension reform without funding
23 your unfunded liability. Those two things have to go
24 hand in hand. It's also fair to say you can't fund your
25 unfunded liability without looking at ways to change the 69
1 way you deliver your pension system as we made some
2 changes in Allentown.
3 And so I want to talk a little bit about
4 and get a little bit of your perspective of the
5 different ways that municipalities could move forward in
6 funding their unfunded liabilities that are realistic,
7 reasonable ways of getting to that inherent issue, which
8 is the unfunded liability.
9 AUDITOR GENERAL DePASQUALE: Thanks,
10 Representative.
11 Yes. And what happened in Allentown was
12 they were able to lease sale with the county, I believe
13 it was the water authority.
14 REPRESENTATIVE SCHWEYER: It was the
15 county authority, yes.
16 AUDITOR GENERAL DePASQUALE: And so that
17 was able to put an infusion of cash in. That ability is
18 limited to only a handful of cities, boroughs, and towns
19 across the state. So that's -- something like that
20 can't be used specifically or generally speaking to fix
21 the issue.
22 REPRESENTATIVE SCHWEYER: Understood.
23 AUDITOR GENERAL DePASQUALE: However, it
24 did, in that instance -- was able to infuse that cash
25 and get the pension liability percentage significantly 70
1 -- or the unfunded liability went significantly down.
2 We did, at the request of the
3 administration -- I put together -- the administration
4 put together a pension task force which I led. We put a
5 host of recommendations before the Governor, his team,
6 and we shared that with the general assembly.
7 We have more municipal pension plans in
8 Pennsylvania than the rest of the country combined. I
9 believe there is a huge amount of savings that we can
10 have by having more administrative consolidations of
11 those pension plans.
12 For example, the city of Harrisburg has
13 three pension plans. Two of the three that were put
14 into the Pennsylvania Municipal Retirement System are
15 now over 100-percent funded. The one that is still run
16 by the city is about 80-percent funded, which is better
17 than most, but the point is when you're in PMRS, it
18 forces that municipality to put the right amount of
19 money in, to not play around with the rate of return,
20 and the benefit levels freeze at that moment when you go
21 in.
22 REPRESENTATIVE SCHWEYER: What is the
23 rate of return for the PMRSs?
24 AUDITOR GENERAL DePASQUALE: Five.
25 REPRESENTATIVE SCHWEYER: Five, okay. 71
1 AUDITOR GENERAL DePASQUALE: Now,
2 understand that as cities go in, they have to phase into
3 going to the five. So basically our prescription was
4 any plan that was poorly funded -- and we can debate
5 what that percentage would be -- would move into being
6 administered by the Pennsylvania Municipal Retirement
7 System to lower the fee structure.
8 For example, the city of Reading -- and
9 they pay -- I mean this is, you know, unbelievable.
10 When you're in PMRS your average fee structure is
11 between 250 and 300 dollars per member per year. The
12 city of Reading's fee structure is $4,000 per member per
13 year. And no, by the way, not beating the market.
14 I'd love to have the explanation as to
15 how that's worthy of taxpayer dollars. And what's even
16 scarier about it is that no one in Reading seemed to
17 know they were the worst in the state on this until we
18 pointed it out.
19 So if you go into PMRS, that type of
20 nonsense goes away. But it doesn't fix the problem
21 because you would still need to have cash go in or some
22 level of financing go in to take care of the unfunded
23 liability as well. We believe our plan is a
24 comprehensive fix to the issue.
25 REPRESENTATIVE SCHWEYER: Okay. Just 72
1 real quick, when you talk about the administrative
2 consolidations -- and, Mr. Chairman, this will be my
3 last question -- one of the fears that you get from
4 places like Allentown that have a well-funded municipal
5 pension is that we are going to be covering the losses
6 and expenses of other municipalities. Would you like to
7 dispel that quickly?
8 AUDITOR GENERAL DePASQUALE: Yeah. First
9 of all, only plans that would be below a certain
10 percentage would go in under our idea. And two is the
11 plans would remain separate meaning if you're
12 municipality X, that plan is not merged with any other
13 municipality. That plan remains separate and it's still
14 the responsibility of that municipality to fund it. The
15 administration function of that would be consolidated,
16 but not the plan itself, meaning if you are a taxpayer
17 from another part of the state, you would not be on the
18 hook for one dime of their liability.
19 REPRESENTATIVE SCHWEYER: Very good,
20 that's an important distinction. I get that question at
21 home fairly frequently, so thank you, sir.
22 AUDITOR GENERAL DePASQUALE: Thank you.
23 REPRESENTATIVE SCHWEYER: Thank you, Mr.
24 Chairman.
25 MAJORITY CHAIRMAN ADOLPH: Thank you, 73
1 Representative.
2 Representative Mike Peifer.
3 REPRESENTATIVE PEIFER: Thank you,
4 Chairman.
5 Thank you, General, for being here.
6 AUDITOR GENERAL DePASQUALE: Good to see
7 you, Representative.
8 REPRESENTATIVE PEIFER: I, too, want to
9 applaud you, you know, for your great work with your
10 department. I know none of your department heads are
11 here today, but the efficiencies that you have in your
12 office, and I know you've outlined those today, but you
13 know, I, too, was a former auditor. I really didn't
14 imagine that at age seven, but it's just the way it
15 works.
16 AUDITOR GENERAL DePASQUALE: It is what
17 is, right?
18 REPRESENTATIVE PEIFER: It is what it is,
19 and I couldn't throw the ball 95, so I --
20 AUDITOR GENERAL DePASQUALE: Join the
21 club on that one, too.
22 REPRESENTATIVE PEIFER: So but we really
23 appreciate, you know, whenever you are here in front of
24 us, you come to us with ideas through invasion, through
25 modernization of your office, and it's savings. 74
1 I mean, your department here -- the total
2 cost savings last year in your department was
3 $2.8 million and we have a full list of items. You
4 know, your budget is $46 million, I mean that's a
5 6-percent savings just by initiatives that all of you
6 have taken to improve your office, so we thank you for
7 that. And then the second part of your presentation,
8 you talk about the line by line items where you did save
9 money.
10 And I guess, you know, my question to you
11 is how do we take some of these efficiencies that you
12 have enacted through your department over the last
13 couple years, how do we take some of these efficiencies
14 throughout our state agencies? Other state agencies, I
15 don't want to pick on any schools, but we're looking at
16 big numbers here. We're looking at big dollars, it's a
17 tough year. It's the last year of our pension spike,
18 we're trying to get to that number maybe through
19 one-time ways of getting there. But how do we take some
20 of this knowledge that you've proven -- cost savings,
21 how do we extrapolate that to the rest of the
22 Commonwealth through its agencies and through our
23 schools?
24 AUDITOR GENERAL DePASQUALE: In my view,
25 you have to create a culture in your agency that this is 75
1 a high priority. I've gotten the team so focused on
2 this that at one time, I had an overnight in Erie and
3 they were nervous about making a hotel reservation
4 thinking I might be upset that we were going to spend
5 $60 at the Days Inn in Meadville. And I said, at some
6 point you've got to go to bed, but the point on that
7 is -- was it 65 bucks, right? But the culture of the
8 agency that I would like to think that I've created and
9 many of the team has created is when this matters
10 throughout the agency. It's the taxpayers' money. It's
11 not -- you know, when you get your own salary at the end
12 of the day and if you want to buy a $40 steak with that
13 and go out with your spouse and have -- or whether you
14 go on vacation, that's your salary. But when it comes
15 to what we're doing during the workday, it's the
16 taxpayers' money, so to me the most important thing you
17 can do is establish a culture where this is a high
18 priority.
19 Now the reason why I say it's important
20 to establish the culture as opposed to take the specific
21 ideas is that I've reduced our auto fleet 92 percent.
22 I'm proud of that. It saves taxpayer money, it's a good
23 thing to do. We don't want the Pennsylvania State
24 Police to reduce their auto fleet by 92 percent because
25 that would be self-defeating. So that's why I point 76
1 out, it's important that the culture, not necessarily
2 take all the specific ideas and that's leadership.
3 REPRESENTATIVE PEIFER: So when you look
4 at these audits, are these audits -- when you say liquid
5 fuels, school districts -- are these performance audits
6 or are these just a regular, general audits where we're
7 checking the balances of accounts and inflows and
8 outflows?
9 AUDITOR GENERAL DePASQUALE: It's across
10 the board. Liquid fuels, you're talking about financial
11 audits. You're just checking, in a sense, the numbers.
12 When it comes to the Department of Education audit and
13 some of the school districts, those are going to be
14 performance and financial audits. It runs the gambit.
15 But our pension audits and our liquid fuels audits,
16 those are pure financial audits.
17 REPRESENTATIVE PEIFER: So how do we
18 get -- I mean, obviously at the end of an audit, you
19 have your findings and everyone sees those findings.
20 How do you take that expertise that you're learning at a
21 school where they're doing something really good, you
22 know, there's just -- they've got a business manager,
23 school board administrators that really have business
24 background, business knowledge, they're doing things
25 that are innovative. But how do we get that information 77
1 to other schools?
2 AUDITOR GENERAL DePASQUALE: It's a great
3 question. I have -- you know, it's why --
4 REPRESENTATIVE PEIFER: And you almost --
5 earlier you talked about forcing a mandate. I'm not
6 looking at forcing a mandate, but you were almost there
7 and then you were sidebarred with another question. But
8 how do we just share those cost savings or those
9 efficiencies with everyone throughout this Commonwealth?
10 AUDITOR GENERAL DePASQUALE: It's a great
11 question, Representative.
12 For starters, you know, I go out and
13 speak to a lot of school board associations and the
14 school administers association and try to help spread
15 that message that way. But I believe the real place to
16 make -- I'm just going to use schools for example. I
17 don't want to be unfair to the Department of Education
18 because they're not the only ones, but --
19 We share all of our audits, we get it to
20 the Governor's Office, Department of Education on
21 schools. Obviously, other audits go to different
22 locations. I believe the best place to get those
23 incorporated changes across the state would be to have
24 somebody in the Department of Education in a sense
25 that's tasked with reviewing each of the audits looking 78
1 for the consistent themes and then driving that change
2 at the departmental level. That would be the way that
3 that could happen in the most efficient way.
4 I joke around about making people follow
5 the audits. I actually don't support that because that
6 would be, in a sense, a dramatic shift in the balance of
7 power in Pennsylvania, getting everyone forced to follow
8 the Auditor General.
9 REPRESENTATIVE PEIFER: So you're saying
10 it's not your job, but there's someone in PDE that
11 really should be taking these audits and driving them
12 home?
13 AUDITOR GENERAL DePASQUALE: We are the
14 recommending agency. Their job is to then take what we
15 find and implement the change.
16 REPRESENTATIVE PEIFER: And my last
17 question, looking at hypotheticals, and I know that's
18 not what you do as an auditor. But on a macro basis, I
19 know we're caught on details here and your audits prove
20 detailed findings. The cost of savings to this
21 Commonwealth, we're sitting here talking to some of my
22 colleagues about the low energy costs. I mean that's
23 got to be saving our Commonwealth, I mean our schools, I
24 know it's saving our households money, but really the
25 price of gasoline is half. You know, the energy cost of 79
1 heating this building, heating our schools. I mean,
2 does anyone ever take a look at that? We've never heard
3 anyone come in here, the last several years and say we
4 saved a lot of money because we changed our heating
5 system or we have natural gas. We never hear that here
6 and it's got to be huge savings, especially in rural PA,
7 the area that I represent. I mean, diesel buses are
8 driving every day, you know, many, many lane miles, so
9 that savings has got to be pretty large.
10 AUDITOR GENERAL DePASQUALE: I can say
11 with 100-percent certainty that my team gets nervous
12 every time I'm asked to make a guess about finances, so
13 you can see there's probably a little bit of twitching
14 going on there.
15 We found 111 million in three years. I
16 can guarantee you the number is higher as to what could
17 actually be saved through better operations, more
18 effective reimbursement processes, a whole host of
19 things.
20 What does that actually get you to? It's
21 a great question. I don't really know, but I know it's
22 higher than 111 million.
23 REPRESENTATIVE PEIFER: Well, I think the
24 most important thing is -- my colleague, Mark Mustio,
25 talked about public confidence and that's probably what 80
1 we're here for. And that's what you said initially. I
2 mean, it's all about public confidence and if there's
3 another $100 million out there that needs to be saved or
4 sitting in the bank accounts before they vote for a tax
5 increase, you know, that doesn't give us all a warm,
6 comfortable feeling here.
7 Along those lines, I know Representative
8 Quinn talked about benefits. School consolidation, has
9 there been any -- you know, my schools consolidated in
10 the '60s so, you know, we've seen that. I mean, is
11 there any talk about that and is there any savings that
12 you know of within those parameters?
13 AUDITOR GENERAL DePASQUALE: When we
14 audit school districts, we look at the district itself.
15 The 40,000-foot view of can school consolidation save
16 any money, we've never undertaken that.
17 I am sure that there would be a way to
18 get some administrative savings by consolidating some
19 administrative functions.
20 I have personally never been a supporter
21 of combining districts, but I have been a supporter of
22 combining some administrative functions, whether it be,
23 you know, health-care contracts for benefits for
24 teachers or shared pulling of buying football equipment,
25 band equipment, items like that. That I do think that 81
1 there is merit to that. I have never personally been a
2 supporter of actually combining the districts, but
3 beyond that, it is a topic that, you know, comes up a
4 lot.
5 I just want to say that I, in my audits
6 of the districts, don't think you can automatically save
7 money just by going to a countywide system for example.
8 I think there would probably be a sweet spot as to what
9 the size of the district would be and also depends on
10 what part of the state you were in.
11 For example, in the more rural parts of
12 state, combining districts could balloon transportation
13 costs. You may make an argument that in some of our
14 urban districts, the districts are too big. So in
15 there, there's probably some districts that are in my
16 view -- would be certainly too small. But I think where
17 we can find the common ground is working on the
18 administrative waste that we can work on without
19 combining the districts and get into that political hot
20 potato that is almost a never-winning battle for
21 anybody.
22 REPRESENTATIVE PEIFER: You know, some of
23 these, like you say, these 10,000-foot ideas from a
24 macro level could really help us. You know, and like
25 you're doing the details and we appreciate what you're 82
1 doing, but there's got to be ideas and cost savings out
2 there through these efficiencies that we could do on
3 that level as well.
4 So, Mr. Chairman, thank you.
5 And, General, thank you for being here.
6 AUDITOR GENERAL DePASQUALE: Thank you.
7 MAJORITY CHAIRMAN ADOLPH: Thank you,
8 Representative.
9 Representative Rozzi.
10 REPRESENTATIVE ROZZI: Thank you, Mr.
11 Chairman.
12 Good afternoon, General.
13 AUDITOR GENERAL DePASQUALE: Good to see
14 you, Representative.
15 REPRESENTATIVE ROZZI: Absolutely. Thank
16 you for your leadership.
17 What I heard you talk about today was
18 cost saving measures, you were using your resources
19 wisely, everything that my constituents like to hear
20 about efficient government. But I also heard you talk
21 about the lease reimbursement payments for the charter
22 schools.
23 If you take that number and you take the
24 actual expense payments that we should be paying the
25 charter schools instead of what we are giving them, how 83
1 much money could we save our state?
2 AUDITOR GENERAL DePASQUALE: It
3 fluctuates district by district, charter school by
4 charter school, but what we have found in our audits is
5 about half of the charter schools have what we have been
6 referring to as improper lease reimbursements. If that
7 percentage were to play out among every charter school
8 in the state, you're talking up to tens of millions of
9 dollars, but statistically speaking, that's a
10 possibility that would exist. I'm not here to tell you
11 that because we haven't audited every charter school yet
12 that that's the actual situation. But about half the
13 charter schools we audit to this point in my term, we
14 have found improper lease reimbursements with no effort
15 by the Pennsylvania Department of Education to recoup
16 that money.
17 REPRESENTATIVE ROZZI: Thank you,
18 General.
19 MAJORITY CHAIRMAN ADOLPH: Thank you.
20 Representative Seth Grove.
21 REPRESENTATIVE GROVE: How are you this
22 afternoon?
23 AUDITOR GENERAL DePASQUALE: I'm doing
24 splendid.
25 REPRESENTATIVE GROVE: You're doing a 84
1 wonderful job.
2 So to kind of follow up on your potential
3 audit, looking at the Governor's impasse, looking at it,
4 some highlights of some areas you can start on. I would
5 start on the waivers. They provide a good financial
6 outlook at the administration's spending moving forward.
7 There are areas of PDE spending on furniture, new
8 furniture purchases during the impasse. Department of
9 Agriculture wanted to facilitate a study on domesticated
10 animals, you know, started it up. Just --
11 AUDITOR GENERAL DePASQUALE: By the way,
12 it's probably not on camera, but my team is writing
13 furiously. If you can't see that on camera here.
14 REPRESENTATIVE GROVE: I see that. Dan
15 is -- I'm very excited about this.
16 The Department of Revenue Secretary sat
17 there yesterday and when I asked her about the waiver
18 they applied that was supposed to implement the
19 Governor's tax increases of last budget, $10.2 million,
20 they weren't sure how much of that was spent. Obviously
21 there weren't any tax increases, so where's that money
22 going? So it's loaded with those kind of errors.
23 Especially when, you know, looking at the overall
24 spending compared to PennWATCH -- about $30 billion of
25 spending, $4 billion was on PennWATCH. 85
1 So trying to match up spending with
2 what's out there in financial transparency to try to
3 figure out where we're at with the budget, how much
4 money is being spent and try to reconcile the
5 expenditures with the budget that was passed and
6 everything that that entails. It's very difficult to
7 unwind that without a good financial picture of where
8 we're at.
9 AUDITOR GENERAL DePASQUALE: On the
10 PennWATCH, for example, that system needs to be
11 improved. I think they're trying to work to get the
12 kinks out. I don't think it's anything malicious, but
13 for example, there was one point where -- about two
14 months, it had our total spend number for the year in
15 our department was 29,000. Well, obviously somebody
16 just entered -- it wasn't intentional, they just entered
17 something wrong there because almost putting that in
18 makes it -- flags it. There's something wrong.
19 That system needs to get better. It's a
20 great tool. We use it ourselves a lot to try to gather
21 information. It's something that in today's day and
22 age, the taxpayers are demanding that level of
23 accountability, but it needs to get better. And
24 hopefully, I do believe they're trying to fix it. But
25 that's one example where I just know that it's often 86
1 time -- which defeats the purpose of having it.
2 REPRESENTATIVE GROVE: Yeah. So I
3 appreciate you looking at that.
4 One other thing I want to highlight, we
5 spent a lot of time today, both parties, you, talking
6 about cost savings, the Governor talks about cost
7 savings, the Senate talks about cost savings. If we're
8 looking to start closing out the '15-'16 budget, moving
9 forward with '16-'17, we're all talking about the same
10 thing, but it's not coming together. How do we get
11 everybody talking about cost savings on the same page to
12 maybe start working on those functions in a
13 bipartisan -- and continue building?
14 Like, there's a lot of trust between the
15 general assembly and your office. You're transparent,
16 you're honest, you're open, you're accountable, you're
17 accessible, you provide good data, and you back that up.
18 How does that translate moving into -- the Governor's
19 administration and the general assembly continue to try
20 to get that same relationship and something we are all
21 --
22 AUDITOR GENERAL DePASQUALE: Right.
23 REPRESENTATIVE GROVE: I mean, we're all
24 talking about it, but it's being missed.
25 AUDITOR GENERAL DePASQUALE: 87
1 Representative, it's a great question, as to how
2 everyone could be talking about the same thing and
3 nothing gets done on it. There are those moments where
4 you understand how the average person, whether they be
5 liberal, moderate, or conservative with very different
6 views of the world and social issues and priorities, can
7 get incredibly frustrated in Harrisburg and Washington,
8 D.C., and this would be one of them.
9 You know, look, there's some issues where
10 there's just going to be an agreement to disagree. We
11 know some social issues, there's just bridges there
12 that, you know, I'm not going to ask anyone to
13 compromise their philosophical or moral views and I
14 would ask that no one do that to me. We would just have
15 a fair discussion about that.
16 But on this issue in particular, I don't
17 think saving -- I don't know that anyone is ever morally
18 opposed to saving money. So this is incredibly
19 frustrating that there isn't at least a meeting of the
20 minds on this one.
21 As to why that doesn't happen, the best
22 thing I can throw on the table is, and I don't often
23 quote Newt Gingrich, but when he said if you don't worry
24 about who's going to get the credit, it's amazing what
25 can be accomplished. 88
1 REPRESENTATIVE GROVE: Amen. Thank you.
2 Thank you, Mr. Chairman.
3 MAJORITY CHAIRMAN ADOLPH: Thank you,
4 Representative.
5 Representative, Sue Helm.
6 REPRESENTATIVE HELM: Thank you.
7 And, General, it's great to see you here
8 today.
9 AUDITOR GENERAL DePASQUALE: Great to see
10 you, Representative.
11 REPRESENTATIVE HELM: My question has to
12 do with an Act 146 waiver that was approved for your
13 department on July 16, 2015. It was waiver 1510. The
14 waiver applied to all commitments and available balances
15 for the Auditor General's Office and your office's
16 information technology modernization for both 2013 and
17 '14-'15. Approximately what was the amount of money
18 that was not lapsed and what specifically were the funds
19 used for?
20 AUDITOR GENERAL DePASQUALE: We have
21 about -- right now it's roughly about seven million that
22 has been rolled over that in a sense has been waived to
23 allow us to use into the next fiscal year, which
24 obviously we are in now. We anticipate, at the end of
25 this fiscal year, that that number will go down to about 89
1 $6 million. And most of that money has been used for IT
2 upgrades because sometimes contracts extend out or when
3 the payments schedules are done, when the work gets
4 completed, and also for when people need new computers.
5 So there's a host of issues that go with that as to the
6 why, but that's the rough amount.
7 REPRESENTATIVE HELM: All right. Well,
8 thank you and I do appreciate your obvious dedication
9 and commitment to your job.
10 AUDITOR GENERAL DePASQUALE: Thank you.
11 Thank you, Representative.
12 MAJORITY CHAIRMAN ADOLPH: Thank you,
13 Representative.
14 Representative Jim Marshall.
15 REPRESENTATIVE MARSHALL: Thank you, Mr.
16 Chairman.
17 Good to see you, General.
18 AUDITOR GENERAL DePASQUALE: Always a
19 pleasure, Representative.
20 REPRESENTATIVE MARSHALL: Really just I
21 want to say thank you for your leadership and your work
22 ethics. I think you've done a great job.
23 AUDITOR GENERAL DePASQUALE: Thank you.
24 REPRESENTATIVE MARSHALL: I'm curious
25 about the scope of what your department can do. I know 90
1 you've talked today about the school districts,
2 municipalities, and nonprofits. My question is in
3 Pennsylvania, municipalities have created authorities --
4 water authority, sewer authority, airport authority --
5 do you have the authority to audit them?
6 AUDITOR GENERAL DePASQUALE: The short
7 answer, unless they receive state money, is no.
8 The number one complaint my department
9 gets that we can't do anything about are the sewer and
10 water authorities at the local level. There is not a
11 week that goes by that somebody isn't offering what --
12 again, because we don't have, no pun intended, authority
13 to look into it to know whether it's justified or it's a
14 real complaint or not -- it's a real complaint, but
15 whether there's merit to it or not. My sense from all
16 the complaints that have come in since I've been Auditor
17 General on this topic is that it's hard to imagine some
18 of them not having merit.
19 And so one of the things that I have
20 recommended. And I think Senator Ward is introducing
21 legislation in the Senate, certainly welcome to work
22 with the House on this issue -- is granting me the
23 authority to audit these local authorities. I do
24 believe it is important that somebody, whether it be
25 myself or some other independent elected office, have 91
1 the ability to do that and I can guarantee that if we
2 have that ability that we will begin those audits
3 immediately.
4 REPRESENTATIVE MARSHALL: Thank you.
5 I'd like to work with you on that. I
6 think it's essential that the taxpayers and rate payers
7 of Pennsylvania know that their hard-earned dollars are
8 going -- well spent.
9 AUDITOR GENERAL DePASQUALE: Absolutely.
10 REPRESENTATIVE MARSHALL: Thank you.
11 AUDITOR GENERAL DePASQUALE: I agree
12 100 percent.
13 REPRESENTATIVE MARSHALL: Thank you, Mr.
14 Chairman.
15 MAJORITY CHAIRMAN ADOLPH: Thank you,
16 Representative.
17 Auditor, thank you so much for appearing
18 before this committee today.
19 AUDITOR GENERAL DePASQUALE: Thank you,
20 Mr. Chairman.
21 MAJORITY CHAIRMAN ADOLPH: I'll just echo
22 many of the members statements, we do appreciate the job
23 that you and your entire staff is doing for the
24 Commonwealth of Pennsylvania. I will keep in mind your
25 quote. First thing you would do is, you would turn the 92
1 canoe back over and get back into it, okay. I will
2 remember that quote because I have said numerous times
3 during the budget impasse, the art of the possible,
4 okay, and I agree with that terminology 100 percent.
5 The Newt Gingrich quote was something
6 that I didn't expect from you, certainly --
7 AUDITOR GENERAL DePASQUALE: You weren't
8 the only one that didn't expect it.
9 MAJORITY CHAIRMAN ADOLPH: I do
10 appreciate your honesty and your hard work. And your
11 opening statement is you're doing more with less and,
12 you know, I think that does help the public trust and
13 because we do have some tough decisions to be made --
14 and I believe there is a middle road to this impasse.
15 And hopefully, maybe Newt Gingrich's quote will start to
16 resonate throughout this Capitol. Thank you.
17 The next hearing will be at 2:30 with the
18 judiciary.
19 AUDITOR GENERAL DePASQUALE: Thank you,
20 everyone.
21 MAJORITY CHAIRMAN ADOLPH: Thank you very
22 much. Thank you.
23 (The hearing concluded at 1:35 P.M.)
24
25 93
1 C E R T I F I C A T I O N
2 I hereby certify that I was present upon the
3 hearing of the above-entitled matter and there reported
4 stenographically the proceedings had and the testimony
5 produced; and I further certify that this copy is a
6 correct transcript of the same.
7
8 Dated in Lebanon, Pennsylvania this 22nd day
9 of March 2016.
10
11 ______12 Summer A. Miller, Court Reporter Notary Public 13
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