COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES COMMITTEE ON APPROPRIATIONS

[n re: 2000-2001 Appropriations Hearings Department of Community and Economic Development

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Stenographic report of hearing held in Majority Caucus Room, Main Capitol Harrisburg, Pennsylvania

Monday March 6, 2000 10:00 a.m. iON. JOHN 2. BARLEY, CHAIRMAN Ion. Gene DiGirolamo, Secretary ton. Patrick E. Fleagle, Subcommittee on Education Ion. Jim Lynch, Subcommittee on Capitol Budget Ion. Ron Raymond, Subcommitee on Health and Human Services ton. Dwight Evans, Minority Chairman

MEMBERS OF APPROPRIATIONS COMMITTEE

Ion. William F. Adolph Hon. Steven R. Nickol Ion. Matthew E. Baker Hon. Jane C. Orie Ion. Lita I. Cohen Hon. Joseph Preston, Jr. Ion. Craig Dally Hon. William Russell Robinson Ion. Teresa E. Forcier Hon. Samuel E. Rohrer ton. Dan Frankel Hon. Stanley E. Saylor ton. Babette Josephs Hon. Curt Schroder ton. George Kenney Hon. Edward Staback Ion. Frank LaGrotta Hon. Jerry A. Stern ton. John A. Lawless Hon. Stephen H. Stetier ton. Kathy Manderino Hon. Jere L. Strittmatter ton. Phyllis Mundy Hon. Leo J. Trich, Jr. Ion. John Myers Hon. Peter J. Zug

Uso Present: Aichael Rosenstein, Executive Director Reported by: Dorothy M. Malone, RPR

Dorotn4 M. M-l one Registered Professional Reporter 135 S- LanJis Street Hummelctown, Pennsijlvania 17036 \/ Also Presnt; (Cont'd)

Mary Soderberg, Minority Executive Director Erik Randolph, Budget Analyst

Dorol^ M- Malone Registered Professional Reporter 135 S- LanJis S*i«et {—lummelstown, Pennsylvania 17036 CHAIRMAN BARLEY: Good morning everyone and I would like to call the 'hearing to order and ask the members to be seated. Those making presentations if they would take their places. This is the first day of the final week of our hearings. We have the Department of Community and Economic Development. I had to look at my agenda. The Department of Community and Economic Development will be the first department making a presentation today. We have Secretary McCullough with us. Before we begin the hearing I would like to provide an opportunity for the members to introduce themselves. I am John Barley, Chairman of the Appropriations Committee. I'm a Representative from Lancaster County. REPRESENTATIVE MUNDY: Phyllis Mundy from Luzerne County. REPRESENTATIVE JOSEPHS: Babette Josephs, Philadelphia County. REPRESENTATIVE LAGROTTA: Frank LaGrotta, Lawrence, Butler and Beaver Counties. REPRESENTATIVE FRANKEL: Dan Frankel, Allegheny County. REPRESENTATIVE MANDERINO: Kathy Manderino, Philadelphia County. REPRESENTATIVE PRESTON: Joe Preston, Allegheny County. REPRESENTATIVE ORIE: Jane Orie, Allegheny County. REPRESENTATIVE ROHRER: Sam Rohrer, Berks County. REPRESENTATIVE ADOLPH: Bill Adolph, Delaware County. REPRESENTATIVE FLEAGLE: Pat Fleagle, Franklin County. REPRESENTATIVE DIGIROLAMO: Gene DiGirolamo, Bucks County. REPRESENTATIVE NICKOL: Steve Nickol, York and Adams Counties. REPRESENTATIVE COHEN: Lita Cohen, Montgomery County. REPRESENTATIVE ZUG: Peter Zug, Lebanon and Dauphin Counties. CHAIRMAN BARLEY: Michael Rosenstein, my Executive Director is seated to my left. Mr. Secretary, welcome. SECRETARY MCCULLOUGH: Thank you, Mr. Chairman. CHAIRMAN BARLEY: We will now provide you an opportunity to make a presentation to the Committee and then I am certain that there will be some questions. SECRETARY MCCULLOUGH: Thank you, Mr. Chairman. Chairman Barley, distinguished members of the Appropriations Committee. It's a pleasure for me to appear before you today to discuss the Department's budget proposal for the coming fiscal year. It's a proposal designed to help us build upon the success of our investments in Pennsylvania. And it's a proposal designed to open a world of opportunity for Pennsylvania's businesses, communities and families. In the March 2000 issue of "Site Selection" magazine, Pennsylvania is ranked ninth among the top ten states for economic development, recording the highest total of new corporate facilities and expansions in 1999. This is the first time Pennsylvania has ever been ranked in the top ten, and is an unprecedented national recognition of everything that the General Assembly and the Administration has done to energize our economic development efforts. Together we have designed initiatives with clear and identifiable returns on our investments. The success of these activities are what Site Selection has acknowledged. We have invested heavily in the 21st century's largest industry, tourism, to generate jobs, position Pennsylvania in the global economy and decisively link our efforts to grow businesses and jobs with our commitment to improve the quality of communities. The rate of growth in our tourism industry has exceeded the national average for the last four years. We have focused on the most immediate force in job creation — export growth -- simultaneously building abroad and at home. We are going from 3 to 17 foreign offices that now span every major market in the world. These offices are linked electronically with video conference capability to our ten regional export networks. Literally, no Pennsylvania business need travel more than 100 miles to reach any market in the world. Last year, our foreign offices generated $65 million in new business for Pennsylvania companies. We have diversified our financing programs to meet the needs of a changing economy. While manufacturing is still a primary target, we now fund tourism and service operations, even day care businesses. This realignment has created an arsenal that I believe 7

is far more strategic and effective. For calendar year 1999, these programs had a direct impact on over 120,000 jobs and generated a ten to one leveraging of private investment. With brains more valuable in today's world than bricks and mortar, we have tripled our investment in business focused job training and made it easier to access and use in real time. Our guaranteed free training program, which operates as a partnership with the State System of Higher Education and community colleges, has taken the hassle out of accessing training and so far has trained over 20,000 workers at a cost of less than $500 per trainee — a far bigger bang for the buck in this most critical of investments. We have undertaken bold initiatives to invest in the economy just now taking shape. Our first critical action has been to create new tools for investing in technology. We have partnered with the state pension funds to improve the availability of venture capital to create new businesses. Since the Tech 21 Report was issued with its Clarion call to invest in the new economy, this partnership has helped establish $400 million in new Pennsylvania focused venture funds. Last year, I spoke to you about the Pennsylvania Technology Investment Authority and the necessity of accelerating E-Commerce use among Pennsylvania businesses and citizens, investing in technology jobs and creating more flexible structures to meet the financing needs of knowledge based companies. I'm pleased to report that PTIA is helping us meet the challenges of the new century. In half a year's time, it has made investments in companies that will lead to over 7,000 technology jobs, and, it has funded initiatives that will bring cutting edge internet technologies to nearly 50,000 Pennsylvanians. We have also worked to change the focus of community development. We have sought to move from merely funding places to focusing on empowering people to change the places where they live. The common goal of all our actions in this empowerment focused approach to community development is to better link disadvantaged neighborhoods and communities to the new economy by emphasizing enterpreneurship and strategic planning. The flagship of this effort is the KOZ Program we created together. This program has been called the best tool for neighborhood rebuilding in the nation. In its first six months over 3,000 jobs have been created. It took the State of Michigan — the only state with anything close to KOZ's — two years to reach that level. Our broad-based project on community building has also been at the forefront of the trans­ formation of community development. It is the largest effort of its kind in the nation and it is designed to shift the focus of Pennsylvania's efforts from providing grants and loans to creating tools that enable families and communities to shape their own future. Finally, no effort to transform communities in Pennsylvania could be effective without engaging local governments in a true partnership. The Center for Local Government Services has given us that partnership. The center has fundamentally changed the nature of our relationship between the state and local governments as evidenced by its efficiency in delivering services and the overwhelmingly positive feedback from local officials. With your help and support, we will extend our investment in the jobs of the future. We will continue to build new foundations on the solid ground of our communities. And, we will continue our quest to make Pennsylvania the most customer-friendly, friction free state in the nation. Thank you again, Mr. Chairman, for the opportunity to appear here today. I'd be pleased to answer your questions. CHAIRMAN BARLEY: Thank you very much, Mr. Secretary. I now recognize Representative Cohen to ask questions. REPRESENTATIVE COHEN: Thank you, Mr. Chairman. Good morning, Mr. Secretary. SECRETARY MCCUILOUGH: Good morning. BY REPRESENTATIVE COHEN: Q I wanted to talk to you about the Ben Franklin Fund. We are, and I congratulate you on your investment and promotion of PTIA and also the Ben Franklin Fund. What we are hearing and what I would like to know how do we clear any impediments to the Ben Franklin Fund in providing its funding more quickly? We have been told that sometimes there is a three and four month lag to get funding to the start-up businesses. Is there any way that we can, number one, put more money and I did see there is almost a six percent increase in the funding to Ben Franklin. But how do we get them to act more quickly and fund these emerging companies more efficiently and more quickly?

A Representative Cohen, in fact, we have proposed a $2.2 million increase in the funding for Ben Franklin in this budget. There are four separate organizations, as you know, as well as a statewide Ben Franklin Board. So that decisions do really get made at that, level. I believe personally as far as Ben Franklin is concerned and lots of other programs that we have at DCED that we need regional and local input for all the decisions to get made. We have a relatively small staff at DCED compared to other states. So we need to use the economic development professionals around the state and there are some 300 of them that we use and these decisions sometimes do take time. And I believe that though, while on some occasions the time that is taken is a little bit more than we would like to see, but I would still like to see decisions made at the local level. We have created a couple of other boards and organizations to supplement what Ben Franklin does, including the PTIA Board, which is now meeting monthly. And the reason for that is that the kind of businesses we hope to establish through Ben Franklin projects as well as PTIA investments have to move quickly. So we are meeting once a month. PTIA, because time to market is critical for companies and businesses that are trying to get a new piece of software or new product to market. So I share your concern and we are doing everything that we can to make them move as fast as we can. We are trying other ways to make that happen. But I still firmly believe that those decisions need to be local first. REPRESENTATIVE COHEN: Thank you, Mr. Chairman. Mr. Secretary, I have no further questions. BY CHAIRMAN BARLEY: Q Mr. Secretary, just a brief follow up, and then I think particularly some of the high tech companies that we are really very aggressively attracting, the generations are so short in technology that I think that is an example of an area. I know Representative Cohen and several members of our caucus hosted a luncheon a few weeks ago where we had representatives from the high tech industry, and that was a concern that they expressed. Competition is so fierce in that industry and delays of 30, 60 days or so can really mean the difference of survival or not. Again, you being in the private sector, particularly banking, understand how import - ant is is for a loan committee to get back with an answer because competition is knocking at your door. And the ones that linger and competition wasn't interested in, you probably aren't too interested in that either. So, again, I think this is something government really needs to work hard and to improve and improve that delivery. I just want to reinforce the position Representative Cohen put to you. A And Mr. Chairman, I couldn't agree more. It is getting to be a more and more significant issue. So speed and time to market is very critical to us. One of the things that we hope to have done this summer is to in fact bring our single application for assistance on line. So that even bringing something into the Depart­ ment can be done via the internet as opposed to paper. So, we are working on a lot of things to try to make that happen and make speed to market happen for Pennsylvania business.

We have so much through our research universities of intellectual property that hasn't been commercialized that it is one of my personal objectives to make sure that we can make as many of those things happen as fast as we can. Q Thank you. One other item I just want to bring to your attention, in this case, a positive, complimentary. We had requested from your Department some information, our staff people when they were preparing for the hearings made requests, and I just want to commend you on not only, again, the speed with which they responded but also the volume of material and the depth in which they responded, the quality of the material. It was done very well. There were some years in the past when we felt that maybe it was a bit scant and we don't always thank you as we should or commend you maybe as we s,hould when the opposite was the case. But this year I commend your staff, your deputies and your staff for very adequately supplying us with material that we requested in preparation for the hearing. A Thank you, Mr. Chairman. I am sure my staff appreciates that comment as well. Thank you. CHAIRMAN BARLEY: I now recognize Representative Mundy. REPRESENTATIVE MUNDY: Thank you, Mr. Chairman. BY REPRESENTATIVE MUNDY: Q You referred in your remarks, Mr. Secretary, to the Site Selection Magazine in the March 2000 issue ranking us ninth among the top ten states for economic development and I commend us for that. But I guess I would look at another indicator which would be the 1999 Development Report Card for the states by the Corporation for Enterprise Development. And actually in some categories we did very well with that indicator. We had an A for business vitality and development capacity. We continued a five-year trend of C grades overall and despite solid Bs in nearly every subcategory, Pennsylvania's overall performance continues to be hampered by an F showing among the employment indices. I mean, I am one of the first people to say .there is no magic bullet for economic development. It is a very difficult competitive area of government. How do we stimulate economic development without providing jobs ourselves? We need jobs in the private sector. We don't want to be creating new jobs in government. But I am very troubled by some of the rankings that I saw there. Forty-fifth for mass layoffs; 47th for long-term employment growth; 38th for short-term employment growth; 31st for unemployment rate and we continue to see young, bright people leaving our state. Have you looked at those rankings and can you address some of those areas, the long-term employment growth, the short-term employment growth and the unemployment rate? And I am from the northeast and I think we lag behind other sectors, other regions I should say in Pennsylvania. What are we doing wrong? What can we do better, because obviously we need to do better than we are doing now?

A Representative Mundy, I share some of your concerns, particularly in certain parts of Pennsylvania, although the state as a whole rank now has an unemployment rate of four percent which is about as low as we have seen in probably nearly 30 years. And most areas of Pennsylvania have improved in terms of the unemployment rate. As I look at statistics, and I have read and studied the statistics to which you referred, and we get those frequently along with lots of other statistics. Just this last week we received information on job creation in Pennsylvania which shows us growing at net 89,000 jobs in the state for the year 1999. And that puts us in a ranking of number seven in the country. In fact, the only state in the northeast that produced somewhat better numbers than Pennsylvania did was the State of New York and those numbers, they showed a 2.2 percent job growth on a job base of 8.4 million jobs. Pennsylvania showed 1.6 percent job growth on a base of 5.5 million jobs. So, our numbers in a state like this I think look pretty good and I think look better than they have looked in some time.

And of course, our emphasis is to try to create jobs that are high paying jobs, particularly in areas related to technology. Depending upon which numbers you use, we now have about 160,000 technology jobs in Pennsylvania and those jobs pay salaries that are typically better than salaries that might have been paid in the steel industry in comparable terms when the steel industry was doing as well as it is. So we have had to change our focus. The numbers, 89,000 jobs in Pennsylvania in 1999, net new jobs I think is a pretty good number and I really — Q Do we have any indicators, I mean, you talk about some high tech jobs that are good paying. Do we have any breakdown of those 89,000, what regions of the state they are in, what are the salaries generally among all the 89,000? Are some of them pretty well paying jobs? A I am sure some of them are. In fact, we attracted a number of what are called big boxes in Pennsylvania. One which is in your general geography, the Lowe's operation. That I believe is about 600 jobs and the average pay there is probably in the $12.00 an hour range. Obviously, much better than minimum wage, not high tech level kinds of wages and we have attracted a number of those kind of companies and a number of call centers to Pennsylvania which we believe creates jobs that are good starting points. People learn to use a computer at a call center. We believe it gives them an opportunity to expand their capabilities. So, while those are relatively low paying jobs, they are good jobs that I think have potential.

Even in the fast food area we frequently get a lot of questions about that. We had people in recently who represent Taco Bell and a couple other related businesses. You can actually, In a relatively short period of time become a manager of one of those stores .at 60 or $70,000 a year. So fast food is not necessarily a bad thing. And to answer your question specifically, we do have numbers on where those 89,000 are. It is technology focused. I don't have in my head what all of them are but we will be glad to provide the Chairman with that detailed information. REPRESENTATIVE MUNDY: That would be very interesting. May I have another round please, Mr. Chairman. CHAIRMAN BARLEY: Okay. I now recognize Representative Adolph. REPRESENTATIVE ADOLPH: Thank you, Mr. Chairman. Good morning, Mr. Secretary. SECRETARY MCCULLOUGH: Good morning. BY REPRESENTATIVE ADOLPH: Q I want to first compliment you on what I think has been an outstanding job your Department has been doing over the last couple of years. I have questions — I am from Delaware County. When the Philadelphia Navy yard closed many of my constituents, as a matter of fact, a couple of my family members lost their jobs. I supported the Administration's effort to bring Kvaerner to Philadelphia. It has been rumored or reported that the shipyard will be opening up in the spring of 2000. However, we also are aware that Kvaerner has announced it is closing its shipyards all over the world. I have two questions. Are you involved in negotiating with prospective buyers? That is question number one. Question number two, how is the state's investment in this project protected? A Let me respond to your first question first, Representative. We have created a company called the Philadelphia Shipyard Development Corporation with a Board of Directors and there are five members of that Board of Directors, including myself, Secretary Gary Crowell from General Services, Manney Samatoukas (phonetic), who is Chairman of the Port Authority, Mike Acker from the Department of Labor and Industry and Bill Hankowski (phonetic), who's President of Philadelphia Industrial Development Corporation. That board meets on a regular basis to review everything that is going on with respect to the shipyard. We are in the final stages of the construction of the yard. I fully anticipate that the first ship will be under construction April 1st this year. A steel order has already been placed with Bethlehem Steel. That steel will be produced in Pennsylvania. There is a master agreement under which Kvaerner is responsible for not only building ships but the. construction of the yard, the construction of the paint shop, the construction of everything related to what it is going to take to actually produce ships, including a requirement that they build at least three ships themselves. There is no question that the parent company has decided to exit the ship building business and they are attempting to sell their shipyards all over the world. If I am correct I think they own 13 of them. I have visited the one in Germany, Old East Germany, right before we made the decision to come back to the General Assembly to ask for funding to rebuild the shipyard. We have one potential buyer at the moment who is continuing to do due diligence on whether or not it will purchase the Philadelphia yard. If they do not, I am still of the strong opinion that the master agreement requires Kvaerner to continue to do what that agreement says it must do. And they have shown in no way any reason for action that would preclude that from happening. I am concerned because clearly we made our deal with them. But if a potential buyer materializes I am satisfied that we will have somebody who will build ships in the yard. The employment there, the direct employment there now is about 300, some of whom are former Philadelphia naval shipyard workers. We expect that that number will rise to the 1500 range on a direct job basis. More importantly or as importantly I guess I should say, the supplier network has now been developed and I believe that considerably more jobs will emerge as a result of this network. So far, roughly, 75 percent of those suppliers are Pennsylvania based companies. So, it has some long-term economic development implications that are considerably more important than just the direct jobs that I think will ultimately appear there. Q The three ships that they must build, how long of a period is that? A That is probably a couple of years. The ships are huge. They are cargo and container ships and oil tanker kind of ships. The real issue here is what is the world market for these kinds of vessels. And the good answer to that the Jones Act, the federal act, requires — has ships that are operating around the world now based in the U.S. that need to be replaced. And that is really where the market is for Kvaerner or whomever replaces Kvaerner as the operator of the yard. And we believe there are orders out there. We are looking at a couple potential orders right now. They have not actually signed-documents yet, but I have some level of confidence that they will, and that the shipyard, if you haven't seen it, it would be useful for all of you to take a look at what has happened there because it is really just about ready for the April 1 starting date. REPRESENTATIVE ADOLPH: Thank you very much. SECRETARY MCCULLOUGH: Thank you. CHAIRMAN BARLEY: I now recognize Representative Josephs. REPRESENTATIVE JOSEPHS: Thank you, Mr. Chairman. Welcome, Mr. Secretary. BY REPRESENTATIVE JOSEPHS: Q Speaking of April 1, I have some questions about the census and then I have some questions about cyber start. If we don't get through them, Mr. Chairman, I will request a second round. I have seen all the strategic plans for the census. I mean, I have read through a lot of shiny material and all of that kind of stuff. It seems very impressive. However, we are three weeks off for something like that before April 1st which is Census Day and I understand that even indeed the forms are in the newsletter as we speak and all of us should be expecting to get them in our houses very soon. I am a fairly alert person. I don't watch TV a lot. Although I haven't seen an ad on TV. I listen to the radio. I haven't heard any kind of ad on the radio. I live in an inner city neighborhood, right on the street, nothing has come through my door. I haven't seen anything in the papers of daily circulation in my city or in the weekly circulation papers. And as a matter of fact, well, the most publicity I have seen is your plan or the secondmost positive publicity I have seen is my own newsletter which I sent out several months ago,which had more information about the census than any other publication I have seen except for the federal one. It certainly has more information than anything I have seen from the state. So, I have questions about where your record is? What has been happening? What are you doing to target communities that are usually undercounted, different language communities, different cultural communities, people living in poverty and how are you going to make sure every single Pennsylvanian gets counted? I Because if you don't, you and I both know we will not get — we will not only not get federal money that we need but our businesses, who you are trying to make more vd,tal, aren't going to be able to plan because they are not going to have good numbers in order to plan from. A Thank you. The census forms actually are going to be mailed March 13th to March 15th and are to be returned by April 11th. March 17 is Pennsylvania's Census Day. So there will be an awful lot of publicity, advertising, media blitz, blast faxes and there will be radio and television and print advertising surrounding all of that. As far as languages are concerned I believe if I am correct, we will be sending out the forms in six languages. Yes, questionnaires will be in six languages with 37 additional language guides. So that there will be a total of 43 different language possibilities. The six languages will include English, Spanish, Korean, Chinese, Vietnamese and Tagalog (phonetic) which is a Philippine language. But all of these can be translated into 37 additional languages, including German, Italian, Russian and many others.

There will be 500 separate centers around Pennsylvania to help people with questions on how to fill out the questionnaire. Q It would be very helpful to me if you would distinguish between what the feds are doing and what we are doing. I don't have any input into the feds. X am only interested in what we are doing. A What I am describing is what Pennsylvania is doing. Q We have done the forms in different languages. That didn't come from the national government? A I am not sure of the answer to that question. They may have come from the federal government. I'm sorry, I don't know the answer to that question, but they are available to us in all the languages that I have described. And what we have done in the last year, through the Center for Local Government Services headed by Kim Koon, have created I hope the environment that is going to give us the opportunity to count every Pennsylvanian. As you know, Representative, we estimate that Pennsylvania lost about $750 million of federal funding because we didn't count 75,000 Pennsylvanians in the 1990 census. So, we are working much harder and much more diligently to make sure that we do. And these funded programs are important programs; child care. There are lots of new programs that we lost money on.

So, we were given the challenge by the Governor and we think that we have done a good job in getting ready, but we, all of us, have to make sure that we. spread the word as well as you have done in your newsletters. REPRESENTATIVE JOSEPHS: Thank you. Mr. Chairman, I'd appreciate another round. I have another subject. CHAIRMAN BARLEY: I now recognize Representative Rohrer. REPRESENTATIVE ROHRER: Thank you, Mr. Chairman. BY REPRESENTATIVE ROHRER: Q Mr. Secretary, sometimes we ask questions we have the answers to them already. In this case, I don't have an answer to this question, so that is why I am asking here. I notice that in the budget prepara­ tion put together that there are numerous monies including 16.3 million in there for tobacco settlement funds that are earmarked for venture capital purposes. Could you explain what type of a — how does the venture capital aspect work for us as a Commonwealth? I mean, are we hold­ ing ourselves out as a bank where we are providing funds or that type of thing?'-» What continuing obligation then do we have or obligated to or whatever when the monies are invested with somebody? Just explain to me how the whole thing works? A Well, it works in a variety of ways. I mentipned in my opening comments we have put together approximately $400 million in "«w venture capital funds for we hope all Pennsylvania related things. I can't sit here and say I expect all 400 million to the dollar will go into new Pennsylvania businesses. But they have taken a variety of forms. Speaking first to the tobacco settlement, obviously, the General Assembly will determine how all of those funds are going to allocated, what the Governor has proposed and we support these 16.3 million dollar fund, venture capital fund, which,represents, as I. recall the numbers, is about five percent of total settlement to be used for health related venture capital purposes in Pennsylvania venture capital opportunities.

We created last year the Early Stage Partners Fund, a $50 million fund which included $10 million appropriation, about I think $20 million from the state pension funds and $20 million of private money. That fund of $50 million managed by Safeguard Scientific, a Pennsylvania venture capital management company. That fund if now full. I have forgotten a number of investments that were made, something in the mid-20 range, 20 separate venture capital investments, Pennsylvania related companies. Now, what happens to our $10 million portion of that and the pension fund $20 million portion of that depends upon the success of ventures in which investments were made. If they are successful, hopefully that will bring money back into that same fund for future use so that additional appropriations aren't required. In fact, the second stage of that fund is now starting and no appropriations were requested. It was so successful. In addition to that, we have in this budget a three million dollar item in the TEAM Pennsylvania portion of the budget for a venture fund allocated principally to western Pennsylvania venture activities. The same thing, if successful investments are made, obviously a return is made on that investment and additional funds will be made available for future venture investment. Another one that I really need to mention is a company called Red Leaf, which is a Silicone Valley, California based venture capital fund. It has brought $150 million of — excuse me, can somebody help me with that number, the Red Leaf number? I think it is a $50 million fund, but Red Leaf moved its northeastern United States operation to Pittsburgh and brought $50 million of new venture funds for that purpose. In addition, a new firm called Cross Atlantic Ventures was started in Philadelphia. That is a $150 million venture fund which will be used to help some Pennsylvania companies do transactions and deals with cross Atlantic partners in the United Kingdom and Europe. So hopefully, what happens as new companies get created, they get the early stage venture capital funding. We believe that there are incredible numbers of new opportunities for venture capital funding as a result of the research that goes on at Carnegie Mellon, Pitt, Penn State, Lehigh and we want to take advantage of that. Q Is it your intent that these funds once created become perpetual and revolving? A In the case of the Early Stage Partners Fund, we asked for and you approved $10 million in the current fiscal year's budget. That has been used. We are not asking for any more in this fiscal year except for the three million dollar piece of the TPA line item. That would go to a western Pennsylvania fund. Beyond that, if these funds are successful, clearly there will be no request for an additional appropriation. Q One other question. Are you entering into any kind of ownership type relationship with any of these companies? A Well, the Commonwealth cannot be an equity holder .in these companies. We can make venture capital investments that can produce a return. We cannot be an equity holder. We can do things like warrants and options and the like, and hopefully, we'll get some return as I indicated earlier that will preclude the need for additional appropriation. However, having said that, venture capital investing is very risky. If one out of a number produces the desired result, it typically is a sufficient win to pay for all the ones that don't. That is what venture capital is all about. But there is, as I said, so much need for this and to take advantage of the intellectual property that has created our research universities and elsewhere that I think it is very important that we be prepared and have the resources to do it. And it really wasn't until recent years that Pennsylvania did. We lagged way behind the rest of the country, particularly Boston, Silicone Valley and other places, but I think we are getting there.

REPRESENTATIVE ROHRER: Thank you very much. SECRETARY MCCULLOUGH: Thank you. CHAIRMAN BARLEY: I now recognize Representative LaGrotta. REPRESENTATIVE LAGROTTA: Thank you, Mr. Chairman. BY REPRESENTATIVE LAGROTTA: Q Mr. Secretary, I want to revisit a topic that I broached with..'you and Secretary Bittenbender the other day when he was here. When Governor Casey was in office he had a half million dollars for his foreign trade partnership line item. This year your budget request is $7.6 million. It seems to me that if you look at the budget breakdown, well over half of that, almost $4.6 million is for operating costs. Now, I don't weekly have the breakdown on that, but it seems quite a bit of that operating cost is for travel expenses. I want to talk about the trip to Germany and London last year. I talked with Secretary Bittenbender and he indicates that he didn't have all the information.

An article in one of the newspapers after the trip last year indicated there were 23 employees of the Administration, including secretaries of secretaries and five security personnel. And I brought this up last week, someone back home on PCN saw it and one of the business people that was on the trip called me and wanted to know why the Governor's plane ticket was $5827. His plane ticket was $993.05. Can you help me with that?

A Where would you like me to start, the plane tickets or somewhere else? Q Take a pick. We have a couple rounds. Go ahead. A Well, clearly, I believe and I think the Administration believes that the foreign trade missions have produced the results that we desire. The costs that you refer to that are proposed for this year's budget are a total of $7.6 million for international activities. I personally have been on probably seven foreign trade missions in the nearly three years that I have been here. The Governor has himself led five or six. Each of them I think has produced more for Pennsylvania than these trips have cost. The Germany/ England trip I believe the newspaper account of that trip indicated the cost is slightly less than $300,000, $287,000 I think it was. The purpose of these trips is to find export business for Pennsylvania companies and to find companies in foreign countries that we are visiting who will invest in Pennsylvania. Q If I may, Mr. Secretary, because we only have five minutes, my question is why do we need 23 people including secretaries to attend these trips? What are their duties on these trips and why is the Governor's plane ticket six times more than the one of the .business people who traveled with him? A The business person chose to travel coach. The Governor flies business class. Q At taxpayers' expense? A Correct. And I fly business class. And if 1 didn't fly business class 1 would pay for it myself. I think it is appropriate that we fly business class on trips that are seven, eight, ten, 13, 15 hours long. I don't know what your reference to secretaries is except if you are referring to people like me. Q Well, he indicated that Secretary Faese was on the trip. A He was. Q And his secretary was on the trip. Why would you take the Secretary of Administration who is charged with running the capital and what goes on here in the Commonwealth on a foreign trade mission? A Secretary Faese was on that mission. His secretary was not with him. He had his chief of staff I believe, Kelly Logan with him. And the reason that they were there is a principal activity of that mission was technology related and Secretary Paese, as you know, is responsible for all the Commonwealth's technology activity internal as well as external activity. And let me just quickly say that in the case of. Germany, for example, a company that makes candy had agreed as a result of that trip to open its first plant outside of its home country in Pennsylvania this year. In the case of England portion of the trip, and these are just two examples, a privately owned company that makes aircraft ejector seats agreed to open its first plant outside of its home country in Pennsylvania. So, I believe these trips are well worth the money and the time that we spend. We take Pennsylvania companies along with us. We probably had about 17 or 18 Pennsylvania companies on that mission and we matchmake for those companies. We find them sales opportunities in the countries we are visiting, and those trade missions have produced about $75 million in new export sales for Pennsylvania companies. So, I'm perfectly comfortable to respond to the press about what we do and how much we spend, because I think it has really produced results for Pennsylvania that are far in excess of any costs of taxpayers' funds that we spend. Incidentally, too, we are about to open our 16th and 17th foreign offices. When we came in we had three, five years ago.. We have people on the ground, contractors on the ground, in 17 cities around the world that are watching out for Pennsylvania's interest in a particular export and foreign direct investment interests. REPRESENTATIVE LAGROTTA: Thank you, Chairman, I would like to be recognized on round two. CHAIRMAN BARLEY: I recognize Representative Orie. BY REPRESENTATIVE ORIE: Q Good morning. One of my first questions deals with the Community Conservation and Employment Program where you provided 4.3 million in state matching funds in a federal supported work program which supports life skills counseling, job placement and sports services for welfare recipients. What I am trying to find out is will these state funds be administered by the Community Action Agencies or how will these funds be administered? A Obviously, it is in our budget. The request is $10 million which is the same request that we have made for the last three fiscal years. The bulk of the funding for these programs is federal dollars. In fact, we expect nearly $28.5 million in federal funding for these programs in the next fiscal year. The Community Action Agencies around Pennsylvania actually operate the program. The program costs for those Community Action Agencies are included in this budget line item. They are, of course, nonprofit organizations that exist all arqund the state. The programs that they are principally involved in are housing, education, transportation, job training, food nutrition services and child care. Number one on DCED's principal interest in trying to make sure that community development and economic development work together. So this is a very important program. A lot of federal funding, probably more than two-thirds of the funding comes from the federal government and the Community Action Agencies are really the agencies that basically do the work. Q And I would agree with you on how important it is. My second question deals with a project that started last year under the Governor's proposal initiative called Pittsburgh Digital Greenhouse. Could you give me the status on what is happening there in regards to the public private partnership and what is projected in the future with this project? A Yes, Representative, the Greenhouse was launched nearly a year ago. It was about an 18-month study required approximately three and a half million dollars of appropriation to get to the point to launch it. We have as partners in the Pittsburgh Digital Greenhouse Cadence Design Systems of Silicon Valley who are our first partner in this effort. Subsequently we have signed on Sony Corporation, Casio, Okie Electric, Cisco Systems and now seven or eight local Pennsylvania based technology companies who have become partners. Each of the partners that I mentioned puts up cash to be able to participate in the program. But the concept is to create a new industry in Pennsylvania for the design of systems on a single chip. We expect that there will be on the ground in Pittsburgh 1500 chip designers in the next two or three years. And hopefully, chip design centers which requires our partners to put up capital to establish the center.

We are also partnering with three universities in this project, Carnegie Mellon, University of Pittsburgh and Penn State. And the three of them have collaborated to create a new curriculum to teach previously trained engineers on the new system chip design and create at both the undergraduate and graduate level a new curriculum to train new system designers for this purpose. So, it is a part of our whole technology strategy. It is a very exciting operation. We have hired a CEO, himself a technology person who ran a technology company successfully and a staff of maybe four. So the status of this is we have got partners who have put up cash to be partners. We believe that we will have created a new industry in the state as a result of this economic development activity. And I view it as economic development in this new century. I think that traditional programs still work and will continue to work, but I believe this is economic development for the 21st century. REPRESENTATIVE ORIE: Thank you. I commend you for those initiatives. Thank you very much. SECRETARY MCCULLOUGH: Thank you. CHAIRMAN BARLEY: I now recognize Representative Frankel. REPRESENTATIVE FRANKEL: Thank you, Mr. Chairman. Welcome, Mr. Secretary. BY REPRESENTATIVE FRANKEL: Q I would just like to start by saying it has been a great partnership. I sit on the Board of the Redevelopment Authority in the City of Pittsburgh. Some of the programs you are talking about and some of the more traditional programs we have a great partnership in trying to revitalize our city. One of the issues I want to visit today is PTIA. In the past there has been a specific line item for the Pittsburgh super computer system, about two million dollars. That is not in the budget this year. My understanding is that that funding is to be renewed. It will come through PTIA. Is it earmarked? I see a«significant increase in funding to the PTIA this year. Is any of that earmarked? A Specifically no to the super computer center. Although the increase we have proposed is from 18.2 million in the current fiscal year to a total of 30.3 million in the next fiscal year. The principal reason for the increase is to fund university based research which could in fact include the super computer center that is shared by Carnegie Mellon and University of Pittsburgh I believe. The rest of it is the same purpose that we propose for PTIA.in the first place which is to close a competitiveness gap with other states and to close the gap in the, what I call the continuum financing that young companies need to keep going. What we hope will happen is that ultimately this will be a $50 million fund. We have already made $11 million of investment approvals at the PTIA board level including not just .investment but some university research projects. So Carnegie Mellon, Pitt, Penn State, Lehigh and others will share in the research part of this. We hope that we can create and-retain 10,000 technology jobs a year as a result of this. So far we have done about 7,000 through the PTIA program. So it is working. In addition to that we want to bring used FTIA and the additional dollars proposed here to bring internet capability to people all over the Commonwealth and particularly to people in rural areas that have not participated in the digital economy. So, the financing piece is the same proposal, $10 million, the same as it was last year. Fifteen million for university research of the 30 million total, that is up from about six and so the super computer center certainly could be included in that $15 million. Q My only question with respect to that is, I mean, it is very difficult considering the amount of leverage that that money has brought in the past over more than a decade of investments we made of about $20 million. We have gotten a quarter of a million dollars of other funding from federal and private sources. I think not having some certainty that this funding is going to be recurring and 'other funding streams in the pipeline, it just potentially sends the wrong message not to know that it is there. So I would hopefully encourage that we find a way to provide that.

With respect to venture capital, I think the things — the missions you do are very important. Pennsylvania has lagged behind dramatically from the rest of the country. In the Governor's tobacco settlement, the set aside of five percent in the first three years for biomedical venture capital I applaud. But it occurred to me,and I mentioned this to Secretary Paese when he was in Pittsburgh, that given the nature and the urgency to create funding streams for this area immediately, that it occurred to me why not take maybe a lower percentage, three percent, three and a half percent, dedicate it over a longer period of time and capitalize through a bond issue a larger fund right up front so you get the big bang for your buck and be able to take a more aggressive approach. Because these things move so quickly people are making commitments and where they are locating and it just might be a more substantial way to approach it.

A I don't have a real response to that. I think your ideas are probably sound. I have personally seen some of the things though that are going on in the state in biomedical research, particularly at the University of Pittsburgh currently getting funded from other sources and hopefully those sources will continue. But for example, Pitt's tissue engineering project, Pitt's artificial organ programs for lungs and heart and in fact, they are even working now on artificial blood which is moving along very well. But to me what comes out of that, hopefully, will be businesses. And your suggestion whether five percent is the.right number of bond issues is the right answer or three and a half percent is the right answer, I am not sure. But clearly I think it is appropriate we are conserving some portion of that settlement for biomedical research and venture capital related to that research. REPRESENTATIVE FRANKEL: Thank you, Mr. Secretary. Thank you, Mr. Chairman. CHAIRMAN BARLEY: I now recognize Representative Zug. REPRESENTATIVE ZUG: Thank you, Mr. Chairman. BY REPRESENTATIVE ZUG: Q Mr. Secretary, I want to return to the area of international trade. I do notice that you are asking for a seven and a half percent increase. One of the companies in my district surprisingly to me when I learned markets chicken parts, breasts to primarily perhaps to Japan. That whole, project worked with the Department of Agriculture and Secretary Hayes. I find it remarkable about some of the things the company had to do in Pennsylvania to make sure the Japanese people were willing to take the food. I just wanted to know a little bit more about some of the success stories that you have had. I know you talked about it a little bit earlier today. I think it is an important part of maybe where we are moving as far as a state and I would like your comments on that please. A Well, agricultural products certainly have been, to speak first to your initial comment, have been an important part of many of our missions including shipping pregnant cows to Saudia Arabia. Actually poultry products have been a very important export for Pennsylvania companies. And a number of the missions which I have attended we have taken agricultural companies with us and they have successfully sold their products. That really is the purpose of the mission. Obviously the countries we are entering have' their own route about food products and so on. So sometimes we have some difficulty getting them in, but typically not.

I am trying to come up with a couple of very specific answers on agricultural related products. Sam Hayes could probably do this better than I. But we have had some success in selling ag products overseas. What we try to do, as I said earlier, is match Pennsylvania companies with agents, joint venture partners, distributors or direct sales. And typically each of the Pennsylvania companies accompanying us on a trade mission has a full calendar all day long meeting with potential prospects. That is what we do. We establish the contacts. They have the places for the meetings and they have the meetings. In the case of agricultural products, of course, we have to go to some government sources > to try to make sure that we can get our products in those countries. So we do visit with Sam Hayes counterpart in Israel or England or wherever we happen to be. But we have been successful. I don't know the number of ag product sales in my head of the total export sales these missions have generated. Sam Hayes comes with us on some of these trips when agriculture is critical. I am not sure I responded specifically to your question but we make sure that our largest industry in Pennsylvania is represented when it is appropriate. Q Have there been, and you touched on this a little earlier, some specific home runs so to speak, deals that you made with Pennsylvania as now a supplier in England? A Japan, Hatfield Foods has been a very major gain for Pennsylvania companies. That is probably the largest one that I can think of that resulted from a trade mission and I personally participated in that one and it was very successful. A lot of these take time, particularly in Asian countries. You have to build relationships over time and we are attempting to do that, and treat them like customers, which is what we try to do. Countries as well as companies within countries and buyers of Pennsylvania products we view as customers of Pennsylvania. REPRESENTATIVE ZUG: Thank you, Mr. Secretary, Mr. Chairman. CHAIRMAN BARLEY: I now recognize Representative Preston: REPRESENTATIVE PRESTON: Thank you very much, Mr. Secretary. BY REPRESENTATIVE PRESTON: Q I guess first I want to commend you. During the last two weeks you are the only Secretary that came without people on either side of you. I think Carl Albert, former Speaker of the House was one of the few bureaucrats that I have ever seen been able to do that. I want to commend you for that first. A Thank you. Q Only once did he ever look to the side. First, a short -list, your staff can take down some notes of requests that I would like to have. First, the two foreign, I guess in England and Germany, the two offices that we have. If they could, could they be able to furnish to us what the salaries are and the number of individuals employed there. A Sure. There are now, Representative Preston, 15 offices around the world. We are going to open two more in the current year we hope. They are generally not employees of the Commonwealth. They are agents we have under contract. We will be happy to supply you with detailed information on how much they are paid and how many people are working in each of the offices. Q I appreciate that. Also if you could submit to me or to the Committee the list of the loans that were given by the Community Development Bank in western Pennsylvania? A Sure. Q In the community opportunity zones where it says the Governor has committed 3,028 jobs and retaining 2,196 jobs. Could you also furnish what were the average wages of the jobs that were created and also what were the average wages of the jobs that were retained? A Sure. We are going to be announcing some additions to those numbers as soon as we get them in about a week. Actually, it might even be this week. But we will be happy to supply you that information. Q One of my areas I represent happens to be Wilkensburg. And it is not just Wilkensburg but the whole issue of distressed communities in general. And I have basically dealt with this through three separate governors. And when you tramp around the state and meet in some towns you have srotne basic common sense it appears unless there is a dramatic change of dissolving or merging or something, some communities are not going to continue to get in a sense the state continues to give them that extra money. Are there communities that you have determined under distressed communities and Wilkensburg is working its way out of that? A Correct. Q Are there other communities that you have determined will not come out of distressed communities, and if so, what are we going to do about it? A Well, we have, of course, the capability of supporting those communities. The law requires that a consultant of some kind be appointed as was the case with Wilkensburg. And we are obviously delighted when something like Wilkensburg can come out of that status. There are a couple of communities in Pennsylvania that are near the need for help. One of them that has had considerable media attention is Scranton. And we are working very, very hard and very closely with them to try to get budgets prepared and work with their consultant to make sure* that they are doing, that they and we are doing everything that we can do to resolve those issues. There are a couple more that are concerning to me. . Not yet in a status where they would either require our help, financial or otherwise. But what we try to do, there is a person in Dave Black's ~deputate called Fred Reddick (phonetic) who works with these distressed communities daily. That is his job. Certainly that will continue. And we do have some funding available to help them as appropriate and there is some of this in this budget for that purpose. Q One of the things I would like to address, and I am not going to apologise for Wilkensburg per se, because as you know I supported the issue of them coming out of distress. A Correct. Q I could not stop elected officials who wanted to stay in distress status after having a surplus for four years. I would still like to be able to talk to you and your staff, and they have been very cooperative. I think now we should be willing to sit down and really look at it, a really good recovery. I talked to Ellen Kite (phonetic) back in the regional office. I think we are going to need some extra expertise coming from Harrisburg. We were close to dealing with that. When they decided to sue you, I decided to take a step back

i for a while. I think you had a healing period. Perhaps we can do that. A I'll be happy to do that. REPRESENTATIVE PRESTON: Thank you. Mr. Chairman, if I could be recognized for the second round. CHAIRMAN BARLEY: I now recognize Representative Nickol. REPRESENTATIVE NICKOL: Thank you. BY REPRESENTATIVE NICKOL: Q In your testimony you talked about the flagship of your efforts in meeting developments in the keystone opportunity zone. I had a couple questions with regard to that program. My understanding is the incentive to locate in the keystone opportunity zone for business, there is local real estate tax abatement and it also extends to some of the state taxes. If I located a business in that zone would I be exempt from C and I, capital stock and franchise tax? A Yes, sir, you would be exempt from all state and local taxes for a period of 12 years. That includes C and I, capital stock and franchise tax, merchantile tax, whatever other state taxes might be levied in whatever business you are in. And in order to qualify as a zone, the local taxing authorities have to agree to that. Q However, if I owned a business outside of the keystone opportunity zone and I relocated my front qffice along with my s.ales to the zone, but my plant and my equipment and so on existed outside of the zone, what would be the impact on C and I and the capital stock and franchise tax? A It would depend on the source of your profitability. If you opened in a zone and that activity which is in the zone would be free of taxes, state and local taxes as I have indicated, but if you would be manufacturing and creating the company's profitability principally outside the zone, those profits would be subject to normal taxation. Q So it would be a split situation? A Could be. Q Some of my operations would be exempt and others would be taxable? A Could very well be. Q Now, in looking at the budget there is not an appropriatedprice tag on the keystone opportunity zone. We don't appropriate money to it. But I guess the price is based on tax abatement, which I didn't see anywhere outlined. What I am curious though is I know that the Department is tracking the new jobs it created and the jobs retained. I am interested if you are also tracking the cost of the program so we can look back and determine how successful it was by measuring the cost of those- jobs that are created under the program? A Yes, our partner is obviously revenue and Secretary Judge certainly is tracking this and that information certainly will be available to you and the General Assembly. Q Is that an annual basis that you are keeping track of this? A I would guess so, sir, but I am not sure. But I will certainly find it out. REPRESENTATIVE NICKOL: I would be interested. Thank you. CHAIRMAN BARLEY: I now recognize Representative Manderino. REPRESENTATIVE MANDERINO: Thank you. Good morning, Mr. Secretary. BY REPRESENTATIVE MANDERINO: Q I want to turn your attention for a minute to the housing and redevelopment assistance line item. On Friday I had the pleasure of meeting some folks from Episcopal Family Services in my district about the issue of affordable housing in this line item. And I have to tell you that my first reaction to their request was a $15 million increase in this line item or 100 percent increase, much more than the one million dollar increase that is in the budget. I thought that was pretty unrealistic. Until I went back and looked at the historic pattern of this line item and realized that at one place in time in the Commonwealth•of Pennsylvania, about ten years or so ago, our historic level for housing and redevelopment assistance were at about $30 million. So, they are just trying, in their view, kind of get to where they were ten years ago. Having said that and making it clear, I guess to people who are listening, I am not talking about federally subsidized public housing, but I am talking about state programs that would help with weatherization and home repairs of older housing stock so that it can stay on the market in helping community development corporations develop affordable housing in their communities so lower and modern income wage earners could afford to live. I am interested both in your philosophy with regard to state funding of the affordable housing component and how you view it, and in particular what we are seeing with regard to welfare reform, more and more people coming off. We are trying to get people to be self-sufficient and knowing at least in my community, although I don't think it is unusual. I think it is probably fair to say there are many communities across Pennsylvania where folks who are lower income wage earners are spending more than 50 percent of their income to put a roof over their heads so to speak. I am wondering what discussions, task force, work groups you might have going on interagency with your Department and the Department of Public Welfare, for example, to view the affordable housing issue in a holistic manner? A Obviously, a lot of meat on that question. I'll try to take it in a couple different ways. We have got programs, one we are'working with PHFA, obviously, and Department of Welfare on a variety of programs relative to the housing issue. A lot of the money that comes through DCED is federal. Certainly that is true for the weatherization program. That is true for the community development block grant program. Our proposal in this budget is a one million dollar increase from 14 million to $15 million. But we have access, including that $15 million to approximately $105 million relative to housing programs.

I think the weatherization one probably gets as much attention as any of the rest. Weatherization funds we have included this time are $12 million which are all federal funds and we had DCED work with low income and home energy assistance program and the Department of Energy to get these projects done. I have forgotten now the number of homes that have been weatherized in the state but it is thousands literally. A lot of the people who do these projects, again, are community action agencies and not only are they dealing with weatherization but they are also dealing with the issue of what it costs to heat a house these days. Clearly, we are working with the Department of Energy at the federal level and other departments on that issue. As you probably know, President Clinton released $600 million of funding just in the last week I guess, depending upon a person's income level, to help with the payment of home heating oil or home heating issues. So, yes, we work with a variety of agencies. It is an issue that we are spending a lot of time on now because of fuel costs and weatherization issues. It is our estimate that if we can fix the heating, the problem in the home with a roof or some other way, then we can save people a lot of money. So we spend a good bit of time on it. Representative Manderino, $105 million is what we got to work with. CHAIRMAN BARLEY: I now recognize Representative Stetler. REPRESENTATIVE STETLER: Thank you, Mr. Chairman. BY REPRESENTATIVE STETLER: Q Mr. Secretary, I want to, first of all, I want to thank you for the leadership you showed with resolving some issues down in York with investment tax credit and also with Secretary Black. I think both of you were very helpful in resolving a potentially bad situation in the City of York. Your leadership, both of your leaderships, was, greatly appreciated by me and by the residents of the City of York. If I could just change gears a little bit. Secretary Judge was here on Thursday and he and I spent a little time discussing the capital stock and franchise tax and a fix that was put in place back in November. I am hoping that you are kind of up to date where this whole process is right now. This correction was made regarding a case that is working its way through — FP6 working its way through the courts. It is in the Supreme Court now. We put in place a fix, a short-term fix with sunset to deal with two issues. One was headquarters and also the sales tax factor, capital stock and franchise tax. Now the Attorney General has prepared a brief, submitted a brief to the court that basically throws out and says it is unconstitutional, the part dealing with headquarters fix and that we have to go forward. And what that is doing, he represents the Department of Revenue and the Governor's Office in that brief that he has filed. I am just wondering, it seems to me we are sending a strange message to the business community and if we put forth a fix in November and then submit a brief in March, February/March, that says it is not constitutional, I am just wondering what the Department's stance is on that and whether or not you have taken a stance and whether or not you are working for a legislative fix for us to deal with in this budget process? A Well clearly we need to resolve this issue. PPG generated a very significant surprise to the business community. The leadership for this issue actually is coming from the TEAM Pennsylvania Board, and particularly John Rice who is General Electric's lead person in Erie where they manufacture locomotives. GE manufactures locomotives. And John took to the TEAM PA Board what really needed to get done to resolve this issue. Certainly DCED supports that. Clearly the impact on Pennsylvania business if this isn't resolved in the right way will be huge. We got to get it resolved. And that is really DCED's position. Just basically the position the TEAM Board took and that GE and other leading companies took in the state. Q Your lowering the rates is a great idea but it.doesn't deal with the construction problem that exists within the law itself. A Right. Q And while we lower the rates two mills in this budget process it would still mean that there is a tax increase for a substantial number of businesses, because if the Supreme Court would rule this is unconstitutional, you know, I would like to work with your Department if possible to come up with some type of a legislative fix that will resolve this issue. I think we need to do that before this budget process ends in June. A We would be happy to work with you on that. In fact, actually Secretary Judge is right in the middle of all of this. Clearly we are too in a different way, but working with him and his staff. Be happy to do that. REPRESENTATIVE STETLER: Thank you, Mr. Secretary. Thank you, Mr. Chairman. CHAIRMAN BARLEY: Are there any members that haven't had an opportunity to ask a question on the first round that desire to do so? (No response.) I now recognize Representative Mundy. REPRESENTATIVE MUNDY: Thank you, Mr. Chairman. BY REPRESENTATIVE MUNDY: Q Mr. Secretary, I want to ask you about cyber start. You may recall last year I thought that cyber start was an absurd idea. And I am-not sure that I have any different feelings this year, but let's investi­ gate it for just a moment if you don't mind. Cyber start will fund internet access for day care centers. And I am told that for the first year, now there was funding in last year's budget which took effect July 1st for cyber start, and I am told that you have now finalized the policy and procedure and that you anticipate 150 child care centers will participate in a pilot program starting June 2000; is that correct?

A That is correct. Q Do you have a list of those 150 child care centers where they are, who they are? A I do not have it here. We are putting out a request for proposals next week, excuse me, this week, to get that launched. If there is a list I would be happy to supply it. But we are hopeful and our intention is to have all 4,000 licensed day care centers in the program within a year. Q So you have to be a licensed child care center to qualify. And do you get a computer as well as monthly internet access fees paid? What does the program entail? A Well, the purpose is to have access for every one of these 4,000 licensed centers to the internet through a lap top or through a computer of some kind. The charges to the day care center, I will have to get back to you on that. I do not know the answer to that on a monthly or some other basis. Q So again, you have finalized the policy and procedure and you hope to have the 150 child care centers in the program starting June. This is March. I have to assume you know whether you are going to be buying computers. So you know all that and you will get that to me? A Yes. Q You just don't have it today? A Correct. We have $1.6 million in this year's appropriation for this purpose. Q How about last year's appropriation? A Excuse me. Q 1.6 million this fiscal year. A Current. Q And another 1.6 starting July 1st. A That is what is proposed, yes. Q Has any research been done about the effectiveness of preschoolers having access to the internet? How are you going to protect these licensed day care centers from the kinds of things that we are seeing, child pornography, other children being lured places through the internet? How are you going to get kids to sit in front of an internet at age one, two, three long enough and they can't read? I am just really confused about what you hope to accomplish with this. A Well, the purpose of the program is to prepare students who would not otherwise have access to the internet, because of their family situation, to have access to the internet so that they can be of the same level starting kindergarten and first grade that other children are who have access to this in their homes. In response to your comment about limiting systems to things that children should see, that is entirely — not entirely, that is now doable. You can exclude just about anything from any system, any computer that you want to exclude. Just yesterday I was hearing a situation where a father who was concerned about things like sex on line and programs like that simply programmed his system to exclude it. So those kinds of things can be done. I am sure, I am sure that would be the case in the case of child care centers. So I am not personally concerned about that. I think they can have available what they want to be available and exclude what they want to exclude. Q It just seems to me that if we have 3.2 million to invest in child care, that we should be concerned about the quality of the child care that is provided person to person, staffperson to child, keeping the staff ratios as low as possible, making sure that all children have access to quality care rather than investing $3.2 million in technology, which if we had quality day care to begin with, might be a laudable goal. But all of the child advocates, Pennsylvania Partnerships for Children and others are telling us that we fall far short of quality child care in Pennsylvania and probably across the nation. We are not alone in that. But why not invest 3.2 million in quality and affordability for every Pennsylvania child instead of just access to computers for those who can afford to go to day care centers to be able to use them. That is my question to the Administration. And I would just ask that you think about that a little more.

A Thank you. CHAIRMAN BARLEY: I now recognize Representative Adolph. REPRESENTATIVE ADOLPH: Thank you, Mr. Chairman. BY REPRESENTATIVE ADOLPH: A Mr. Secretary, a $1.2 million increase was provided for tourism "promotion agencies in the current year's"budget. .Have you accomplished that goal as far as appropriating for the new TPAs? And secondly, are there more funds needed so that all TPAs are funded at the same level? A The request for increase for this fiscal year is $500,000. Is that the line item that you are referring to, tourist promotion assistance? Q Yes. A Yes. Well, speaking from the point of view of what I hear from the tourist promotion agencies, no, it is never enough. So, what we are attempting to do is to get them working together, and in fact, regionally, to try to make whatever dollars we have available for these purposes work better for Pennsylvania. And there is a lot of reasonable thinking going on and discussions going on. I believe it is an adequate number for the next fiscal year, the $10,750,000. But remember also that the regional marketing effort, which is also proposed in this budget, about four million dollars of that is accessible by the TFAs. So it is not just the half million dollars that we are proposing. That is a single line item. They will have access to other funding. REPRESENTATIVE ADOLPH: Thank you. CHAIRMAN BARLEY: I now recognize Representative Josephs. REPRESENTATIVE JOSEPHS: Thank you. BY REPRESENTATIVE JOSEPHS: Q I have a follow-up question on the census that I started to ask you which I don't expect you, based on your responses, to be able to answer now. So I would appreciate having this all in writing to the Chairman of the Committee. I would just like to have a breakdown between federal and state money, federal and state efforts, federal and state enrolled, the items that you mentioned, the 500 centers, the languages and the questionnaires that are going out. But I am also interested in the foreign language enumerators, who is paying for that, who is hiring for that? The hiring of neighborhood people through civic associations, the folks that are going to be working on counting people who live in somewhat unusual I guess situations like college students in dorms, people in long-term care, inmates. Some prisons, of course, some people are very long term and other prisons people come and go. I am also concerned in my own district probably has more high rise residential apartment buildings than any other district or all of them combined. I know in 1990 at least one apartment that had some 500 families was counted as one person because it was at one address. I would like to know really what the feds and what we are doing to make sure that those things don't happen again. I want to follow up a little bit also on Representative Mundy's questions or your responses to her questions. You seem to indicate that no center that was not licensed would qualify for cyber start which I refer to as cyber tots. Because cyber tots, because I share Representative Mundy's observation that this is really a superfluous, ridiculous program. Maybe I stated it more vulgar than she did. I apologize. And you stated that this is to give children who would not ordinarily have the opportunity to become acquainted with computers that opportunity. But no family day care, which is where our people of limited income send their children, and this is an argument with a different department but that is what happens. But no family day cares, because they are not licensed, are going to be able to qualify to get any of this money. So, you know, as this program goes, I am very, very interested in getting information on your target group. I really want to know how many of these tots come from families where they already have exposure to these computers and have already rejected them. Because as Ms. Mundy says, you can't sit a kid in front of a computer for very long. They can't read. So I would be interested in that at a later date also as soon as you have the information. And then for my question which I hope you will be able to answer here and now. When we spoke to Secretary Butler the other day, we got into a very long conversation with him about workforce investment boards which are the new way to train people for job readiness. I'm really interested in why this extra layer of bureaucracy was added to the customized job training program that you are doing here and whether there is any coordination with these programs to make sure that there is no duplication or waste of money and people's time. Thank you.

A Thank you. The WIB is the Workforce Investment Board, of course, came out of the Human Resources Investment Council. It was formed by executive order a year or so ago. We have now established the Workforce Investment Boards in all regions of the state. They are local in nature. They are dealing with local issues. They bring issues to the board of Human Resources Investment Council which is now chaired by Larry Weinbach (phonetic), the Chairman and CEO of Unisys Corporation. The whole subject is related to brain drain question. How do we keep people we educate in Pennsylvania in Pennsylvania and also training. We have significant training issues throughout the state at virtually all levels, not just technology jobs but even entry level jobs. So these boards are working on the issues that affect their local areas and I think it is an appropriate addition. I personally am involved on the HRIC Board and have been since the beginning as is the Secretary of Education, Secretary of Labor and Industry,. Secretary of Welfare, because all of these issues relate to cross agency situations.

I believe that it is appropriate. I think that the work that I have seen done is really speaking to the issues that individual areas have. I don't know whether FAME is in your district, Representative Josephs, but I sit on that board as well. That is a different kind of effort to get people trained who really come out of high school even graduating from high school and reading at a sixth or seventh grade level and can't hold down a decent job. So, all of these things relate to those issues and I think they have been and are going to be useful. The web net situation, we are training, which came out of all of this activity has now trained more than 22,000 people at less than $500 a person. Twenty-two thousand Pennsyvlanians have been trained and we have actually run out of money and more is proposed in this budget because it really is very cost effective and a useful way of training people at a lot of levels principally through community colleges. REPRESENTATIVE JOSEPHS: I know I am out of time. CHAIRMAN BARLEY: The court reporter needs a break to refuel her machine. I now recognize Representative LaGrotta. REPRESENTATIVE LAGROTTA: Thank you, Mr. Chairman. BY REPRESENTATIVE LAGROTTA: Q Mr. Secretary, I thought about the answers to the last questions I asked, and especially Secretary Pease and his technological involvement and I read your budget narrative. Number seven on your narrative talks about worldwide video conferencing network. The export network has an expansive desktop video conferencing network that is linked to all of our overseas representative offices. I was wondering if that might be a more cost effective way to stay in touch with these countries and these companies than the four and a half million dollars we are asking for in operating costs this year for travel, etc.? I just wondered if you had some thought on that? A Well, I think the video conferencing is an important element of what that capability at least is an important element of what we try to do with the Office of International Business Development. Basically, what we are trying to do is create jobs through export promotion. And that is why we have established the offices that we have around the world. That is why we have added video conferencing as another means for Pennsylvania companies to be in touch with the rest of the world. As I said in my opening remarks, with video conferencing now any Pennsylvania company does not have to travel more than 100 miles to get to a video conference place, a place where video conference is available. There is nothing, however, like being on the ground in a country and showing Pennsylvania wares, showing Pennsylvania companies, establishing long-term relationships, and in particular, I think back on my first mission to Korea and Japan occurred right at the time of financial crisis in those countries. And the result of all of that has been some relationships that are incredibly important. For example, Sony Corporation now employs nearly 4,000 Pennsylvanians. I don't believe that they would have employed 4,000 Pennsylvanians if we didn't have a personal relationship with the top management of Sony Corporation. Q I understand, Mr. Secretary. I was wondering, I just have one more question, maybe a question and a comment. A lot of people on this side of the aisle have fought for many years for more money for child care subsidy and even the Governor now is picking up the call and asking for more special education funding down in Washington. And we have been fighting for that and have been told time and time again that those increases just are not always there. If there are ways we could to do this kind of foreign outreach without taking 23 staff people on these long trips. I just want to ask you as the last question, I want to read you from the House Travel Guidelines. These are the rules that we, those of us who are sitting up here have to follow. It says, air travel shall be limited to coach class. Travel arrangements should be contracted sufficiently in advance to take advantage of all available reductions of bargain fares when traveling.

Would you be in support of that kind of a policy for state government, Mr. Secretary? A I am in support of it. I think there is more to that policy than you have read. Because I think something has to do with length of trip as well. Q No, it doesn't say that, Mr. Secretary. I could give you this copy. It is not mine. It is the Chief Clerk's. But I am just curious if you would support that kind of policy in light of the fact that we have got school taxes that are so high? We could be using this money maybe in different ways. A Well, I « CHAIRMAN BARLEY: If I could just interrupt. To clarify a point here. We are comparing policy for the legislative branch. The Chief Clerk governs the legislative branch and the policy from the Chief Clerk may not govern policy for the executive branch which the Secretary is part of. REPRESENTATIVE LAGROTTA: The taxpayers pay the bill, Mr. Chairman. CHAIRMAN BARLEY: Well, let's just make certain that we are comparing apples to apples for the Secretary to be familiar with a policy that he is not governed by and for the purposes of the Secretary I want to clarify that I would not expect you or I don't believe anyone would expect you to be familiar with a policy that you are not governed by. REPRESENTATIVE LAGROTTA: Mr. Chairman, I apologize. BY REPRESENTATIVE LAGROTTA: Q What I said was though would he be supportive of a policy that limits taxpayer funded travel to the cheapest available plane ticket wherever we have to go? A I think what we do is try to find the best deals that we can find. We use Commonwealth Travel as I guess everybody else does. So we are not out to waste taxpayers' money. I would suggest, Representative, that we do everything that we can to hold costs down and I think we should also think about the return on any investment, whether it is travel cost or any other cost and whether Pennsylvania is winning. And my answer to that from an international perspective is yes, that it is.

REPRESENTATIVE LAGROTTA: Thank you, Mr. Secretary. CHAIRMAN BARLEY: I now recognize Representative Preston. REPRESENTATIVE PRESTON: Thank you again, Mr. Chairman. BY REPRESENTATIVE PRESTON: Q Mr. Secretary, I want to deal with Port of Pittsburgh Commission, which as a Representative of the House, I serve on. In your report that you submitted here, your budget for the Committee, on page 35, Fort Commission Pittsburgh third page says the Port of Pittsburgh Commission is playing a greater role in economic development in southwestern Pennsylvania by offering (inaudible) financing and a new revolving loan program for the maritime related project. Before that you say it handled 53 tons in 1998 representing a 2.98 percent increase from 1997. Now, the three rivers area of Pittsburgh is the largest tonnage wise port in the United States. The Governor's recommendation though is that it receive a $300,000 cut. Can you explain to me when you have an entity working so good in economic development why you would want to be able to reduce the appropriation? A The appropriation requested for Penn Ports generally is about a million and a half dollars less than we asked for in the current fiscal year. Q Is there a reason why we are asking for a cut? A I'm sorry, Representative, I do not know the answer to that question. Q I think we really need to be able to get together with the Port of Erie, Port of Philadelphia. Personally, to me, when you have an area that we are, you know, things come — I guess around 30, 40 different counties affected by this and we worked hard by trying to deal with the Army Corps of Engineers, we worked with an awful lot of the older groups that have been there historically. I think we have done excellent work. We are trying to promote economic development as you said in your own statement and yet the Governor's recommendation is that we all take a cut. I hope that you will be able to look at this as well as our Committee will look at it to see if we can't come to some type of — A May I ask are you referring to the $600,000 grant money for the Port of Pittsburgh? Q Well just in general the overall Penn Ports funding is going down, and yes, it has always been for granted 600,000, 600,000. But yet in a sense we have increased the staff, we have increased the work load. We have actually gone in to try to work out a •revolving loan program. A Right. Q To be able to help the rivers in developing economic development around there. I was hoping that we would see a more positive light about the Port Commission of Pittsburgh and the other ports. A Right. I apologize, Representative Preston. I don't have a good answer this morning but I will certainly get it. REPRESENTATIVE PRESTON: The other issue deals with I guess as a legislator and on a personal level dealing with the tobacco settlement. I guess I say this as an African-American and a person of color. The tobacco industry for years targeted women and minorities to increase their level of smoking. Now I am watching my colleagues fight for things over in their districts, fight over this pot of money. I would hope that the Administration and my colleagues would be cognizant of that fact. I am not asking for any new programs. But I am saying that if women and minorities were adversely targeted, that money should be targeted in a sense the same way. Whether it is for economic development, whether it is for health care, some of the other things. Instead I am watching everybody scratch I want my piece of the pie. And yet in a sense it was all on the back of women and minorities. I hope that the Administration and you will be a little bit more sensitive about these issues and that whatever ways those were targeted from the billboard industry to the TV marketing, to other different concepts and watching it happen now in some of the foreign countries, that we would be just as sensitive for the universities and for the health care systems and some of the educational programs in dealing with the replacement of the tobacco funds just as well. Thank you very much. CHAIRMAN BARLEY: I now recognize Representative Manderino. REPRESENTATIVE MANDERINO: Thank you. BY REPRESENTATIVE MANDERINO: Q Mr. Secretary, I want to return to the area of questions that I left about the housing and redevelopment assistance. It could be this format which is limiting and that it doesn't leave time for clarification or follow up. So this is my clarification. My two questions were as follows: One, what do you see as the role of state government in the issue of affordable housing? And what I heard was that the role of state government is to administer and pass through federal dollars. I just want to make sure I heard the right answer or heard that answer, an accurate answer and give you a chance to expound if there is any expounding needed. My second question was what conversations or work groups, if any, are going on between the folks in your agency that administers this funding and folks at our Department of Public Welfare who are trying to work to get people to be off public assistance and self- sufficient? A Well, specifically hard to answer in any detail. Clearly, first of all, let me say I happen to think that housing is an important state issue. When I said most of the funding that we get comes from federal, that is simply a fact. Fifteen million dollars in this proposed budget is, of course, in state funding for housing and redevelopment assistance primarily. Clearly, I sit on the PHFA Board, Deputy Secretary Black works with PHFA on a regular basis. We have within his deputate in community affairs housing staff. So, obviously, I believe that the state has some role and responsibility in dealing with housing issues in Pennsylvania. I was simply stating a fact that the bulk of the money that we get for these purposes is federally funded and that totals $128 million, only about 15 of which is state, state funding.

So, I believe there is a role for the state. We live that role every day. I personally have been engaged in weatherization projects myself. So I believe that there is a role for the state. And yes, we work with Welfare, and yes, we work with other agencies including PHFA on housing issues. REPRESENTATIVE MANDERINO: Thank you. Thank you, Mr. Chairman. CHAIRMAN BARLEY: Representative Josephs, are you still seeking recognition? REPRESENTATIVE JOSEPHS: Yes. BY REPRESENTATIVE JOSEPHS: Q You started to describe, what is it — A Workforce Investment Board. Q Workforce Investment Board and we did hear an explanation for that. Perhaps I gave you the wrong impression. I don't think it is such a bad idea. I think so far as I can see on paper setting up job training in this way might work. Who knows. What I am concerned about is the proliferation of these kinds of programs that are out there. The Workforce Investment Board is one. The customized job training you mentioned in FAME, that we have this whole range of sort of investing in money rather than in people I guess, TEAM Pennsylvania, the technology fund that you were discussing with Representative Frankel. .

If I am somebody trying to find a job or an employer trying to find someone to fill my job, how do I move through this bewildering layer of your .bureaucratic programs, some of whom maybe have something for me and some of whom might not? A Well, we have created job centers and we have created places where people can now go either in person or on the line to look at what is available. These are working. DCED in cooperation with the Department of Labor and Industry have worked together in establishing these centers. I think there is a one-stop way to shop for these kinds of things now. If, obviously the people are made aware of what is available and we are attempting to make them aware of what is available. So, I don't agree necessarily that there is a proliferation of these things, because we have created places where you can now go to see what is available. Pennsylvania is a very complex state in a sense too, because we have such a broad diversity of businesses in the state. Some traditional manufacturing businesses whose start-ups are in technology arenas and very important biotechnology kind of things. So it is not a simple answer to this. But we have with L & I work together to establish these job centers where people can go to one spot and try to find employment. REPRESENTATIVE JOSEPHS: Thank you. Thank you, Mr. Chairman. CHAIRMAN BARLEY: Mr. Secretary, that concludes those that have questions and we appreciate you being here today. We will now take a five-minute recess. We will be in recess until 12 noon. (Whereupon at 11:55 a.m. the hearing was coneluded.)

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The foregoing certification of this transcript does not apply to any reproduction of the same by any means unless under the direct control and/or suprevision of the certifying reporter.