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Corrections Secretary Focused on Outcomes

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‘Corrections’ is a literal term for Secretary John Wetzel.  That’s why he told the House Appropriations Committee the Department of Corrections new recidivism study accounts for both re-incarcerations and rearrests.  “We need to focus our corrections system on outcomes, and our outcomes mean people getting out and doing the right thing,” Wetzel explains, “So that’s why our [recidivism] number is 62.7%, because it includes everything.” 

The numbers contained in the new report are being used as a baseline to improve the system moving forward.  Wetzel says their new contracts with private halfway houses will be performance based, with incentives for reducing recidivism.  Internally, he says improvement starts by better assessing offenders’ needs and better use of state & county-level diversionary programs. 

Between efficiencies that have already been identified and the new prison reforms signed into law last year, Wetzel projects a reduction of 3,600 state prison inmates over the next five years. 

That means additional prison closures are going to be a part of the budget conversation in Pennsylvania for many years to come.  And Secretary Wetzel is still dealing with the fallout from the recent decision to close SCI Greensburg and SCI Cresson later this year. 

State Rep. Deberah Kula called it a “debacle.”  Responding to Kula’s questions at Monday’s budget hearing, Wetzel said 85% of the affected employees have already accepted transfers within the system, and 80% of them will be stationed within 60-miles of their homes. 

Corrections Secretary John Wetzel

John Wetzel

“Not minimizing the impact it has on staff members… this is what saving money in corrections looks like,” Wetzel said in reference to inmate populations driving prison closures. 

Secretary Wetzel has committed to working with the House & Senate Judiciary committees to develop prison closure protocols moving forward.

No Easy Answers to Public Pension Woes

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Regardless of any additional reforms, executives from the state’s two big public pension funds are telling state lawmakers that adequate employer contributions are essential.  In this case, the state is the employer and its taxpayers are the ones footing the bill. 

As it stands, the combined unfunded liabilities of the State Employees’ Retirement System (SERS) and Public School Employees Retirement System (PSERS) are north of $40-billion dollars and climbing.  The reasons are many: the 2008 market crash, a lost decade in which the state opted to defer its pension contributions, and a 2001 law that padded pension benefits – especially for lawmakers themselves. 

Governor Tom Corbett is proposing a series of long-term pension reforms in hopes of reducing the short-term burden on the state, and PSERS executive director Jeffrey Clay was peppered with questions during House and Senate budget hearings on Wednesday. 

“If you’re basically asking the question, “can we get to solvency under Act 120?” the answer would be – from the pension system perspective – yes.  The question is whether the state and the school districts can actually afford that,” Clay explains. 

Act 120 of 2010 helped to smooth out the pension spike by reducing the benefits of future state employees and teachers, increasing the retirement age and extending the vesting period.  Even with those reforms being imposed for all new hires, the state’s $1.5-billion dollar pension obligation this year is expected to climb to $4.3-billion by FY2016/17. 

State Sen. Jake Corman

State Sen. Jake Corman

“The policy question for all of us sitting here is, “what are we willing to pay every year?”” said Senate Appropriations Chairman Jake Corman.  As lawmakers are finding out, that’s a question without an easy answer. 

When addressing the issue of switching new hires to a 401(k)-style ‘defined contribution’ plan, the funds’ executives say any system will work as long as it is well-structured and well-funded. 

But critics say that sort of switchover ignores the diminished rate of return for the defined-benefit plans that would still be paying out benefits for decades to come.  “Policymakers should ask the Corbett administration how much will be lost in investment earnings with pension restructuring and how much taxpayers will be on the hook when that happens,” says Keystone Research Center executive director Stephen Herzenberg. 

The Corbett administration is banking on $175-million dollars in savings for the state, next year alone, through pension reforms.  They say PA’s 500 school districts would be able to save another $138-million.

Liquor Board’s Balancing Act on Display at Budget Hearing

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As the battle lines are being drawn on Governor Tom Corbett’s liquor privatization plan, the legislative debate may come down to privatization vs. modernization.  But the issues can be mutually exclusive.  Peppered by repeated questions from the Senate Appropriations Committee, Liquor Control Board Chairman Joseph Brion said he is not personally opposed to privatization.  “I don’t think the state should be in the liquor business.  But – by the same token – we are in the liquor business.  So my attitude is – if we’re going to have a liquor business – make it the most profitable and best that you possibly can.” 

Others have suggested that modernizing the system now, will make it more valuable for possible privatization in the future. 

The Liquor Control Board transferred $530-million dollars to the state’s General Fund in the current fiscal year, but Monday’s testimony in the Senate hearing room indicated that more than 80% of the cash was generated by taxes, which would still be in place under a privatized system. 

Not lost on lawmakers weighing these difficult issues is the cost of enforcing the state’s liquor laws.  “Clearly if you’re going to have more licensees, you’re going to need more feet on the ground, and that’s okay, but we have to take that into contemplation when we review the legislation,” says state Rep. Scott Petri (R-Buck), a member of both the House Appropriations and Liquor Control committees.   

State Police Commissioner Frank Noonan, last week, estimated that his agency would need an additional $5-million dollars under a privatized liquor system.  Liquor Control Board officials have indicated that they’re regulatory costs total $38-million dollars today, but those are currently covered by the revenue they generate. 

Forthcoming legislation would appropriate $5-million more dollars for PSP’s Bureau of Liquor Enforcement and hike fines for liquor law violations.  House Majority Leader Mike Turzai’s latest bill is set to be introduced on March 4th.

Budget Hearings Kickoff with Medicaid Debate

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The Governor’s Office and Senate Democrats aren’t on the same page when it comes to expanding Medicaid under the federal Affordable Care Act.  Based on the exchanges that played out on the opening day of state budget hearings, they may not even be reading from the same book. 

When pressed for answers as to why the administration isn’t planning to expand the Medicaid program, Budget Secretary Charles Zogby told the Senate Appropriations Committee that it would cost the state an extra $200-million dollars next year and more than $4-billion dollars within the next decade. 

“I don’t know where that money comes from,” Zogby said while noting that not enough attention is being paid to the cost side of the Medicaid equation. 

Senate Minority Appropriations Chair Vincent Hughes (D-Philadelphia) noted a “huge gulf” between the analysis of the administration and the analysis of legislative Democrats. “Our analysis indicates that the implementation of Obamacare saves $200-million because the feds are now paying for state dollars on the General Assistance population, saves about $140-million in state payments for county health services, and saves about $100-million in uncompensated care costs.” 

Hughes pressed Budget Secretary Zogby for a public vetting of the numbers the administration has been crunching.

State Senator Larry Farnese (D-Philadelphia) later found irony in Zogby’s complaints about how unresponsive the Obama administration has been to the governor’s Medicaid questions, while the Corbett administration has not responded to Senate Democrats’ request to see their fiscal analysis.

The House and Senate Appropriations committees will continue to hold budget hearings through March 7th.

No Medicaid Expansion, Corbett Seeks Reform

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Pennsylvania will not pursue an expanded Medicaid program until the federal government reforms the system.  Governor Tom Corbett made his intentions known during Tuesday’s budget address before the General Assembly.  “We cannot afford to expand a broken system,” Corbett announced.  “Right now, without expansion, the cost to maintain our current Department of Public Welfare programs will increase by $400-million dollars.  The main driver in that cost increase is Medicaid and long-term care.” 

The Affordable Care Act expanded Medicaid to cover people up to 138% of the federal poverty line, but a Supreme Court ruling made it an option for the states. 

Until reforms are made, Corbett is opting out.  “The federal government must authorize real flexibility and innovative reforms that empower us to make the program work for Pennsylvania,” he says.  The governor has written the federal government to express his concerns.   

But the move has irked Senate Democrats, as Medicaid expansion supporters say it would cover at least a half-million more Pennsylvanians, save on uncompensated care costs and inject billions of federal dollars into the state’s economy.

Vincent Hughes

State Sen. Vincent Hughes

“The governor is walking away not just from the number one health care issue that is confronting us, but the number one job creation issue that exists in front of us,” Senator Vincent Hughes lamented in the wake of Corbett’s budget speech. 

The federal government has promised to pay 100% of the cost of the Medicaid expansion for the first three years, but the Corbett administration says the state’s administrative costs would approach $1-billion dollars over that time, and they are not interested in raising taxes or cutting programs to make up the difference.

Last December, Corbett also passed on a state-run health insurance exchange, under the new federal health care law.

Pension Reform Could Drive Budget Debate

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Perhaps the most controversial piece of Governor Tom Corbett’s $28.4-billion dollar state budget is the call for public pension reform.  The administration has penciled in $175-million dollars worth of savings next year, pending legislative action on the issue.  They say reforms would also free up nearly $140-million for the state’s 500 school districts. 

Charles Zogby briefed reporters on the budget just prior to the Governor's speech on Tuesday.

Charles Zogby briefed reporters on the budget just prior to the Governor’s speech on Tuesday.

“The reality is that our pension costs are taking most of our available revenue growth,” says Budget Secretary Charles Zogby.  The state’s pension obligations are expected to triple – to $4.3-billion – within the next four years.  Without reform, Zogby says deep cuts would be unavoidable.     

But legislative Democrats call it a false choice.  “We’ll work with him on [pensions], but everything he proposed today is not right, and we won’t support,” says House Democratic Leader Frank Dermody (D-Allegheny). 

The Corbett plan calls for new hires to be enrolled in a 401(k)-style defined-contribution plan and for adjustments to be made to the yet-to-be earned benefits of current state employees.  No changes would be made to retirees’ benefits or the benefits existing workers have already earned. 

The plan’s already raising legal concerns.  “He’s talking about changing future compensation for current employees, which has already been decided in the courts that is something that’s illegal, back in 1983-84,”  says AFSCME Council 13 executive director David Fillman.    

The state’s two biggest public sector unions – AFSCME and the Pennsylvania State Education Association (PSEA) – are vowing a legal fight, and that has lawmakers on both sides of the aisle concerned about balancing a budget on savings that would ultimately be in the hands of the courts. 

“The question is really, I think, what does a set of reforms look like that can secure 26-votes in the Senate and 102-votes in the House,” says Senate Republican Leader Dominic Pileggi (R-Delaware).  Pileggi has been serving in the Senate for more than a decade now, and knows that pension reform can be a profoundly difficult issue.

Cash

Gov. to Seek Level Funding for Higher Education

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With Governor Tom Corbett’s commitment to level-fund higher education in the new fiscal year, state-owned and state-related university officials are pledging to keep any tuition hikes as low as possible.  “This agreement, this working together, will allow our schools to better plan their budgets for the coming year and make the best use of their resources,” Corbett said at a capitol news conference.  “Their commitment should allow students, and particularly their families, to plan their own budgets accordingly.”  Corbett was flanked by the state’s higher education leaders as he made Friday’s announcement. 

This agreement – level-funding in exchange for minimal tuition hikes – is similar to a deal that was ultimately struck last year.  Corbett says it resulted in the lowest tuition increases in more than a decade.  “For example, Temple University did not raise tuition last year; Penn State had their lowest tuition increase in nearly 40-years.” 

The state appropriated nearly $1.6-billion to higher education in the current fiscal year, and Corbett is proposing the same amount for FY2013-14. 

State Senator Jake Corman (R-Centre) says level-funding is significant in what continue to be difficult budget times.  “As Appropriations Chairman I can tell you that this coming fiscal year… our cost-carry-forward items – such as Medicaid, debt service, corrections, things of that nature – will grow at a higher rate than what our revenues will grow next year,” he explains. 

This sort of early collaboration between Governor Corbett and the higher education community is a change of pace from previous budget cycles.  Two years ago, higher education received a near 20% cut, after even steeper cuts were initially proposed.  Last year, a level-funding deal wasn’t struck until long after Corbett proposed another round of stiff cuts. 

With that track record in mind, Democrats don’t seem too impressed with Friday’s announcement.  “By flat funding higher education, Tom Corbett is keeping in place harsh cuts from past budgets and ignoring cost of living increases,” says Pennsylvania Democratic Party Chairman Jim Burn, “Tom Corbett has the wrong priorities.” 

Corbett will discuss all of his priorities on Tuesday when he delivers his annual budget address to a joint session of the General Assembly.