Electric Choice Working in Texas and Michigan

Natural gas is at a 7 year low and consumers who have electric choice are cashing in. In Texas, consumers can shop for rates 25-40% lower than what they paid last summer.

The President of the Association of Electric Companies of Texas remarked:

The rates are "pretty competitive" in the deregulated market. Many of the rates are either comparable to, or lower than, rates charged by city-owned electric utilities, electric cooperatives or investor-owned utilities in traditional regulated markets.

In Michigan, the Chamber of Commerce in Grand Rapids points out the success of the state's limited electricity market and the need to remove competitive quotas that place 90% of businesses in each of the utility regions under monopoly control.

As expected, Chamber members are being negatively impacted by changes to PA 141, the Electric Choice and Reliability Act, that was repealed to re-regulate the electric energy market in 2008. The 10 percent cap enacted in the 2009 legislation limits the amount of business alternative energy suppliers can claim from Consumers Energy’s region. The 10 percent cap was reached last week [in the span of 10 months]. This means that any customer wishing to switch to a supplier other than Consumers will be put on a waiting list until another customer drops service from an alternative energy supplier. Many West Michigan commercial and industrial customers will be excluded from purchasing energy from alternative suppliers now that the cap is reached. Since Consumers’ rates are higher than the prevailing long term rates in the choice, this hurts their ability to compete.

Meanwhile, Citizens’ Electric Co. (whose rate caps have expired) has requested a rate decrease from the PUC. The rate adjustment will mean that a monthly bill for a residential customer using 500 kWh of electricity will decrease by $6.90 or 11.81 percent.

Economic Development Subsidies Fail

Today's Wall Street Journal writes on the failure of taxpayer-funded "economic development" grants - i.e. corporate welfare - in the state of Michigan.

The article relies heavily on a study by the Mackinac Center.

No Correlation Between PA School District Spending and Performance

Tracie Mauriello of the Post-Gazette raises a source of dispute, via Twitter, on education spending vs. performance:

pgPoliTweets: Rendell: Ed achievement is correlated to ed spending. Senate Rs: Not so. Philly has high spending & low scores.

Correlation is pretty easy to test for (though mind you, it doesn't imply causation) using the newly released PSSA results from the Pennsylvania Department of Education for school districts and the latest data on Pennsylvania spending by school district (unfortunately 07-08 data).  For the record, I would have expected a small, but positive correlation; high-spending districts - or so the conventional wisdom dictates - have higher average income families, and higher incomes correlate very strongly with better academic performance.

But the correlation between total per-pupil spending and the percent of students proficient or advanced revealed remarkably little correlation - almost near zero in all age groups.

PHEAA Wrongfully Collected $92 Million from Taxpayers

PHEAA is being sued along with other student loan agencies for taking advantage of a federal government loophole allowing them to wrongfully collect $92 million. In the 1980's, the federal government enacted a subsidy program guaranteeing a 9.5% return on a limited class of student loans. By reusing older loans and packaging them with new ones, PHEAA reaped millions in profits at the taxpayer's expense.

When confronted with this serious case of fraud, the Department of Education didn't even attempt to recover the funds. A 2007 settlement with Nelnet--the worst abuser of the scheme receiving more than $400 million in over payments--did not require the loan company to repay the federal government. It was left to a DOE researcher, Jon Oberg, to bring the suit on behalf of the federal government.

PHEAA was among the first agencies to employ the scheme--clearing the path for other agencies to follow. The lawsuit implies PHEAA relied on the authority of the Education Finance Council to justify their practices; this is disconcerting since the group has close ties with the Department of Education and Republican staff on the House Education Committee.

It's amazing that such flagrant abuse of the system was disregarded for so long. This is a perfect example of why state and federal governments should not be in the student loan business.

What Does This Blog Post Inspire You to Do?

When I first heard of President Obama's planned speech to all students, I didn't think much of it. I imagined he'd say things like "Don't do drugs! Stay in school!" Of course, maybe I'm getting Obama confused with Mr. T.

But after reading more on this on blog posts from the Cato Institute, John Lott, and Charles Murray, watching the celebrity video with Ashton Kutcher and Demi Moore linking Obama to everything good, and especially after reading the lesson plans put out by the White House, I'm going to have to agree with the sentiment that this is "creepy."

(I would also agree that Obama's sentiments don't reflect the policies he is pursuing at the demand of the NEA, including killing the DC opportunity scholarship program)

According to the White House, younger students should ask:

Why is it important that we listen to the president and other elected officials, like the mayor, senators, members of congress, or the governor? Why is what they say important? ... What do you think the president wants us to do? Does the speech make you want to do anything? Are we able to do what President Obama is asking of us?

High school students are instructed to think about:

Why does President Obama want to speak with us today? How will he inspire us? How will he challenge us? ... Is President Obama inspiring you to do anything? Is he challenging you to do anything?

In that vein, I would like to pose the following questions to PolicyBlog readers:

• How did Nathan Benefield inspire you today?
• Does this blog post make you want you to do anything?
  
• What do you like best about me?

A Missed Opportunity for Pension Reform - Continuing Generational Theft

Analysis of HB 1828 - the so-called Pennsylvania municipal pension reform bill (which includes a Philadelphia sales tax increase) facing the PA General Assembly - by Commonwealth Foundation senior fellow Rick Dreyfuss

CF Analysis of HB 1828

HB 80 Will Increase Energy Costs

Clean energy proponents are attempting to reignite the fire under HB 80, which would increase the amount of electricity utilities must produce from alternative energy sources. In a letter to the Inquirer, PennFuture claims that solar energy is free, while ignoring the cost of intermediate power sources when the sun doesn't shine.

Last week DEP Secretary John Hanger published a laundry list of alternative energy projects as proof that HB 80 would be beneficial, but if people and businesses are already investing in alternative energies, why do we need a mandate to force electric companies to use more alternative power sources?

Here is my response:

Mr. Hanger believes that mandating an increase in the amount of electricity produced from certain alternative energy sources Pennsylvania will attract more private investments and produce green jobs, creating a more competitive energy economy. These claims fail to distinguish between market competition, which responds to consumer demand, and competition for a growing pot of taxpayer funds.

More specifically, it is almost impossible to verify the promise of green jobs because there is no concrete definition of this widely used term. The phrase can be used for any position that is remotely related to alternative energy, including administrators in the DEP itself. In reality, jobs will be destroyed by increasing regulations on disfavored energy sources.

Passing House Bill 80 will cause either a reduction of the current energy supply, given that alternative energy produced only 5.7% of Pennsylvania's power in 2007, or dramatically raise the costs needed to fund new infrastructure and alternative energy sources that are expensive to produce. As a result, energy rates will increase just as consumers are bracing for the expiration of PA's energy rate caps.

The only way to ensure that clean technology is affordable is to keep the market flexible and open to innovation. Propping up the alternative energy industry with a plethora of government handouts and mandates is not sustainable, even if it does provide advantages over traditional energy producers.

Counting All Pennsylvania State Employees

A state lawmaker sent along a Patriot New article, in which Gov. Rendell cites the relatively low number of Pennsylvania state employees compared to other states, to find out where the numbers came from:

[Rendell]: I found it amusing when Governor Sanford was going through his problems, that he apologized to 65,000 state employees in South Carolina, a state half our size, and they have 65,000 employees and we have 77,000.

It is true that Pennsylvania ranks low among state in term of state and local government employees per capita - 478 per 10,000 residents, vs. U.S. average of 546 - but not so low as Rendell makes it out to be, as he is not using an apples-to-apples comparison.

The "77,000 employees" Rendell refers to is the current filled positions in the Pennsylvania state complement - but only positions under the Governor's control. According to the Census Bureau data on government employment, which has a nifty chart maker, Pennsylvania had 192,000 state employees as of 2007 (160,000 in full-time equivalent).  This is well more than twice South Carolina's total of 87,000.

Rendell's figure excludes the legislative and judicial branches, independent state agencies and authorities (like the Turnpike Commission), and employees in higher education institutions (85,000 according to the Census - I'm not sure if that includes the state-related schools like Penn State, or only the State System and Community Colleges).

Pennsylvania August Revenues Come in a Bit Short

The Pennsylvania Department of Revenue released the preliminary collections report for August - the state collected just over $1.6 billion, $19 million (or 1%) below estimate.

The consensus projection is 0-growth in revenue from last year, and it is still too early to evaluate this.  While both July and August were down slightly from last year, neither is a big collection month (September is), and the economy didn't really bottom out until last October. 

As mentioned here before, we probably can't make a good re-evaluation on revenue expectations until October or November - which may be about the time we actually get a state budget.

PA’s Prepaid Tuition Program Under Fire

State Treasurer Robert McCord announced yesterday he is delaying increased premiums on Pennsylvania’s Guaranteed Savings Plan, which allows parents to purchase college tuition credits at current prices and redeem them when their student enters college.

The program, which currently has over 89,000 enrollments and a $1.1 billion dollar budget, is facing a deficit of over $222 million dollars due to lower than expected returns.

Chairman of the Senate Education Committee, Sen. Jeff Piccola (R-15), released a subsequent statement calling for exhaustive reforms of the Tuition Savings Plan. "There is absolutely no way the taxpayers of this Commonwealth can be responsible for any deficit this program may incur," Piccola remarked.

Rendell Retreats from Natural Gas Tax

Yesterday, Governor Rendell took another of his proposed taxes off the negotiating table. His announcement perfectly demonstrates the points made in my new commentary on Rendell's mixed energy policy.

Governor Rendell's retreat is a good sign as the budget battle continues, but the his statement, "We should have a severance tax, but not at the beginning" foreshadows a similar showdown next year and implies that industries do not grow when they are taxed . . . interesting observation Governor.

Meanwhile the left wing PennFuture defends the tax saying it will hit big (evil) corporations. But the left-wing Pennsylvania Budget and Policy Center defends the tax saying that it will not hit corporations subject to the 2^nd highest corporate income tax rate in the nation, but mostly small businesses.

In reality the natural gas severance tax would have crippled an emerging industry inhibiting thousands of potential jobs and income for rural families in northern PA.

Is Individual Mandate Worse than "Public Option"?

Cato's Michael Cannon has a commentary on the effects of an individual mandate to buy health insurance. His poster child is chief spokesman critic of Obama's health care proposals, Mitt Romney, who signed Massachusetts' individual mandate into law:

In the three years since Massachusetts enacted its individual mandate, providers successfully lobbied to require 16 specific types of coverage under the mandate: prescription drugs, preventive care, diabetes self-management, drug-abuse treatment, early intervention for autism, hospice care, hormone replacement therapy, non-in-vitro fertility services, orthotics, prosthetics, telemedicine, testicular cancer, lay midwives, nurses, nurse practitioners and pediatric specialists.

The Massachusetts Legislature is considering more than 70 additional requirements.

Those requirements can increase premiums by 14 percent or more. Officials further increased premiums by imposing new limits on cost-sharing.

"The effect," writes the Boston Globe, "has been to provide more comprehensive insurance than in most other states but also to raise costs." Premiums are growing 21 to 46 percent faster than the national average, in part because Massachusetts' individual mandate has effectively outlawed affordable health plans.

Call to Action: Budget Must Keep PA Competitive

The Pennsylvania Prosperity Project has a new action alert on the Pennsylvania budget, with a form to contact your legislators and ask lawmakers to "focus on making Pennsylvania competitive again" with a a budget "holds the line on spending and taxes."

New Study Shows Devastating Impact of High Corporate Tax Rates

The Tax Foundation, came out with a new study this month on the negative impacts of high state corporate tax rates. The results have coincided with previous research, showing that states with lower corporate income tax rates substantially boost their worker productivity and real wage rates. Given that Pennsylvania has the 2nd highest corporate taxes in the nation, the findings strongly suggest we should reconsider our corporate tax rates.

According to the study, "between 1970 and 2007, a one-dollar increase in the average state-local corporate tax rate caused a $2.50 dip in wages 5 years later, compared with lower-taxed states." The reverse is also true; a one-dollar decrease in the corporate income tax this year would bring a $2.50 increase in real wages 5 years later. With the state budget at an impasse, some lawmakers are suggesting the opposite; actually delaying a reduction in the Capital Stock and Franchise tax in a desperate attempt to fill the budget gap. Delaying relief for Pennsylvania businesses hoping to climb out of this recession could prove to be a disastrous mistake.

What's Wrong with Medicare

Defenders of national health care proposals try to make the claim - in response to critics - that government-run health care is pretty good, citing Medicare (and Medicaid).  So what's wrong with "Medicare for All"?

• Medicare's coverage is not that good
  
• Medicare recipients spend more per household (and a much a higher share of their income) on out-of-pocket expenditures than do non-Medicare households
• Over half of all Medicare recipients buy supplemental health insurance, or get it from their employer.  An additional 22% are enrolled in Medicare Advantage, with additional benefits and costs (though Obama is looking to gut Medicare Advantage).
  

• Medicare has higher administrative costs per person than private insurance.

• Medicare is going bankrupt, with $89 trillion in unfunded liability.

• Medicare underpays doctors and providers, resulting in:
  
  
  • An increasing number of doctors who refuse to accept Medicare patients.
  • Cost shifting - Medicare shifts billions in costs on to providers, which results in increasing premiums for private coverage.

The final point would be extremely important to consider when discussing expanding the number on government programs - i.e. it will drive up the costs of private insurance (and of course, their will be fewer left to shift cost on to).

Baby Boomers Dominate in State Legislatures

Interesting, if trivial analysis from NCSL on the age of state legislators. Only 4% of legislators nationally are under age 34.

They also have a tool with demographic profiles of legislators in every state.  Pennsylvania matches the US average with 4% of lawmakers in the young category (and I define "young" as my age or less, a category which is every growing).  The tool also includes, gender, ethnicity, religion, and occupation  - not surprisingly, almost 80% of Pennsylvania lawmaker list their occupation as "full-time legislators".

Philadelphia Sales Tax Increase Bad for Business and for Pennsylvania

Chris Freind writes on how the proposed increase of Philadelphia's sales tax from 7% to 8% (6% state rate, local rate to double from 1 to 2%) will harm the Philadelphia economy, as well as Pennsylvania.

The reality is that people will simply cross the city line to make their purchases, from TVs to refrigerators to washing machines. So not only will the city fail to realize the anticipated revenue of its tax increase, it will lose the sales tax in its entirety. But this isn't just a Philadelphia issue. When people cross into New Jersey, or better yet, Delaware (where there is NO sales tax), Pennsylvania will lose its 6 percent. And more people will be incentivised to use the internet to shop, yet another way to avoid the tax.

When will elected leaders realize that you cannot tax your way out of a recession? Taxes never lead to prosperity. They simply result in people and businesses fleeing to a friendlier location.

But this obvious truth is lost on Philadelphia's leaders.

Study after study show what the citizens of Philadelphia already know: that our great city is being devastated because of politicians who care more about themselves than the people they serve.

Philadelphia ranks as one of the least desirable places to locate. It levies some of the highest taxes of any city in the country. Its educational product is horrendous. 

Between 2000 and 2007, Philadelphia lost 4.5% of its residents, the largest percentage drop of any Top 25 city. From 1990-2000, the City of Brotherly Love's population losses were the third largest of the 243 cities with more than 100,000 people. Since 1970, the city has lost 265,000 jobs and 450,000 residents.

2009 SAT Scores by State

The College Board has released data on 2009 SAT Scores.  I've compiled the data into a spreadsheet of mean SAT scores by state. Among states (including DC) with 60% of students taking the SAT, Pennsylvania ranks 12th out of 17 states



Here is the Pennsylvania SAT profile. As you can see, while Gov. Rendell an others tout Pennsylvania's gains on the PSSA exams, the state has not improved average SAT scores.  Of course, that is pretty similar to the trend in national SAT scores.

There is also an interesting trend that would seem to indicate grade inflation nationally - a higher percentage of students report "A" averages, but average scores are lower from 10 years ago.

School District Makes Due Without Tax Hike

ABC 27 has a story about East Pennsboro School District - the first stop on Gov. Rendell's bus tour - using fiscal restraint, not higher taxes, to deal with their budget crunch.  Rendell and House Democrats continue to insist that not spending as much on education as they want would require higher property taxes - unless, of course, districts choose not to increase taxes.

Pennsylvania Municipal Pension Reform in a Nutshell

Yesterday the Senate approved HB 1828, a long and complicated bill full of so-called pension reforms and potential local tax increases. Here's a basic summary of the provisions following Senate amendments:

• Permits Philly to amortize its unfunded pension liabilities over 30 years instead of 20 (the private sector maximum is 7 years). Future taxpayers will get stuck with larger pension payments.
  

• Allows Philadelphia to defer a portion of their pension fund payments for 2 years at an interest rate of 8.25%, again passing debt on to the next generation.

• Permits an increase in Philadelphia's sales tax from 7% to 8%; the increase must be used to fund municipal pensions. Raising the sales tax will further decrease the city's economic competitiveness and push shoppers to suburbs and Delaware, which has no sales tax.
  

• Requires a freeze in pension benefits for current employees and negotiating a new benefit plan for newly hired employees for Philadelphia and other "distressed" pension plans.

• Freezing Pittsburgh parking tax at 37.5%, with 6.75% dedicated to the city's pension fund and allowing an additional 2.5% parking tax if the city leases or sells its parking garages.
  

• Establishes a pension rating system with accompanying procedures for underfunded pension systems (Level III would apply to Pittsburgh):

1. Level I (70-80% funded ratio): Reduced contributions for 2 years and authorization to impose a new municipal tax if unable to make minimum pension payments.
   
2. Level II (50-69%): Reduced contributions for 4 years, aggregation of trust funds, submission of a improvement plan, and prohibition on increasing benefits in most cases.
3. Level III ( less than 50%): Takeover by Pennsylvania Municipal Retirement Board, make reduced pension payments, revised benefit plan for new employees, another tax to defray pension costs, transfers assets to PA Municipal Retirement System, and establishes a statewide Cooperative Municipal Pension Program for new hires in an effort to decrease administrative costs.

Unfortunately, HB 1828 is a huge missed opportunity for true pension reform.

Related News:

• Senate OKs bill that authorizes state takeover of Pittsburgh pension system
• Ravenstahl predicts tax hike from increased payments into pension fund
• Pa. Senate OKs Phila. sales-tax hike
• Bill to help city budget is advancing