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During a chaotic day in the state Capitol on May 22, almost two dozen individuals were arrested and charged with disorderly conduct following multiple incidents of protest for state government reforms.

Twenty-three members of March on Harrisburg, a self-identified non-partisan volunteer group, were arrested, charged, arraigned and released for summary offenses related to their protests.

Traveling from Philadelphia, the group is visiting the Capitol to demand action on bills to implement a political gift ban, establish automatic voter registration and end what they call “gerrymandered” redistricting.

The first day of their three-day civil disobedience effort targeted state Rep. Daryl Metcalfe, R-Butler, who chairs the House State Government Committee. A bill, House Bill 39, to ban political gifts between lobbyists and lawmakers sits in his committee, and the reform advocates say he’s been unresponsive and unwilling to speak with them about the legislation or call it up for consideration in committee.

The protesters have spoken to more than 200 lawmakers about the legislation and believe it has enough legislative and public support to pass.

In an effort to encourage Metcalfe to bring up the bill, they gathered outside of his office in the morning, chanting and blocking his entrance. Capitol Police were staked outside during the protest.

Some demonstrators managed to enter the State Government Committee’s scheduled hearing where they were dragged out by police as they linked arms and sang. Others were arrested outside of the hearing room.

In response to what he called “disruptions,” Metcalfe said he was not threatened or bullied by their behavior.

“I think it’s a shift in our culture now where some people think that it’s okay to be uncivil and disrespectful to try and get their way,” said Metcalfe. “If you really want to advocate for change and advocate for a piece of legislation, the proper way to advocate for it is in a respectful manner and a manner that isn’t going to get you taken into custody.”

He added: “The anarchists and the Left really think they’re going to force their will on the American people and Pennsylvanians by being civilly disobedient to the point of violating their neighbors’ rights, even violating the rights of other citizens to enter the offices of their representatives….that’s not the way to advocate for legislation or a proposal or policy change. It discredits the issue.”

Metcalfe wouldn’t divulge whether he supports or opposes the ban, but said House Bill 39 isn’t a top priority for him at this time.

The protesters were issued non-traffic citations and warnings to not return to the state Capitol Building for the duration of their protests or risk arrest for trespassing. They plan to return tomorrow and Wednesday to continue their efforts.

 

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By: Cheryl A. Davenport

 

PSECU, a Pennsylvania-based credit union created by 22 state workers over 80 years ago, was founded to support and secure the financial well-being of state workers when few existed. From these simple beginnings PSECU has grown to include over 400,000 members.  The not-for-profit member-owned institution provides many low or no- fee financial products to its members and 24/7 banking services while upholding the ethical integrity members have come to trust. This commitment to its members is just a part of the overall dedication to the community. PSECU promotes financial literacy, volunteer participation and engages in charitable contributions. Environmental community outreach includes sponsoring the Earth Day Festival and Shredding Event, the Walk 4 Clean Water and support of the Rotary’s Clean Water Projects. These events express the organization’s focus on taking a leadership role in environmental responsibility through clean water, recycling, sustainability and green practices.

As PSECU expanded, the institution resolved that it had outgrown its location at Credit Union Place in Harrisburg. This was an opportunity to magnify their community influence and environmental dedication. Discussions began about building a new facility which would be eco-friendly and sustainable while providing prospects for future growth over the next 50 years. A 47-acre site was chosen close by on Elmerton Avenue in Susquehanna Township. The site, with large open spaces, was ideal as the space provides for biodiversity and promotes local habitat. This site footage exceeds LEED open space requirements by 227 percent. After approximately 5 years of discussion, a $72 million budget and design was developed that would make the new building and surroundings save energy costs while benefitting the community, members and employees. PSECU moved into their new facility in January 2014 with extremely minimal downtime and impact on its member services.

The new PSECU building is operated by a natural gas powered turbine system, also known as cogeneration. The turbines generate heat, which is then used by a heat exchanger to produce heat for the building or an absorption chiller to cool the building. This system also heats the water for the facility. Other options were discussed such as windmill and solar power, but these were determined to have a larger footprint on the environment and the cogeneration system was better suited to meet the buildings current and expanding future needs. The 239,000 square-foot facility and site has the possibility for expansion up to 425,000 square feet.

The goal was to be LEED Gold Certified, which was obtained. Per the U.S. Green Building Council, LEED (Leadership in Energy and Environmental Design) certification points can be earned in many areas of building development, which address concerns related to sustainability. Four levels of LEED certification are awarded based on the number of points earned – Certified, Silver, Gold and Platinum. LEED certified buildings use less energy and water, reduce greenhouse gas emissions and save money. The facility received LEED points by achieving an energy cost savings of 38.1 percent due to cogeneration, and lighting methods. The capture and treatment of 90 percent of storm water runoff, water-conserving showers and toilets, and landscaping design which requires no irrigation all assist in saving water. The cost savings of LEED initiatives help to re-coup initial building investments. The cogeneration system will pay for itself within 5.5 years of initial installation. While producing cost efficient heating and cooling, the system also produces a surplus, which is sold back to the energy grid. Last year alone, $85,000 in excess energy was sold back.

It’s not just the final building product that is important when considering the environment and community. Seventy-five percent of the debris during construction was diverted from landfill into recycled materials, and 20 percent of the building components are made of recycled materials. LEED points were also awarded for the use of low-emitting sealants and adhesives. Building materials were brought in from local sources to reduce the ecological footprint by saving in transportation costs while at the same time supporting local businesses. Per PSECU’s vision, local businesses were sub-contracted to support the project. Also as a part of PSECU’s dedication to the community, a percentage of the building budget was dedicated to the hiring of minority and female workers.

The construction also provides for back-up energy. Supplemental absorption chillers, onsite stored water in case of interrupted water service, as well as a diesel-powered generator, which can power the entire building and its functions, all provide for complete back-up. Alan Brunner, Director of Facilities Operation and Organizational Support Services, a key planner and manager of the project emphasizes “We can’t be down, we have to be online 24/7 for our members.” This fits in to PSECU’s philosophy of ‘brick and mortar-less banking.’ As stated on the PSECU website, “We’re not about having a branch on every corner. We’re about giving members account access where it’s most convenient for them. Their living room. Their backyard. Their cell phone. By not spending money on branches, we can give members competitive rates for loans and savings, as well as a host of low or no-cost services.” Digital banking service is not just about customer convenience and cost savings but also reducing carbon footprint.

Saving energy and reducing ecological footprint also impacts employees, and PSECU believes that the LEED certified building reflects its culture. Employees were updated and engaged throughout the entire building process, and a workspace planning committee was established to help with the selection of office furniture. Adjustable height desks, using electricity generated on site, were chosen so the employee can stand and change position throughout the day. Work stations were made at a lower height to allow more natural light throughout the working space. Seventy-five percent of the lighting is natural daylight, brought in through efficient design to reduce cost, as well as provide health benefits to employees. Holistic business cultures enhance the total well-being of the employees – physically, financially and emotionally. This practice reduces stress and increases employee productivity. The campus encourages human interaction with the physical environment. Employee walking trails through the open green spaces are provided, as well as a rooftop garden patio area for lunch breaks, which has the added benefit of reducing cooling costs and storm water runoff. Other employee benefits to improve health and well-being include bike racks, on-site gym, the promotion of non-smoking, on-site daycare and involvement in the community through volunteering. Employees are also offered ride-sharing high-occupancy vehicle and fuel efficient vehicle parking, with electric car stations planned.

Each new employee is given a tour and orientation to the building and grounds to understand the scope of the entire initiative. Aside from environmental benefits, health benefits and cost-savings – the character of the building is modern and stunning. It is a professional inviting building, even under heavy security measures to protect their members – not what one might expect from a cost-efficient building.

The building of LEED certified projects and sustainability movements in Central Pennsylvania is growing, with PSECU serving as an inspiration. Phoenix Contact has also installed a cogeneration heating and cooling system; Messiah College has expanded sustainability initiatives to include an organic community garden, composting and recycling. Dickinson College offers on its website that 96 percent of the class of 2015 had taken at least one sustainability course.

As PSECU has evolved, its vision and mission encompasses not only the members but the community and environment in a relationship that is advantageous to all. Providing cost savings through energy efficiency and sustainability and ‘brick and mortar-less banking’ affords innumerable benefits.

 

For more information please visit https://www.youtube.com/watch?v=gfjkL3BU-3E

 

 

 

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By Senator John M. DiSanto

 

The General Assembly recently took action to maintain Pennsylvania citizens’ access to federal buildings and prevent the burden of needing a passport to fly within the U.S.

 

Lawmakers came together in a bipartisan fashion and approved compromise legislation to bring the Commonwealth into compliance with the federal REAL ID Act. Passed in the wake of the 9/11 terrorist attacks, this federal law established increased security standards for state-issued driver’s licenses and identification cards and prohibited federal agencies from accepting licenses and identification cards from states that did not meet these standards.

 

Concerned that that federal government sought to regulate what was previously under the domain of the states – driver’s licenses – the General Assembly overwhelmingly voted in 2012 to prohibit the Commonwealth from participating in REAL ID.

 

In addition to the issue of states’ rights and the Tenth Amendment, concerns about Pennsylvanians’ privacy rights as part of a nationwide driver license database prompted passage of the REAL ID Nonparticipation Act of 2012.

 

The National Conference of State Legislators estimated that REAL ID implementation costs nationwide could be as much as $11 billion. It is estimated the initial start-up costs to fully implement REAL ID in Pennsylvania would be $141 million, with $39 million in additional, annual operational costs. The federal government provided PennDOT with just $5.4 million in grants to assist with REAL ID requirements—yet another unfunded mandate from Washington D.C.

 

In addition, the federal law complicates the process of obtaining and renewing a driver’s license. Pennsylvanians will be required to visit a PennDOT facility upon their first renewal after REAL ID compliance, and to produce a certified, raised-seal birth certificate and proof of social security number and principal residence. Also, REAL ID requires a person to apply in person for the re-issuance of their driver’s license if he or she has a material change in his or her personally identifiable information (not including a change in address).

 

While these and other concerns were valid, not meeting the federal requirements comes at a cost to citizens. By June 6 of this year, Pennsylvanians would no longer have been able to gain access to secure federal buildings using their driver’s license. And, by January 2018, Pennsylvanians would need a passport to fly on commercial airlines within the U.S. A recent study determined Pennsylvanians would need to spend nearly $1 billion on passports if the state did not comply with REAL ID.

 

The General Assembly needed to prevent these unacceptable burdens from being placed on our citizens. That meant complying with the federal law while maintaining options for residents.

 

Pennsylvania had already taken 33 of the required 38 steps to enhance ID security as required by the REAL ID Act, such as using digital photos, issuance and expiration dates and a unique identification number on driver’s licenses.  Remaining mandates to be met include having a specific federally approved symbol that is designed to make tampering and forgery more difficult, and requiring a certified birth certificate to issue a driver’s license.

 

Meeting the last remaining federal requirements, while protecting Pennsylvania citizens and taxpayers, was the goal of a lengthy legislative process that featured compromise in the Senate and House of Representatives as well as input from PennDOT. The result was Senate Bill 133.

 

The legislation brings Pennsylvania into compliance with REAL ID, with safeguards for citizens.

 

Senate Bill 133 allows Pennsylvania residents to choose between getting a REAL ID-compliant identification card or a non-compliant card. Holders of standard-issued driver licenses will not be asked to subsidize or cover the cost to issue REAL IDs. Instead, the cost of compliance will be borne by those opting for the federally approved ID. PennDOT will also be required to report annually to the General Assembly regarding the cost to the state of REAL ID compliance.

 

Pennsylvania’s approach to REAL ID prohibits state government from compelling any individual to apply for a REAL ID, and it does not allow Pennsylvania to exclusively mandate a REAL ID for any reason. These are important protections to preserve individual choice for our citizens.

 

Without this legislation, Pennsylvania would have soon become one of only five states to remain noncompliant with REAL ID and without an extension.

 

Now that Governor Wolf has signed Senate Bill 133 into law, PennDOT will begin what is expected to be an 18 to 24 month process to fully implement REAL ID. Given Pennsylvania’s new law to enact REAL ID, it is expected the Department of Homeland Security will provide further extensions that will allow Pennsylvanians, with their Pennsylvania driver’s license or photo ID card, to continue flying commercially and visiting federal facilities in the interim.

 

Our Commonwealth should never blindly comply with every regulation handed down by the federal government, especially those that encroach on what is rightfully a state matter, such as driver licensing. By slowing down the process and creating alternatives, Pennsylvania is implementing REAL ID on its terms, not Washington’s.

 

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Senator John DiSanto represents most of Dauphin and all of Perry County. He was first elected in 2016.

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By Chris Comisac

Well, folks, Pennsylvania is going to get some more “pension reform.”

I know, the House of Representatives has yet to vote on Senate Bill 1, the latest lacking legislation held up by lawmakers as “reform,” but this is happening.

So what does that mean?

As someone recently said to me, with us “accomplishing pension reform,” we can move on to doing pension reform.

The actuarial note analyzing the legislation indicates there will be no pension system savings, and the risk-shifting within SB1 only matters should the systems incur significant investment shortfalls a couple decades from now. Those shortfalls, should they occur two to three decades from now, will still add more debt to our debt-ridden systems, it just won’t be quite as much added debt – the “historic” savings we’re told SB1 would deliver would come at a significant cost.

It’s pretty clear passing anything with the title “pension reform” has become the goal, not passing something that’s worth passing.

I’m reminded of about two years ago, when I wrote a column in which I argued – with regard to both property taxes and public pensions – doing something isn’t always better than doing nothing.

Carefully reviewing the analysis of this session’s version of “pension reform,” it appears as though lawmakers have found a way to do both: look like they’re doing something while doing nothing.

If this is the “politics of the possible,” we have hit another new low in the Pennsylvania State Capitol.

The comparison between current law and SB1 for both the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) shows little-to-no difference regarding the impacts on employer contribution rates, pension funding ratios and the unfunded accrued liability going forward during the next three decades.

So if accomplishing that is the best we can do, then why vote SB1 in the first place?

We’re told by SB1 proponents it’s because the legislation is “transformative,” that it puts the pension systems on the path to future fiscal health because it reduces pension risk for state taxpayers.

It’s not exactly that, but the analysis of SB1 by actuarial firm Milliman notes a future shift in risk (although at least 30 percent of the state government workforce is exempted from this risk shift): “Over time, the bill also reduces future risk exposure because it transfers a portion of retirement benefits to a DC [defined contribution] plan in which the member assumes investment and longevity risks. The provisions of the bill apply only to new members, and the full reduction in risk exposure will be phased-in over several decades as new employees are hired, become vested and ultimately retire.”

But SB1 still maintains a defined benefit plan that is subject to the political and financial winds that blew up PSERS’ and SERS’ unfunded liability to a combined $76 billion. So while exposing state taxpayers to slightly less risk, there’s still plenty of risk for which current and future Pennsylvanians will be financially responsible (not to mention the $76 billion, and growing, debt already on the books).

It’s true that state taxpayers would continue to be exposed to risk even if the current defined benefit plans were closed, and even if they were fully funded today (they’re obviously not).

Because of the way defined benefit plans work (even after they’re closed), underfunding can occur if the systems’ investment returns come up short, the systems fail to meet the other assumptions built into the costs of the defined benefit plans or lawmakers decide they don’t wish to pay the contributions they need to pay. We’ve seen all three happen in Pennsylvania annually during the better part of the last two decades.

None of that occurs with a defined contribution plan.

So if the risk of a DB plan falling short is the top concern as we’re told by SB1 proponents, why choose a less-than-half-measure like Senate Bill 1 that continues the DB plan, albeit a slightly smaller DB plan?

If the upfront costs of SB1 – and there are greater costs associated with the bill’s changes (including the yet-to-be-discussed roughly $50 million cost to the pension systems to implement the incredibly complex three-tiered benefit plan proposal) – are worth the potential of only partial risk shifting in 20 to 30 years, then why not do the whole enchilada?

Pull the Band-Aid off in one quick rip, instead of what amounts to a slow, painful, centimeter-by-centimeter removal – with all of that pain borne and endured by Pennsylvania taxpayers – that doesn’t end up removing the Band-Aid; in Michigan (where their pension problems are smaller than ours), that state’s failed hybrid pension plan was recently referred to as “a Band-Aid on a bullet wound” by one of that state’s lawmakers.

Just put every new employee – no exemptions – into a standalone DC plan.

I know, I know – “We can’t get the votes for that” is the refrain from some legislative leaders who, if given their druthers, would drop SB1 in a second for something that accomplishes a real change, even if that change also comes two to three decades down the road.

In addition to making needed funding reforms – such as shorter amortization periods for both DB plans, as recommended by the actuary that produced the SB1 analysis – to reduce the risk of an underfunded DB plan, a standalone DC plan for everyone would eventually simplify the retirement systems as well as completely eliminate the risk borne by taxpayers, once the only active plan for SERS and PSERS is the DC plan (which would take several decades to occur).

That would be good public policy.

Obviously it’s important to get the votes to send legislation to a governor that’s willing to sign it, but when did that become the definition of good public policy?

If you’re willing to make no impact on employer contributions or the unfunded liability during the next two decades anyway – which describes SB1 – then why not keep pushing a few more years for legislation that puts SB1 to shame on risk transfer?

Sometimes you have to try – and, yes, fail once in a while – to accomplish your goals. Legislative Republicans would do well to remember the Fiscal Year 2015-16 state budget, if they’ve forgotten that lesson, or maybe Act 120 of 2010, the last “pension reform” which was supposed to fix the things lawmakers are once again trying to fix (and the current “fix” doesn’t look much different, actuarially speaking, than Act 120).

There’s been a lot of failure to accomplish the goal of pension reform the last several years – as evidenced by the continued growth of the pension systems’ unfunded liability – but most of those failures involved bills that were better (some only marginally so) than SB1.

Adopting SB1 would simply be another failure a future General Assembly will have to address.

Chris Comisac is Capitolwire Bureau Chief.

 

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The power of the state attorney general to tackle public corruption would be greatly expanded under a legislative proposal stemming from a state investigation into the large public debt racked up through financing deals at Harrisburg’s trash incinerator.

A bipartisan group of lawmakers plan to introduce a bill giving the attorney general authority to investigate and prosecute county, city, and municipal officials and employees for public corruption. Under current law, the attorney general can only prosecute public corruption cases of state officials and employees under certain circumstances. This occurs when county district attorneys refer a case because they have a conflict of interest or lack adequate resources to pursue it.

A state grand jury issued a report last month wrapping up a state investigation of incinerator deals that led up to $300 million in debt during the tenure of former Harrisburg Mayor Stephen Reed. The investigation was launched followed a referral from Dauphin County District Attorney Ed Marsico.

The grand jury recommended no criminal charges in the incinerator case citing a statute of limitations that expired in 2015. However, the grand jury made recommendations to change state laws to help protect municipal taxpayers from excessive debt in the future. These include expanding the attorney general’s prosecuting power to include local officials and extending the statute of limitations to cover wrongdoing discovered after an official leaves office.

The referral system often causes “undesirable delay” in pursuing criminal charges, the grand jury said.

The grand jury report gave momentum to senators who have pushed to enact stronger municipal debt laws since 2013 in response to the incinerator controversy. They have now gained allies in the House who plan to introduce companion bills.

Under the powers bill, the attorney general could prosecute local officials when state laws are violated, said Sen. John Blake, D-Lackawanna, the sponsor. Federal prosecutors have jurisdiction to prosecute local officials for violations of federal laws in such areas as mail fraud and bribery and extortion.

The legislation to expand the attorney general’s power comes after the elective office weathered a series of controversies leading to the conviction of former Attorney General Kathleen Kane for leaking grand jury information to a reporter and lying about it to another grand jury and her resignation from office last summer.

Attorney General Josh Shapiro said this week he strongly supports having the additional prosecuting authority. He also noted he’s seeking a $500,000 increase to strengthen the office’s Public Corruption Unit in the fiscal 2017-18 state budget.

House Judiciary Committee Chairman Ron Marsico, R-Dauphin, said he would take a close look at what he described as giving the attorney general “super power” to investigate local officials.

The attorney general’s office would need a larger budget if that power was granted, said Harrisburg attorney Water Cohen, a one-time acting attorney general.

“The question here is whether the General Assembly, if it expands the jurisdiction of the OAG, will give the office the necessary resources to actually conduct such additional investigations and prosecutions, which can be very complicated and time-consuming,” wrote Cohen.

The Pennsylvania District Attorneys Association will probably take a position on the legislation.

 

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With a Friday court deadline providing a catalyst, lawmakers in the House and Senate are moving to tackle long-debated gambling issues including the reinstatement of a local share assessment on casino slot machine revenue.

Bipartisan votes by the House Gaming Oversight Committee approved two separate bills May 21 to reinstate the local share.

The bills – House Bill 1342 and House Bill 1301– would require that Category 1 and Category 2 casinos pay an annual fee of $10 million to host municipalities and a payment of 2 percent to the host county.

But they differ in how the local share revenue for some casinos would be distributed.

The Senate Community, Economic and Recreational Development Committee has scheduled an off-the-floor meeting Tuesday on House Bill 271, a House-approved airport tablet gambling bill seen as a vehicle for gambling expansion legislation.

Sen. Mario Scavello, R-Monroe, the committee chairman, said he is preparing to amend the bill with provisions to expand legalized gambling and reinstate the local share. The amendment is expected to address the legalization of internet gambling and fantasy sports betting.

Drew Crompton, chief of staff for Senate President Pro Tempore Joseph Scarnati, R-Jefferson, said the Senate plans to send a gambling bill to the House this week.

With the June 30 budget deadline to pass a fiscal 2017-18 state budget just weeks away, lawmakers are under pressure to fill a revenue hole in the current state budget. The budget is based on the assumption that new gambling will generate $100 million for state coffers.

The state Supreme Court has given lawmakers until Friday to pass a new local share assessment that meets constitutional muster.

The court declared the assessment unconstitutional last fall on grounds that it wasn’t levied uniformly on casinos. The court said a provision in the 2004 gambling law requiring casinos to pay a 2-percent tax or 10 million, whichever is higher, to host municipalities created a variable

The May 26 deadline is the second set by the court since last fall’s court order.

“I think it was important for [committee] members to have a vote on the local share before the court deadline,” said Gaming Oversight Chairman Scott Petri, R-Bucks. “I don’t think the court is going to give us another deadline.”

Committee members voted the interests of their own districts on several amendments to change the existing distribution of local share money, said Petri.

The committee rejected amendments to give part of Hollywood Casino’s local share assessment that goes to Dauphin County to Lebanon County and to give a portion of each casino’s local share assessment to a state-run volunteer fire company grant program.

 

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Gov. Tom Wolf has thrown his support behind a bipartisan bill headed to the state House that would overhaul retirement benefits for new public-sector hires in Pennsylvania.

On June 5, the full Senate passed the bill, Senate Bill 1, by a 40-9 vote.

As Capital Watch goes to print, the state House of Representatives is positioned to vote on Senate Bill 1, and if approved, will send  it to Gov. Tom Wolf who has indicated his support for the legislation

“I look forward to working with House leaders to get this bill across the finish line,” Wolf said in a June 5 statement. “This pension compromise achieves my foremost goals: continuing to pay down our debt, reducing Wall Street fees, shifting risk away from taxpayers, all while providing workers with a fair retirement benefit.”

The legislation continues to move through the General Assembly even though legislators turned away four amendments on June 7. The four amendments were ruled “out of order” for not having an actuarial note.

Two of the proposals rejected on procedural grounds were offered by Rep. John McGinnis, R-Blair, with each representing standalone bills already introduced by McGinnis, who has been a vocal advocate for getting serious about addressing the state’s pension debt.

One of those bills, House Bill 778, would focus on paying off the current unfunded liabilities of State Employees’ Retirement System (SERS) and Public School Employees’ Retirement System (PSERS) within roughly 20 years (which is 12 to 13 years sooner than under current law) – something an actuarial analysis indicated would save $18.1 billion in employer contributions during a roughly 30-year period.

The other bill, House Bill 779, would provide a standalone defined contribution (DC) plan to all new state, public school and municipal employees.

According to McGinnis, the employee would receive a dollar-for-dollar match by their employer (in this case, state and local taxpayers) up to 5 percent of salary. If the investments into which the DC plan dollars are invested produce only a 6 percent rate of return for an employee of 35 years (current pension system assumptions are 7.25-percent returns for their investments), that employee could expect an annuity worth over 60 percent of their final salary upon retirement. With Social Security benefits added onto the DC benefits, the employee could expect their annual retirement benefits to be close to 100 percent of their final year of salary, explained McGinnis.

McGinnis said the proposal is similar to an idea offered during the General Assembly’s 2009-10 Legislative Session by Sen. Pat Browne, R-Lehigh. An actuarial note for Browne’s legislation, Senate Bill 566, indicated it would reduce employer contributions to SERS and PSERS by a combined $13.6 billion during a 30-year period. With McGinnis’ proposal closing the defined benefit plans for both SERS and PSERS to new employees, the risk shifting often referred to by proponents of SB1 would be significantly greater than what’s currently included in SB1.

A new actuarial note had yet to be completed on the McGinnis amendment, so sans note, the amendment could not be considered.

One of the four amendments ruled out of order, offered by Rep. Bryan Barbin, D-Cambria, appears to propose something that is still considered illegal under Act 120 of 2010: borrowing money “for the benefit of” the state’s two public pension systems, specifically the use of pension obligation bonds.

Act 120 prohibits the use of pension obligation bonds for the two systems, however Barbin’s amendment doesn’t specifically call its proposed borrowing a pension obligation bond: $5 billion would be borrowed under the Capital Facilities Debt Enabling Act, with the $5 billion “applied to the current pension deficit” of SERS and PSERS. The $5 billion in bonds would have been paid off by 20 years of $250 million annual payments, seemingly indicating the state borrowing would be interest free – something that does not seem likely given other recent bonding efforts by the Commonwealth.

The other bypassed amendment, from Rep. Scott Conklin, D-Centre, would have allowed those elected as Governor, Lt. Governor and members of the General Assembly to, within one year of their taking office, decide if they want to enroll in one of the three new options. Under the proposal, if they didn’t make a decision, they lose the ability to become a member of the pension system. Those that lose their eligibility for membership only regain the ability to sign up for one of the systems’ plans if they leave state employment and then return to state employment. Conklin amendment expressly does not apply to those who are already members of the pension system, i.e. previously elected officials who won re-election.

 

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*In 2013, the S&P 500 index, generally considered representative of the U.S. stock market as a whole, produced total returns of 32.39% — the highest return for the index since 1997. But the S&P 600, which represents the stocks of smaller companies, returned 41.31%.1–2

Consider a hypothetical investor named Jim, who looked at those returns at the end of 2013 and decided to sell his shares in an S&P 500 index fund and reinvest them in an S&P 600 fund, hoping to ride the hot stocks of smaller companies. Index mutual funds and exchange-traded funds (ETFs) attempt to track the performance of a benchmark index by holding the securities that comprise the index; individuals cannot invest directly in an unmanaged index.

The trade would have been a disappointment for Jim. Small-cap stocks slumped in 2014, with the S&P 600 returning just 5.76%. By contrast, the S&P 500 returned 13.69%. Jim would have missed out on the higher return because he tried to chase prior-year performance. If he continued to chase performance and switched his investments back to an S&P 500 index fund, he would have been slightly ahead in 2015, a down year for the market in general, and then lost out again in 2016 when small caps again outpaced large-cap stocks (see chart).

Spreading the Risk

This example clearly illustrates the danger of chasing performance, but it also demonstrates why owning stocks in companies of different sizes can be a helpful diversification strategy. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

Companies are typically classified based on market capitalization, which is calculated by multiplying the number of outstanding shares by the price per share. There is no standard classification system, but Standard & Poor’s indexes offer a helpful comparison and are used as benchmarks for many funds.3

S&P 500 (market capitalization exceeding $5.3 billion). Stocks of larger companies, or large caps, are generally considered more stable than those of smaller companies. Large caps may provide solid long-term returns and possibly higher short-term returns in some years, as they did in 2013. But large caps typically have lower growth potential because they have already experienced substantial growth to reach their current size.

S&P MidCap 400 (market capitalization of $1.4 billion to $5.9 billion). Mid caps may have greater growth potential than large caps, and mid-sized companies can sometimes react more nimbly to changes in the business environment. Mid caps are associated with greater risk and volatility than large caps, but are considered less volatile and risky than small caps. Although they may not be the best performer in any given year, mid caps have produced the highest returns over the last 10-, 20-, and 30-year periods.4

S&P SmallCap 600 (market capitalization of $400 million to $1.8 billion). Small-cap stocks might offer the highest growth potential of the three classifications, because they have the furthest to grow and are more likely to react quickly to market opportunities. However, they are typically the most risky and volatile class of stocks, as illustrated by the performance swings of the last four years.

The performance of an unmanaged index is not indicative of the performance of any specific security. Past performance is not a guarantee of future results, and actual results will vary. The investment return and principal value of stocks, mutual funds, and ETFs fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost. Supply and demand for ETF shares may cause them to trade at a premium or a discount relative to the value of the underlying shares.

Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1, 3) Dow Jones Indices, 2016
2, 4) Thomson Reuters, 2016

Happy Investing!

Scott C. Weaver

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.

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Gov. Tom Wolf  is accusing IBM of racking up tens-of-millions in cost overruns while failing to deliver under a $110 million contract to create a new integrated computer system for handling the state’s unemployment compensation program.

A fraud suit filed by the Wolf’s administration said a sweeping computer upgrade the state contracted IBM to complete back in June 2006 fell three years behind schedule, went $60 million over budget, and ultimately never came to fruition.

Following the advice of an independent project assessment, the Corbett administration in 2013 , cancelled the contract with nothing to show for all the time, effort and money.
“All told, Pennsylvania taxpayers paid IBM nearly $170 million for what was supposed to be a comprehensive, integrated, and modern system that it never got,” Gov. Tom Wolf said in a statement.

“Instead, the Department of Labor & Industry has been forced to continue to support many of its UC program activities through a collection of aging, costly legacy systems, incurring tens of millions of dollars in server, support and maintenance costs.”

Said Senate Republican spokeswoman Jenn Kocher of the lawsuit: “This lawsuit validates our position that taking a step back, asking more questions and holding the administration accountable for spending was the right thing to do. Our insistence on finding a remedy has finally brought us to the point of action by the administration.”
According to a complaint in the Dauphin County Court of Common Pleas, the upgrade was meant to integrate disparate computer systems that the department relied on to process data regarding tax payments submitted by employers and benefit claims submitted by unemployed workers.

After a three-year bidding process, the complaint said that the state chose IBM for the project based on its representations that it was the only vendor with the type of proprietary databases capable of providing a totally integrated computer system.

But the state said that IBM never came through on its promises.

“Despite being paid nearly $170 million, IBM never delivered the modern, integrated computer system it commit to build, instead delivering failed promises and a failed project,” the complaint said.

While analysts spent time working with the department to understand the functions that would need to be built into the system, the complaint said that IBM ultimately removed the workers from the project when the time came to begin actually designing and coding the system.

“Frequent IBM personnel churn came to be a defining feature of the … project,” the complaint said.

The complaint also accused IBM of making repeated misrepresentations about the prospects for completing the project.

The contract was ultimately allowed to expire in September 2013 without the system ever coming online.

The suit levels claims including breach of contract, fraudulent inducement and negligent misrepresentation, and seeks unspecified damages.

“IBM will vigorously defend itself against the unfounded claims by the commonwealth,” the company said in a statement. “The claims are without merit ….”

The commonwealth is represented by David Wolfsohn, Sandra Jeskie and Aleksander Goranin of Duane Morris LLP.

Counsel information for IBM was not immediately available.

The case is Commonwealth of Pennsylvania v. International Business Machines Corp., case number 2017-cv-1740, before the Court of Common Pleas of Dauphin County, Pennsylvania.

 

 

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Seasonal workers will once again be allowed to get unemployment compensation when their jobs end thanks to legislation signed into law on Nov. 3 by Gov. Tom Wolf.

“This is going to help ensure seasonal workers – those who need unemployment insurance – will have better and more efficient access to those funds. While there are many people who need unemployment insurance to get them through periods of unemployment or underemployment, our seasonal workers, in such industries as construction, use these funds to make it through the winter months … this is important to all of us,” said Gov. Wolf at the signing.

Proponents of Act 144 of 2016, formerly House Bill 319, say it’s intended to fix an unemployment compensation (UC) unintended consequence created by Act 60 of 2012.

Gov. Wolf, Rep. John Galloway, D-Bucks, and Sen. Lisa Baker, R-Luzerne, all praised the bi-partisan effort to accomplish the changes. Galloway and Baker, along with Reps. Lee James, R-Venango, Mauree Gingrich, R-Lebanon, Seth Grove, R-York, Marc Gergely, D-Allegheny, and Sens. Tina Tartaglione, D-Philadelphia, and John Gordner, R-Columbia, were credited with helping making Act 144 a reality.

Noting the difficulties of getting Act 60 passed, Baker said initially, “There was not much enthusiasm for going right back into it [Act 60] to tackle the unintended consequences and to jeopardize what had been accomplished to set the [UC] Fund to solvency.”

But she said “those who committed to finding this answer today” were to be credited for developing a “responsible remedy” that doesn’t disrupt Act 60’s path to UC Fund solvency but still ensures seasonal workers, who she said she likes to refer to as “cyclical workers,” are treated properly.

“I’m proud of our partnership on this issue, and on many issues; we’ve got some important things done – I don’t think there’s anything we’ve gotten done, working together, that’s more important than this,” said  Gov. Wolf.

Act 60 implemented measures to reduce approximately $4 billion in debt to the federal government and address the long-term solvency of Pennsylvania’s unemployment compensation system. Post-Act 60, approximately 44,000 seasonal workers were disqualified from collecting unemployment compensation. Seasonal workers who earned 50.5 percent of their annual income or more in one quarter of the year have been ineligible for benefits since the enactment of Act 60. Prior to Act 60, the limit was 63 percent.

“Act 60 really had unintended consequences, particularly for the construction industry, the pipeline industry, the nuclear industry, the power suppliers and even the highway industry,” said Frank Sirianni, president of the Pennsylvania State Building and Construction Trades Council, following the bill signing. “What you had is employees with a bulk of hours in one [employment] quarter, and you can’t get 50 percent of that in follow-up quarters.”

“This kinda levels that all off and neutralizes that problem so that the people that are doing are infrastructure, who are sometimes mandated by law – especially in the highway industry – that they’re not allowed to work at certain times of the year, that they will now be covered by benefits,” said Sirianni.

In addition to reducing from 49.5 percent to 37 percent the percentage of base-year wages earned by an employee outside their highest quarter of earnings (thereby restoring the percentage that existed prior to Act 60), the new act also:

  • Increases the reserve ratio factor for certain employers, increasing UC premiums for a limited number of employers with the very worst records of laying-off employees;
  • Adds anti-fraud and amnesty provisions to, according to bill supporters, ensure additional equity and fairness exists in the UC system;
  • Reduces benefits and caps the increase in benefits for employees at the upper end of the income/benefits scale; and
  • Implements triggers which would compare projected UC Fund solvency dates with actual solvency dates, and then institute cost-saving measures – reductions of unemployment benefits – if solvency was not being met as required by the Act 60 timetable.

Opponents of the legislation caution that Act 60’s path to solvency for the UC Fund (to occur by 2026 prior to Act 144) could be negatively affected by the addition of tens of thousands of seasonal workers, since they will add to the already higher-than-projected state unemployment rate.

Rep. Gordner, Act 60’s author, prior to the bill’s approval by the state Senate, noted Act 60’s solvency provisions assumed state unemployment rates closer to 5 percent, but Pennsylvania’s rate is currently 5.7 percent, and has been above 5 percent now for six-straight months.

While he noted concerns in the short term, Gordner acknowledged if the state can avoid another unemployment spike – similar to what occurred following the 2008-09 recession – during the next three or so years, Act 144‘s cost-saving measures to be implemented in 2020 will be beneficial to the UC Fund.

When asked about potential concerns about exposing the state to greater UC Fund insolvency risk in the short term, Gov. Wolf said the act contains “so many conditional elements that those possibilities, however remote they are, that the solvency of the fund is in good shape.”

“I think they have done a remarkable job of trying to take all the contingencies into account,” said Wolf of Act 144’s authors.

Sen. Lisa Baker, R-Luzerne, said the act includes several solvency “triggers” – which she said were “key to Senate passage” of the legislation – that “in the event that we hit one of those triggers, we will have savings and [benefit] reductions, beginning as early as 2017.”

In fact, Act 144 supporters claim those savings provisions will help to, potentially, bring the UC Fund to solvency, earlier than originally planned by Act 60 – maybe 2024 or 2025, instead of 2026.

To accomplish that, benefits will be reduced by 2 percent across the board starting next year, with the maximum weekly benefit declining from $573 to $561, and it would stay there through 2019. From 2020 through 2023, the growth of that maximum benefit would be capped at 2 percent, with that cap increased to 4 percent for 2024 and thereafter. The across-the-board 2-percent benefit reduction is expected to produce $44 million in annual savings, while the post-2024 4-percent cap is projected to deliver at least $400 million of savings annually, which is expected to grow each year thereafter.

Before Act 144, Act 60 reduced the rate of growth of the maximum weekly benefit, first freezing it at $573 through 2019, and then capping its growth at 8 percent from 2020 through 2023. After 2023, the pre-Act 60 environment would have returned with the maximum benefit being two-thirds of the average weekly wage.

In addition to three new solvency triggers – which reduce unemployment benefits for claimants if the UC Fund balance isn’t where it’s supposed to be – and the anti-fraud and “bad-actor” penalties for beneficiaries and employers, the changes are projected to save the UC Fund as much as $1.5 billion over six years while making more seasonal workers eligible for benefits, according to proponents.

The Senate voted 39-8 and the House voted 161-30 to send HB319 to Gov. Wolf’s desk for his signature.

That wasn’t the only UC bill to come up in discussions during and after the bill signing