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PA’s Economic Climate Challenges Nonprofits


‘Tis the season when many Americans donate to their favorite charity.  While leaders in the nonprofit sector remain firm in their conviction that they are best suited to deal with Pennsylvania’s social and economic challenges they are concerned that public trust in charities is not as high as it should be.  Those are among the findings of the 2016 Pennsylvania Charitable Organizations Survey conducted during the month of November by the Lincoln Institute of Public Opinion Research, Inc. in cooperation with the Pennsylvania Association of Nonprofit Organizations (PANO).

Among the participating nonprofits just ten percent said that public trust in charities is “high,” while 77% rated public trust as “medium.”  Nine percent felt public trust in charities currently is “low.”  Twenty-two percent of the nonprofit executives said the level of public trust in charities has gotten better over the past few years, but 31% said it has gotten worse.

Having said that, the nonprofit leaders feel their sector is best positioned to address Pennsylvania’s social and economic challenges.  Forty-five percent identified their own sector as best suited to address those needs; 22% think state government is most effective; while 6% cite the for-profit sector.  Just three percent said the federal or municipal governments can best handle those challenges.

“Public trust,” said Anne Gingerich, Executive Director of PANO, “is critical to the sustainability of any business – nonprofit, for-profit or government.  When one nonprofit fails to live up to the highest standards it can damage the reputation of all.”  She continued: “Unfortunately these stories overshadow the hundreds of nonprofits who give selflessly to ensure that lives are changed, not just during the holidays, but all year long.”

Like their counterparts in the for-profit world, leaders in Pennsylvania’s nonprofit sector say business conditions in the state have gotten worse over the past year rather than better.  Concerns over potential new federal regulations and the growing likelihood of another extended state budget stalemate feed concerns that the commonwealth’s business climate will continue to deteriorate during the year ahead.

The survey found 15% of the nonprofit executives view business conditions in Penn’s Woods over the past year as having improved, 22% say business conditions have gotten worse.  The majority – 63% – say the state’s economy has remained about the same.  But “about the same” is not good as business confidence, whether for-profit or nonprofit, has been low for the past two years.

By comparison, a September 2016 survey of owners/chief executive officers of for-profit businesses found only five percent saying the state’s economy has improved in recent months while 50% said it had gotten worse.

Looking ahead, a third of the nonprofit leaders expect the state’s business climate to get worse while 22% predict it will get better. Forty-four percent say the Pennsylvania business climate will remain about the same during 2017.

Despite their overall pessimism about the direction of the commonwealth’s economy, employment was up at a quarter of the nonprofits, and down at 16%.  That could be explained in part by some nonprofits stepping up hiring after having cut back staff during the budget stalemate of two years ago.  However, looking ahead 22% say they expect to add employees while 14% predict staffing cuts.

Federal Regulation

Hanging over all sectors of the economy including nonprofits are U.S. Department of Labor (DOL) regulations that would increase the minimum salary requirements for “white collar” workers from $23,600 to $47,476 per year.  The effect would be a significant increase in overtime costs.  This is perhaps more significant for the nonprofit sector in that employees at many smaller nonprofits view their jobs as being community service as much as employment and often put in hours well in excess of those for which there are paid.

The 2016 Pennsylvania Charitable Organizations Survey found that the new regulations would increase payroll costs at 43% of the responding organizations as well as increase the amount of time spent tracking employee hours.  The regulations are now on hold due to a federal court ruling, but should they go into effect 30% of the nonprofits surveyed said they would have to cut staff to pay for the increased costs of complying with the regulations; 11% would have to cut services and another 16% would respond by seeking additional volunteer help.

State Issues

Pennsylvania’s nonprofit organizations were among those most significantly impacted by the lengthy state budget stalemate of two years ago.  In light of that experience, 68% would support putting into place legislation that would incentivize lawmakers to adopt a state budget in a timely manner. Sixty-eight percent (some with board approval) said they would support legislation that would progressively penalize state lawmakers for missing the state budget deadline, with penalties increasing for each day past the June 30th deadline.

PANO’s Gingerich said nonprofit support of legislation penalizing lawmakers for budget stalemates is not surprising.  “Not only clients suffer as a result of the impasse, but nonprofits themselves had to lay off staff and borrow money to continue operations.  As partners with state government in providing mandated services, nonprofits should ask to be at the budget negotiation table.”

Unlike executives in the for-profit sector, nonprofit leaders are open to supporting a wide range of tax hikes.  Thirty-seven percent said they would support an increase in the state’s Personal Income Tax (PIT), while 22% said they would not.  Another 41% offer no opinion on the question.  Likewise 43% would support imposing a new natural gas drilling tax of up to 6.5% specifically to support human services.  Thirteen percent would oppose such a tax, and 43% offered no opinion.  Similar support levels were voiced for the imposition of a new public health tax (ie: sugar tax, soda tax) of 1.5 cents per ounce dedicated to human services.  The highest level of support – 50%  – is for dedicating a portion of taxes generated by Pennsylvania’s gaming industry to support human services.

Organizational Issues

Despite their overall negative assessment of the direction of Pennsylvania’s business climate, more of the nonprofits participating in the 2016 Pennsylvania Charitable Organizations Survey said funding for this calendar year has increased than have seen decreases.  A third of the nonprofits said funding is up, a quarter reporting funding has dropped and 43% said their funding levels have remained about the same.  Looking ahead to 2017 about half of the nonprofits predict funding levels at their organization will remain static; 30% say they expect funding to increase; 20% are braced for funding to decrease.

By a two-to-one margin nonprofits have seen state funding levels decrease over the past five years.  Twenty-one percent said funding from the state had dropped during that period of time while ten percent saw an increase in state funding.  The other half of the organizations said funding from state government has remained about the same.  Likewise there has been a slight drop in federal funding.  Sixteen percent said their organization’s funding from the federal government has dropped over the past five years, 12% said federal funds have increased.  Federal funding remained about the same at the remaining 45% of organizations surveyed.

Property tax exemption challenges remain a concern at some nonprofit organizations.  Seven percent report having had their property tax exemption challenged over the past two years and 13% are concerned their municipal or county government may challenge their exemption next year.

Nonprofit organizations are not participating in lobbying activities in a major way.  Just six percent say they have someone from their organization registered as a lobbyist under the Pennsylvania Lobbying Disclosure Act. Twenty-two percent have lobbied on a public policy issue at some level of government over the past year.  Twenty-seven percent expect to lobby government at some level during the coming year.  Gingerich urged nonprofits to engage in more lobbying activities.  “Nonprofits must understand that not only can they lobby, but they are not doing their jobs if they do not.  Together, the collective voice of the nonprofit sector has powerful, yet untapped power.”

Methodology

The 2016 Pennsylvania Charitable Organizations Survey was electronically conducted during the month of November 2016.  A total of 177 nonprofit organizations responded to the survey invitation.  Complete numeric results are available at http://www.lincolninstitute.org.

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Grow Private Sector, Not Government


 

Tax policy received scant attention in the presidential debates, but when it did both candidates displayed a serious lack of understanding regarding at least one critical component of the tax code: carried interest. Although arcane in nature and unheard of by most, carried interest is a tax rule that fosters capital formation, encourages investment and ultimately leads to job creation.

Simply put, carried interest is a type of capital gain.  Homeowners are familiar with the term ‘capital gain’ which in that circumstance refers to the increase in value of your home over time as you make improvements or rising market prices increase its sale price.  If you sell your principle residence and make more than $500,000 in profit as a married couple, you must pay a capital gains tax.  You pay the capital gains tax rate, not the ordinary income tax rate, on the transaction because you have already paid taxes on the income used to purchase the house.

Likewise carried interest is a long-term capital gain that is earned by an investment partnership.  In this case the asset is not a house, but an investment portfolio that the partnership established and grew over time. When sold, the portfolio manager pays a lower capital gains tax rate on the fund’s profit, not the higher ordinary income tax rate.

The presidential candidates have, unfortunately, decided to portray carried interest capital gains as a loophole granted to special interests.  Both candidates want to raise this capital gains rate claiming it gives investment fund managers an unfair tax break.  Fairness, however, is not what such an increase would achieve. Rather it would amount to double taxation.

The negative effects would be much worse than over-taxing a sub-set of taxpayers.  The partnerships that are formed when an investor joins with a fund manager results in a structure that fosters informed investments that grow over time.  This growth generates profits.  When the profits are re-invested that is called capital.  Such capital is invested in businesses so that they can grow, expand and create jobs.

Carried interest capital gain rules play a critical role in allowing capital to form.  If you raise the carried interest capital gain tax rate, the government will take more in taxes–dramatically decreasing the amount of capital available for investment in the economy.

A significant portion of that capital available for investment is invested right here in Pennsylvania.  According to the American Investment Council, private equity firms invested an estimated $24.49 billion in Pennsylvania-based companies in 2015.  There are 143 private equity firms headquartered in Pennsylvania.  These companies support more than 185,103 workers at facilities both in Pennsylvania and in other states.

In other words, carried interest capital gains is not a tax device aimed at making Wall Street fund managers richer. Rather, it is appropriate taxation that makes more capital available for investment in the companies that are creating much needed new jobs for Pennsylvanians and elsewhere.

It is common in an election year for candidates to propose new government spending programs in an effort to win votes.  They then go looking for ways to pay for that higher spending. “Reforming” the nation’s complex tax structure is often an effective target.

But, changes can have unintended consequences.  Raising the current 23.8% carried interest rate to 33% as proposed by Donald Trump or almost 50% as suggested by Hillary Clinton would result in only a modest increase in tax revenue flowing into the federal treasury.  And we all know that any move to raise this rate would likely be coupled with other tax hikes on working families and small businesses.

Even if you set aside the unfairness of double taxing investors, raising the carried interest tax rate or eliminating that category of capital gain entirely would have the detrimental effect of reducing capital formation.  That means dramatically fewer dollars available for companies to grow and create new jobs.  Carried interest is not a tax break for the wealthy; rather it is a way for investors to put their earnings to work creating the new jobs needed as the nation struggles to recover from the Great Recession.

Lowman S. Henry is Chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc. and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org

Permission to reprint is granted provided author and affiliation are cited.

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Stagnation: PA business climate remains sluggish


Pennsylvania’s business climate remains sluggish as the commonwealth continues to struggle in the aftermath of the Great Recession.  Business conditions, employment levels and sales have all backslid over the past six months with owners blaming high taxes, government regulation and a lack of skilled workers for the malaise.

The Fall 2016 Keystone Business Climate Survey conducted by the Lincoln Institute of Public Opinion Research found half of the business owners and chief executive officers survey saying the state’s economy has gotten worse over the past six months, only five percent felt Pennsylvania’s business climate had improved during that time frame.

Comparatively, one year ago 42% felt the business climate had gotten worse, while six percent at that time said it had improved.  There is little optimism that business conditions will improve soon. Forty-four percent say they expect the state’s economy to continue getting worse over the upcoming six months, five percent expect to see an improvement in the business climate.

Along with that pessimistic overall prognosis twice as many businesses report having reduced their workforce as say they have added jobs.  The majority of businesses – 66% – reported that employment levels remained about the same over the past six months.  But, 21% said they have reduced their employee compliment while 11% added employees.  The picture improves slightly as the owners/CEOs look ahead to the coming six months.  Sixteen percent say they plan to add employees, 12% expect to reduce their workforce.

Sales have also taken a hit over the past six months.  Thirty-nine percent said their sales remained about the same from March thru September.  But, 39% reported decreased sales and were off-set by only 21% having reported sales increases.  Looking forward, 51% expect sales to remain stable.  Twenty-Four percent forecast an increase in sales, 23% are braced for a sales decrease.

Factors Impacting Business Growth

Among the factors cited by businesses for why they considered expanding their businesses over the past two years, but decided against expansion taxes and regulation topped the list of barriers.  Onerous federal regulations were cited by 41% of the businesses that considered, but rejected, expansion plans.  Coming in a close second was Governor Tom Wolf’s proposed tax increases cited by 40% as a reason why they did not expand. Pennsylvania’s tax structure was listed by 29% as having frustrated expansion plans.

Thirty-six percent cited onerous state regulations as a barrier to expansion, while another 35% cited the lack of a skilled work force.  Nearly half of the businesses surveyed said they currently have open positions for which they have been unable to find qualified applicants. Forty-two percent say they have been unable to fill one to five jobs; 2% have six to ten open positions; one percent has more than ten jobs unfilled due to lack of qualified applicants.

State Issues

Pennsylvania fiscal condition continues to be of concern to the business owners and CEOs participating in the Fall 2016 Keystone Business Climate Survey.  Eighty-five percent disagreed – 70% strongly so – with Republicans in the General Assembly having agreed to a $1.4 billion spending increase and then raising taxes to enact the current year’s state budget.

Looking ahead to what will likely be another epic budget battle next summer, 92% say the General Assembly must address cost drivers such as pension reform before considering an increase in taxes.  In fact, 34% said the state’s massive unfunded pension liability has caused them to not consider expanding in Pennsylvania.

Among pension reforms being considered is moving state employees from the current defined benefit pension system to a defined contribution plan. Thirty-nine percent of the businesses surveyed said they offer employees a company administered defined contribution plan to which the company contributes.  Only 3% of the private businesses surveyed continue to offer a defined pension plan.  Another 40% offer employees no retirement plans at all.

Earlier this year the General Assembly did pass, and Governor Tom Wolf signed into law, some modest changes to the state’s century-old liquor laws. Business owners/CEOs said those reforms did not go far enough.  Fifty-two percent would like for the state to completely privatize both retail sales and wholesale distribution of alcoholic products.  Another 26% would like to see just retail sales privatized.  Twelve percent said the recent changes were sufficient.

Pennsylvania has an abundant supply of natural gas, but additional pipelines are needed to get that gas to market.  Eight-nine percent agree – 60% strongly agree – that this resource should be developed and more pipelines built.  Nine percent disagree.  Twenty-five percent said easier access to natural gas would be a benefit to their business with an additional 14% saying it would be a major benefit.  Thirty percent said they do not utilize natural gas in their business.

Over the past nine years since the passage of Act 44 the Pennsylvania Turnpike Commission has diverted $5.2 billion to PennDOT to help pay for state highways and public transit.  This has resulted in annual fare increases for turnpike travelers.  Sixty-three percent of those participating in the Fall 2016 Keystone Business Climate Survey said this should end and fare revenue be used only to maintain and improve the turnpike.  Twenty-nine percent felt the sharing of revenue should continue.

Job Approval Ratings

President Barack Obama and Governor Tom Wolf continue to suffer from significantly low job approval ratings among the business community.  Eighty-four percent have a negative view of the President’s job performance; 86% disapprove of the job being done by Governor Wolf.

U.S. Senator Pat Toomey, who faces re-election in November, received a 50% job approval rating against 23% with a negative view of his job performance.  The job being done by U.S. Senator Robert P. Casey, Jr. is viewed negatively by 56% of the business owners/CEOs, 18% give him positive marks.  Likewise, 54% say Federal Reserve Chair Janet Yellen is doing a poor job, 15% approve.

Pennsylvania has three statewide constitutional or “row” offices. Two are serving by appointment, their elected predecessors having resigned after being convicted of crimes.  Auditor General Eugene DePasquale is the surviving official elected in 2012 still in office.  Seventy-three percent have no opinion of his job performance, with 14% saying he is doing a good job and 14% having a negative opinion of his job performance.  Likewise about two-thirds offered no opinions on state Treasurer Tim Reese or Attorney General Bruce Beemer.  Of those who did, 18% give Beemer a negative rating, 6% a positive one while 15% hold a negative view of Reese, 5% a positive view.

As has been the case throughout the Keystone Business Climate Survey’s 22-year history the owners and chief executive officers hold the federal congress and the state legislature in very low regard.  Just 8% approve of the job being done by the United States Senate, 11% approve of the job being done by the U.S. House of Representatives.  Seventeen percent approve of the job performance of the Pennsylvania Senate; 19% approve of the job being done by the Pennsylvania House of Representatives.

Finally, the Lincoln Institute asked participants in the survey who they support for President of the United States and United State Senator from Pennsylvania in the upcoming November General Election.  Seventy-three percent said they will vote for the Republican nominee Donald Trump, 12% support the Democratic nominee Hillary Clinton and 6% say they will vote for Libertarian Gary Johnson.   Republican incumbent U.S. Senator Pat Toomey has the support of 81% of the owners/CEOs, Democratic challenger Katie McGinty has 12% support.

Methodology

The Fall 2016 Keystone Business Climate Survey was conducted electronically by the Lincoln Institute of Public Opinion Research, Inc. from September 13 through October 5, 2016.  A total of 370 businesses responded to the survey invitation.  Of those 81% are the owner of the business, 14% are the CEO/COO/CFO and one percent a business manager.

Twenty-five percent of the responses came from the Philadelphia/southeastern part of the state; 18% from Pittsburgh/southwestern Pennsylvania; 16% from south/central Pennsylvania; 13% from northwestern Pennsylvania; 11% from northeastern Pennsylvania; 10% from north-central Pennsylvania; 4% from the Lehigh Valley and 3% from the Altoona/Johnstown area.

Complete numeric results are posted on-line at http://www.lincolninstitute.org

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2016 Republican Delegate/Alternate Delegate Survey: Supreme Court, Terrorist, Constitutional Rights Top Delegate Concerns


Pennsylvania’s delegation to the 2016 Republican National Convention rated U.S. Supreme Court nominations, terrorism and protecting constitutional rights as the most important issues facing the nation while viewing the GOP-controlled congress as having failed to effectively counter the policies of President Barack Obama.

The Lincoln Institute’s quadrennial survey of delegates and alternate delegates found economic issues outweighed social issues and foreign affairs in their selection of a presidential candidate, but 60% said a combination of all three issue sets factored into their decision.

That was reflected in the importance given to the various issues facing the nation.  No social issues topped the delegation’s list of important issues.  A clear concern over fundamental rights emerged from the survey data as the selection of nominees to the U.S. Supreme Court topped the importance scale with 90% saying the seating of justices was a very important issue.  Concerns over ISIS/terrorism rated as second most important, but protecting constitutional rights followed closely as the delegation’s third most important area of concern.  Jobs and the economy, the budget deficit/government spending and illegal immigration rounded out the top concerns.

Pennsylvania’s delegation hues to traditional Republican positions on President Obama’s job performance.  Eighty-seven percent say his administration’s foreign policies have made the United States much less secure; only one delegate thought those policies have made the nation more secure.  When asked if President Obama was on the right track or wrong track in responding to the threat of ISIS and international terrorism there was unanimity – 100% said wrong track.  Until the threat of ISIS/terrorism has ended, 64% of the delegation thinks the U.S. should ban entry of citizens from countries that are hotbeds of terrorist activity; 26% want to ban all Muslims from entering the country; 13% say current laws are sufficient. Eighty-nine percent of the delegates/alternate delegates strongly disapprove of the Obama Administration’s nuclear deal with Iran, another 8% somewhat disapprove.  Only 3% expressed approval.

When asked if the U.S. economy is on the right track or off in the wrong direction 97% said wrong direction.  Ninety-two percent of the Pennsylvania delegation to the Republican National Convention places the blame for the nation’s economic ills on President Obama, but majorities also fault labor unions and congress.  There is strong support, 72% with another 26% somewhat supporting lowering tax rates as a means of stimulating economic growth.

The delegation, reflecting the views of its presumptive presidential nominee, opposes free trade agreements such as the Trans Pacific Partnership (TPP).  Sixty-nine percent oppose TPP with 31% expressing strong opposition.  In terms of balancing the federal budget, 79% would do so only by cutting spending; 21% would employ a combination of tax hikes and spending cuts.  Concern was voiced over the viability of the Social Security system: 57% think the system will be around for future generations – but only with substantial changes.  Forty percent think Social Security is headed to bankruptcy; only 4% think it will survive without changes. To provide for the nation’s energy needs, 93% favor more domestic drilling as a solution; 50% support development of alternative fuels and 30% urge conservation.

Illegal immigration has been a dominate issue in Donald Trump’s presidential campaign.  The Pennsylvania delegation to the Republican national convention reflects his stance on the issue.  Fifty-six percent of the delegation wants immediate deportation of illegal aliens; 23% would accept granting permanent worker status.  Not a single delegate favors granting illegal aliens full citizenship.

Also spurring Donald Trump’s march to the Republican Presidential nomination was grassroots frustration with the ineffectiveness of the party’s elected officials in Washington, D.C.  Eighty percent of the Pennsylvania delegation said the Republican-controlled congress has been ineffective at checking President Obama’s executive power.

As a result, over two-thirds hold a negative view of the job being done by the U.S. Senate and the U.S. House of Representatives.

A strong anti-government thread is woven into the state’s delegation as 97% said they view the federal government as an adversarial force when it comes to helping solve problems. Only two delegates view the federal government as a positive force.  Likewise, 97% say our basic rights as Americans are God-given; only two delegates view our rights as granted to us by government.

State Issues

The Lincoln Institute’s survey of delegates/alternate delegates to the 2016 Republican National Convention found 92% want Republicans in the general assembly to continue holding the line on more spending and higher taxes.  Ironically, those views were expressed as the GOP-controlled legislature approved a state budget which dramatically increased spending and included a wide array of tax hikes.  Ninety-six percent agree with the strategy – now abandoned by Republican legislative leaders – that cost drivers like pension reform should be addressed before the general assembly considers any increase in taxes.

Sixty-five percent of the delegation feels the property tax-based system currently utilized by school districts, local and county governments to fund services is unfair to taxpayers. There is little agreement though on how to otherwise raise revenue.  Twenty percent favor a higher state sales tax rate while 16% would support a more broad based state sales tax at the current rate.  There was nominal support for local sales taxes, local earned income taxes or a higher state income tax.  On a related note, 61% favor allowing vouchers or grants to students who wish to attend a public school in a district other than their own, 32% do not.

Generally speaking, 60% of the delegates/alternate delegates think the state income tax rate is too high, another 41% say it is about right. Eighty-seven percent feel state business taxes are too high, only 13% think taxes on business are about right.  When it comes to economic development, 96% favor having the state cut business taxes and regulation.  Just 4% favor having the state borrow money to help select business ventures.

There is strong support among Pennsylvania’s delegation for a Right to Work Law, which means that a worker cannot be fired or kept from having a job for either joining or not joining a labor union. Eighty-five percent favor the adoption of a right to work law.  On a related issue, 76% support enacting a ban on public school teacher strikes.

Delegation Composition

Pennsylvania’s delegation to the Republican National Convention is a very conservative one.  Forty percent say they are very conservative, another 47% say they are somewhat conservative.  Thirteen percent proclaimed themselves to be moderates, and one delegate adopted the very liberal/progressive title.

The delegation is skewed to higher age demographics.  About a third are over the age of 65, another third between the ages of 50-65.  Twenty-eight percent fall in the 30-50 age group, while only one respondent was under 30.  Of the delegates responding to the survey invitation 62% are male, 38% female.

Methodology

The Lincoln Institute survey of delegates/alternate delegates to the 2016 Republican National Convention was conducted electronically between June 28 and July 14. 2016.  A total of 73 delegates/alternate delegates participated in the survey.  Complete numeric results are available on-line at www.lincolninstitute.org.

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Crash and Burn: Wolf Job Approval Rating Hits Record Low


There is an old Irish proverb that holds “There’s nothing so bad it couldn’t be worse.”  That applies to Governor Tom Wolf’s job approval rating with the owners and chief executive officers of businesses throughout Penn’s Woods.  It has now dropped to the lowest point ever recorded by a governor in the 21-year history of the Keystone Business Climate Survey. The poll is compiled each Spring and Fall by the Lincoln Institute of Public Opinion Research.

Eighty-nine percent of the business leaders surveyed said they have a negative view of Governor Tom Wolf’s job performance; just 5% give him a positive rating.  That eclipses the previous record disapproval recorded by Governor Ed Rendell in the Fall of 2009 when 86% offered a negative assessment of his job performance.  It is also a 20% drop in approval for Governor Wolf from one year ago.  In fact, the governor’s job approval rating has now sunk below that of President Barack Obama who tallied an 88% job disapproval rating.  It is the first time a Pennsylvania governor’s job approval has dipped lower than President Obama’s.

Business Climate

Driving the Governor’s record low job approval rating is a growing pessimism over the state’s economic climate.  In numbers not seen since the depths of the Great Recession in 2009, 54% of the business owners and CEOs say Pennsylvania’s business climate has gotten worse over the past six months.  That is up from 33% who experienced worsening economic conditions one year ago.  The number of respondents saying the state’s business climate has gotten better over the past six months stood at just 6%, down from 13% one year ago.  Looking ahead, 76% expect the state’s business climate to worsen over the coming six months, 8% look for conditions to improve.

In recent years, employment levels have held relative steady.  That has now changed as 22% said they employ fewer people than they did six months ago, 9% report an increase in employment.  In what passes for optimism in this poll, the same number (15%) predict employment levels at their business will rise or fall over the coming six months.

Another turn-around is in company sales.  After steady or moderate increases in sales, the Spring 2016 Keystone Business Climate Survey found sales had dropped at 39% of the companies responding, and increased at 18%.   But, 27% project a sales increase over the coming six months while 15% say they look for sales to decrease.

State Issues

About a third (30%) of the business leaders polled said their business had been harmed by the state budget impasse.  But, 85% think Governor Tom Wolf’s proposed state budget will harm Pennsylvania’s overall business climate; 65% say it will inflict significant harm. Seven percent see the Wolf budget as helping the state’s economy.

Governor Wolf claims the state has a “structural budget deficit” of over $1 billion dollars.  Assuming that is correct, 77% of the CEOs/owners said the state should cut spending to match revenue.  Eighteen percent support a combination of spending cuts and tax hikes to balance the budget.  About 1% suggested maintaining current spending levels and raising taxes to cover the deficit.  Just 1% support Governor Wolf’s approach which is to increase spending and increase taxes to cover both the deficit and higher spending.

As part of his budget proposal, Governor Wolf has included an 11% increase in the state income tax for all individuals and businesses.  Ninety-four percent oppose that proposal; 5% are in agreement.  Another Wolf initiative is to raise the state’s 6% sales tax to help balance the budget.  That idea was turned thumbs down by 73% of the poll respondents, but earned the support of 25%.  Opposition was especially strong to the idea of increasing the state’s Corporate Net Income (CNI) tax.  Ninety percent oppose the idea with 76% expressing strong opposition.  Six percent support raising the CNI.

In the absence of a state budget, Governor Tom Wolf has continued to spend money on those items he deems appropriate.  When asked if they think it is constitutional for the governor to spend state tax dollars on line items that have not yet been approved by the legislature, 87% said it is not; 5% think it passes constitutional muster.

The business owners and CEOs participating in the Spring 2016 Keystone Business Climate Survey do not want a state budget adopted at any costs.  When asked if they agree or disagree with this statement: A new state budget should be adopted immediately even if it means significant increase in my taxes, 89% disagreed – 80% strongly disagreed.  Nine percent agreed and said a state budget should be adopted regardless even if it means higher taxes.

On other issues, the Pennsylvania State House of Representatives is considering impeachment proceedings against Attorney General Kathleen Kane. Kane is under indictment for allegedly leaking Grand Jury information and has announced she will not seek re-election in November.  Fifty percent of the business leaders said the House should drop impeachment proceedings; 41% think impeachment proceedings should continue.

The Pennsylvania General Assembly is considering the legalization of medical marijuana.  Sixty-three percent support the legalization of medical marijuana; 31% oppose legalization.

By executive order Governor Tom Wolf has raised the minimum wage for state employees to $10.15 per hour.  Eighty-one percent of the CEOs/business owners said they oppose raising the minimum wage for the private sector to that level; 17% would support such an increase in the minimum wage.

Job Approval Ratings

President Barack Obama continues to receive strongly negative job performance reviews from survey participants.  Eighty-eight percent disapprove of the job the President is doing; 9% approve.  Janet Yellen, Chairman of the Federal Reserve Board also received negative marks: 44% negative to 18% positive as did U.S. Treasury Secretary Jack Lew with 39% disapproving of his job performance and 5% offering their approval.

The only official tested with a net positive job approval rating was U.S. Senator Pat Toomey.  The state’s junior senator was given a positive rating by 48% of the business leaders against a 24% negative rating.  U.S. Senator Robert P. Casey, Jr. scored a 14% positive, 56% negative rating.

As noted, Governor Tom Wolf received a record high disapproval rating at 89%.  That was worse than the negative rating given to Attorney General Kane.  The indicted top law enforcement official received a 75% negative rating and a 10% positive rating.  Two-thirds or more offered no opinion on the two statewide fiscal officers.  Auditor General Eugene DePasquale got positive marks from 15%, with 17% offering a negative view.  State Treasurer Tim Reese had a 17% negative rating against an 8% positive rating.

Participants in the survey offered a strong negative view of the job being done by the United States Senate: 77% hold a negative view of the institution’s job performance with 12% having a positive view.  The U.S. House of Representatives fared a bit better with 72% offering a negative assessment and 18% a positive view.  Fifty-one percent of the respondents give the Pennsylvania State Senate negative marks, 37% think the state senate is doing a good job.  Fifty-one percent have a negative view of the job being done by the Pennsylvania House of Representatives; 39% say the lower chamber is doing a good job.

Methodology

The Spring 2016 Keystone Business Climate Survey was conducted electronically from March 14, 2016 thru April 1, 2016.  A total of 367 individuals responded of which 84% are the owner of their business; 13% are the CEO/COO/CFO and 2% are a state or a local manager. Complete numeric results can be viewed at http://www.lincolninstitute.org.

For interviews on this survey please contact Lowman S. Henry at717 671-0776 or lhenry@lincolninstitute.org.

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Governor Wolf Posts 82% Disapproval Rating


Malaise: Business Owners Turn Deeply Negative

Governor Wolf posts 82% disapproval rating

Governor Tom Wolf, who owned and operated a mid-sized business before running for office, has become enormously unpopular with his former peers posting the second highest negative rating for a governor in the 20-year history of the Keystone Business Climate Survey.  The September poll of business owners and chief executive officers found 82% hold a negative view of the governor’s job performance while 12% say he is doing a good job.

The governor’s budget proposals lie at the heart of the business community’s disapproval. Eight-one percent say the Wolf tax and spending plans would harm Pennsylvania’s business climate, 64% say they would do significant harm.  Further, Wolf gets the lion’s share of the blame for the budget impasse.  Fifty-eight percent say the budget stalemate is the governor’s fault, just 6% blame legislative Republicans.  Another 32% say both the governor and the legislature are to blame for the lack of a state budget.

Business Climate

One year ago, for the first time since the Fall of 2004, more of the business owners/CEOs participating in the survey said that business conditions in Pennsylvania had gotten better (20%) during the preceding six months that felt it had gotten worse (19%).  By last Spring those number had slipped significantly into negative territory with 13% saying business conditions had improved and 33% saying the state’s business climate had gotten worse.  In the current (September 2015) survey, 42% say the business climate in Penn’s Woods got worse over the past six months, 6% say it has improved.

Optimism for improvement of the state’s business climate in the coming six months has faded since last Spring.  Only 6% expect business conditions to improve headed into the new year, down from the 12% who expressed optimism last Spring.  Those who expect the business climate to get worse rose from 44% in March to 49% in the September survey.

Employment levels are also slipping.  Fifteen percent of the owners/CEOs said they have increased the number of employees in their business over the past six months, 21% said they now employ fewer people.  Looking ahead, 14% plan to add employees in the coming six months, 16% expect to have fewer employees.

Sales are also down.  Twenty-eight percent of the businesses participating in the survey say their sales have decreased over the past six months, 27% say sales are up.  There is a bit of optimism for the future, however, as 25% project an increase in sale over the upcoming six months while 18% are bracing for a decrease.

State Issues

The ongoing state budget impasse remains a top issue. Governor Wolf has put the biggest proposed tax hike in the nation on the table, the Republican-controlled legislature refuses to go along. Owners/CEOs participating in the Fall 2015 Keystone Business Climate Survey are not willing to see a resolution of the budget stalemate at any cost. Ninety percent said they do not want a new state budget if it will result in a significant increase in their taxes.  Nine percent say they are willing to pay significantly higher taxes if it would result in an immediate budget resolution.

Education spending is one of the sticking points in the budget.  Governor Wolf is demanding significantly higher spending.  But the poll found business owners disagree with the need to spend more on K-12 public education.  Forty-four percent say the state already spends too much on public education and another 30% feel current spending levels are about right.  Twenty-two percent agree with the governor that too little money is spent on education.

There is strong agreement with the Republican legislative position that the public education pension system must be reformed before any increase in spending is approved. Eighty-seven percent see pension reform as a prerequisite to spending more on education, 10% disagree.

Looking at the budget generally, 69% agree that any resolution to the state budget impasse must include a plan to privatize Pennsylvania’s state-run liquor store system.  Twenty-two percent do not link liquor privatization to a budget resolution.

Asked which statement most closely describes Governor Tom Wolf’s budget proposal 45% said it is a significant increase in spending, 21% identified it as the biggest spending increase in state history and 15% correctly identified it as a tax and spending increase greater than that proposed by all 49 other states combined.  Two percent termed the budget a “modest increase” in state spending.

By some estimates Pennsylvania spends about $700 million a year on individual grants or tax breaks to certain companies or industries. Such grants are viewed by some as “economic development,” by others as “corporate welfare.”  Thirty-two percent of the business owners/CEOs said such grants should be eliminated entirely and taxes reduced on all businesses.  Eleven percent favor the elimination of such grants with the savings used to balance the state budget.  Forty percent would reduce, but not eliminate economic development grants, and 4% think more money should be spent on such projects.

Job Approval Ratings

Eighty-two percent disapprove of the job being done by Governor Wolf, up from the 70% who held a negative view of the governor in the March 2015 poll.  That number is the second highest disapproval rating for a governor in the 20-year history of the Keystone Business Climate Survey surpassed only by the 86% negative rating received by Governor Ed Rendell in September of 2009. The only elected official with a lower job approval rating that Governor Wolf is President Barack Obama. Eighty-eight percent of those participating have a negative view of the President’s job performance, 10% view him in a positive light.  U.S. Senator Pat Toomey received a 47% positive job approval against a 28% negative rating.  U.S. Senator Robert P. Casey, Jr. didn’t fare as well, 64% disapprove of the job the senior senator from Pennsylvania is doing, 15% approve.  The business leaders are also not pleased with the job being done by federal fiscal officials.  Forty-four percent disapprove of the job being done by Federal Reserve Board Chairman Janet Yellen, 21% approve.  U.S. Treasury Secretary Jack Lew is viewed negatively by 42%, while 11% approve of his job performance.

Pennsylvania Attorney General Kathleen Kane is under indictment for allegedly leaking secret grand jury information.  Sixty-eight percent disapprove of her performance in office, 8% approve.  However, 43% say she should not resign from office and is innocent until proven guilty.  Forty percent think she should resign and 10% want her to be impeached.

Legislative chambers continue to be viewed negatively by the business owners/CEOs.  Only ten percent have a positive opinion of the job being done by the United States Senate, 15% approve of the job being done by the U.S. House of Representatives.  The state legislature fared better: 31% approve of the job being done by the Pennsylvania Senate, the Pennsylvania House of Representatives earned a 34% job approval rating.

Presidential Race

Business community support for presidential candidates closely mirrored current nationwide polls. Donald Trump leads the pack at 26% followed by Dr. Ben Carson at 23%.  Carly Fiorina registered 7% followed by Ted Cruz at 7% and Scott Walker (who has since exited the race) at 6%.  The rest of the field, including all of the Democratic candidates, scored at 5% or less.

Methodology

The Fall 2015 Keystone Business Climate Survey was conducted electronically between September 14, 2015 and September 21, 2015.  A total of 324 business leaders responded.  Of those 80% are the owner of a business; 14% are the CEO/COO/CFO; 2% a local manager and 1% a state manager.   Twenty-nine percent of the respondents have businesses based in southeastern Pennsylvania, 21% in southcentral Pennsylvania, 17% in southwestern Pennsylvania, 9% in northwestern Pennsylvania, 7% in northeastern Pennsylvania, 5% in the Lehigh Valley, and 5% each in north central Pennsylvania and the Johnstown/Altoona area.  Complete numeric results of the poll are available at www.lincolninstitute.org.

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This Week on Lincoln Radio Journal: Business Climate Survey Results


Radio Program Schedule for the week of May 9, 2015 – May 15, 2015

This week on Lincoln Radio Journal:

  • Eric Boehm has news headlines from PAIndependent.com
  • David Taylor of the PA Manufacturers Association is joined by Kevin Shivers and Neal Lesher from the PA Chapter of the National Federation of Independent Business for a Capitol Watch look at results of the Lincoln Institute’s Spring 2015 Keystone Business Climate Survey
  • Lowman Henry has a Town Hall Commentary on the epic failure of liberal public policy in Baltimore

KBCS Spring 2015 PATH

This week on American Radio Journal:

  • Lowman Henry talks with Michael Petrilli of the Thomas B. Fordham Institute about the impact on student achievement of closing under-performing schools
  • Andy Roth of the Club for Growth has the Real Story on Mike Huckabee’s record as Arkansas Governor
  • Eric Boehm and Katie Watson have a Watchdog Radio Report on using cigarette taxes to close state and local budget deficits
  • Lowman Henry has an American Radio Journal commentary on the epic failure of liberal policies in Baltimore

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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Business Climate Optimism Evaporates


Wolf Budget Proposals Deeply Unpopular Among Business Owners/CEOs

After nudging into positive territory last October for the first time since 2004, the outlook of Pennsylvania business owners and Chief Executive Officers has turned sharply negative in the wake of Governor Tom Wolf’s budget proposals. Every component of the governor’s proposed budget “reforms” received a sharply negative response from the state’s job creators in the Lincoln Institute’s Spring 2015 Keystone Business Climate Survey.

Four years of business friendly policies implemented by the administration of former Governor Tom Corbett created a positive outlook from business owners and CEOs for the first time since George W. Bush was still in his first term.  Albeit slight, in October 2014, 19% of the business leaders said the state’s economic conditions had improved during the preceding six months, while 18% felt they had gotten worse.  Six months later, the picture has taken a dramatic turn for the worse.  The Spring 2015 survey found 33% of the owners/CEOs responding that business conditions have gotten worse over the past six months, only 13% say business conditions have improved. Pessimism for the future has deepened, as 44% say they expect the state’s business climate to get worse over the coming six months while just 12% expect the Pennsylvania economy to improve.

Driving the dour mood among the people who actually run businesses – big and small – is a general disapproval of Governor Tom Wolfe’s budget proposals.  A total of 78% disapprove of his proposed budget, with 60% saying they strongly disapprove.  Just 17% gave the governor a thumbs-up; and only 6% strongly approve of his proposed fiscal policies.  Overall, 80% say the governor’s proposed state budget will harm Pennsylvania’s business climate – 56% say it will do significant harm – while 14% think his proposals will improve the state’s business climate.

The state’s job creators are bracing themselves for higher taxes.  As a side note, Pennsylvania’s high tax rates and stringent regulatory policies are viewed by the owners/CEOs as the biggest impediments to conducting business in Pennsylvania.  They now fear that situation is about to get worse.  Seventy-two percent say the proposed Wolf Administration changes to the state’s tax structure will result in them paying higher taxes, 36% say they expect to pay significantly higher taxes.  Only 3% expect their taxes to drop if the Wolf agenda is enacted, while 13% say they expect to pay about the same amount in taxes.  Another 11% don’t yet have enough information to render an opinion.

Cutting the state’s onerous Corporate Net Income Tax (CNI) and eliminating the double taxation brought on by the Capital Stock & Franchise Tax have long been goals of business advocacy groups in Pennsylvania, but the Wolf Administration plan of coupling those cuts with other tax law changes creating a net increase in business taxes has business owners/CEOs opposing the entire proposed package.  Sixty-two percent disapprove of the governor’s proposed business tax plan, 25% voiced approval.

And that was the high point for the governor. Other proposed changes drew even stronger opposition from the business community.  His proposal to increase the state’s sales tax from 6% to 6.6% and to apply the sales tax to a wide array of products and services not currently subject to sales tax drew opposition from three-quarters (75%) of the respondents with 61% expressing strong disapproval.  Twenty-four percent agreed with the proposed sale tax hike.

Raise the personal income tax rate from 3.07% to 3.7%?  Eighty-three percent of respondents to theSpring 2015 Keystone Business Climate Survey said they disapprove, 70% voiced strong disapproval.  Sixteen percent approve of hiking the personal income tax (PIT) rate.

There is also deep suspicion over the governor’s plan to have the state pay a larger share of public education costs (with revenue from a higher and broader sales tax) and allow local school districts to decrease property taxes.  Seventy percent say any drop in property taxes will be temporary, and then property taxes will rise again.  Less than 2% say they expect a significant property tax cut as a result of that proposal while 13% say they might realize a slight reduction in property taxes.  That is offset by the 14% who expect to pay higher property taxes.

Respondents to the survey also now oppose adding a tax on companies drilling in the Marcellus Shale region.  In the Fall 2014 Keystone Business Climate Survey 51% approved of an extraction tax.  Support for that tax dropped to 45% in the current poll, while opposition rose from 44% last Fall to 50% in the current survey.

General Trends

Overall, Governor Tom Wolf has proposed a state budget that would add $4.6 billion in increased spending to the state’s current $29.4 billion budget.  By a wide margin, business owners/CEOs say that is too much.  Eighty-four percent say his spending increases are too high; 11% think they are about right; and just 1% think they are too low.

Government regulation is cited as the biggest barrier to job creation by 64% of the business owners/CEOs participating in the Lincoln Institute’s survey.  That factor is driving the negative mood of job creators in that two of the most aggressive regulators in recent state history now serve as Governor Tom Wolf’s chief of staff and top policy advisor.  Thirty-six percent cited corporate taxation as a barrier to job creation while, 43% blame national economic factors.

Employment levels remained stable over the past six months.  Eighteen percent of the owners/CEOs said they employ fewer people, while 16% said they have increased employment.  Sixty-three percent reported employing the same number of individuals.  Looking ahead six months, 18% say they plan to add employees, 13% expect to employ fewer people.  Sales decreased at 32% of the companies participating in the survey, but increased at 28%.  Looking ahead 35% forecast rising sales, 18% are projecting a drop.

Job Approval Ratings

Governor Tom Wolf received a strongly negative job approval rating in his first appearance in theKeystone Business Climate Survey.  Sixty-nine percent disapprove of the job the governor is doing, while 14% approve.  Only President Barack Obama fared worse among the business owners/CEOs, 87% disapprove of the Presidential job performance with 10% voicing approval.

U.S. Senator Robert P. Casey, Jr. likewise finds himself deep in negative territory as 64% disapprove of his performance in office while 14% approve.  U.S. Senator Patrick J. Toomey fared better, with a 51% job approval rating against a 23% negative rating.  Toomey was the only federal official in positive territory. The owners/CEOs also approve of the job being done by new Federal Reserve Board Chairman Janet Yellen, 41% approve to 26% disapprove.  And U.S. Treasury Secretary Jack Lew drew an 8% approve against 44% who disapprove of the job he is doing.

The legal problems and controversies surrounding Attorney General Kathleen Kane have taken a toll on her standing among the state’s business leaders.  Her negative rating jumped from 49% in the Fall 2014 survey to 62% in the current poll.  Conversely, her positive rating dropped from 16% six months ago to just 7% in the current survey.  Even state Auditor General Eugene Depasquale, the only statewide constitutional officer to avoid scandal, finds himself in negative territory – as 21% disapprove of his performance in office, while 13% approve.  But, 65% offered no opinion.

Legislative bodies at both the state and federal levels continue to be unpopular.  Just 11% approve of the job being done by the U.S. Senate, 79% disapprove.  The U.S. House of Representatives earned a 20% approval rating with 71% voicing disapproval.  The Pennsylvania Senate is viewed positively by 26% of respondents, and 56% disapprove.  The Pennsylvania House of Representatives fared best among the legislative chambers, with a 28% approval rating against a 55% disapproval number.

Methodology

The Spring 2015 Pennsylvania Business Climate Survey was conducted electronically by the Lincoln Institute of Public Opinion Research, Inc. between April 1 and April 28, 2015.  A total of 351 responses were collected.  Of those, 83% were from the owner of a business, 14% from the CEO/COO/CFO.  Less than 2% were from a state or local manager of a business.

Geographically, 27% of the respondents were from southeastern Pennsylvania; 18% from southwestern Pennsylvania; 19% from south central Pennsylvania; 11% from northeastern Pennsylvania; 9% from the northwestern portion of the state; 9% from north central Pennsylvania; 4% from Altoona/Johnstown and 4% from the Lehigh Valley.

Complete numeric results of the poll are available at www.lincolninstitute.org.

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Results of the Public Opinion Focus Group on Educating for Opportunity and Social Impact Financing on November 19, 2014


Compiled by Erik Randolph on behalf of the Lincoln Institute of Public Opinion Research, Inc.
Revised February 2, 2015

ABSTRACT: With the assistance of the Pennsylvania Association of Nonprofit Organizations, the Lincoln Institute of Public Opinion Research convened a public opinion focus group on the issue of social impact financing (SIF) as an innovative approach to using private dollars to fund increases in public programming and reduce the need for costly social services in the future.

 

Social impact financing, also known as social impact bonds or pay for success financing, is an innovative financing mechanism whereby private investors finance social programs with the objective of increasing positive outcomes and decreasing public dollars spent on remedial measures. If the programs are successful in meeting benchmarks specified in the contract and verified by an independent third party evaluator, the investors receive a return on their investments based on the public sector savings. Discussion points included the following:

 

* What is Social Impact Financing?

 

* What types of programs are best suited for Social Impact Financing?

 

* What is the government’s level of involvement?

 

* What levels of government can successfully use Social Impact Financing?

 

* What happens to the savings that are realized through social impact financing programs?

 

* What other non-monetary benefits can result from social impact financing projects?

 

o The use of an independent evaluator can help service providers effectively quantify their programs and benefits and can help public funders reduce wasteful spending to ineffective programs.

 

o The level of collaboration necessary for a successful Social Impact Financing Program requires improved efficiency and collaboration among government agencies and service providers.

 

* What is currently being considered in Pennsylvania and where are we in the process?

 

Public Opinion Focus Group: Beyond Poverty-November 19, 2014 Session 1: Educating for Opportunity: Social Impact Financing: 10 a.m. – 12 noon

 

Background

During the 2013-2014 legislative session, the Majority Policy Committee of the Pennsylvania House of Representatives created the Empowering Opportunities: Gateways-Out-of-Poverty Initiative. This Republican Caucus initiative recognizes that current efforts to address poverty are in need of revision and subsequently searches for opportunities to address barriers that entrap individuals in impoverished conditions and to replicate outcome-based solutions.

 

The initiative is divided into five broad areas for the development of policy and legislative proposals: Outcomes That Matter, Life Skills 101, Benefits That Work, the Essentials, and Educating for Opportunity. With the assistance of the Pennsylvania Association of Nonprofit Organizations, the Lincoln Institute of Public Opinion Research convened a focus group on proposals in the areas of Educating for Opportunity and Outcomes That Matter.

 

The focus group consisted of leaders from the non-profit sector who provide human services to alleviate social problems associated with poverty. The Honorable Todd Stephens, State Representative for the 151st Legislative District of Pennsylvania, presented on the topic of Social Impact Financing (SIF) for early childhood education programs as part of a developing legislative proposal.

 

Social impact financing, also known as pay for success financing, is an innovative financing mechanism whereby private investors use private dollars to fund increases in public programming in order to reduce the need for costly social services in the future. For example, if a program meets specified goals as measured by an independent third party evaluator, then the governmental entity responsible for funding that program pays the investors a return on their investment. If the SIF-funded programs are successful in producing the desired outcomes, governments save money through the averted future costs, more efficient implementation, or both. If the programs do not meet the negotiated benchmarks that result in reduced government spending, the government does not pay a return on the investment.

 

Social impact financing is a fairly new concept. While examples of its implementation are relatively few, they are increasing steadily throughout the United States across a variety of programs. The focus group was presented with some examples, including details describing how New York and Massachusetts utilized the social impact financing mechanism to help fund job training and rehabilitation of former convicts as a way of reducing recidivism. By reducing recidivism rates, the states save money on their criminal justice and prison systems, and a portion of those savings are used to repay the investors.

More pertinent to the legislative proposal being considered for Pennsylvania, Salt Lake City and Chicago have utilized social impact financing to fund early childhood education programs. According to materials provided to the focus group, the Utah program provides early childhood education services to 3,500 children and the Chicago program provides early childhood education services to 2,600 at-risk children.

Make-Up of Focus Group

The leader of the discussion was Rep. Todd Stephens. The session was moderated by Lowman Henry, chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc., and recorded by Erik Randolph, Erik Randolph Consulting. Staff in attendance were Brianda Freistat, Research Analyst, Majority Policy Committee; Ashley Grimm, Legal Counsel for the House Republican Caucus; Jenny P. Stanton, Executive Director, House Majority Policy Committee.

The participants were as follows:

* Anne Gingerich, Executive Director, Pennsylvania Association of Nonprofit Organizations (PANO);

* Blair Hyatt, Executive Director, Pennsylvania Head Start Association;

* Daniel Leppo, Director, Grants Management, Community Action Association of Pennsylvania;

* Caryn Long, Executive Director, Feeding PA;

* Ashlinn Masland-Sarani, Policy and Development Director, ARC of Pennsylvania;

* Britton Miller, Director of Public Policy and Civic Engagement, PANO;

* Michelle Sanchez, Director of Program Evaluation and Reporting, Maternal and Child Health Consortium of Chester County;

* Eric Saunders, Executive Director, New Hope Ministries.

Discussion Points

The following summary is a compilation of the points made during discussion of the focus group and does not necessarily reflect the opinions of all participants.

The concept of social impact financing was generally well-received as a potential new source of funding, and the participants were interested in learning about the idea.

After an overview of the social impact financing concept, a discussion was had on the benchmarks that would need to be met in order to repay investors. There was some concern that some of the benefits that service providers provide to those in need of their services are difficult to quantify.

However, it was noted that many funders have already been requiring service providers to quantify the benefits, and as a result many non-profits have been moving toward greater quantification of the benefits of their services.

Representative Stephens and his staff explained that social impact financing programs can be used at all levels of government, including state, county and municipal governments. Any government that realizes a reduction in future costs by investments in preventative measures is able to structure a social impact financing program. Many questions from the participants focused on who would be responsible for repaying the investors in the benchmarks were achieved. Representative Stephens and his staff explained that the government who was ultimately receiving the benefit of reduced special education costs (in the early childhood education context), would be responsible for repaying the investors at the end of the program.

Social impact financing requires a significant government commitment to make it successful. The legislature is necessary to pass enabling legislation and provide for the appropriations necessary to cover the cost of the repayment if the benchmarks are achieved. The executive branch is necessary, because the agencies are administering the government programs and are contracting with service providers to provide the needed social services. In the difficult economic climate that Pennsylvania finds itself, the participants were concerned that social impact financing programs could be used as a way to divert traditional state funding away from programs to fund other areas of need rather than be used to supplement the traditional state-funding to expand the programs. Some of the participants suggested that any money saved by the government ought to be reinvested back into the same program areas and not diverted for other uses. There was also some concern about whether the government would be able to set aside a yearly appropriation in an amount that would cover the Commonwealth’s liability if the benchmarks were met under the contract and a repayment to investors was necessary. Potential solutions may include creating a mechanism to set aside the money, such as a revolving fund. These were also discussed in depth.

Discussion points included that unless the government realizes an overall drop in the demand for funding of a program, it is unclear where the money would come from to pay the investors for their return. Consider the starfish analogy, whereby throwing a starfish back into the ocean will help that particular starfish, but there are thousands of other starfish stranded on beaches. In other words, while a government program might help a select group of people, there are still many others who still need help from that same government program, thus the demand for the government program funding may not be reduced.

In response to the starfish analogy, it was stated that an independent third party evaluator would use data to verify savings specific to the definitions and terms that are set forth in a contract whereby the government would be a party to that contract. Also, if the program doesn’t achieve those specified outcomes, the risk is on the investors who would lose out and the governmental entity would not be liable to pay the return to the investors.

Besides, there are several examples today where these contracts are being implemented. Nonetheless, it is important to note that a willing government partner is a crucial component of any social impact financing arrangement.

The ability to develop the necessary metrics to make the concept work appears to be a challenge. Although some non-profits do a good job at program evaluation, many others do not. Additionally, the nature of the populations may contribute to the difficulty because the populations tend to be transient, thus, among other things, making the ability to do longitudinal metrics arduous, especially without additional funding. These concerns would again be addressed at the discretion of the investor/third party intermediary as a negotiating party.

Furthermore, some aspects of providing human services are very difficult to measure. In some cases, good metrics just do not exist. These programs may not be a good fit for social impact financing. Finally, there is a difference between priorities of human services and those aspects of human services that are conducive to measurable outcomes. Subsequently, social impact financing may not be applicable to all social programs, meaning that it may be suitable only for those areas that can be easily measured. Social impact financing bases the repayment on quantifiable measurement. If a program is unable to quantify its data, social impact financing is not the right funding model. That is why it is important to use social impact financing as a supplement to traditional state funding rather than to repay it completely.

However, as was presented, from the experience of several social impact financing deals now being implemented in the United States, representatives from those nonprofit organizations were amazed at what they could measure when an expert was brought in to help with their quantification systems. While it was significant work to upgrade those data systems, the nonprofit organizations indicated it was well worth the effort.

Additionally, the metrics for measuring program outcomes are evolving and improving with time. For example, Goldman Sachs sponsored a social impact financing deal in Salt Lake City, and it recently financed another deal in Chicago. For the subsequent deal, Goldman Sachs revised the metrics for repayment based on lessons it learned from the Salt Lake City deal. The second deal was increased by a substantial hike in investment amounts, climbing from $7 million for the first investment in Salt Lake City and secondly $17 million, in Chicago.

Follow-Up Comments

Bringing in private investors to fund social programs raises fascinating questions. Why is it that government often cannot make programs or assets work financially when for-profit companies using those same assets can? Is there perhaps not some other way for government to become more disciplined? While these questions were left unanswered, social impact financing may be a way to bring discipline into the system, enabling government to become quantitatively-based with measurable outcomes. And once those systems are in place, it may no longer be necessary to continue social impact financing for that specific program.

Representative Stephens introduced a co-sponsorship during the last legislative session and has spent the last seven months touring the Commonwealth to meet with social service providers, school districts, philanthropists and investors. Representative Stephens explained that it was his intention to sponsor legislation that would enable a social impact financing pilot program in early childhood education to take place in Pennsylvania. He suggested that the proposed pilot program have pilots in each of the following areas: Philadelphia, Pittsburgh, a third class city, and a rural setting to evaluate the ability to replicate social impact financing programs throughout Pennsylvania.

About the Author:

Erik Randolph is an independent researcher who specializes in evaluating government policies, programs, budgets, and legislation, quantitative analysis, and fiscal and economic modelling. As a consultant, he has provided assistance to organizations, legislators, and governments in four different states in the areas of welfare policy, budgeting, transportation policy, and criminal justice.

Erik has twenty-seven years of extensive experience in government and for seventeen years taught principles of economics for the Harrisburg Area Community College. He developed the first microeconomic model to test how welfare benefits influence behavior when he was a special assistant to the Secretary of Public Welfare for the Commonwealth of Pennsylvania, and he led a chartered team at the department to evaluate the problem of economic disincentives. Prior to his service to the department, he spent nineteen years as an analyst for the Committee on Appropriations of the Pennsylvania House of Representatives. While working for the Committee, he evaluated and forecasted costs for legislation, worked on and analyzed state budgets, handled analysis of special fund revenue and capital budgeting, researched and wrote legislation, and conducted special research projects for the chairman.

In the early part of his professional career, Erik worked in the field science and technology policy for the U.S. General Accounting Office (since renamed the Governmental Accountability Office), New York State, and the Commonwealth of Pennsylvania.

Mr. Randolph has a Master’s Degree from the College of Humanities at Rensselaer Polytechnic Institute in science and technology studies, where he concentrated on the economics and policy of science and technology. He has two Bachelor degrees from the Pennsylvania State University, one majoring in mathematics and the other in political science.

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A Peek Behind the Curtain


Primary elections are the vehicle by which voters select their party’s nominees who then advance to the General Election to do battle with the opposing party. But, before voters even go to the polls the field has often already been narrowed by the party endorsement process or through pressure exerted on candidates to either drop out or enter the race.  Then a wide range of special interests engage to influence the election’s outcome.

Many Pennsylvanians are unaware that the respective party caucuses in the General Assembly exert a significant amount of influence over who gets elected to that body, sometimes even more influence than the general voting public.  Each of the four caucuses – senate Republican, senate Democrat, house Republican and house Democrat – have their own campaign committees which assist candidates seeking election to their respective chamber.

Party endorsements are widely publicized and touted by the candidates’ receiving them.  But the heavy hand of the caucus campaign committees is less noticed, and often operates below the radar screen of both the news media and voters. The caucus campaign committees, to varying degrees, work to nominate in primaries the candidates of their choice, typically candidates expected to vote the way leadership wants after taking office.  Some, like the house Republican Campaign Committee, take a relatively hands-off approach in open seat primaries, but do engage to help retain incumbents.

For decades the most successful caucus campaign committee has been that of senate Republicans which has resulted in long-term GOP domination of the upper chamber.  Senate Republican leadership has, however, engaged much more aggressively than its house counterparts in determining who gets their party’s nomination.  This has resulted in far less autonomy for individual senators and contributed to the fact the senate GOP has in recent years become out-of-step with the party’s conservative base, the house GOP and even their own governor.

But times are changing and the old way of doing business is not as effective as it once was. Much like voters are rejecting endorsements by the political parties, voters are proving to be less willing to go along with having their state Senate nominees selected in the backroom.  In fact, the senate GOP leadership’s refusal to accept and adapt to this change in voter attitudes is on the verge of costing the party its long-term hold on the senate majority.

Last year Republicans lost three seats in the state senate, two in districts that should have been relatively safe for the party’s candidates.  In all three instances the Senate Republican Campaign Committee (SRRC) exerted considerable influence over the nomination process.  In Dauphin and Erie counties their preferred selections prevailed, but lost in the General Election.  In Allegheny County, the caucus’s hand-pick candidate engaged in a highly negative campaign only to lose the nomination and in the process mortally wound the eventual nominee.   As a result, the GOP majority in the senate has fallen from 30-20 to 27-23.  Democrats are eyeing a take-over in 2014.

Senate Republicans are now at a crossroads.  Three state senators have announced their retirements – all Republicans.  One seat, in York County, is a safe GOP seat.  But, local businessman and prolific conservative donor Scott Wagner has announced his candidacy.  He is outspoken, articulate, and has the personal wealth to outspend the SRCC.  Senate Republican leaders would prefer a more malleable nominee, but must decide whether to pour upwards of a million dollars in the primary to defeat Wagner, or save the money to defend vulnerable seats in the Philadelphia suburbs, and to focus on districts where there are pick-up opportunities.

Smart politics would be to let the candidates compete freely for the GOP nomination in each district and have the caucus campaign committees save their money and spend it on defeating Democrats in November.   The question is, will Senate Republican leadership realize its old way of doing business no longer works and adapt, or will they continue on a path that could lead to the first Democratic majority in the state in nearly two decades?

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

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