AG ONE Newsletter November 28, 2017

Update on Farm Show “Lease Lease-Back”

Backdrop

On October 9, Governor Tom Wolf announced that he was unilaterally seeking a way to resolve the FY 2017-18 State Budget impasses with House Republicans by raising capital of up to $200 million from leasing the Farm Show Complex. Since then, various revenue measures were adopted by the General Assembly and signed into law to cover the deficit. Since the revenue legislation included borrowing ahead from future Master Tobacco Settlement payments to Pennsylvania totaling $1.5 billion, Governor Wolf dropped another initiative, to “securitize” or borrow ahead from future PA Liquor Control Board profits. The Farm Show financing process continued with bids from private sector investors starting October 13 and closing November 13. Four bids were received and the PA Department of General Services and PA Office of the Budget are reviewing them. A date has not been given as to when the winning bid will be announced.

What is the actual transaction taking place?

Called a lease lease-back, the transaction more closely resembles a home equity loan. Perhaps the Administration could have been clearer in explaining what financial investments were being done here. It would have reduced confusion among stakeholders.

Is it legal for the Governor to take this action without getting the prior consent of the General Assembly, especially since the legislature decides how much of the Commonwealth’s dollars the Farm Show will receive?

Yes. This is not a surprise to the General Assembly. Governor Tom Wolf made it very clear that he intended to do this when he gave his Budget Address to the General Assembly in February 2017. In addition, the issue was discussed at a Senate committee meeting and at innumerable separate meetings. Before deciding to take an equity loan on the Farm Show Complex, Administration legal counsel also determined that the Governor had the legal authority to make such a move.

Doesn’t this need an OK from the Farm Show’s governing body?

No. That board works on operations, not on financing arrangements such as this.

Will the Farm Show lose its ability to decide programming and conduct daily operations or will the new “owner” be able to decide how the Farm Show is managed and what shows will be held? For example, can the Farm Show Manager be ordered to do something the new “owner” wants such as more gun shows or detests (no gun shows)?

First, the word “owner” is incorrect. Whoever provides the capital for this equity loan is not the owner. The owner remains the Commonwealth of Pennsylvania. The contract has iron-clad language preventing any outside control. It is similar to a home equity loan where the lender does not have the legal authority to tell you what wallpaper to use or what has to be planted outside. The homeowner is the owner. With the Farm Show Complex, PA retains ownership.

The Office of the Budget frequently uses outside legal counsel as well as relying on attorney employees of the state to make sure PA’s interests are not compromised. Besides, any investor is making its money from interest paid on the loan and is not interested in managing the Farm Show Complex.

Will this new money be dedicated for remodeling and updating the physical structure of the Farm Show Complex?

No. This money will go into the General Fund to help balance the deficit. There is a separate effort to generate money for Farm Show renovations and updating HVAC, etc.

When the Governor said he would “securitize” future profits from the PA Liquor Control Board, he was very specific about the amount of money would be generated and the amount of interest that would be paid to service the loan. Why are there no specifics here? The PA Liquor Control Board plan is part of PA State Government so the details were known regarding the amount borrowed and the interest to pay back the loan. This seeks private sector financing and the costs connected with the equity loan would depend on the investor’s desired return on investment. Likewise, although the figure $200 million has been used publically as the amount that could be generated, the actual figure borrowed will depend on what bidders promise.

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CORRECTION TO AG ONE Newsletter 2017.18

In AG ONE Newsletter 2017.18, a legislative status report described House Bill 944 establishing a Commission for Agriculture Education Excellence as being in committee. That legislation was grafted into another School Code bill, House Bill 178 PN 2609 (Act 55 of 2017) which became law November 6 without the Governor’s signature. Text begins on page 45, Section 1549.1. .http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2017&sessInd=0 &billBody=H&billTyp=B&billNbr=0178&pn=2609 This establishes the Commission for Agricultural Education Excellence to assist in developing a statewide plan for agriculture education and to coordinate PDA and Education Department efforts in doing so.

Thanks to PSCFO members Amy Bradford from PennAg Industries Association and Dr. MeeCee Baker from Versant Strategies for spotting the need for this update.

AG ONE Newsletter October 30, 2017

BUDGET SAGA (FINALLY) ENDS

Update:

Please note the following updates to the AG ONE Newsletter below posted earlier today. These were signed into law today by Governor Tom Wolf:


HB 790
sponsored by House Agriculture & Rural Affairs Minority Chair Eddie Day Pashinski (D-Luzerne) (controlled and noxious weeds) is Act 46

HB 542
Tax Code (taxes on fireworks, $1.5 billion loan from Tobacco Settlement, etc.) is now Act 43.

HB 785 Capital Facilities Debt Act (state indebtedness levels) is now Act 45.

HB 674 Fiscal Code (takes $200 million from an insurance company reserves; gives Governor discretion as to where $300 million will come from dedicated funds) is now Act 44

HB 118
(Labor & Industry inspection fees) is now Act 40.

SB 651
Capital Budget (authorization wish list for wide variety of state bricks and mortar projects) is now Act 52.

HB 271 (expands gambling in hopes of generating $200 million more revenue to the state) is now Act 42.

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With House action October 25 and 26, the revenue side to the State Budget was sent to Governor Wolf for his signature.  He has ten days to approve, veto, or let the legislation go into effect without his signature.  Some major elements include:

  • Borrowing of $1.5 billion from future payments to Pennsylvania from the Tobacco Master Settlement to be paid back within 30 years  NOTE:  House Bill 542, page 271 http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2017&sessInd=0&billBody=H&billTyp=B&billNbr=0542&pn=2598
  • Taking $200 million from reserves held by the Joint Underwriting Association (JUA), the medical malpractice insurer of last resort.  The Administrative Code bill specifies that if JUA does not hand over the money by December 1st, it will be abolished.  JUA says that it is illegal for the state to “seize” insurance company reserves and that it will sue to prevent this from occurring.  NOTE: House Bill 674, Article II-D, section 201-D  page 14: Similar language is found in House Bill 118 but this specifies that the Supreme Court shall have exclusive jurisdiction to hear any challenge. http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2017&sessInd=0&billBody=H&billTyp=B&billNbr=0674&pn=2624
  • $200 million to come from gambling expansion (House Bill 271)
  • Senate Bill 651, the Capitol Budget, is a bricks and mortar wish list for projects funded by the Commonwealth.  Just because projects are listed here does not mean that the money is actually there. This is an authorization bill.  Examples for Capital Budget items might be a new barn for the Farm Show complex or significant upgrading to a state building HVAC system.
  • New Labor & Industry inspection fees schedule (boilers, elevators, ski lifts, etc. are found in Administrative Code bill, House Bill 118 starting on page 12.  www.legis.state.pa.us
  • New taxes on fireworks: 12% for consumers buying fireworks; annual fees ranging from $2,000 to $20,000 for permanent structures selling fireworks; and $3,000 per year for temporary structures.  One miscellaneous insurance provision is a $50,000 bond requirement for municipal fireworks displays.  (HB 542 page 257 dealing with new taxes on fireworks)

FARM SHOW LOAN IN LIMBO

In limbo is the Governor’s unilateral decision October 4 to borrow ahead (“securitize”) future profits from the PA Liquor Control Board and his October 9 pronouncement that PA would take out an equity loan on the Farm Show Complex owned by the state.  His rationale was that he would take budget matters into his own hands, absent a legislative resolution to the State Budget impasse. PSCFO has requested a meeting with Governor Wolf to discuss the Farm Show Complex loan issue.

AND…THERE IS A SLEEPER BUDGET ISSUE.

House Bill 674 contains this section:  SECTION 1726-G.FUND TRANSFERS.

DURING THE 2017-2018 FISCAL YEAR, $300,000,000 SHALL BE

TRANSFERRED FROM AMOUNTS AVAILABLE IN SPECIAL FUNDS AND

RESTRICTED ACCOUNTS TO THE GENERAL FUND.

This is the ultimate outcome of those seeking to balance the State Budget by taking monies from over 50 specified dedicated funds.  The Senate derailed that notion but this final language gives the Governor the discretionary authority to decide from which funds this $300 million shall come.  HB 674 does not contain language limiting his choices so they might or might not be  agriculture or environmental funds. PSCFO sent a heads up memo to Council members about this section.

SENATE BANKING & INSURANCE COMMITTEE HOLDS RX PRICE HEARING

On October 23, the Senate Banking & Insurance Committee convened a prescription drug price transparency hearing relative to Senate Bill 637 (White-R-Indiana).  It presented starkly contrasting views between the pharmaceutical industry which maintained that manufacturing costs increases are quite reasonable versus insurers and prescription benefit managers (PBMs) which pointed accusing fingers at the drug industry for unwarranted price increases.  Testimony also came from the PA State Grange which said that price transparency could give insurance companies the ability to negotiate more effectively because they could compare pricing practices between states, such as a hypothetical Epi-pen charge of $150 in one state versus $600 in PA.

WEED BILL GOES TO GOVERNOR (No, not that weed…)

Presented to the Governor October 25 was House Bill 790 regarding controlled and noxious weeds.  Prime sponsor is House Agriculture & Rural Affairs Minority Chair Eddie Day Pashinski (D-Luzerne).

EXPECT WORKERS’ COMPENSATION HIKES

The PA Compensation Rating Bureau (PCRB) revised loss cost filing goes into effect November 1st. This translates into a general increase in Workers’ Compensation premiums of 6.06%, necessary to adapt to the Supreme Court striking down a major provision of the Workers’ Compensation Act regarding permanent  impairment evaluation standards.

YOUTH GARDENING GRANTS up to $500 will be awarded by Katie’s Krops.  Eligible are youths aged 9-16.  Harvests must be donated to food banks.  Application deadline is December 31.  Details:  http://www.katieskrops.com/start-a-garden.html House Bill 790 (Pashinski-D-Luzerne) passed the Senate 49-0 on October 18 and was referred to the House Rules Committee.  The House now must consider amendments made to the bill in the Senate.

PSCFO Meets with Wolf Policy Chief Hanger

John-HangerHERSHEY – On December 15, several members of the PSCFO Board met privately with John Hanger, former DEP Secretary under former Governor Rendell and now Secretary of Policy and Planning for incoming Governor Tom Wolf.  Mr. Hanger said that he welcomes policy input from the PA State Council of Farm Organizations to the Wolf Administration.  According to PSCFO President Brian Snyder, this may be the first time PSCFO has met with an official at this level of an incoming administration.  Among the topics discussed were:

  • Need for adequate General Government Operations funds for the PA Department of Agriculture
  • Preservation of certain line items in PDA’s budget such as the Centers of Excellence, agricultural research, PA Preferred, and others
  • Importance of consistency in immigration rules. While a federal issue, state legislative initiatives could create an even more confusing set of rules for agricultural producers

Why the Budget Buzz?

BudgetThe Independent Fiscal Office (IFO), created by the General Assembly in 2010 to give the legislature a separate tool for State Budget analysis, released a report that said PA is in for hard times (http://www.ifo.state.pa.us/Releases.cfm).

IFO said that the fiscal year State Budget beginning July 1, 2015 could not utilize the $619 million one-time devices and $572 in non-recurring revenues used by the Corbett Administration to balance this year’s budget and so will be $1.85 billion in the red for FY 2015-16.

Part of that analysis included an IFO prediction that PA would have $171 million less than expected this fiscal year — and that figure may be questioned given  better than estimated revenue numbers reported for October and November — $109 million more than anticipated for this fiscal year.

IFO, the Corbett Administration and the incoming Wolf Administration agree that the Commonwealth will be challenged but there is significant disagreement as to the causes and obviously whether or not the Corbett Administration got Pennsylvania out of a Rendell fiscal hole or into a new one.

The Governor’s Budget Office’s December 3 briefing recognized the fiscal shortfall. Budget Secretary Charles Zogby said that “we’ve faced these sorts of deficits every year in this administration” and they are due to mandated costs exceeding revenues.  For the 2015-16 Fiscal Year, Zogby said that there would be spending increases in debt service (interest), corrections, pensions, and in the Department of Human Services (formerly Department of Public Welfare).

Governor-elect Wolf’s transition team issued a statement December 2 which said:

  • The FY 2014-15 Budget was built on one-time revenue sources
  • Prediction: PA will be cash-flow negative from January-March 2015.
  • The state has maxed its line of credit
  • PA is 50th in the nation in job creation.