COMMONWEALTH OF PENNSYLVANIA

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1 COMMONWEALTH OF PENNSYLVANIA Legislative Journal MONDAY, JUNE 5, 2017 SESSION OF ST OF THE GENERAL ASSEMBLY No. 29 SENATE MONDAY, June 5, 2017 The Senate met at 11 a.m., Eastern Daylight Saving Time. The PRESIDENT (Lieutenant Mike Stack) in the Chair. PRAYER The Chaplain, Reverend ANDREAS WAGNER, Pastor of St. Peter's Lutheran Church, North Wales, offered the following prayer: Good morning. I am Pastor Andreas Wagner from St. Peter's Lutheran Church in North Wales. I am a legal alien in this country, but I have been a Pennsylvanian for 21 years now, so I am of age. I first served in the city of Pittsburgh on the North Side, in the city of Philadelphia in the Feltonville/Olney area, and now in North Wales, Montgomery County. Let us pray. Dear heavenly Father, thank You for the Senators, aides, and public servants in our great State as they deliberate important issues concerning all. Help them to serve our people passionately, use resources wisely, act with integrity and courage, keep their ears open to people's voices, craft laws that their fathers and mothers would be proud of, and put the welfare of people above partisanship. Lord, we ask that You give them strength to fulfill their duties in office, and that they may find satisfaction in the things they get accomplished. Bless this sacred hall of democracy and all who labor here for the good of our communities. Allow understanding between rural Pennsylvanians, urban as well as suburban residents, rich and poor, affluent communities and the villages and towns that have seen better days. Above all, we pray that You help this Chamber to continue the legacy of William Penn in maintaining a vision for a better world, opportunity for all, and tolerance. We offer this prayer to You humbly and hopefully. May this Senate Session be blessed, and may a desire to bring about justice dwell in the hearts of all who are here today. Amen. The PRESIDENT. The Chair thanks Pastor Wagner, who is the guest today of Senator Greenleaf. PLEDGE OF ALLEGIANCE (The Pledge of Allegiance was recited by those assembled.) COMMUNICATIONS FROM THE GOVERNOR CORRECTION TO NOMINATION REFERRED TO COMMITTEE The PRESIDENT laid before the Senate the following communication in writing from His Excellency, the of the Commonwealth, which was read as follows and referred to the Committee on Rules and Executive Nominations: MAJOR GENERAL, PENNSYLVANIA ARMY NATIONAL GUARD June 5, 2017 Please note that the letter dated May 10, 2017, for the nomination of Brigadier General Andrew P. Schaffer, Jr., RR2 Box 288 Milford Road, Dingmans Ferry 18328, Pike County, Twentieth Senatorial District, for appointment as Major General, LINE, with assignment as Commander, Headquarters, 28th Infantry Division, Pennsylvania Army National Guard, to serve until terminated, should be corrected to read: Brigadier General Andrew P. Schafer, Jr., RR2 Box 288 Milford Road, Dingmans Ferry 18328, Pike County, Twentieth Senatorial District, for appointment as Major General, LINE, with assignment as Commander, Headquarters, 28th Infantry Division, Pennsylvania Army National Guard, to serve until terminated. CORRECTION TO CORRECTION TO NOMINATION REFERRED TO COMMITTEE The PRESIDENT laid before the Senate the following communication in writing from His Excellency, the of the Commonwealth, which was read as follows and referred to the Committee on Rules and Executive Nominations: BRIGADIER GENERAL, PENNSYLVANIA AIR NATIONAL GUARD June 5, 2017 Please note that the letter dated May 10, 2017, and corrected on May 25, 2017, for the nomination of Colonel Michael J. Regan, Jr., 2551 Racoon Court, Gilbertsville 19528, Montgomery County, Twentyforth [sic] Senatorial District, for appointment as Brigadier General, LINE, with assignment as member of the Pennsylvania National Guard

2 574 LEGISLATIVE JOURNAL SENATE JUNE 5, Headquarters Staff, Pennsylvania Air National Guard, to serve until terminated, vice vacant position, should be corrected to read: Colonel Michael J. Regan, Jr., 2551 Racoon Court, Gilbertsville 19525, Montgomery County, Twenty-fourth Senatorial District, for appointment as Brigadier General, LINE, with assignment as member of the Pennsylvania National Guard Headquarters Staff, Pennsylvania Air National Guard, to serve until terminated, vice vacant position. BILLS INTRODUCED AND REFERRED The PRESIDENT laid before the Senate the following Senate Bills numbered, entitled, and referred as follows, which were read by the Clerk: June 5, 2017 Senators HAYWOOD, HUGHES and COSTA presented to the Chair SB 555, entitled: An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in personal income tax, further providing for imposition of tax and for amount of withholding tax. Which was committed to the Committee on FINANCE, June 5, Senators FARNESE, YUDICHAK, RAFFERTY, TARTAGLIONE, FOLMER, RESCHENTHALER, VULAKOVICH, MENSCH, STEFANO and VOGEL presented to the Chair SB 739, entitled: An Act amending the act of July 8, 1978 (P.L.752, No.140), known as the Public Employee Pension Forfeiture Act, extending the coverage of the act. Which was committed to the Committee on FINANCE, June 5, Senators AUMENT, REGAN, HUTCHINSON, YAW, B AKER, V U LAKOVICH, WA R D, A L L O WAY, BARTOLOTTA, LAUGHLIN, MENSCH, LANGERHOLC, STEFANO and WAGNER presented to the Chair SB 740, entitled: An Act providing for rural telephone access and availability; and imposing duties on the Pennsylvania Public Utility Commission relating to the Universal Service Fund. Which was committed to the Committee on CONSUMER PROTECTION AND PROFESSIONAL LICENSURE, June 5, Senators GREENLEAF, SABATINA, YUDICHAK, RAF- FERTY, COSTA, FONTANA, HUGHES, BOSCOLA, BARTOLOTTA, BROWNE and BREWSTER presented to the Chair SB 742, entitled: An Act amending the act of November 29, 2006 (P.L.1471, No.165), known as the Sexual Assault Testing and Evidence Collection Act, further providing for rights of sexual assault victims. Which was committed to the Committee on JUDICIARY, June 5, Senators GREENLEAF, RAFFERTY, SCHWANK and MENSCH presented to the Chair SB 743, entitled: An Act amending Title 50 (Mental Health) of the Pennsylvania Consolidated Statutes, adding provisions relating to mental health procedures and the treatment of individuals with mental illness in the criminal justice system; making conforming amendments to Titles 18, 20, 23, 42 and 61; and repealing the Mental Health Procedures Act. Which was committed to the Committee on HEALTH AND HUMAN SERVICES, June 5, HOUSE MESSAGE HOUSE BILL FOR CONCURRENCE The Clerk of the House of Representatives presented to the Senate the following bill for concurrence, which was referred to the committee indicated: June 5, 2017 HB Committee on Judiciary. BILLS REPORTED FROM COMMITTEE Senator HUTCHINSON, from the Committee on Finance, reported the following bills: SB 515 (Pr. No. 526) An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in corporate net income tax, further providing for the definition of "taxable income." HB 453 (Pr. No. 1501) An Act amending the act of April 9, 1929 (P.L.343, No.176), known as The Fiscal Code, in department of the Auditor General, further providing for audits of agencies receiving State aid. HB 1071 (Pr. No. 1270) An Act amending Title 53 (Municipalities Generally) of the Pennsylvania Consolidated Statutes, in other subjects of taxation, prohibiting bans, fees, surcharges and taxes on recyclable plastic bags. LEGISLATIVE LEAVES The PRESIDENT. The Chair recognizes the gentleman from Centre, Senator Corman. Senator CORMAN. Mr. President, I request a temporary Capitol leave for Senator Argall, and legislative leaves for Senator Killion, Senator Tomlinson, and Senator Wagner. The PRESIDENT. The Chair recognizes the gentleman from Allegheny, Senator Costa. Senator COSTA. Mr. President, I request a legislative leave for Senator Williams. The PRESIDENT. Senator Corman requests a temporary Capitol leave for Senator Argall, and legislative leaves for Senator Killion, Senator Tomlinson, and Senator Wagner. Senator Costa requests a legislative leave for Senator Williams. Without objection, the leaves will be granted.

3 2017 LEGISLATIVE JOURNAL SENATE 575 LEAVE OF ABSENCE Senator CORMAN asked and obtained a leave of absence for Senator DiSANTO, for today's Session, for personal reasons. SENATE CONCURRENT RESOLUTION WEEKLY RECESS Senator CORMAN offered the following resolution, which was read as follows: In the Senate, June 5, 2017 RESOLVED, (the House of Representatives concurring), Pursuant to Article II, Section 14 of the Pennsylvania Constitution, that when the Senate recesses this week, it reconvene on Monday, June 12, 2017, unless sooner recalled by the President pro tempore; and be it further RESOLVED, Pursuant to Article II, Section 14 of the Pennsylvania Constitution, that when the House of Representatives recesses this week, it reconvene on Monday, June 12, 2017, unless sooner recalled by the Speaker of the House of Representatives. On the question, Will the Senate adopt the resolution? The yeas and nays were required by Senator CORMAN and were as follows, viz: YEA-49 Alloway Eichelberger Martin Tartaglione Argall Farnese McGarrigle Tomlinson Aument Folmer McIlhinney Vogel Baker Fontana Mensch Vulakovich Bartolotta Gordner Rafferty Wagner Blake Greenleaf Regan Ward Boscola Haywood Reschenthaler White Brewster Hughes Sabatina Williams Brooks Hutchinson Scarnati Yaw Browne Killion Scavello Yudichak Corman Langerholc Schwank Costa Laughlin Stefano Dinniman Leach Street NAY-0 A majority of the Senators having voted "aye," the question was determined in the affirmative. Ordered, That the Secretary of the Senate present the same to the House of Representatives for concurrence. GUEST OF SENATOR STEWART J. GREENLEAF PRESENTED TO THE SENATE The PRESIDENT. The Chair recognizes the gentleman from Montgomery, Senator Greenleaf. Senator GREENLEAF. Mr. President, I rise to introduce our guest Chaplain today, Pastor Wagner from St. Peter's Lutheran Church in North Wales Borough, which is in my senatorial district. Pastor Wagner joined St. Peter's Lutheran Church in August of He and his family live in Lower Gwynedd Township, which is also in my senatorial district. He is married and has three children, Sarah, Samuel, and Peter. As you may gather from his accent, Pastor Wagner was born in Germany, went to school there, to seminary there, and to universities in Mainz and Munich. He also spent some time ministering there. As he indicated before while he was speaking, he had an internship in the Lutheran congregation in Pittsburgh's North Side, and then also had a congregation that he served in Philadelphia. While he has been at our congregation in this church, the church has expanded significantly. As a minister, he has reached out to many people and has been a blessing to our community, and we are pleased that he is here with us today to share his faith. Thank you. The PRESIDENT. Would the guest of Senator Greenleaf, Pastor Wagner, who said our opening prayer, please rise so that we may welcome you to the Pennsylvania Senate. Thank you for your lovely prayer. (Applause.) GUEST OF SENATOR GUY RESCHENTHALER PRESENTED TO THE SENATE The PRESIDENT. The Chair recognizes the gentleman from Allegheny, Senator Reschenthaler. Senator RESCHENTHALER. Mr. President, it is my pleasure to welcome a guest to the Senate of Pennsylvania today, Steven Delligatti. Steven is here today to shadow me and learn more about the legislative process. Steven is 16 years old and will be a junior at Pine Richland High School. He is an Air Force JROTC cadet and will be attending Mountain Cadet Officer Leadership School this summer. Steven has been on his school's varsity rowing team for 2 years, and plans to start a teenage Republicans club in his high school next year. Steven currently lives in Wexford with his parents, Todd and Susan, and his siblings, Haley and Ben. I wish Steven the best of luck in all of his future endeavors. Mr. President and colleagues, please join me in giving my honored guest a warm welcome. The PRESIDENT. Would the guest of Senator Reschenthaler, Steven Delligatti, please rise so that we may welcome you to the Pennsylvania Senate. (Applause.) RECESS The PRESIDENT. The Chair recognizes the gentleman from Centre, Senator Corman. Senator CORMAN. Mr. President, I request a recess of the Senate for the purpose of a Republican caucus to be held in the Majority Caucus Room immediately. The PRESIDENT. The Chair recognizes the gentleman from Allegheny, Senator Costa. Senator COSTA. Mr. President, Senate Democrats will meet in the rear of the Chamber for a caucus as well. The PRESIDENT. For purposes of Republican and Democratic caucuses to be held in their respective caucus rooms, without objection, the Senate stands in recess. AFTER RECESS The PRESIDENT. The time of recess having expired, the Senate will come to order.

4 576 LEGISLATIVE JOURNAL SENATE JUNE 5, LEGISLATIVE LEAVES CANCELLED The PRESIDENT. Senator Argall, Senator Killion, and Senator Wagner have returned, and their respective leaves are cancelled. CALENDAR THIRD CONSIDERATION CALENDAR BILL ON THIRD CONSIDERATION AND FINAL PASSAGE SB 1 (Pr. No. 902) -- The Senate proceeded to consideration An Act amending Titles 24 (Education), 51 (Military Affairs) and 71 (State Government) of the Pennsylvania Consolidated Statutes, extensively revising pension provisions as follows: In Title 24: for retirement for school employees, in the areas of preliminary provisions, of membership, contributions and benefits, of school employees' defined contribution plan and of administration and miscellaneous provisions; and for health insurance for retired school employees, in the area of preliminary provisions. In Title 51: for employment preferences and pensions, in the area of military leave of absence. In Title 71: for boards and offices, in the area of Independent Fiscal Office; and for retirement for State employees and officers, in the areas of preliminary provisions, of membership, credited service, classes of service and eligibility for benefits, of contributions, of benefits, of State employees' defined contribution plan and of administration, funds, accounts, general provisions. Providing, as to the revisions: for construction and administration, for applicability, for liability, for member statements and for suspension of provisions of the Public Employee Retirement Study Commission Act. Considered the third time and agreed to, And the amendments made thereto having been printed as required by the Constitution, On the question, Shall the bill pass finally? The PRESIDENT. The Chair recognizes the gentleman from Centre, Senator Corman. Senator CORMAN. Mr. President, before I make my remarks on Senate Bill No. 1, I take a moment on behalf of our Caucus to wish you a happy birthday. The PRESIDENT. The Chair appreciates that. Thank you, Senator. We came in at the same time, and I will make sure to recognize your birthday as well. Senator CORMAN. Mr. President, hopefully, we will not be in Session on my birthday. It is on a Saturday in September. Mr. President, today is an important day in the history of this legislature and this Commonwealth. Since 2008, we have been struggling to do budgets here in Pennsylvania. Since the economy went into a great recession, which had a major impact on our two pension funds, the State Employees' Retirement System and the Pennsylvania State Education Retirement System, the two systems combined lost $30 billion in value in What impact that has had is a dramatic increase in our contributions. The systems are funded three ways: funded by an employee contribution, an employer contribution, and our investment returns, which each system has its own independent investment board which makes investments. Well, obviously, in 2008, during the great recession, those investments dropped dramatically, and so, since we have a defined benefit plan, that meant the employer, a.k.a. the taxpayers, had to increase their contributions significantly. It got us to the point where we actually had to address that in 2010 with Act 120. In 2010, when our contributions would have risen by billions under the leadership of the chairman of the Committee on Appropriations from the Lehigh Valley, we passed Act 120, which allowed our contributions to raise at a much slower rate over a period of time, but it also had a significant impact on our unfunded liability. We have been going through that process, and what that process has meant is we have seen our contributions go from around $600 million in the mid-2000s, about 2007, now our total contributions of the two systems have risen in excess of $3 billion. What impact that has had is a crowd-out effect where other areas of State government where we would like to be investing money into, or doing tax cuts for the people of Pennsylvania, we have not had the ability to do that because of this growing, growing burden on our budget. So every year it has led to a significant difficulty of us getting our budget done. So, Mr. President, I always sort of use the analogy that when you are sick, you are not feeling very well, and you go through a period of pain, and we are going through that period of pain. We are trying to figure out how to do our budget with this growing contribution. But when you are sick, you get medicine, and the doctor will prescribe you medicine to hopefully make you feel better, and over a period of time you begin to feel better. Well, we have not taken our medicine. We are feeling the pain of continuing to have our contributions rise. For example, and this is not just for the State, this is also for our school districts, the proposed a significant new contribution to our basic education subsidy in this year's budget, which we hope to be able to accommodate, but all of that money, over $100 million, will not even cover the local school districts' increase in their pension contributions. So that money is not going into the classroom as far as new books or new infrastructure for the classroom, it is not going into hiring any new teachers or anything of that nature, it is going, basically, to not even fund the status quo. So what we are proposing here today is historic, because in every pension bill that I have been a part of, in 2001, I believe, 2003 and 2010, none of those bills looked to the future. All of those bills looked to how do we get by this year's budget? So, although they met with the challenges of the day, they were not forward-looking. Senate Bill No. 1 is forward-looking. This is a bill that addresses the structural problem that got us into the position we are in today. Now, some of our critics will say this bill does not save any money right now. It is not going to relieve us of the burden and our budgetary issues today. Mr. President, they are correct. It will have very little impact on today's budget. If people were forward-looking back in 2001 and began to put a plan like this in place, we would not be in the situation that we are in today in dealing with skyrocketing increases of our contribution and crowding out other investments that we might like to make in State government. This now begins to transfer the risk, and I know for some people it is sort of hard to follow that, but because this is a defined benefit plan, we, the taxpayers, hold all of that risk. So, when our investments do not do

5 2017 LEGISLATIVE JOURNAL SENATE 577 well, the taxpayers have to make up for that. This bill, for the first time, enters into an area of retirement which the private sector has gone to decades ago. This bill will begin to bring defined contribution into the system, where dollar one on the first option will have a defined contribution and a defined benefit component side by side. There is a second option for employees if they choose to have a higher benefit, they have to have a higher contribution. And then thirdly, it has the option for employees to go to a complete defined contribution, which, in a lot of areas, particularly in the area of PSERS, where employees do not stay for their entire working career, they get out at an earlier part, having a more portable system will be better for them. This is historic to bring for the first time in Pennsylvania history, and again, it begins to move the risk away so that the taxpayers will not be funding that entire loss if we have losses in the future. This will take away over 50 percent of that risk that the taxpayers have been holding and remove it from the taxpayers. That is significant, Mr. President, because even though we are having this steep climb, as I mentioned, in our contributions, there is no guarantee that we are anywhere near the peak. That depends on our future investments. As of late, in the last few years during good stock market years, we have not reached our actuarial rate of 7.25 percent that the systems rely on to make things work. So, Mr. President, this is forward-looking. This is the medicine that we have not taken so far, the pain that I talked about from being sick. This is our medicine that will allow us, even though it is difficult now, to feel better later. I am a big believer that there are going to be future legislatures that are going to look back on this day when their budgets are difficult and say, thank goodness that the legislature was forward-looking and put a product in place that gives us a much more predictable, sustainable budget in the future. Mr. President, I do not want this to be perceived as an anti-public employee issue, because it is not. Public employees are extremely important to the running of the Commonwealth. We want good people to be our schoolteachers. We want good people to go into State government. We want good people to go into the areas that are important to both school and State employment. We need to attract those people. They are our neighbors. I always tell people that the person who lives behind me is a State Policeman; the person who lives in front of my house is a corrections officer; the people I coach Little League baseball with, one works at the school district and one works at Penn State. These are our neighbors, these are our friends, they are our community. These are important people in our community. The first thing that is important to note is that this bill will only deal with future employees, not current employees, but it is important that we have a retirement plan that will attract good people to go into those professions, and I think this bill still accomplishes that. It still accomplishes a way that, A, gives them more flexibility depending on what their career is going to be, which is important, but B, will have an income replacement for employees up to 80 percent. That does not even include Social Security, which is still higher than what the private sector offers today. So, I think this is a bill that meets all that we need to do to move this issue forward. It addresses the number one problem that I have seen in State government in my 18 years here. It is a problem that has really devastated our budgetary process for the last decade, and again, I believe this is the medicine that will move us forward in a way that future legislatures will be proud of. So, Mr. President, I know when we are talking about retirements, those are difficult issues, but I believe this is the proper response. Senate Bill No. 1 looks to the future in a way that puts us on a track that is a predictable and sustainable system for future legislatures to deal with, and so I am proud to be the author of it, the sponsor of it, but, Mr. President, I would be remiss if I did not talk about my entire Caucus. This has been our issue for 4 or 5 years, and good legislation does not come overnight. It took a lot of compromise and a lot of negotiating. The chairman of the Committee on Appropriations from Lehigh County, this has been a better part of his career, an issue that he has dealt with for many, many years and he has led us and our Caucus in a lot of ways to get us to this point. I thank my legislative director, Scott Sikorski, for all of the work that he put in on this. Scott was 6 feet tall, did not have any gray hair, and had a full head of hair when this whole thing started, but he has persevered on behalf of the citizens of the Commonwealth through a lot of work and stress to get us to this point. I thank the. I was critical of the last October, that he did not come to the table and get us votes. Last June, his new chief of staff at the time, Mike Brunelle, looked me in the eye across my conference table and said, this will be a priority for us to get this done, and they lived up to that commitment and helped us get to the point where we are today. So, like any good piece of legislation, Mr. President, it is the art of the compromise and what can get done. We can talk about what this might have been, but if nothing gets signed into law, it does not save us a cent, it does not put us on a path to more stability, and it does not accomplish anything. Getting something that can pass the Senate, pass the House, and get the to sign is the most important thing, and that is where we are today. So, a lot of people who have been looking at retirement issues for years outside this building, like the Commonwealth Foundation, in particular a gentleman by the name of Nathan Benefield, who has been a leader in talking about our problems since 2003, have came up and said, this is a good plan, this is a plan worthy of support. So, I appreciate that. National organizations like the Pew Charitable Trusts and others have said, this is a good plan, this is worthy of support. It has been a long road for us to get here, but we would not be here if the 33 Members of the Senate Republican Caucus, including myself, 34, as well as 2 Members who retired last year who put up difficult votes to put this issue on the front burner for all of us to look at, if it were not for those previous votes and if it were not for the commitment of the Members of this Caucus, I do not think we would be here today. So, again, this is the product of a five-party agreement, all four Caucuses had discussions on this and the is onboard as well, so hopefully by the end of the week we can have something on the 's desk that he can sign. So, Mr. President, again, I will close with, this is a historic moment. It is a moment, I believe, for the good of the Commonwealth of Pennsylvania. For the first time we took a significant problem and we looked forward, not backward, to

6 578 LEGISLATIVE JOURNAL SENATE JUNE 5, solve this problem. I am proud of the legislature and proud of our Caucus for making this happen. So, I encourage a "yes" vote for Senate Bill No. 1. Thank you, Mr. President. The PRESIDENT. The Chair recognizes the gentleman from Lehigh, Senator Browne. Senator BROWNE. Mr. President, I rise along with the Majority Leader to ask for the Senate to support the important provisions of Senate Bill No. 1. As the Members are aware, the date now being in June, a lot of the focus is going to be centered around the General Assembly's actions, along with the, to close on a budget. There is no mystery in this building or, frankly, in most corners of the Commonwealth about the financial challenges we have ahead of us. Challenges, if we look at more than this year, we have faced collectively for at least a decade now. There is another important indicator of those challenges, and if you look at the current financial position of the Commonwealth, its current balance sheet in accounting terms, when you include all of the debt that we are carrying, the Commonwealth is currently in a position where it has $20 billion more in debt than it has in assets at this current time. This, of course, is a significant number, but more significant than the number itself and the size of the number is what it communicates. What it communicates, Mr. President, is that the Commonwealth has had significant challenges managing all of the risks of its public obligations, its productivity risks, and keeping our State competitive so our revenue capacity grows to meet our obligations, obviously, revenue capacity growing faster than our growth in obligations, and that has been very, very difficult to match. Our demographic risk, risk for providing for the segment of our population who needs our support for State services, the cost of those is going up faster than revenue is available to pay for it. Public safety risk, the risk of insuring public safety and providing an accurate mix of law enforcement, corrections, intervention, and the investment associated with managing that, obviously, the cost of those items has been going up faster than revenue available to support it. Lastly, and definitely not least, is retirement security risk, the risk of providing retirement security for public sector workers. We have been challenged in all of these areas over the last decade, but what is equally important, Mr. President, with the current financial imbalance, is what we see currently if we look to the future. Based on projections by our Independent Fiscal Office, without significant long-term actions to better manage our risks, the financial imbalance that we are experiencing, the debt that is in excess of assets we are experiencing, will continue indefinitely into the future. Based on the IFO's projections into 2020, without changes we make to all of our systems, we are looking at a current deficit that is larger than our total investment in education that we make in the Commonwealth. And that imbalance will continue. There is nothing that shows in projections that will change. Because of this, the dynamics of our budget discussion have taken on an element which is different from the past, different from my first 22 budgets that I have been involved with as a Member of this Assembly, not only what we need to do to balance our books for the current fiscal cycle, but what we need to do to insure long-term fiscal solvency. In this regard, this year we are discussing reforms that in ways meet our obligations that are more significant and more comprehensive than we have done at any time in the past: how we provide public safety with major reforms in our correctional system, how we provide for the needs of our citizens with many changes in how we deliver human services, and looking at long-term capital investments in our key economic drivers like universities to provide for better management of our productivity risk, and today, considering major reforms on how we provide for the retirement security of our workers and the fiscal solvency of our State in relation to the obligation of our taxpayers. The purpose of Senate Bill No. 1 is to address the reason why providing for our workers' retirement security has, more than any other obligation that we have, driven our fiscal imbalance and will present significant risk that the imbalance will continue into the future. We often highlight that the two State pension systems now carry approximately $70 billion in debt. This is, of course, a significant number. No one doubts that in relation to our total assets available, cash flow available to pay our debt. What is more important, Mr. President, than the number is what it communicates. What it communicates is that the Commonwealth, like thousands, literally thousands of other private and public sector entities, has not been able to manage the risks that are fundamental to the type of retirement plan we offer, and that is a defined benefit plan. So, if we are going to advance reform in this area on how we provide for retirement, that reform has to first and foremost, more than anything else, allow the Commonwealth to better manage the risks of providing for retirement security consistent with the other reforms we are discussing to manage the risks in other areas of our obligations. In pensions, Mr. President, we evaluate the strength of any reform proposal simply by looking at what makes up a workers' retirement annuity. Twenty percent of it is made up of employer and employee contributions into a retirement plan, the costs of paying from our General Fund into our pension plans, the costs that an employee incurs from his own resources to pay for a retirement plan, that is 20 percent. Eighty percent of it is made up of investment returns on these contributions. We are where we are today because State government has been challenged in dealing with the 80 percent part of the equation, not the 20 percent part of the equation. What is often reported and discussed in regard to our pension reform actions is what we are saving in our contributions. Senate Bill No. 1 projects to save $1.3 billion on a nominal dollar basis and $300 million on a budgetary basis over the next 30 years. In the scope of a $200-billion payment cycle over those 30 years, that would seem to be not significant enough in material terms to mandate such significant action. So the question is, is it worth it? Based on that analysis, probably not, but that, Mr. President, is not what this is about. That is not what we are doing today. This is not about the 20 percent, it is about the 80 percent. When the entire private sector over the last 30 years moved away from the defined benefit plan because it was presenting too much risk to their long-term sustainability and their ability to survive, they were not doing it to solve 20 percent of the problem. They were doing it to solve 80 percent of the problem. When Michigan and Alaska, two States, moved their workforce--michigan moved their State workers, Alaska moved their entire workforce--into a defined contribution platform, they were not doing it to ad-

7 2017 LEGISLATIVE JOURNAL SENATE 579 dress 20 percent of the problem. They were doing it to address 80 percent of the problem, which we are doing today. The challenges of managing the key component of a defined benefit plan, the investment component, the 80 percent component, dwarfs the challenge in relation to the 20 percent of what we are putting into the plan. Let me give you an example. Act 120, most people in the building remember Act 120, was a $33-billion reduction in overall contributions to the plan. That was the savings from that proposal. That is in the 20 percent. If we did not achieve our investment performance, if we just missed it by 1 percentage point in the 80 percent equation, that would be a $49-billion loss. Just 1 percent, by missing 1 percent, we would totally consume all of the savings that was done in Act 120, which means that piece of the equation and what it presents to us in terms of our current fiscal position and the future is what this has to be about. This is why any evaluation of Senate Bill No. 1 that it does not lower our contributions, the 20 percent equation, misses the true, fundamental point of our reform. It would miss the point of the thousands of times retirement plans have been changed from defined benefit to defined contribution. Frankly, in the scope of the overwhelming, overpowering motivation for pension reform in the private and public sector throughout the nation over the last 30 years in this building, it is probably the only place where that 20 percent equation has been the focus of the conversation. The private sector supports this. If that was the reason why they did their reform over the last 30 years, if they did it for that short-term savings, then this would not be meaningful to them and they would not be supporting it, and they all are in support for this reason. In the manner of the 80 percent, Senate Bill No. 1 presents an opportunity to address the fundamental challenges we have and have had over the last 20 years which this Assembly, if it is really concerned about the future financial position of the Commonwealth, cannot pass up. Currently, the Commonwealth, through our traditional defined benefit plans, maintains all--this is what a traditional defined benefit plan does--all of the 80 percent equation, all of the obligations to meet the investment earnings in the plan. If the Commonwealth moves that obligation away from the taxpayers, that has value. In Senate Bill No. 1, that value is more significant than anything we could achieve in a bill which focuses on the 20 percent. If you look at and analyze the actuarial notes presented by the Independent Fiscal Office in their note, you will see how we are quantifying the value both for PSERS, State school district employees, and SERS, our State employees. Each one of these, just on the value of moving part of the plan to a defined contribution plan, mitigates in excess of 50 percent of the total risk exposure in that 80 percent equation for us. If you assume that all of our payroll is in the new proposal as opposed to the old proposal, it is a $30-billion savings, a $30-billion risk value to this Commonwealth both with SERS and PSERS. This risk transfer value is something that if you look at it in actual terms, and look at what other States have done to manage their risk, Senate Bill No. 1 represents the most significant pension reform and the most significant pension measure to date in the nation. When Michigan moved away from a defined benefit plan for their State workers, the monetary value of that risk transfer is less than ours. Alaska, of course, given its size, can only pale in comparison to the value we are giving our taxpayers today. Hopefully, understanding where the nation is in relation to us right now--and the nation is behind us right now--it will motivate other States to follow our lead into what is a more sustainable model for not only their taxpayers, but their workers. The Majority Leader mentioned how this relates to the retirement security of our workers. The best way to evaluate that is to look at what a worker takes home, what is left in their pocket in cash when they are working, and compare that to what is in a worker's pocket when they retire. Based on what we are presenting here today, this plan protects over 95 percent of that total replacement. Someone will be able to have 95 percent on a take-home basis on retirement as compared to what they were when they were working. This is something that, for the future security of the Commonwealth and its workers and the people who serve our children in our schools, provides a competitive benefit that will allow us to attract the people who are necessary to make these systems work. Mr. President, as we look to close on our budget, we should continue to reflect on what the primary cause of our current imbalance is, the difficulty of managing the risks before us, and how to act to insure that we maintain platforms that better manage our risk going forward. If we do not act now on long-term reform, we will pass on these risks to our children, who will have to better manage the risks that we did not and failed to address. Accordingly, on behalf of the current and future citizens of this Commonwealth, let us act now to insure a Commonwealth which is on the path to fiscal solvency, fiscal strength, and opportunity. Let us move forward knowing that the questions before us about how we are going to manage our risks have specific answers as to how we are going to manage them. In the provision of retirement security for our workers, the answer for them and our citizens who support them is Senate Bill No. 1. Thank you very much. The PRESIDENT. The Chair recognizes the gentleman from Lackawanna, Senator Blake. Senator BLAKE. Mr. President, I did not intend to speak on Senate Bill No. 1, but as the Minority chairman of the Senate Committee on Finance for the past 4 or 5 years dealing with this issue, I felt that on this momentous occasion it warranted that I speak on this bill. I think I first have to talk about me, and then I will talk about us. I struggled with this a little bit. In fact, I was a "no" vote in a meeting of the Committee on Appropriations because I needed to wrap my head around a few things. Number one, knowing that there were other ideas, good ideas, that were not included in the debate on this bill, other things that may have had greater impact on the Commonwealth's finances, both General Fund-wise and unfunded liability-wise. Senator Corman is right, we cannot wait around for the perfect if we could obtain some good. I think that, for me, I needed to read the IFO report a little bit deeper and wrap my head around what Senate Bill No. 1 really is in comparison to the four priority conditions of the Senate Democrats' pension reform criteria, which I have talked about many times on this floor. I came to the conclusion that we have dug this hole and that maybe it is time we stop digging. Maybe we do need to start the correc-

8 580 LEGISLATIVE JOURNAL SENATE JUNE 5, tion as best as we can do, and I had to take into consideration the five-party agreement and the negotiations that led to Senate Bill No. 1 being voted off this floor today. I think it is important, Mr. President, to remember what the Senate Democratic Caucus' priorities were for State pension reform. Number one, do not impair contracts of our existing employees or pensioners. Senate Bill No. 1 does not impair the contract. We wanted to make sure that we did not exacerbate the situation by blowing up our unfunded liability or adding to our unfunded liability by making a bad policy move. Senate Bill No. 1 does not do that. We wanted to provide a reasonable retirement security for our future workers. I am a little concerned on this point, but you have heard Senator Browne make an argument on the retirement security for our workers. Our employees have already really done their part, Mr. President. The employees took about a 20-percent to 25-percent cut in benefits when we did Act 120 of There is another cut in benefits for future workers in this plan. I worry about that in recruiting talent and recruiting teachers, but I also know that our workforce is different now than it was 30 years ago, and that the idea of flexibility and options is more attractive to a new worker, and Senate Bill No. 1 does provide that. The other thing that Senate Democrats wanted was State pension reform that would provide relief to our General Fund and perhaps to our school districts' budgets. Senate Bill No. 1 comes up a little short there. We are not really dealing with the short term, as Senator Corman has said. We are looking to the future, but we are only starting the correction today. Our work is not done because we still have a $70-billion unfunded liability. Senator Browne made a compelling argument about risk management, and that is what Senate Bill No. 1 is all about. It is about starting the correction. It also includes a provision for managing, or at least hoping to manage, investment managers' fees for the systems going forward, something that the and our Treasurer have talked about and something that I think can be facilitated as a result of the passage of Senate Bill No. 1, if it gets signed into law. So for me, Mr. President, I do not think this bill goes far enough. I do not think it does enough, but I think it does start the correction. So, as much as I struggle with the fact that we have things that we could do that would save us more money across the same 30-year horizon that this is suggested to save $1.4 billion, despite the fact that I think we could do something that changes the pressure on our school districts in the short term, unfortunately, Senate Bill No. 1 actually costs money on the front end. We do not find savings until we get about 20 years out. Nevertheless, the value of starting the correction is enough to compel me to an affirmative vote. So I will be voting "yes" on Senate Bill No. 1, but I think it is important to remember that our work is not done with this bill. If it gets signed into law, we are only starting the correction, but we really have not taken up the real work of dealing with the unfunded liability of over $70 billion. Thank you, Mr. President. The PRESIDENT. The Chair recognizes the gentleman from Jefferson, Senator Scarnati. The PRESIDENT pro tempore. Mr. President, I rise today to underscore the importance and significance of this legislation. Senate Bill No. 1 provides excellent structural reform. Real people, like the people we all represent, will see the value in this bill. Defined benefit plans are not what most Pennsylvania taxpayers have today. Most Pennsylvania taxpayers have defined contribution plans or a 401(k) or an IRA plan. It is long past time that we move our State in the same direction. Pension reform is not an easy issue to tackle. Changes must be made, but we must acknowledge current retirees and the investments of current State employees. While no one likes to think about recessions or economic downturns, at some point down the road it is not if we have one, it is when we have one, when we have another recession. We cannot wait and see what happens to the pension system then. We need to take proactive steps right now while we can. I have seen negative press regarding this bill in the last 24 hours and the media's desire to point out what, in their opinion, the bill does not do or does not go far enough. The media has a fundamental misunderstanding of what other States have done and have not done and a fundamental misunderstanding of what this bill actually does. They talk about the unfunded liability and addressing it. Well, in order to address the unfunded liability, a major tax increase here in Harrisburg would be required and a major tax increase on property owners back home. Now, the other solution is we take away earned benefits of retirees and current employees. Well, that is clearly unconstitutional. So the media's criticism of this plan does not take into consideration what the alternatives are, because there are none. One of the recent headlines: New pension plan being pushed by Senate appears to do less than their last pension bill. Well, of course it does because the last pension bill did not get passed. It did not get through the House and it did not get to the. Many outside experts have been quick to proclaim that this bill goes directly to the head of the class in the nation. Pension reform has been a priority of this Caucus for the last several years, and while it is unfortunate that prior versions of pension reform would not be signed by the, this bill that we are passing today is agreed to by both Chambers and the. Legislating is about finding compromise. Today, Senate Bill No. 1 finds that. It finds compromise while still insuring fundamental structural reform going forward. Senate Bill No. 1 does provide for a true 401(k)/IRA-type plan and two other hybrid plans for employees to choose from, components of defined contribution plans. We cannot leave this problem unchecked. It is not fair to future generations. In terms of dollar value of risks mitigated, Senate Bill No. 1 will be the largest reform enacted by any State in the nation. According to outside analysts, the reforms in this legislation have the potential to protect taxpayers from more than $20 billion in risk over a projected period. Without question, Pennsylvania pension costs are crowding out other State programs and are the number one driver of school property taxes. So I am proud to join my colleagues as we pass historic reform today and help insure the stability of the Commonwealth for decades to come. Thank you, Mr. President. The PRESIDENT. The Chair recognizes the gentlewoman from Northampton, Senator Boscola. Senator BOSCOLA. Mr. President, I was not going to speak on Senate Bill No. 1, but I found out some more information, and I am hoping that when the House hears this, they amend this bill. It is a step in the right direction for pension

9 2017 LEGISLATIVE JOURNAL SENATE 581 reform, but in this bill we exempted certain classes of people and certain individuals who are State employees: the military police at Fort Indiantown Gap; waterway conservation officers; State Police; game wardens; correction officers; State park rangers; wildlife conservation officers; Capitol Police; and campus police for the State System, community colleges, and Penn State. So, in other words, this bill was to make sure that pension system changes occurred across this Commonwealth for all State employees, but we exempted certain individuals because they are so special. I do not think there is any special State employee out there. If we are going to have true pension changes, all State employees should be included, no one is special - 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 different categories of special people. If we are really doing true pension reform and cared about the taxpayers of Pennsylvania, we would not be excluding anybody. Thank you. The PRESIDENT. The Chair recognizes the gentleman from Lehigh, Senator Browne. Senator BROWNE. Mr. President, briefly, before we move to a final vote, I take this opportunity to thank my staff, Stacy Connors, along with Scott Sikorski, who did a tremendous job in working on this bill, as well as the Independent Fiscal Office, the actuaries, and the many staff in the systems who had put a tremendous amount of work into a bill that required a lot of time and a lot of effort to make it come together. So, I wanted to make sure I took an opportunity to do that and thank them for their service. The PRESIDENT. The Chair recognizes the gentleman from Centre, Senator Corman. Senator CORMAN. Briefly, Mr. President, I submit for the record a series of letters or s provided to us by organizations around the Commonwealth and the country in support of Senate Bill No. 1: the Pennsylvania Chamber of Business and Industry, the Chamber of Commerce for Greater Philadelphia, the Allegheny Conference on Community Development, the Greater Pittsburgh Chamber of Commerce--and as a matter of fact, I think I see a former Member of this Chamber in the gallery with the Allegheny Conference--the Pew Charitable Trusts, the Commonwealth Foundation, the American Legislative Exchange Council, the Pennsylvania School Boards Association, the Pennsylvania Institute of Certified Public Accountants, the Retirement Security Initiative, and the Reason Foundation. I am submitting all of these letters for the record. Mr. President, just briefly, I certainly understand the gentlewoman's concern. When we looked at law enforcement, obviously the State Police come under a different category as the State Police do not collect Social Security. Correction officers' careers are much shorter than the normal State employee just because of the nature of their job. So, we did take under consideration certain law enforcement entities, and that is why those exemptions were provided. I close with this, because I know it gets a lot of attention: the Members of the General Assembly. The Members of the General Assembly are treated like every other employee of the Commonwealth in this bill. If you are a new legislator starting in 2018 or if you are a new employee of the Commonwealth starting in 2018, you will be in the new system. However, we did provide in this bill an opt-in ability, where every current employee, including whatever department of government you are in, including the legislature, will have the ability to opt into the new plan. To my knowledge, this will be the only system that will have that ability to opt in. We are breaking new ground here to allow current legislators, or any current employee, to opt into the new system. I want to be very clear, because I know how much attention is paid to this, the legislature is treated like every other employee that comes under these two systems. So, I think that is important to note that we have advocated for this and we think we need to live by it as well. Thank you, Mr. President. The PRESIDENT. Without objection, the letters will be spread upon the record. (The following letters were made part of the record at the request of the gentleman from Centre, Senator CORMAN:) ALLEGHENY CONFERENCE ON COMMUNITY DEVELOPMENT CHAMBER OF COMMERCE FOR GREATER PHILADELPHIA PENNSYLVANIA CHAMBER OF BUSINESS AND INDUSTRY Dear Honorable Members of the Pennsylvania Senate: The Allegheny Conference on Community Development, the Chamber of Commerce for Greater Philadelphia, and the Pennsylvania Chamber of Business and Industry thank you for continuing to pursue state pension reform. Structural reforms to the state and teacher pension systems is the top public policy issue for all of our organizations, and we strongly encourage you to support Senate Bill 1. Senate Bill 1 will provide meaningful reform that advances the key principles we have advocated for. The proposal, which is for new employees only, would provide retirement plan options that would: Begin to address the ever increasing underfunded pension liability; Provide for cost predictability and significant risk sharing; Increase the overall funding certainty; and Provide adequate retirement security for beneficiaries. Notably, passage of this bill would mitigate more risk than any other state that has recently enacted pension reform. We believe this to be historic and meaningful legislation, and we give it our unqualified and enthusiastic support. On behalf of the thousands of businesses that our organizations represent across the Commonwealth of Pennsylvania, thank you for working to keep this issue alive. We are very close to the finish line, and again, we strongly urge you to support Senate Bill 1. Sincerely, DENNIS YABLONSKY CEO of the Allegheny Conference on Community Development ROB WONDERLING President and CEO of the Chamber of Commerce for Greater Philadelphia GENE BARR President and CEO of the Pennsylvania Chamber of Business and Industry