Standing in at 5’ tall, Diana Irey Vaughan isn’t what you’d expect in a ﬁerce champion of ﬁscal responsibility and good government. But for nearly two decades, she has proven herself as a ﬁscal watchdog in southwestern Pennsylvania and led the charge for reining in waste and excessive public spending. In the following pages, learn about Diana’s plan to preserve and responsibly grow Pennsylvania’s future.
Inside the Plan…
Can Pennsylvania return to ﬁscal sanity? Can Harrisburg really be so ignorant to its own hypocrisy? We deserve more from our state treasurer Are taxpayers paying too high a price for its growing debt? Is Pennsylvania gambling with taxpayer dollars? How can we ensure a healthy pension system into the future? A Plan that Makes Sense A Leader for Pennsylvania 2 4 5 6 8 10 12 13
Can Pennsylvania return to ﬁscal sanity?
Source: 2008-09 Governor’s Executive Budget
Recently, the U.S. debt hit the $16 trillion mark. Rather than chart a more responsible course for taxpayers in the Commonwealth, Pennsylvania followed Washington’s lead by recklessly increasing our state debt over the last Our state and local decade. During his two terms debt is now in ofﬁce, Governor Ed Rendell $38,000 per family increased Pennsylvania’s general and growing. obligation debt by 28%, even in the face of economic recession - Commonwealth Foundation and a shrinking private sector.1 Our state and local debt is now $38,000 per family and growing.2 Add this to our growing pension obligations, and today, Pennsylvania ﬁnds itself in a very deep hole. In just a few short years, Pennsylvania has gone from a pension surplus to a system under threat from ballooning unfunded liabilities. We are already behind in funding our long-term pension promises by a whopping $40 billion, and the gap is widening. Soon, state and local taxpayers will be on the hook for a $4 billion payment into the state’s public pension system that we simply cannot afford. Our mounting debt puts every Pennsylvanian at risk. Eventually, debts come due, and we’ll have to pay them, whether to our retired state workers and teachers or to other creditors. Our state leaders have a responsibility to take action now to avoid piling on more ﬁnancial burdens for our children and grandchildren.
In 1999, Pennsylvania’s pensions were 120% funded. Eleven years later, PA pensions plunged to 75% funded, below the 80% funding level considered a healthy benchmark.3 Today, the Public School Employees Retirement System (PSERS) is only 69% funded.4
Source: State Fact Sheet, “The Trillion Dollar Gap,” Pew Center on the States, 2010.
Commonwealth Foundation 2 Commonwealth Foundation
Pew Center on the States PSERS Budget Hearing Information (FY2012-13)
Can Harrisburg really be so ignorant to its own hypocrisy?
We deserve more from our state treasurer
Pennsylvania has gone far too long without strong, statewide leadership on ﬁnancial issues. Pennsylvanians need an advocate and a true watchdog in Harrisburg ﬁghting to protect our tax dollars, rein in our debt, and ﬁx our broken pension system. State treasurers around the country are sounding the alarm, leading the debate, and offering solutions. Pennsylvania’s current treasurer has failed to do any of that.
Incumbent treasurer Rob McCord once wrote that if your credit card bills are getting out of hand, the last thing you should do is ask the bank or credit card company to increase your line of credit. Unfortunately, this is exactly what Rob McCord did just a few months before he penned these disingenuous words of advice to Pennsylvanians. In 2010, Rob McCord approved lame-duck Gov. Ed Rendell’s request for $600 million in additional debt spending despite the governor’s already record-breaking debt increases. Under Rendell, the Redevelopment Assistance Capital Program (RACP) debt limit increased ﬁve different times and grew by an astounding 279% over his eight years in ofﬁce. By law, debt limit increases must be approved by either the auditor general or the state treasurer. Although Auditor General Jack Wagner spoke out ﬁercely against the move, McCord still signed off on a record debt level of more than $4 billion. As a result, the McCord-Rendell team was able to support pork projects like $10 million for the John P. Murtha Center for Public Policy and nearly $2 million for the Arlen Specter Library.
Fiduciary – [ﬁ-doo-shee-er-ee] noun, adjective One that stands in a special relation of trust, conﬁdence, or responsibility American Heritage Dictionary
Our treasurer is the state’s ﬁduciary, with the responsibility to safeguard Pennsylvania’s ﬁnancial assets. The treasurer has a constitutional role in deciding when Pennsylvania increases its debt and is the only statewide elected ofﬁcial to serve on both the PSERS and SERS boards. Our treasurer should be an outspoken champion for sound investment policy and meaningful reform. The race for state treasurer is about much more than making smart investments for Pennsylvania; it’s about leadership and courage. Diana Irey Vaughan will be the strong voice Pennsylvanians need now to restore a common-sense, back-tobasics approach in the ofﬁce of state treasurer. Read more to ﬁnd out about Diana’s back-to-basics plan to address Pennsylvania’s long-term liabilities.
“Americans hold 8 million fewer credit cards than they did a year ago, because they understand that debt is a bad thing. It’s time that state government listened to the public.” -Auditor General Jack Wagner, press release, December 9, 2010 1. Decrease our debt 2. Simplify our investments and eliminate high fees 3. Responsibly fund our pensions
Are taxpayers paying too high a price for its growing debt?
Pennsylvania taxpayers currently spend more than $1 billion a year on debt service. That is $1 billion of taxpayer money each year just to pay for past debt and reckless borrowing. It means less of our government dollars are going to vital services our citizens depend on daily. Over the past decade, Pennsylvania debt service payments have increased at a staggering rate. In homes all around the Commonwealth, Pennsylvanians already know that ﬁnance charges on credit cards and bank loans can quickly eat away at family budgets necessary to pay for mortgages, utilities, and food. We need our government leaders to understand this, too. It is irresponsible to take on more debt and to increase the costs of paying for it during lean economic times. In the long-term, endless borrowing is simply unsustainable.
As our next state treasurer, Diana Irey Vaughan will:
Say “NO” to additional state borrowing when we cannot afford it. Diana will have the courage to do what is right for Pennsylvanians and reject unnecessary increases to our debt load. She won’t saddle Pennsylvania with higher debt service payments that further strain our state’s already tight ﬁnancial situation. Support common-sense reforms to fund programs with state tax dollars. Diana will advocate for reforms to programs like the Redevelopment Assistance Capital Program (RACP) that institute a more transparent, accountable, and streamlined process to the awarding of these funds. By implementing these reforms and introducing a merit-based selection process, Pennsylvania could reduce its debt by 63% over next 20 years.5
Estimated impact of RACP reforms from HB 2175 from House Finance Committee (R).
Is Pennsylvania gambling with taxpayer dollars?
Pennsylvania is betting on a high-risk strategy that isn’t panning out. Our pension funds are among the worst performing and riskiest in the nation and include investments like an Atlanta hotel and a Washington State apple orchard. They amass hundreds of millions of dollars each year in fees to investment ﬁrms that Pennsylvania taxpayers cannot afford.
As Pennsylvania’s next treasurer, Diana Irey Vaughan will:
Simplify Our Investments As the Keystone State, Pennsylvania should lead our nation in many things, but risky investments with poor returns should not be one of them. Diana believes that our leaders should take a balanced approach towards investing our pension dollars. She will advocate for common-sense investment policy for our pension funds that includes a well-diversiﬁed portfolio that eliminates randomness, illiquidity, and avoids excessive risk and exorbitant fees. Eliminate High Wall Street Fees Pennsylvania doesn’t always need to engage high-priced Wall Street experts to get the best return on our investments. Diana believes that we need to take a serious look at the number of managers and amount of fees the Commonwealth is paying to investment houses to manage our pension funds. Pennsylvania is spending too much money for them to make investment decisions, and the high cost has not justiﬁed the return. The less we pay in management fees for these funds, the more we can put towards pension obligations for future retirees. Risky Rob McCord It’s no wonder Pennsylvania continues to make big bets on alternative investments. Rob McCord is a former venture capitalist, private equity investor and investment broker. He is managing the state’s resources as if he were still managing a risky Wall Street venture capital portfolio.
According to data from the Index Funds Advisors, Inc., a simple index portfolio would have outperformed SERS over the past 12 years. Despite lackluster performance, Pennsylvania pays steep management and performance fees annually for SERS and PSERS. In fact, over the past ﬁve years, PSERS paid out a whopping $1.35 billion in management fees, in large part to fees associated with alternative investments like private equity, venture capital, and real estate.7 “The Pennsylvania state retirement system, which has about 46% of its money in alternatives, paid those managers 77% of the systems total $195 million in fees last year.” - The New York Times, April 2012
See http://www.ifa.com/portfolios/ for detailed index portfolio information. Creswell, Julie, “Pensions ﬁnd riskier funds fail to pay off,” The New York Times, April 1, 2012.
Source: Index Funds Advisors, Inc., 20126
How can we ensure a healthy pension system into the future?
Unfortunately, Pennsylvania’s recent history has not been one of ﬁscal discipline. Rather than preserve a once existing pension surplus for a “rainy day,” Harrisburg lawmakers increased beneﬁts for themselves and state employees, gave cost-of-living increases, and made little to no employer contributions into the funds. These actions left no room for error when Pennsylvania’s pensions were among the hardest hit of all the nation’s pension funds during the 2008-2009 market crash, sustaining losses of 28.7% (SERS) and 26.5% (PSERS) that year.8 No longer able to rely on investment returns to fund the state contribution into our plans, state leaders “reﬁnanced” Pennsylvania’s pension obligations over 30 years and legally capped employer contribution rates to avoid payment spikes, passing the brunt of this debt onto future generations of taxpayers. This issue is now boiling to a crisis with a recent downgrade of Pennsylvania’s rating by Moody’s Investors Service due to lack of leadership in addressing our growing unfunded pension liability. It now will cost taxpayers more when Pennsylvania borrows money.
As Pennsylvania’s treasurer, Diana Irey Vaughan will:
Responsibly fund our pensions According to The Pew Center on the States, one of the key factors for maintaining a healthy pension system is for states to make disciplined, annual payments that meet actuarial recommendations. Diana will work to protect our pensions and to ensure that Pennsylvania can fulﬁll its obligations to retirees. Diana will be the watchdog that taxpayers need to ensure that lawmakers don’t repeat the mistakes of the past and shirk on their responsibilities. Diana will push the General Assembly to not only continue paying the full recommended Normal Cost and Health Care Contribution toward the Employee Contribution Rate of both pension funds, but to also do a better job at contributing toward the Unfunded Accrued Liability each year. No Show Rob McCord Protecting Pennsylvania’s state pension funds is one of the most important responsibilities our government leaders have to our public servants and to the taxpayers of the Commonwealth. Despite this, Rob McCord: • • Missed 50% of PSERS meetings during his ﬁrst three years of ofﬁce Failed to take a stand on Pennsylvania’s looming pension crisis despite serving as the ONLY statewide elected ofﬁcial on both public pension boards Watched silently as Pennsylvania’s pension funds dipped below the 80% funding level considered the benchmark for a healthy pension system
His best explanation for being absent from this debate: “Rob McCord is one of eleven votes on the State Employees’ Retirement System and one of ﬁfteen votes on the Public School Employees Retirement System.”--McCord spokesperson to the The Daily Review, June 5, 2012
Pew Center on the States, “Trillion Dollar Gap: Underfunded State Retirement Systems and the Roads to Reform,” February 2010.
Pennsylvania doesn’t need more excuses. Pennsylvania needs leadership.
A Plan that Makes Sense
A Leader for Pennsylvania
The steps we take now will determine our path for our future ability to make due on promises to retired state workers, teachers, and creditors without threatening critical state services and programs. The straight-forward, back-to-basics approach in this plan makes sense to many Pennsylvania families: don’t borrow more than you can afford, eliminate unnecessary risks and fees, and keep up with payments. It’s how we run our households, and it should be how we run our state ﬁnances, too. Diana Irey Vaughan’s plan will help preserve what we already have and responsibly grow our assets and investment portfolio for the future. Diana is the kind of independent leader Pennsylvania needs now to move the critical debate forward. She will put that same philosophy to work for all of Pennsylvania by reaching across the aisle to help bridge the pension debate in Harrisburg. As a Washington County Commissioner, Diana learned that smart reforms need leadership willing to cross political lines. She’ll put that same philosophy to work for all of Pennsylvania by reaching across the aisle and to bridge the debate in Harrisburg as we begin the urgent examination of how to ﬁx the pension problem. Diana will ensure that serious proposals are on the table and considered fully. First elected in 1995, Diana is the only woman to ever serve as Washington County Commissioner. She is well respected across southwestern Pennsylvania as a job creator with a track record of fiscal responsibility and the leadership and business acumen to make tough decisions. Diana has put fiscally conservative principals to work in the management of Washington County’s pension fund. Diana established a very diversified and conservative investment policy statement which allowed the county’s investments to meet or exceed industry benchmarks over her 17 years as county commissioner. Recently, Washington County’s pension fund earned a spot in the top seventh percentile nationally, and its fees are among the lowest in the state. This means lower county contributions to the pension fund and, ultimately, lower taxes for businesses and residents. Diana also worked to protect our hard-earned tax dollars and fought for a pro-business environment which improved the economy: • Balanced seven consecutive budgets without raising taxes • Sustained a healthy pension fund by ensuring an average 94% funding level • Attracted over 6,000 new jobs into the county • Opposed taxpayer-funded cable television for inmates and instead put them to work in the community without pay As State Treasurer, Diana will always put citizens and taxpayers first, not special interest groups or political ambition, to bring discipline and integrity to the job of safeguarding Pennsylvania’s assets.
It’s no secret that Rob McCord is eyeing a run for Governor. With thousands of dollars in contributions already from public employee and teacher unions, it’s no surprise that Rob McCord has remained virtually silent on these critical issues as he prepares for the next campaign. Finding real solutions to our growing debt and pension burdens doesn’t need a treasurer who is playing politics; it needs a treasurer who will do what’s right for Pennsylvania.
She did it for Washington County, and now, she’s ready to do it for all of Pennsylvania.