To Boost Tax Revenues, Improve the Business Climate

In what’s becoming a June tradition, the General Assembly is scrambling to patch together a balanced spending plan up against the cold reality of dismal year-end revenue collections. The state’s deficit is in the ballpark of $1 billion this year, according to Independent Fiscal Office, with corporate returns topping the dismal list.

Last week, the House moved to secure more General Fund money through a massive expansion of gaming; the taxes on the proposed expansion would raise nearly $300 million in additional revenue, estimates show. Other revenue raising, or revenue shifting measures, are almost certain to follow before the June 30 budget deadline.

There’s some good news in all this: legislative leaders appear firm in their commitment not to look to taxpayers – at least in the form of broad-based increases as Governor Wolf has asked for  – to bridge the funding gap. The bad news is that lawmakers again find themselves dancing the June-budget-shuffle.

As PMA President David N. Taylor has often said on these pages, and elsewhere, making the policy changes necessary for a stronger state economy would boost revenues, and eliminate the need to scurry around at the end of the fiscal year looking for money.

“National surveys show that U.S. manufacturers are more optimistic than ever about the opportunity for growth,” Taylor said. “Now is the time to compete for that investment here in Pennsylvania. Adopting a pro-growth, pro-production agenda to improve our business competitiveness will spur economic growth, increase tax collections, and make the state’s money problems disappear.”

One bill scheduled for a vote in Judiciary Committee last week, and then passed over when the votes failed to materialize, offers an acute example of how we can begin to make Pennsylvania more inviting to manufacturers and all businesses, and bolster state revenues. HB 238, sponsored by Warren Kampf (R-Chester), would loosen the grip a few privileged lawyers have on a compensation system established for workers exposed to asbestos fibers. The gaming of the asbestos trust system by plaintiffs’ lawyers not only cuts into the funds available for other injured workers but ruins jobs, and, in some cases, entire businesses. Ruined businesses bring in no revenue for the commonwealth.

At its core, the legislation requires what we expect of any transaction involving money – transparency. The bill would require plaintiffs’ attorneys to reveal to a court any claims they intend to make to a trust involving the same case. Today, a veil of secrecy surrounds the trusts, leaving the system ripe for corruption, exploitation, and abuse.   

Revealing to a court the intentions to file a claim with a trust, would prevent plaintiffs’ attorneys from winning two awards on the same case, or double-dipping. In the courts, the attorneys target down-the-line solvent companies that may have had little, or even no connection, to the original, alleged exposure. In some instances, the practice is forcing companies out of business.

The plaintiffs’ lawyers, and their allies in the Legislature, justify their opposition to the transparency legislation under the faux common-man appeal of defending victims’ rights. The cruel irony is that the real victims, those injured through exposure, face the prospect of strained resources as the lawyers get rich.

Curt Schroder, Executive Director of the new Pennsylvania Coalition for Civil Justice Reform (PCCJR), said that in light of Judiciary pulling the bill, the green light has been given to continue the systematic manipulation of evidence in asbestos cases in Pennsylvania.

“Pennsylvanians should demand an explanation from those who refuse to support HB 238 as to how they justify allowing attorneys to deny asbestos exposure in a court case and then file bankruptcy trust claims against the same companies they denied, under oath in court, that their clients were exposed to,” he said, describing a practice known as suborning perjury. “Essential to the litigation of a personal injury action is the right of all parties to have access to, and knowledge of, all facts relevant to a dispute.  When only a portion of the evidence is available, the fact-finding process is distorted.”

At the same time, Schroder praised Rep. Kampf and Committee Chairman Ron Marsico (R-Dauphin) for trying to push the bill through the legislative process.

As evidence of the need for the legislation, Schroder cited the recent filing in federal court in Pennsylvania by an Illinois-based sealing and gasket manufacturer against the Philadelphia-based Shein Law Center. The manufacturer, John Crane Inc., is alleging that Shein violated the Racketeer Influenced and Corrupt Organizations Act (RICO) as well as common-law fraud and conspiracy by manipulating the evidence in asbestos cases.

In the complaint, Crane said that Shein concealed evidence in court that would point to who was responsible for their clients' asbestos exposure, but then turned around and cited the evidence concealed in court as the basis for its claims before the bankruptcy trusts.

The case is similar to a 2014 case involving Garlock Sealing Technologies where a federal judge’s opinion effectively documented what the business community has long argued.

The North Carolina bankruptcy judge found that Garlock’s settlements of mesothelioma claims in the tort system were “infected by the manipulation of exposure evidence by plaintiffs and their lawyers.” The judge described an effort by plaintiffs and their lawyers to “withhold evidence of exposure to other asbestos products and to delay filing claims against bankrupt defendants’ asbestos trusts until after obtaining recoveries from Garlock (and other viable defendants).”

In short, the judge said that the alleged victims had different stories for different venues. The lawyers first targeted Garlock in court, coaching their clients to tell one story of exposure. They then told a different story to the trusts, one that linked the manufacturers with the exposure.

Ten other states have moved to require transparency. And in March, the U.S. House cleared similar legislation. The language in the bill was folded into class action reform legislation. Its prospects in the Senate are uncertain.

The gaming of the asbestos trust system continues because of the inordinate influence a powerful few have on the legislative process. More balance in the legislative process will lead to transparency in the asbestos compensation system, and other needed policy changes. Without reforms like limits on lawsuit abuse, economic growth with remain sluggish and revenues to the Commonwealth will continue to underperform.

This is just one example of positive reforms that would make Pennsylvania more competitive and could help attract business investment. The cost to the commonwealth? --Nothing. There are many ways to enhance Pennsylvania’s business competitiveness without hiking tax rates or reducing immediate state revenue. The private sector is going to make capital investments and the American economy is on the brink of a major surge. So the question remains: what is Pennsylvania doing to prepare?