For years Pennsylvania has been on an economic development spending spree. Yet all this spending has not provided the robust job growth expected from the massive outlays. In fact since 2000, job growth in the Commonwealth has not kept pace with the national average. Earlier Policy Briefs have documented the poor job performance and wasteful spending. Now perspective can be offered by comparing Pennsylvania’s economic development spending, and additional job creation, with the rest of the nation.

State expenditure data, provided by the Council for Community and Economic Research looked at spending by functional economic development program during fiscal years 2005 and 2006 for each state. The data show that during these two fiscal years, Pennsylvania spent $1.03 billion, second only to Ohio’s $1.05 billion. Other states with very high spending levels were California ($891 million), Texas ($717 million), and New York ($533 million). The average for all states was $233.7 million. Thus, Pennsylvania spent nearly twice as much as fifth place New York and nearly five times the 50 state-average on economic development programs.

A breakdown of the Commonwealth’s expenditures shows the largest program expenditure falls under Community Assistance where more than $411 million was spent during the two years on items such as grants to local development agencies and community revitalization. Forty-two states spent less than this amount on all of their economic development programs combined. Other high expense programs in Pennsylvania include Technology Transfer ($150 million) and Business Assistance ($139 million).

Proponents of high spending levels claim it is a necessary investment for economic growth in Pennsylvania as it competes with rival states. But as was pointed out earlier, only Ohio spends more and very few states even approach the spending level achieved by the Commonwealth. The central question has to be: Are the enormous outlays producing job creation and economic growth?

In 2005 and 2006, the Commonwealth added 110,700 employees to private payrolls for a two year gain of 2.26 percent, ranking the state 38th in the nation. The more than $1 billion in development expenditures amounted to nearly $9,300 per net new job. At the same time, average private sector job growth for all states over the period was nearly 4 percent and economic development spending per job averaged just over $2,700. Thus, across the country, states spent less than a third as much per job as Pennsylvania.

The fastest growing states, Arizona, Nevada, Utah, and Idaho, all spent under $700 per net new job. In addition, neighboring states Maryland and New York spent less for economic development in both total and per job than the Commonwealth and yet posted faster gains over the two years.

Furthermore, the fastest growing private sector in Pennsylvania, Health and Education, is not the target of the vast majority of economic development programs and spending. When healthcare and education jobs are excluded from the employment gains, private jobs grew by a mere 55,000 or 1.4 percent. Using only the non-education, non- healthcare jobs, economic spending per net new job in Pennsylvania was $18,500.

Moreover, it must be borne in mind that much of the job growth that did occur was driven by national economic factors, monetary policy, federal tax cuts, etc. Therefore, it is totally inappropriate to ascribe the new jobs to state development spending. However, comparing state economic development spending does provide an interesting and useful way to evaluate the efficacy of the programs.

How can Pennsylvania join the faster growing states without wasting hundreds of millions of dollars every year on so-called development programs? Simple: The Commonwealth needs to create an unambiguously business-friendly environment that will assist existing firms to grow, encourage new firm creation and attract companies to come to the state without having to lavish subsidies on them. A quick and familiar list: enact Right-to-Work legislation—the top seven fastest private sector job growth states were all Right-to-Work states—and cut business taxes. Send a signal that Pennsylvania genuinely wants a vibrant, market driven, private business sector and appreciates the boon to the general welfare that a strong business sector brings. Not the phony, politically popular, pro-business environment of subsidies, backroom deals, winner picking and cronyism.

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Frank Gamrat, Ph.D., is Senior Research Associate and Sarah Titus is a Research Assistant with the Allegheny Institute.