Corporate Welfare




Corporate Welfare: The New Budget Hostage

JUNE 10, 2016

Gov. Wolf is withholding approval of corporate welfare projects until lawmakers agree to advance his legislative agenda.

According to a Pittsburgh Tribune-Review story, administration aides told Senate Republicans no economic development grants would be approved until lawmakers present Gov. Wolf with an acceptable budget.

The governor can offer this ultimatum because he must approve Redevelopment Assistance Capital Program (RACP) grants. RACP uses borrowed funds—with interest covered by taxpayers—to finance economic development projects.

The economic impact of RACP is questionable at best. Generally, states spending the most on economic development, AKA corporate welfare, see their economies grow at a slower rate than states spending the least.

Corporate welfare’s ineffectiveness is not the only strike against it. It also concentrates power in Harrisburg. The Tribune-Review story perfectly encapsulates why this is a problem. No one person should have the power to pressure legislators into voting for higher taxes by withholding approval of local projects. 

Pennsylvania must move away from a system that relies—at least in part—on politics to drive economic decision-making. Two pieces of legislation awaiting action in the Senate, HB 928 and HB 930, move Pennsylvania in the right direction. The bills impose debt and spending limits on RACP and Public Improvement Projects.

Reducing government debt and restraining its ability to grant corporate handouts is the moral and practical way to grow our economy.

posted by BOB DICK | 01:21 PM | Comments

Shell Cracker Plant Proves Taxes Matter to Job Creators

JUNE 8, 2016

Workers hit by the natural gas slump in western PA received some much needed good news this week. Shell announced they will proceed with building a multibillion dollar chemical "cracker" plant in Beaver County.

Shell probably wouldn’t have picked Pennsylvania without millions in tax incentives, but that isn't proof that corporate welfare works. Rather, it shows business climate and tax rates matter.

As expected, a slew of press releases from Gov. Wolf and other elected officials took credit for the expected jobs, but did you know Pennsylvania lost 17,000 jobs last month? Doubtless no politician is sending out news releases accepting the blame.

Truth is: The majority of Pennsylvania jobs are created by thousands of small businesses that don’t get tax breaks or government subsidies. These businesses continue to suffer under the one of the most most oppressive tax burdens in the nation.

Despite our 9.99 percent corporate income tax, (second highest in the nation) Pennsylvania added 55,000 jobs over the past 12 months, and that was a bad year.

So while we can celebrate that Shell will employ thousands of workers in 18 months, and hundreds of permanent workers, it doesn’t change the fact that Pennsylvania's high taxes to are driving away jobs.

In fact from 2005-2015, states spending the most on corporate welfare saw slower economic growth than states spending the least.

Our state would be better off ending corporate welfare subsidies and using those dollars to lower the tax burden on all businesses. If lawmakers eliminated more than $700 million in corporate welfare (identified here), the corporate income tax could be lowered to 7.2 percent.

Pennsylvania should concentrate on creating a positive business climate for all businesses, not a select few.

posted by NATHAN BENEFIELD, ELIZABETH STELLE | 04:10 PM | Comments

Erase Corporate Welfare from the Budget

JUNE 1, 2016

Pennsylvania’s tradition of concentrating economic power in the hands of a few has proven to be inadequate at best, and harmful at worst.

Corporate welfare spending makes this concentration of economic power possible. Our state has the dubious distinction of ranking 1st in the nation in handouts to privileged interests since 2007. It's no surprise that growth in jobs, income, and population have been anemic during this time. 

Supporters of corporate welfare, or government-led economic development, believe public officials can spend money more wisely than the people who earn it. But this couldn't be further from the truth. 

From 2005-2015, states spending the most on corporate welfare saw slower economic growth than states spending the least. This lack of a correlation between government subsidies and economic growth is indicative of their ineffectiveness. 

Failed corporate welfare programs impose real costs on working people. For instance, in 2014, the state doled out $200,000 to a Kraft Heinz plant in Lehigh Valley, but less than two years after receiving the grant, the plant announced it was closing. Now the Department of Community and Economic Development (DCED) is asking for a reimbursement from Kraft Heinz.

If DCED weren't in the grant making business to begin with, taxpayers would not be on the hook for “clawing back” ill-advised grants. And the time and money devoted to the grant process would not be wasted but rather used to create viable economic opportunities in the private sector.

Sure, private sector actors leading the way on economic development won’t always succeed. However, they're more likely to make better investment decisions than government actors, who are too often influenced by politics.

Put simply, entrepreneurs are best equipped to make rational economic decisions. This is why the private sector is the true engine of job growth. And it's why CF has suggested eliminating the more than $790 million in government grants, loans, and tax credits.

Table 1. Corporate Welfare Grant & Loan Programs 2015-16  Budget (Thousands)
General Fund
Agriculural Excellence $1,100
Agricultural Research $1,587
Agricultural Promotion, Education and Exports $250
Alternative Fuels Funding $7,091
Ben Franklin Tech Development Authority Transfer $14,500
City Revitalization and Improvement Fund $8,000
Commonwealth Financing Authority Transfer $88,812
Council on the Arts $892
Food Marketing Research $494
Grants to the Arts $9,590
Hardwoods Research and Promotion $350
Industry Partnerships $1,813
Infrastructure and Facilities Improvement Grants $19,000
Keystone Communities $6,350
Life Sciences Greenhouses $3,000
Livestock Show $177
Machinery and Equipment Loan Fund $45,568
Marketing to Attract Business $2,005
Marketing to Attract Tourists $7,014
Municipalities Financial Recovery Revolving Fund Transfer $3,000
Neighborhood Improvement Zone Fund $39,401
New Choices/New Options $500
Open Dairy Show $177
Partnerships for Regional Economic Performance $11,880
Pennsylvania First $20,000
Pennsylvania Race Horse Development Fund $250,563
Tourism-Accredited Zoos $550
Transfer to the Nutrient Management Fund $2,714
World Trade PA $5,829
Youth Shows $140
Total $552,347
Tax Credits
Film Tax Credit $60,000
Job Creation Tax Credit $10,100
Research and Development Tax Credit $55,000
Keystone Opportunity Zone $79,300
Keystone Innovation Zone $25,000
Resource Enhancement and Protection Tax Credit  $10,000
Alternative Energy Production Tax Credit $2,000
Total $241,400
Total $793,747

The savings realized by eliminating these programs could be used to lower tax rates across the board, help bridge the budget gap, or a combination of the two. Taking economic power out of Harrisburg and putting it back into Pennsylvania's communities is what true economic justice looks like. 

posted by BOB DICK | 11:00 AM | Comments

Pennsylvania Is Losing Ground

MAY 25, 2016

Pennsylvania’s economic performance wasn’t always subpar. In the first half of the twentieth century, the commonwealth’s personal income per capita exceeded the national average. It then descended into mediocrity. While Pennsylvania slid down the ranks, other states saw their incomes rise.

The graph above comes from Pennsylvania Illustrated: A Visual Guide to Taxes and the Economy. The guide contains a collection of interesting facts and figures, including the illustration below, which explains why Pennsylvania has been losing ground to its peer states:

The state’s poor tax climate has been choking off robust economic growth for decades. At a time when other states are implementing pro-growth reforms, Pennsylvania remains stuck in neutral. Though, if Gov. Wolf has his way, he will exacerbate the tax burden on working people. This is the last thing Pennsylvanians need.

Higher taxes and excessive government spending are not the solution. They’re the problem. If policymakers want to improve the lives of the people they represent, embracing lower taxes and restraining government spending is essential.

We have a great opportunity to make Pennsylvania the hub of the Northeast. The states on our borders are neither taxpayer nor business friendly, meaning our productive neighbors looking for a better place to live and work could move to Pennsylvania. But they need a reason to do so. Right now, there are too many reasons to leave.

posted by BOB DICK | 00:11 PM | Comments

Wolf's False Choice

MARCH 31, 2016

If lawmakers don’t raise taxes, Pennsylvanians should brace for drastic cuts to education and human services. This myth is promoted endlessly by the Wolf Administration to justify taking more out of the pockets of working people.

The administration offers this false choice in the context of the state’s projected budget deficit, which admittedly has credit rating agencies worried. The agencies warnings shouldn't be ignored, but they also shouldn't serve as cover for increasing Pennsylvanians’ already high tax burden.

As Majority Leader Jake Corman pointed out last week, there are two ways to close a budget deficit: raise revenue or cut spending. The latter is preferable and possible without dramatically reducing funding for education and human services.

That’s not to say reforming the education and welfare systems is unnecessary. We need to rescue students from violent and failing schools. We need to fix a system that traps people in a cycle of poverty. However, these are not the only areas where reforms can help improve lives and save taxpayers' money. 

Other areas ripe for reform include economic development or corporate welfare programs. CF has called for eliminating the almost $700 million in corporate welfare found in the operating budget. If a recent Independent Fiscal Office (IFO) report is any indication, the full cost of special subsidies is probably much higher.

The IFO's report on corporate welfare, or what they call economic development incentives, identified a number of programs not included in our corporate welfare tally. Here are just a few:

  • Infrastructure Technology Assistance Program (Cost: $1,750,000) – Provides grants to Lehigh University to help the state and companies increase operating efficiency.
  • Alternative Fuels Funding (Cost: $9,231,000) – Awards grants to cover the costs of installing, upgrading, retrofitting, or purchasing alternative fuel equipment, facilities or vehicles.
  • Life Sciences Greenhouses (Cost: $3,000,000) – Funds biotech and medical device startups and helps connect them with investors and experts.

Should taxpayers continue to fund these programs when the state’s facing serious fiscal challenges? The governor believes so. And he is willing to break a major campaign promise to not only sustain corporate welfare spending but increase it.

If Gov. Wolf's policies prevail, Pennsylvania will continue to face a structural deficit and Pennsylvania's long history of sub par economic growth will be the norm.

Fortunately, the future isn't set in stone. We can change course and embrace an idea proven to raise the standard of living for billions of people. But it takes an act of will. Do we have it? 

posted by BOB DICK | 01:01 PM | Comments

Taxpayers on the Hook for Wolf's Spending Binge

MARCH 15, 2016

Despite the lack of a completed state budget, and no support for his unpopular tax hike proposals, Gov. Wolf continues to rack up additional costs for taxpayers

Wolf's executive order would increase payroll and benefit expenses by $1.5 million in fiscal year 2016-17 for the 450 employees affected, according to estimates provided in Wolf administration fiscal note. The majority of those employees are seasonal workers like tax season clerk and temporary clerical pool workers.

It would also apply to contractors under new contracts with the state beginning in July which the fiscal note estimates would cost about $2.6 million annually.

It's the latter provision that concerns some observers, including state Rep. Seth Grove, R-Dover Township. He said what is actually written into the order does not match the narrow focus that Wolf spoke about in his news conference. As written, he said, it could apply to any contractor working directly with the state.

"It shows the governor or anyone who drafts this stuff is not on the same page," he said. "Their political talking points don't match up with the reality."

That's $4.1 million in added costs to taxpayers—more, if Republicans are correct about Wolf's poorly worded executive order—with the stroke of the pen.

Ironically, while Wolf recognizes the additional cost of state worker wage increases—paid for with higher taxes—he refuses to admit the additional costs created for private businesses by a minimum wage mandate. Such costs include higher prices, fewer business owners, reduced job hours and layoffs. The Independent Fiscal Offices estimates 31,000 jobs would be lost with a statewide minimum wage increase. 

This executive order is not the only way Wolf is driving up taxpayer costs. His administration recently spent $250,000 to come up with a new state slogan and will spend another $500,000 to promote that slogan. Somehow, this is supposed to attract tourists to come visit Pennsylvania.

Government shouldn't be in the business of marketing to tourists—and it doesn't even do a good job with the millions spent every year in that effort. That money, along with the nearly $700 million in corporate welfare subsidies, should be redirected to priorities in the state budget—or left in the hands of taxpayers.

Yet, instead of scrubbing the budget of corporate welfare, Gov. Wolf continues to demand higher taxes on working families, and promises cuts to education and human services if he doesn't get his demands.

Maybe he should stop throwing around millions in taxpayer dollars to score political points.

posted by NATHAN BENEFIELD | 11:26 AM | Comments

Breaking Promises to Fund Broken Programs

MARCH 11, 2016

During his gubernatorial campaign, Tom Wolf promised to reduce taxes on working people. As a matter of fact, his campaign attacked Gov. Corbett for raising taxes. An October 2014 campaign blog post claimed, “Unlike Governor Corbett, Tom Wolf will fight to reduce taxes on working, middle-class families.”

Now, Gov. Wolf is pursuing the same policies his campaign denounced fewer than two years ago. Since taking office, the governor has proposed raising taxes on low- and middle-income people six times. His latest proposal includes a tax hike of about $850 per family of four.

Gov. Wolf claims tax increases are necessary to fix Pennsylvania’s $2 billion budget deficit. This is false for two reasons. First, Secretary of Revenue Randy Albright admitted the tax hikes will not erase the deficit. Second, reasonable alternatives exist to fix the fiscal follies of the past few decades. We don’t need to balance the state’s budget on the backs of taxpayers.

Beyond higher taxes, the governor wants to increase spending by 10 percent—the largest one-year growth in 25 years. This includes more than $742 million in corporate welfare—a $58 million increase above current spending levels.

Table 1. Corporate Welfare Programs in Operating Budget (in thousands) 

2015-16 Budget (projected)

2016-17 Budget (projected)

Spending Programs

Agricultural Excellence

$1,100

$0

Agricultural Research

$1,587

$0

Agricultural Promotion, Education and Exports

$250

$0

Ben Franklin Tech Development Authority Transfer

$14,500

$14,500

Commonwealth Financing Authority Transfer

$88,812

$95,614

Council on the Arts

$892

$903

Food Marketing Research

$494

$494

Grants to the Arts

$9,590

$10,590

Hardwoods Research and Promotion

$350

$0

Industry Partnerships

$1,813

$11,613

Infrastructure and Facilities Improvement Grants

$19,000

$30,000

Keystone Communities

$6,350

$15,000

Livestock Show

$177

$0

Marketing to Attract Business

$2,005

$3,014

Marketing to Attract Tourists

$7,014

$4,291

Municipalities Financial Recovery Revolving Fund Transfer

$3,000

$4,000

New Choices/New Options

$500

$0

Open Dairy Show

$177

$0

Partnerships for Regional Economic Performance

$11,880

$9,880

Pennsylvania First

$20,000

$45,000

Pennsylvania Race Horse Development Fund

$253,471

$250,073

Tourism-Accredited Zoos

$550

$0

Transfer to the Nutrient Management Fund

$2,714

$2,714

Office of International Business Development (World Trade PA)

$5,829

$6,942

Youth Shows

$140

$140

Total

$452,195

$504,768

Tax Credits

Film Tax Credit

$60,000

$60,000

Job Creation Tax Credit

$10,100

$10,100

Research and Development Tax Credit

$55,000

$55,000

Keystone Opportunity Zone

$70,300

$78,000

Keystone Innovation Zone

$25,000

$25,000

Resource Enhancement and Protection Tax Credit

$10,000

$10,000

Alternative Energy Production Tax Credit

$2,000

$0

Total

$232,400

$238,100

Total

$684,595  

$742,868

Campaign promises aside, apparently Gov. Wolf believes taxing low- and middle-income earners to fund corporate welfare will improve the state's economy. Yet, concentrating more economic power in the hands of Harrisburg has produced disappointing results.

The alternative—removing government barriers to growth—has a record of creating and sustaining economies that produce better job growth and higher wages for working people.

Ultimately, we will solve our economic challenges not by giving more power to Harrisburg politicians but by freeing entrepreneurs to serve the needs of Pennsylvania's communities. 

posted by BOB DICK | 04:39 PM | Comments

Should Economic Power Reside in Harrisburg?

MARCH 4, 2016

Pennsylvania leads the nation…in corporate welfare. Since 2007, the commonwealth doled out more than $5.7 billion in economic subsidies to private organizations, which is just one of the many startling findings in our latest policy brief, The Costs of Corporate Welfare.

What has this nearly $6 billion brought? A subpar economy. From 2005-2015, Pennsylvania ranked 35th in job growth, 31st in personal income growth, and 38th in population growth. Simply put, providing taxpayer subsidies to private organizations in the name of economic development has failed to jolt the state’s economy out of its decades-long slump.

Instead of empowering workers and entrepreneurs to grow the economy, corporate welfare has empowered government bureaucrats to pick winners and losers. This concentration of economic power comes at the expense of working people who must subsidize the financial privileges conferred to favored interests. Matt Mitchell, a senior research fellow at the Mercatus Center, explains why such privileges are harmful:

When governments dispense privileges, smart, hardworking, and creative people are encouraged to spend their time devising new ways to obtain favors instead of new ways to create value for customers. Privileges depress long-run economic growth and threaten short-run macroeconomic stability.

A system that rewards businesses based on their capacity to apply for government funding rather than their ability to meet the needs of consumers is unfair to taxpayers and entrepreneurs who compete in the market. Why? Because such a system diverts resources from private investment, which can improve the lives of everyone, to lobbying for government privileges, which favors the politically-savvy and well-connected.

The alternative to this type of government favoritism is economic freedom—a concept predicated on the notion that people should be free to work, create, and innovate without being handcuffed by unreasonable government restrictions. One component of economic freedom is a low tax burden, which Pennsylvania does not enjoy.

Improving our tax burden would transfer money and power back to Pennsylvania’s communities, creating an abundance of economic opportunities. Lawmakers can facilitate this transition by eliminating corporate welfare from the budget, using the savings to lower taxes on all businesses and individuals.

This reform would end the practice of showering subsidies on moneyed interests like racehorse owners, film producers, and large corporations. Instead, the money would stay with the people who put in the effort to earn it. 

You can read more about the costs of corporate welfare here

posted by BOB DICK | 11:35 AM | Comments

Who is Wolf Giving Your Tax Dollars To?

FEBRUARY 5, 2016

Next week Gov. Tom Wolf will unveil a “new” budget, with all expectations that it will be just like his first proposal—calling for new taxes on working families. In fact, you can participate in a new contest and guess just how high Wolf’s proposed taxes will be.

But while he’s claiming to need more of your money, Wolf's been busy giving away handouts in the form of corporate welfare.

Politicians enjoy issuing press releases when they use taxpayers money to fund projects. We refer to this as “press release economics.” In reality, these corporate welfare programs undermine economic growth—driving up taxes on everyone else, and hindering real jobs creation.

The real question is this: Do we need to ask working families to fork over more of their income while we are doling out hundreds of millions of dollars in corporate welfare?

posted by NATHAN BENEFIELD | 03:48 PM | Comments

Fiscal Code Packed with Earmarks

JANUARY 12, 2016

Pennsylvania's fiscal code is intended to provide lawmakers with instructions for spending funds appropriated in the state budget. But it is also ground-zero for a host of earmarks that funnel limited resources to the priorities of well-connected lobbyists. 

CF has identified over $40 million in dozens of earmarks that may or may not serve the best interests of Pennsylvania taxpayers. Projects stealthily embedded in the fiscal code are not subject to a competitive grant process. Take a look at the earmarks listed below: 

  Earmarks1327 Final

 

The fiscal code (HB 1327) passed the House on Tuesday afternoon. It must be approved by the Senate before reaching Gov. Tom Wolf. 

posted by JAMES PAUL | 05:10 PM | Comments

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