Corporate Welfare




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

A Governor's Resolution List for 2016

JANUARY 5, 2016

Last year, Gov. Tom Wolf promised he would take state government in a "different direction" and grow the middle class. He pledged to do this by making Pennsylvania a magnet for private sector entrepreneurs without giving massive tax breaks to special interests.

Throughout 2015, the governor has strayed from those promises by vetoing a budget that held the line on taxes, privatized liquor and made an effort to protect the state's credit ratings through pension reform.

Of course, a new year provides new opportunities…or should we say a fresh start. So with the new year in mind, here are five resolutions the governor can work toward to deliver on his promises to Pennsylvanians:

Resolution #1: Return to the campaign promise not to raise taxes on working people.

As a candidate, Tom Wolf promised to protect low and middle-income people from a tax increase, but in 2015, he broke that promise. Fortunately, the governor has an opportunity to stand on the side of an overtaxed working class, and prevent policies that will expedite the exodus of Pennsylvanians.

Resolution #2: Level the playing field and cut spending on corporate welfare programs. 

Unbelievably, government spending has increased in 44 of the last 45 budget years. Cutting down or eliminating nearly $700 million in corporate welfare is a great way to save tax dollars and level the playing field for all Pennsylvanians.

Resolution #3: Deliver property tax relief by signing real pension reform.

Over the past year, the governor highlighted the onerous property tax system in Pennsylvania and proposed a tax shift to help, but such a shift does not solve the real problem: school budgets squeezed by pension costs.

To provide relief to homeowners, we need comprehensive pension reform that stops adding new debt and provides a method to pay down existing debt. That means converting to a 401k-type system and finding additional revenue (either through spending cuts or non-tax revenue sources) to pay for the more than $53 billion in benefits promised to public employees.

Resolution #4: Make government work smarter by getting out of the booze business.

Selling wine and liquor is not a function of state government. Government booze control leads to higher prices, fewer choices, less convenience, an inefficient bureaucracy. Selling the state stores would be a windfall for both taxpayers and consumers alike.

Resolution #5: Create "government that works" by increasing transparency and ensuring taxpayer resources are not used for politics.

Government should not grant any private organization unfair political privileges. This includes using taxpayer resources for the collection of political money. A true “transparency governor” will end these favors and restore accountability to taxpayers.

To strengthen our state and give Pennsylvania a real fresh start, these are five resolutions worth keeping.

posted by BOB DICK | 03:24 PM | Comments

With Details, Wolf Budget "Framework" Looks Even Worse

DECEMBER 7, 2015

Now that the Pennsylvania Senate has begun passing legislation, taxpayers can finally see what’s in Gov. Wolf’s “framework” for a new budget. Based on the passage of SB 1073 and SB 1082 today in the Senate, here are five things we know about the budget framework:

1. Excessive Spending Growth. The $30.788 billion budget represents spending growth of 5.4 percent over last year’s budget. Even including items shifted off budget last year, this amounts to an increase of $500 million more than inflation and population growth.

2. WAMs are back. The budget passed by the Senate includes a $103 million increase (51 percent) in Community and Economic Development spending. This includes several line-items identified as WAMs and eliminated in previous budgets.

WAMs (or “walking around money”) are slush funds used for special projects, usually controlled by legislative leaders. In the past, they’ve been used to buy votes and have been the abused with rampant corruption.

3. Problematic pension reform. The revised pension bill included a side-by-side hybrid, with a smaller defined benefit pension and a defined contribution component. This reform is weaker than SB 1 (vetoed by the governor) and while a step in the right direction, doesn’t get the politics out of pensions.

Here’s the positive: For current employees, the legislation would alter the calculations for “lump sum withdrawals” (the money employees can take in one single payment when they retire, with a reduced pension) and the calculation of “average final salary.”

On the negative side, the bill underfunds pensions. The proposal reduces collared contribution rates, which further underfunds the pension plan and adds an estimated $500 million to its unfunded liability.

Moreover, the bill suspends the provision that all pension bills have an actuarial note attached before being voted on. Actuarial notes summarize any changes that would occur and estimate the cost to taxpayers. This is a stunning lack of transparency.

4. No privatization in “liquor privatization.” The Senate liquor plan—which has been reported on but not yet passed—strips out many of the components of “privatization.” For starters, it would retain the government monopoly over the wholesale side—every retailer would still have to buy wine and spirits from the PLCB. Instead, there would be a “study” to recommend whether the state should privatize wholesale liquor sales.

This monopoly gives a few bureaucrats power to determine what can be sold in Pennsylvania, maintains the conflict of interest whereby the state sells and controls alcohol, and has led to numerous cases of corruption and bribes.

Restaurants and bars would be able to sell wine (and only wine) to-go, while beer distributors would also be able to sell wine and spirits. There would be no new liquor licenses for grocery stores or other private retailers. State stores would remain open in perpetuity.

5. Higher Taxes. We know there will be higher taxes. We know this will include some broad-based tax increase to generate the $600-$700 million needed to pay for the spending.

We don’t know what taxes will go up. There is no agreement on a tax plan; that is, the Senate passed a budget without the revenues to pay for it.

It’s unclear if there is support in the Senate to pass a tax hike, and very clear signs there isn’t support in the House for a tax hike of this magnitude.

To see how your senator voted, here is the roll call for SB 1073 and SB 1082.

posted by NATHAN BENEFIELD | 05:48 PM | Comments

Corporate Welfare and Cronyism in Bethlehem

NOVEMBER 5, 2015

Election day was a quiet affair in most communities, but in Bethlehem residents used the a local election to protest the appearance of cronyism in connection with a new corporate welfare program.

The Morning Call reports:

Outside Bethlehem City Hall, a handful of city residents waged a write-in campaign for an unusual albeit illegal candidate — Martin Tower.

City residents Barbara and Steve Diamond and their friend, Sonja Walker, were encouraging voters to write in the name "Martin Tower" instead of voting for City Council President J. William Reynolds.

The residents are particularly upset with Reynolds because he took donations from the owners of Martin Tower and didn't recuse himself from the first reading of the ordinance to rezone the property.

What does Martin Tower (the former home of Bethlehem Steel) and rezoning have to do with corporate welfare? Bethlehem is one of two cities in Pennsylvania with a special City Revitalization & Improvement Zone (CRIZ). These zones are designed to attract development by letting developers keep state and local tax revenue generated inside the zone. Martin Tower sits in a CRIZ.

The Pennsylvania Independent reports that the owners of Martin Tower originally planned to build residential communities, but after the CRIZ was established they began lobbying city council to rezone the property for retail stores--potentially increasing the property's value by millions.

It’s impossible to prove the presence of political favoritism, or a quid pro quo, at play in Bethlehem.

But it’s certainly true the developers stand to gain handsomely from the rezoning, and it’s true they donated to three of the members of the City Council responsible for making that decision.

The CRIZ program is giving untold power to local council officials to determine the winner and losers in the local economy. This special treatment for a few comes at the expense of the many. Even those on a left, like Stephen Herzenberg, executive director of Keystone Research Center, agree corporate welfare is unfair. Herzenberg says:

Anytime you have a very targeted subsidy for a business or one industry, there are going to be issues with whether that targeted subsidy lends itself to political favoritism, or at least the appearance of political favoritism.

There's a simple solution: It's time to end these corrupting programs. If Pennsylvania eliminated the nearly $700 million of corporate welfare subsidies the corporate income tax could be lowered from 9.99 to 7.2 percent, attracting genuine business investement.  Now that's a fairer way to revitalize communities.

posted by ELIZABETH STELLE | 09:20 AM | Comments

Tackling our Structural Deficit Without Tax Hikes

OCTOBER 13, 2015

“I’m not taking anything off the table” said Gov. Wolf shortly after his tax plan was resoundingly defeated in the House last week.

The governor’s refusal to abandon his fixation on tax increases is curious considering the lack of support for his proposals in the General Assembly. He insists taking more out of the pockets of working people—even as his administration hands out corporate welfare to a favored company—is a necessary part of any plan to fix Pennsylvania’s structural budget deficit.

It’s not.

To understand why, it’s important to identify the driving factor behind the state’s structural deficit: projected spending increases. To be clear, the governor and legislature aren’t debating how to pay for current levels of spending. There’s enough revenue to cover those expenses. As we pointed out back in February, the debate is how to pay for new spending this year and in the future.

In the short-term, balancing the budget is rather straightforward. If lawmakers limited spending increases to $500 million this year, the budget would be balanced for 2015-16. However, slowing spending growth this year doesn’t fix the structural deficit or prevent future credit downgrades.

The governor has rightfully acknowledged our structural deficit, but his solutions don't fix the root cause of our budget woes, namely, the rapid growth in spending fueled by the state's pension obligations, which were cited by credit rating agencies as one of the reasons for the state's bond downgrades.

Acknowledging the pension problem, Republicans sent the governor a reform plan rated favorably by the credit agencies. He vetoed it. This appears to be a real blind spot for the governor. His efforts have been focused almost exclusively on the revenue side of the balance sheet, instead of looking for savings on the expenditure side.

Still, tax hikes are not inevitable, by cutting wasteful spending permanently and selling off government assets, lawmakers can avoid driving people away with higher taxes.

posted by BOB DICK | 03:05 PM | Comments

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