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)|
|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|
|Infrastructure and Facilities Improvement Grants||$19,000|
|Life Sciences Greenhouses||$3,000|
|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 Race Horse Development Fund||$250,563|
|Transfer to the Nutrient Management Fund||$2,714|
|World Trade PA||$5,829|
|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|
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.
RELATED : TAXES & SPENDING, CORPORATE WELFARE
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.
RELATED : TAXES & SPENDING, CORPORATE WELFARE, SPENDING LIMITS, TAXATION
Today the Taxpayers' Caucus, lead by state Rep. Seth Grove (R-Dover) and Sen. Scott Wagner (R-York), released a comprehensive report identifying over $3 billion in potential savings to Pennsylvania taxpayers. The report is notable not only for the size and scope of identified savings, but for focusing on ways to balance the budget without tax increases.
The report identifies savings from a variety of sources.
Some savings are based on the Governor's efforts, like $158.7 million claimed by the GO-Time office.
Some savings come from structural reforms, like pension reform and requiring state employees to contribute to their health care at the rate of their private sector counterparts.
And some savings come from reducing the size of government, such as the privatization of liquor stores and limiting borrowing for RACP and other capital projects.
Far more than one-time sources of revenue, this report demonstrates that tax hikes are not the only way to a balance the budget. In fact, the report recognizes tax hikes are counterproductive because they dampen the economic growth necessary to boost revenues.
However, if the commonwealth were to increase tax rates; the state would begin to cannibalize the very economic growth needed to close the cyclical deficit. In order to balance the budget . . . the Taxpayer’s Caucus has suggested several proposals to strengthen our economy . . .
The caucus and it's leaders should be commended. The Taxpayers' Framework for Pennsylvania is a breath of fresh air in a state with a massive budget on autopilot and a long history of tax hikes.
Why would one of Pennsylvania’s largest natural gas producers suddenly switch from selling all non-Pennsylvania assets to purchasing a $3.3 billion Houston company that operates exclusively in Louisiana?
Range Resources, which in 2004 drilled the first commercial horizontal well in Pennsylvania’s Marcellus Shale, plans to purchase Memorial Resource Development partly because of regulatory hurdles in Pennsylvania and other Northeastern states.
Energy companies are trying to cope with constant calls for higher taxes, new methane emissions standards, a dramatic overhaul of drilling regulations, and pipeline delays. At the same time, the region is experiencing a severe and prolonged drop in natural gas prices.
The Dallas Morning News reports:
“The U.S. gas market is Balkanized," said Subash Chandra, an analyst with Guggenheim Securities. "And the Appalachian Basin is becoming increasingly isolated."
Pipeline projects in Pennsylvania and New England running into regulatory issues over the past year include Northeast Energy Direct, Constitution, Rover and PennEast. In some cases, the delay could be a matter of months; for others, longer.
Keeping the natural gas from getting to market in the Northeast makes retail prices bounce around more and can contribute to shortages in an unusually cold winter. And it pushes some producers to the sidelines for a while.
“A couple of the producers with the best cost of production in North America are sitting on their hands for a couple of years," Miller said.
In Pennsylvania, the industry has shed thousands of jobs, and the number of drilling rigs operating in the state is at 2007 (pre-boom) levels. The paper continues:
But in the meantime, the Range purchase of Memorial means Range will have options. It can push development in Louisiana while waiting for more congenial conditions in Pennsylvania.
Reporting on the transaction, Forbes says, “[P]ipeline bottlenecks in the northeast have gotten so bad that Range has been realizing sale prices 66% below market.”
Before punishing the natural gas industry with a severance tax or regulations of questionable value, Pennsylvania politicians should consider congeniality—or common sense.
Unfortunately, a lack of it seems already to have driven one company to invest $3 billion in Louisiana instead of in Pennsylvania.
RELATED : ENERGY & ENVIRONMENT, ENERGY POLICY, NATURAL GAS, JOBS & ECONOMY, ECONOMY
CF has written at length about the lack of collective bargaining transparency in Pennsylvania’s school districts. Generally, school boards refuse to reveal the details of a collective bargaining agreement until it is ratified. But not all boards operate in this manner.
The Pittsburgh School Board—in a joint decision with the Pittsburgh Federation of Teachers (PFT)—published the details of its agreement with the PFT before voting to approve the deal. This effort to make government more transparent is commendable.
Conversely, the Tribune-Review reports the nearby Highlands School Board has decided to withhold details about any bargaining agreement until both the board and the teachers union can agree to a deal. Contract negotiations in the suburban school district have been tense, with district employees striking for four days back in April.
This comparison isn't meant to portray the Pittsburgh School District’s transparency efforts as perfect. While the school district provided some of the details about the new contract, it did not include a statement about the additional costs. A contract’s price tag is an essential piece of information for taxpayers who ultimately foot the bill. Still, this measured level of transparency is a step closer to the accountability Pennsylvanians deserve.
Senator Pat Stefano’s legislation, Senate Bill 645, would go a step further. It requires public employers to publicize the costs of their contracts with government unions, in addition to a statement of terms, before a ratification vote.
The General Assembly and Gov. Wolf have already made state government more transparent with the passage of Senate Bill 644. They now have an opportunity to expand good government practices by embracing transparency at the state and local level.
RELATED : ACCOUNTABLE GOVERNMENT, TRANSPARENCY
“I want to put more education dollars in our classrooms, not our school buses,” said Auditor General Eugene DePasquale, while releasing an analysis of 19 school districts that exceeded their state busing allowance.
According to the report, 95% of overspending districts do not make use of competitive bidding. DePasquale says it’s time to make contract bidding for transportation services mandatory:
Some school districts simply don’t believe what the audits showed. In fact, six of the 19 districts indicate either in response to their audit or in their action, that would be Scranton, that they have no intention of seeking bids for transportation services. Even though the audits showed, and they agreed, that they were paying too much. . . they offer some type of justification as to why they don’t seek competitive bids. It will range from well there isn’t any competition out there, it’s not a requirement. And the list goes on and on and on. And I just view them as lame excuse, after lame excuse, after lame excuse.
DePasquale indicates school districts could save nearly $55 million without raising taxes or cutting programs. Making use of competitive bidding to save public funds should be standard operating procedure. This is a critical step school boards must take to ensure education dollars are spent in the classroom, where they belong.
RELATED : EDUCATION, EDUCATION SPENDING, PRIVATIZATION
Government spending has gradually risen for decades, until it suddenly exploded during Gov. Ed Rendell’s tenure. After the profligacy of the Rendell years, spending growth stabilized, but it’s still on an unsustainable upward trend.
To help control the growth of spending, lawmakers can adopt annual spending caps consistent with the principles of the Taxpayer Protection Act (TPA). The TPA limits spending increases to inflation plus population growth to achieve four goals: limiting the future growth of state government spending, forcing state government to prioritize spending, helping to balance the budget during economic recessions, and providing tax relief for working families.
If lawmakers limited spending increases to the TPA index over the last 26 years, they would have saved taxpayers more than $3.58 billion or $1,119 per family of four.
The most recent budget came in under the TPA limit after adjusting spending to reflect transfers and payment delays. This represents an improvement over prior proposals, but the underlying causes of rising state spending remain.
|2015-16 Budget vs TPA (Amounts in Millions)|
|Inflation + Population Growth (TPA Index)||1.71%|
|Amount Over TPA||$486|
|Amount Over TPA + Adjusted Baseline||($239)|
The Independent Fiscal Office estimates the Department of Human Services (DHS) alone will grow its budget by $835 million in 2016-17. In contrast, the TPA index would allow for a $306 million spending increase. It's clear state spending is on a dangerous trajectory when just one department's budget threatens to push spending over the TPA limit.
The surge in spending isn’t limited to DHS. Pension costs are inflating agency budgets across state government. If we fail to enact structural spending reforms, Pennsylvanians can expect to see higher taxes and slower economic growth for years to come.
To stave off a debilitating fiscal crisis, CF has proposed a variety of reforms to stem the tide of government spending. Here are just five:
1. Eliminate corporate welfare.
2. Improve the state’s welfare system.
3. Reduce public employee compensation inequality.
4. Reform pensions by moving new employees to a defined contribution plan.
5. Eliminate costly state mandates like prevailing wage.
These ideas would save hundreds of millions of dollars and slow spending to prevent harmful tax increases on working people.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, TAXATION
Today, the House State Government Committee passed a pension reform bill featuring an unproven “stacked hybrid” plan. This proposal falls short of the pension reform taxpayers needs to protect them from political manipulation and investment risk.
In the stacked hybrid system (for new hires only), the plan retains the current defined benefit plan on the first $50,000 of salary. Salary earned above $50,000 (or after 25 years) applies to a defined contribution plan. That is, the maximum defined benefit pension is $25,000.
The stacked hybrid is an unproven model; no state has ever implemented this type of plan. In contrast, ten states have side-by-side hybrid plans, as has the Federal Employees Retirement System.
All of the problems with defined benefit pensions—increasing benefits, deferring employer payments, and underperforming the assumed 7.5 percent rate of return—remain a risk to taxpayers. Additionally, the $50,000 salary cap could easily be raised (as Gov. Wolf has proposed) under public sector unions pressure for a Cost-of-Living adjustment, which would further minimize the defined contribution component.
This plan falls well short of the goals of a defined contribution plan. It represents a significant step backwards from the responsible pension reform plan passed by the legislature last year, and even a step back from the hybrid proposal considered late last year.
Moreover, this model provides poor plan design for workers. Public employees should be contributing more toward a defined contribution plan at the front end of their career to give their investments time to grow. Under a stacked hybrid, workers invest more in a defined contribution plan as they near retirement.
Research shows defined contribution plans provide stable and substantial retirements when workers invest over their career.
Lawmakers should continue to promote a defined contribution plan for new hires. This is the only way to remove politics from pensions.
RELATED : TAXES & SPENDING, PUBLIC EMPLOYEE PENSIONS AND BENEFITS
Last year the state financed a $1 million purse (prize money) for a multi-billionaire whose horse won the Pennsylvania Derby. Seriously. The billionaire also happens to be the vice president and prime minister of the United Arab Emirates.
Purses awarded to wealthy out-of-state horse owners are not unusual. According to a 2015 Tribune-Review report, top owners living outside Pennsylvania won a majority of the prize money in harness and thoroughbred racing from 2013 through 2015.
The state raises the money for purses—approximately $250 million—by taxing slot machines. Some of the revenue is also used to fund health and pension benefits for horsemen and breeding operations.
The subsidies are supposed to create a thriving horse racing industry in the commonwealth. But a report from the Pennsylvania Gaming Control Board indicate this form of corporate welfare isn't working:
The racing industry in Pennsylvania continues to struggle attracting a new fan base as evidenced by a reduction in wagering on the racing product. $722 million was wagered on live races held in Pennsylvania in 2015 representing a decrease of 6% when compared to 2014.
As wagers have declined, so has total attendance, which has dropped by more than 22,000 people since 2011.
In addition to funding purses, the state encourages breeding by offering awards to Pennsylvania breeders who finish among the top 3 in state races. Last year, Pennsylvania-based breeders earned the fewest awards since 2011. Although, according to the Gaming Control Board report, more stringent residency requirements triggered the sharp decline during 2015.
Nevertheless, the horse racing industry’s struggles are cause for concern, but efforts to reverse the downward trends with state subsidies are neither fair nor effective.
It's difficult to justify raising taxes on working people when Pennsylvania simultaneously hands out millions to out-of-state wealthy horse owners, and hundreds of millions of dollars in other corporate welfare.
Teacher Linda Misja is a religious objector to unionism, and as such, can donate the equivalent of her fair share fee--otherwise owed to the union--to charity. But four years ago, the Pennsylvania State Education Association rejected Linda's charity of choice and instead has been holding her money in a union-controlled escrow account.
Today, the House State Government Committee voted in favor of HB 267 to protect religious objectors, like Linda, by eliminating a legal loophole that lets union leaders roadblock employees’ charitable contributions.
Under current law, public employees who object to union membership on religious grounds must donate the equivalent of their “fair share” fee, otherwise owed the union, to a non-religious charity they and the union agree upon. The PSEA, however, has repeatedly rejected teachers’ charities of choice simply because they don’t support the union’s political ideology.
Yet, a list of charities pre-approved by the union spent $27 million on political activity, according to the Fairness Center, which has filed lawsuits against the PSEA on behalf of Linda and two other Pennsylvania teachers.
Unfortunately, the law gives no clear instructions in the event that a union refuses to accept the employee’s charity of choice. If a dispute ensues, the money may be placed in a union-controlled escrow account indefinitely.
HB 267, sponsored by Rep. John Lawrence, would protect the right of religious objectors to give their money to a recognized 501(c)3 of their choosing--even if it doesn't align with the ideology of the PSEA.
CF President and CEO Matt Brouillette explains the treatment of religious objectors is just one more instance of teacher unions putting their interest before the interests of teachers:
Government unions already enjoy the perk of using taxpayer funded payroll systems to collect their union dues, which they then use for political purposes. And unions already trap their members, letting them leave the union only during short windows of time. As if this weren’t enough, union leaders also want to control nonmembers’ paychecks.
Today’s vote is an important first step in protecting the constitutional rights of Pennsylvania’s public employees.
RELATED : EDUCATION, TEACHER UNIONS, UNIONS & LABOR POLICY, UNION DUES AND POLITICS
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